More about SKD (reusing monitors as TVs) Market

Big Secret Factories!!

WR3A posted a film on YouTube last summer where we showed a hardworking African entrepreneur doing a great job of fixing and reselling monitors in Senegal. His storyline was that he was happily doing business in California... then SB20 came along and ate up all his monitors with a loud crunching noise. He relocated to NYC, and bought from a guy and found I guess the container stuffed with muddy Katrina cake computers, losing all his money. SB20's unintended consequences. When he came to Vermont, he was so worried about taking junk that he tested everything. When it got to Senegal, he repaired everything he could. Yet this guy is being labelled either a polluter, or at best someone bringing working computers "which will someday need to be recycled". What I saw in Souley was the best hope Africa has. To refuse to sell him computers is to keep Africans 'barefoot and pregnant'.

But the African guys scale of operation is only a thousand or so monitors per month. If you really want to understand the export market, look for "Big Secret Factories".

(shhhhhhhhhhhhhhhhhhhh! Colin Davis!)
In 1992, when I was a new recycling program director at Massachusetts DEP, I made a shocking announcement. There were 22 paper mills in Massachusetts that relied on waste paper for most or all of their feedstock, and if people didn't recycle these factories would close and a few thousand blue collar jobs would go away.

Having put myself through grad school driving a paper recycling truck, it was, to me, like an announcement that there are laundromats where people wash clothes. But it hit the front page of the Boston Globe, and I got my first earful from a Governor's (Weld) office about unauthorized leaks to the press.

Today, in a weird deja vu, I have been asked a lot of questions about the controversial theory that there are factories which buy 5000 used USA monitors per day, and that most developing countries do not throw away working CRT tubes. I have film of actual sitings of these 'bigfoot' monitor buyers. But people still doubt. If this was really true, why don't they come out and advertise themselves?

That reminds me of another previous Massachusetts job, trucking at Earthworm Recycling in Boston. It was back in the 1980s before Earth Day 1990 (the big rebirth one). We sold sorted office paper through middlemen to mills like the one in Erving MA which turned it into toilet paper. I thought they should tell people that their stuff isn't made from trees, it's made of recycled paper!! I know, that's done by companies like Marcal now... but when I called the mill guy to convince him, it was a blank stare over the phone.

Like trying to convince a restaurant owner to put a sign in the window... "Someone else ate off of our plates before you."

If you are in the business, its seems obvious, and if it doesn't seem obvious to YOU, then you must not be in the business. If you are not in the business, what benefit does the factory manager get from giving you a tour and telling you? Only harm can come. There is a Chinese expression, "do not be a crane among the chickens". It means if you just another white bird, don't stick your neck up and attract the farmer's attention... or you'll be next on the plate.

"Why would someone want to use my product if they knew it was made of used stuff?" the paper mill manager asked incredulously.

The market forces driving computer exports are on the same scale as paper recycling mills in the Northeast. Reuse and refurbishment factories are so ingrained in the business now that 50% of all computer sales are "white box", which frequently means some component - a repainted case, a refurbished power supply, a rebuilt floppy disk drive - is reuse and recycled.
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In Septemer 2007, Harvard Business Review published an excellent article titled "The Battle for China's 'good enough' Market". In a previous blog, I went on and on about this.. about the repair and reuse market being a gateway to large scale manufacturing, about the secondary market being the only affordable option for most people in the world, about the protectionist intentions against reuse by established manufacturers, and about the tensions between sustainable reuse, counterfeiting, and 'obsolescence in hindsight'. The reason to repost is that I found some good photos and film clips of one of the factories I was talking about.

The point is not that all exports are good. The factory pictured is the size of a small airport, but they can only use about 65% of the monitors we get in. They use 5000 per day. If we shipped all of ours (including the Toxics Along for the Ride), we could be shipping 6750 per day, with 1750 winding up in piles surrounded by barefoot children.

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The residue would start to add up. Every day, 1750 monitors would be added to the pile, stripped of copper and plastic, and in less than a week there would be more on the ground than the factory purchased in a day. There would be no pile to photograph in the factory... but head to the village. What the National Geographic or CBS Reporter sees is evidence that junk monitors are being dumped on top of barefoot children and set ablaze.

It is true this pollution is a biproduct of the reuse factory. The legal counsel for the owner of several of these factories told me they were not generating the pollution, but that they were "closing one eye" when they bought the good monitors through middlemen. Their solution was to support WR3A, to buy direct the monitors they need, and to invest in proper recycling of the residue. But in the meantime, they have to feed three shifts per day. So the imports to the village continue.

So is the solution to mine rain forests and make CRTs that will last 15 years, generating vast greenhouse gases in the smelting and production, and then grinding and disposing the working 5 year old monitors?

That cure would be worse than the disease. WR3A.org, World Computer Exchange, National Cristina Foundation, and others are following a "Fair Trade" path, seeking to reform the export practices while supporting the factories in these photos.

If you do a true lifecycle analysis, the recycling hierarchy (reduce, reuse, recycle) holds true in this industry. And what I like about it (and go on and on about in last week's blog), is that I saw 20 year old valedictorians with eyes of steel setting up these factories in Malaysia. I am trying to set one up with a women's coop in Mexico. These people are setting up TV and monitor manufacturing factories. Like little Samsung Sony dudes. Or more like Michael Dell, refurbishing IBM in his Texas dorm room. The Senegalese, The Egyptian, The Malaysian, The Taiwanese, The Mexican Women, The Burkinabes... they are not pirates or sleazebags.

They are the best goddam hope I have for peace and prosperity in the world. And the USA is setting up massive factories and laws to break the stuff, and cut them off at the knees. And it is good, green people doing it. I am growing hoarse.

One hope was Hwang, a Chinese government bureaucrate who represents the new product manufacturers, who in China are trying to kill these factories in order to preserve sales of outdated new CRT manufacturing. She was a very good person, in a government job. She arranged tours for me of any reuse village I asked to visit, of the reuse markets in Guangzhou, etc. When I expressed my fears that the Chinese government would try to put out of business the entrepreneurs in these reuse markets, she had a Taoist response... that as much as the government might one day try, it could not possibly control the reuse market.

Two of China's top 20 billionairs are repairmen (one bicycles, the other tractors). With your brain and someone else's discard, you can be an independent manufacturer.

What follows below is some of the best photos and film clips of one WR3A "secret factory" visits. Click twice below (on the green shirt guy)...

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At this particular factory, they even took the old monitor casings, pelletized the platic in-house, and re-molded them into new monitor casings!! (adding black die).

I call this a "manufacturer take back program". But it's a white box manufacturer take back program. But they aren't really trying to take their own back... so it's a Remanufacturer Take First program.

So, I can also show you places to buy these TVs and monitors, which are the only ones that most India college students, Egyptian medical students, South American engineering students, etc. can buy. They cost a fraction of the cost of a new monitor, in a place where that fraction is a month's income.

Please allow reuse. I guess Maria Antoinette never actually said (when told that the peasants have no bread to eat), "let them eat cake!". But this idea that they should all get new laptops kind of sounds even more hideously clueless.

In the grey market world, these small manufacturers have the odds stacked against them. There are big competitors throwing logs on the tracks, who got the Chinese Communist Party to shut a lot of them down. It's like the "Catch Me if you Can" movie, they set back up in Indonesia, Thailand and Malaysia. These guys are so damn good. I hope they win.

A less Maniac response to Vermont H.106

Over the weekend I drafted a very long and elaborate response to the Vermont legislation, H.106, which was filed this winter. I tried to do everything, to explain the reprecussions on the reuse market, to explain the export business, to address National Geographic. The more I tried to do, the more impossible the blog became to edit.

So I'll leave it there for history, but try to explain more simply what is going on.

1) Scale:

First, whenever society tries to recycle something new, all the start up costs fall due in the first years. The first HDPE plastic collections in Massachusetts in 1992 cost towns over $900 per ton, eventually leading to a "packaging legislation" episode that I'll get into another day. The point is that the legislation never passed, and within 6 years, as an economy of scale was reached, the value of HDPE soared. Now it is just another commodity, and I think MRFs earn over $500 per ton for the stuff.

When we started collecting computers, we charged 21 cents per pound (about $15 per computer), which beat the previous bid of 28 cents. Our price fell to 18 cents within 2 years, as more communities signed up. We added TVs (the cost of recycling the computers had fallen to 12 cents) at the same rate. We currently charge about 12 cents including TVs, and the price of CPUs is can be zero if we can get them in bulk.

Five years later, over 80% of Vermont residents have a permanent site to recycle TVs and computers, open 6 days per week. The number who have to wait for a "one day event" is very small.

So the question is, will the legislation get to the last 20% of Vermonters before the free market does? Or should the $200,000 be put to other environmental problems as this one follows the HDPE curve?

2) Producer Responsibility:

The legislation attempts to fund the program with producer responsibility. It's an attractive idea, that electronics producers should have to pay the cost of recycling. If the fees people paid were more than $5 every 3 years, it might be worth discussing.

But what happens is that the manufacturers negotiate reasonable things that will hurt the consumer and the environment. First, if I'm a manufacturer, I don't want to pay the same $X to recycle the same computer over and over again. I want to make sure it is destroyed. But the resale value of just one in 4 computers or TVs offsets the recycling cost of the others by 75%. If the good one is destroyed, the cost triples (for the lost resale revenue and added weight). Do we think the manufacturers won't pass the costs on to consumers?

The manufacturer gets "Obsolescence in Hindsight" (a redux of Vance Packard's "Planned Obsolescence). They get us to pay to take useful equipment off the market. I toured the Maine program recycler, he had good PCs but had to make a quick judgement whether to try to resell them as commodities or get his money from the manufacturer. That's what happens in California, too. Millions of working TVs and computers get crushed up, taking them off the market. I'm not saying it's evil... Sony is offering to take back its products nationwide for free, and that's a fantastic choice to have. I just question why the state should get involved and make us choose Sony over the reuse market.

Last weekend's blog went into a lot of detail about the connections between the emerging "white box" computer market, the billion dollar industry of converting certain (not all) used USA computer monitors into cheap TVs in competition with new CRT makers (one owned by the China Communist Party). Extending the Manufacturer's obligations over used product end-life extends beyond the consumer's property rights. These are the companies which developed the "killer chip" (designed to make used ink cartridges "expire" before they are empty). Look for references to Fuji vs. Jazz Camera if you are skimming the article.

3) Freezing a dynamic market:

As I asked in the long weekend blog, who heard of Michael Dell in 1991? Who heard of Acer ten years ago? Who heard of Lenovo 5 years ago?

The H.106 law will kick manufacturers out of the state's stores if they don't pay their share of recovery. Sounds reasonable. Except that 50% of all computers sold worldwide are by small manufacturers, called the "white box" market. Some of those are very small manufacturers who sell over ebay, while others are actually growing fast enough to be the next Lenovo. Some of these manufactures purchase obsolete trade names, like "Polaroid", and we think it's a big company with a telephone number, but Maine has found that a lot of the products on retail shelves is very tricky to find the origin of.

Back in college, we studied Japan's use of "non-tariff barriers", which were creative little laws that were so difficult for USA producers to keep track of that they didn't even know why Japanese retailers were not selling their product. This fits that description.

What is the cost to the consumer of reducing retail competition by 50%?

4) Distraction from other problems

I see a lot of people spending a lot of time and energy to resolve a problem which looks like the free market is making quick progress on.

Perhaps we should devote our limited green people resources to other problems. Let's get the greenhouse gases under control. Let's reform the General Mining Act of 1872 (reform of this massive subsidy passed the US House and is headed for the Senate). Let's ban the export of liquid mercury as a "commodity". Gorillas and Orangutans are going extinct while we debate whether Sanyo would have designed their cassette player so as not to go obsolete (as if Producer Responsibility will reveal the next CD or MP3 standard).

If we set young people's passions ablaze over something we haven't researched, we are doing what the "No Nuke People Power!" people did for me in 1978. Waste my time and turn me a little bit Republican the more I looked back on the effort. The next generation has less leaded gas fumes in their lungs and is potentially smarter and more practical than my generation. We have a responsibility to keep our powder dry, and truly decide this is an issue we need to spend environmentalists blood and treasure for.

Of late the argument I hear is that recycling must be free. Falling in price by 20% per year is not enough. The legislation will save consumers money. First, does it really save the consumer money, or is the cost being passed on as it is in CA, MN, ME? And when consumers are paying $XX per month for cable TV and $XX per month for broadband internet access, how much time should we spend to save them $5 recycling fee every 3 years?

If I give free garbage disposal one day per week, the garbage will pile up on that day, but it does not mean that the total MSW collected at the end of the year will increase. If I give bottles of water away, and my parking lot is swamped for 5 hours, it does not prove that consumers won't buy bottled water. If we spend a billion dollars to save consumers $250,000, we will have wasted limited environmental capital when every cent counts.

5) Silly assumptions distract from better ideas

EPR is monopolizing the airtime on resource conservation policy.

The philosophical principle behind involving manufacturers is that their production methods will be adjusted when they begin taking back the product. Ok, I use DVDs now. Explain to me the justice and cost effectiveness of sending my old VCR back to Samsung? Samsung would have designed it differently? Won't Samsung just outsource it to another scrap processor? How will this teach them to anticipate new DVD technology?

That's the cycle with MOST obsolete products.

Q: What made cassette tape players Obsolete? A: CDs
Q: What made Pentium 1s Obsolete? A: Windows 98
Q: What made Pentium 2s Obsolete? A: Windows XP

What will make the TVs obsolete? Federal analog bandwidth auctions.

Asking the 1980s cassette player manufacturers to take responsibility for a CD technology that hadn't been invented is just silly. If you want to fund the program, apply the costs to FCC auctions and Microsoft Vista.

Polaroid is gone. The Polaroid brand name was auctioned off and is being licensed to a company in Taiwan. Saying over and over and over again that Polaroid needs to take back the Polaroid TVs, Polaroid monitors, Polaroid digital devices is just silly. There is no Polaroid to take them back to. Smart people need to sit down and read some M.I.T. research papers on assembly and component manufacturing (example) and understand what "manufacturing" is. A factory in Taiwan (where land is very scarce) invests in manufacturing tiny little chips. A factory in China molds the frames, and a factory in Mexico hires people to attach the screws. The more 'moving parts' (RAM, Hard drive, video card, plastic base, CDRom, etc.) the more different "producers" are involved.

Wal-Mart basically controls all the money and has final say-so over who assembles where. OK, that's a provocative oversimplification... but it makes more sense than some of the environmentalist theses I've read. Do we want to involve Wal-Mart? Or will the result be rules that the smaller retailers can't follow?

At least Wal-Mart low low prices redistribute wealth to the USA's poor (and do a lot better job than the federal tax cuts). But EPR policy could hurt the poorest.

6) Hurting the poorest

The weekend blog below tried to explain emphatically that the "exports" problem is that unscrupulous companies are mixing in bad stuff with the good stuff. If the good companies stop exporting the good stuff, the bad companies get to mix in even more bad stuff. VT H.106 wades into end-markets with a really simple idea, the only logical response to which will be for good companies to export less.

Like most of the laws out there, Vermont H-106 draws lines around a tiny little state and sets "rules" for recyclers operating inside that state. Look what that did to Maine. Right now, my company in Vermont is benefitting by more complicated rules in New York. If Vermont matches NY, I'd have to move my operations to NH. I'm not trying to be difficult or argumentative (it comes naturally), I'm just saying let's put RFPs out there which reward the behavior you want, and the free market will meet those standards. Using regulations to modify behavior is expensive compared to concentrating market dollars towards the behaviors you want to encourage. (That was a mouthful... I'll leave it in, just in case someone googles that phrase and I meet a doppelganger)

Conclusion:
Vermont House H-106 has the best of intentions, but arrives 6 years late when we already have 80% of the problem solved. For this reason, the unintended consequences are too great to testify in favor of. Let the manufacturers come up with voluntary takeback programs. But don't tell us all that we can't resell our Chevrolet without a law involving General Motors in the negotiation.

First, let's start with less and then add to the laws over time. For starters, Vermont could just pass a simple waste ban, like the ones on auto batteries, tires, and freon equipment (Massachusetts and New Hampshire already have this). Or ANR could issue a state funded contract, bid it out, and then find out how much it will cost to pay the fees.. then they can see if what the manufacturers are offering is worth the cost. As drafted, Vermont H-106 is a million dollar solution to a thousand dollar problem.

E-Scrap Traffic:

Why Good USA Recyclers Should Increase Exports

Warning: This entry became more a treatise than a blog. I am trying to capture the description of two problems - lack of electronics recycling access, and dumping of electronics on the export market. And I'm trying to address two proposed solutions: state legislation and a ban on export trade. My ability to 'compartmentalize' may become suspect about 3 turns down the road... Oh, what a tangled web we weave. But there is enough good description in here that I will leave it up for awhile and work separately on the Readers Digest version.

Chapter 1

A war is being waged on exports of electronic scrap. The chief target are the loads of toxic junk computers and TVs, thrown on the ground in Africa, or burned for scrap in Asia. There are several heros in that war to right the wrongs of unscrupulous recyclers, who have become the drug dealers and gangsters of the recycling world.

Unfortunately, thousands of shipments of affordable used computers have become collatoral damage in this war. Reputable American recyclers are turning away from digital divide programs, as more and more clients demand proof of downstream due diligence. This month National Geographic Magazine entered the fray, repeating the politically correct line, that 80% of material is exported, and most of the exports are junk.

Solution 1.1: boycott exports

The natural reaction of any red-blooded USA company is to sign a pledge, and refuse to export used computers. The entire state of California, and Maine, seem to be on a mission to crack and destroy a million working computer monitors this year. It's increasingly difficult to trace and perform due diligence of overseas end markets, and clients are relieved if you adapt a no export pledge. With so much attention on the junk exports, we may appear reckless if we sell the the nicer units for reuse, repair, or refurbishment.

As our best actors are taking the best computers off of the table, world demand for computers and internet access is growing.

Well meaning states like California and Maine have dramatically increased domestic processing, but few Americans bother with a used computer. Destroying exportable PCs makes recycling more expensive for consumers, but those costs are well hidden in the chain of a retail fees. The unintended consequence has been a banner year for the "mobsters" in our business. Lowbrow waste collectors now find it less difficult to force along unsorted computers... they hire fewer staff, make no effort to remove the junk TVs and monitors, and save money by not paying domestic destruction costs. As the sleazy guys get cheaper, the expensive guys are more tempted to shut the door on all exports.
Bad Outcome 1.1.1 - Continuing demand is met by worse export product.

Here's the irony - The fewer computers California exports, the more desperate overseas markets become. So poor villages get into the business, essentially outsourcing the sorting the Soprano Recycling company skipped.

Companies which are concerned about their reputations and which pay the tab for proper recycling are actually the best exporters, the ones which will NOT mix in "Toxics Along for the Ride" (TAR). WR3A only allows companies which document significant amounts of broken CRT glass and printed circuit boards (evidence of high diversion of bad components) to access export purchase orders.

In the beginning, those protesting the trade were ignorant of the unintended consequences of abandoning the export market to the worst actors. During the past two years, however, they have continued
to repeat a story that they either know, or should know, is a half truth. They have seen the pictures of legitimate factories, and they have read Annex IX of the Basel Convention itself... which explicitly allows export of monitors for refurbishment and repair, and has a footnote which expressly acknowledges the existence of these factories. But they continue to describe the exports in terms that make consumers squeamish.

BAN expresses concern that the 'fair trade' exports will open a 'loophole'. "Loophole" implies that the appropriate exports are a small percentage of what is being traded. But saying that selling a commodity is a "loophole" for trading waste is throwing the baby out with the bathwater. Clearly, monitors repaired or reused as monitors are not "waste". The convention goes to the effort to specifically label these as non-waste. Any kind of trade could theoretically open a "loophole". Approximately 10% of electronics sold at Wal-Mart are returned by the consumer as non-working... Would a Wal-mart selling new computers in Singapore be a "loophole" for the non-working computers inadvertently sold there?

When the good recyclers do sell the working and repairable units overseas, their costs go down. As their costs go down, more consumers can participate. The more who participate, the more junk is captured, which creates even more jobs at the good recyclers, properly managing more junk domestically. And the more junk we collect, the better the economy of scale to process it.

Of course, most of the CRTs we collect are NOT suitable for export. We ship more than four times the tonnage for domestic recycling that we sell for reuse. We want the cheaters thrown out of the game. I just think there are easier ways to do it than VT H.106. But allowing a modest percentage to be resold can reduce recycling costs dramatically.

Bad Outcome 1.1.2 - less affordable recycling and less participation

If the cost of recycling a computer is $10, then four computers cost $40 to recycle. If just one of the four computers can be sold for $20, then the price of the lot falls first by $10 (the avoided recycling fee) and then is offset by the $20 revenue. Reselling one out of four reduces the cost 75% (from $40 to $10). And a $20 computer may be the only one most people in the world can afford.

Bad Outcome 1.1.2 becomes Problem 2... affordable access.

While I had the luxury of entering electronics recycling from the side of government (as a regulator at Massachusetts DEP) my business philosophy draws more from my stint as a Peace Corps volunteer in Cameroon, Africa. The key is to trade fairly with our overseas partners, not to send them to buy new computers they cannot afford. In the beginning, I thought about helping poor people, like my kids in class, get onto the internet.

Bad Outcome 1.1.3 - less competition from "white box" PC manufacturing companies

Over time I have found that the story is bigger, and better, than classroom computers and internet cafes. The refurbishing market is complex and sophisticated, with entire factories and teams of engineers churning out billions of dollars in product. They are so good, in fact, that original equipment manufacturers (OEMs) created a trade association to fight them.

Vermont should not have a dog in that fight, or if we do, we need to help out the small dog.

Solution 1.2 - Legislation

The widespread criticism of the export market, and the rising cost of recycling at good companies who disqualify themselves from that market, leads to rising cost-to-recycle, which reduces participation, which reduces demand, which reduces access. A lot of states have very few places to recycle at all. To address both the export problem and the lack of affordable access, activists propose a legislative remedy. It's a bit of a dilemma to solve affordability at the same time as reducing buyers of the commodity. The more you reduce 1, the harder it is to promote 2. So a guy in California name Ted Smith (one of two or three in the industry whose ego compares aggressively to my own... which is understandable, since he was recognized by the Dalai Lama, citation needed), says something like "the manufacturers should be responsible to solve this problem, it's too complicated for us." A whole movement was born (or piggy backed on), labelled "Product Stewardship". This attracts more courageous souls like Ted and I.

There are several different ways the legislation has been proposed, and I can't do justice to them today. So I'll use Vermont's new legislation as an example. One premise that Vermont H.106 has right is that our business should be more regulated. That's exactly what WR3A is trying to do. Unfortunately, the VT bill tries to do so the way Minnesota and Maine have, with an elaborate command-and-control regime which bans Vermonters from purchasing 50% of the computers made in the world today. Those who drafted the legislation had a simple idea in their minds, and when the world didn't fit their model, they wrote off 50% of the computers made today, and probably 85% of the computer companies.

But does Vermont have Problem #2? And if not, is that because we have addressed Problem 1 in a "Fair Trade" manner. Right now, 83% of Vermonters already have access to permanent collection sites at rates more affordable than California, Maine, and Minnesota. We got where we are with yankee ingenuity, salvaging working parts for reuse and resale... and selling them primarily to the small factories which will likely be excluded from the Vermont market. As more Vermont communities added programs, we hired more people, creating more jobs, and the cost of recycling has fallen. We are already on track to have 100% recycling access, without the new tax regime or market interference that the bill forebodes.

Bad Outcome 1.1.4 - Big companies are initially reactive to being legislated, then they begin to realize (1.1.3) that it can be a non-trade barrier for entry into their markets.

The major manufacturers and retailers are friendly spirits. I like everyone I know at Sony, Sharp, Panasonic, Dell, HP, IBM, etc. I haven't looked closely at my retirement stock portfolio in awhile, but I wouldn't mind owning some HP and LG Philipps stock. But these were already interested parties in the marketplace, and drawing them into legislation makes them moreso.

A 2007 Harvard Business Review article tangentially but convincingly explains their interest by looking at their marketing strategies in China, where so many of the refurbished and white box manufacturers are growing. Vance Packard, who coined the phrase "planned obsolescence" understood the nature of the market. Controlling who is allowed to sell electronics in Vermont serves the same anti-competitive purpose.

The law would make it harder for our end markets, the folks overseas who need clean and working PCs... Some of them are even becoming big enough to sell their refurbished equipment back in the USA. And that may be the point of some industry support for the bill.

Environmentalists are trying to do something I applaud, to make it harder for sleazeballs to export the stuff everyone knows doesn't work, or like VCRs and Apple IIs, would be worthless if they did, and needs to be recycled. My company wants a level playing field more than anyone, and if Tony Soprano will be truly regulated (unlike the freon recovery industry, which has zero enforcement), that's great. But this bill reaches for the ceiling, trying to incorporate corporations in Taiwan, Japan, Germany in Vermont's infrastructure. It writes off the markets it doesn't understand, says that if they don't fit, they can't sell their product in Vermont.

The state needs to start with "problem definition". Despite simple and affordable programs and competition across the state, some individuals and even townships refuse to participate. Massachusetts and New Hampshire ban disposal of computers and TVs... those laws are simple and effective. Massachusetts goes further by having a statewide contract which enforces best management practices with civil law.

If creating access to electronics recycling is not the problem, or at least is a problem that could be taken care of without involving producers and retailers (via a NH or MA style waste ban for example), what is the best way to curb the other problem - the export of junk? By exporting more, not less. The good companies need to step up and out-compete da Sopranos, by providing quality, inspected, computers at a cheaper cost.

If the legislation is too cumbersome, how can the problems be better addressed? First, as stated in an earlier blog, civil law is easier to enforce than international law. The offices and districts which buy recycling services need to state what they expect to happen to their bad CRTs and hard drive information. Bulk state contracts in MA dictate stricter terms of recycling. More insurance is good, end market audits are good. My company is trying to do that through the WR3A, or World Reuse, Repair and Recycling Association (http://www.wr3a.org/). WR3A members are trying to replicate the success of Fair Trade Coffee, an alternative to the "boycott Folgers" idea that circulated in the 1980s, before more rational people pointed out the result of a boycott... Juan Valdez and his mule would be really screwed.


Here is an internet cafe my partners in Mexico opened last year with PCs recycled at Retroworks de Mexico.

This is getting long, but I'm going to continue after a cup of coffee, in order to try to cite more external sources, especially periodicals which tell a more complete story. Two do an especially good job, the Harvard Business Review of September 2007, and the NIH Perspectives article published in 2006. The perfect world envisioned by Vermont's new legislation is a case when the perfect is the enemy of the good.

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Harvard Business Review published a very good article in September by Orit Gadiesh, Philip Leung, Till Vestring titled "The Battle for China's 'Good Enough' Market" It explains how a few billion people in China and India and Indonesia and Malaysia are getting to where they can have a home, and start to want a TV or a computer. They may not be rich, but they can afford a cheap product. They are not the same as an American consumer.

The article explains how major corporations like Sony and Panasonic have traditionally concentrated on the most expensive, most profitable, market segment. I've heard the expression "the 80/20 rule" and have applied it to a lot of things, in this context 80% of the profit margin are in 20% of the TVs being sold. If you are selling a $2000 TV to an American, they probably can afford the TV, and you can afford to support it, and you can make a lot more money selling $2000 TVs to the 20% of people who want and can afford those than selling to the next 40-50% of the market. So the big corps leave the sales of under $200 TVs to companies who are selling a product 'good enough' for emerging consumers.

The article goes into the danger of leaving the less profitable market segment. The companies that do come in and sell to that segment wind up getting very big, creating more of an economy of scale, ie larger purchases of raw materials, more employees, and more potential to take on the more profitable segment later.

"White box" computers, according to Gartner (a market research company) now make up 50% of computers sold worldwide. What I know from my trips overseas is that while people tend to think of white box sellers as local guys who assemble PCs from 'barebones' cases (PCs sold without the video cards, RAM, hard drives, and other components that the tech can use to selectively build the PC). But a large number of the so-called "white box" PCs are actually much larger scale operations, factories even, which are using used floppy drives, used CRTs, used ATX computer chassis, etc., and adding faster motherboards, larger hard drives, etc. In fact, the photo is from a trip WR3A made to a very large factory which purchases 5000 USA computer monitors per day, strips them down to the CRT, and completely rebuilds them into digital TVs which can pick up TV signals in any country - PAL, PAL2, SECAM, NTSC1, NTSC2, etc.

For those of you who don't know, the entire TV broadcast industry was specialized country-by-country in the first place in order to protect domestic TV manufacturing. If Germany had its very own broadcast signal, it was harder for USA, or France, or Japan, to scale up a factory which made TVs that worked in Germany (the same standards wars go on today, with beta v. VHS, and different DVD settings).


In the past decade, a Taiwanese firm created a circuit board which 'hacks' any signal, allowing the TVs to work in any country (some think this pushed HDTV in the USA). They started Monitor factories, 14 of them, but found they could grow even faster by selling the circuit board in mass 'kits' to factories like the one in these photos. Those factories that buy the kits now have a choice. They could buy new CRTs from Asahi, Samsung, LG Philips, or TCL the largest CRT manufacturing factory in the world, based in China and owned by the Chinese Comunist Party (CCP). New CRTs are good for 15-25 years (depending on quality and hours of use). They are made of mined lead silica, barium, copper, stainless steel, etc., involving huge furnaces which melt the glass cullet and mold CRTs in an extremely technical process that produces a cathode ray tube costing $50-$150.

OR.. they can buy a 5 year old used USA monitor for $5 and reuse the CRT, which will be good for 10-20 years. That TV can be sold at half the cost for twice the profit. And it is "good enough" for most people in China, India, Africa, etc. Good enough for me, in fact... I used second hand CRTs while waiting for the price of LCDs to drop.

I bought a new LCD monitor last year. It was a "Polaroid" which cracks me up, Polaroid is a brand name licensed out to an assembler in the same Taiwanese market. The Waltham Massachusetts camera factory has NOT reopened and is NOT making LCDs. Incidentally, that new LCD lasted one year. I bought a second one that also stopped working. I don't know if I am hoaxed or if there is going to be a big LCD 'disposables' market... of course if I lived in Egypt or Malaysia or China I would have had the two LCD screens fixed, but as an American I saw that the DPI and monitor screen size had gone up, so I bought a new one. I'm in that 20% rich person market, you see.

So anyway, the point of the Harvard Business Review article is that little companies can grow to be big competitors by selling things that are not good enough for rich people to less rich people. This market is, in dollars, the primary end market for used electronics, refurbishment and resale. Ask Michael Dell, who began his business retrofitting IBM PCs in Texas. Ask biographers of Lee Byung-Chull (founder of Samsung) who began as a trading company refubishing electronics discarded from Japan. Ask two of the wealthiest billionaires in China, one a former bicycle repairman, and the other a former farm tractor repairman.

Who of us had heard of Lenovo five years ago? Would they even have been mailed the application for the Minnesota law, or VT H.160? If they received it in the mail at their office in China, would they have read it or known what to do with it? Or would they wind up not selling Lenovo computers in VT? I'm writing this blog on one of their laptops.

One suspects that may be the whole point. This lesson has not been lost on some well heeled companies. The free market dynamic desribed is the point of the "Anti Gray Market Alliance", and the point of putting little holographic 'killer chips' on the inkjet cartridges, and the point of the US Supreme Court case of Fuji vs. Jazz camera, and the ban on used shoes importation into Nigeria following the opening of a Nike factory. Refurbishment is a gateway to becoming a big company.

The PIRG advocates I spoke to admitted they didn't understand this "white box" market that sells 50% of the PCs in the world. But I think it seemed acceptable to them for us to have a choice of Sony, Panasonic, Dell, HP, etc. If we don't know these little companies that won't be selling their wares in VT, what's the cost?

Who ever heard of Michael Dell in 1991? Whoever heard of Acer ten years ago?

Creating a barrier for "white box" computer manufacturers to sell in Vermont is being represented as a necessity to create an infrastructure for recycling. But the infrastructure is growing on its own. 80% of Vermonters live within a few miles of a permanent collection site for used TVs and computers, open 6 days per week. Before VPIRG "solves" this problem, they need to explain what the problem is. Is it the 20% of Vermonters? Well, eight years ago 0% of Vermonters could affordably recycle their TV or computer... the legislation seems like a last minute effort to "rescue us" on the way to success.

Moreover, get this... the white box market worldwide is the biggest buyer of working used electronics collected in VT!! People think the little Mexico internet cafe I have pictured is typical, but just one of the white box recyclers buys 5000 monitors per day. Here is a video of a company very similar to ones we have visited in China, Malaysia, and Indonesia.


video
I think I may have confused my PIRG friends when I explained that the white box manufacturers that we needed to protect included a lot of overseas importers of used electronics. After all, the most frequently cited reason for interfering in the free market is the export business. I sometimes refer to them as "manufacturer takeback programs", which the PIRGs are calling for after all. And they are. Why should we care that they take back other brands? If Dell offered to take back HPs, would that be a problem?

Until you understand that entire factories run on legitimate escrap imports, you cannot rationally explain the export of escrap halfway around the world. Did the barefoot chinese children form a coop and gather $3000 to ship 35000 lbs of junk, just to dump it?


Now in their defense, BAN.org and Greenpeace visit these villages, and see nothing but crap. Peter Essick of National Geographic saw the same thing. Of course it's nothing but crap! The good stuff isn't getting thrown in a rice paddy, it's being resold at the Foshan Market! It's like going to a cemetary and expecting to find live people. The ones on the ground were the TAR, the junk, the ones they couldn't sell!

And speaking of Foshan Market they got whacked last summer. The Chinese communist party came in with their heavy boots and cleaned out all the resellers. You see, the CCP owns new manufacturing, and just arresting people is easier than doing it the way Fuji tried to stop Jazz Camera (a one-use camera recycler that repairs and resells discarded Fujis), ie paying lawyers to take them all the way to the Supreme Court (and lose).

I could get into the "war on drugs" analogy here... when you ban trade in something in strong demand, people go underground for it, and it becomes less feasible to regulate the trade. What I tried to do this year is tell the story in a video, available on youtube (search WR3A), of an African trader who had reliable suppliers of working monitors in California until California SB20 "drank the anti-export koolaid" and specifically mandated that processors "compromise the vacuum seal in the CRT monitors upon redemption".



  • Result 1: California processing costs jump to 48 cents per pound (since you have to ruin the good monitors).

  • Result 2: Souley moves his computer reuse business to New York.

  • Result 3: Souley buys his first load from "Tony Soprano" and opens a container of CRAP in Senegal.

  • Result 4: BAN photographs junk on the ground in Africa, and says that people like Souley are international criminals, and the trade in used computers is illegal.

During my two years as a Peace Corps Volunteer in Cameroon, Africa, I fell in love. I fell in love with my class. I had the best, smartest kids in my 9th and 10th grade class. God, I loved those kids. Crying love. I really strongly debated whether I should stay in Africa, but renewing my post as a teacher in Peace Corps didn't really seem like the way to bring sustainable change there.

A lot has been written about how to help Africa, and I remember the idea of going to work for Oxfam occured to me. I kind of liked the story of buying a poor African a cow instead of buying him food. But agriculture was not the best hope for my kids. Working for the African government is more likely for a well educated African, which is the biggest tragedy, it is so corrupt I felt certain that it would chew my kids up and ruin them as adults. It was almost tempting to see MultiNational Corporations investing in factories as a solution, something I wrote a paper against in high school. But the number of my kids who would really gain pride working for a European, USA, or Asian factory was not appealing to me.

What appealed to me was my Cameroonian roomate's brother, Aaron Cho Kum of the Bamenda area. He had found that a part that wears out of coffee bean hullers, replaced from a company in France, was costing a month's wages (over $40) for most coffee farmers. He figured out a way to replace that part with scrap aluminum. He did so well he later bought new aluminum sheets and made a little factory. He had a TV, a lot of happy kids, a proud wife, and a great sense of humor (the best things about living in Africa is laughing and crying there.. I got so much more of both than I had ever tasted in the USA).

Aaron Achou Kum and the shade-tree mechanics who fixed mopeds (how often do you see 30 year old mopeds being maintained in the USA?) were the best hope for my kids. People creating their own entrepreneural jobs.

Those were the people arrested in Foshan Market in Guangdong, darn it.

Yes, let's stop the exporting of junk!! Yes, let's clean up the rivers in Guangdong!! But we won't do that by increasing the percentage of virgin lead ore at the Guangdong smelters!!!! THAT IS MORE POLLUTION!! China should be recycling MORE, not LESS. If i buy a car battery made in China, I want it to be 100% recycled content for God's sake, not 50% recycled and 50% newly mined lead!!

At times BAN saves me from losing a client to Soprano. But BAN is also exporting a form of madness, that the pollution in the Chinese rivers comes from recycling. The pollution comes from virgin material production. Recycling reduces pollution! To see how bad the virgin smelters are, type in "lead zinc smelter" and "pollution" or "spill" into a news search engine. Here's the first one in the Herald Tribune, likely a source UPSTREAM of the BAN recycling villages BAN visited.

So they get good companies to stop exporting good products, opening the market for the bad companies. Then there is less recycled material, and so China mines more and has more smelters like the one above. Metal smelting in the USA is the source of 45% of all toxics released by all US industry... and we want China to make our products that way instead of using recycled content?

And the press is drinking the kool-aid.

A few reporters have really tried to get to the bottom of the story. Charles Schmidt published an article, Unfair Trade e-Waste in Africa, which tried to cover both sides of the story in 2006 Environmental Health Perspectives.

But more typical is the John Stossel / ABC headline "Waste Dumped Abroad Is Rarely Recyclable or Reusable"

I had a long conversation with Stossel's staffer who interviewed WR3A for the story. I showed her pictures in this article, told her about the fight for the little guys trying to build businesses overseas who don't want, don't ask for, try to avoid the junk... but that banning exports forces them to buy junkier loads from less reputable suppliers. She said she really wanted to tell this story, but that she had a hunch Stossel wanted an "easier" story.

Bill Moyers got it partly right, but largely missed the mark, but that was way back in 2002 when I was saying the same thing, before I had actually travelled overseas to study the reuse market.

Of course, I don't want lead in toys made in China. But it would not console me in the least if the toys were made from virgin lead. When BAN "discovers" recycled content in the lead in the toys, we must all exclaim loudly DUH!!!!

According to the US Geological Survey 84% of all lead in all lead products is from recycled feedstock. That is a good thing. The percentage of recycled metals in metal products has always been high. Thank God!

My little Vermont company pays $3000 per week to properly recycle dud CRTs at an audited, state-contracted, properly inspected facility in Massachusetts. We could save a lot of money mixing the junk in with the good stuff as "Toxics Along for the Ride". So we kind of support BAN and Greenpeace.

The folks at BAN are good people, they want the world to be better. When I speak of the Digital Divide, however, and the best hope for Africa being internet access, so Africa can export its laugher and tears, and import the truth... Jim said that his vision was for the poor people to "leapfrog" the rich people countries. All the Chinese and Africans should get a new computer, I guess. Way to GO!! I'll shut down my Mexico internet Cafe, Souley in the WR3A Youtube video can empty his shop, fire the repair staff, and sell new PCs costing a year's wages.

Of course, the criticism of used working computers, from Silicon Valley Toxics Coalition, is that "they too eventually will not work, which will create a problem in the future for the poor countries"... I guess that is also true of the "Leapfrog" computers. So the solution is to give Africa neither the affordable 3 year old monitor (good for 12 more years) nor the new monitor...
It sounds like Africa should stay "barefoot and pregnant".

A lawyer I respect, John Bullock, gave a presentation at NRC a few years ago which I moderated, speaking along with Sarah Westervelt of BAN and Bob Tonetti of US EPA. Great debate, great participation, one of my favorite sessions, all three gave great insights. Sarah gave the BAN film, the John Stossel story, and exposed a problem which my industry applauded her for... we hate the sleazeballs who undercut our pricing by exporting junk. But John Bullock opened his presentation with an analogy. Walking along a sidewalk in China, he saw a man with a blanket rolled out on the sidewalk, selling western medecine. Hardly a pharmacy. John said he could clearly see the poor gentleman was just going to "make a mess of it", and speculated that someone could get killed. But he posed the question, will fewer people die if we deprive China of medecine?

In the beginning, BAN meant well and created awareness of a problem. At this point, BAN has had enough time to refine the story, and if they are still saying exports are 80% junk and that mining is better than recycling, then this has descended into a basic hoax. The VT legislation is one of the broomsticks of this sorcerer's apprentice, as it sweeps out anyone who sells working products to people who cannot afford new products.

Product Stewardship!! Pass legislation!! Make Ford take back the Fords, Honda take back the Hondas, IBM take back the IBMs, HP take back their toner cartidges.. so the factories in China won't refurbish them and sell them to us in Vermont at half price.

Look, if HP wants to buy my used printers and cartridges and run them through a big fancy shredder like MicroMetalics in California, thats fine. I like having that option, just as I like the option of selling my used Ford to a Ford dealership. But I don't want the state weighing in on that decision. Reselling my Ford to a kid in town may be better.

Some of my friends have said that our one day event in Burlington held last Earth Day, with our partner Small Dog Electronics, proved that people won't pay a toll to recycle. I tried to explain that if Starbucks advertises free coffee on Earth Day, Starbuck's parking lot will be packed and the lines will be long and they will give away a lot of coffee. It would not prove that those people would not otherwise pay for a cup of coffee.

The whole principle of making someone who sells or donates a used product to a poor person somehow liable for the waste could become a huge tax on the poor. Should the state require that I do a "downstream audit" of the kid who bough my Ford? Gee, if used cars are being dumped in the ocean, or burned for scrap in Africa, maybe we need a Product Stewardship law which would stop this terrible free market and make us bring our Fords back to Ford, our Hondas back to Honda, and our HP printer cartidges back to HP.

The used car market is 7 times the economy of the new car market. We cannot let Ford "fix" that problem for us, even if some of the used car sales are problematic. That is the point in the Harvard Business Review article. As the electronics industry emerges, there will be more and more companies competing.

Conclusion... One hope was offered to me by a Chinese woman who was giving me a tour of a reuse market like Foshan's in Guangzhou. When I told her I was afraid for this reuse business, for these people, following a AGMA story about HP paying Chinese enforcers to shut down cartridge refilling businesses (a victory story since 'disappeared' from the AGMA website), she said she did not believe the government could police it. The free market is too big.


The very hope I got from her is the biggest despair of BAN. They confide to me that the demand is too big to regulate. Perhaps if everything sold has an RFID tag...

Obsolescence is often a matter of personal choice, a motorcycle which is too old for me may still get fixed up and resold on ebay. As the wealthy 20% of the world market (which includes 80% of Vermonters) chooses to think their product is obsolete, that doesn't mean the old products are not good enough for poor people.

BAN and Greenpeace and PIRG people are smart and good people, and I continue to try not to attack them, and every day it seems one of their stories saves me from losing a client to Tony Soprano. But if they truly understand the supply and demand equation, they will embrace WR3A's Fair Trade routine, promote our membership, and we in turn will invite them to inspect and participate in the standards. Civil law is a real solution.

The alternative may be the grave danger of becoming the unwitting ally of the AGMA (Anti Gray Market Alliance) When my ecologist friends mistake corporate support of takeback programs as a sign that Original Equipment Manufacturers (OEMs) are "coming around", brought to their knees by BAN and SVTC's stories.

AGMA is primarily a defensive move taken against the growing industry which supplies China, India and Africa's "Good Enough Market".

AGMA (renamed in 2004 to the Alliance for Gray Market and Counterfeit Abatement) got rid of the printer cartridge story, when HP teamed up with the CCP to shut down printer cartridge refurbishing shops in the Chinese city of Nanhai. I was there after the Communist Party EPA closed down all the repair shops, taking cartridge inventory and burning it in the street, and arresting entire families. My recollection is that I wrote an angry note to AGMA or HP, and the press release disappeared. But if you read closely, many old press releases are still available at http://www.agmaglobal.org/press_events/archive/past_news_releases.shtml

But it is truly an Orwellian world, and it will take a professional reporter to dig the AGMA/HP/Chinese Communist Party/ arrested printer repairpeople story out.

John Stossel's "Man Bites Dog" stories are easier to write... selling a working computer in Africa is not a story, it's more exciting to write about the bad one.

Someday, the good hearted people at BAN have to give up on using the press to maintain their status as the "Ayatollas of E-Waste", issuing ecological fatwahs against good companies who try to meet the world demand for working products. I hope I am not alone in raising these issues (it could be dangerous for my business). It would be so much easier for me to sell out, to stay in line, work with government and OEMs to crush up the working computers, draw a check, and act as a tolling facility on the side of the War On Reuse, or what I coined as Obsolescence in Hindsight.

I am doing this for the people of Fronteras, Mexico, who have their first internet cafe. I am doing this for the entrepreneural factories, which don't want to "close one eye" on the villages that screen Tony Soprano's loads. I am doing this for Sambeng, Achou, Sanda Martin, and so many of my other students from CES Ngaoundal class of 1986.

Yes, there are pirates in the grey market. I won't sell used laptop batteries any more, I think they are being resold as working. But the entire reuse market is not a black market, not a counterfeit market. There are white knights in it. Both the black market and the white markets threaten established OEMs like those named in the HBR article.

That's why it's called the grey market.

One of the things happening is that HP, Dell, Gateway and others are following the HBR advice, and selling their own "refurbished" or "good enough" computers via their own websites. I applaud this and want their reuse operations to participate in WR3A. I just don't want to put RFID tags and deposits and product stewardship laws to tell me they are the only market I can sell to.

We have met the enemy, and he is us, said Walt Kelly's character Pogo (one of my favorite comic strips). The legislation in California, Maine, Washington and Minnesota is not making the need for internet access go away in Asia and Africa... legitimate demand for the product is only growing. But we risk seeing fewer and fewer GOOD recyclers participating in meeting the demand, rather than disqualify themselves from the market. Vermont's proposed H.106 means well, and tries to make many improvements, but the risk of unintended consequences makes it too risky to let this become law as written.

Viva ebay.com



More information about AGMA can be found at http://www.agmaglobal.org/.
The Alliance for Gray Market and Counterfeit Abatement is a non-profit organization composed of companies in the technology sector. Incorporated in 2001, AGMA's mission is to mitigate the gray marketing and counterfeiting of technology products around the globe. The organization's goals are to protect the authorized distribution channels and intellectual property of authorized goods to improve customer satisfaction and preserve brand integrity.