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Capitalism 1, United States 0by Daniel Johnson, Deputy Executive Editor
Steve Jobs to Barack Obama: "Those jobs aren't coming back."
(Calgary, Alberta) - Here is an uncomfortable truth: America is great at capitalism when there is no competition or weak competitors. After the Second World War, German and Japanese industry were on their knees and for three decades America dominated and prospered.
The fundamental problem with America today, is that its middle class and aspirants have been trained to consume products, like automobiles and electronics, eat the millions of tons of junk food and expect to do better than their parents, while growing up through the decades after the Second World War, when global competition did not exist to any significant degree.
The global failure of the American worker is not news but was described more than 40 years ago by Arthur Hailey in his 1971 novel Wheels. The most egregious example he pointed out, was that people should not buy cars that had been assembled on Fridays or Mondays.
“Mondays and Fridays in auto plants were management’s most harrowing days because of absenteeism. Each Monday, more hourly paid employees failed to report for work than on any other normal workday; Friday ran a close second. It happened because after paychecks were handed out, usually on Thursday, many workers began a long boozy or drugged weekend, and afterward, Monday was a day for catching up on sleep or nursing hangovers.”
“The result was inevitable. Many of Monday’s and Friday’s cars were shoddily put together, with built in legacies of trouble for their owners, and those in the know avoided them like contaminated meat.”
Hailey was later deluged with letters from readers asking how to avoid those cars. He had to reply that there was no publicly known way to avoid such automobiles.
Americans buy and use electronic gadgetry in the tens of millions, but they are unable to make them. Today Apple employs more workers in the United States than ever—about 43,000—and only 20,000 overseas. At the same time, another 700,000 workers engineer, build and assemble iPads, iPhones and other products, most working for companies in Asia, Europe, Brazil and Mexico.
In 1995 Eric Saragoza went to work for Apple at the Elk Grove, California manufacturing plant. He did well for the first few years, started a family and bought a house with a swimming pool.
Through those years, however, the electronics industry was changing, and Apple’s products were declining in popularity. The company struggled to remake itself, focussing on improving manufacturing. Saragoza’s plant stacked up poorly against overseas factories: the cost, not including the materials, of building a $1,500 computer in Elk Grove was $22 a unit; in Singapore, $6, in Taiwan, $4.85. Wages were not the major factor but included costs like inventory and how long it took workers to finish a task.
In 2002 Saragoza was laid off. “We were told we would have to do 12-hour days, and come in on Saturdays. I had a family. I wanted to see my kids play soccer.”
Those are not worker issues in China, Korea or Taiwan or even most of the rest of the world. American workers have had it too soft for too long.
Why does your iPhone have a glass screen?
In mid-2007, just over a month before the iPhone was scheduled to be delivered to stores, Steve Jobs presented his senior people with a problem. He had been carrying a prototype around in his pocket for weeks. He pulled it from his pocket at the meeting and showed everyone that the plastic screen was marred by tiny scratches. He then pulled his keys out of his pocket and pointed out that many people would be carrying these two together, and scratches were inevitable. He told the assembled executives that he would not sell a product that became scratched. He wanted a glass screen and he wanted it in six weeks.
Enter Foxconn Technology, which has dozens of facilities in Asia and Eastern Europe, and in Mexico and Brazil, and assembles an estimated 40 percent of the world’s consumer electronics for customers like Amazon, Dell, Hewlett-Packard, Motorola, Nintendo, Nokia, Samsung and Sony.
The Foxconn complex in China has 230,000 employees, many working six days a week, often spending up to 12 hours a day at the plant. Over a quarter of Foxconn’s work force lives in company dormitories and many workers earn less than $17 a day.
Apple redesigned the iPhone’s screen at the last possible minute, forcing the assembly line to be hurriedly revamped. New screens began arriving at the plant by midnight. A manager immediately alerted 8,000 workers inside the company’s dormitories where each was given a biscuit and a cup of tea, assigned a workstation and within a half hour, began a 12-hour shift fitting glass screens by hand into bevelled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.
iPhones contain hundreds of parts, about 90 percent of which are manufactured outside the U.S.. Advanced semiconductors come from Germany and Taiwan, memory from Korea and Japan, display panels and circuitry from Korea and Taiwan, chipsets from Europe and rare metals from Africa and Asia. All of them put together in China.
Apple’s engineers, in mid-2007, finally perfected a method for cutting strengthened glass so it could be used in the iPhone’s screen. The first truckloads of cut glass arrived at Foxconn City and within three months, Apple had sold one million iPhones and Foxconn has since assembled 200 million more.
China had also provided engineers at an unprecedented scale. Apple estimated that about 8,700 industrial engineers would be needed to oversee the 200,000 assembly line workers, estimating it would take up to nine months to find that many qualified engineers in the U.S. In China it took 15 days.
The glass for the iPhones was manufactured by Corning, a 161-year-old company in upstate New York at a factory in Kentucky. James B. Flaws, Corning’s vice chairman and chief financial officer said: “The consumer electronics business has become an Asian business. As an American, I worry about that, but there’s nothing I can do to stop it. Asia has become what the U.S. was for the last 40 years.”
After the iPhone success, Corning began to get orders from other companies. Its strengthened glass sales have grown to more than $700 million a year, and it has hired or continued employing about 1,000 Americans to support the emerging market. But as that market has expanded, the bulk of Corning’s strengthened glass manufacturing has occurred at plants in Japan and Taiwan where the customers are, Flaws said. Making the glass in the U.S, is impractical; it would take 35 days to ship it by boat, and shipping by air is ten times more expensive, so they build their glass factories handy to the assembly plants—in Taiwan, Korea, Japan and China.
Six months before he died, Steve Jobs attended a dinner with President Obama and other key Silicon Valley visionaries. As Jobs was speaking, the president interrupted him, asking what would it take for iPhone manufacturing to return to the U.S. Jobs blunt answer: “Those jobs aren't coming back.” Virtually all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured by non-American workers.
The United States has been the impetus for many technological advances in solar and wind energy as well as semiconductor fabrication and display technologies which have created thousands of jobs. But much of the employment has gone abroad as companies closed here and reopened in China. This is because companies are competing with Apple for investors! If they can’t compete with Apple for growth and profit margins, they won’t get the shareholders and their survival is threatened. In 2011 Apple earned $400,000 per employee.
Innovations have always meant labour dislocations, the most well known reference being to the fate of the buggy whip factories! G.M. used to go as long as five years between major automobile designs. Apple, on the other hand, released five iPhones in four years, doubling their speed and memory which dropping prices.
The Roman Empire took more than a thousand years to decline and collapse. The U.S. will likely not even make it to a third century of dominance.
Daniel Johnson was born near the midpoint of the twentieth century in Calgary, Alberta. In his teens he knew he was going to be a writer, which is why he was one of only a handful of boys in his high school typing class — a skill he knew was going to be necessary. He defines himself as a social reformer, not a left winger, the latter being an ideological label which, he says, is why he is not an ideologue. From 1975 to 1981 he was reporter, photographer, then editor of the weekly Airdrie Echo. For more than ten years after that he worked with Peter C. Newman, Canada’s top business writer (notably on a series of books, The Canadian Establishment). Through this period Daniel also did some national radio and TV broadcasting. He gave up journalism in the early 1980s because he had no interest in being a hack writer for the mainstream media and became a software developer and programmer. He retired from computers last year and is now back to doing what he loves — writing and trying to make the world a better place
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