Sunday, January 22, 2012

Steve Jobs on US jobs and China

THE IECONOMY; Apple, America and a Squeezed Middle Class - NY Times

"Why can’t that work come home? Mr. Obama asked.

Mr. Jobs’s reply was unambiguous. “Those jobs aren’t coming back,” he said, according to another dinner guest.

The president’s question touched upon a central conviction at Apple. It isn’t just that workers are cheaper abroad. Rather, Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that “Made in the U.S.A.” is no longer a viable option for most Apple products.

Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.

“The entire supply chain is in China now,” said another former high-ranking Apple executive. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.”
Work has to comprise more than automation ready tasks.

Manufacturing has been all about eliminating humans from the process for decades, and now essentially, China is simply providing cheap human robot production.

If you changed the laws to require made in America, we would employ more advanced robotics, because it would still be cheaper, because ultimately you have to compete worldwide with those human developing country robots.

In other words, good jobs require service to pay good wages, because making stuff, bashing metal and so forth is a very low wage game, and as long as worldwide transport is reasonable, low wage work is going to flow.

Wages are the important key to a prosperous America, and declining real wages indicate the need for changes in economic and tax policy to shift the burden.


Per the Times article:

"Companies like Apple “say the challenge in setting up U.S. plants is finding a technical work force,” said Martin Schmidt, associate provost at the Massachusetts Institute of Technology. In particular, companies say they need engineers with more than high school, but not necessarily a bachelor’s degree. Americans at that skill level are hard to find, executives contend. “They’re good jobs, but the country doesn’t have enough to feed the demand,” Mr. Schmidt said."

What that paragraph describes is not an "engineer" but a technician.

American political/business leaders made short term decisions not to invest in automation. We could have at least captured part of the manufacturing value and kept some of the maintenance jobs, knowledge, and supply chain here... instead we have outsourced lock stock and barrel.

Look up the address of any major company in China - do a Google Earth or satellite hybrid option in Google Maps - then see what is near it. Nothing but supplier factories. The Chinese have been recruiting these kinds of hub spokes for at least a decade with very favorable incentives for targeted companies to locate there - computers being a primary target.

Automotive is now being heavily targeted including the supply chain. Aerospace and biomedical on deck.

Another quote:

"When an Apple team visited, the Chinese plant’s owners were already constructing a new wing. “This is in case you give us the contract,” the manager said, according to a former Apple executive. The Chinese government had agreed to underwrite costs for numerous industries, and those subsidies had trickled down to the glass-cutting factory. It had a warehouse filled with glass samples available to Apple, free of charge. The owners made engineers available at almost no cost. They had built on-site dormitories so employees would be available 24 hours a day."

That level of subsidization can't and won't be matched in the US, ever.

FoxConn barely makes a profit, and this after long running currency manipulation and government subsidy. That's why it will never exist anywhere else.

Being generous, you could call it a type of loss-leader for China, at worst a way for an authoritarian state to enrich its elders.

A thoughtful quote to wind this up:

"I get that direct wage costs are often a small part of a company's budget. But providing engineers at "almost no cost" is also a cost, one born by the State in this case. Engineers have to be educated, fed, and housed, whether the PRC or Apple is paying for it.

Every "inventory" , "transportation", etc. cost in a company's budget can be reduced to a labor cost if one looks far enough back in the chain of origination."

Someday this system will break down, and the result will be chaotic change in the global economy.

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