Why iPhones Aren’t Made In America

It's not just low wages that have kept technology manufacturing jobs out of the United States.

Charles Duhigg and Keith Bradshear have an excellent article in today’s New York Times answering a question that President Obama once asked Steve Jobs. Contrary to what you might think, it isn’t just cheap labor and lack environmental regulations that explain it:

 Not long ago, Apple boasted that its products were made in America. Today, few are. Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas.

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.”

Similar stories could be told about almost any electronics company — and outsourcing has also become common in hundreds of industries, including accounting, legal services, banking, auto manufacturing and pharmaceuticals.

The article goes on to explain how the advantage that Apple found in China wasn’t just cheap semi-skilled labor, but the economies of scale and speed with which requests could be complied with that really sealed the deal. The story about the iPhone’s screen tells the tale most effectively:

For years, cellphone makers had avoided using glass because it required precision in cutting and grinding that was extremely difficult to achieve. Apple had already selected an American company, Corning Inc., to manufacture large panes of strengthened glass. But figuring out how to cut those panes into millions of iPhone screens required finding an empty cutting plant, hundreds of pieces of glass to use in experiments and an army of midlevel engineers. It would cost a fortune simply to prepare.

Then a bid for the work arrived from a Chinese factory.

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.

The Chinese plant got the job.

“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.”

(…)

Another critical advantage for Apple was that China provided engineers at a scale the United States could not match. Apple’s executives had estimated that about 8,700 industrial engineers were needed to oversee and guide the 200,000 assembly-line workers eventually involved in manufacturing iPhones. The company’s analysts had forecast it would take as long as nine months to find that many qualified engineers in the United States.

In China, it took 15 days.

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.

The article is already the subject of much commentary on both the political side, as tracked by Memeorandum, and among technology writers tracked at Techmeme. Tyler Cowen suggests that it’s reason for us to spend less time worrying about the wage gap with China and other nations, and more time worrying about the economies of scale issues that the article raises.  Henry Blodget makes a starker point that makes one wonder exactly how the United States could ever get the “iPhone jobs” back:

 [Y]es, money is part of why all of our gadgets are built in China. But what started a couple of decades ago as a reach for efficiency has now resulted in the entire electronics-manufacturing ecosystem being lifted up and transferred to China.

Apple doesn’t build iPhones in the United States, in other words, because there is no longer an ecosystem here to support that manufacturing. There’s no supply chain, there aren’t enough super-low-cost workers, and there are not enough mid-level engineers.  And many Americans looking for work are still hoping for a return to jobs, salaries, and lifestyles that have simply disappeared.

This is a complex problem, and there’s no easy solution. But it’s a problem this country is going to have to fix. Or the massive middle class that once drove America’s prosperity will just cease to exist.

Of course, the problem with American politics is that easy solutions are all we ever hear from politicians because that’s all that voters want to hear. Any politician who dares to present ideas that cannot be summarized into nice easy sound bites usually ends up getting ignored, and all that putting out a detailed plan of any kind tends to accomplish is that it leaves the candidate in question open to more and more criticism. More importantly, though, the American people don’t want to hear things like Blodget says from their political leaders. Just ask John McCain when he bluntly stated during the Michigan Primary in 2008 that many of the manufacturing jobs that went overseas weren’t going to come back. He was right, but he was roundly denounced not only be Democrats by members of his own party. Pessimism, or to put it better honesty, doesn’t play well in politics. Americans want to hear that things are going to get better, quickly, that we will always be the leader of the world, and that we are the greatest nation ever to exist in the history of the world. Admitting that we’ve got a serious problem and that there’s pain to come in the future? Yea, try to make that sell in a race for the White House

Yves Smith doesn’t share in the praise for the article and notes that the authors missed a very important fact in their story about those iPhone glass screens:

So basically, the Chinese funded a completely non-economical glass R&D facility IN ANTICIPATION of getting the Apple order. There is no way anyone would build a factory like that unless the money was close to free. It already had glass samples in stock! The “some subsidies trickled down” sounds way too innocent. It sounds more like someone recognized the importance of Apple as a marquee customer, and whether the push came from the officialdom or businessmen with the right connections in high places, it doesn’t really matter. This project smells of having serious government backing. How can private businesses anywhere compete with that?

They can’t, of course, but I also don’t think that anyone is seriously suggesting that the United States can or should adopt anything resembling Chinese industrial policy. For one thing, it goes against the entire ethos of our economic and legal systems not to mention our culture. For another, it doesn’t strike me as an efficient use of resources. China has been pumping billions into projects like this, and many of them have laid dormant. That’s seems to me like the classic signs of a bubble, when and how it pops is another question. Smith also points out that Apple may not be the best example of  how and why an American manufacturer prefers to rely on overseas labor. Changing the screen design mere weeks before product roll out, be points out, is as much an example of Jobs’s erratic genius as anything else and isn’t necessarily a sign of good project management. The only reason it worked out well for Apple, it seems, is because the Chinese firm was able to push its workers to work longer hours than any American ever would. In other words, Chinese near-slave labor saved Steve Jobs’s ass.

Notwithstanding these valid criticisms, the article raises compelling points that should deeply concern all of us. As Blodget notes, it’s principally the lack of the infrastructure needed for the kind of manufacturing that Apple, or any cellphone or electronics manufacturer for that matter, would need that makes it unlikely that those kinds of jobs will return any time soon. Moreover, thanks to offshoring, advances in technology, and increases in worker productivity, there are entire classes of employment that either no longer exist anymore or don’t require nearly as many bodies as they used to. Many of these are the semi-skilled positions that were once a ticket to a middle class lifestyle. The same thing goes for the positions that used to be waiting for college graduates, and are now harder to come by. Where, exactly, are these jobs going to come from?

There is one factor the article cites that we could do something about. We don’t graduate nearly enough engineers in this country, partly because American college students seem inclined to pick “easy” majors rather than one of the STEM subject areas. We also don’t do much to encourage foreign students who come to the United States to study in these areas to stay here after they graduate. On that last point, many have suggested that we should offer H1-B visa’s to any foreign college student who agrees to stay and work in the United States after graduating. It’s a reasonable idea, as is any the encourages immigration by high-skilled workers and professionals, but right now immigration policy is ham-strung by a Republican Party unwilling to compromise at all until some ridiculous ideal of “border security” is achieved, even if its a policy that helps the economy. It’s a dumb position to take on many levels, and it’s hurting the economy.

Apple is now the leading corporation in America by any number of measures. However, even accounting for its overseas factories, it employees barely 1/10th of the number of employees that General Motors employed in the 1950s, and just a fraction of the number of employees that General Electric employed in the 1980s. Quite simply, they don’t need that many workers anymore. And yet,  the population of potential employees is far higher now than it was in the 50s or the 80s. Unless everyone is going to be a software designer, we’re going to have to find somewhere to employ all those people that provides more than just a minimal wage. During  his campaign for the Presidency, Jon Huntsman talked about a manufacturing renaissance that he believed was on the verge of occurring in America. One hopes he’s right about that because, otherwise, we’re going to have some big problems to deal with.

Update: Don Boudreaux shares a Letter To The Editor he sent to the Times in response to the article linked above:

As your reporters admit, Apple uses lots of overseas workers precisely because those workers are willing to work in worst conditions and for lower pay than are American workers – strong evidence that the options open to even low-skilled Americans are far superior to those of most workers in developing countries.  Our prosperity enables even the poorest of us to avoid such toil.

Of course, some people (apparently including, according to your report, Pres. Obama) wonder why Apple doesn’t simply hire American workers at American wages to do more of those jobs.  Alas, the unavoidable result of that policy would be a substantial rise in the price of Apple products and a fall – likely total – in the number of such products produced and sold.

Put differently, your report, like Mr. Obama, insinuates that low-wage jobs overseas (and jobs currently performed by machines) would, if transferred to America, somehow become the same – but higher paying – jobs for workers here.  This insinuation is wrong.   If Apple followed Mr. Obama’s suggestion, there would soon be no Apple and, hence, no “iPhone work” that the U.S. could possibly “lose out on.”

This is a fair point, although I would quibble with the assertion that there are so many options open to Americans right now. As anyone who’s been unemployed for more than a month or so can tell you, that’s not necessarily the case, and for large segments of the American workforce it does seem like the path to a middle class life that used to exist is disappearing. That’s not to say that Chinese wages and working conditions should be brought to the United States. That would be absurd, and I doubt most Americans would accept it. However,  it still leaves unanswered the question of where the jobs are going to come from in the future.

 

FILED UNDER: *FEATURED, Borders and Immigration, Economics and Business, Science & Technology, US Politics, ,
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. Tyler is always careful to imply …

    Look, there are things that obviously go together here. Having a dormatory with 8,000 worker you can rouse, give tea and a biscuit, and set to work is bound to the job and wage structure in china.

    Would you get out of bed for $1.70 an hour? Could you find 8,000 people ready to do that and stick them in a dormitory?

    You say that it isn’t necessarily wage or regulation, but you need both low wages and lax regulation to have those .. pretty much worker camps … in place.

    Think it through.

  2. merl says:

    Sounds like slave labor to me.

  3. (So in summary, it isn’t just wages and regulations, it’s even worse from a competitiveness standpoint. If you need a “Chinese army” of workers, there’s only China to supply it.)

  4. @merl:

    There is an excellent documentary on the lives of young country girls who move to the factories. It’s called China Blue.

    They aren’t locked in. It isn’t slavery. It is just the best deal in town. Like industrial revolution England, it is better than a hard life on a poor farm.

  5. Ron Beasley says:

    We don’t graduate nearly enough engineers in this country

    It may have something to do with the fact that the engineering jobs began drying up in 2000. The same is true for the oil industry. People quit majoring in Petroleum geology because the oil industry would lay off 1,000s of geologists every time the price of oil dropped a couple of dollars a bbl.

  6. grumpy realist says:

    One reason you’re not seeing STEM majors because of the lack of jobs when they graduate. Those of us with master’s and Ph.D.s run into this as well. One of the reasons so many math and physics Ph.D.s ended up on Wall Street as quants? Because that’s where the jobs were. Well-paying jobs, too–which were still puny remunerations by comparison to what the bankers and hedge-fund managers were pulling down.

    If you want to entice Americans into particular degrees, you’d better have a good place for them to go afterwards. We’re not stupid. We see who gets the hoopla and the big bucks. And we can see that the US doesn’t care that much for scientists or engineers anymore.

  7. @Ron Beasley:

    Remember, engineering graduates command the highest salaries of any major.

    So sure, there is room for more STEM graduates. With the caveat, choose your flavor carefully. Use the starting salary lists.

  8. michael reynolds says:

    I’m glad you picked up on this piece, Doug.

    One obvious point is that in China the government and business work together. In fact there’s quite a bit of overlap. And that’s very helpful in some cases. Of course we are ideologically hamstrung and unable to equal that sort of cooperation.

    Another point however is that this is a snapshot in time, not necessarily predictive of where we’ll all be in 20 years or 30.

    The reason I so despise ideology is that it gets in the way of solving problems. There may be times when it is best for government and business to stay far apart. Other times when they should cooperate. Figuring out when to do A and when to do B is complicated and cannot be reduced to simplistic ideological formulae. The useful thing about humans is that we don’t have to run on a script, we can improvise and adapt — the opposite of ideological rigidity.

  9. steve says:

    The take home here is that the Chinese government is subsidizing all of this. We seem to believe that government cannot pick winners, yet China is forging ahead with more direct government involvement.

    Steve

  10. murray says:

    A work force you can “rouse out of dormitories” has nothing to do with “scale and speed” but everything to do with wage gap. It’s the closest you will get to slave labor.

    Just wait a decade or so and we won’t see any “designed in America made in China” products, but only *Designed and made in China” products.

  11. tps says:

    @michael reynolds:

    Remember how ‘Japan Inc.’ was going to eat our lunch all through the 80’s?

  12. Anon says:

    A couple points. First, jobs in computer science are definitely there. My department graduates numerous Chinese and Indian MS students, and many domestic students every year. All of them get jobs. Average starting salary is in the $60K range and up (especially for MS). No question that the US could make the process easier for the international students, but the vast majority of them do end up with H1-Bs.

    Second is that I can actually imagine quite easily a manager of a software engineering team who has engendered enough loyalty that the team would pull an all-nighter to make some deadline. I’m not sure what to make of this observation.

  13. JKB says:

    The dormitories, just like the low wages, are a product of the change from agriculture to industrial. it happened in the US, it happens elsewhere. Middle class housing didn’t just appear one day, workers came because there was a need for workers and companies provided shelter in the beginning to both good and ill effect. Still done in remote areas when mines or drill rigs are brought in.

    More critical is the clustering of support industries. In he eighties, we went all JIT with distant shipping. That works for slow evolving industrial work but is garbage for dynamic industry. Look at some of the analysis of the fashion industry in NYC. The houses and the support businesses cluster since they need to feed off each other and change up quickly.

    A whole lot of those GM and GE jobs were unskilled but overpaid. Many workers performed their routine but didn’t apply any judgement, i.e., unskilled. Here is a modern description from the Atlantic. One interesting aside is the company was forced to move all their manufacturing out of NY due to wage costs and regulation. Automation has taken a lot of jobs as well. The price of robots is going down just as the skill is going up, along with the costs of human workers.

    There’s a joke in cotton country that a modern textile mill employs only a man and a dog. The man is there to feed the dog, and the dog is there to keep the man away from the machines.)

  14. mattb says:

    The recent “This American Life” episode on FoxConn is a MUST listen to in this debate:
    http://www.thisamericanlife.org/radio-archives/episode/454/mr-daisey-and-the-apple-factory

    It brings up a couple things (beyond the issue of work conditions)… First is the level of work the Chinese Government did to *create* Shenzhen the manufacturing infrastructure and maintain a “business friendly” atmosphere.

    It also provides evidence for how the conditions governing work in Shenzhen is *completely* different than any sort of simliar hand work being done in the US. Listen to the confirmations on the length of shifts, the number of shifts, the lack of breaks, etc and explain to me how that can take place in any “modern” nation (i.e. one that is marked by lower and middle classes that have any degree of political power).

    The report also point to the fact that Chinese production may already be becoming too costly (as workers actually walk off these jobs in at a higher rate than anyone would imagine), and there’s already been a move to other low cost production sites in neighboring East Asian nations.

    At some point, in the next century, I would not be at all surprised to see much of electronics manufacturing move to either South America or, more likely, Africa (the last two great frontiers of cheap labor). I’m sure when that happens, the same “it isn’t the slave labor” excuse will be used.

  15. Brett says:

    Interesting that the article focused on Foxconn City as an example of what China has to offer. It’s the same place that has been facing frequent labor unrest.

    The take home here is that the Chinese government is subsidizing all of this. We seem to believe that government cannot pick winners, yet China is forging ahead with more direct government involvement.

    They only pick an occasional winner, at the expense of wasting tons of money in subsidies thrown at occasional successes and plenty of failures. That money has to come from somewhere, and what it means is that the Chinese taxpayers are paying the price.

  16. mattb says:

    @JKB:

    Automation has taken a lot of jobs as well. The price of robots is going down just as the skill is going up, along with the costs of human workers.

    In the US.

    The *lack* of robots in places like Foxconn demonstrates how, on a mass scale, human hands are still cheaper than robots in manufacturing — especially in consumer products where retooling is required on a semi-anual basis.

  17. JKB says:

    @mattb:

    First off, stop trying dilute slavery. Every time someone has to work a little harder or lose their job, it isn’t slavery. Slavery is a societal condition. One where even if you make it past the fence line, the state, the law, etc. will return you to your condition.

    But this isn’t even force labor as you state, “(as workers actually walk off these jobs in at a higher rate than anyone would imagine)”. Your statement implies choice, work or walk. That the conditions offend your sensibilities is fine but it doesn’t make it slave labor or forced labor.

    You have people transitioning from a far more desperate life. In time, they or their children will push changes in conditions as they become more valuable to employers and more familiar with conditions better than they’ve known.

    You sound like those who lament child labor in some countries, even pressure companies to fire the children. Only no consideration is given as to how this child and their family might survive in that society without a paying job. I wouldn’t be surprised to discover many of these activists are avid sex tourists and find their advocacy keeps the price down for their child prostitute purchases.

  18. mattb says:

    @JKB:
    I don’t think I mentioned slavery anywhere in my comment. So please don’t put words in my mouth.

    I am very well aware of trends within economic development and the move from agricultural to industrialized economies. It’s one of the reasons why — for example — I think it’s a pipe dream to ever expect the US economy to grow at the rate it did for the first 70 years of this past century.

    What I am pointing out is that to pretend that the combination of low wages and extreme work conditions (supported by local government) ARE NOT a critical aspect of why these jobs always flow to developing nations is a fundamentally dishonest argument.

    Additionally, while I agree that in the long term, this creates better working conditions, there are two caveats: (1) in the short term there are a lot of people who end up worse off because of the *lack* of individual protections and (2) if the entire economy of an area is based on low-cost manufacturing, when business move out of state and out of country to even lower cost production zones, those areas are decimated (see Detroit/US Rust Belt, much of development zones in Ireland, and areas of Eastern Europe).

    To pretend that cheap labor is the rising tide that permanently lifts all boats is as problematic as the reductions argument that you seem to think I’m making.

  19. mattb says:

    @JKB:
    apologies… I see that I did use the term “slave labor” at the end of my first comment. The only thing I can say in my defense is that I intended it in the more “modern” term with typically means the lowest level of financial compensation mixed with extreme work conditions, low levels of safety, and even lower levels of worker control over their conditions.

  20. So is JKB just accepting the dynamic? Low wage jobs in this year’s developing market, and a few men and dogs in the US?

  21. Eric Florack says:

    Unions.
    Enviro whack-jobs
    Government.
    Energy restrictions.
    Taxes.

    These are why American industry cannot compete.
    Rather than complain the Chinese have it stacked against us, how about solving the problems I list, and watching our situation right itself?

  22. Cycloptichorn says:

    Boy, if only we could get these jobs back to America, gee, what a better country we would have!

    /notsomuch

    The iphone SHOULD cost double what it does. It’s already sold at a loss by most carriers. The fact that people think ‘having cheap crap’ is a reason to justify slave wages and terrible working conditions for their fellow man is sad.

  23. michael reynolds says:

    @Eric Florack:

    Did you even read the piece? Or did you just go straight to your pre-loaded conclusions?

    The Chinese government essentially created this entity which now makes it hard for us to compete. So obviously government was not the problem in this case.

    Are you under the impression that the PRC favors small government?

  24. Eric Florack says:

    The iphone SHOULD cost double what it does. It’s already sold at a loss by most carriers.

    Even at the discount, Apple is getting around a 50% mark up.
    Ponder that for a while and get back to us.

    Did you even read the piece?

    Of course. And the problems remain as I’ve said. Absent them, we’d still be competitive. Irony… as China works toward capitalism, we work away from it and then we are stupid enough to wonder why they’re eating our lunch.

  25. Cycloptichorn says:

    Even at the discount, Apple is getting around a 50% mark up.
    Ponder that for a while and get back to us.

    What’s the point you are trying to make here? That Apple could pay their employees a lot more, and still turn a handsome profit on the devices they sell? I completely agree with that sentiment.

  26. michael reynolds says:

    @Eric Florack:

    And the problems remain as I’ve said. Absent them, we’d still be competitive.

    Really? Absent government we’d have 10,000 engineers ready to work for 17 bucks a day?

    Explain that, would you? I wait with bated breath.

  27. Ben Wolf says:

    @michael reynolds: Eric doesn’t give a damn. Massive subsidies for Chinese industry is interpreted as too much government in America. Don’t expect him to have a coherent explanation as to how that works.

  28. grumpy realist says:

    @Eric Florack: Before you get too upset about “enviro-whack jobs” I suggest you look at the air quality in places like Beijing. And the amount of cancer in those wonderful locations with no restrictions on what business can dump in the river. Maybe you’d like to go live next to the Fukushima Dai-ichi nuclear power plant, hmmm?

    I’ll take the environmental restrictions, thank you.

  29. superdestroyer says:

    The question is not whether the U.S. will assemble high tech devices. The real question is whether the U.S. can do anything to create jobs for the unskilled and blue collar workers so that those unskilled workers can afford to purchase any high tech devices.

    The problem is that the U.S. is in a demographic decline. AS the population of Mexico moves into the U.S and as the poorest people in the U.S. have the most children while the richest people have the fewest, then how does the U.S. compete with the rest of the world in any marketplace.

    Seeing how the leadership of the U.S. wants to speed up the demographic changes of the U.S. is there any hope for the middle class.

  30. michael reynolds says:

    It’s always about them negroes and Messicans for superdestroyer. Doesn’t matter what the topic is.

    The thing he superdestroyed was his own brain.

  31. Gustopher says:

    On that last point, many have suggested that we should offer H1-B visa’s to any foreign college student who agrees to stay and work in the United States after graduating.

    H1-Bs aren’t the answer — they are tied to an employer, so the employee cannot easily switch jobs (which means they end up depressing wages and eliminating the opportunities for the workers to start their own businesses), and they are officially intended for people who plan on returning to their country of origin.

    We need a new, better visa for people who we want to encourage to stay in this country, that gives them an equal playing field in the job market. Let them negotiate for salary, raises and working conditions without the threat of deportation.

  32. superdestroyer says:

    @michael reynolds:

    Do you really think that Detroit of El Paso is ready to compete with China if they just had government funded healthcare and most spending of public schools.

    Mexico cannot compete in the world economy and the U.S., by importing the population of the third world, is not going to be able to compete in the world marketplace.

    Remember, the progressives are the ones who want the U.S. to be more like Norway, Finland, or the Netherlands. But the progressives also believe that the U.S. can have the economy of Germany with the population of Mexico.

  33. Liberal Capitalist says:

    Also glad that this has become a topic of discussion.

    I read the complete article this morning, and I have to say it has haunted me all day long.

    Truly haunted me. Deeply disturbed me.

    I can see the benefits and the drawbacks, as I have lived in many different economic strata.

    Without a long diatribe: Immigrant’s kid, born in the USA, dad worked in a union factory building Cadillacs, and I was lucky enough to do very well (last year, $300K).

    And from this, what is my take?

    We are fucked.

    It is an honest assessment of where we are. We have eliminated manufacturing, demonized unions, have eliminated working class jobs and now mid-level jobs are disappearing as well.

    We have this belief that somehow our middle-class lifestyles will somehow be supported when a “good” job is now working at Home Depot.

    This country is deeply in denial. Thought leaders suggest that we join the race to zero, and keep trying to solve 21st century challenges with 19th century solutions.

    And let’s not forget magic; let us pray.

    It is not surprising that Gingrich won by a big margin in S.C. He has grabbed the angst and anger of the average voter and has turned it into a vote generating machine.

    But it is not a solution (unless the revocation of child labor laws is part of the race to zero to be embraced by the collapsing middle class).

    We are those on a ship going down, fighting for a seat in a lifeboat.

    … and what really KILLS me is that the apparent American solution to the capitalistic problem is to turn each other into the enemy rather than questioning the validity of the battle itself.

    Sorry. I would really like to be more optimistic about this…

    But I just can’t.

  34. Ron Beasley says:

    Over the last 30 years I’ve worked for a couple of Japanese Companies and the reason gave for opening operations in the US was we were more flexible. Shortly after I started for one of them we had a new product introduction. I was sent to Japan to learn the manufacturing process but I ended up making so many suggestions that from that point on I was sent sent to Japan early in the cycle to help them develop the process. We had a design group and initially the Japanese were upset that the engineers only worked 40 hours a week. After a couple of months they admitted that the US engineers got more done in 40 hours than the engineers in Japan could get done in 60.
    The production people were not union but I think that was because they were very well paid and had great benefits. One of the biggest customers would only accept products made in the USA because the quality was better. I don’t know what’s happened but I suspect the partnership between the government in China and business has a lot to do with it. The massive government support is also a factor.

  35. Dazedandconfused says:

    “Those jobs aren’t coming back!” Sayeth the Jobs.. And so it was written. And thus it was to be, forever and always. Amen.

    The article states that it would cost about $65.00 more per phone to manufacture here. If the greatest loss is the ability to cater to last minute changes of the CEO, then we perhaps need to consider a bit of apostasy.

  36. Dave Schuler says:

    I think y’all might want to consider actual labor costs. Depending on whose estimates you believe and how you calculate it the labor cost per iPhone is something between $.07 and $7. Even at the higher estimate the labor cost could be an order of magnitude higher and it probably still wouldn’t have a material impact on iPhone U. S. sales.

    We might want to look for a different explanation than labor costs to explain why iPhones aren’t produced here. Possibilities include:

    1. Relaxed environmental standards
    2. Total supply chain consideration
    3. Market penetration issues (Apple might be using Chinese production as a lever into the Chinese market)

    or, just maybe, the explanation is what was quoted above: the Chinese are production engineers par excellence. That’s because they’re actually producing things there and it would take us a solid generation to catch up. That’s not going to happen. Barring a drastic increase in transportation costs the iPhone won’t come back and we should not expect any commodity manufactured goods to return.

  37. superdestroyer says:

    Does anyone believe that a country that is not competent enough to build a power plant, a pipeline, and off-shore drilling rig, a bridge, a waste repository, or even a passenger ship will ever be able to compete in the world market place again.

    The problem with the U.S. is that the government will soon run out of other people’s money like many of the countries in Europe have run out and the entitlement spending and lack of competitiveness will lead to a lowering of living standards.

  38. Just nutha ig'rant cracker says:

    @Anon:

    Second is that I can actually imagine quite easily a manager of a software engineering team who has engendered enough loyalty that the team would pull an all-nighter to make some deadline. I’m not sure what to make of this observation.

    A team of 8000? Is anything of that sort even in existence in the US anymore? What we are looking at is the “miracle” of industrial policy that extends all the way down to what one can major in at university combined with a command economic structure. Each model brings something to the table that other models don’t. Our biggest current problem is that we have only one model compatible to our desires.

  39. Ron Beasley says:

    @grumpy realist: Every time I buy something made in China I realize that the power to make it came from a coal fired plant that is dumping mercury into my rivers and lakes here in Oregon.

  40. mattb says:

    @Dave Schuler:
    No offense, but could you provide some additional stats or a link for your claim about labor costs? Based on my background with consumer electronics manufactuing, something doesn’t smell quite right with that assumption (especially after seeing how much an additional penny of production costs can shift the overall unit price on a run).

    Additionally, labor costs are a compounding factor of materials. Since the iphone is constructed from parts, many of which are made by hand as well, you have the question about how the labor cost of the subcomponents factors into the cost of the entire device. The increase in price of any single subcomponent of the iphone or any other piece of electronics can have profound effects on the entire cost of the product.

  41. qtip says:

    @superdestroyer:

    poorest people in the U.S. have the most children while the richest people have the fewest, then how does the U.S. compete with the rest of the world in any marketplace

    So it’s only rich people’s kids that can compete?

  42. steve says:

    @Dave- What I have read said that labor makes up 7% of the cost of the iPhone, more than $7.00 if based on sales price. However, that is using data which is likely wrong. The Chinese tend to hide their labor costs.

    http://neweconomicperspectives.blogspot.com/2012/01/anti-employee-control-fraud.html#more

    Steve

  43. superdestroyer says:

    @qtip:

    What percentage of children from upper class families will ever succeed in a competitive global economy versus what percentage of children from the bottom 20% of the U.S. will ever be able to succeed in a competitive global economy.

    If you want to argue that all children can be taught to do world class work the are you going to argue that all children can be taught calculus when the U.S. cannot even teach all college students calculus?

  44. Drew says:

    @Liberal Capitalist:
    Heh. Pig capitalist here.

    But what do I do? I invest in US manufacturing. I believe in US manufacturing. I’ve made 52 acquisitions of US manufacturing………….and we make them bigger and better. We don’t have the defeatist attitudes expressed In this comments section. We get off our lazy asses and invest and improve these companies……not whining like old women about their plight.

    wTFU people. DO something other than cry like babies on an Internet site. DO SOMETHING PRODUCTIVE.

  45. anjin-san says:

    Remember how ‘Japan Inc.’ was going to eat our lunch all through the 80′s?

    China is not hobbled by the almost total lack of natural resources that Japan has to deal with.

  46. michael reynolds says:

    @Drew:

    wTFU people. DO something other than cry like babies on an Internet site. DO SOMETHING PRODUCTIVE.

    On it, dude. We sold foreign rights to my latest books in China. A rarity, but more to come.

  47. Dave Schuler says:

    @mattb:

    There’s a link in this post that substantiates the $7 figure.

    Here’s a substantiationof the 7% figure.

  48. WR says:

    @JKB: “A whole lot of those GM and GE jobs were unskilled but overpaid”

    In other words, the company was giving workers money it could grab back from them and give to the top executives, as long as they bought a congress that would work to hinder labor rights.

    It’s a lovely world you live in. Everything for the guy at the top. Anyone else is overpaid.

    I hope your money makes you happy.

  49. Ben Wolf says:

    @superdestroyer:

    The problem with the U.S. is that the government will soon run out of other people’s money like many of the countries in Europe have run out and the entitlement spending and lack of competitiveness will lead to a lowering of living standards.

    No. Think it through.

  50. superdestroyer says:

    @Ben Wolf:

    Please explain how you think that the U.S will generate the tax income required to fund the growing entitlements with the changing demographics of the U.S.

    Do you really think that the U.S. can tax the top five percent at near 100% to fund entitlements for the other 95%?

  51. mattb says:

    @Dave Schuler:
    Thanks Dave… will read through those later today.

  52. Steve Verdon says:

    The Chinese government had agreed to underwrite costs for numerous industries, and those subsidies had trickled down to the glass-cutting factory.

    Shocking…subsidies make the Chinese bid cheaper…shocking!

    And imagine that kind of factory with our regulations and unions.

    Yes, those jobs aren’t coming back and for totally valid reasons.

  53. Steve Verdon says:

    @Liberal Capitalist:

    We have eliminated manufacturing….

    Lets call this a…distortion. The U.S. is still the world’s largest manufacturer. It isn’t the biggest employer anymore, but we still produce quite a bit of goods here in this country….yes more than China. Will China catch up? Quite possibly, maybe even probably, but I’m not sure what that means for the U.S.

  54. Drew says:

    @Ron Beasley:

    There’s always candle power. And get a horse.

  55. Drew says:

    Lets call this a…distortion. The U.S. is still the world’s largest manufacturer.

    Heh. Let’s call it what it is – pure crap. We only acquire manufacturers…………..and there are a bazillion of them.

  56. Drew says:

    @michael reynolds:

    And if you’ve followed anything I’ve said the past two years you’d know my response would be, and is, bravo, and best wishes for more of same.

  57. tyndon clusters says:

    Yes, the jobs won’t come back if we follow the same flawed “fair and open” market philosophy that only the U.S. subscribes to.

    If we actually got serious and ruffled a few feathers by imposing sanctions and anti dumping penalties etc. the U.S. might get some of those jobs back as smaller manufacturers (furniture for example see http://www.charlotteobserver.com/2012/01/12/2918363/furniture-manufacturer-brings.html) see their cost advantages vis-a-vis china dwindle.

  58. An Interested Party says:
  59. John Briggs says:

    It was a pleasure to read such a thoughtful piece. Thank you Doug, I will visit your blog again soon. A few points about the N.Y. Times piece. First, if the U.S. is so ill suited for manufacturing, why do we still have more than 11 million people in the manufacturing sector? Second, if Apple needs to be in China because it needs all the inputs for the iPhone and iPad to be close at hand, why are 95% of the parts in an iPhone and iPad manufactured in nations other than China? iPhones and iPads are not “manufactured in China”, they are assembled in China with parts manufactured elsewhere. That is why Foxconn can move a large share of its iPad production to Brazil; iPads can be assembled almost anywhere. iPhones and iPads could be assembled in this country by electronics assemblers making over $13.00 an hour. Of course to keep the price of the iPad the same, Apple would need to cut its margin from 55% to 38%. If you are interested in this question, please visit my blog at simply-american.net and find the article “Comparing Apples to Apples.” Tim Worstall of Forbes.com wrote a piece on that post that is also interesting to read; you can find it at http://www.forbes.com/sites/timworstall/2011/12/18/if-apple-onshored-ipa…. If Apple wants to assemble iPads in China and Brazil so it can make more money, so be it. But they should be honest about their reason for locating their facilities in those countries.

  60. Raoul says:

    Why can’t we compete against China? The 13th amendment- everything else-government, environment, unions, etc. is a smoke screen- we can manufacture Iphones here- please-let’s not be that naive- what we can’t do is house people in labor camps almost free of cost.

  61. Barry says:

    I’ll believe that the USA has a shortage of engineers when a 40- or 50-something engineer can easily get a job.