Friday, October 21, 2011

Steve Jobs Represented Much Of What's Wrong With The U.S. Economy Today


The late Steve Jobs was a genius. He was an incredibly shrewd businessman. And he was a marketing wizard.

Jobs was the larger-than-life visionary behind Apple, which has been hailed as one of the all-time great American economic success stories.

But there's one big problem with this rosy picture. The fact is, Apple represents a great deal of what's wrong with the U.S. economic system today.

Since around 1980, the U.S. capitalism has increasingly become a "winner take all" system. This corresponded with a trend in which the very top elite in society began seeing an enormous increase in their compensation. These "winners" included everyone from CEOs to movie stars to hedge fund managers to sports superstars.

And nobody was more representative of this new breed of elite "winners" than Jobs.

The only problem is that, since 1980, wages started stagnating for the rest of us. Allowing for inflation, average workers' wages have barely budged in more than three decades.

The result is that America now has the income inequality levels of a Third World nation. In fact, the top 400 richest Americans now own a titanic amount of wealth that exceeds the combined wealth of the bottom 155 million Americans.

And that's only the beginning of the problems with U.S. capitalism today.

However, if you talk to the vast majority of economists today, they'll tell you that the American economy is still the world's crown jewel economy. We have nothing to learn from the likes of East Asia or Europe nations, the economic "experts" tell us. In fact, Europe and China ought to be taking notes from us, they claim.

As an "Exhibit A" of their claims, economists usually point to the great U.S. corporate success stories that have emerged in recent years: Google, eBay, Facebook and, first and foremost: Apple Inc.

While Americans fret over the ongoing destruction of the nation's once world-beating manufacturing base, our free-market economists and globalist politicians tell us not to worry. After all, they claim, high-tech, prosperous companies like Apple will ensure that the U.S. remains economically dominant.

But out here in the real world, there's a big problem with these grand claims. They simply don't hold up to scrutiny.

America, after all, has lost millions of good-paying manufacturing jobs just in the past 10 years. We've lost over 42,000 factories, just since 2001. By contrast, even America's most prosperous and high-profile companies, like Apple, haven't even come close to replacing the job losses in the manufacturing sector. Hence, America's stubbornly high jobless rates (and the even more troubling absence of new well-paid jobs).

For all the grand claims made upon its behalf, it is important to note that Apple is still a remarkably small company. That shouldn't be surprising, considering that Apple doesn't actually manufacture the products it sells. Apple only employs about 50,000 people worldwide. That's a mere drop in the bucket, compared to the great U.S. corporate success stories of the past, like General Motors. In fact, even today, a vastly-shrunken GM still employs over 200,000 workers in the U.S. alone.

A second problem with Apple is that many of its workers are not particularly well-paid. Sure, the likes of Jobs and other company top elites have pocketed enormous pay packages. But the average Apple employees make mediocre wages. In fact, most of Apple's employees simply consist of the unskilled sales people in the company's retail stores.

All of this represents serious problems for any economist who holds up the likes of Apple as an "Exhibit A" of how America's economy still supposedly leads the world.

Economists also hail the likes of Apple's wildly popular iPhone as proof that America is still in the world's technological forefront. At first glance, it appears that this claim is valid. After all, the iPhone is a high-tech marvel. And it is in heavy demand, worldwide.

The problem is: is the iPhone really even an "American" product?

Yes, it is sold by Apple, an American company. Yes, Apple came up with the concept. And yes, Apple does all the marketing.

But who really manufactures the iPhone? If you said, "China," you're only partly right.

The fact is the real heavy lifting and the technological wizardry that makes the iPhone possible comes from Japan (and to a lesser extent, Germany). This shouldn't really be surprising: virtually all of the world's most advanced manufacturing takes place in either Japan or Germany these days.

China does have a high-profile role in the building of the iPhone in that Foxconn, the Taiwanese-owned assembler of the iPhone, has captured a lot of media publicity over the harsh working conditions of its workers in mainland China. By contrast, Germany and Japan's vastly more important role in the iPhone's production is virtually invisible.

But it's important to note that China's only role is the assembly of the iPhone. (Assembly is by far the least sophisticated part of the modern manufacturing process).

The real high-tech manufacturing heavy lifting is done mostly by Japan. That shouldn't be surprising: Japan has long completely monopolized the making of the key, crucial components at the heart of all the world's smart phones.

So is the iPhone really an "American" product?

Consider this: as Robert Reich pointed out in an article in December:

About $61 of the $179 price goes to Japanese workers who make key iPhone components, $30 to German workers who supply other pieces, and $23 to South Korean workers who provide still others. Around $6 goes to the Chinese workers who assemble it. Most of the rest goes to workers elsewhere around the globe who make other bits.

And the share of the U.S. workers (whose role is mostly research and design on the iPhone): a mere $11.

It's clear that the iPhone is really much more of a Japanese product than it is an American product. The key, crucial enabling components that make smart phones like the iPhone possible are made only in Japan. By contrast, the iPhone's research and design work could be done in any number of countries which excel in R&D (everywhere from Israel to South Korea).

Note that barriers to entry for service economy activities tend to be vastly lower than those for high-tech manufacturing.

These days, high-tech smart phones are designed by a number of nations, from Finland to Taiwan to South Korea. South Korea's Samsung, for example, makes phones (like the Galaxy S2) that rival and even surpass the iPhone technologically. And it's important to note that all these nations' phone builders get their high-tech phone components from the same Japanese suppliers as Apple does.

What's troubling about all this is that it completely upends the "conventional wisdom" about the global economy that has been sold to the American people over the past few decades. The conventional wisdom dictates that America's loss of millions of manufacturing jobs was an "inevitable" part of economic globalization. And in any case, we're told, U.S. manufacturers supposedly can't compete these days, unless they move their jobs overseas, where they can pay lower wages.

But if America's free-market economists and globalist politicians ever took a look at the real world for a change, they'd see that the "conventional wisdom" is wrong.

For a start, nations like Japan and Germany are simply no longer low-wage countries. Both have wages that are as high, if not higher, than what U.S. workers earn. Both nations have strong organized labor and strict pro-labor laws that would be inconceivable to Americans. Mass layoffs are virtually impossible in both nations. And the extremely strong yen of recent years has made Japan a particularly expensive nation to do business in. But despite all these "obstacles," both nations continue to go from strength to strength in leading the world in high-tech manufacturing.

(Incidentally, the story that Japan has been "struggling" economically that has been widely peddled by the U.S. media in recent years is nothing more than a myth).

In short, there must be other reasons why the likes of Apple rely on Japanese and German suppliers for key iPhone components. Low wages and low manufacturing costs simply can't be the reason.

It's clear that a big part of the reason is that the U.S. simply can't compete with nations like Japan or Germany in high-tech manufacturing. The reasons for this are many: everything from America's abysmal public education system to our nation's crumbling infrastructure to our complete lack of a logical industrial policy.

By contrast, nations like Japan and Germany have honed carefully planned long-term industrial policies aimed at boosting both nations' industrial competitiveness.

It is extremely unlikely that the U.S. will ever regain its former high-tech edge. After all, no economic activity on earth has higher entry barriers than high-tech manufacturing. This is evidenced by the fact that all the world's high-tech manufacturing these days still takes place in the First World, rather than low-wage nations like China.

To give just one example: aerospace. While Boeing has lost market share in recent years, it hasn't lost it to low-wage Third World nations. Rather, it has lost market share to the high-wage First World producers of Airbus.

Incidentally, Boeing shares with Apple the same distinction of being a U.S. company that increasingly can't manufacture the products it sells. Note that the 787 Dreamliner, Boeing's latest generation Boeing jet, is largely made by overseas suppliers. And Japan is the nation that has the most crucial role in building the Dreamliner: the manufacture of the Dreamliner's extremely sophisticated, high-tech carbon fiber composite wings.

The fact that Japan placed massive early orders for the Dreamliner has little to do with "market forces" and everything to do with long-term Japanese industrial policy. With every new generation of Boeing airliner, Japan has negotiated to manufacture a bigger share of each plane. It's clear the Japanese eventually intend to dispense with Boeing entirely in the future and go it alone in developing its own commercial airliner industry.

It's clear that, far from being a showcase of U.S. high-tech might, Apple in fact reveals many of America's shortcomings in the modern global economy.

And for all the praise heaped upon Steve Jobs over the years, it's clear that his role in making the iPhone a reality was greatly exaggerated.

Jobs' role was akin to Aladdin rubbing the magic lamp. The super-sophisticated high-tech manufacturers of Japan and Germany then brought Jobs' ideas to reality.

Of course, the limelight-loving Jobs got all the glory---which is perfectly in sync with the "winner take all" ethos that characterizes today's U.S. economy. And no doubt, all that was just fine with the industrial planners of Japan and Germany, who are happy to take a low-profile role. The reason for the latter is that, if both nations' roles in the iPhone were heavily scrutinized by the U.S. media, it would shine an unwelcome spotlight on policies that have methodically decimated America's high-tech manufacturing in recent years.

Yes, Apple came up with the idea for the iPhone. But it's clear that other nations benefited vastly more from the manufacturing process of the iPhone than American workers ever did.

And this raises a troubling questions about the state of U.S. capitalism today. America continues to lose millions of good-paying manufacturing jobs. And it's clear that the likes of Apple are simply never going to be able to create jobs to replace those that have been lost. This is no small point when you consider than Apple now rivals Exxon Mobil as America's most valuable corporation.

Today's America continues to bleed the sort of good-paying manufacturing jobs that made possible the Great American Middle Class. The latter made America's economy the envy of the world for decades. The jobs that are replacing the lost jobs tend to be low-skilled and low-paying (think Walmart and McDonald's).

And even the occasional U.S. economic success story like Apple these days offers little to cheer ordinary American workers. After all, as noted above, Apple is not a particularly large company---and most of the jobs it creates in the U.S. are unskilled and not particularly well-paid. The only real U.S. beneficiaries from companies like Apple are the handful of people at the very top, as well as the stockholders (which, of course, are not only in the U.S., but worldwide).

In the 1950s, it was once claimed that "What's good for General Motors is good for the U.S." And actually that statement had a kernel of truth to it. General Motors, after all, in those days, offered hundreds of thousands of workers good-paying jobs that helped built the backbone of the Great American Middle Class.

But economic titans like Apple that outsource all their high-tech manufacturing will never play a similar role in today's economy. And as a result, the once-Great American Middle Class continues to shrink. Today's America has a Top One Percent that increasingly owns everything, while the bottom 99 percent become more impoverished, year by year.

Far from being the "crown jewel" of today's economy, it's clear that Apple represents a great deal of what has gone wrong with the U.S. economy since 1980.

It's inconceivable that a genius like Jobs never grasped the fact that the massive outsourcing of high-tech manufacturing jobs (as practiced by Apple) posed a serious, long-term threat to the U.S. economy. It's a shame that Jobs never used his high-profile position to call attention to this crisis, or to offer proposals to fix the problem. Instead, he was simply happy to outsource everything, make loads of money, and keep his mouth shut on the issue.

Jobs has been hailed as a genius and visionary who contributed a great deal to the U.S. economy. But I beg to differ. In reality, he was nothing more than a narcissistic, greedy, modern-day Robber Baron whose policies account for a great deal of what is wrong with the U.S. economy today as America continues its long-term decline.


Parakletos said...

We excel at producing hi-tech weaponry. Why? Don't fool yourself into thinking it is because we have the smartest workers. Most of that production line is automated, and they don't need you to be smart to run it.

The weaponry isn't subject to the same 'free market' religious mantra. If the people who invented the newest of the new weapons want to pay less on labor to build them -- too damn bad! They must get special permission, since it is a matter of national interest.

The US Constitution does provide for patent protection. But it does not specify a period of time, nor does it say that all types of products get the same lengths of patents.

Anonymous said...

Jobs' annual salary has been $1 since 1998.

As is customary, Jobs got no bonus or perks during the fiscal year that ended Sept. 25, 2010. Apple said it reimbursed Jobs $248,000 for company travel on his personal jet, a $90 million Gulfstream V he received as a bonus in 1999. This is well above the $4,000 Apple reimbursed its CEO in 2009, when Jobs was on medical leave for nearly six months.

Jobs, however, holds 5.5 million of Apple's shares, which gained about 60 percent in value during the fiscal year and have continued to rise since. Apple's shares closed at $333.73 on Thursday, bringing the value of Jobs' personal holdings to $1.84 billion.

The company's net income jumped 70 percent in fiscal 2010 to $14 billion, on revenue of $65.2 billion, an increase of 52 percent from a year earlier thanks to strong demand for its personal gadgets and Mac computers.

Jobs, 55, has not sold any shares since he rejoined the company in 1997 following a 12-year hiatus. He has not been awarded any new equity since 2003 and is currently its largest individual shareholder.

I submit that calling Jobs a narcissistic, greedy, modern-day Robber Baron is bullshit.

Apple's policies may not reflect what would be best for U.S. manufacturing, but that is simply survival in a cutthroat business.

I also submit that end an otherwise insightful article with such a stupid statement makes Mr. McDonald something of an idiot.

Mootsa Gootsa said...

Maybe we can't compete is because of government regulations and the high cost of pentions for those not working any more.

Anonymous said...

Steven Hill doesn't succeed in showing that Japan didn't suffer all of the things that people like Krugman claim it did, only that it has lower unemployment and better health care than our country.

In other words, in the ways you're claiming that Germany and other countries have more egalitarian and more humane systems than ours, that's true of Japan also. It doesn't mean that the claims Krugman made about them operating far below capacity and in general suffering from disastrous economic decisions are a "myth".

They had universal health care before and they still do now, they would have it in either way.

Marc McDonald said...

Hi, Parakletos, thanks for your comment.

>>We excel at producing hi-tech

Actually, we don't.

Yes, the defense industry has managed to roll out some impressive high-tech hardware over the years.

But there are two big problems. One is that, due to systematic corruption, these projects have been horribly over-priced. The U.S. taxpayer has been gouged to the tune of hundreds of billions of dollars.

The second (and even more serious problem) is that, if one takes a look "under the hood" of these weapons systems, invariably all the really high-tech enabling components are outsourced from the likes of Japan.

Take the Patriot Missile, which captured all kinds of glowing headlines in the U.S. media in the first Gulf War.

The high-tech guidance systems that made the Patriot possible were sourced from Japan.

I would suspect that EVERY major high-tech U.S. weapons system has similarly outsourced key components from Japan and other nations. But since the extent of such outsourcing would no doubt shock the U.S. public were it widely publicized, the average U.S. defense contractor is like to do the same thing Jobs did at Apple: keep their mouths shut, rake in the profits, and outsource everything.

Marc McDonald said...

Hi, Mootsa Gootsa, thanks for your comment.

>>"Maybe we can't compete is
>>because of government
>>regulations and the
>>>high cost of pentions for those
>>not working any more."

You're just regurgitating the same nonsense that I tried to counter in this article. I've heard this same crap endlessly repeated from everyone from Rush Limbaugh to the corporate mainstream media. And it simply doesn't hold up to scrutiny.

For a start, if you take a look at the economies of places from Japan to Germany to China, they are ALL vastly more heavily regulated than businesses are in the U.S.

Take the recent BP oil spill disaster in the Gulf. If BP had simply been following regulations that are in place in places like Europe, the spill would never have happened.

Oh, and on the subject of pensions supposedly crippling U.S. business. I don't know if you're aware of this or not, but the vast majority of U.S. workers don't even get pensions these days, outside of the 1 percent who're lucky enough to be civilian government employees. And even the few U.S. workers who do get pensions are increasingly getting screwed out of them, as corporations continue to raid and steal from pension funds.

By contrast the pension system in Europe still covers most workers and it is very generous.

Marc McDonald said...

Hi, Anonymous, thanks for your comment.

re: Krugman

He maybe a genius on some issues. But (like most U.S. economic commentators), he is utterly clueless on all matters Japan (and Continental Europe, too, for that matter).

(Japan) suffering from disastrous economic decisions are a "myth".

I don't think Krugman knows what he's talking about as far as anything to do with Japan. Like the entire rest of the U.S. corporate MSM, he's bought into this ridiculous notion that Japan is an economic "basket case." But the "evidence" he offers to bolster this claim simply doesn't hold up to scrutiny.

garryej said...

Jobs went to Xerox Parc years ago and saw what was going on there - graphic interface screens, mice, laser printers, ethernet etc. Xerox did nothing with this incredible technology, but Jobs was smart enough to realize it's potential. The Woz was the engineer, of course.
And, btw, Switzerland is one of the highest cost-of-living countries in the EU. Minimum wage there is 20 CHF per hour (about $21), yet their economy is thriving!

Anonymous said...

Seriously @#$% Steve Jobs. He was Nero wrapped in P.T. Barnum, wrapped in Narcissus. He basically did the same thing Bill "Robber Baron Dorkwad" Gates did, steal an operating system from Xerox in 1981, tweak it, and build a series of computers to run it. However, unlike Microsoft, Jobs forced his technoserfs to make a more reliable product, which fetched a better price, which he accomplished with a luxury brand marketing campaign. I'm seriously fed-up with all these jagoff billionaire dorks like Jobs, Gates, Phuckerberg, etc. that claimed they changed the world, when all they did was drop out of college and build a business with their ultra-yuppy parents' money by exploiting a niche market, and claiming, "I was poor, I came from nothing, waahhh..." And we're supposed to worship these self-indulgent neo-Vanderbilt sociopaths? BTW, Steve Jobs was a deadbeat dad who denied his first daughter who wasn't born into his second perfect yuppy family.


Jack Jodell said...

Thank you for this brilliant and comprehensive posting of that which is specifically wrong with the American interpretation and implementation of capitalism. We do NOT have to become a third world nation with our wage rates, and it is only the laziness and greed and short-sightedness of our uppermost 1% who are to blame for this most undesirable and unnecessary trend!
This post should be required reading in every business classroom in the nation!

Marc McDonald said...

Hi WageslaveZ, thanks, as always for your comment. You always make some very good perceptive points.
BTW, if you're ever interested in writing a piece for this blog, let me know, I'd be happy to run your piece.

>>I'm seriously fed-up with all
>>these jagoff billionaire dorks

And don't forget Bezos, who started Amazon after his parents gave him $375,000.

>>BTW, Steve Jobs was a deadbeat
>>dad who denied his first
>>daughter who wasn't born into
>>his second perfect yuppy family.

Great point that I wish the second commenter on this article would read. ("Anonymous" called me an idiot for calling Jobs greedy and narcissistic). You can't get much more narcissistic and greedy than being a dead-beat dad.

Marc McDonald said...

Hi Jack, thanks for your comment and kind words.
(Readers, be sure to check out Jack's wonderful blog, The Saturday Afternoon Post).

Anonymous said...

Anytime Marc. Loved your radio appearance that got on Youtube BTW. Nice job pointing out that Apple builds NOTHING in this country as well. Microspooge is just as guilty. They build all their hardware in Japan, China, and India, along half their programming being done in Mumbai. I think they keep a few token Americans working in Seattle to convince the public and Labor Dept. that they still employ American labor somewhere. Same deal with Crapple. I'm really hoping for a Linux Renaissance. Just wish I had time to learn that OS. Open-source, constantly-improving, FREE software seems oh so much better than corporate-baked crap like Windows; Mac OS may be more bulletproof, but it still costs a fortune...


Cirze said...

And its not even bulletproof, of course, wageslave!

Thanks, Marc.

Great collection of facts on Jobslite and Crapple.

Hope you don't mind my extensively quoting you at my place.

Love ya,


Marc McDonald said...

Hi Suzan, Thanks for your kind words.
>>Hope you don't mind my
>>extensively quoting you at my

Any time! I appreciate it.

Anonymous said...

Wow - spot on. Why this isn't at the top of todo list at congress is a complete mystery.

Also it's funny how it's a 'free' market until Joe Average tries to use it to say buy meds from Canada. Oh that's not safe as if Canada was some third world country stamping out pills in the backroom.

How are they going to keep the proles in line when they can't eat?