Monday, October 24, 2011

Steve Jobs represented much of what's wrong with the U.S. economy today

Guest post by Marc McDonald

(Ed. note: I'd like to welcome a new guest blogger to The Reaction, Marc McDonald of the great blog Beggars Can Be Choosers. I've been a fan for a long time, and it's a genuine pleasure to be able to feature him here. Honestly, his blogging speaks for itself. It's fantastic. If you aren't yet familiar with his work, I highly recommend you get familiar with it ASAP. -- MJWS)


Marc McDonald is a Texas journalist who runs the progressive political blog Beggars Can Be Choosers.

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.  

(Cross-posted at Beggars Can Be Choosers.)

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  • The U.S. industrialists of the past at least had the common sense to realize that if America is to remain a great power, it must have a strong manufacturing base.
    Even Henry Ford (who was hardly a "progressive") realized that it's important to pay workers a decent wage, so they'll have the money to buy your products.

    By Anonymous JoshBarton, at 12:37 AM  

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