Why Raising Wages Won’t Work as a Long Term Solution For Foxconn. Or Apple

Sunday, June 13, 2010 2:06

A few weeks back I was asked to speak at the BMW Europe Asian Young Leaders Forum on “How do cities organize communal life and maintain social harmony? What can business contribute to these processes?”  It was the week after EXPO, and everyone was in Harmonious society mode, but in developing what I thought were the 5 key pillars of a harmonious society (I called it sustainable city), I inadvertently began thinking about the wider application of what I presented on for the Foxconn case as well.  I did so primarily because Terry Guo, CEO of Foxconn, continued to say that the suicide rate of Foxconn was less than the national average.. and that the steps they were taking were the right ones.  Yet, with every announcement of another solution, particularly the wage increase, the warning bells continued to go off.

We all know what has taken place over the last several weeks as a number of Foxconn’s line workers have leapt from factory rooftops.  Acts that many have looked to understand, explain, and analyze in attempts to make a story, make a story disappear, and ultimately stop others from jumping. Solutions involved 100 monks, “I Promise not to kill myself” contracts, “the always morale boosting safety nets, announcements “Foxconn would not longer payout families of suicide victims”, and ultimately wage increases.  A process, and set of solutions, that I feel are not only broken, but will do little to solve the real problems that both Foxconn and Apple face within their organizations.

It was a process that I believe was broken in a number of important ways:

  1. Foxconn and Apple both believed in, and developed, economic models on foundations that arbitraged externalities.  In this case, the externality being the reduced labor costs that were found in China, and lax supervision of labor laws that allowed for further exploitation of labor (unpaid and forced overtime).  However, this could also be extended in other areas  – the environmental costs of producing in China vs. Cupertino
  2. Foxconn and Apple both failed to assess the risks of exposure, the catalysts where the systems would fail, and the costs that would result from the removal/ reduction of the externalized labor cost savings.
  3. Foxconn and Apple both failed to act when systemic failures began to show themselves.  Suicides were not the first issue, and besides the continued labor related infractions found within both supply chains (Foxconn and Apple), and Apple’s own 2008 & 2009 Apple supplier responsibility reports, no systemic actions were take.  Band-aid were applied. The press was pacified. Consumers … consumed
  4. Foxconn and Apple thought that a wage increase would solve their problem.  That this entire affair, and the underlying issues, would remove the despair felt among the 800,000 Foxconn workers

How would I have done it differently?  Where would I have started?  Well. For me, sustainable cities really came down to the following (and you may also reference the slide show above).  It comes down to 5 key areas: Urban Planning, Economic opportunity, Quality of life, Safety and Security, and finally Environmental Stability.  It is a city that will, engage investment by citizens (native and immigrant ) into the economy, the community, and in the environment in a way that is self supporting… rather than requiring ongoing fire fighting to hold it together.  The 5 pillars are essentially the glue that will bind the city together if done right.

.. and in the current situation, I would say that all of the above also apply to the Foxconn as well

  1. Urban Planning – Foxconn’s own campus design
  2. Economic opportunity – The ability to earn a “good” living at a rate that would be higher than found through other sources, or at other sites. With the ability to develop personal / professional skills that would allow for improved access to further opportunities.
  3. Quality of life – Beyond the workshop, the company (and its facilities – dorm, canteen food, etc) needs to offer a level of comfort that improves the lives of workers.  Are the employees stuffed into a dormitory that offers little privacy or ability to disconnect, or are they provided living conditions that develop a sense of home that will settle the worker
  4. Safety and Security – workers need to have a sense of both economic and physical security that allows for stability.  Holding a deposit of a worker’s salary or subjecting those workers to abuse from security guards goes fundamentally against this, just as firing entire factories of staff at Chinese New Year removes the sense of stability a returning worker would have while trying to enjoy the festival with family members.  Family members who can be hundreds/ thousands of kilometers away, which only diminishes the sense of stability/ security a laborer may have at the factory
  5. Environmental Stability  – the workplace must be environmentally safe to work in.  Exposure to deadly chemicals, dirty water in the showers, acrid air, and  noise pollution are all environmental threats that the average worker in China’s factories faces, and a quick read of 2009 Apple’s Supplier Responsibility report will highlight that most of their China based suppliers do not meat local environmental standards.

So, why is a wage increase not the solution?

Well, if you are the average Foxconn employee, or an employee within one of Apple’s 83 China based suppliers, the question is not whether or not it is needed, but whether or not the additional 20% (150-200RMB per month) would make up for the failures found in the other 4 pillars.

For Apple, that is of course the next risk. The systematic risk.  That, outside of Foxconn, employees at its other 82 suppliers take offense to Foxconn employee’s getting special treatment when they are working at facilities where the quality of life, environmental conditions, and security issues are certainly far worse.

You can leave a response, or trackback from your own site.