Reports from the Economic Front

a blog by Marty Hart-Landsberg

Monthly Archives: July 2012

Declining Faith in Hard Work and Capitalism

The Pew Research Center recently published a report titled “Pervasive Gloom About the World Economy.” The following two charts come from Chapter 4 which is called “The Causalities: Faith in Hard Work and Capitalism.”

The first suggests that the belief that hard work pays off remains strong in only a few countries: Pakistan (81%), the U.S. (77%), Tunisia (73%), Brazil (69%), India (67%) and Mexico (65%). The low scores in China, Germany, and Japan are worth noting. This is not to say that people everywhere are not working hard, just that many no longer believe there is a strong connection between their effort and outcome.

The second chart highlights the fact that growing numbers of people are losing faith in free market capitalism.  Despite mainstream claims that “there is no alternative,” a high percentage of people in many countries do not believe that the free market system makes people better off.

 

GlobeScan polled more than 12,000 adults across 23 countries about their attitudes towards economic inequality and, as the chart below reveals, the results were remarkably similar to those highlighted above.  In fact, as GlobeScan noted, “In 12 countries over 50% of people said they did not believe that the rich deserved their wealth.

It certainly seems that large numbers of people in many different countries are open to new ways of organizing economic activity.  This is a hopeful development.

Apple And The Labor Process

Contemporary capitalism, driven by the competitive pursuit of private profit, tends to produce a stream of innovative goods and services. Of course this drive for private profit generally ensures that these goods and services will be the ones that are most likely to satisfy the desires of those with the greatest purchasing power.  Less appreciated is the fact that this pursuit of private profit also tends to promote production processes that are based on exploitative work conditions.  A case in point: Apple products.

Much has been written about Apple’s international production system, in which components produced in Japan, South Korea, Germany and the United States are sent to China, where a Taiwanese company, Foxconn, employs hundreds of thousands of Chinese workers to assemble them into final products like the ipad and iphone.   

Much has also been written about the brutal labor regime employed by Foxconn.  What follows are some extracts from a recently published study by Pun Ngai and Jenny Chan on work conditions at Foxconn (Global Capital, the State, and Chinese Workers: The Foxconn Experience, Modern China, 38:4, 383-410).  

While getting ready to start work on the production line, management will ask the workers: “How are you?” (你好吗). Workers must respond by shouting in unison, “Good! Very good! Very, very good!” (, 非常好, 非常好). This militaristic drilling is said to train workers as disciplined laborers. Production quotas and quality standards are passed through channels down to the frontline workers at the lowest level of the pyramid.  

Workers recalled how they were punished when they talked on the line, failed to keep up with the high speed of work, and made mistakes in work procedures. Several women workers attaching speakers to MP3-format digital audio players said,  

After work, all of us—more than a hundred persons—are made to stay behind. This happens whenever a worker is punished. A girl is forced to stand at attention and read aloud a statement of self-criticism. She must be loud enough to be heard. Our line leader would ask if the worker at the far end of the workshop could hear clearly the mistake she made. Oftentimes girls feel they are losing face. It’s very embarrassing. Her tears drop. Her voice becomes very small. . . . Then the line leader shouts: “If one worker loses only one minute [by failing to keep up with the work pace], then, how much more time will be wasted by a hundred people?” . . . .  

Factory-floor managers and supervisors often give lectures to production workers at the beginning and the end of the work day. After working a long shift of a standard 12 hours (of which four hours are illegally imposed, forced overtime), workers still have to stand, for often 15 minutes to half an hour, and listen to speeches, although the content of such meetings remains the same: the management evaluates the production target of the previous shift, reminds workers of the tasks they need to pay special attention to, and reiterates work rules and regulations. Workers know too well that branded electronic products are expensive and there is no margin for mistakes. Several workers at a mobile phone assembly workshop commented,   

We get yelled at all the time. It’s very tough around here. We’re trapped in a “concentration camp” (集中营) of labor discipline—Foxconn manages us through the principle of “obedience, obedience, and absolute obedience!” (服从, 服从, 绝对服从). Must we sacrifice our dignity as people for production efficiency? . . . .  

Foxconn likes to point out that workers have signed written “agreements” for overtime. This agreement is meaningless since workers enjoy no effective protection from being fired for refusing overtime. While the mandatory overtime work in China stipulated by the Labor Law is 36 hours per month, most of the Foxconn workers usually have 80 hours of overtime work each month. In our interviews, workers described “exhaustion to the point of tears.” In our summer 2010 questionnaire survey, more than 80 percent of the 1,736 respondents had “four days of rest or less in a month” during the peak seasons. Our findings are highly consistent with that of the 5,044-person survey conducted by the Shenzhen Human Resources and Social Security Bureau in the same period: 72.5 percent of the Shenzhen Foxconn workforce put up with excessively long working hours to earn extra income (Diyi caijing ribao, June 17, 2010). . . .  

Workers said that after the basic wage was increased to 1,200 yuan in June 2010, a clear increase in production was scheduled and production intensity increased. A group of young workers at the Shenzhen Guanlan factory responsible for processing cell phone casings said, “Production output was set at 5,120 pieces per day in the past, but it has been raised by 20 percent to 6,400 pieces per day in recent months. We’re completely exhausted.”  

The biggest Longhua factory could produce as many as 137,000 iPhones in a 24-hour day, or more than 90 a minute, as of September 2010 (Bloomberg Businessweek, Dec. 9, 2010). Management used stop-watches and computerized industrial engineering devices to test the capacity of the workers and if workers being tested were able to meet the quota, the target would be increased day by day until the capacity of the workers reached the maximum. Another group of workers at the Kunshan factory commented, “We can’t stop work for a minute. We’re even faster than machines.” A young woman worker added, “Wearing gloves would eat into efficiency, we have a huge workload every day and wearing gloves would influence efficiency. During really busy times, I don’t even have time to go to the bathroom or eat.”   

Foxconn claimed that production workers who stand during work are given a ten-minute break every two hours but our interviewees said that “there is no recess at all,” especially when the shipment is tight. In some departments where workers nominally can take a break, they are not allowed to rest if they fail to meet the hourly production target. Working overtime through the night in the electroplating, stamp-pressing, metal-processing, paint-spraying, polishing, and surface-finishing units is the toughest, according to workers interviewed.  

Of course, Foxconn’s brutal production process owes much to Apple’s demands.  Apple has ultimate responsibility for and control over the entire production process and it continues to subcontract with Foxconn because the company has proven its ability to ensure maximum output for minimum cost.  John Smith, in another recently published article (“The GDP Illusion: Value Added versus Value Capture,” Monthly Review, 64:3, 86-102), highlights the nature of the relationship between Foxconn and Apple as follows:

Meanwhile, in what one study called a “paradox of assembler misery and brand wealth,” [Foxconn] profits and share price have been caught in the pincers of rising Chinese wages, conceded in the face of mounting worker militancy, and increasingly onerous contractual requirements, as the growing sophistication of Apple’s (and other firms’) products increase the time required for assembly.  While Apple’s share price has risen more than tenfold since 2005, between October 2006 and January 2011 [Foxconn’s] share price slumped by nearly 80 percent.  The Financial Times reported in August 2011 that “costs per employee [are] up by exactly one-third, year-on-year, to just under $2,900.  The total staff bill was $272 million: almost double gross profit . . . rising wages on the mainland helped to drive the consolidated operating margin of the world’s largest contract manufacturer of electronic devices . . . from 4-5 percent 10 years ago to a 1-2 percent range now.”  

While hundreds of thousands of Chinese workers carry the burden of direct assembly under the direction of Foxconn, Apple itself employs tens of thousands of U.S. workers to directly sell its final products in the United States.  Although conditions differ greatly in the two countries, and the two workforces have vastly different responsibilities, there are noticeable similarities between the conditions faced by both groups of workers–in particular, their relatively low wages, their long work hours, and the intensity of their work.  A New York Times story captures the situation well in its article titled: “Apple’s Retail Army, Long on Loyalty but Short on Pay.”  What follows are some extracts from the article:  

About 30,000 of the 43,000 Apple employees in this country work in Apple Stores, as members of the service economy, and many of them earn about $25,000 a year. They work inside the world’s fastest growing industry, for the most valuable company, run by one of the country’s most richly compensated chief executives, Tim Cook. Last year, he received stock grants, which vest over a 10-year period, that at today’s share price would be worth more than $570 million. . . . 

Managers often tell new workers that they hope to get six years of service, former employees say. “That was what we heard all the time,” says Shane Garcia, a former Apple Store manager in Chicago. “Six years.” But the average tenure is two and a half years, says a person familiar with the company’s retention numbers, and as foot traffic has increased, turnover rates in many stores have increased, too. Internal surveys at stores have also found surprising dissatisfaction levels, particularly among technicians, or “geniuses” in Apple’s parlance, who work at what is called the Genius Bar. Apple declined requests for interviews for this article. Instead, the company issued a statement:

“Thousands of incredibly talented professionals work behind the Genius Bar and deliver the best customer service in the world. The annual retention rate for Geniuses is almost 90%, which is unheard-of in the retail industry, and shows how passionate they are about their customers and their careers at Apple.”

That 90 percent figure sounds accurate to Mr. Garcia, who quit last July after four years with the company, overwhelmed by the work and unable to mollify employees and customers alike. Plenty of technicians do, in fact, like their jobs, which vary around the country, and which pay in the range of $40,000 a year in the Chicago area. Many technicians, though, wanted to leave but were unable to find equivalent work, according to Mr. Garcia and other former managers, in part because of the weak economy. . . .

Kelly Jackson, who was a technician at an Apple Store in Chicago, was thrilled when she was hired two years ago. But she said she was even happier when she quit a year later, having found the work too relentless and the satisfactions too elusive.

“When somebody left, you’d be really excited for them,” says Ms. Jackson, who now works at Groupon. “It was sort of like, ‘Congratulations. You’ve done what everyone here wants to do.’” . . .

Arthur Zarate, who joined Apple in 2004 and later worked as a technician at the store in Mission Viejo, Calif., says his training left him with a sense of ownership and pride. For a while, he loved the job, in large part because it delivered the simple and gratifying sense that he was helping people. There were time constraints on technicians — 20 minutes per customer — but because the store was rarely swamped, he usually had more time than that.

“My customers knew me by name,” he said. “That was a big deal.”

He had already begun to sour on the job when in 2007, he said, his store began an attendance system whereby employees accumulated a point for every day they did not come to work; anyone with four points in a 90-day period was at risk of termination.

“It was a perfectly good idea, but the thing that was terrible is that it didn’t matter why you couldn’t come to work,” Mr. Zarate said. “Even if you had a doctor document some medical condition, if you didn’t come to work, you got a point.” . . .

To meet the growing demand for the technicians, several former employees said their stores imposed new rules limiting on-the-spot repairs to 15 minutes for a computer-related problem, and 10 minutes for Apple’s assortment of devices. If a solution took longer to find, which it frequently did, a pileup ensued and a scrum of customers would hover. It wasn’t unusual for a genius to help three customers at once.

Because of the constant backlog, technicians often worked nonstop through their shift, instead of taking two allotted 15-minute breaks. In 2009, Matthew Bainer, a lawyer, filed a class action alleging that Apple was breaking California labor laws.

“State law mandates two 10-minute breaks a day,” Mr. Bainer said. “But geniuses had these lengthy queues of customers that made it all but impossible for them to stop even for a few minutes.”

The lawsuit was denied class certification in June of last year. Mr. Bainer pursued the matter in separate lawsuits and achieved what he described as “very favorable settlements” for 10 plaintiffs.

Not long after the class-action lawsuit was filed, a technician named Kevin Timmer who worked at the Woodland Mall store in Grand Rapids, Mich., noticed an added step when he logged onto a computer to punch out of work.

“This window popped up and it said something like, ‘By clicking this box I acknowledge that I received all my breaks,’” Mr. Timmer recalled. “The rumor was that was because some guy in California had sued.”

Mr. Timmer said he and other technicians in the store clicked the box even when they didn’t take any breaks. It wasn’t because management insisted they stick around. It was that any down time would slam already overburdened colleagues with even more work.

“We were all in the trenches together,” he said. “Nobody wanted to leave.”

With time limits, several former employees said, came another change at their stores. Technicians had always been able to spend a few hours of their shift in the repair room, providing a little away-from-customers time. In many stores, that ended. Walk-in demand for tech help was so great that when the bar was open, management at these stores decreed, it was to be staffed by any technician in the building. Repairs that could not be done at the bar would wait. As a result, the late shift in the repair room at these stores ended not at 10 p.m., but at midnight. . . .

In recent years, the level of unhappiness at some stores was captured by an employee satisfaction survey known in the company as NetPromoter for Our People. It’s a variation of a questionnaire that Apple has long given to customers, and the key question asks employees to rate, on a scale of one to 10, “How likely are you to recommend working at your Apple Retail Store to an interested friend or family member?” Anyone who offers a nine or 10 is considered a “promoter.” Anyone who offers a seven or below is considered a “detractor.”

Kevin Timmer said the internal survey results last year at the Grand Rapids store were loaded with fives and sixes.

“We discussed it in a monthly meeting and our manager had tears in her eyes,” Mr. Timmer recalled. “She said something about how humbling these results were, that they want to fix any problems, that her door is always open, and so on.”

Similar figures were found in Chicago.

“By then,” Mr. Garcia said, “it wasn’t a surprise to upper management because it was clear that many geniuses wanted to leave. There was a ceiling. It wasn’t a glass ceiling because everyone could see it.”

Mr. Garcia would eventually quit Apple, and walk away from a job that paid a little more than $40,000 a year, when stress-related health issues sidelined him long enough to put his job at risk. He had no doubts that the company would easily find a replacement. 

While Apple is no doubt a trend setter, it is far from unique.  Most of our leading firms continue to rely on harsh labor conditions and appear determined to maintain them.  And while many recent technological innovations do enrich our lives, we should not forget that different social relations of ownership and production would likely produce different innovations, including ones that might well add far more to our quality of life and collective human development than the ones currently celebrated.

Health Care And Profits

The Supreme Court has ruled favorably on the legality of the Affordable Care Act.  Actually, despite its name, the Act has more to do with extending and attempting to improve private health insurance coverage than it does with improving care or reducing its cost.

Unfortunately for us, the effort to improve our health care system has remained within bounds set by the needs of private health care providers and insurers.  As President Obama made clear from the start of his push for health care reform, there would be no consideration of a universal system.

Critics of such a universal system are always quick to argue that only market forces driven by the private pursuit of profit can ensure an efficient health care system.  Of course, in determining whether this is true, we need to recognize that efficiency is a complex term and that our health care system, like all systems, produces multiple outcomes.  The most obvious ones are private profit as well as the quality and cost of the relevant health care.

In terms of private profit there can be no doubt that our health care system functions well.  However, the story is quite different if we evaluate it in terms of quality and cost.  The fact that we continue to embrace a private health care system makes clear which measures of efficiency are considered most important and by whom.

The following map shows the countries, colored green, that have adopted a universal health care system.      

mf-healthcaremap-p-thumb-615x314-91612.jpg

As Max Fisher explains:

What’s astonishing is how cleanly the green and grey separate the developed nations from the developing, almost categorically. Nearly the entire developed world is colored, from Europe to the Asian powerhouses to South America’s southern cone to the Anglophone states of Australia, New Zealand, and Canada. The only developed outliers are a few still-troubled Balkan states, the Soviet-style autocracy of Belarus, and the U.S. of A., the richest nation in the world.

The handful of developing countries that provide universal access to health care include oil-rich Saudi Arabia and Oman, Latin success story Costa Rica, Kyrgyzstan, and, famously, Cuba, among a few others. A number of countries have attempted universal health care but failed, such as South Africa, which maintains a notoriously inefficient and troubled public plan to complement the private plans popular among middle- and upper-class citizens. . . .

That brings us to another way that America is a big outlier on health care. The grey countries on this map tend to spend significantly less per capita on health care than do the green countries — except for the U.S., where the government spends way more on health care per person than do most countries with free, universal health care. This is also true of health care costs as a share of national GDP — in other words, how much of a country’s money goes into health care.

The OECD just published a major study on the health care systems of its 34 member nations.  It found that:

Health spending accounted for 17.6% of GDP in the United States in 2010, down slightly from 2009 (17.7%) and by far the highest share in the OECD, and a full eight percentage points higher than the OECD average of 9.5%. Following the United States were the Netherlands (at 12.0% of GDP), and France and Germany (both at 11.6% of GDP).

The United States spent 8233 USD on health per capita in 2010, two-and-a-half times more than the OECD average of 3268 USD (adjusted for purchasing power parity). Following the United States were Norway and Switzerland which spent over 5250 USD per capita. Americans spent more than twice as much as relatively rich European countries such as France, Sweden and the United Kingdom.

combined1.jpg

What does all of this mean in terms of health outcomes?  According to the OECD report:  

Most OECD countries have enjoyed large gains in life expectancy over the past decades. In the United States, life expectancy at birth increased by almost 9 years between 1960 and 2010, but this is less than the increase of over 15 years in Japan and over 11 years on average in OECD countries. As a result, while life expectancy in the United States used to be 1½ year above the OECD average in 1960, it is now, at 78.7 years in 2010, more than one year below the average of 79.8 years. Japan, Switzerland, Italy and Spain are the OECD countries with the highest life expectancy, exceeding 82 years.

One possible explanation for this lagging performance, highlighted in an earlier OECD report, is that the U.S. ranked 26th in terms of the number of practicing physicians relative to its population, 29th in terms of the number of doctor consultations per capita, 29th in terms of the number of hospital beds per capita, and 29th in terms of the average length of hospital stay.  At the same time, the “U.S. health system does do a lot of interventions . . . it has a lot of expensive diagnostic equipment, which it uses a lot. And it does a lot of elective surgery – the sort of activities where it is not always clear cut about whether a particular intervention is necessary or not.”

Private health care providers and insurers are clear about how they measure health care efficiency.  And as long as we rely on them to set the terms of the debate we will continue to suffer the consequences.

Profits and Crime

The big banks are still committing crimes at our expense.  And they will continue to do so as along as they face no real punishment.

It turns out that a number of major banks successfully conspired to lower the London Interbank Lending Rate (Libor).  Libor is the interest rate banks charge each other for short-term interbank loans. It is important because many interest rates are pegged to it.  

How do we know that banks engaged in such criminal activity?  Well, as Matt Taibbi reports in Rolling Stone,  

On Wednesday, Barclays won the race to reach a deal with U.S. and British regulators, beating UBS, which was reportedly the first bank to begin cooperating with international antitrust authorities. Barclays agreed to pay at least $450 million to resolve government investigations of manipulation of Libor and the Euro interbank offered rate (or Euribor): $200 million to the U.S. Commodity Futures Trading Commission, $160 million to the criminal division of the U.S. Department of Justice and $92.8 million to Britain’s Financial Services Authority.

 Alison Frankel describes the case against Barclays as follows:  

The CFTC’s Order Instituting Proceedings and the Justice Department’s Statement of Factscite truly eye-popping emails, instant messages and other evidence indicating that between 2005 and 2008 Barclays employees agreed to manipulate the rates they submitted to the banking authority that oversees the daily Libor report for seemingly anyone who asked them to monkey with it: senior Barclays officials concerned that the bank would look weak if it reported too high a borrowing rate; interest rate swap traders trying to improve Barclays’ derivatives trading position; even former Barclays traders begging for favors. We’re talking naked, blatant manipulation.

Others banks are clearly involved—The Royal Bank of Scotland soon followed Barclays in admitting guilt and will be fined $233 million.

Jonathan Freedland explains why it is unlikely that the crime involves only one or two banks:

make no mistake, it is the banks plural we are discussing, not just Barclays. Submissions from some 15 banks are used to calculate the benchmark Libor rate, making it all but a technical impossibility that a few rogue traders at Barclays alone could have bent it. On the contrary, the most incriminating email to surface on Wednesday– traders promising to celebrate their fiddling of the figures with a bottle of Bollinger – was from an outside bank to Barclays. The latter is surely only in the frame first because it co-operated early in return for a more lenient penalty, but HSBC, RBS and others are all mentioned in court papers. As the chancellor and others have signalled, this scandal is going to spread much wider. 

How did the banks get away with rigging the Libor and all the other interest rates tied to it?  It was easy because the daily Libor rate is set not by the government or the Financial Services Authority (FSA) but by the banks themselves operating through their own trade group, the British Bankers Association.  

This was far from a victimless crime.  As Taibbi says:

This is unbelievable, shocking stuff. A sizable chunk of the world’s adjustable-rate investment vehicles are pegged to Libor, and here we have evidence that banks were tweaking the rate downward to massage their own derivatives positions. The consequences for this boggle the mind. For instance, almost every city and town in America has investment holdings tied to Libor. If banks were artificially lowering the rates to beef up their trading profiles, that means communities all over the world were cheated out of ungodly amounts of money.

So, will there be jail time, will we stop letting top corporations monitor their own activities, or will we impose relatively small fines on the companies involved, allow top management to set their own penalties and go on singing the virtues of unregulated financial markets?  Given the way our existing political system operates, to ask these questions is to answer them.  

Bob Diamond, the head of Barclays, conceded that his traders’ action had been “wholly inappropriate.”  Not a crime, mind you, just inappropriate.  But to demonstrate his responsibility, he proposed that he and three other top managers “forgo any consideration for bonuses in 2012, recognizing our responsibility as leaders of the organization in which these events occurred.”  Could anyone outside of the top echelons of the business world get away with this kind of response?  

Freedland offers a good illustration of why what we are dealing with in this case is actually an out-of-control system rather than a simple crime of individual greed:

You’d think criminal prosecutions would be the obvious next step, but it’s not so simple: Libor falls outside the FSA’s remit. Yes, there’s that £290m fine – though it’s worth noting only £60m of that was imposed by the UK, the rest demanded by American authorities. What’s more, that £290m is destined not for the public coffers but for the FSA, which will therefore need to levy less from the banks that fund it – including Barclays. So Barclays lose with one hand but are set to gain with the other. Above all, remember that that £290m is about a tenth of the £2.7bn bonus pool top dogs paid themselves in 2011. It’s more than a slap in the wrist, but not much more.

It’s quite a contrast with the severity of punishment meted out to those guilty of more visible crimes, starting with the 1,292 people jailed for their part in last summer’s riots, including the man imprisoned for six months for stealing bottles of water worth £3.50. There was no question of the authorities lacking a proper remit then, nor did any rioter have the chance to tell a parliamentary committee it was time we all moved on.

So it goes . . . .