Can Apple Shape Up?

The New York Times is publishing an investigative series called iEconomy, which examines the global supply chains and labor practices of the high-tech industry. Its first two articles discuss the manufacture of Apple products such as the iPhone and the iPad and the controversial labor standards at the Chinese factories that produce them.

BR Web Editor David Johnson spoke to GoodGuide founder and Berkeley professor Dara O’Rourke about what the revelations mean for Apple and for consumers concerned about the ethics of what they buy.

David Johnson: In your BR forum essay on ethical consumption, you begin by talking about your purchase of an iPhone and what you thought after reading some of the stories about the mistreatment of Chinese workers who manufacture it. Was there anything in the Times articles that you found surprising?

Dara O’Rourke: This last week has been probably the greatest week for transparency into Apple’s supply chains in the last decade. It’s a combination of these two Times stories plus Apple on Friday releasing a supplier responsibility report along with a list of their factories—they’d never disclosed their factories before—disclosure of audits of those factories, data on non-compliance of those factories, and the company also pledged to join the Fair Labor Association and to open up, for the first time ever, to third-party audits and evaluations of their facilities. So this really has been an eye-opening week for Apple. At the same time, this week Apple became the most valuable company in the world, surpassing Exxon, in total market capitalization as their stock surged on record profits. So it’s been a big week all-around for Apple.

FoxConn—the world’s largest manufacturer of electronics and the key supplier discussed in the Times series—is famous for being second only to Apple in secrecy. So we’re seeing a moment of transparency—even the most secretive company in the world in consumer products is going to have to be more transparent and open to its stakeholders. Once you look behind that curtain, you see some troubling things.

But to answer your question, no, no big surprises for me. I’ve spent a lot of time looking at electronics factories, shoe factories, apparel factories, and toy factories in Southern China. That 62 percent of factories producing Apple products were in noncompliance with overtime laws—they were working over a 60-hour limit—was not surprising at all. We see violations of Chinese labor laws on wages and hours consistently across China.

But it’s great that Apple is reporting the scale of noncompliance, illnesses, suicides, and recent wage controversies. And this is by no means just an issue for Apple. In a related story about another FoxConn factory producing the Xbox, it came out in the press recently that 150 workers threatened to kill themselves because of a wage controversy.

DJ: Obviously these controversies have gone on for several years, and your article and the Times article mention previous steps that Apple took in establishing labor standards for its suppliers. In retrospect, what do you make of the steps the company has taken up to this point?

DO: Apple basically has been playing catch-up, and the things that they announced this week really are catching them up from being a decade behind many other industries: codes of conduct, monitoring systems, now agreeing to Fair Labor Association external monitoring. Nike, by comparison, joined the Fair Labor Association in 1999, I believe, and disclosed their factory list around 2005. So the T-shirt and tennis shoe industry is a decade ahead of the highest-tech electronics firm in the world.

So my big concern is: can they move beyond these basic measures and do things that really address the root causes of problems of their supply chain? Because I think these measures, while positive, are not enough to solve the root causes that are driving the issues of wages and hours violations, of health and safety violations, of injuries in these factories.

DJ: What about Apple’s own industry, consumer high-tech products? Is the company also behind its competitors? FoxConn provides products for many different companies besides Apple.

DO: First of all, it is true: almost everybody uses FoxConn. It is the largest manufacturer of electronics in the world, and so HP, Dell, IBM, Microsoft, Amazon, etc. are using FoxConn. But on a number of issues, some of Apple’s direct competitors, such as Hewlett-Packard, have been out front on monitoring their factories. They started this years ahead of Apple. They’re also ahead of Apple in creating public processes for restricted substance lists, getting certain toxic chemicals out of their products, certain environmental commitments, certain disclosure commitments, and participation in international systems.

To take just one example, there’s a nonprofit organization called the Carbon Disclosure Project, which is the global standard for reporting carbon emissions from your supply chain to your products. And I believe Apple may be the only major electronics firm to choose not to disclose.

And there are some things that they announced on Friday where they’re probably a little ahead of their peers. As I’ve said, even these are programs that have been going on for years in other sectors.

DJ: So what are the next steps from here, now that Apple is being more transparent about its suppliers?

DO: One of the interesting things about the Times articles is that they basically argue: it is the nature of the global electronics industry and of Apple’s business model that leads to some of these problems, that it is the need to rapidly change the design of a cell phone or an iPad and rapidly retool a factory and get workers and the machinery and everything to do this.

One of key arguments from the series, which I think is important, is that China and FoxConn are not the number-one producers of electronics because they’re the cheapest. Labor in China is by no means the cheapest in the world; there’s much, much cheaper labor in many other countries.

What China has been able to produce, particularly in Southern China, where FoxConn has many of its factories, is the most efficient, productive, and flexible system for manufacturing in the world. China has created an ecosystem for producting that is as fast, flexible and innovative as the ecosystem that Silicon Valley has created for design, software and Web development. That’s why Southern China is where these jobs are, where these factories are. That’s why Apple sources their products from FoxConn and other companies in Southern China.

The flipside is that there are going to be some externalities. The nice vignette from the Times is that Apple decides a couple months before launching a product that they need to totally change something, so they wake up all these workers, give ’em tea and a biscuit, and get ’em back out on the line at 2 a.m., right? That’s both the upside of a flexible manufacturing facility, but it also obviously raises questions about labor rights, overtime, potential for injuries when you’re working at 4 a.m., etc. When a designer in Cupertino believes that he or she can change a design at the last moment and the guys in China will figure it out—they’ll wake the workers up or they’ll change the machines or they’ll do whatever it takes—and that they don’t have to worry about design changes or last-minute changes, that’s going to lead to these kind of incidents, where you have injured workers, explosions, workers working beyond legal hours, feeling like they’re being cheated out of their wages, etc.

So the question is: can Apple design a manufacturing ecosystem that meets the needs of their rapid innovation on design, style and technology, but does it without needing to exploit workers drive them twenty hours a day, wake them up at 2 a.m., put them in unsafe conditions, dump a bunch of toxins in local rivers—all these externalities? Can Apple move beyond codes and monitoring systems, which are the starting points of a compliance program, to really doing what Apple does so well, which is to innovate, to “think different” —about the process from design to manufacturing, and about how to bring the designers and the people sourcing their products in Cupertino into this process so it is not just outsourced to FoxConn or someone else, and it’s their problem to figure it out.

So I think Apple’s in a position now to move beyond playing catch-up to leapfrogging what the T-shirt industry has done during the last decade on codes and monitoring, to rethink global production systems the way they’ve rethought the telephone, the music player, the music industry, and the TV industry.

DJ: A skeptic might worry that Apple won’t be motivated to do that since it’s been so successful using this method of production for the consumer market—unless some pressure is put on them by the public or other factors.

DO: I think we’ve seen this week that it’s a combination of the consumer public, nonprofit groups, and Apple’s own employees basically providing all of the information that the Times has published, critiquing this company. This is the most emailed story of the week, because consumers care. As well as Apple’s own employees. It’s why Tim Cook sent out an email to all of his employees saying, “Some people are questioning Apple’s values today.” And he goes into why this is abhorrent and why “we care about every worker and now we’re responding.” Steve Jobs would have never done this, but Tim Cook is now saying, “We’re going to respond. We care.” He knows his employees care. He knows that the people who work for Apple are proud to work for Apple. They don’t want to work for a “sweatshop company.” They don’t want to work for a company that’s killing workers in China.

DJ: Why do you say that Steve Jobs wouldn’t have taken the steps that Tim Cook has, given the enormity of the public scandal?

DO: These issues have been ongoing for several years with Apple, and Steve Jobs is famous for telling critics that no one should tell him how to run his factories or his company or his products. In the [Walter] Isaacson book, Steve Jobs famously chose the paint color of the walls of the factories of his Next Computer plant. I’m trying to think a nice way of saying it . . .

‘Better products’ means not only style, design, and features but also products you can feel better owning.

DJ: That sounds like micromanaging. [laughter]

DO: Yeah, let’s say “micromanaging.” Basically he did not talk publicly about this stuff, he did not join industry efforts to resolve these issues, he did not view other companies as peers that he could learn from. Tim Cook already has done a number of things that I think are more open, more collaborative than Steve Jobs had done. Steve Jobs was obviously a brilliant businessperson and leader, but on this he was not transparent. He was not open. Tim Cook has also reversed Apple’s policy on philanthropy; they’re now donating to charities, which Steve Jobs had basically stopped doing.

DJ: On Steve Jobs’s passing, he was obviously lionized in the press for his amazing career. How big a tarnish on his legacy do you take these articles to be?

DO: We’re seeing the story behind the products. Where all of the sudden the things that we thought we knew and loved, we’re seeing another side to it, and I think it will change people’s perception of the electronics industry and these great, powerful tools that we love to buy. As for Jobs personally, I think he will probably be insulated from it, because he’s the design genius. Tim Cook ran the supply chain for Apple, so Tim Cook is actually much closer to FoxConn than Steve Jobs. Cook was the one dispatched to China after the suicides.

DJ: One point from the Times articles—this is also a point Rick Locke made in his response to your forum essay—is how much consumers are to blame. They want a shiny, new product, they want the new version within eight months, and so their desires have generated this manufacturing behemoth. How much do you think consumers are responsible for this?

DO: I think that consumers are definitely a part of this system. Let me think about this from a couple different angles.

I think that industry in general tries to push the blame on to consumers, saying, “Look, there’s this thing we call consumer sovereignty, which is in the marketplace consumers tell us what they demand and we just meet their demands. We just respond to the market and what consumers tell us they want.” In the case of companies like Apple this is particularly specious—no consumer had ever imagined that they wanted an iPad. It didn’t exist before Steve Jobs created it. He saw latent demand, where millions of people would buy these things for hundreds of dollars.

Now, through beautiful design, clever marketing, and peer influence, people all of a sudden want an iPad and then think they need an iPad. Clearly consumers are part of a complex system in which they have some culpability. But very few consumers want products that are made in horrible labor conditions, where workers are dying or being sweated. When you ask consumers, they don’t want this. And so I think there really is an interesting back-and-forth here: as consumers can see more and know more, it will be interesting to see if they change their purchasing practices. Do they keep their phones longer? Do they demand that these companies change their production processes? There will be a percentage of consumers that send a strong message to Apple and say, “I love your products, but I want you to clean up your act!”

DJ: I am looking right now at GoodGuide, and it offers a very detailed look at all the various Apple products. How would you characterize their scores?

DO: These scores are being updated because of the new data that just came out. So for instance, in the past rating, Apple received a very poor score for transparency, if you drill down into what they’re disclosing on labor practices, supply chain, environmental conditions. So they actually will get a bump in their transparency score, but on some of the things that they have disclosed—their performance on environmental and worker health and safety—their score will go down.

On some attributes, Apple has been a leader. For instance, on environmental design of their products, their MacBook Air and their iPhones, they have taken materials out of those products, gotten rid of flame retardants, PVC, toxic chemicals. They’ve also moved to some manufacturing processes that are more energy-efficient and use greener materials, etc. On the supply chain level, however, we see continuing poor to middling performance.

DJ: Auret van Heerden argues in response to your forum essay that labor and human rights are very hard to quantify in the way that GoodGuide tries to score performance.

DO: It is true that this kind of data is hard to come by. We’re early in the process of establishing good standards, good reporting systems, good ways of measuring the relative performance. But the fact that it’s hard is certainly no rationale for not trying to get the best available data out to consumers. In fact, the best way to motivate better data to come out is to start rating these firms and showing what is publicly knowable, and then challenging leaders in the industry to disclose more to prove that they’re better than we can see.

We’ve tried to create a mechanism with GoodGuide to incentivize greater transparency of key material facts about product and supply chain, and to create the kind of competitive, upward pressure for disclosure and information that will allow us to get even better.

Now to the second piece of your question, on social issues: there are a number of categories GoodGuide looks at that really boil down to personal, ethical decisions. Those are ones where we’re basically asking our users to decide how much they care about those issues. For example, animal testing: I view that as a personal or moral question. So on some of our social criteria, we actually leave it to our users to set the value judgments.

DJ: Do you still own Apple products?

DO: Yes, I have a MacBook Air and an Apple iPhone 4S in my pocket right now. I think they make great products, but I am also one of those people who would like them to produce these great products under better conditions.

DJ: Would you be willing to boycott Apple products if they don’t?

DO: The question for me, as with most consumers, is “Is there an alternative that’s performing better and meets my needs?” And if there is, then I definitely would look at it. There are a number of companies producing very similar smartphones to the iPhone. Apple was obviously the innovator, but now you’ve got Samsung, HGC, Nokia, Motorola. And so absolutely, this is a question I ask regularly.

And I think many consumers are looking for better products all the time, and “better” means not only style, design, and features but also products you can feel better owning.