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About the Author

Andrei Tuch
IT/translator (Estonia)

Technical writer, freelance translator, occasional journalist, all too rarely blogger, wannabe exegete.

Post

Ethics and Electronics

Published 30th June 2010 - 4 comments - 4905 views -

(Title photo jdnx / CC Flickr)

When I read the story of the Foxconn suicides, my first thought was that this would be an opportunity. An opportunity to make a statement, to counter a trend that has been troubling the developed world.

Lara Smallman’s article in the wake of the suicides is a good example of the Western consumer response: “I do not want to buy a device made in this manner.” The opportunity, then, is to bring manufacturing jobs back home. Back to a place where trade unions and the self-respect of qualified workers would demand far higher ethical standards.

This could not happen with just any company. But Foxconn is the world’s largest manufacturer of electronics, and while its headquarters are in free, democratic Taiwan, its factories in mainland China produce devices for just about any company you care to name.

Imagine that a major consumer brand announces that it will no longer sell any devices manufactured abroad. This would have to be a company-wide move, because the marketing depends on a distinctive identity: people will want to buy this brand’s products so that they can take them out in a coffee shop, and show everyone around them how ethical they’re being. I’m thinking that in the US, it could be a brand like Alienware (a niche subsidiary of Dell that sells very high-end computers with distinctive styling); in Europe, it could be Archos announcing that all their electronics would be assembled at unionized factories in the EU. Yes, it would be more expensive – but a lot of people would gladly pay a premium for the benefit of being demonstrably ethical. There is even an environmentally conscious component to it: local manufacturing means no transport costs, no burning of fossil fuels in container ships bringing your smartphone over from Shenzhen.

Is it all so ethical, though? Western labourers may have the ability to enforce humane working conditions, but how ethical is it to withhold manufacturing jobs from the developing world? In the wake of the Foxconn scandal and the associated wage increases, I’ve seen predictions that the electronics industry will move away from China and on to places like Vietnam. But Foxconn employs roughly 800,000 people in China, almost half of that at a single enormous factory. Even more people depend on the spending of those factory workers. If Apple decides to move its assembly back to California (or South Dakota, for the cheaper labour and local-government concessions), we won’t be talking about eleven suicides. The resulting human misery will be on par with a small war or medium-sized natural disaster.

Of course, that won’t actually happen. As the Financial Times reports, “Foxconn’s demands to pass on some higher labour costs had not been met favourably by Apple.” Instead of paying twice as much for your iPad if it’s made locally – or just a little more if it’s made at the newly caring and pleasant mega-factory – consumer demand for low prices is driving production out of Shenzhen. China is big; there are still plenty of places where labour costs are ridiculously low, and the people are ridiculously motivated. Don’t feel sorry for the “old” manufacturing regions, either: Foxconn’s mega-factory has been hiring recently, and there is still enough business to go around.

So in a very creaky, roundabout, less-than-efficient way, globalization is working. Chinese labourers, having established the skillset needed to produce (if not design) some of the world’s most desirable goods, are finding themselves in a position of successfully negotiating for better pay and better conditions. (And as people mentioned in the comments to Lara’s article, the Foxconn factory has a lower suicide rate than the Chinese average. At least some of the suicides were apparently motivated by the significant compensation paid by Foxconn to the deceased’s family – which is no longer being issued.) The enormous country has had such a good time, economically, that the government is even relaxing the grip on the value of the yuan, which for decades has been kept low to make exports more competitive.

If the choice was there, which would you prefer? Take back the jobs and know that nobody was abused in the manufacture of your expensive new toy, or keep the products cheap and know that you are contributing to the development of an economy?

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Bonus: How expensive would it get?

I’m not a production engineer, but here’s a few quick calculations. According to research firm iSuppli, the hardware inside a brand new iPhone 4 costs Apple a total of $188. This is before assembling the device in the Foxconn factory and shipping it to customers, it does not account for the costs of running the Apple store network, marketing & promotion, software licenses, or the all-important development of the device itself. However, iSuppli also estimates that Apple’s gross profit margin on an iPhone sale is 50% (with competitors usually having margins of 20-40%). Since we’re talking only about manufacturing labour costs right now, and not R&D or software development, let’s assume that the hardware cost of a finished iPhone in a box is $300. (iSuppli lists the average sale price of an iPhone as $600. In Europe, an unlocked phone that is not subsidized by the mobile carrier sells for 600 Euro, or $733 at today’s exchange rate.)

According to Reuters, Foxconn employees previously received $132 per month, up to $293 with all the recent raises. Let’s use the latter figure (since the $132 is probably without the mandatory overtime). According to the Estonian Department of Statistics, the average net wage for an industrial worker was $750 per month. At a very rough estimate, this makes manufacturing 2,5 times as expensive in the EU as it is in China.

If we keep to a very simplistic calculation, that would make the hardware cost of an EU-built iPhone $750 instead of $300 for a Chinese-built one. In reality, I don’t believe the difference would be that stark – there is an electronics assembly industry in the EU, and there is a factory in Tallinn that assembles mobile phones and other consumer products, and I don’t think that would be the case if the costs were so massively different. If you’ve got better numbers or a more accurate calculation, please go ahead and post it in the comments.

Meanwhile, the difference is $450, or 370 Euro. Would you pay 1,5 times the current price for an iPhone whose entire supply chain was subject to EU regulations?


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Comments

  • Giedre Steikunaite on 02nd July 2010:

    Hi Andrei.

    The issue of prices always comes up when we start talking about poorly paid manufacturers or producers of the goods we find in the global North.  The way they put it, it’s easy: pay decent wages and your phone, ipad or whatever will cost you much more than it does now. Keep impossible-to-live-on wages and you in the West can get your toys easily. So in the end, the poor are paying the price.

    The only way out as I see it (and I’m no economics expert, mathematics and I never got along) is for companies to agree to have lower profits. Meaning, that the wages of factory workers would not affect the final price of a gadget in the West, but rather the wallets of the rich. Tell me, is this possible? Does it make sense? Because I really don’t understand why it’s only the two ends that have to pay (the producer at one end and the consumer at the other), and not the rich fat corporations. Yeah OK it’s capitalism and all that, but we cannot go on like this forever now can we?


  • Andrei Tuch on 02nd July 2010:

    “impossible-to-live-on wages”

    They’re not impossible to live on. They’re just really low. Yes, factory workers in China have a far lower living standard than factory workers in Germany (or even Lithuania). But Foxconn employees in Shenzhen are still far better off than rural farmers in central China. That’s actually why these factors can pay so little - there’s no shortage of labour, because it’s still better than the alternative in the traditional, non-globalized society. Again, the suicide rate in Foxconn City is usefully lower than in the rest of China.

    “companies to agree to have lower profits…Tell me, is this possible?”

    No.

    A corporation is a mechanism, designed to achieve maximum profits in the most efficient way. To prescribe, by law, that no corporation should make more than X euros of profit is the same as prescribing by law that no car should drive more than X kilometers, or that no computer should make more than X billion calculations. It’s very hard to enforce, and doesn’t actually accomplish anything useful.

    It also speaks of a lack of personal responsibility and personal motivation. You’re bothered by the fact that your phone was made by suicidal workers, but you don’t want to pay to make sure it wasn’t? You want someone else, something as abstract as “rich fat corporations”, to foot the bill? That sort of thinking is good for your conscience, but doesn’t help anyone in the developing world.


  • Giedre Steikunaite on 02nd July 2010:

    It’s not only the phones I’m talking about Andrei. Manufacturers and producers in the Majority World include people who make our clothes and people who grow roses for our celebrations. Many of them are not getting paid decent wages even given the cheaper living expenses as compared to those in the global North. And then there are their workers rights which don’t exist in many factories and fields.

    I’m not suggesting a law here. What I had in mind was the corporations which make huge profits could voluntarily agree to have still huge, but a bit smaller profits while paying the difference to their workers. Of course I understand this may sound naive. But please be clear I didn’t suggest any law or forced caps on profits.

    As for personal responsibility, you really misunderstood me here. Look, I myself cannot afford a new phone or a computer, nor new clothes or imported wine. I’m working hard, but all these things you’re talking about are too expensive for me. So no, I cannot pay to make sure my phone wasn’t made by suicidal workers (they’re suicidal not only because their wages are low, but also because of the way they are being treated, which has nothing to do with money). Rich fat corporations are not abstract, they’re very real. And they’re very comfortable with putting the burden of improved workers’ conditions onto the shoulders of the paying consumers.


  • Andrei Tuch on 02nd July 2010:

    “Many of them are not getting paid decent wages even given the cheaper living expenses as compared to those in the global North.”

    They’re getting paid better wages than they would get elsewhere, otherwise they wouldn’t be working in those factories. Short of Blood Diamond-style working at gunpoint, it’s a stage of development that a country has to go through.

    “the corporations which make huge profits could voluntarily agree to have still huge, but a bit smaller profits while paying the difference to their workers.”

    The only way that will happen is if the companies have no other choice - if consumers refuse to buy goods from companies that behave in a non-ethical manner.

    “Rich fat corporations are not abstract, they’re very real.”

    Apple is real. Sony is real. Nike is real. “Rich fat corporations” is an abstract that absolves you of having to th!nk harder about the choices you’re making.


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