With the passing of Steve Jobs, many have questioned the future of the company he founded with long time partner Steve Wozniak, Apple, Inc. The new CEO, Timothy Cook, is facing a situation fueled in part by the recession, and in part by new regulations and tax rules due to go into effect on January 1st, which changes the dynamic for the company’s long-term manufacturing base in China.
In an interview with NBC, Brian Williams speaks to Tim Cook about the shift, about Apple’s manufacturing, and the potential to manufacture within the United States:
The words he uses, that the United States lacks the skills needed, is actually very telling. He waves off the cost, because, simply put, the cost difference is negligible.
This will shock many right-wing pundits, but Mr. Cook is correct in waving off these costs. While the hourly cost is significantly less in China, the productivity comparison changes things dramatically. When studied, it was found that a typical iPhone takes 24 hours of manual labor, from start to end. The total number of people to handle it they found to be 141. Now, a US based facility would find a labor pool with far higher education, far more capable in working alongside automation. The Google Nexus Q, for instance, is built in the USA and is no more expensive than its competition. How is not given directly, but simple conjecture can give us the answer: Google does not need as many people to build it. Cutting the total manual labor hours in half changes the equation dramatically. A good example is when an automobile goes from a completely manual to heavily automated manufacturing line, you find the hours needed dropping from 1670 to 27 hours. Start considering that kind of ratio in relation to the iPhone, and it is easy to see how the highly skilled American worker is still competitive.
One thing Mr Cook does point out is that the US Educational system is not producing workers with the required skills. This might seem puzzling, but it makes sense. Since the 1970′s, technical or vocational training has been discouraged with greater emphasis for post-secondary degrees being pushed on to the nation’s youth. The problem is, this training is the very kind which gives the skills that Apple and similar firms need. Less than 20% of the youth in the United States gain any form of vocational training, down from a third in 1982. The push for post-secondary degrees also made colleges be more picky about which students they chose, driving up the cost of tuition, as well as driving up the amount of student debt to record levels.
Then there is the 800 lbs gorilla in the room: Obamacare. Right-wing pundits will jump up and down all day claiming that it kills jobs, but the truth is the opposite. Other nations provide universal coverage, which makes them more competitive against the United States by lowering the costs for their workforce. Even China has made great strides in providing universal coverage. A company manufacturing in the US has to cover this cost, increasing their costs as a result, while if they manufacture in other nations, that cost is handled by the government through taxes, saving them money overall. While Obamacare is not the ideal solution, it does put the United States on par with other industrialized nations such as Japan ans Switzerland, which have privately run universal healthcare. This will reduce the cost to companies which operate out of the United States in the medium-to-long term at the cost of a few short-term bumps.
The current economic crisis does not have a single source. It comes from a multitude of slow changes, creeping evolution to the system. Apple manufactures in China not due to low labor cost, but due to low overall cost. Apple’s subcontractor, Foxconn, does not need to worry about healthcare, about training, about retirement, as China’s government handles all of that for them. The United States used to handle training and retirement, making us a very competitive operation against nations such as China. Now, decades of neglect leave both to be desired. In addition, Apple has been hit hard in the press for reports of child labor and suicides at plants building their products. And with reports of widespread riots shutting down the factory for several days, Apple is wise to be casting its eyes to a more stable nation.
Apple’s move, to open a manufacturing line in the US, is a baby step, but an important one. It wants to see if our government is willing to take the steps needed to be competitive in the global market. Time will only tell if their gamble will pay off.