The New York Times has a lengthy article, How the U.S. Lost Out on iPhone Work and implies, we, Americans, just can't compete and we should just lay down and die when it comes to advanced manufacturing. Good God, what a sad state of affairs.

In early 2011, President Obama asked what would it take to make the iPhone in the United States instead of China and late Steve Jobs replied:

Those jobs aren’t coming back.

On really? Isn't that the classic CEO speak to get off my case and haven't we heard that one before? Instead of cheap labor being the reason corporations move to China, we have growing, much more sinister, motivations.

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.

What's happening here is like no man exists in a bubble, manufacturing doesn't either. Manufacturing clusters. U.S. multinationals and companies have offshore outsourced so much of their manufacturing, America has lost it's know how. That's how bad the situation is these days to make things in the United States.

Beyond being outraged with the article's lay down and die manufacturing America mentality, there are some very good points in the article as to what the U.S. is doing wrong.

Private companies are not training workers

In the 1990's and earlier, routinely corporations and companies trained workers. From internships to apprenticeships to full bore PhD study support, corporations invested in employees. No longer.

Corporations See No Reason To Hire and Invest in America

We don’t have an obligation to solve America’s problems.

This is one of the quotes from a former Apple executive in the New York Times piece. While the focus in on Apple, this quote could have come from any U.S. based corporate executive's mouth. They take from America in terms of tax loopholes, investments, finance and profits, but corporations have no loyalty, no tie to the very nation they are incorporated in.

Manufacturing Follows Manufacturing

A quote from the article reveals on the iPhone is globally sourced.

All iPhones contain hundreds of parts, an estimated 90 percent of which are manufactured abroad. Advanced semiconductors have come from Germany and Taiwan, memory from Korea and Japan, display panels and circuitry from Korea and Taiwan, chipsets from Europe and rare metals from Africa and Asia. And all of it is put together in China.

For technology companies, the cost of labor is minimal compared with the expense of buying parts and managing supply chains that bring together components and services from hundreds of companies.

What happens as manufacturing clusters move abroad, they can then expand and contract their production much more easily. Manufacturing scales when in large clusters. When a nation has more individual process component manufacturers, the supply chain becomes more localized and it's easier to adjust flows in that supply chain. No more waiting three months to get a new LCD interface. The manufacturer is right down the street and the components going into the circuitry are in the next town over. Have a defect, bug? You can complain, right in the same city, have a meeting, get a redesign supplied in days. Do it state side? You're probably hiring some international supply chain specialist who is really dumpster diving in China, looking for parts that actually work.

This is how America used to be and why, to this day, we have technology cluster cities, in spite of the high costs of living, doing business and insane state governments. America also clusters.

The below article quote says it all. China simply has our manufacturing base.

“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.”

This explains why some manufacturers end up moving to China. It's herd behavior. When all of your customers are in another country, it is no longer feasible to manufacture in the U.S. then ship over your supply via cargo containers that takes two months to arrive. If a manufacturing plant is right next door to their customers, they can have that newly debugged and re-manufactured component to their door within days.

Manufacturing begets manufacturing and America literally threw her manufacturing base into the Pacific where it replanted itself in China.

Unfair Advantages

The kicker in the article describes how Apple needed someone to precision cut the iPhone display glass. Apple sources claim they couldn't find an empty factory in the United States. We all sure know that isn't true. All over the United States there are thousands of empty and decaying manufacturing facilities, chained up, empty and growing weeds. The real problem is as manufacturing was moved or closed, they sold the equipment and highly advanced manufacturing tools to China. Yes, they shipped some of the best manufacturing gear in the world to China, who bought it up at auction at a fraction of the original cost.

These same U.S. companies fired the U.S. citizens who ran that equipment and the manufacturing chain. Many highly skilled laborers are working in low paying retail trade jobs, have lost their homes, their middle class income and their skill sets are now atrophied.

Here is a clear disadvantage for the U.S. China subsidizes their manufacturing. Need a glass cutting plant? The Chinese government swoops in and built a glass cutting wing of the factory.

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.

Slave Labor

While the article tries to poo poo China's cheap labor, that isn't exactly true. Apple, through Foxconn, employs almost 1 million workers in China at slave labor wages, 700,000 of 'em are working directly on Apple products. If the article authors think 1 million slave laborers isn't a factor in manufacturing in China, they haven't done some basic labor costs math. Take this quote as an example:

Nothing like Foxconn City exists in the United States.

The facility has 230,000 employees, many working six days a week, often spending up to 12 hours a day at the plant. Over a quarter of Foxconn’s work force lives in company barracks and many workers earn less than $17 a day. When one Apple executive arrived during a shift change, his car was stuck in a river of employees streaming past.

Let's hope America never competes in such as way as to create a city of technology slaves. This is a prime example of the race to the bottom on labor.

Truckloads of cut glass arrived at Foxconn City in the dead of night, according to the former Apple executive. That’s when managers woke thousands of workers, who crawled into their uniforms — white and black shirts for men, red for women — and quickly lined up to assemble, by hand, the phones.

The thing is, this is happening in the United States, just not for such low wages...yet, although through contract law loopholes, it's getting there. Engineers commonly are up throughout the night, making some artificial deadline some executive demanded. No life, no sleep and so often, no riches in the end.

The article continues about skills whining and such, refusing to mention in China, the company hires, then trains that worker to do the job. There is no skills shortage in the United States. American human resource techniques are idiotic. They use bodyshop houses and other third parties instead of actually recruiting and interviewing or contracting directly. It's so bad they use screening software on resumes instead of bothering to read them. Corporations want prefab workers with exact keywords, with ready made exact skills who will move and work in horrendous conditions. That's correct multinationals, only China can provide slave labor at every skill level.

Additionally these companies already fired the very skilled workers they need. Microsoft, for example, whined about a skills shortage while firing 5,000 engineers and computer scientists. IBM will not even publish their headcounts they have fired so many Americans. The list of companies firing their technology labor while whining about a skills shortage goes on and on.

Case in point is the article's typical labor arbitrage example:

Mr. Saragoza was too expensive for an unskilled position. He was also insufficiently credentialed for upper management. He was called into a small office in 2002 after a night shift, laid off and then escorted from the plant. He taught high school for a while, and then tried a return to technology. But Apple, which had helped anoint the region as “Silicon Valley North,” had by then converted much of the Elk Grove plant into an AppleCare call center, where new employees often earn $12 an hour.

Lest we forget about institutionalized age discrimination, Saragoza states the obvious. Corporations routinely fire people over the age of 35 and lord help you if you're a single mother:

What they really want are 30-year-olds without children,” said Mr. Saragoza

It's truly disgusting to see these corporations claim there is a skills shortage, all the while firing, routinely, U.S. workers. There is no skills shortage. What these companies want is more corporate controlled labor forces, who will routinely return to their home country. Why? To technology transfer. Technology transfer from the United States to China and India occurs with people in a knowledge economy. People are the technology transfer vessel.

What is really in short supply are U.S. corporations loyal to this country and policies to make them so. Estimates of job growth by confronting China's currency manipulation alone are huge. There is also a huge shortage of tax incentives and subsidies, tied to hiring and retaining American workers, but we'll leave this story for another post. For now, if only corporations would think different, even consulted their macro economic spreadsheets, we'd be in a much better place. Corporations, don't do the manufacture in China herd group think like Apple did.

Bottom Line

The end of the article points out how Apple's profits have soared and so have their executive bonuses. In other words, only the market and a few people have benefited from Apple's success. The United States and the middle class? Left in the dust like a disposable worker diaper.

While the article is all about Apple, one could strike Apple and put Microsoft, IBM, Cisco, Oracle, Motorola, Intel, Qualcomm, TI in it's place and have an almost identical story.