It's Time to Rethink Chinese Tech Manufacturing

Thursday Feb 24th 2011 by Mike Elgan
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We don't need more cheap tech gadgets, we to be more concerned about where our phones, tablets and other consumer electronics come from.

I love my iPhone 4. It's sleek, elegant, durable and very high quality.

But after reading a recent report by Apple, I started thinking about the workers who make the gadgets and computers in our lives. Were they children coerced into lying about their age by their own schools? Were the workers poisoned with illegal industrial chemicals?

What's my responsibility in all this? After all, we chose to buy the devices we love in part because they're both affordable and high quality. Is all that made possible by the pain of abused factory workers?

Worse, it has become clear to me that, despite promises of reform by all concerned, the problems of Chinese manufacturing are not going to get better any time soon.

Apple Finds Factories Rotten to the Core

Last week, Apple released a document called The Supplier Responsibility 2011 Progress Report, in which they detailed findings of a series of audits of factories that make Apple hardware. Apple also laid out their intentions in the report for addressing the problems they discovered.

The report says 137 workers in factories where Apple products are assembled were poisoned by a nasty chemical called n-hexane 137, which was used without Apple's knowledge or permission. The chemical causes cancer, brain damage and other health problems. Some workers exposed have even publically appealed to Apple for help.

Less than one-third of the factories that make Apple products even appear to comply with Apple's rule that workers can't work more than 60 hours per week or 6 days per week. Many of the workers who make our gadgets work 7 days a week.

Slightly more than half the factories even appear to comply with Apple's safety standards. That's far better than the average Chinese factory, no doubt. One New York Times report from about three years ago offered up this gruesome statistic: In the Pearl River Delta area, where some of the most intense manufacturing takes place in China, workers collectively lose about 40,000 fingers per year.

Apple reminded us of the 13 suicides and suicide attempts at one Foxconn plant alone. One of those suicides was by a man who made a dollar an hour and had averaged more than 70 hours a week during the previous month, in violation of Apple's employment rules.

Some 30 percent of the factories Apple inspected failed standards on emissions, hazardous material management and environmental permits.

In some cases, Apple gave factories lists of demands for improved working conditions to keep earning Apple business. In others, Apple terminated its contract. One factory alone was found to be employing 42 child workers. Apple found that the factory was conspiring with a local school to falsify IDs and threaten kids if they didn't lie to auditors about their age.

The list of abuses by factories in China, partly illuminated by the Apple report, seem to go on and on.

Why China Won't Change

We've been down this road before. Every few years, some Western company is either shamed into disclosing or issues a report voluntarily about the ghastly realities of Chinese manufacturing. Everybody vows to try harder. The factories and outsource manufacturing firms claim to implement new programs to curtail abuses and violations. Workers get a raise (never mind that they'll be forced to retire in their 30s so management can bring in younger, more timid and lower-paid workers).

And the Chinese government often announces bold new initiative and laws to fix the problems. Everybody is reassured, and then it's back to business as usual.

The problems never get fixed. There are three main reasons for that.

First, some of the manufacturing is specialized. Apple is a perfect example. Only a small handful of companies in the world can deliver iPhones to Apple with the quality, quantity, flexibility and speed that they currently do. To find an alternative to these companies would put Apple at a competitive disadvantage.

And these huge companies have enormous control over the entire supply chain of components that go into gadgets. Apple could move its manufacturing elsewhere, but then find itself unable to acquire enough screens, for example.

Apple depends on these companies more than they depend on Apple. And so Apple's power to effect real change is much more limited than its rosy report would lead us to believe.

Second, the whole Chinese system is fundamentally problematic. After decades of catastrophic experiments with collectivization, cultural revolution and Maoist socialism (all of which left China desperately poor), China finally found a winning combination in the form of capitalist markets plus Communist Party controlled authoritarianism. China is still in its "catch-up" phase of development, and all sectors of the Chinese political and economic systems are focused on rapid development at all costs.

Even the courts are generally on board with the government's goals of rapid industrialization, which makes sense given their lack of independence from the Communist Party. Judges often rule against workers, foreign companies and any others who might apply brakes to the Chinese manufacture-and-export juggernaut.

While the central Chinese government has enormous control over the actions of individual Chinese people, it has far less control over powerful regional oligarchs, who straddle business and politics and run their own private fiefdoms with impunity. Some of these high-ranking party members either own businesses outright, or accept huge bribes from those who do own the factories to look the other way on zoning, environmental standards and labor practices.

And third, Chinese manufacturers are in a position where the best "solution" is not to solve anything, but do a better job lying about abuses and violations.

Pressure to adhere to environmental, safety and labor standards, while simultaneously offering the lowest possible prices, often motivates Chinese factories to innovate in the area of faking documents, lying to their clients and staging fake conditions to showcase to visiting inspectors. They believe it's the only way to win bidding wars for contracts, and they may be right.

Western companies monitor factories through official audits. These auditors request documents, such as billing records, accounting documents and various certifications that demonstrate chemicals used, salaries paid and compliance with environmental and safety regulations.

But in China, an enormous industry of consulting companies has arisen whose sole purpose is to help factories pass those audits by any means necessary. They bribe officials, make fake documents and generally do whatever it takes to convincingly lie to the auditors.

Why More Gadgets Should Be Built Outside China

The most amazing and inexplicable fact in all this is how everyone has become convinced that US factories can't and don't make things anymore, and that China manufactures everything. In reality, the United States is the world's top manufacturing country.

While Chinese manufacturing favors cheap gadgets, clothing, toys and other consumer items, US manufacturing is skewed toward higher value products, like airplanes and weapons. And there's no question that Chinese manufacturing has grown faster and is still growing faster than in other countries. But the idea that the country that manufactures more goods that any other can't manufacture goods is bizarre. It can be done. It will just cost a little more.

And there are many other potential manufacturing locations besides China and the US.

Why do companies offshore manufacturing to China? One reason is that labor is cheap. The average -- not the minimum, the average -- hourly wage in China is $1.36 per hour (in the United states, it's $32 per hour).

Another reason is that many Chinese manufacturing companies cheat and lie, facts clearly exposed in Apple's report.

The saddest part of this very sad story is that the factories audited by Apple represent the very best in Chinese manufacturing, and Apple itself is probably doing far more to address abuses than most other companies. The rest of the industry in China is characterized by abuses far worse.

Many of the devices covered by gadget blogs and lusted over by consumer electronics fans are incredibly cheap products sold on ecommerce sites like Alibaba (recently embroiled in a massive fraud scandal) or via catalogs like Brando.

These sites sell hundreds of thousands of no-name consumer electronics built using standards far below those at Foxconn.

Consumer electronics as cheap as these unbelievably cheap no-name gadgets made in China tend to be manufactured by factories that abuse workers, employ children, poison the environment and lie about it all.

The bottom line is that there's no such thing as a cheap gadget. We can either pay with a few extra dollars, or we can let impoverished youth in China pay with their lives, their health and their happiness.

Besides, cheap devices don't enable people to save money. Most people spend the same money as they otherwise would – but then buy more gadgets.

I think it's time we realize that we don't need more gadgets. We need more concern about where our phones, tablets and other consumer electronics come from.

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