We might not have the flying cars, yet, but we’re sprinting to the future anyway. One company in particular, Apple, has constructed fabulous technological edifices that effortlessly extend our capabilities. Its contributions — inaugurating computer revolution after revolution, revitalizing digital media, bringing technology to bear on education’s problems — they seem miraculous. But a spate of recent news has delineated their actual human cost. These stories are a somber reminder that Apple’s seemingly ex nihilo tech goodies come to market because of its implacable business drive.
Apple’s products are to most eyes beautiful instantiations of the old design saw: form follows function. Before the iPhone’s debut in 2007, everything about mobile phones was different. Now, virtually all smartphones follow the iPhone’s form — and arguably fall short of its function. On the back of every iPhone, there is a brief line that tells its owner exactly why its so special: “Design by Apple in California Assembled in China”. Those eight words effectively describe a situation many consumers are unaware they’re participating in: the high level of Apple’s California-based design is what’s most obvious about the iPhone, but it wouldn’t exist without Apple’s fabled supply chain management and its manufacturing capabilities in China.
The New York Times recently published two reports critical of Apple’s labor practices in China. The first noted the vast scale of the California-based company’s operations in China: the iPhone alone requires more than 200,000 workers and 8,7000 engineers for its manufacture. On his passing away last year, Steve Jobs was widely lauded for his innovation; President Obama said, he “he transformed our lives, redefined entire industries”. But the exact dimensions and ramifications of Jobs’s transformation of personal computing is somewhat misunderstood. Just last week after the president’s Sate of the Union address, Indiana Governor Mitch Daniels said, “The late Steve Jobs, what a fitting name he had, created more of them than all those stimulus dollars the president borrowed and blew”. If it’s American jobs that are at issue, then Apple’s success has created 60,400, 59% of which are retail jobs — a pittance compared to its operations overseas. According to the Walter Isaacson biography, Steve Jobs was the primary force in creating Apple’s dominant retail position, but he was also the catalyst for closing Apple’s American factories and moving virtually all of Apple’s manufacturing jobs to China.
Apple has long had a reputation for making luxury goods, at best, and overpriced doodads at worst. The grounds for that reputation are gone. Steve Jobs had a dual-genius for intuitive design and having the steel will to realize it. His successor, Tim Cook, has a single-minded expertise in trimming fat and cutting down the bottom line. He’s an operations guru renowned for keeping costs low. Again, according to the Isaacson biography, Cook “forced” suppliers to cut their prices and move their operations next to Apple’s plants in China. Apple enjoys such a powerful and efficient manufacturing process that it’s now a price leader for laptops, and virtually the only profitable manufacturer of tablet PCs.
The story behind this manufacturing dominance came out in the second recent New York Times story about Apple. The story mentions that Apple’s own findings conclude that for the last four years, its factories regularly violate regulations against 60+ hour work weeks, underage labor, involuntary labor, and lethal work environments. Even work environments and conditions that meet regulations result in lethal events, as well as alleged suicides and a worker riot.
While it’s mentioned that such Chinese factories make up to 40% of the world’s consumer electronics for brands including Samsung, Dell, Hewlett-Packer, and Nintendo, Apple’s specific egregiousness cannot be overstated. At the most recent Consumer Electronics Show, so-called “ultrabooks” were the predominant product shown off by the leading PC makers. Virtually all of them aped Apple’s computer design, though few, if any, could match its price. A similar Consumer Electronics Show story played out last year with tablet PCs. In both categories, Apple’s offering is both better-made and less expensive than many (or all) of its rivals. One just has to look at the sales figures of Apple against other manufacturers to conclude that Apple is moving ahead briskly while other PC makers are treading water or going under.
The second story in the Times is perhaps the most galling news to shake out of this early 2012. Apple recently released its quarterly earnings report, which showed it had $46.3 billion in revenue and $13.06 billion in profits. For sake of comparison, Apple’s profits exceeded the revenue of its close rival, Google. To put it in further perspective, Apple’s most recent quarter was the second-most profitable quarter in history. The only quarter more profitable was had by ExxonMobil at the end of 2008, when oil was selling for almost $98 per barrel.
Apple’s single-minded focus on cutting costs while keeping quality high is thoroughly reported by the Times. It has a human cost, which is grizzly and appalling. But what’s perhaps worse is that Apple is doing everything by the book. It pleases its customers, creates value for its shareholders, grows the economy, and pushes the technological envelope. It’s business practices, when held up to scrutiny, are revolting. By using nothing other than inspiration and hard work, Apple has become arguably the most successful company in the world. It makes products that are beautiful, functional, and made under shameful conditions. The situation is perplexing. If it’s shameful for a consumer-friendly company to offer the most affordable products — and gain an impressive return for its efforts — then it might be time to rethink the parameters of what being a successful company means.
To be clear: other companies — many other companies — use inexpensive Chinese labor. The Chinese government has a year’s long laser obsession with increasing exports at any cost. The reasons Apple can be fairly singled out for its complicity in this (frankly unsustainable) economic situation are clear: the company does not prevaricate about its focus on margins, cutting costs, and maintaining a high profit margin on its products. It’s not accidental that Apple is now the largest maker of PCs in the world, and it’s not accidental that it’s the most profitable. Despite Tim Cook’s objections, the company is geared up — like all companies — to maximize profits and the evidence is evident. The template for Apple’s success is, again, right in Steve Jobs’s official biography.
Jobs went on to urge that a way be found to train more American engineers. Apple had 700,000 factory workers employed in China, he said, and that was because it needed 30,000 engineers on-site to support those workers. “You can’t find that many in America to hire,” he said. These factory engineers did not have to be PhDs or geniuses; they simply needed to have basic engineering skills for manufacturing. Tech schools, community colleges, or trade schools could train them. “If you could educate these engineers,” he said, “we could move more manufacturing plants here.”
Those jobs — educated, but not over-educated engineers — are never coming back to America. Not because the educational system is broken, but because it’s not feasible to support a family on the pay Apple offers for such work. Those jobs aren’t coming back because the entire electronics manufacturing supply chain is located across the Pacific. Apple is not a testament to free market economics. It dodges taxes, and partakes in artificially cheap labor. It’s true that economically, Apple’s profits don’t correlate to its overseas labor costs. It’s also true that legally, child rapists can move to Switzerland to avoid extradition. That doesn’t make it right.
Economic explanations mollify only so much. Is it from business acumen or avarice that Apple has $97 billion in cash reserves now? The question is moot. Apple is supposed to be the ‘Think Different’ company, the innovators. All they’ve managed to innovate on, though, is gross capitalism.