FacebookTwitterGoogle+RedditEmail

What’s Good for Apple is Not Good for the Country

Apple Inc. is the largest technology company in the world, in terms of both revenue and profit. Yet, the California-based company has just 47,000 workers on its payroll in the United States.

Apple recently released a report in which it claimed responsibility for “indirectly” creating an additional 257,000 American jobs in industries that are part of its supply chain, a claim that was “disreputable,” in the words of MIT labor economist David Autor – as if Apple’s suppliers did not have any other customers. Or, as Wharton labor economist Peter Cappelli noted, as if the consumers spending their money on an iPad would not have purchased another product in its absence (see a New York Times article on debates over the report here, including comments from Autor and Cappelli).

While Apple’s claim to have created jobs for UPS and FedEx employees is questionable, however, there is some truth to the argument that Apple is responsible for the employment – and working conditions – at its key suppliers, particularly manufacturers for which Apple is the main customer. This may be the case for some Corning employees in the US (supplying glass for iPhones) and is very likely the case for, tens, perhaps hundreds of thousands of employees at Foxconn in China, which presumably has entire lines or buildings dedicated to Apple.

A recent report by political economist and accountant Karel Williams and his research team at the Centre for Research on Socio-Cultural Change at the University of Manchester looked at the Apple Business Model and its employment effects. They cite a study which found that Chinese workers add $6.50 in value to each iPhone 3, just 3.6% of the phone’s shipping price.

In a counterfactual exercise based on the average wage for electronics workers in the US ($21 per hour) and assuming 8 hours labor per phone, the CRESC team shows that Apple could assemble the phone in the US and still make a gross margin of $293 per phone, which is down from its current gross margin of $452, but still an impressive 46.5% margin.

Assembling the phone in the US would have added benefits for the US economy in terms of direct job creation and multiplier effects – in contrast to the current business model, which decreases US employment and increases the US trade deficit. But healthy profits are not enough, so Apple continues to make superprofits to the detriment of the US economy. What is good for Apple is not good for the US.

But what about Chinese workers? The CRESC team analyzes the financial aspects of the Apple supply chain and argues that, unlike in the Japanese and Korean cases, Chinese suppliers under the Apple model do not have good prospects of moving up the supply chain. Japanese and Korean producers originally had competitive advantage in the international market because their domestic supply chains had a low ratio of labor’s share of value-added. In the context of national supply chains, even suppliers were able to continually upgrade to higher-value added locations in the supply chain.

The story for China is different because it remains at the end of a global supply chain dominated by US firms like Apple, which are able to successfully subordinate their Chinese suppliers through contracts that leave little profit for the latter. As a result, funds for reinvestment are limited and corporate strategy may thus remain defensive.

There is a question, which the CRESC team does not consider, of whether the Chinese suppliers will be able to develop their own R&D capabilities from their own manufacturing operations. For now, most electronics R&D remains firmly embedded in the US, Japan and Korea. But there does remain an open question of whether R&D and manufacturing can remain geographically separate, with the former retaining vibrancy and the latter subordinated to the second- or third-tier via contract. Nonetheless, the CRESC report does crystallize some important questions and provide some provocative answers.

Finally, it must be noted that it is somewhat misleading to call this the Apple business model. The business model of maximizing profit and minimizing domestic employment though global subcontracting was pioneered by many corporations in the 1970s and even earlier, among them Nike, which has always been a brand without its own manufacturing capabilities.

But this model has become a normative business logic among manufacturers since then, and it does, as the CRESC team points out, present fundamental employment problems for home countries of corporations, like Apple, Nike and many others, who take it to its extreme. What was good for GM may have been good for the US, but that was another time, when vertical integration was a normative logic of business.

In contemporary globalized capitalism, maximizing profit is often equated with minimizing (domestic) employment. Is it time yet to get over our collective obsession with sanctifying profit?

Matt Vidal is Lecturer in Work and Organisations at King’s College London, Department of Management. You can follow Matt on Twitter @ChukkerV.

More articles by:

Matt Vidal is Senior Lecturer in Work and Organizations at King’s College London, Department of Management. He is editor-in-chief of Work in Progress, a public sociology blog of American Sociological Association, where this article first ran. You can follow Matt on Twitter @ChukkerV.

Weekend Edition
April 20, 2018
Friday - Sunday
Paul Street
Ruling Class Operatives Say the Darndest Things: On Devils Known and Not
Conn Hallinan
The Great Game Comes to Syria
Jeffrey St. Clair
Roaming Charges: Mother of War
Andrew Levine
“How Come?” Questions
Doug Noble
A Tale of Two Atrocities: Douma and Gaza
Kenneth Surin
The Blight of Ukania
Howard Lisnoff
How James Comey Became the Strange New Hero of the Liberals
William Blum
Anti-Empire Report: Unseen Persons
Lawrence Davidson
Missiles Over Damascus
Patrick Cockburn
The Plight of the Yazidi of Afrin
Pete Dolack
Fooled Again? Trump Trade Policy Elevates Corporate Power
Stan Cox
For Climate Mobilization, Look to 1960s Vietnam Before Turning to 1940s America
William Hawes
Global Weirding
Dan Glazebrook
World War is Still in the Cards
Nick Pemberton
In Defense of Cardi B: Beyond Bourgeois PC Culture
Ishmael Reed
Hollywood’s Last Days?
Peter Certo
There Was Nothing Humanitarian About Our Strikes on Syria
Dean Baker
China’s “Currency Devaluation Game”
Ann Garrison
Why Don’t We All Vote to Commit International Crimes?
LEJ Rachell
The Baddest Black Power Artist You Never Heard Of
Lawrence Ware
All Hell Broke Out in Oklahoma
Franklin Lamb
Tehran’s Syria: Lebanon Colonization Project is Collapsing
Donny Swanson
Janus v. AFSCME: What’s It All About?
Will Podmore
Brexit and the Windrush Britons
Brian Saady
Boehner’s Marijuana Lobbying is Symptomatic of Special-Interest Problem
Julian Vigo
Google’s Delisting and Censorship of Information
Patrick Walker
Political Dynamite: Poor People’s Campaign and the Movement for a People’s Party
Fred Gardner
Medical Board to MDs: Emphasize Dangers of Marijuana
Rob Seimetz
We Must Stand In Solidarity With Eric Reid
Missy Comley Beattie
Remembering Barbara Bush
Wim Laven
Teaching Peace in a Time of Hate
Thomas Knapp
Freedom is Winning in the Encryption Arms Race
Mir Alikhan
There Won’t be Peace in Afghanistan Until There’s Peace in Kashmir
Robert Koehler
Playing War in Syria
Tamara Pearson
US Shootings: Gun Industry Killing More People Overseas
John Feffer
Trump’s Trade War is About Trump Not China
Morris Pearl
Why the Census Shouldn’t Ask About Citizenship
Ralph Nader
Bill Curry on the Move against Public Corruption
Josh Hoxie
Five Tax Myths Debunked
Leslie Mullin
Democratic Space in Adverse Times: Milestone at Haiti’s University of the Aristide Foundation
Louis Proyect
Syria and Neo-McCarthyism
Dean Baker
Finance 202 Meets Economics 101
Abel Cohen
Forget Gun Control, Try Bullet Control
Robert Fantina
“Damascus Time:” An Iranian Movie
David Yearsley
Bach and Taxes
FacebookTwitterGoogle+RedditEmail