Sure, Apple Could Build the iPhone Here
A policeman looks out from a balcony as the crowd is dispersed from the front of an Apple store in the Beijing district of Sanlitun January 13, 2012. REUTERS/David Gray
Why do American jobs end up in China? The supposed answer in an anecdote: the late Steve Jobs summons his senior lieutenants and holds up the iPhone prototype. It’s due to be shipped to stores in not much more than a month. He points out that the plastic screen has been scratched by his keys. “I won’t sell a product that gets scratched,” he says, according to a recent New York Times story. “I want a glass screen, and I want it perfect in six weeks.”
“After one executive left that meeting, he booked a flight to Shenzhen, China,” the Times reports. “If Mr. Jobs wanted perfect, there was nowhere else to go.” The next sequence reads like a montage in some 1920s film about industrial production. Within days, a Corning Glass plant in China is turning out big sheets of toughened glass, which are shipped to a nearby Chinese plant to be cut into iPhone panes. The small panes are trucked to a Foxconn factory complex eight hours away.
The first truckloads arrived in the dead of night, according to a former Apple executive. Managers rousted thousands of workers out of their beds, lined them up, gave each of them a biscuit and a cup of tea and launched them on a twelve-hour shift. In ninety-six hours, the plant was producing more than 10,000 iPhones a day. Within three months, Apple had sold 1 million of them; since then Foxconn has assembled more than 200 million. The suicide rate among its workers was, Jobs insisted, below the overall Chinese rate.
Of course, typical Times readers nod their heads. No, cohorts of American workers aren’t available to be kicked out of bed in their communal dorms and put to work in half an hour. There’s no China-subsidized factory space. And pulsing just below the surface of the text: no tiny, skillful Oriental fingers (“flexibility, diligence and industrial skills of foreign workers”), not to mention tiny Oriental wages, for the uniformed assemblers.
When President Obama dined with the kings of Silicon Valley last year and asked, “Why can’t that work come home?” Jobs’s reply was “unambiguous”: “Those jobs aren’t coming back.”
In loyalties, Apple is spiritually offshore. “We sell iPhones in over a hundred countries,” an Apple executive told the Times. “We don’t have an obligation to solve America’s problems. Our only obligation is making the best product possible.”
It was the phrase about having no obligation that riled up Clyde Prestowitz, one of the US government’s top trade negotiators in the Reagan years. In an acrid posting on the Foreign Policy website and in a chat over the phone with me from his winter quarters in Maui, Prestowitz efficiently dismembered Apple’s “no obligation” pretensions and its rationale for why it and kindred companies had no alternative to offshoring.
In the 1981–86 period, Prestowitz says, Jobs and his executives “had the funny notion that the US government had an obligation to help them…. We did all we could, and in doing so came to learn that virtually everything Apple had for sale, from the memory chips to the cute pointer mouse, had had its origins in some program wholly or partially supported by US government money…. The heart of the computer is the microprocessor, and Apple’s derived from Motorola’s 680X0, which was developed with much assistance, direct and indirect, from the Defense Department, as were the DRAM memory chips. The pointer mouse came from Xerox’s PARC center near Stanford (which also enjoyed government funding). In addition, most computer software at that time derived from work with government backing.”
Prestowitz points out that Apple also assumes the US government is obligated to stop foreign pirating of Apple’s intellectual property and, should supply chains in the Far East be disrupted, to offer the comforting support of the Seventh Fleet. “And those supply chains. Are they the natural product of good old free market capitalism, or does that scalability and flexibility and capacity to mobilize large numbers of workers on a moment’s notice have something to do with government subsidies and the interventionist industrial policies of most Asian economies?”
What about those jobs that “aren’t coming back”? We’re not talking about simple assembly that costs a bundle per unit in America and mere cents in China. In the mid-’90s, at the Apple plant in Elk Grove, California, the cost of building a computer was $22 a machine, compared with as little as $5 at a factory in Taiwan. This is not a dominant factor when the machine sells for $1,500 and you have costs like transport to figure in. Furthermore, stricken America is actually becoming a low-wage magnet.
The high-wage, more complicated manufacturing jobs are in microprocessors, memory chips, displays, circuitry, chip sets and so forth. This is where America is supposed to have a comparative advantage. So why are Asian countries supplying the memory chips and microprocessors and displays instead of the United States? Prestowitz points to government subsidies and protection for Asian producers, currency manipulation and bureaucratic pressure on US corporations by Beijing to make the product in China.
So there’s nothing irrevocable about the job loss. US workers, taught the necessary skills, can put things together properly. But if the jobs keep going away, why would any American lay out the money to learn those skills? Obama’s recent State of the Union speech was a step in the right direction: calling on business leaders to “ask what you can do to bring the jobs back.” Specifically, he proposed ending tax breaks for US corporations operating overseas, rewarding US-based production and turning the unemployment sinkhole into a re-employment system. “These jobs could and would come back to America,” says Prestowitz, “if Washington were to begin to respond tit for tat to the mercantilist game…. It wouldn’t be difficult to make a lot more of the iPhone in America and to make it competitively if either Apple or the US government really wanted that to happen.”