Saturday, February 4, 2012

Some Links About Apple.

Here are a couple of links about Apple and China.  

Here is the article I brought up in class about where the value added to the iPod comes from along the globalized production chain: An iPod Has Global Value. Ask the (Many) Countries That Make It.  The article breaks down what parts of the iPod get made where.  While I was trying to find the Times article I came across this article by Yuquig Xing.  The article talks a lot about the same things, but its a little more technical.  Anyway,  there is this really interesting part:
The gross profit margin of the iPhone was 62% when the phone was launched in 2007, then rose to 64% in 2009 due to reductions in manufacturing costs (table 3). If the market were perfectly competitive, the expected profit margin would be much lower and close to its marginal cost. The surging sales and high profit margin suggest that the intensity of competition is fairly low and Apple maintains a relative monopoly position. Therefore, it is not the competition but profit maximisation that drives the iPhone’ s assembly to China.
An interesting hypothetical scenario is one where Apple had all iPhones assembled in the US. Assuming that the wage of American workers is ten times as high as those of their Chinese counterparts, the total assembly cost would rise to $68 and total manufacturing cost would be pushed to approximately $240. Selling iPhones assembled by American workers at $500 per unit would still leave a 50% profit margin for Apple. In this hypothetical scenario, the iPhone could contribute to US exports and reduce the US trade deficit, not only with China, but also with the rest of world. More importantly, Apple would create jobs for US low-skilled workers.
Xing then does that thing that all economists do when confronted with evidence that the "market" is not working which is to reflexively say that the government should not get involved but that Apple should take it upon itself to do better.  Anyway, read the whole article, there is also a good section on how pointless it is to try to get China to increase the value of its currency.

Anyway, I remain agnostic on whether the iPhone should be made in the US or in China but the articledoes point to the fundamental critique pushed by Mike Daisy (more on him below) that there is essentially "no reason" (besides supernormal profits) why workers in China could not be paid more (ten times more!) or at the very least there could not be some fraction of that spent on making sure Foxconn plants don't occasionally explode.

There is another, more subtle issue here.  Do Apple's supernormal profits come from not only maintaining it's monopoly position on the consumer end but also by putting the squeeze on Foxconn (as an important customer) to produce at extremely low costs.  Here the fact that this is not just an Apple problem but that Foxconn makes electronics for a wide variety of electronics manufactures comes into play.  Even if Apple were to insist on slightly lower profit margins (slightly higher prices)  to raise living standards for workers one would expect a fair amount of push back from electronic manufacturers producing products in more competitive markets.  These firms simply cannot afford to have costs of production increased (in theory, at least).  In this way making this issue all about Apple is not useful.

Okay, last but definitely not least, here is a link to the Mike Daisey 'This American Life" episode (also, appropriately available on  iTunes) that got everyone talking about this issue in the first place.  I'm putting this last because it will be more relevant later in the semester when we turn to discussing development and long term growth.  As I said in class, we will be looking at these issues from 35,000 feet.  This podcast, better than anything else I can think of, is an important reminder that economies are made up of people.  It also pushes people to not accept the process of development as necessarily brutal.  Daisey's insistence that the invisible hand does not absolve us of our responsibilities as people is an important message that goes beyond just thinking about the crap we buy.

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