Mr. Daisey Goes to the Apple Factory – A Lesson in Comparative Economic Systems

One of the core lessons that I try to get across in my introductory Comparative Economic Systems classes is that economic systems are complex. Reality is much more complex than either simple theory or ideology.  Countries simply cannot be easily categorized with simple labels such as capitalist, socialist, or communist.  Those labels usually obscure more than they illuminate.

The labels are the work of ideologues and theorists.  Pure capitalism or socialism or communism exists only in the mathematical axioms of textbooks, the novels of Ayn Rand, or the writings of some political power grabber. Real economic systems are the creatures of politics, history, the available resources, culture, religion, and some economic theory.

Another lesson I try to impart is that while we might all want to improve economic conditions, how to do that effectively is also complex.  There are no silver bullets or universal magic solutions.  There are costs and benefits to any proposed policy or practice.  The key to progress is evaluating those costs and benefits wisely and making conscious decisions.

Last weekend I heard  a story on the This American Life radio.  It was called Mr. Daisey Goes to the Apple Factory.  It’s about a man who goes to visit the workers at Foxconn, the company that manufacturers Apple products in China.  It’s a long story, but it’s gripping and powerful.  It struck me that it also powerfully illustrates the two lessons I’m trying to teach in class:  economic systems aren’t that simple and making things better isn’t always obvious.

To listen for yourself, go to: This American Life #454 – Mr. Daisey and the Apple Factory. Here’s their summary:

Host Ira Glass speaks with an Apple device about its origin. (2 minutes)

Mike Daisey performs an excerpt that was adapted for radio from his one-man show “The Agony and the Ecstasy of Steve Jobs.” A lifelong Apple superfan, Daisey sees some photos online from the inside of a factory that makes iPhones, starts to wonder about the people working there, and flies to China to meet them. His show restarts a run at New York’s Public Theater later this month. (39 minutes)

What should we make of what Mike Daisey saw in China? Our staff did weeks of fact checking to corroborate Daisey’s findings. Ira talks with Ian Spaulding, founder and managing director of INFACT Global Partners, which goes into Chinese factories and helps them meet social responsibility standards set by Western companies (Apple’s Supplier Responsibility page is here), and with Nicholas Kristof, columnist for The New York Times who has reported in Asian factories. In the podcast and streaming versions of the program he also speaks with Debby Chan Sze Wan, a project manager at the advocacy group SACOM, Students and Scholars Against Corporate Misbehavior, based in Hong Kong. They’ve put out three reports investigating conditions at Foxconn (October 2010, May 2011, Sept 2011). Each report surveyed over 100 Foxconn workers, and they even had a researcher go undercover and take a job at the Shenzhen plant. (15 minutes)

 

 

Not in Your Micro Textbook: The High Price of iPads and iPhones

From Business Week online we get this story:

Why Apple and Others Are Nervous About Foxconn

The Chinese maker of iPhones and iPads has seen a rash of suicides—which may be a price of turning out low-price, high-quality goods

Terry Gou says he has no idea why so many of his employees are killing themselves. Gou is the founder and chairman of Foxconn, the world’s largest electronics contract manufacturer—the maker of iPhones and iPads for Apple (AAPL), computers for Dell (DELL), and countless other devices for well-known high-tech customers around the world. So far this year, 10 Foxconn workers have committed suicide. “From a logical, scientific standpoint, I don’t have a grasp on that,” Gou told reporters on May 27 at a press conference at the company’s vast production facility in Shenzhen, China. “No matter how you force me, I don’t know.”

Ask around among the more than 250,000 workers at the Shenzhen complex, and you’ll find explanations. One 21-year-old assembly-line worker, who asked that his name not be used, says conditions at Foxconn make his life seem meaningless. He says conversation on the production line is forbidden, bathroom breaks are kept to 10 minutes every two hours, and workers get yelled at frequently.

No one disputes that Taipei-based Foxconn, also known as Hon Hai, has cultivated a tough culture. The company generates more revenue in a year than Apple, Dell, or Microsoft (MSFT). It has grown in profitable obscurity to become an industry juggernaut for a simple reason, says Pamela Gordon of Technology Forecasters, a supply-chain research firm: “It’s the prices. Their prices are lower for high-quality work.” Foxconn won Apple’s order to make the iPhone after Gou directed the business units that make components to sell parts at zero profit, according to two people familiar with the chairman’s actions…

Obviously the “high price” I’m referring to is the senseless loss of human life through suicide of workers.  But it’s more than that, it’s also the loss of freedom and sense of meaning that Foxconn’s working conditions create for the surviving workers.  In standard micro textbooks, these costs are ignored.  The standard neoclassical treatment of both international trade theory and labor markets pretty much ignores such issues.

IMO, one of the failings of standard, neoclassical tales of international trade theory as told in most Principles of Econ textbooks is how they ignore the institutional arrangements of trade while assuming that all trade is transactional.  In other words, in the models everything comes down to a price for a particular good in a particular transaction.  If the buyer changes her mind or learns something about the source that makes the product less attractive, well, just stop buying from that vendor and shop somewhere else.  In the real world, that’s not so easy.  In the real world we have “switching costs”.  Like it or not, buyers and suppliers have long-term relationships that are very, very difficult to change or break.  Legally, Apple Computer and Foxconn may be seperate companies that buy/sell with each other and therefore have options.  But realistically and behaviorally, they are one integrated production enterprise. They’re married at the hip (to mix metaphors):

Gordon, the supply-chain expert, says it would be hard for a tech company to switch from a partner the size and sophistication of Foxconn. “Separating from a contract manufacturer can be painful,” she says, because of the complexity of reworking assembly lines and supply chains. A divorce would be especially difficult for Apple, given that it’s already behind in producing its hit iPad tablet computers.

Another failing is that by not describing the institutional arrangements (the real working conditions and employment relationships) in other countries, students are led to assume that life in other countries is much like in the U.S. only with less income.  Not so.  In the U.S., workers, even low-paid workers, are free to live their own lives:  they live where they want to (and can afford) and do what they want on their off-hours.  Yes, when you’re “on the clock” you pretty much have to dance to the boss’s tune, but not off-the-clock.  That’s why we have so many pop songs over the ages about “living for the weekend”.  But in China, that’s not how it works.  If you work for a major industrial firm, you’re pretty much just a serf on the company’s plantation:  you live in a dorm, you eat what they serve, you do what they want, and you  don’t talk to anyone unless they say so. Grim.

Meanwhile, work goes on in Shenzhen. Foxconn’s facility is three square kilometers (1.16 square miles) and is crisscrossed by tree-lined streets with a fountain at the center. There’s a hospital and a collection of restaurants. Workers live in dormitories, eight to ten people to a room. The company provides worker counseling, according to supervisor Geng Yubin. “For many of the young people who are here, this is the first time they’ve been away from home,” Geng says. “Without their families, they’re left without direction. We try to provide them with direction and help.”

Foxconn says it’s taking other steps to get the situation under control. It has installed netting around outdoor stairwells of dormitory buildings to prevent people from jumping. Workers will also be getting a 30 percent raise. The additional money may not be enough to prevent further tragedies, says Xiao Qi, a college graduate who works at Foxconn in product development. He earns 2,000 yuan a month, or $293, more than twice as much as a line worker. “I do the same thing every day,” says Xiao, who says he has considered suicide. “I have no future.”

Trade theories that assume away these differences and then conclude that trade barriers or trade conditions are always liberty- and efficiency-reducing are simply not realistic.