Ever since the beginning of the current
global economic crisis, the focus of both critical
analysis and public odium has been speculative
capital. In the populist narrative, it was the
breathtaking shenanigans of the banks in an
atmosphere of deregulation that led to the
economic collapse.
The "financial
economy", characterized as parasitic and bad, was
contrasted to the "real economy", which was said
to produce real goods and real value. Resources
flowed into speculative activities in finance,
resulting in a loss of dynamism in the real
economy and eventually leading to credit cutoff at
the height of the crisis, causing bankruptcies and
massive layoffs.
The principal villain in
this narrative is Goldman Sachs. The image of this
Wall Street denizen has been etched in the public
mind by Matt Taibbi's description of it as "a
great vampire squid wrapped
around
the face of humanity, relentlessly jamming its
blood funnel into anything that smells like
money".
In this account, the old nemesis
of the progressive analysts, the transnational
corporation (TNC), slips quietly into the
background. Indeed, it is seen as part of the real
economy, as the commonly used term "non-financial
corporation" implies. In contrast to the
investment banks that create fictitious products
like derivatives, TNCs are said to create real
products such as Apple's nifty iPads and iPhones.
While Goldman Sachs is pictured as a vampire
squid, Apple is depicted as a corporate Galahad
that can be relied on to deliver the consumer's
wildest desires. In one survey, 56% of Americans
associated nothing negative with Apple.
A
recent two-part series in the New York Times on
Apple, however, reminds us that transnational
corporations and their practice of outsourcing
jobs are front-and-center when it comes to the
current economic crisis. And it is not only
"smokestack" corporations like GM and Boeing that
have massively shifted work from the United States
to cheap labor havens abroad, but also those
involved in the knowledge industry.
Indeed, the highest proportion of firms
with an offshoring strategy belongs to the
information technology and software development
industries. But while HP and Dell have become
associated with outsourcing, Apple's prowess at
turning out products that capture the popular
imagination has kept it from being tainted with
the image of being a labor exporter.
Apple and outsourcing Apple
earned over US$400,000 in profit per employee in
2011, more than Goldman Sachs or Exxon. Yet in the
last few years, it has created few jobs in its
home base and prime market, the United States.
According to the Times account, "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."
The
genesis of the financial crisis, in fact, cannot
be separated from the strategic moves of "real
economy" actors like Apple. Their readiness to
leave their home base and home market was one of
the central causes of the crisis. The creation of
credit was the central link between this trend in
the real economy and the dynamics of finance.
Before we examine this link, however, it is
important to review some facts about outsourcing.
It is estimated that 8 million US
manufacturing jobs were eliminated between June
1979 and December 2009. One report describes the
grim process of deindustrialization:
Long before the banking collapse of
2008, such important US industries as machine
tools, consumer electronics, auto parts,
appliances, furniture, telecommunications
equipment, and many others that had once
dominated the global marketplace suffered their
own economic collapse. Manufacturing employment
dropped to 11.7 million in October 2009, a loss
of 5.5 million or 32% of all manufacturing jobs
since October 2000. The last time fewer than 12
million people worked in the manufacturing
sector was in 1941. In October 2009, more people
were officially unemployed (15.7 million) than
were working in
manufacturing.
Outsourcing and
stagnation in the real economy This
decimation of the manufacturing sector, which
involved the elimination a massive number of
well-paying manufacturing jobs, played a central
role in the stagnation of income, wages, and
purchasing power in the United States. In the
three decades prior to the crash of 2008, Robert
Reich notes, the wages of the typical American
hardly increased, and actually dropped in the
2000s.
This stagnation of income posed a
threat to both business and the state. To the
first, the slow growth of demand would translate
into overproduction and, thus, diminished profits
in the corporations' key market. To the state, it
posed the specter of rising social conflict and
instability.
The threat of a stagnant
market was thwarted - temporarily - by the private
sector via a massive increase in credit creation
by banks, which lowered lending standards and
hooked millions of consumers into multiple credit
cards, with a great deal of the funds lent sourced
from China and other capital-exporting Asian
economies. Credit kept consumption up and fueled
the boom in the 1990s and the middle of the first
decade of the 21st century.
Washington
tried to ward off political resentment by adopting
a strategy of "populist credit expansion", that
is, making easy credit for housing available for
low-income groups via Freddie Mac and Fannie Mae.
Political stability was not the only outcome of
this approach; it was accompanied by greater
profitability for speculative capital.
As
Raghuram Rajan writes, "As more money from the
government flooded into financing or supporting
low income housing, the private sector joined the
party. After all, they could do the math, and they
understood that the political compulsions behind
government actions would not disappear quickly.
With agency support, subprime mortgages would be
liquid, and low-cost housing would increase in
price. Low risk and high return - what more could
the private sector desire?"
The
Apple-China connection Co-opting the masses
with credit expansion collapsed with the financial
implosion of 2008. Today, millions of Americans
are both without jobs and in terrible debt. But,
as the continuing high unemployment rate
indicates, the export of jobs continues unabated,
and China remains the favored destination.
Part of the reason south China retains its
primacy as an investment site is that Chinese
suppliers, with subsidies from the state, have
established an unbeatable supply chain of
contiguous factories, radically bringing down
transport costs, enabling rapid assembly of an
iPad or iPhone, and thus satisfying customers in a
highly competitive market in record time.
Steve Jobs, the legendary founder of
Apple, played a key role in creating this system.
Apple executives recount his wanting a glass
screen for the iPhone that could not be scratched,
and his wanting it in "six weeks". After one
executive left that meeting, says the Times, he
booked a flight to China. "If Mr Jobs wanted
perfect," he recalled, "there was nowhere else to
go."
Mastery of the economics of the
supply chain is, however, only one of the reasons
Jobs and Apple favored China. The central reason
continued to be cheap labor that is disciplined by
the state. What emerges in the Times account about
Apple's practices is that, despite its
protestations about being a socially responsible
firm, Apple bargains hard, allowing its
contractors "only the slimmest of profits". Thus,
"suppliers often try to cut corners, replace
expensive chemicals with less costly alternatives,
or push their employees to work faster and
longer".
"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% price cut."
Not surprisingly,
a number of Apple suppliers have been plagued with
accidents, including explosions, since, as one
former Apple executive put it, "If you squeeze
margins, you're forcing them to cut safety."
The consequences of severe cost-cutting
have not only been accidents but also protests by
workers. Some of them took the tragic route of
suicide, such as those that occurred in 2009 and
2010 at Foxconn, a notorious, gigantic corporate
contractor, while others resorted to spontaneous
labor actions that were put down forcefully by
management and the state.
Apple's products
are top of the line, distinguished by their
superior design, engineering, and personality or
"soul". But the company's march to market
supremacy has been accomplished at tremendous cost
to both American and Chinese workers.
The
iPad and iPhone are engineering masterpieces. But
these commodities are not simply material. They
also incarnate the social relations of production.
They are the expression of the marriage between a
demanding enterprise that has become the
cutting-edge corporation of our time and what
Slavoj Zizek has called today's "ideal capitalist
state": China, with the freedom it offers capital
along with its unparalleled capacity to discipline
labor.
One cannot but agree with Jared
Bernstein, a former White House economic adviser,
when he told the Times, "If it's [the Apple
system] the pinnacle of capitalism, we should be
worried."
Walden Bello is a
Foreign Policy In Focus columnist, a senior
analyst at the Bangkok-based Focus on the Global
South, president of the Freedom from Debt
Coalition, and a professor of sociology at the
University of the Philippines.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
