The problem with Apple

I recently stumbled on this article callled “Bad Apple: Could the Era of Exploitation Outsourcing Be Near Its End?” in which the author argues that the moral implications of Apple’s use of Chinese labour to cut costs is catching up with them. Apple’s success, he argues, has to some extent been built on the backs of poor Chinese factory workers. And while we have been willing to turn a blind eye to this, a day of reckoning is coming.

As has been widely trumpeted in the media for the last couple of years, the working conditions and wages paid in some Chinese factories making Apple products leaves a lot to be desired by North American standards. The reports about Foxconn are probably the most widely known. Similar things have been said about Nike outsourcing for years.

It is difficult to get at the real issues in cases like this. Writers of articles like the one I’ve referenced above reflect a pretty conventional view and tend to make fairly hackneyed assumptions. They just assume that outsourcing by major companies is BAD at both ends. It takes “good” jobs and salaries away from Americans and Canadians, and “exploits” workers in relatively low wage countries like China.

But in most cases the companies doing the outsourcing have already concluded that their products would not be financially viable if they used local labour – presumably it would be too expensive. So the high paying local jobs, according to their calculations, would not exist in any case.

Meanwhile, at the other end, the “exploited” workers mysteriously prefer to work in factories like Foxconn. You have to assume it is because the alternatives are worse. This is a classic free market argument: even in their “exploited” state, Chinese workers are better off in these factories. Otherwise they would do something else.

As Matt Ridley says in his book, “The Rational Optimist” the quality of life for people moving from farms to factories is always significantly improved. This was true in England, the United States, and Japan in previous centuries and it has been true in China and much of Asia for the last few decades.

I conclude that it is hard to fault Apple for outsourcing. They may have miscalculated the relative advantage this gives them – although not likely since thay are making billions in profits – but this is hardly a moral shortcoming.

Many North American companies are finding outsourcing less and less attractive. The costs of moving, training a new workforce, and coordinating with partners on the other side of the world are just too prohibitive. At the same time we are seeing adjustments in factory wages. They are increasing in places like China and India and decreasing (relativly speaking) in North America and Europe.

As I have stated elsewhere, Apple’s future problem is the reason for its incredible success today. They have created a line of products inspired by a relatively simple idea – the iPod – and have successfully spun it in a variety of profitable directions.

But the problem with such phenomenal success through innovation and “ideas” is that you have to keep coming up with new ones and most of us can’t get very far past our one good idea. Innovation usually comes from individuals operating at a certain level of desperation. Think of the Wright Brothers, Alexander Graham Bell, Edison, EBay, Amazon, Google, Facebook, Microsoft. It could just be that Apple is now too big to come up with truly new ideas.