I recently read an article in BusinessWeek on Foxconn, the Chinese electronics manufacturer. It got me thinking about what’s wrong with our economy. As everyone knows, we are struggling with slow growth and stubbornly high unemployment. What’s frightening is that an estimated 15% of American workers are either not working, have given up looking for work, or are underemployed — working part time or in positions beneath their qualifications.
If you look for a bright spot in the consumer sector of our economy what do you find? Sales of electronic products, especially those cool iPhones, iPods and iPads from Apple are one of the few bright spots. Looking beyond Apple, there are millions of other smart phones, tablets, e-readers, and laptops being sold. Unfortunately, none of these millions of devices are manufactured in the USA. Where are they made? Mostly in China and many by a company called Foxconn.
There’s much to admire about this company and its hard-working CEO, Terry Gou. Reading the article, I was flabbergasted by some of the numbers. Foxconn employs over 900,000 people. Let that number roll around for a moment. By contrast, after HP acquired EDS, the combined companies had a total workforce of 300,000. IBM has 400,000 worldwide. Dell has about 90,000 and Apple’s total is 35,000. This gives you some idea of how economic power has shifted in the 21st century. Foxconn has more workers than all of these mega-companies combined.
I wondered what the impact would be if these jobs were in our country and not China. While Foxconn builds some products for their domestic market, most of their production goes to U.S. companies like Apple and Dell. If their manufacturing plants were located here, the additional 900,000 jobs would lower our unemployment rate by more than a half percentage point. We would drop from the current rate of 9.6 to 9%. Keep in mind this represents just one large company in one industry.
I’ll admit that I know absolutely nothing about electronics manufacturing. I’m sure that Foxconn has a lot of expertise and that companies appreciate the flexible supply-chain model rather than operating their own manufacturing plants. What I’m wondering is how large an impact do the lower wages in China really make? Let’s say it takes 15 minutes for a trained worker to assemble an iPhone. I can’t imagine it would take longer than that. If a Chinese worker makes $1.00 per hour, the labor cost for assembly would be about 35 cents. If an American worker earning $12.00 per hour assembled the phone, the labor cost would be $3.00. Would an additional $2.65 of cost on a product that sells for $200 really kill Apple? Would consumers be willing to pay an extra $5 for the iPhone if they knew they were supporting U.S. workers? I would. I love my Apple products but I wish that buying them contributed more to our economy.
President Obama and his advisors are spending billions on public projects to stimulate job growth. So far, it hasn’t worked. Unemployment remains high. The new strategy is to give companies tax breaks to invest in technology. What’s needed in my opinion is a targeted approach to bring manufacturing jobs back to the United States. This might include a combination of tax incentives or possibly even tariffs on imports. I realize that everyone has bought into the mantra of free global trade but now that we’ve experienced 20 years of open markets, it’s time to reassess. The outcome of global free trade has been the shift of jobs, wealth, and economic growth from the USA to other countries, notably China.
Let me wrap up by pointing out the irony of our current situation. We import many of our consumer products from China and then we borrow billions of dollars from the Chinese to pay for the social programs and government operating costs that we can no longer afford in our own country. We’re borrowing money from foreign nations to pay for stimulus programs to replace the jobs we’ve allowed to get away. As of 2009, we owe Chinese lenders close to $800 billion. Terry Gou must be shaking his head and thanking American politicians for his good fortune.
Meanwhile, the millions of iPhones and iPads that we import represent a lost opportunity to provide good jobs for Americans and serve as a reminder that we are fast becoming a second-rate economic power.
The Man Who Makes Your iPhone - BusinessWeek.
