by John Schmid[vc_video title=”” link=”http://jsonl.in/2tSk8Y7″]
Foxconn parent Hon Hai Precision Industry is looking to automation to keep productivity up without the rising costs of human labor. Meg Teckman reports.
As politicians in Wisconsin and other Midwestern states compete to lure Foxconn Technology Corp., the high-stakes gambit has drawn attention to a disconnect between nostalgic perceptions about the American manufacturing sector and the jobs it actually generates in the modern economy.
Foxconn, which ships freighters full of Apple iPhones, Amazon Kindles and Sony PlayStations to U.S. consumers, pays its Chinese assembly workers an estimated $2.50 an hour – including benefits and social entitlements. Once castigated for sweatshops, Foxconn these days is one of Asia’s most vocal enthusiasts of replacing humans with robots.
It almost single-handedly sets the global standards for the sort of cutthroat production costs that have shaken the confidence of America’s industrial heartland.
Foxconn is considering building a multi-billion-dollar “smart factory” in Wisconsin, meant to supply flat-screen display panels. The company is dangling hopes of plentiful jobs even as it also invariably will import its ironclad insistence on lowest possible costs and highest possible automation – what Foxconn calls “the lowest total cost solution.”
If Wisconsin succeeds – with promises of government subsidies and tax breaks and backing from the White House – it would be a game-changing investment, with scope, scale and complexity the state has never seen before.
However, the specter of a mega-deal raises questions about whether a state built on the foundations of 19th century industry is prepared for the seismic changes that Foxconn epitomizes – and which already are reshaping the global economy.
Does Wisconsin have the deep reserves of digital-age systems engineers who are coveted in the new manufacturing economy – but said to be in short supply in southeastern Wisconsin and much of the Midwest?
Just as crucial: Are the legions of Wisconsin workers – schooled in the practices of the last century – prepared to accept demotions in wages and opportunity?
Mirk Buzdum, who oversees manufacturing operations at American Sewer Parts & Cleaning Inc. in Menominee Falls, said the myths and nostalgia about manufacturing persist.
“It’s insane to say there will be a blue-collar renaissance,” said Buzdum, a veteran of Midwest industry. “The disconnect is so huge.”
Bottom line: These are not your fathers’ manufacturing jobs. Not even close.
With or without Foxconn, U.S. manufacturing finds itself in a renewed state of upheaval, bringing “severely diminished opportunities for workers without education beyond high school,” according to a recent analysis by a federal agency that examined the changes gripping the nation’s manufacturing economy.
“Even strong growth in manufacturing output could well have only modest impact on job creation and is unlikely to increase demand for workers with lower levels of education,” stated the report from the Congressional Research Service, which was released before the Foxconn deliberations.
To the disappointment of communities that pin their hopes on political promises of a blue-collar revival, rank-and-file production jobs will be harder to find and will pay increasingly less, the report found. Their occupations are bound to look more like hourly jobs at a highly automated Amazon warehouse than labor at a classic made-in-America autoworks plant.
To be sure, there are opportunities for middle class pay. The fastest growing classification of manufacturing worker are those with degrees beyond four-year college degrees (up 35% from 2000 to 2016).
The turbulence looks and feels to many like a shrinking American middle class.
Strangely, however, the Congressional Research Service found that public and political perceptions don’t keep pace with the transformations that already roil American industry.
The Congressional Research Service, an arm of the federal government, solely exists to monitor policy-making. Ominously, it found that the nation’s politicians continuously draft new legislation based on the nostalgic hopes of a less complicated era. In the process, they perpetuate expectations that are outdated and unrealistic.
“Implicit in many of these bills is the assumption that the manufacturing sector is uniquely able to provide well-paid employment for workers who have not pursued education beyond high school,” the report begins. The carefully phrased report then proceeds to dismantle the multiple myths and stereotypes, which are still in circulation but are based on vanishing last-century economics.
Only two in five manufacturing workers actually are involved in the process of making things any longer, the report documents. And within that dwindling corps of bread-and-butter jobs, those classified as assembly line workers account for less than 7% of manufacturing jobs.
And of those “team assemblers,” as line workers now are labeled, one in five works for temporary staffing agencies, which furnish commodity workers on an as-needed basis, and is paid 21% less than those employed directly by manufacturers, the report found.
“Contrary to the popular perception, manufacturing workers on average earn significantly less per hour than workers in industries that do not employ large numbers of teenagers,” it found. “Technological advances in manufacturing are likely to further reduce the need for production workers.”
As recently as 2000, more than half of all American manufacturing workers had nothing more than a high school diploma. By 2016, that fell to 42%.
“Technological advances in manufacturing are likely to further reduce the need for production workers,” it found. “Manufacturing wages are below those in many other industries and continue to decline in relative terms.”
The Congressional Research Service report was written by researcher Marc Levinson, who also wrote several widely reviewed books that popularize trends in global trade and economic change. Levinson declined to be interviewed because the Congressional Research Service reports are meant exclusively for Congress and its staffers.
Golden age in ’70s
If there was ever a golden age of American manufacturing, when good-paying jobs connected high school grads with the middle class, it peaked in the 1970s, when 20 million Americans earned paychecks in the manufacturing sector. Since the peak, however, manufacturing has lost jobs in fits and starts, with about 12.3 million workers currently.
But the latest leg of transformation appears to be taking the Midwest into unknown territory.
The rebound since the last recession in 2007-’09 has been weaker than past expansions, it found. In fact, job gains in manufacturing petered out by 2014 and fell last year in Wisconsin and 27 other states. More worrisome, factory output – the dollar value of goods produced – stalled nationally and fell in Wisconsin in 2015 and 2016.
“These trends defy expectations,” not least as the rest of the economy continued to hire and expand, the Levinson report stated.
Smart factories on a multi-billion-dollar scale, which Foxconn is exploring, could propel Wisconsin into the new age.
Even as overall manufacturing jobs decreased from 2000 to 2016, “the number of manufacturing workers with graduate degrees increased by 35%,” the report said. One-third of all manufacturing workers are employed in information technology, design, engineering, finance and management jobs.
Smart factories also spawn a halo of professional service support industries around them, which don’t also count in the classification of “manufacturing.”
“The smarter the factory, the bigger the halo,” said John Bernaden, co-founder of the Smart Manufacturing Initiative, an advocacy group in Washington, D.C. “Even if Foxconn constructed a completely automated plant with zero workers, it would create many times more jobs than similar traditional labor-intensive factories.”
Industry trade journals rank Foxconn as the world’s largest contract manufacturer, based on annual revenue.
It’s known for the secrecy of its operations, mass producing electronics on behalf of well-known outsourcing brands. Its parent company, Hon Hai Precision Industry Co., uses Taiwan for its corporate mailing address, but its production base is spread over at least a dozen cities in mainland China. So are its research-and-development teams, which have amassed valuable patent portfolios because clients such as Apple frequently rely on Foxconn to figure out how to miniaturize and then manufacture sophisticated electronics.
Because Foxconn has been implicated in scandals involving worker conditions, including suicides by its workers, it is monitored by human rights advocacy groups. Those include New York-based China Labor Watch, a politically independent nonprofit that provided the hourly wage estimates.
The notion of a Midwest production plant for Foxconn is confusing to Buzdum, because Foxconn’s shipping volumes are so high and shipping costs so minimal that a Midwest facility doesn’t make economic sense.
“None of it adds up,” he said.
Seen from Asia, some say it’s not economics that drives Foxconn’s logic.
Foxconn acquired Japan’s Sharp Corp. last year, and it would be Sharp flat panels that Wisconsin workers would assemble, if a deal goes through. And in Toyko, Japan’s Nikkei Inc. flagship media organization sees the deal as a geopolitical appeasement to the Trump administration, meant to avert protective trade restrictions and keep open the torrent of made-in-China electronics.
After executives from both Sharp and Foxconn visited President Donald Trump, the Nikkei Asian Review reported this month: “Making panels in the U.S. would also protect the Asian duo from import tariffs the president has threatened.”
Ensuring these plants are profitable could be a challenge, Nikkei wrote. “There is little industrial base to support LCD panel production in the U.S. currently,” meaning Foxconn would need to convince some of its Asian supplier industries to move as well, Nikkei wrote.
Washington might be unusually strident with anti-trade brinkmanship, but Foxconn has been just as vocal. Its founder and chairman Terry Gou wonders if America lacks the skilled labor and comprehensive supply chain the display industry requires, Nikkei reported separately.
Gou told Trump to move quickly to come up with a suitably generous package of subsidies.
“I am concerned as to whether the U.S. can resolve all the investment issues in only a few months’ time,” Gou said. “Does the U.S. offer incentive programs for foreign investors?”
An earlier version of this story misspelled the last name of Mirk Buzdum. It has been corrected.