Friday, January 27, 2012

The "tech equals jobs" myth rolls along in the halls of government but briefly not in the tech biz press

In the posts here a great deal of sarcasm has been offered regarding politicians embracing the executives of Silicon Valley and high tech generally. Finally, others with ostensibly more high tech credentials than I are beginning to observe that our "emperors" have no clothes.

Let me preface the following discussion by pointing out that Apple Inc. has been singled out in the current discussion because
  1.  the numbers involved are big, really big, and 
  2.  this week the President in his State of Union Address indicated that no one in the White House reads The New York Times by invoking the ghost of Steve Jobs and the other side of the Congressional Aisle stupidly jumped right in to share in the we-like-Jobs (that's a capital "J") because they definitely won't read The New York Times.
As one article in a tech journal put it:
Apple may be the poster child for manufacturing abroad, but HP also uses Foxconn heavily. Analysts estimate that Apple will be roughly 40 percent of Foxconn’s revenue in 2012. HP is about 25 percent, according to Fubon Research. No one is writing about HP though even though its supply chain report reads just like Apple’s. Every electronic you have on you right now goes through China. The data center that powers the cloud behind those devices were also made by folks stacked in tech dorms in China. The minerals in the battery were mined somewhere. Deep down do you really give a rat’s ass about the working conditions that created those relatively inexpensive devices? Of course not, you’re from a Western economy. And from what I can tell you’re still buying as much tech gear as you can.

It’s not just tech. Tech is being thrown under the bus with this debate because it’s sexier. Ever notice how everything you wear comes from somewhere else too. We go to Wal-Mart, Target or wherever and demand cheap chic. You don’t get cheap without inexpensive labor. In the fashion industry the race is on to find more sourcing outside of China. Why? Labor costs are going up. Africa is looking good at the moment. Rest assured that shirt on your back has some exploited labor behind it. In fact, everything you own comes from a supply chain that probably has multiple things you just don’t want to know about. You could swap out Apple in that New York Times story and replace it with almost any American corporate giant.
We all know "almost any American corporate giant" is...well, if you aren't in the mood to read anything but my conclusion click here.

This week David Gerwitz1 joined the slowly growing group of those aware of the truth trying to get the message across.

Gerwitz notes:
It’s been a banner week for Apple. With Apple’s announcement of Q1 2012 results, the company is now apparently worth more than Greece.

In the same week, the President of the United States invoked the late Steve Jobs and Apple in his Congressionally-mandated State of the Union address.

Just a few hours later, in the GOP response to the President’s speech, Governor Mitch Daniels also played the Steve Jobs card, saying “The late Steve Jobs — what a fitting name he had — created more of them than all those stimulus dollars the President borrowed and blew.”

Partisanship aside, certainly Apple has created a lot of jobs over the years. But today, most of the jobs created by Apple are not American jobs, they’re sweatshop-style jobs for miserable, overworked workers in China.
Last week, before the State of the Union, The New York Times noted:
When Barack Obama joined Silicon Valley’s top luminaries for dinner in California last February, each guest was asked to come with a question for the president.

But as Steven P. Jobs of Apple spoke, President Obama interrupted with an inquiry of his own: what would it take to make iPhones in the United States?

...Mr. Jobs’s reply was unambiguous. “Those jobs aren’t coming back,” he said, according to another dinner guest.

...Apple has become one of the best-known, most admired and most imitated companies on earth, in part through an unrelenting mastery of global operations. Last year, it earned over $400,000 in profit per employee, more than Goldman Sachs, Exxon Mobil or Google.

However, what has vexed Mr. Obama as well as economists and policy makers is that Apple — and many of its high-technology peers — are not nearly as avid in creating American jobs as other famous companies were in their heydays.

Apple employs 43,000 people in the United States and 20,000 overseas, a small fraction of the over 400,000 American workers at General Motors in the 1950s, or the hundreds of thousands at General Electric in the 1980s. Many more people work for Apple’s contractors: an additional 700,000 people engineer, build and assemble iPads, iPhones and Apple’s other products. But almost none of them work in the United States. Instead, they work for foreign companies in Asia, Europe and elsewhere, at factories that almost all electronics designers rely upon to build their wares.

“Apple’s an example of why it’s so hard to create middle-class jobs in the U.S. now,” said Jared Bernstein, who until last year was an economic adviser to the White House.

“If it’s the pinnacle of capitalism, we should be worried.”
Before going any further, here is exactly what President Obama said in his State of the Union Address this week:
You see, an economy built to last is one where we encourage the talent and ingenuity of every person in this country. That means women should earn equal pay for equal work. (Applause.) It means we should support everyone who’s willing to work, and every risk-taker and entrepreneur who aspires to become the next Steve Jobs.

After all, innovation is what America has always been about. Most new jobs are created in start-ups and small businesses. So let’s pass an agenda that helps them succeed. Tear down regulations that prevent aspiring entrepreneurs from getting the financing to grow. (Applause.) Expand tax relief to small businesses that are raising wages and creating good jobs. Both parties agree on these ideas. So put them in a bill, and get it on my desk this year. (Applause.)
The President, who knows that the Apple Inc's don't represent any real hope for economy, nonetheless reinforced the conventional wisdom that American's tend to believe instead of facts.

We need to get some of the facts on the table. If Apple employs 43,000 people in the United States, we have to understand that at least one-third are Apple Store employees. According to a recent report:
It turns out that in 2010, Apple Store revenue was $481,000 per employee. It's at about $320,000 per employee through three quarters of 2011, according to Dediu. That projects to a dip from 2010's record numbers to $427,000 in revenue per employee for this year, though one would expect fourth quarter Apple Store sales to spike due to the holidays.

...But what about compensation for said employees? Is Apple particularly generous when it comes to its retail employees, considering the gold mine of a cash cow they're a big part of making so profitable?

The answer to that is, well, not so much. Dediu reckons that the average Apple store employee creates sales at the rate of about $278 per hour. Wages for those employees, however, range from $9 to $15 per hour for salespeople and can reach $30 per hour for Genius Bar staff.

Oh, and Apple Stores don't do commissions.
In fact, attempts are underway to unionize Apple Store employees. In an article last Summer, this was reported:
Part-time Apple store worker named Cory Moll is attempting to secure better pay and benefits for he and his coworkers by launching a campaign to form the Apple Retail Workers Union. The union would give the tens of thousands of Apple store employees around the world one singular voice for negotiating better pay, benefits, and treatment.

Moll, who makes $14 an hour in his part-time position with the company, says that his current wage just doesn't cut it in his hometown of San Francisco. For reference, the minimum wage in the city is $9.92 an hour. The intrepid union leader says that his movement is slowly gaining support from the company's notoriously loyal employees.
The time has come to acknowledge the truth stated here in October 2009 when the Gubernator was both literally and figuratively blowing smoke at a reporter for TIME:
Yes, Arnold is the embodiment of California - an aging actor whose image is everything and substance is not very deep. In the case of California's economy, we do have a problem and the promise of California I knew in 1960 is over.

The article focuses on the promise of the future seen in the past of the technology entrepreneurs and venture capitalists - the technopreneurs - without any real analysis of either the past or the future that they represent to the vast number of Californian's who work for a living.

Californian's already know that most of those nifty high-paying technology jobs created between 1985 and 2005 have gone to people making half or less located in other countries and other states. But they keep hearing that the green revolution partly funded by the Obama stimulus bill will be the source of California's magical economy engine.

No one is explaining the truth about that, of course.
The other truth that seems to have been missed by many is what was reported here in February 2011:
Don't be confused by the "economic recovery big-lie corollary." The San Francisco Bay Area and the San Jose Area include major technological centers including Silicon Valley, many established genetic research and development businesses, and many "green" technology centers. Employment, the number of jobs, in this area according to the federal government is the same today as it was in 1990....

In January 1994 the NASDAQ composite index was at 800. In July -September 2002 it several times closed at over 4,200. In September 2002 it frequently closed at under 1,200. That's the technology boom-bust pattern we have seen.

About half of the dot-com companies survived after 2004. A very few, like Amazon, eBay, and Google are significant firms. The layoffs in the private sector were in the hundreds of thousands in the corridor from San Francisco through San Jose....

Essentially, in terms of private sector job growth the decade between 1995 and 2005 was lost....
On October 7, 2009, the question raised here was What's the purpose of an "economy"?

That brings us back to the facts troubling David Gerwitz. They are relatively simple. In it's most recent quarterly statement Apple Inc. indicated it had $97.6 billion in cash. About two-thirds or $64 billion was reported being held by Apple "offshore" at the end of December. Gerwitz clearly stated his problem:
But Apple is a U.S. company. We know it is because both the President and the loyal opposition just pointed to it (or to the Dearly Departed, in any case) as a model for American business. ...I’m not an international finance expert, but the idea — the mere idea — that a company like Apple would store its big wad of loot offshore to avoid paying its fair share to America makes me ill.
His article points out that Microsoft has $42 billion overseas, as do Cisco and many others. So he and others struggle with the problem which they identify as not being an Apple Inc. problem. Well, maybe, but the story in The New York times offers an example that revolves around Apple. Some might call it anecdotal, but it carries with it the unfortunate truth of having a "world economy" involving international corporations but local labor markets:
The first time Eric Saragoza stepped into Apple’s manufacturing plant in Elk Grove, Calif., he felt as if he were entering an engineering wonderland.

It was 1995, and the facility near Sacramento employed more than 1,500 workers. It was a kaleidoscope of robotic arms, conveyor belts ferrying circuit boards and, eventually, candy-colored iMacs in various stages of assembly. Mr. Saragoza, an engineer, quickly moved up the plant’s ranks and joined an elite diagnostic team. His salary climbed to $50,000. He and his wife had three children. They bought a home with a pool.

“It felt like, finally, school was paying off,” he said. “I knew the world needed people who can build things.”

At the same time, however, the electronics industry was changing, and Apple — with products that were declining in popularity — was struggling to remake itself. One focus was improving manufacturing. A few years after Mr. Saragoza started his job, his bosses explained how the California plant stacked up against overseas factories: the cost, excluding the materials, of building a $1,500 computer in Elk Grove was $22 a machine. In Singapore, it was $6. In Taiwan, $4.85. Wages weren’t the major reason for the disparities. Rather it was costs like inventory and how long it took workers to finish a task.

“We were told we would have to do 12-hour days, and come in on Saturdays,” Mr. Saragoza said. “I had a family. I wanted to see my kids play soccer.”

Modernization has always caused some kinds of jobs to change or disappear. As the American economy transitioned from agriculture to manufacturing and then to other industries, farmers became steelworkers, and then salesmen and middle managers. These shifts have carried many economic benefits, and in general, with each progression, even unskilled workers received better wages and greater chances at upward mobility.

But in the last two decades, something more fundamental has changed, economists say. Midwage jobs started disappearing. Particularly among Americans without college degrees, today’s new jobs are disproportionately in service occupations — at restaurants or call centers, or as hospital attendants or temporary workers — that offer fewer opportunities for reaching the middle class.

Even Mr. Saragoza, with his college degree, was vulnerable to these trends. First, some of Elk Grove’s routine tasks were sent overseas. Mr. Saragoza didn’t mind. Then the robotics that made Apple a futuristic playground allowed executives to replace workers with machines. Some diagnostic engineering went to Singapore. Middle managers who oversaw the plant’s inventory were laid off because, suddenly, a few people with Internet connections were all that were needed.

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.

There were employment prospects in Silicon Valley, but none of them panned out. “What they really want are 30-year-olds without children,” said Mr. Saragoza, who today is 48, and whose family now includes five of his own.

After a few months of looking for work, he started feeling desperate. Even teaching jobs had dried up. So he took a position with an electronics temp agency that had been hired by Apple to check returned iPhones and iPads before they were sent back to customers. Every day, Mr. Saragoza would drive to the building where he had once worked as an engineer, and for $10 an hour with no benefits, wipe thousands of glass screens and test audio ports by plugging in headphones.
As I said in October 2009, if the purpose of an economy is to make international corporations more productive and their owners and management more wealthy, then we have had a very successful tech-based economy over the past three decades.

On the other hand, if the purpose of an economy refers to the ways in which people use their environment to meet their material needs and you measure it in terms of the size and wealth of the middle class, the American economy is in a long-term decline which may or may not be reversible.

In fact, there is an irony in Apple's image history.

Everyone remembers the Apple commercial frm the 1984 SuperBowl XVIII which was an allusion to George Orwell's novel, Nineteen Eighty-Four, which described a dystopian future ruled by a televised "Big Brother". The rows of marching minions have direct cinematic parallels with those in the opening scenes of the classic dystopian film Metropolis.

Right now if you search on Google News the words "Apple Foxconn workers" you will be led to stories about Foxconn International Holdings Ltd., the Chinese manufacturer used by Apple to produce most of its top selling products. After publishing two frontpage stories How U.S. Lost Out on iPhone Work and In China, the Human Costs That Are Built Into an iPad one writer of a letter to the editor commented:
It’s ironic and disheartening that the company that set out to change the world could accomplish the task only by employing vendors who subject workers to slave-labor wages and an Orwellian work environment.

With all due respect to the late, great Steve Jobs, if the famous 1984 Super Bowl commercial for Apple were reshot, the image of Big Brother on the giant screen might fittingly be his own.

In stark contrast to its counterculture origins, Apple seems to have evolved into the embodiment of everything it once despised — a greedy, callous, ruthless behemoth beholden only to fund managers who demand incremental profits every quarter at any cost.
Yes, it isn't only Apple Inc. But Apple Inc. is the right image for a simple message.

That message is there is no future for workers in the "Silicon Valley tech industry international economic model implemented after 1984". It is worker antagonistic which makes it an anathema, destructive to our way of life and the well-being of working people everywhere.

Yes, it is the logical outcome of a chain of events. So was World War II. No one in their right mind would embrace either as good for humanity. But it appears that our  business leaders have and our governmental leaders had better look out.

As Peter Heather put it2:
Any new flow of wealth – such as that generated by the Industrial Revolution, in more modern times, or globalization – will always spark off intense competition for its control; and, if the amount of new wealth is large enough, those who control it will erect entirely new authority structures. In Western Europe, for instance, the Industrial Revolution eventually destroyed the social and political dominance of the landowning class....
Oh wait, President Obama and California Governor Jerry Brown make regular trips to pay homage to the gurus of the tech industry. So maybe the tech industry leaders have already destroyed the social and political dominance of the alliance between the old industrial manufacturers and labor, advancing all of us to a new era of capital versus labor. And the power has all shifted to capital.

1Gerwitz is a member of FBI InfraGard, the Cyberwarfare Advisor for the International Association for Counterterrorism & Security Professionals, a columnist for The Journal of Counterterrorism and Homeland Security, and has been a regular CNN contributor, and a guest commentator for the Nieman Watchdog of the Nieman Foundation for Journalism at Harvard University. He is the author of Where Have All the Emails Gone?, the definitive study of email in the White House, as well as How To Save Jobs and The Flexible Enterprise, the classic book that served as a foundation for today's agile business movement. Gerwitz is host of the ZDNet Government and ZDNet DIY-IT blogs, CBS Interactive's Distinguished Lecturer, an author, U.S. policy advisor, and computer scientist. He is featured in The History Channel special The President's Book of Secrets, is one of America's foremost cyber-security experts, and is a top expert on saving and creating jobs. He is also director of the U.S. Strategic Perspective Institute as well as the founder of ZATZ Publishing.

2 From The Fall of the Roman Empire : A New History of Rome and the Barbarians by Peter Heather

No comments: