Apple, Foxconn and The iConomy

Apple, the creators of the iMac, the iPod, the iPhone and iPad as well as other must-have devices, are now industry leaders in providing personal computing and related technologies. But amongst the latest gadgets and a total income of over $108bn (2011), what of the company’s workers and workforce? How do they fare under the influence of a company with more money than the US Government? (In July 2011 because of the debt-ceiling crises, Apple at one point had bigger cash reserves than the US State). Not so good would be the short answer.

Apple itself employs around 60,000 people worldwide and by some accounts can be a strange place to work. Despite the famous informality of jeans in the office, reports in a recent book (Inside Apple by journalist Adam Lashinsky) claim working for Apple is like being ‘in a cult’. With overbearing management, extreme secrecy and even ‘lock-down rooms’ constructed inside other rooms to prevent information being leaked outside the company, ‘paranoid’ may not be too strong a word. Many employees have been fired for discussing their jobs outside work and it is rumoured that company spies operate in bars and venues used by employees. Lashinsky states: ‘So there’s no confusion, the penalty for revealing Apple secrets, intentionally or unintentionally, is clear: swift termination.’ An ex-Apple employee goes further saying that Steve Jobs (now deceased) would make it clear before any media ‘company broadcast’ about new developments or products, that ‘Anything disclosed from this meeting will result not just in termination but in prosecution to the fullest extent our lawyers can.’

Lashinsky also describes Apple as ‘cultish’, and states that ‘neophytes are entrusted with only so much information’. He goes on: ‘As with any secret society, trustworthiness is not assumed. New additions to a group are kept out of the loop for a period of time, at least until they have earned their manager’s trust.’

A senior Apple engineer said: ‘People are so committed that they go home at night and don’t leave Apple behind them. What they do at Apple is their true religion.’ It is alleged that Apple operates around the concept of disclosure – Jon Rubinstein, a former senior hardware executive at Apple, says, ‘We have cells, like a terrorist organisation. Everything is on a need-to-know basis.’ So much for the ‘be inspired every day’ tag line on Apple’s recruitment page, then.

Outside America and Europe things are worse though. Despite early Apple claims to be ‘made in America’ the company have for years been outsourcing work to China and other far eastern countries. One of the main contractors for Apple abroad is a Taiwanese concern called Foxconn, part of the Hon Hai Precision Industries Company. With factories in China and Taiwan, Foxconn is staggeringly huge and is now estimated to employ well over a million people – 500,000 work at its huge Shenzhen facility in China alone. These mega factories are small cities in themselves with shops, barbers, banks and other facilities within the factory complex. Workers are housed in huge dormitories and never leave the site. Overcrowding is rife.  One online estimate states that it is ‘five times the density of population as Mumbai’. Working hours are long and pay is very low by western standards. In 2011 no fewer than ten workers killed themselves in the Shenzhen plant alone and another three attempted the same act. Many jumped from buildings, including one who had lost a prototype iPhone, prompting a media outcry.

The company responded in typically business-like fashion by introducing a new anti-suicide clause in its workers contracts – apparently those desperate enough to want to take their own lives will think again if it means a breach of contract. They also cynically raised wages twice in one week in 2011 which brought the average basic pay of an employee from 1200 to 2000 yen a month, or roughly from £130 to £200.

Death may not come by one’s own hand here though. In May of 2011, Foxconn again hit the headlines when a massive explosion ripped through the plant where the shiny aluminium backs for Apple’s iPad2 are polished, killing three workers and injuring many more.  From reading online news reports, however, the biggest worry seems not to be about the dead and their families but about whether the gadget-hungry fools in the West would get their iPad2 on time.

Workers in China travel far to get jobs in this plant. An in-depth article in the New York Times (25 January) reported on one such individual. It stated: ‘When Mr. Lai finally landed a job repairing machines at the plant, one of the first things he noticed was the almost blinding lights. Shifts ran 24 hours a day, and the factory was always bright. At any moment, there were thousands of workers standing on assembly lines or sitting in backless chairs, crouching next to large machinery, or jogging between loading bays. Some workers’ legs swelled so much they waddled. ‘It’s hard to stand all day,’ said Zhao Sheng, a plant worker.’

The article goes on to say ‘Banners on the walls warned the 120,000 employees: ‘Work hard on the job today or work hard to find a job tomorrow.’ Apple’s supplier code of conduct dictates that, except in unusual circumstances, employees are not supposed to work more than 60 hours a week. But at Foxconn, some worked more, according to interviews, workers’ pay stubs and surveys by outside groups. Mr. Lai was soon spending 12 hours a day, six days a week inside the factory, according to his paychecks.’

The long hours and low pay are not the only issue. The NYT article notes that: ‘Mr. Lai’s college degree enabled him to earn a salary of around $22 a day, including overtime — more than many others. When his days ended, he would retreat to a small bedroom just big enough for a mattress, wardrobe and a desk.’

‘Those accommodations were better than many of the company’s dorms, where 70,000 Foxconn workers lived, at times stuffed 20 people to a three-room apartment, employees said. Last year, a dispute over paychecks set off a riot in one of the dormitories, and workers started throwing bottles, trash cans and flaming paper from their windows, according to witnesses. Two hundred police officers wrestled with workers, arresting eight. Afterward, trash cans were removed, and piles of rubbish — and rodents — became a problem.’

Sadly, Mr Lai was one of the workers killed in the explosion at the iPad plant. He suffered 90% burns and died in hospital two days later, his girlfriend only recognising him from his legs. The explosion was later found to have been caused by aluminium dust igniting as three polishing lines worked continuously to keep up with demand a few weeks after the iPad2 was launched. In the drive for profits at any price, though, neither Apple nor Foxconn paid much heed it seems. Just seven months later in December 2011 an iPad factory in Shanghai exploded from……..igniting aluminium dust, resulting in 59 injured, 23 of them hospitalised.

Foxconn, however bad, are not the only villains in the piece and Apple has to take a lot of the blame. When the world’s media started publishing stories about these conditions, notably an undercover report from the Daily Mail, Apple were shocked into action. A massive auditing operation of their suppliers was carried out and the results published. Some of these results showed allegations of under-age workers (under 16 in China) being hired – one audit in 2010 acknowledged 91 employees found to be under this age or were when they were hired at Foxconn alone. Although seemingly going in the right direction, there is a large element of smoke and mirrors being deployed. As a former Apple executive with firsthand experience commented in the NYT report ‘Noncompliance is tolerated, as long as the supplier promises to try harder next time…’

But others disagree. Business for Social Responsibility (BSR) has twice been used by Apple to advise on such issues: ‘We’ve spent years telling Apple there are serious problems and recommending changes,’ said a consultant ‘They don’t want to pre-empt problems, they just want to avoid embarrassments.’

While Apple may indeed have spent 2010 getting more adept at identifying problems and forming action plans to put things right, the company’s own report admits that if situations have not been resolved within 90 days of an audit, it will only ‘continue to collaborate with the supplier towards further improvement.’ It is obvious that the die has been cast – Apple really has nowhere else to go to get its products made: it needs its suppliers as much as they need Apple. Both are caught in the relentless quest for profit at any cost. This is borne out by Apple being approached by companies desperate to become a new supplier. When Apple decides to see if they can supply a particular product or part, they contact the company. The NYT reports says: ‘When the news arrives that Apple is interested…small celebrations erupt. Then, Apple’s requests start.’

Apple typically asks suppliers to specify how much every part costs, how many workers are needed and the size of their salaries. Executives want to know every financial detail. Afterward, Apple calculates how much it will pay for a part. Most suppliers are allowed only the slimmest of profits. So suppliers often try to cut corners, replace expensive chemicals with less costly alternatives or push their employees to work faster and longer, according to people at those companies.

‘The only way you make money working for Apple is figuring out how to do things more efficiently or cheaper,’ said an executive at one company that helped bring the iPad to market. ‘And then they’ll come back the next year, and force a 10 percent price cut.’

The financial evidence for the above is also available. A recent Bloomberg chart shows that from 2007 and the introduction of the iPhone, Apple’s profit margins have increased to over 30%. Over the same period, Hon Hai Precision Industry (Foxconn’s parent) has stayed steady at just 1.5%.  

‘Hon Hai is willing to sacrifice margins so it can get volume and scale,’ said Vincent Chen, in the same candid report.  Chen is an analyst at Yuanta Financial Holding Co in Taipei who has a ‘buy’ rating on the stock. ‘Apple is also getting so large that it needs a supplier that can provide such scale.’

The iPad is ‘very difficult to make,’ Hon Hai founder and Chairman Terry Gou told shareholders in June. Gou’s strategy has earned him the nickname ‘Low-Cost Terry,’ according to Chen.’

Low cost indeed, but high profit for Apple. The real cost as always, is being incurred by millions of Chinese and Far Eastern workers, living in huge de-humanising factory complexes and  working long hours for little pay in often dangerous conditions. And not just at Foxconn. At another Chinese plant, this time owned by Wintek, the workers actually went on strike. They had been asked to use a noxious chemical called n-hexane which is known to cause nerve damage and paralysis. The substance replaced rubbing alcohol to clean iPhone screens, as it evaporates to the air three-times faster and speeds up production. Over a hundred employees suffered injuries as a result of its introduction, prompting the industrial action. The NYT noted:

‘In its supplier responsibility report, Apple said it had ‘required Wintek to stop using n-hexane’ and that ‘Apple has verified that all affected workers have been treated successfully, and we continue to monitor their medical reports until full recuperation.’ Apple also said it required Wintek to fix the ventilation system.

That same month, a reporter interviewed a dozen injured Wintek workers who said they had never been contacted by Apple or its intermediaries, and that Wintek had pressured them to resign and take cash settlements that would absolve the company of liability. After those interviews, Wintek pledged to provide more compensation to the injured workers and Apple sent a representative to speak with some of them.’

Half a year on, trade and business reports highlight the cut in prices being paid by Apple to Wintek for their services. Business has spoken, unlike Wintek which declines to comment on the issue.

So are Apple alone? Not really. They are merely following, very successfully in monetary terms, the rules of capitalism – namely rule Number One – Profit at All Costs. Moving production from a heavily regulated and therefore expensive country like the USA to a relatively unregulated and therefore much cheaper country like China makes perfect economic sense from a capitalist’s point of view. The market dictates all. An Apple executive sums up this attitude with a salient point: ‘You can either manufacture in comfortable, worker-friendly factories, or you can reinvent the product every year, and make it better and faster and cheaper, which requires factories that seem harsh by American standards, and right now, customers care more about a new iPhone than working conditions in China.’

The reality of modern capitalism is that it transcends national borders. Barrack Obama once asked Apple CEO Steve Jobs, ‘when are those manufacturing jobs coming back to the USA?’ Jobs famously replied, ‘Those jobs are never coming home.’ This exchange highlights the way that capital does not heed the often spouted patriotism and rhetoric of politicians but deals in cold hard financial facts. Workers would do well to note this and adjust their own attitudes accordingly. Perhaps if we cared less about new gadgets at any cost, humane and environmental, and instead forged stronger links with workers around the globe, we too could adopt a truly global resistance to the onslaught of capital and start paving the way towards socialism and the end of sweatshops and the consumer culture altogether.

David Humphries

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