Sunday, October 28, 2012

New Voices: Apple's profits from cheap labor give little incentive to innovate

It's no secret that Apple has become the darling of Wall Street, given its success in the smartphone arena. The company's ability to invent consumer electronics blending form and function so seamlessly has earned it the largest market cap in history, nearing $600 billion, and crowned its founder as the "secular savior."

To suggest the company's success has come from anything but sleek marketing and design would be equivalent to telling an Apple fanboy that Microsoft Windows is superior to Mac OS. This, however, is exactly the case. There is a more important factor that has lifted Apple in its ascendancy — the exploitation of cheap overseas labor.

While this is no surprise to a world that has purchased more than 240 million iPhones to date, it is clear that the fanboy mentality has gotten the best of us. There is too wide a disparity for us to comprehend that the maker of our favorite e-gadgets indirectly employs workers at $1.25 per hour to manufacture its products.

To bridge that gap, it is helpful to break down those numbers to a digestible form. Foxconn, Apple's preferred manufacturer, employs more than 400,000 workers at its Shenzhen, China plant responsible for producing Apple products. Employees make $350 per month, and account for 2 percent of the cost per iPhone.

In comparison, an American paid the federal minimum wage and working the same roughly 70-hour week as the Chinese worker would make $2,030 per month. Over five years (about one year less than that of iPhone production through 2012), Apple paid Foxconn employees $40.3 billion less than it would have paid American workers under the same hourly requirements.

Let's say Apple hired American employees over the past five years to manufacture its products. Employees would have earned $48.7 billion, assuming they worked 30 hours of overtime per week at minimum wage. The personal savings rate in the U.S. has hovered around 5 percent over that time. Therefore, those workers would have spurred the economy in its most desperate times, spending $39.3 billion on domestic goods. The $7.3 billion in taxes generated would fund Big Bird's Corporation for Public Broadcasting for the next 32 years.

In reality, Apple would have depended upon labor from 700,000 Americans working 40-hour weeks, rather than that of their 400,000 wage slaves. Adding that many people to the labor force would have reduced the unemployment rate 0.5 percent to 7.3 percent.

But none of this occurred. Instead, Apple has $100 billion in cash on hand — about half of which can be accounted for due to exploitation of foreign workers — sitting idle on its balance sheet. Meanwhile, the company continues to ration its products one frivolous upgrade at a time, generating gross margins above 50 percent on iPhone sales.

Instead of using its resources to innovate, Apple can choose to spend its cash from misconceived globalization by swallowing up competing patents, and to litigate against those companies that pose a challenge by offering alternative platforms.

No matter your moral stance on the treatment of foreign workers, or your political affiliation as it stands in the upcoming election, there is something to be said about the role of corporate responsibility and how we, as consumers, regulate it. It's easy to fall into fanboy mode as we play with our apps and watch Apple's celebrity ad campaigns confirm our self-serving attitudes. But we also have a responsibility to check those powers that can control us.

Numbers don't lie. We're rewarding Apple for paying overseas workers low wages, stifling innovation and harming the American economy.

Now if only the iPhone 5 were restocked so I could forget about all of this and upgrade to the sweeter screen.


  1. Apple has a huge cash nest egg for two reasons: The company is well managed, and their products are worth what people are willing to pay. BTW, This article overlooks the fact that Apple's competitors also use cheap foreign labor.

    Haters want to believe that each and every one of Apple's millions of satisfied customers is too stupid to understand real value. But maybe its the haters that just don't get it.

  2. In which case I issue you the same challenge I have issued to a number of Apple-using colleagues of mine, namely that if it is the quality of the product that is important, rather than the fact that the shiny Apple logo allows you to wear your brand loyalty like fashionable electronic jewellery, then remove or hide the logo from your device. Incidentally, nobody who I have challenged so far to do it has done it, which proves my point entirely.

    I actually do not own and never have owned an Apple device. Very simply, the walled garden, locked down approach essentially turns Apple devices into ones that I rent, not own, because I do not have the freedom to do with them as I want.

    Please remember that a count of all portable devices out there - mobile phones, tablets, etc. - and Apple is still in the minority compared to Android devices with only about 30% market share.

    Not to mention the fact that Apple shares have dropped 18% in the last few weeks or so due to "disappointing" sales of the iPad Mini.

    1. Peter, you may have your own perfectly good reasons for preferring non-Apple devices. That's fine. But it doesn't invalidate the experience of others.

      No one has to prove to you that their Apple devices are better --for them. Apple's brand loyalty is based on their customer's years of satisfactory experience. There is a reason why the Apple logo has come to represent prestige.

      Regarding market share. Apple can remain profitable without totally dominating the market in unit sales. They are in no danger of losing the interest of third party developers, accessory makers and peripheral manufacturers. The iOS platform is vibrant and well supported.

      Regarding Apple's stock performance and the Mac Mini. There is a lot of noise and media FUD that causes Apple stock to fluctuate, but the company's fundamentals remain excellent. The recent drop represents a great buying opportunity. I predict that the stock will recover, and that the Mac Mini will prove to be a huge success. There are already indications that this is happening. Apple's next quarterly report will be another record breaker.

  3. There are so many people that have switched to Android BECAUSE they felt it had a better experience. On top of that, the Mac Mini sales have been lack-luster.

  4. Yeah, people just love running scaled up cell phone apps on their Android tablets (the number of optimized-for-tablet Android apps pales in comparison to those for the iPad).
    Face it, people with Android tablets fall primarily into three groups: geeks who like to tweak their devices, cheapskates, and suckers who think all tablets are roughly equivalent.

    Official Mac Mini sales figures have NOT been released. Rumors of "lackluster" sales are just that: rumors. I've seen other rumors where the FUDmeisters are claiming that the Mac Mini is so popular that it's actually cannibalizing iPad 4 sales. So whether the Mini does well or not, the naysayers are prepared to spin it as a negative for Apple.. But for all the doom and gloom that they wishfully predict, reality has a way of contradicting them. I'll bet that Apple will again report record breaking sales and profits.

  5. But they still exploit underprivileged workers and continue to harm the U.S. economy. That was the point of this article.

  6. The moronic Apple defenders love ignoring the point of the article and the facts within.

  7. Apple is competing with other companies that ALL use cheap foreign labor, and Apple pays better than most. Moving manufacturing away from overseas component suppliers and a source of skilled assembly workers would hurt efficiency. Shareholders would rebel if Apple were to cut profits by using expensive domestic labor.

    Apple simply plays by the same rules as everyone else. Blame the capitalistic corporate-dominated system, not Apple specifically. If you want a form of communism, sharing the wealth with the workers, hey I'm sympathetic. But that's not what the USA is all about.

    If our government was actually responsive to its citizens and truly wanted to bring manufacturing jobs here in the US, incentives could be put in place. Why aren't they?

    I invite all you holier than thou critics to boycott ALL foreign made high tech products and from now on, limit yourself to gear manufactured in the Good ol' US of A. … if you can even find any.

    Or just stop voting for politicians who seem happy to cater to corporate interests who want cheap labor wherever they can find it (witness the destruction of unions, and the influx of foreign workers right here in the US).

    Focussing your outrage on Apple is just silly. They are just the symptom, when the problem is so much bigger.