Romney, Fiorina, Trump: who did the most harm?

Last week a friend of mine wondered out loud who ruined more lives—Donald Trump, Carly Fiorina or Mitt Romney?

After doing a little Internet research, I would say—probably Mitt Romney, possibly Carly Fiorina, but not Donald Trump.

Mitt Romney was CEO of an investment firm called Bain Capital.  It started out in 1984 as a venture capital firm; its most successful investment was the Staples chain of office supply stores.

But from 1989 to 1999, it adopted a new strategy—borrowing money to buy existing companies, saddling the companies themselves with the debt while meanwhile giving Bain big consulting fees.

Some of the companies collapsed under the burden of debt, some survived.  Having to service a big debt obligation probably tipped many into failure.  Nobody would argue that it helped.  But Romney and the other Bain partners did well whether the companies succeeded or not.

Carly Fiorina became head of Hewlett-Packard in 1999.   Her most notable accomplishment was aquisition of Compaq Computer, which by most accounts didn’t pay off.  The H-P board of directors fired her in 2005.

The Boston Globe estimated that 30,000 employees were laid off during her tenure.  On the other hand total jobs at H-P when she left were roughly equal to the combined H-P and Compaq employment in 2009.

Donald Trump took his companies into bankruptcy—that is, reorganization under Chapter 11 of the U.S. Bankruptcy Code—four times.  These were Trump Taj Mahal in 1991, Trump Plaza Hotel in 1992, Trump Hotels and Casino Resorts in 2004 and Trump Entertainment Resorts in 2009.

In each of these reorganizations, Trump took a loss and gave up control.   The businesses continued, and evidently there weren’t any big layoffs at the time.   Trump Taj Mahal filed again for bankruptcy last year, but Trump no longer controls it.

The claim that off-shoring lowers costs

Yves Smith wrote on her naked capitalism blog:

… … The claim that outsourcing and off-shoring lower costs is greatly exaggerated.

Off-shoring and outsourcing … … do lower direct factor and lower-level worker costs.

But they do so at the increase of greater coordination costs of much more highly-paid managers.  And they also increase shipping and financing costs, and downside risk.

Having people work at a distance, whether managerially or by virtue of being in an outside organization where the relationship is governed by contract, increases rigidity (harder to respond to changes in market demand) and the odds of screw-ups due to communication lapses.

And outsourcing also reduces an organization’s skills.  Those lower-level people have a lot of product know-how that you lose when you transfer activities to an outside operation.

It’s nice to think that you can hollow out your organization and just do all the sexy design and marketing stuff and dump the grunt work on other players.  But over time you are breeding future competitors.

Thus off-shoring is best understood as a device for transferring income from the rank and file to middle level and senior executives.

via naked capitalism.

In short, off-shoring lowers the wages of production workers, and raises the salaries and importance of managers.   And who makes the decision about off-shoring?  The managers!

This reminds me of America by Design and Forces of Production, books I read by an economic historian named David Noble.   He wrote that there was no evidence of an overall economic benefit in replacing skilled workers with automatic machinery.  The benefit was in increasing the power of managers and industrial engineers, and decreasing the power of workers.

There’s something called public choice theory, which is about how public officials, when making decisions, consider their own good as well as the public good.  I’d say this theory applies just as much to decisions within corporations or any other organization.

What it means is that when corporate officials say “the market” determines this or that, we the people are entitled to ask—the market for what and for whom?

How Apple undermined the US economy

I’ve always bought Ford and General Motors cars, partly because I wanted to support jobs for my fellow Americans.

As Abraham Lincoln reportedly put it, “When I buy a shirt from England, I get a shirt and England gets a dollar.  But when I buy a shirt from America, I get a shirt and America gets a dollar.”

At the same time, I’ve always bought Apple computer products, and, in so doing, I may have done more to undermine the U.S. economy than I did when I bought a Ford Escort or a GM Saturn.

I read an article yesterday on a blog called Moneyball Economics about how Apple offshored the American smartphone industry to South Korea, Taiwan and mainland China.

This is a big thing.  The writer, Andrew Zatlin, pointed out that the United States imported nearly $100 billion worth of smartphones each year, half of them Apple iPphones.  Smartphones are the third largest U.S. import, behind oil and automobiles.

He said it is like a Marshall Plan for these three countries.  The iPhone industry creates a million jobs in eastern Asia and provides valuable technological knowledge that makes those countries more competitive in the world.   They aren’t all Apple smartphones, but Apple has half the market and sets the pace.

When profits and productivity aren’t enough

Losing Sparta by Esther Kaplan on VQR tells the following story.

A Philips lighting fixtures plant in Sparta, Tenn., was named by Industry Week in 2009 as one of the 10 best factories in the USA.

Workers and managers had worked together to increase output on some lines by 60 percent, lower changeover time between small orders by 90 percent, and reduce defective parts by 95 percent.  As a result the plant generated a good profit.

Yet in 2010 an executive showed up from corporate headquarters in the Netherlands and announced that the plant was closing, and its operations moved to Monterey, Mexico.

To people in Sparta, this didn’t make sense.  Local business leaders did a study that showed that any savings on wages (which generally are no more than 10 to 15 percent of manufacturing costs) would be offset by increased transportation costs of Philips’ markets in the Northeast and Midwest.  They were unable to make contact with anyone in Philips who was willing to listen or who had authority to make the decision.

Esther Kaplan thinks that the decision probably was based not on study of the Sparta plant specifically, but on an overall policy of centralizing manufacturing in low-wage countries.

I know from reporting on business years ago that there are fashions in management.  In one era, the fashion was diversification, so that your business is not dependent on any one market; in another, it was divestment and concentration on core competency.  And I know there are managers who think that willingness to cause human suffering is a sign of realism and tough-mindedness.

I also know from my own experience that when managers tell employees it is necessary to do X in order to keep their operation going, they almost always will do everything humanly possible to achieve X—provided that they think the statement is being made in good faith.

Workers in Sparta did everything management asked of them, but to no avail.  Kaplan wrote that this is the story of American workers as a whole.   Americans by many measures are the most productive workers in the world, and U.S. productivity continues to increase, but this does not keep manufacturing jobs in the USA.

Economic and criminal justice in Bangladesh

In a just world, business owners and executives would face criminal charges for their business-related violations of law, just like anybody else.

The indictment of Mohammed Sohel Rana, owner of Rana Plaza, the garment factory where more than 1,100 people were killed last month when the roof collapsed, is a step in the right direction.   Based on what I know, he deserves to be charged with negligent homicide.  He did not commit premeditated murder, but, in demanding workers go to work in a building whose walls were seen to be cracking, he evidently acted with reckless disregard of human life.

Sohel Rana is not a member of the global elite nor, evidently, the economic elite of his own nation, and he is an individual owner, without the option of hiding behind corporate person-hood.  So the significance of his indictment is limited, but it is still a good step forward.

Garment companies who outsource production to Third World countries such as Bangladesh have signed a pledge to set safety standards for their subcontractors.  Wal-mart (big surprise) and The Gap are major holdouts.

It is good to have laws and regulations protecting worker safety, but laws are not self-enforcing and tend to be ignored when they conflict with strong economic incentives in a competitive market.

The best thing is to have strong labor unions in Bangladesh and elsewhere, so that a worker is in a position refuse to enter a building on the verge of collapse and not risk being blacklisted for employment for the rest of his or her life.

How bad off are Foxconn’s Chinese workers?

I’ve written several posts about Foxconn, the big subcontractor for Apple, Microsoft, Sony and other major electronics companies, which asks new hires to pledge that they won’t attempt suicide, allegedly because the work is so stressful.  If you have a cell phone, laptop computer, or electronic notepad, there’s a good chance you’re using a Foxconn-assembled product.

Following reports of labor unrest at Foxconn, James Fallows, who reports on China for the Atlantic Monthly, was allowed to visit.  What he saw was different from how I imagined the company.  Click on the links below to see photos of what he saw.

Inside Foxconn

Inside Foxconn 2 – Strolling

Inside Foxconn 3 – Some Dormitories

Inside Foxconn 4 – New Recruits, ‘Flying Tiger,’ CEO

Inside Foxconn 5 – Food

Back to Foxconn: Cameras, Clinic, Hoops

I’m not sure what to think.  I recall how Americans such as Vice President Henry Wallace visited Siberia during World War Two, saw fake versions of Soviet labor camps and came back saying that life in the Gulag wasn’t so bad.   James Fallows is an experienced reporter, but his knowledge was limited to what he was told and what he was allowed to see on his visit.  He did not interview any Foxconn workers.

The workers were not starving and not in rags.   But their outward appearance says nothing about the stress of being waked up in the middle of the night, given a biscuit and a cup of tea and starting a 12-hour shift to fill an emergency order.  Nor about what it is like to be under video surveillance 24 hours a day, including in your own room.

I’m willing to accept Fallows’ verdict that Foxconn is not bad by Chinese standards and that the Chinese material standard of living has improved a lot during the past 10 or 20 years.  You should judge a nation not by where it is, but whether it is moving forward or backward, and, in terms of industrial development, China is moving forward.   China’s progress is a good thing for the United States, not a bad thing.  The better off the Chinese are, the better potential customers they are for American products.

Evidently there is a lot of labor unrest in China, but that does not prove there is no progress.  People don’t necessarily revolt just because they are poor and miserable.  If they did, humanity would have been in revolt for most of history.  People revolt when something to which they think they have a right is being taken away from them, or when hopes are aroused and then are not fulfilled.

I think that what we have a right to expect of China and other low-wage nations is that they make a good-faith effort to obey their own laws and live up to their own standards.  I think that what we have a right to expect of American and other Western countries that operate in China is that they refrain from efforts to hold down wages and lobby the government against labor rights.

Click on Foxconn manufacturing workers complain of long hours, militant culture for a CNN report on the negative side of Foxconn.

Click on 3,000 to 4,000 Foxconn workers take part in protest for a report from China Business News.   Note that this would be fewer than 2 percent of the estimated 220,000 Foxconn employees at its Longhua campus in Shenzen province.

Click on Mr. China Comes to America for James Fallows’ optimistic view of the revival of manufacturing in the United States.

Click on Chinese workers asked for no-suicide pledge and  The debate over Asian sweatshops for earlier posts of mine.

Click on Sacon for the web log of Students and Scholars Against Corporate Misbehavior, a Chinese pro-labor organization based in Hong Kong.

My opinions about the how employers treat Chinese workers are based on these and other articles.  I’d be interested in hearing from anyone with first-hand knowledge of China or Foxconn.

Outsourcing local U.S. news coverage to Asia

When I was a newspaper reporter, I used to console myself with the thought that at least I had a job that could not be shipped overseas.  This is no longer true.  Some newspapers are outsourcing editing and even reporting of local news to countries such as India and the Philippines.

All this is made possible by the Internet.  A lot of information is available on-line.  You don’t have to walk to city hall or the county courthouse to get it.  You don’t have to be in the same city to interview a local official by phone.  Press releases are available on-line, and you can rewrite them as easily in one place as another.  Some public meetings are televised and even available on YouTube; you don’t have to be at the meeting to summarize what was said.

What is lost is the background knowledge that comes from living in a community, which enables you to understand the significance and context of what you report.  But this is not quantifiable.  For certain newspaper executives, particularly executives of newspaper chains who spend only a few years in each place, what counts is cutting and improving the next quarter’s financial results.  Longer-term consequences are somebody else’s problem.

Click on Now They’re Even Outsourcing “Local” Journalism for a report by Ryan Smith on Journatic and Blockshopper, two journalism outsourcing companies.  He told how he worked for Journatic as a copy editor of articles  written about local news in Chicago, Houston and other U.S. cities by far-distant reports in, among other places, the Philippines.

Click on Outsourcing Journalism for an older report on outsourcing local news editing and reporting to India.

Click on Journatic,  Blockshopper and Mindworks Global Media Services for the home pages of three news outsourcing companies.

Click on Media Outsourcing and Journatic: Hate the Player, Not the Game for a defense of news outsourcing.  The argument is that by giving up the low-end side of reporting, you free up reporters for higher-value activities..

Click on Clayton Christensen for the home page of the man who wrote the book on what happens when you give up on the basic “low-end” work.

Chinese flexibility and union rules

Last year President Barack Obama met with Apple CEO Steve Jobs and other Silicon Valley executives, and asked what it would take to have Apple’s iPhone manufactured in the United States.  Jobs said nothing could bring iPhone manufacturing back to the U.S.  The New York Times published a good article last month explaining why.

Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul.  New screens began arriving at the plant near midnight.   A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the [Apple] executive.  Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.  “The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.”

via NYTimes.com.

Thomas Friedman wrote a column saying American workers have no future unless they can compete with that Chinese awesomeness.  But I don’t know of any American workers who would get up at midnight for a 12-hour shift on a biscuit and cup of tea unless they were (1) slaves, (2) prisoners or (3) in the military, the latter of which was held up by President Obama in his State of the Union address as a role model for society.

Working conditions in China, in my opinion, are the result not so much of the invisible hand of competition as the iron fist of government suppression.  Workers aren’t free to join unions and bargain collectively for better conditions.  Complaining will get you blacklisted, and forming a union is against the law.  The only way of protest open is the traditional Chinese option of threatening or committing suicide.

In the United States, labor unions in their heyday had work rules.  They defined exactly what an individual worker could and couldn’t be required to do.  In return many of the unions took on the responsibility of training apprentices in the skills that employers now say are lacking.

I remember working on newspapers in the days of hot type, when composing rooms were ruled by the International Typographers Union, one of the strongest and also most democratically run U.S. unions.  One ITU rule was that nobody but a union member could touch type metal.  The compositors and typesetters would all watch any newcomer out of the corner of their eyes, and if he let his hand fall idly on a tray of type, all work in the composing room would instantly stop.  Good fun!

Like anything else, union work restrictions can be carried too far.  But the alternative is unscheduled 12-hour shifts on subsistence wages, and a biscuit and a cup of tea.

Click on Apple, America and a Squeezed Middle Class for the full New York Times article, which is excellent.

Click on Apple’s iPad and the Human Costs for Workers in China for another Times article on the same subject.

Click on Making It in America for a report in The Atlantic on a U.S. company’s struggle to keep manufacturing in the United States.

Click on Average Is Over for Thomas Friedman’s column.

Click on In Steve’s Time Machine, nobody rides clean for a good post on the left-libertarian Psychopolitik web log.

I use Apple products.  I don’t have any reason to think the late Steve Jobs or Apple Computer were or are worse than other Silicon Valley companies or executives, nor that electronics companies are worse in this respect than other kinds of companies. While I don’t think Jobs or Apple should be singled out, neither do I think “everybody does it” constitutes an excuse.