The Outsourcing of Labor and Dis-Integration of Production

Yesterday was Labor Day--a great time to pause and think about how work has changed from the good old days of unions and posh benefits. Outsourcing and global production have undermined corporations and workers alike. But they empower those who can take advantage of the new game.

The extreme edge of this new game can be understood in a provocative thought experiment posed by professor Gerald Davis of the University of Michigan Business School in a recent conference paper (thanks to this New York Times blog for first alerting me to the paper). Professor Davis imagined how you could create a killer new iPhone app called "Remote Drone Assassin" along with actual drones that you could sell to mercenary companies, "without leaving your couch."

First, he wrote, you could go to the Plug and Play Tech Center and rent a  desk and fancy mailing address. (Why bother with a real corporate HQ?)

Second, you could "incorporate online in Liberia for $713.50" through the Liberian Registry site. (Who needs lawyers in Delaware?)

Third, you could fund your idea through the crowdsourcing site Kickstarter. (Who needs venture capital anymore?)

Fourth, you could hire programmers to actually design your software app through ODesk, "the world's largest and fastest-growing online workplace." (Who needs to hire people you even know?)

Next, you could hire a low-cost Chinese manufacturer to make your drones through Alibaba.com (Who needs to make it at home?)

If you don't want to sell through the Apple Store or Amazon, you could arrange payment through Square, which allows you to charge credit cards through your iPhone or iPad. (Who needs to work directly with the credit card companies?)

Finally, when it comes time to ship the goods to the mercenary company, you could use Shipwire. (Why bother with the biggies like UPS or FedEx?)

You never left your couch, and you managed to employ a bunch of subcontractors to bring your drone and its app to market. Still, what have you actually contributed to the US or world economy? Did you actually work? You never left your couch.

An extreme scenario, perhaps, but it illustrates the loss of the ideal of craftsmanship--the satisfaction of being involved in the whole of a process, from beginning to end (a key theme in chapter 5 of my book). Professor Davis' scenario also helps us understand the puzzle of the jobless recovery. Profits and economic growth occur all along the way, but no U.S. workers are employed. Except for maybe one couch potato.

Thankfully, this is an absurd extreme, but it does suggest that if we are not careful we may outsource ourselves to death.

American Manufacturing and Globalization

Jason Reed/Reuters

Yesterday in a speech at the University of Michigan, President Obama stated that "when manufacturing does well, then the entire economy does well." He's trying to press colleges to lower their costs and make higher education more affordable, in the hope that they'll train more wealth-creating workers. Leaving the domestic politics aside, it was an interesting week to make this case, because two stories highlighted how globalization and technological change are hurting American workers.

Maddie Parlier at Greenville Standard Motor Products
Photo credit: Dean Kaufman for Atlantic Monthly

First, the current issue of the Atlantic Monthly ran an excellent story by Adam Davidson on how difficult it is for moderately educated workers to compete in an increasingly global, increasingly automated manufacturing workplace. Davidson, my favorite economics journalist at NPR, focuses on the plight of a 22-year old single mom named Maddie Parlier who has two kids and no college education. She's working an entry-level job at a plant that makes fuel injectors, making around $13 an hour, with little prospect of advancement.

In order to move up a level on the payscale to "Level 2" and boost her pay by about half, Maddie would need to learn a lot more in order to have the necessary skills to program the machines she currently mans. As Davidson puts it,

It feels cruel to point out all the Level-2 concepts Maddie doesn’t know, although Maddie is quite open about these shortcomings. She doesn’t know the computer-programming language that runs the machines she operates; in fact, she was surprised to learn they are run by a specialized computer language. She doesn’t know trigonometry or calculus, and she’s never studied the properties of cutting tools or metals. She doesn’t know how to maintain a tolerance of 0.25 microns, or what tolerance means in this context, or what a micron is.

Maddie's plight illustrates why President Obama is pushing college affordability and job-training programs.

And Davidson's piece reminds us why workers with limited skills are struggling to keep up these days. Their jobs are being replaced by machines and/or Chinese workers.

Second, speaking of China, the New York Times ran two stories this week in a series on "The iEconomy." The first one, "How the U.S. Lost Out on iPhone Work" made quite a splash, while the second one will disturb anyone who's bought an iPad.

In the first story, the most striking passage captured why China (and not the U.S.!) is getting so many jobs out of the explosion of demand for iPhones:

Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. 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 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.”

I'm afraid the executive is half right. American plants could probably match the Chinese speed and flexibility, but they would have to pay their thousands of workers a princely sum to be ready at a moment's notice. And then they would have to pay overtime to convince workers into grueling shifts. We just can't match China at a cost-effective rate.

Apple is currently the most valuable U.S.-based company and the symbol of American ingenuity, but it "employs 43,000 people in the United States and 20,000 overseas, a small fraction of the over 400,000 American workers at General Motors in the 1950s, or the hundreds of thousands at General Electric in the 1980s" (Duhigg and Bradsher).

Globalization of the manufacturing process is not creating enough American jobs to absorb workers with lower skills. How do we get out of this mess?

I'm not sure anybody's figured that out yet. And even if someone did figure out how to start fixing this deep-seated problem, can our politicians implement such policy solutions without politicizing them?

I guess we'll see in the next few years.

Funky Globalization in Hershey, PA

Americans love Hershey chocolate bars and think of them as all-American. But some funky globalization-related things happened recently at the packaging facility that ships Hershey candies in Pennsylvania. And these happenings were definitely not all-American.

It turns out that Hershey, Inc. has been subcontracting with subcontractors who partner with another subcontractor to bring over groups of foreign university students to work in packaging facilities in the summers. The students coming over this year under the State Department's J-1 visa program were expecting to see the USA, earn a little money, and participate in cultural exchanges.

Instead, the only American culture these poor students were immersed in was our corporate culture. The 400 or so students were surprised to find themselves working physically demanding jobs at a packaging facility for Hershey, wrapping up Kit-Kat bars, Reese's candies, and Almond Joys. Many of them were forced to work on the night shift, and all of them were forced to work eight hour shifts under pressure and surveillance. Still, it wasn't the jobs that put the students over the edge. According to the New York Times, "the students said they decided to protest when they learned that neighbors in the apartments and houses where they were staying were paying significantly less rent."

Fed up, then, the students went on strike. While their immediate frustrations with their jobs caused them to walk out, their larger frustrations were with the brokers who promised them visions of cultural exchange, who forced them to pay up to $4,000 to come to the U.S., and who then over-charged them for rent. Many of the students were expecting to make a little money but now expect to return home having lost money on the deal. And all they got to see was Hershey Chocolate World! : (

How is globalization demonstrated here? For one thing, America's sales culture has been exported abroad: These foreign students learned all too well that you should never trust strangers who make big promises. Meanwhile, the students' desire to visit America is an interesting case study of international migration, as is the State Department's J-1 visa program. A cynic might say that the U.S. government is allowing the temporary migration of cheap guest workers for corporate interests, but the State Department classifies the J-1 visa as an Exchange Visa, which suggests an original intent to promote those exchanges. Students expecting to work in Willy Wonka's chocolate factory were expecting to participate in some global cultural exchange (Hersheys Chocolate World doesn't count).

And the most interesting globalization aspect in this story is the use of multiple subcontractors, a classic corporate and government tactic for outsourcing ultimate responsibility. After the story was published, the followup story pointed out how four different companies all blamed each other. This is what makes globalization so frustrating to people: no one is taking responsibility! This passage was especially telling:

The Hershey Company said it had contracted day-to-day operations at the packing plant to Exel, a logistics company. “The Hershey Company expects all its vendors, including Exel, to treat employees fairly and equitably,” said Kirk Saville, a spokesman.

Exel contracted with a local labor supplier, SHS Staffing Solutions, to provide temporary workers, including the J-1 students, for the summer months when work is at a peak, said Lynn Anderson, a spokeswoman for Exel.

SHS Staffing said its main function was to handle payroll and schedules for the students.

Along with the non-profit organization that recruited the students to come to the U.S., the Council for Educational Travel U.S.A., we have four organizations with a hand in this. Of those four, who is responsible? Hershey? Exel? SHS Staffing Solutions? The Council for Educational Travel? The students? All of the above? It isn't clear.

In any case, we know about this story because the students and the labor union friends decided to create some noise. Whether or not their complaints are justified, this is a fascinating dimension of globalization. How many of these J-1 visas are granted every year? And how many of these foreign students come over expecting cultural exchange only to get stuck working in miserable summer jobs? And how many of those jobs could be filled by young American citizens? In a time of high unemployment, it makes you wonder.

Do readers out there have any experiences with foreign young people in summer jobs on these J-1 visas?

Before the Deluge, the Downfall of the Big Three

Avant le déluge--before the deluge--of Arab protest, I usually blogged once a week on a story that related to the book. Today's news may well bring another wave of stories about the Arab world, since it's Friday and young men will soon be pouring out of mosques after midday prayers across the region.

But, before the next flood of stories, consider another huge story that deserves our attention: the near-collapse of the American car industry. Paul Ingrassia's recent book Crash Course: The American Automobile Industry's Road from Glory to Disaster (New York: Random House, 2010) tells this story in compelling fashion, and it's worth spending some time highlighting some lessons from the book for those of us interested in the globalization of labor.

How did Chrysler and General Motors (two of the old Big Three) end up collapsing by 2009?

1. Both the autoworkers' union and car industry executives are to blame.
Ingrassia, a longtime reporter on the car industry for the Wall Street Journal, describes the craziness of the United Auto Workers' (UAW's) Jobs Bank, which paid assembly line workers up to 95% of their wages for not working during layoff periods. Lavish retirement pensions and health care benefits for retired autoworkers strained corporate coffers.

But the executive teams at the Big Three also invite some scorn in Ingrassia's tale--and not just because they repeatedly caved in to union demands. (Note: Ingrassia's story is primarily told from the corporate boardroom, rather than the assembly line, but even then it's still pretty damning of our corporate elites, and he does draw on interviews with one assembly line worker in Illinois.) Executives also played accounting games to generate paper profits (not unlike the disgraced energy company Enron). They also tolerated shoddy quality, turned to SUVs for easy profits, and failed to anticipate high oil prices. They got lazy and complacent.

2. The 1970s hollowed out the Big Three, exposing fundamental weaknesses
The book has an entire chapter that includes the fiascoes of the Chevy Vega and the Ford Pinto (perfect symbols of the excesses of the industry). The Vega was assembled at the GM Lordstown plant, where young workers, perhaps influenced by the hippie movement, rebelled against an attempt to speed up the assembly line from 60 to 70 cars per hour "to an incredible 100 cars an hour" (p. 52). The "Lordstown Blues" became a famous example of disillusioned industrial workers sabotaging their own products. The Vega engine also had design flaws (p. 53).

Meanwhile, the Pinto sedan had a design flaw, with the rear axle behind the gas tank. When rear-ended by a vehicle traveling thirty miles per hour or faster, this is what could happen:



"Ford engineers had known about this [design flaw] when the car was launched . . . [b]ut the company's cost-benefit analysis determined that the number of lives that might be saved weren't worth the additional $5 a car required to strengthen the design" (p. 59). Ouch!

3. Japanese innovations in production processes were never adopted by U.S. carmakers, despite their obvious benefits
In contrast to GM's failed experiment in collaborative work environments at the Saturn plant in Tennessee, Honda built a plant in Ohio that relied on Honda's research and development department, which "was funded by a share of the parent company's revenue and thus was safe from cost-cutting drives" (p. 66).

Honda's US operations started out with a motorcycle plant in Marysville, Ohio, where a 37-year old guy from Canton, Ohio named Al Kinzer was one of the first people hired, after an extensive interview process that tested potential employees for their attention to detail. The Honda manager would ask interviewees "to write their first name on a name tag and to place the tag on their left shoulder. Some applicants would put it on their right shoulder, and others even forgot to wear it at all. They were crossed off the list" (p. 70).  After being hired, Kinzer was unimpressed with the fact that all employees, both management and workers, were to wear the same jumpsuits. Nor would managers get assigned parking spaces near the front door. "At Honda, parking would be strictly first-come, first-served, regardless of rank" (70.) There was "no executive dining room, no separate bathrooms, and no separate locker room to change into their work clothes--all in sharp contrast to Detroit" (p. 70).  It was all about having a common purpose and minimizing hierarchy. The bosses needed to "explain the reasons for managerial decisions and to get consensus where possible" (71).

Once the Honda car lines were up and running, workers had to hustle:

working on the Honda assembly line was an aerobic workout that caused some associates to lose twenty pounds after a few months on the job. Factory discipline meant associates couldn't swig soda, smoke cigarettes, or munch on snacks while working, as the workers in Detroit's factories could do. But there were benefits. Instead of being told, in effect, to check their brains at the door, Honda's workers were being encouraged to contribute their ideas, as well as their manual labor, to the manufacturing process. If their suggestions produced efficiencies that eliminated someone's job, even their own, the person would be transferred to another job instead of being laid off. Workers were told they wouldn't be laid off, except as a last resort, and Honda's growing U.S. sales . . . meant layoffs never happened (pp. 74-75).

Shocking! And when the UAW tried to get Honda workers to unionize, the workers refused. This was not the American model of dysfunctional industrial capitalism, made famous in the Dilbert cartoon. And, sadly, the American model has never really been updated in car manufacturing. GM tried to imitate Honda in its Saturn experiment but that experiment failed.

In chapter 5 of the book, I highlight two examples of corporate innovation that tried to empower workers, but they seem like minor exceptions to an overwhelming trend of dreary American workplaces (as in the TV series The Office).

Chrysler's plant in Belvidere, Illinois was all too typical. The autoworkers' cushy safety net created a "who cares?" attitude that was reinforced by management, which claimed to care about quality but was more worried about keeping up quantitative production schedules.

Sometimes when workers pointed out defects, they were ordered to ignore them, because "it's just a Mexico car"--that is, bound for the Mexican market. Once when [one worker] suggested a more efficient method for installing windshield wipers--the sort of suggestion the Japanese welcomed in their factories--he was rudely rebuffed by his supervisor. After that he pretty much kept his mouth shut (p. 199). 

Ouch! And then we wonder why the US manufacturers have lost market share.


4. The 1980s and 1990s "comeback" of the US companies was illusory.
Although the American manufacturers learned from Japanese competition, they still failed to learn the deeper lessons. For example, in 1982, GM demanded that the UAW make concessions: a wage freeze through 1984, postponing some cost-of-living raises, and getting rid of some paid holidays. But on the same day they got this concession, GM announced a new plan that would make it possible for executives to earn bigger bonuses (p. 80). Chrysler's Lee Iacocca also launched a cost-cutting plan, but spared his company suite in Manhattan's Waldorf Towers, where the company paid $2 million for gold-plated faucets (p. 94).

As Ingrassia puts it, "Tone-deaf executive excess would be a constant in Detroit, right up until the Big Three boarded their corporate jets in 2008 to beg for a government bailout" (p. 94).

The 1990s were the decade of highly profitable SUVs. With low oil prices that worked for awhile, but it left Detroit unprepared for the future. For a long time, the Japanese companies were puzzled by the SUV trend and left Detroit to its own devices. Eventually, they caught up and started to out-compete the Big Three. Even in this protected corner of the market, the Big Three started to lose out.

5. A little virtue goes a long way
Ingrassia argues that William Clay Ford, the head of the Ford family, which still has a controlling stake in the family company, basically "fired himself" as CEO in 2006: "stepping aside required a portion of courage and self-awareness seldom seen in the corner offices of American companies. Changing the CEOwould prove to be the move that saved Ford Motor, while sticking with the CEO would be the decision that doomed GM" (pp. 188-89).

By contrast, GM stuck with Rick Wagoner for a long time, despite his failure to change GM's culture, which destroyed itself through "complacency, arrogance, and hubris" (p. 273).

6. The bankruptcy process might have saved GM and Chrysler (and UAW) jobs . . . but for how long?
As befits a former Wall Street Journal reporter, Ingrassia covers the financial maneuvers between the car companies and Obama's White House task force in 2009. Although there were some odd twists and turns in the process, it did help to force the companies to take steps that they wouldn't take on their own.

7. The old model of American industrial capitalism is in question
Ingrassia writes,

General Motors had virtually invented the modern corporation, with professional managers, as opposed to family founders, presiding over decentralized operations that were governed by central financial control. It had pioneered modern marketing, public relations, and the hierarchy of brands that made automobiles vehicles for social as well as physical mobility. It had set standards for everything from style to design to corporate healthcare plans (p. 273). 

What comes next? Will Apple, Google, Facebook, and the rest of Silicon Valley lead the way? Can they create thousands of jobs that allow ordinary workers to send their children to college?

It's not clear how we'll ever return to the boom years when what was good for GM was good for America.

Why I Love the Sundays after Epiphany

It's January, and it's been cold, snowy, and gray here in the upper Midwest. But I love this time of year--not because I love cold weather, or even college basketball, or the NFL football playoffs. 

I love it because I love this season of the church calendar. Between the Feast of the Epiphany and Ash Wednesday, the church now enters a season of reflection. The Catholic Church calls this a season of "ordinary time," but the liturgically minded Protestants behind the Revised Common Lectionary call this the season of Epiphany. Either way, though, the focus throughout this period is on how God's glory is increasingly revealed through the work and ministry of Christ and the Church. This season is all about the extraordinary Light of God being manifested in the ordinary and mundane.

This theme is encapsulated in this week's communal prayer (or collect, in Anglican language), which is one of my favorites:

Almighty God, whose Son our Savior Jesus Christ is the light of the world: Grant that your people, illumined by your Word and Sacraments, may shine with the radiance of Christ's glory, that he may be known, worshiped, and obeyed to the ends of the earth; through Jesus Christ our Lord, who with you and the Holy Spirit lives and reigns, one God, now and for ever. Amen.

If Christians would take this prayer seriously and live it out, they would understand their mission in life and find their calling: Everything we do--especially our work in the world--should shine with the radiance of the Light of Christ. But this work must always be rooted in worship, in beholding the glory of the Lord, in experiencing the beauty of God's story. And this work is always to be aimed at making disciples of all nations, inviting others to worship, and teaching them to obey until the end of the age (Matthew 28:18-20).

Since I'm teaching a senior seminar focused on the theme of vocation this spring, I've been reading and thinking a lot about finding callings. It's difficult to figure out what to do with your life. I certainly had a hard time figuring it out, and I know many others who do. It's even harder in this season of winter, when it's easy to get depressed and stay in bed on chilly mornings.

To figure out your calling in life, I want to tell students, you might start by going to church, where you can be illumined.

I love this season because it challenges me to drag myself out of bed, to see the Light, to get to church, to dive into my work, and to renew my sense of calling--right when I need all this, in the depths of of the dark, cold winter.

When I do all these things, I often find that I have caught a glimpse of what I am to do with my life. I have caught a glimpse of my part in the Epiphany mission: the mission of revealing God's glory to all who will receive it.

Thomas Friedman's Lesson from Greece

Today's New York Times has an interesting column by Thomas Friedman on the public finance mess in Greece, which is worthy of comment--unlike much of Friedman's recent columns, which tend to be shrill rants about our feckless domestic politicians. (When Friedman sticks to globalization, he tends to do best.) Today's piece has a nice description of how globalization connects people so much that it requires us to be more ethical. If globalization really does make the world into a village, then our actions have impacts on people on the other side of the earth. People in Asia or Africa or Latin America or Europe are my neighbors.


As Friedman puts it,

. . . we’ll all need to be guided by the simple credo of the global nature-preservation group Conservation International, and that is: “Lost there, felt here.”

Conservation International coined that phrase to remind us that our natural world and climate constitute a tightly integrated system, and when species, forests and ocean life are depleted in one region, their loss will eventually be felt in another. And what is true for Mother Nature is true for markets and societies. When Greeks binge and rack up billions of euros of debt, Germans have to dig into their mattresses and bail them out because they are all connected in the European Union. Lost in Athens, felt in Berlin. Lost on Wall Street, felt in Iceland.

While it's possible to exaggerate these global connections, it's impossible to ignore them. When the Greek government's finances started going south, the impact was felt in the U.S. stock markets.


Such interdependence, in Friedman's view, requires ethical action by everyone. But how do we promote that?

How do we get more people behaving sustainably in the market and Mother Nature? That is a leadership and educational challenge. Regulations are imposed — values are inspired, celebrated and championed. They have to come from moms and dads, teachers and preachers, presidents and thought leaders. If there is another way, please write me. I’ll leave a note for Lydia.

"Lydia" is the name of a 10-year old Greek girl who left a note outside the bank building firebombed during protests against austerity measures imposed by the Greek government. The note said, “In what kind of a world will I grow up?"

Great question. But I don't think "values" instilled in individuals are the solution. Instead, I argue in the book that the practice of the church year helps to build a community--the church--that can model practical and hopeful alternatives to the current system of globalization.