iEmpire: Apple’s Sordid Business Practices Even Worse Than You Think

The state involvement shows Foxconn and Apple depend on tax breaks, repression of labor, subsidies and Chinese government aid, including housing, infrastructure, transportation and recruitment, to fatten their corporate treasuries. As the students function as seasonal employees to meet increased demand for new product rollouts, Apple is directly dependent on forced labor.

The real story of the Apple-Foxconn behemoth, then, is far from being John Galt incarnate. Their global dominance is forged in the crucible of China’s state-managed authoritarian capitalism. Since the 1980s China has starved rural areas to accelerate the industrialization of coastal cities like Shenzhen, where Foxconn first set up shop in 1988. Scholars who study China’s economy and labor market link rural underdevelopment to the creation of a massive migrant work force that serves as the foundation of the country’s industrialization. Deprived of many rights, migrants are recruited to work in Foxconn’s city-sized complexes by government employees with false promises of good-paying jobs that will help them escape rural poverty. A large percentage of migrant workers are student interns as they are recruited from poor rural regions like Henan and sent to work in coastal metropolises like Shenzhen.

Apple’s formula for mammoth profits, which topped $13 billion last quarter, starts with a highly flexible workforce. Foxconn wields military-style discipline to turn workers into flesh-and-blood robots who can fulfill exacting specifications and orders for new and constantly updated product lines, such as five generations of iPhones in four years. Workers are driven to crank out more computers in less time at lower costs because they are disposable. Of 420,000 employees at ​“Foxconn City” in Shenzhen, which abuts Hong Kong, half had less than six months service. The inevitable and systematic abuses crush the dreams of young rural migrants, argue scholars, making the suicides a logical outgrowth of the iEconomy as much as the iPad. Simply put, nothing will change unless Apple and Foxconn are forced to because their empires are built on these practices. (Foxconn denies everything.)

iSlaves

Speaking by Skype from SACOM’s office in Hong Kong, Debby Chan Sze-wan says that in Henan province alone more than 100 vocational schools and 14 universities supply students to Foxconn. ​“Vocational students are required to do internships. Many student workers are as young as 16. They have to work the same positions as other workers, including working on the night shift.” (One worker spoke to SACOM about irregular shifts, lamenting, ​“day and night shifts are sometimes changed two to three times a month. The change of shift is unbearable. It is difficult to adjust our body clock.”) In June 2010, Foxconn signed an agreement with an additional 119 vocational schools in the southwest municipality of Chongqing to supply student workers. 

SACOM and others report that schools teaching journalism, hotel management and nursing threatened students with failure if they did not take a factory position. The Chinese government-owned Global Times noted that ​“automotive majors at a vocational school in Zhengzhou, capital of Henan, were also forced to serve as interns for Foxconn before they were given their diplomas.” 

One study found in some Foxconn factories, which employ 1.3 million people in China, up to 50 percent of the workforce were students. Foxconn probably prefers it that way because it does not have to sign contracts with the students. Chan says this frees the company from having to pay into social welfare insurance that covers unemployment, healthcare, pensions, disability and maternity leave. In 2010, noted SACOM, ​“Foxconn ceased to recruit new workers in Shenzhen. Instead, a high number of vacancies were filled by tens of thousands of student interns.”

Not just students are shipped off to Foxconn, says Chan, ​“teachers have to come to manage them in the factories.” SACOM found that near one facility nearly all the rooms in a seven-story hotel had been rented by vocational teachers accompanying students. Government authorities apparently charge teachers with recruiting students and tech colleges have quotas for interns to be sent to Foxconn, according to a student paper from China Europe International Business School. 

SACOM notes, ​“It is believed that Foxconn alone cannot mobilize such a high number of students.” Another account states, ​“Many high schools in Zhengzhou are required by local authorities to make arrangements for their students to intern at Foxconn factories in Shenzhen.”

There appears to be a simple reason why many vocational schools eagerly force their students to take hazardous industrial jobs: greed. Evidence comes from another Apple supplier in China, Wintek, where students seem to have it worse than Foxconn. Wintek gained notoriety for making workers use n-hexane, a toxic compound, to clean iPhone touchscreens because it evaporated much faster than rubbing alcohol, enabling workers to increase their output. In 2010 interns told SACOM there were 500 students at the plant who worked 11 hours a day, seven days a week with a maximum salary of 500 yuan, less than $80 a month. According to the report, ​“Wintek pays the students’ salaries in accordance with law, but the lion’s share goes to the schools directly.” Over the course of a year, 500 students could net a school more than a million U.S. dollars in income. 

The China Labor Bulletin found schools stealing wages to be common: ​“The key issue in forced internships appears to be the entrenched relationship between schools and businesses, a relationship actively encouraged by the Chinese government.” They added that ​“it was not unusual for schools to deduct a ​‘commission’ from the interns’ salary or get paid directly by factories for providing cheap labor,” despite the illegality of the practice. As for redress for abuses, ​“students have little or no legal recourse when they are cheated out of their pay or forced to work long hours in hazardous conditions.”

In other cases, the state education bureau will withhold funds reserved for vocational schools if they fail to meet quotas for interns.

Corporate Socialism

The use of hundreds of thousands of students is one way in which China’s state regulates labor in the interests of Foxconn and Apple. Other measures include banning independent unions and enforcing a household registration system that denies migrants social services and many political rights once they leave their home region, ensuring they can be easily exploited. In Shenzhen about 85 percent of the 14 million residents are migrants. Migrants work on average 286 hours a month and earn less than 60 percent of what urban workers make. Half of migrants are owed back wages and only one in 10 has health insurance. They are socially marginalized, live in extremely crowded and unsanitary conditions, perform the most dangerous and deadly jobs, and are more vulnerable to crime. Finally, the state rigorously enforces the registration system, often packing migrants back to the countryside if they lack the proper documents. It’s the very picture of the Foxconn workforce.

But that is just the beginning of state subsidies. China’s growth model over the last 30 years is based on ​“heavily intervening” in the process of economic development while retreating from ​“the social and civic sphere by providing social and labor protections,” according to scholars Ngai Pun and Jenny Chan. Foxconn is taking advantage of the latest phase, known as the ​“Go West” strategy, which is enabled by the government’s ​“massive investment in interior infrastructure including airports, highways, power grids and high-speed rail.”

Outright plunder is sometimes the tactic, and government officials are notorious for grabbing collectively held lands in China to benefit themselves and well-connected corporations. Debby Chan claims some of Foxconn’s new facilities have been a result of such land confiscations. (As elsewhere, privatizing the commons in China also serves the goal of turning rural peasants into industrial laborers.) 

A SACOM video features Foxconn boasting that the building of its Chengdu Technology Park in Sichuan Province ​“had strong government support at the state, provincial, city and local levels.” For the facility, which will be able to spit out 40 million iPads annually on 50 production lines, the local government ​“increased cargo flights to Hong Kong and set aside the biggest block of land in its tariff-free zone for the company to help cut costs.” SACOM’s video also showed packed public buses being used as Foxconn’s transport fleet, and workers’ housing that was supposed to be ​“resettlement housing for rural farmers.” 

In Foxconn’s Zhengzhou complex that manufactures iPhones, the government ​“fast-tracked approval for the factory in 16 days, including clearances for fiscal subsidies and preferential corporate income tax rates.” The government provided the land to Foxconn as well as renting it a renovated factory and rooms for 100,000 workers. The city is also talking of spending more than $4 billion to expand the airport so it can accommodate more cargo flights.

In Chongqing ​“employment promotion officials granted Foxconn a discounted corporate income tax rate of 15 percent” and lengthened an airport runway by 400 meters ​“to meet increasing transportation and logistical needs.” For Taiwan’s computer industry, Chongqing offers ​“direct charter flights, entry permits for Taiwanese citizens upon arrival, cross-border Chinese Yuan’s trade settlement services, 10-year subsidies on income taxes, export tax rebates and export custom declaration services.”

The New York Times feature on China’s role in Apple’s empire touched upon this, explaining how government subsidies enabled a glass-cutting factory to have engineers, workers, glass samples and a whole manufacturing wing on standby to service Apple’s possible needs. 

Wages of Misery

The justification for soup-to-nuts state funding of corporations is they provide jobs and a rising standard of living. That’s not the case with Foxconn. The high turnover – less than 5 percent of Shenzhen’s workforce has five years or more seniority – and consistent worker accounts of being misled about wages as recruits and shorted on earned overtime pay once in the factory point to how Foxconn squeezes workers for profit. That, in turn, is the result of Apple’s strategy of squeezing suppliers. One executive who’s worked with Apple told the New York Times, ​“The only way you make money working for Apple is figuring out how to do things more efficiently or cheaper. … And then they’ll come back the next year, and force a 10 percent price cut.” While Apple’s profit margin tops a rarified 30 percent, Foxconn ekes out a puny 1.5 percent. (Though don’t cry for owner Terry Gou, who has to make do with $5.7 billion.) In the case of an iPad, labor costs in China amount to 2 percent of the final retail cost.

Despite headlining one article, ​“In China, Human Costs Are Built Into an iPad,” the Times highlighted environmental hazards and overtime, glossing over wages, working conditions and abusive supervision. (Even then the Times barely scratched the surface of how Foxconn and other Apple subcontractors have trashed the environment and poisoned workers as documented in these studies.)

SACOM found that after the spate of suicides in 2010 compelled Foxconn to raise wages (which weren’t really raises because housing and food subsidies were cut), the pay of frontline workers ranged from 50 to 61 percent of the minimum living wage depending on the city. To make a sufficient wage, workers must take on overtime shifts. But if they decline even one overtime shift they get iced out for the entire month. One student worker in Chengdu summed up the dilemma, ​“If there is no overtime at all, I will only receive the basic salary. Hence, I have no choice.”

This is backed up by an eye-opening paper published in 2010 by Pun and Chang, titled, ​“Suicide as Protest for the New Generation of Chinese Migrant Workers: Foxconn, Global Capital, and the State.” The two academics found that for migrant workers in Shenzhen their average pay, even with overtime, was 47 percent of what city residents earned, and amounted to only two-thirds of the living wage calculated by SACOM.

Military-Style Management

To meet production goals Foxconn relies on ​“military-style management … on the shop floor.” Workers say ​“military training” starts during the recruitment phase, such as being forced to stand in the sun for hours with no water. In Chengdu, some workers claimed that for up to one month before work began they had to line up in formation and ​“stand still as a soldier for hours.” Even the China Daily reported that the state-controlled Shenzhen Federation of Trade Unions said Foxconn has a ​“quasi-military management system.” According to scholars as well as business publications, Taiwanese managers in China refer to their management style as militaristic. 

The workers believe the goal is ​“to indoctrinate the idea of absolute obedience.” This reflects Foxconn founder Terry Gou’s principles that a leader must be ​“a dictator for the common good,” and ​“a harsh environment is a good thing.” One SACOM report stated, ​“New workers are always reminded by the management that they should obey all the instructions of the superiors without question.” Another apparent goal is to train the workers to stand all day. One female worker in Shenzhen said, ​“We have to stand all day long. Even worse, we have to stand like a soldier. I am totally exhausted after non-stop work.”

The absolute power inevitably leads to abuses. In another paper Pun and Chang cite a study by the independent Foxconn Research Group in 2010, involving interviews of 1,736 employees in 12 separate factory areas and 14 investigators who took one-month positions in the company. It found that 38 percent of employees had their privacy violated and 16.4 percent – one in six workers – were ​“subjected to corporal punishment by management and security personnel,” according to Ross Perlin (who is fluent in Chinese and translated parts of the study at my request). Twenty-eight percent of workers said they were abused or insulted. ​“Public humiliation and confession … is a frequently used management method,” write Pun and Chang. ​“Line leaders, who are also under pressure, tend to treat workers in a harsh way to reach the productivity targets.”

Pun and Chang conclude, ​“Foxconn employees experience long hours of repetitive work for very low income. They submit to management scrutiny on the job, and their low income and limited free time restricts their options outside of work. Many young men and women workers rarely stop working except to eat and sleep, simply to make ends meet. The result is a community of people under intense stress with few resources, a situation conducive to depression.” 

In May 2010, the same month six Foxconn workers died after hurling themselves out of buildings, a letter issued by Pun and eight other mainland Chinese and Hong Kong academics connected the dots between state policies, global capitalsim and the effects on the workforce. The writers maintained that because young migrant workers never think of ​“going back to farming like their parents … they see no other option when they enter the city to work. The moment they see there is little possibility of building a home in the city through hard work, the very meaning of their work collapses. The path ahead is blocked, and the road to retreat is closed. Trapped in this situation, the new generation of migrant workers faces a serious identity crisis and, in effect, this magnifies psychological and emotional problems.”

For some, the way out is suicide, writes UCLA professor Russell Leong: ​“It’s my belief that workers internalized their oppressive conditions because they could not find ways to resolve the oppressive ​‘relations of production’ – treated as part of the machinery of the production assembly line they became demoralized, dehumanized, and finally, desperate. So their only option was a very human one: to throw away or destroy their own bodies as a gesture of frustration – and of defiance.”

As much as Foxconn and Apple laud their audits, their devotion to the law and their ethics (Steve Jobs emailed an Apple user critical of the suicides, ​“We do more than any other company on the planet”), the companies ascended to the top on a heap of bodies. They are hardly unique, and that’s the problem. 

As far as labor practices goes, Foxconn is no different than its rivals, and it’s impossible to escape. It assembles electronics for everyone including the iPad’s rival, the Kindle, and the Acer computer I’m writing this on. All that matters is that Wall Street is happy because Apple has more cash on hand than the U.S. Treasury.

Apple and consumers alike could easily pay more as labor accounts for only 7 percent of costs. Tripling wages and benefits might add $100 to an iPad. But that would set a bad example. Apple’s profits might decline a notch and Wall Street would dump its stock. Consumers would still have their toys but might buy fewer smart phones, tablets, iPods, Xboxes, laptops, desktops and other digital sundries.

Giving Foxconn workers a job with a living wage instead of one that cripples them by their mid-20s would pressure other Chinese companies to do the same. And then more demands would be made: Why can’t the factories stop poisoning waters, lands and workers, fouling the air and frying the planet?

It’s not that we can’t have advanced technology, a healthy society and a green economy. We just can’t have it with the Foxconns and Apples of the world, where dictatorial billionaires make closed-door calculations based on market share, revenue and profit at the expense of everyone, and everything else.

So don’t expect anything to change in Apple and Foxconn’s hell factories, unless workers in China (and wherever else Foxconn goes next) rise up and make it change. In the meantime, enjoy your iWorld.