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The Apple economy

Jul 04 2011 09:25 Reuters

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Aspen, Colorade - Once upon a time, the car was the key to understanding the US economy. Then it was the family home. Nowadays, it is any device created by Steven P Jobs. Call it the Apple economy, and if you can figure out how it works, you will have a good handle on how technology and globalisation are redistributing money and jobs around the world.

That was the epiphany of Greg Linden, Jason Dedrick and Kenneth L Kraemer, a troika of scholars who have made a careful study in a pair of recent papers of how the iPod has created jobs and profits around the world. The latest paper, “Innovation and Job Creation in a Global Economy: The Case of Apple’s iPod,” was published last month in The Journal of International Commerce and Economics.

One of their findings is that in 2006 the iPod employed nearly twice as many people outside the United States as it did in the country where it was invented — 13 920 in the United States, and 27 250 abroad.

You probably aren’t surprised by that result, but if you are American, you should be a little worried. That is because Apple is the quintessential example of the Yankee magic everyone from Barack Obama to Michele Bachmann insists will pull America out of its job crisis — the remarkable ability to produce innovators and entrepreneurs. But today those thinkers and tinkerers turn out to be more effective drivers of job growth outside the United States than they are at home.

You don’t need to read the iPod study to know that a lot of those overseas workers are in China. But, given how large China currently looms in the US psyche, it is worth noting that fewer than half of the foreign iPod jobs — 12 270 — are in the Middle Kingdom. An additional 4 750 are in the Philippines, which, with a population of just 102 million compared with China’s 1.3 billion, has in relative terms been a much bigger beneficiary of Mr Jobs’s genius.

This is a point worth underscoring, because some American pundits and politicians like to blame their country’s economic woes on China’s undervalued currency and its strategy of export-led growth. In the case of the Apple economy, that is less than half the story.

Now come what might be the surprises. The first is that even though most of the iPod jobs are outside the United States, the lion’s share of the iPod salaries are in America. Those 13 920 American workers earned nearly $750m. By contrast, the 27 250 non-American Apple employees took home less than $320m.

That disparity is even more significant when you look at the composition of America’s iPod workforce. More than half the US jobs — 7 789 — went to retail and other nonprofessional workers, like office support staff and freight and distribution workers. But those workers earned just $220m.

The big winners from Apple’s innovation were the 6 101 engineers and other professional workers in the United States, who made more than $525m. That’s more than double what the US nonprofessionals made, and significantly more than the total earnings of all of Apple’s foreign employees.

Here in microcosm is why America is so ambivalent about globalization and the technology revolution. The populist fear that even America’s most brilliant innovations are creating more jobs abroad than they are at home is clearly true. In fact, the reality may be even grimmer than the Tea Party realizes, since more than half the American iPod jobs are relatively poorly paid and low-skilled.

But America has winners, too: the engineers and other American professionals who work for Apple, whose healthy paychecks are partly due to the bottom-line benefit the company gains from cheap foreign labor. Apple’s shareholders have done even better. In the first of their pair of iPod papers, published in 2009, Mr Linden, Mr Dedrick and Mr Kraemer found that the largest share of financial value created by the iPod went to Apple. Even though the devices are made in China, the financial value added there is “very low.”

In an essay to be published in the July/August issue of Foreign Affairs magazine, the Nobel economics laureate A. Michael Spence describes the same phenomenon: “Globalization hurts some subgroups within some countries, including the advanced economies.

“The result is growing disparities in income and employment across the US economy, with highly educated workers enjoying more opportunities and workers with less education facing declining employment prospects and stagnant incomes.”

These contradictions of the Apple economy help to explain the defining paradox of the Aspen Ideas Festival this week, an annual gathering of business people, politicians and writers in the Colorado Rockies.

On one hand, the assembled cognoscenti took a rather bleak view of the US economy. Justin Wolfers, an economist at the Wharton School at the University of Pennsylvania, captured the collective concern, when he told me America was already halfway through a “lost decade” and warned that it was a mistake to assume that the economy would heal of its own accord.

But, in contrast with 2008, when America’s affluent were collectively terrified, the festivalgoers this summer are in high spirits. They should be. Keith Banks, president of US Trust, the private wealth management arm of Bank of America, said that for his millionaire and billionaire clients, the recession was over.

Nor, Mr Banks told me, were they overly worried by the lackluster US economy or Europe’s even weaker performance. That’s because the global economy overall — powered by the emerging markets — continues to grow strongly, and Mr. Banks’s American “high net worth individuals” are not just US citizens, but global capitalists.

A second theme of the festival is hand-wringing about the overly polarized American political debate. The worriers are referring to the divide between Republicans and Democrats. But the truth is that not much separates the Republicans and Democrats gathered here.

The summer issue of Aspen Magazine called these affluent festivalgoers “internationalists.” They are the winners in the Apple economy, and the reason American politics is becoming so raucous is that the gap between them and the losers is growing.

apple  |  iphone  |  ipad  |  ipod
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