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Apple=”Exploding Sweatshops”

February 21, 2012

Guys,

Have you read this investigative report from the NY Times: http://www.nytimes.com/2012/01/26/business/ieconomy-apples-ipad-and-the-human-costs-for-workers-in-china.html?pagewanted=1&_r=1&hp

I wonder what Paul Krugman would say.  I mean, c’mon Paul, exploding factories and nerve damaging chemicals?  There’s got to be a line in the sand somewhere (note: wherever that line is, Gail Collins would have already dispelled my concerns with her dry, sardonic wit).

I wanted to raise this issue largely because I’m trying to make sense of the ethics from an investor and consumer perspective, and also because targeting Apple as the corporate “bad guy” in this really floats my (proverbial) boat.  You see, Christina and I have decided to invest our 30K inheritance in so-called “socially responsible” mutual funds, essentially meaning no stock in S&P500, Phillip Morris, foreign countries with questionable human rights violations, and EPA violators.  Oh, and no companies with exorbitant executive compensation (sorry, Disney, go hack your wares on some other kid’s college fund!).  So far, I’ve settled on this: http://ussif.org/resources/mfpc/mfprofiles.cfm?mf_mfid=2713.  Due to our irrational aversion to risk at the tender age of 28, we decided a balanced portfolio with the highest yielding, socially responsible mutual fund would do.  The 10 year return, you ask?  A whopping 3.5%!  I’ve seen better returns on used Ikea couches.

So I thought I would pose my dilemma to you guys.  And why this particular group of gifted minds?  First, because I know we all heart econ (or used to – Roberto, you were an econ major, no?).  Second, because I’m convinced that we are part of an enduring liberal tradition that is not without its blind spots.  Apple’s rise in market share and popularity is like force of nature.  It’s literally so uncool not to have a Mac that my sophomore sister “gifted” me with her brand new Acer and took out more loans for her 17″ Pro.  I feel like the only person of my age range without some piece of Apple technology.   Unfortunately, my decision to decline a drink from the kool aid of Steve Jobs (who I’m SURE is in Heaven) was not based on moral considerations.  It was based on the fact that I (irrationally) distrust growing monopolies and Macs are so damn expensive.  But honestly, when I pull out my HTC made in Taiwan cell phone in front of my co-workers and their iPhone v23’s, I’m feel a bit embarrassed.

I guess this is what bothers me: how can a 21st century economy so rich produce so many well-meaning, liberal consumers who care so little about how their stuff is made?  And what’s the solution?  I mean, we have such an abundance of material wealth (the 1%) and yet workers are dying from horrible conditions and millions lack basic food and access to clean water (the 99%).  It’s, like, totally protest-worthy!  (I recently heard a statistic on NPR that there are more people dying of starvation today than there were 30 years ago.  That made me sad.  You know what made me sadder?  NOT HAVING AN iPHONE).

I have a few observations I’d like to knock around.  First, I just can’t fathom how capitalism can produce such jarring inequality and harmful results.  By the way, I defend capitalism all the time to my uber-lefty friends by making the “we are all better off…eventually” speech.  Second, if capitalism does produce such enormous prosperity, and that wealth is supposedly spread, couldn’t we actually give a slice to those Foxconn workers rather than offer them sprinkles?

I’ve heard a few arguments for American society’s tolerance of horrid working conditions that seem fairly common:
1. “It’s the (worldwide and Historical) economy, stupid”: Akin to the “we are all better off” schpeel I give to my Marxist peeps, the contention that the global economy produces unprecedented wealth that raises the living standards of all interdependent nations in that economy is getting a bit, shall we say, old.  And it doesn’t seem to fit the facts.  China appears to be developing some semblance of workplace accountability and products liability law because of political forces and not economic policy.  Sure, unfettered growth and a rise in GDP per capita (because GDPPPerson sounds funny) can contribute to increased awareness and voice, but the establishment of legal regimes seems more important.  Or at least, it doesn’t involve so many kids dying from contaminated milk.
2. “Market actors will eventually conform to consumer concerns”: That’s valid but it doesn’t seem to work when consumers either don’t have sufficient information or the demand for a product is so enormously high that they behave like moral lemmings.  I’m the chief offender: I thought the majority of Mac production and supply was made in the US due to intellectual property theft concerns.  Apparently, they just force foreign workers to kill themselves if something is lost on their watch.  Also, apple is so popular, one wonders if free market economists have an entirely different definition of “rational behavior” than the rest of us.  Besides, isn’t that what Mac’s PR department (going directly to Hell) is for?
3. “I’m too insignificant to make a difference”: In my view, this isn’t even an argument, it’s a really a lame excuse.  It’s like an drunk who refuses to try to quit because his actions won’t cure worldwide alcoholism.  But I have to admit, it’s still compelling to me.  I mean, why bother?  And this is what gets my goad (or grinds my goat or whatever), so many (myself included) seem to put on this “veil of ignorance” (the bad kind, sorry Rawls) when it comes to stuff we REALLY want.  I mean, is our generation actually becoming more socially conscious?  Or are we doomed to repeat the errors of our Tang-drinking forefathers (sorry, Tim)?

At the end of day, I think this economic scenario is an ethical dilemma fraught with pitfalls.  Even assuming we agree on what is right, is there such a thing as a completely socially responsible consumer?  Can we be “economically Puritanical”?  I mean, sheesh, I’m grateful they didn’t cover HTC as well; otherwise, I might not have spent the last 2 hours writing this email.  And (from a religious perspective) doesn’t my decision to purchase goods made by unions at tremendously marked up prices undermine my commitment to use my money to feed the poor and give to the needy?  Aren’t unions generally guilty of their own injustice?   What about companies that use unions, like American Apparel, and teeter the child pornography line in their advertising?  Is all lost?

No need to despair – I’m still a Vassar grad!  I propose a few options to get the (proverbial) ball rolling.  Please roll the ball back to me.
1. Tax your injustice: I read a great book called “Friendship at the Margins” about a missionary who wanted to support an family that worked in a Gap sweatshop in India.  He took an additional “tax” of 12% off of anything he bought in the Gap and at the end of the year, sent the family the money.  He also invested in the Gap and paid dividends to the family, but Gap is soooooo not in.
2. Invest your injustice: Institutional investors can play an enormous role in the direction of corporations, but we might be able to play a similar role in smaller businesses by investing in them and asking them to conform to acceptable standards (Victor, remember that arcade/sushi place you wanted to start, I’m in like Flynn!)
3. Accept your injustice, but try to do what is right after a “searching inquiry”: I like this last one best, partially because I think the right decisions we make as individuals are far more meaningful than the wrong ones made by institutions.  I will respect a person if they’ve asked the hard questions and come to a different result (but I don’t usually like them, haha).  This not only translates, therefore, into trusting that advocacy for what is good and true can be achieved on the individual level, but it involves getting into those awkward conversations with another person to figure it out TOGETHER (emphasis on the word “nonjudgmental”).  Hopefully, among the various bundles of goods chosen, the other person and I will choose the lesser of 13 evils.

Those are my thoughts, would love to hear from you all on this.

Thanks for reading,

John

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One Comment
  1. John, I’m very happy you sent this article and started a discussion about it. There’s a lot going on here and the first thing that came to mind was that Lai Xioadong is China’s Jurgis Rudkus minus the immigrant status. This article vilifies Apple detailing the abysmal working conditions of Apple’s suppliers. We’re supposed to question Apple’s methods and reconsider our reverence for the company that supplies the coolest swag this side of the Pacific. Clearly, the NY Times is only telling part of the story, failing to detail the benefits gained on all sides from suppliers to consumers to the American psyche (we’re so creative! unemployment is 8.5% but man are our laptops so thin!!). But, I largely agree with the sentiment, here’s why:

    First, the economic gains from increased efficiency and lower costs from suppliers, which translate into less expensive products (or just fatter profits for Apple) don’t obviously add much to an individual’s utility, let alone society. In econ we simplify things drastically and say that given a budget constraint, a person will try to maximize his or her utility given some choice to consume a bundle of goods. But psychology tells us that we’re bad at making decisions that make us happy. We THINK that buying a new BMW will improve our lives. Or that that buying a new shiny suit will make us feel much better about ourselves. But after a very short time, we revert back to our natural states of happiness and fulfillment. After some basic level of material wealth, things make us less happy than we expect. It’s not to say that we don’t get pleasure from buying things like Apple products, but that the feeling is ephemeral. (Oddly enough, “consuming” experiences has a much more lasting and richer effect). Add to that the fact that production of millions iPods for instance, only adds to the damage we do to the environment, an externality whose cost we don’t price into production, and it appears that the increased social welfare of cheaper Apple products isn’t so obvious.

    Second, Apple is acting like any other corporation, maximizing profit for shareholders. But the legal framework regarding the operations of corporations is outmoded and ought to be altered to one in which the profit motive is at least as important as worker safety, environmental sustainability, worker equality, etc. The single-mindedness toward profits can be profoundly detrimental. Corporations are nothing more than a legal construct, and we can change that if we chose to do so. Now, it might result in a less productive society where output of goods and services decline, but it might improve long-term social welfare if we had corporations act more responsibly. The focus of capitalism is profits, production, and productivity. Growth– better, faster, cheaper– is good. But, I’m not convinced. Think of China as the ultimate corporation (or second ultimate–the US economy is still nearly 3x larger than China’s) and that the Communist Party as its board of directors. Their one goal is economic growth at the expense of citizens’ health and the environment. Clearly, the world and the Chinese citizens want China to do more than the perfunctory things it must do at the margins. We can demand more of our corporations and I suspect the Chinese will soon demand more from their government. It will come at a “cost” no doubt in lower profits or growth, but in my estimation its worth it. I think if we could just price in all externalities then we wouldn’t have to worry about all of this–worker conditions, health, safety, etc. But, finding a way to price things like the risk of worker injury into products is no doubt a large feat.

    All that said, there’s also the notion that we’re being a bit patronizing here. Imagine Apple becomes enlightened, and improves factory standards, which increases the costs to produce their products. Perhaps Apple’s suppliers will have to lay people off. Now they’re out of work struggling to feed, house, and clothe themselves because we wanted to feel better about ourselves and the things we buy. Who are we to say to these workers, This work isn’t good enough for you? There is some degree of agency we’re stripping away from them because we want to impose our values in an economy that can’t fully support them. And remember, its largely this current system that has allowed China to take more than 400m people out of poverty. China continues to grow at such a quick speed and, inequality aside, people are better off now than they were even five years ago. Alter this scenario, and China may lose its competitive advantage of cheaper labor and low cost/low maintenance factories. There’s a tipping point where our forced improvements would actually make work in China less profitable to the degree that it would be cheaper for companies to produce products in the U.S. That would obviously negatively affect millions of Chinese. Work gets sent to China and other places largely because they don’t have to adhere to the expensive standards manufacturers have to here in the U.S.

    As consumers all we can do is make informed decisions, and to use a Koechlin term, “Vote with our dollars.” I understand this is difficult to do because the marketing and advertising behemoth is mighty. I’m very certain that my new iPhone has only marginally improved my life, if at all, but I really, REALLY wanted to buy one. But making informed consumption decisions is mentally exhausting. I think the real solution comes when business realize there is money to be made by producing in a way that’s sustainable. Some already do, but few at scale because prices do matter, particularly for elastic goods. But Apple’s products are undoubtedly inelastic. I bet they could still keep their fat profits and improve conditions without losing much in demand if products rose in price 10%. (Whole Foods provides a good example–although it adds a problem that “caring” about production and distribution becomes a luxury decision for elite liberals…but I digress). Either that, or we change the law to change corporate structure. It may be highly improbable, but the payoff would be enormous.

    And John, regarding your investments, you’d do well to just pay off your grad school loans. That’s a clear social good (lol, unless you consider yourself and the things you do with your education suspect) and the money you would save based on the interest rates of your loans should be greater than the money gained from the paltry 3.5% ROI from your society-conscious mutual fund. And if you’re not into the Wang portfolio, the Tineo portfolio is seeking out investors….

    -Victor

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