It's not clear that this is the reason for the frame failures. There are design errors not motivated by cost reduction, manufacturing (welding) errors, defective supplied materials, and probably lots more I can't think of. I imagine there were a lot of ways to cut costs that didn't apply to critical structures.

I always felt that the problem had its basis in the drive to reduce weight, which is perhaps felt more keenly in folding bikes than some other types (racing excepted). Of course there are other ways to reduce weight; it seems likely that the frame was not designed on the back of a napkin without any involvement of people with engineering expertise.
It was interesting to me that the replacement frame for my bike weighed the same as the original to within a gram, so some weight re-distribution seems to have occurred.
Steve