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What the iPod Tells Us About the World Economy
Hugh Pickens writes "Edmund Conway has an interesting article in the Telegraph where he analyzes where the money goes when you buy a complex electronic device marked 'Made in China,' and why a developed economy doesn't need a trade surplus in order to survive. For his example, Conway chooses a 30GB video iPod 'manufactured' in China in 2006. Each iPod, sold in the US for $299, provides China with an export value of about $150, but as it turns out, Chinese producers really only 'earned' around $4 on each unit. 'China, you see, is really just the place where most of the other components that go inside the iPod are shipped and assembled.' Conway says that when you work out the overall US balance of payments, it shows that most of the cash for high tech inventions has flowed back to the United States as a direct result of the intellectual property companies own in their products. 'While the iPod is manufactured offshore and has a global roster of suppliers, the greatest benefits from this innovation go to Apple, an American company, with predominantly American employees and stockholders who reap the benefits,' writes Conway. 'As long as the US market remains dynamic, with innovative firms and risk-taking entrepreneurs, global innovation should continue to create value for American investors and well-paid jobs for knowledge workers. But if those companies get complacent or lose focus, there are plenty of foreign competitors ready to take their places.'"
Maybe the author of TFA could also analyze who makes th eprofits off the many counterfeit iPhones mfg'd in China:
"Illicit phones comprise a staggering 40% of Chinese firms' production, and 13% of the world's, according to iSuppli, a research firm. It reckons China will produce 145m of them this year, up by almost half since 2008. This has hit sales of legal phones."
I refuse to believe that imaginary property is an acceptable replacement for real manufacturing capacity.
And what about low technology good such as clothes, furniture, steel, glass, toys, and widgets? Where does the money flow there?
May the Maths Be with you!
TFA suggests that this means the financial hit of off-shoring manufacturing is actually small. Whether or not the article is correct on money making its way back to the US, there is an important factor. The money is making its way right back into the pockets of the company owners and rights holders. The people who would normally make their living in these manufacturing jobs are still stuffed. I don't think that any "trickle down" effect from returned profits is going to make up for that.
Aide-toi, le Ciel t'aidera - Jeanne D'Arc.
The differences in salary relative to cost of living ought to be taken into account. The average daily salary of a Chinese person is was around USD14.1 last year..
Secondly, it's not just about revenue but longer term industrial dependency. Were China to suddenly refuse (due to political embargo, for instance) to produce such items Apple would suffer a considerable economic loss, if only while they secured an alternative manufacturer. Chinese and Taiwanese companies are in a good position to steer the market in their favour, eventually producing (if not already) competing products for their own market - the world's biggest in many sectors - and others abroad.
The mistake any article like this makes is it assumes that the people providing the cheap manufacturing labour are content to continue doing so indefinitely - even when the factory owners can easily find out precisely how much their product is making in the country it's sold in and compare it with the amount they get to see.
History has shown that this is frequently not the case - I refer you to the UK's former motor industry.
No matter how much money is made in America from items assembled in China, everyone can't work at Wal-Mart and Burger King and be able to afford said items. Don't get me wrong, those are real jobs and I even worked at a Wal-Mart many years ago, but in the past, service jobs were not the base of the economy. If everybody is making minimum wage with no benefits whatsoever, who can afford services? Thus a service-based economy isn't sustainable in the long run. Yeah, we will survive and life goes on, but we shouldn't just count the beans and proclaim everything is alright. We need to take into account several things:
How citizens are treated by the governments of our trading partners, for instance.
What happens to our economy when nothing left but service jobs is another one.
When the trading partners are using the profit from us to build up armies to come back over here and kill us, should make the list as well.
Doctors destroy health, lawyers destroy justice, universities destroy knowledge, religion destroys spirituality
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I have doubts about the article's numbers. If that was true, how could China have a huge trade surplus? If the article was correct, all of the export gains would be spent on IP fees to non-Chinese companies, and would reduce their trade surplus. That's not what we observe.
So, while it's important to have a sound R&D and to have plenty of licenses ready to sell for lots of product, this does not replace a good manufacturing basis.
Fantasy: http://ferrisfantasy.blogspot.com/
The article is a complete piece of crap. Because it never dives INTO the money flows. It doesn't show what that 150 dollars the chinese get MEANS. For instance the idiot who wrote this never touches on the most basic point. That 150 dollars to china is a LOT more then 150 dollars to the US. The average wages are completly different, based on a quick google it seems to be about 100 dollar vs 2000 dollars. So 1 iPod sales generates enough money to pay for 1 months work in china but only a ... few days in the US.
This is to say nothing about the effect on the workforce, in China, the jobs are spread out. You both need directors to run the factories and janitors to clean the toilets. In the US, far fewer people are involved. Especially in that section of the economy were the most people fit, the blue-color laborers, the factory workers. So a few designers and Steve Jobs are swimming in it, doesn't help the millions of unemployed, doesn't breath live into ghosts towns were the only jobs are handing out unemployment stamps. And where do these people who longer can find a job get the money to buy an iPod? They don't, they buy a cheapo MP3 designed in China, build in China.
Thank you Mr Idiot from the guardian, we KNOW how the economy works, the exact same idiotic posts were made about Japan. Don't worry, Japan will only take a tiny bit of cash at the bottom, all the real money will be earned by the west. Yeah, this worked SO well, that Japan is now conveniently lumped with the west. He happily lists that core components with lots of IP come from Japan so that those pesky chinese won't make a penny of it. Eheh, so what is China to stop from doing to Japan what Japan has done to the west? If his theory about IP holds up, then those IP could never have become possible in Japan.
If the iPhone was made in the US, the US economy would be richer by 150 dollars as well.
FLAWS:
If you want to see the effect of the global economy, look around. I life in Utrecht, and that has an industrial park called "Lage weide". There is a LOT of distrubution activity, lots of shifting around of good but almost no production. One produces big metal thingies and the building looks ready to collapse and that is about it. Everything else is warehouses, with the contents, "produced in China". And warehouses are easy to automate. Hema (dutch retailer) has opened one of the most advanced warehouses in the world recently, yet fewer people working and the work there requires no skill (and therefor no pay and no security).
Look around, why do you think the economy is in the crapper? Because nothing is being produced anymore. The factory towns may not be glamorous but it is where the core of a country makes its living. Not the rich who rule the country, not the super poor, but the average worker who pays the taxes that allow the government to function, who deliver the soldiers for the army.
Empires collapsed before, the western empire will get a rude suprise sooner or later when China changes its tune. And no, I don't mean in an evil plot kinda way, I mean when China does what Japan did ages ago. Become an economic power with its own IP. Quick check, how many high-tech gadgets in your house are produced in cheap labor country Japan? PS3, Wii, Sony-Ericson phone and countless others where you might not even think they came from Japan? Ask your daddy what the China of their day was (or maybe your granddad if you aren't as old as me).
MMO Quests are like orgasms:
You may solo them, I prefer them in a group.
"....with predominantly American employees and stockholders.."
Seriously, I would say that 70-80% of the employees I have seen at various tech companies...at least on the west coast are foreign nationals.
Well, I came for some insight, and instead there are eleven posts above me trashing the United States. So here's some actual thinking instead of the usual Two Minutes Hate.
China does indeed make very little from its manufacturing. The Chinese bemoan the fact that they're making so much for the world and getting so little in return. The reason is lack of brands - Chinese people just don't see brands as being important. They don't trust anything that they can't hold in their hands, and you wouldn't either if you had just emerged from fifty years of enforced poverty under a radical leftist government. Another problem is the rampant theft of IP and cutthroat domestic competition. Foreign brands have much of the high end, and Chinese companies are forced to viciously compete on price at the low end. And hey, if you do invest in R&D, Chinese IP laws are so weak that you'll get ripped off - why make money for someone else?
Suppose there was a phone that did everything the iPhone did, but didn't have the Apple logo on the outside. It wouldn't be nearly as popular, because there are plenty of people willing to pay $$$ for anything with that logo on it. Indeed, American companies come to China to make money, and make it they do. Apple is making money hand over fist with the iPhone. The Chinese get the scraps. Companies like KFC and Nike are kicking ass in China's domestic market.
The part about innovation is spot-on: the Chinese simply don't have that culture of "fixin' things" like we do. The usual attitude is to wait around for the government to do something. I've had my product copied so many times when it would have just been easier (and more educational) for the company to make its own damn product. Who knows, they might have made a better one instead of an inferior copy. But they'll never know because they just can't see past the end of their noses.
Here's an interesting link on branding if you want further reading, and here is another.
Shutting down free speech with violence isn't fighting fascism. It IS fascism!
The author is quite blissful! He completely forget that what he is saying is true, but only half of the truth. In the end, we still need $4.00 of exports TO china to make it all balance out.
When we import any thing, some number of dollars leave this nation. If a corresponding number of exports be it in commodities such as grain or coal, or brain share such as banking services or designs (or legal fees), is not made, we end up owing the nation from which we imported the good from.
In other words, if we import $200,000,000 in a year and only export $150,000,000, we end up owing $50,000,000. Sooner or later those dollars WILL have to make it back to us, whether it is from the other nation buying buildings, gold or politicians (us: china please be kind to your people. china: mind your own business or we will collect on your debt!).
Of course the numbers I quoted are quite small compared to reality. Scale them accordingly.
-- Many men would appreciate a woman's mind more if they could fondle it
To me the whole problem is the retail model; towit how about that $199 to $299 markup
to have these darned things sitting on a shelf? It would be so much more efficient
to cut out the middle men and supply iPOD's on demand...the fact is the blue collar
tweekers got completely screwed by THE MAN. Their jobs were off-shored in favor
of store clerks. Also this article doesn't focus on things like brooms and clothing and
such. No such profits find their way back here due to intellectual property windfall.
The fact is the jobs to make this things are gone with the wind and we let it happen
because we are collectively too greedy to care.
537
It does not, however, get into the U.S. economy at large. There are the local retail sales people and the like, but the big money goes into the people with big pockets and pretty much stays there. One only has to look at the current figures for distribution of wealth to show that there is nearly no middle class left in the U.S. Further, all the money is being made through imaginary property ownership. Some say the roman empire fell because their economy shifted to an economy based economy... the same with the british empire. The global empire is in trouble for similar reasons.
We need our manufacturing back. We need our agriculture back in the hands of individual farmers. Some things are just better when people are working.
so i read many of the comments and thought most were unexpectly fine. so i read the TFA and many of the comments and many of the comments were fine. so i will try to ask a relevant scientific question.
What is wealth?
A good answer tends to explain much, but i have never gotten a response in previous attempts. I suspect it makes people uncomfortable. Yet many of the comments here touch on the question. even TFA touches.
A more careful reading of 1984 would help you realise that Orwell believes that the class war is ultimately circular, with the rising of a middle class which grows powerful enough to be the upper class, no matter which political system is applied, be it medieval mercadillism, capitalism, communism, the fictional Tao or whatever. Also, Emmanuel Goldstein is the "enemy" his loyalties and beliefs the target of the propaganda of the Socialist State. I.e. when Oceania is at war with Anatolasia, he is supposedly "taoist"
Literary inaccuracies addressed, even if you were right, that doesn't change the fact that cheap labour in an oppressive communist state is exploited by rich capitalists in an economically imperial state and that the rest of the world sees the inequalities created by this system and despises the state that harbours them. Your attack is on my analogy, not on my argument and its worth is mostly philological.
As a veteran full of patriotic zeal I approve of your ideas, and wish to subscribe to your news letter. As a realist, I should point out that we obviously have problems taking on two third world countries at once. That can be attributed to lack of foresight in the planning stages thou, I would say that if we had to take on the biggest five militaries in the world, they might bring friends with them too. How about we leave military might out of an economic discussion, it muddies the waters a bit.
You are entitled to your own opinions, not your own facts.
No a developed country can't run a trade deficit forever - thus it does in fact need a trade surplus (well dead even is fine too) to survive.
The US gets away with it simply because the US dollar is used as the reserve currency and trade currency for most commodities. Other nations get away with it due to China's games with the US dollar knocking on to their currencies.
What should happen is that the relative value of the currency of the country running a deficit will fall until it is no longer running a deficit. It's simple mathematics.
The rest of the world keeps printing money and buying US treasuries to stop this inevitable re-balancing, but it will happen at some point - it gets more and more unstable the longer the current situation is propped up. Of course humans can keep unstable situation balancing for much much longer than it seems possible (witness US real estate prices - a bubble that "should" have popped in 2003 but lasted much longer, and staill hasn't fully deflated)...
The United Kingdom produced a lot of "IP" in the XIXth century. From works in literature to scientific research and applied research. Steam engine? Steam turbine? Railroad? However as the century passed increasingly the USA started ascending in power due to a greater industrial production capacity driving a virtuous cycle. The people who manned the factories had the money to buy the new products and more money was available for R&D. Once the British Empire lost its colonies, access to cheap raw materials and labor, not to mention sank its money in multiple expensive wars it increasingly faded until it was surpassed by the USA. Still it took WWII to finish it off as a credible power. The ending of an empire is seldom a pretty sight. China is still technologically backwards in a lot of ways, but the gap will continue to decrease.
Yes it is a very traditional conservative paper, but it is well known for its high standards of journalism. Simply put if you grow potatoes in Idaho and buy iPods from China you grew iPods in Idaho. Let me dismiss the majority off negative comments on this with the observation that they demonstrate a fair lack of understanding here of either Marxist, Capitalist, or Modern economics. Not that this is terribly unusual since almost everyone thinks that they understand micro or macroeconomics. There are more armchair economists than generals.
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The article conveniently leaves out that by giving control of manufacturing to China, the US loses out in the long run. American jobs go overseas and our technical prowess diminishes. Strong economies produce, export, and sell. Service economies are weak and founded on shale. We have seen the effects of a service-based economy in two recessions: dot-com bomb and the housing bust. Manufacturing economies breed technological innovation, encourage higher education, and engage in heavy research and development. Not to mention, a manufacturing economy gives way to strong national security. Being dependent upon China and others leaves the US in a weaker position.
I refuse to believe that imaginary property is an acceptable replacement for real manufacturing capacity.
It sounds like you find the concept immoral in some way, rather than impossible.
I don't find intellectual property so much immoral as it holds back progress. Even the father of the Free Market Adam Smith didn't like patents. He called them a necessary evil. That may of been true in his tyme but I don't believe is still true. Take the case with the iPhone. Apple probably has an exclusive contract with Foxconn and other manufactures to assemble iPhones and other contractors to manufacture the parts. If someone else has those parts somewhere along the lines someone is violating one or more contracts. And the Chinese government cares a lot about that.
As for progress, I believe today patents hold back progress. If someone makes an improvement in an item that is protected by a patent yet they don't hold the patent themself they can not make and market it. Without that patent though in order to continue making money from an invention a business has to provide something others are willing to pay for. A better quality product can be offered, the product can be sold at a lower price, and or improvements (ie progress) need to be made.
Now there are cases where I find IP immoral such as with biopiracy, for instance company X gets a patent for some rice Y or another one gets a patent on the use of a plant as a drug or pesticide even though others have used it in those ways for centuries.
Falcon
Should there be a Law?
1. Eye contact and conversation with people nearby are becoming too frightening for people.
2. Most of the music being produced formally is crap.
3. The Musical Idolatry Complex is no longer capable of concealing Point 2.
4. Cocaine use is dropping because of Point 3.
5. Wall Street has not been affected by Point 4.
6. DRM is dead.
7. Most people think "more bass" is a substitute for a crappy bitrate, but Point 2 makes this fact moot.
8. "Zune" is a crappy name for a product.
9. Consumers and sheep are not disturbed by the suffering of others.
10. Point 9 is as true for international relations and the slaughterhouse as it is for my ears on the bus in the morning.
Rich And Stupid is not so bad as Working For Rich And Stupid.
The treaty of Versailles led to World War II, along with general political unrest that had to come after the conclusion to WW I. You can't just make up history when the real thing conflicts with your world view.
"And we have seen and do testify that the Father sent the Son to be the Savior of the World"
1 John 4:14
Actually the US is one of the largest, if not the largest, food exporter in the world.
Not for long, if things keep going at the present rate.
Curious I wanted to see what foods China exports and found this: Chinese Food Exports to US Top US$4 Billion in 2007. At the top of that list, with more than $2 Billion in exports is fish and shellfish. That won't last long as overfishing is depleting fish stocks. The next highest is fruits and preparations including juices, at less than half that, only $816 Million. The top 10 Chinese food exports to the US come to less than $5 Billion. Yet in that same year the US exported $11.2 Billion of corn. Now those aren't really comparative because the China data is for export to the US whereas the US data is total corn exports. Darn, after several minutes looking I didn't find either US exports to China or total Chinese exports. My Google fu isn't that good.
As for California's Prop 2, packaging animals like the prop makes illegal requires a lot more antibiotics and other drugs which leads to the reduced effectiveness of the drugs. Personally as much as I can I eat organic free range food.
Falcon
Should there be a Law?
Considering that American recovery (and quite a few other countries according to wikipedia) from the Great Depression began in 1933,
American recovery yes, but America didn't start WWII. Europe wasn't recovering as early as the US. You mention wiki but obviously you didn't read the wiki article on the Grreat Depression, otherwise you would not have missed the second sentence which says "The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s".
So you're still making things up and I'm end here.
Falcon
Should there be a Law?
Face it, you are a nation of consumers with no real manufacturing left.
The US still has manufacturing though much of it is hidden and you have to look for it. Check out Etsy, the place to buy and sell hand made things. Makezine and Craftzine are American zines for American makers and crafters. The US still has spinners who spin and create their own threads. Some of whom will go on to make their own cloth, others sell their threads to those who will make cloth. Then they will make or sell to those who make clothing. Only a few blocks from where I am typing this there's a workshop for hand bound books. Actually Minneapolis has a few places that custom bind books.
And this isn't particularly a dig at the US ... I think all Western economies will go the same way, as the governments and people all have the same short-sighted attitude. Pretty soon the only things left will be service jobs and tech jobs in the West, all manufacturing and production will be done in China and the surrounding ASEAN nations.
Ah but those other nations will become like the West too. The beauty of freer markets is that they improve everyone's lives who are allowed to participate. Your sweatshop is their employees' good life. Even Chinese want their iPhones.
Falcon
Should there be a Law?
Remember that this profit still exists after paying workers wages to make these goods, which still has far more significant benefits for the economic security of a country that 'net profit' to one company.
The Right Wing nuts always choose ignore this fact
More like anti-capitalists ignore the fact that most people want to make money and communism failed. Why do so many people oppose voluntary exchanges of goods and services?
Falcon
Should there be a Law?
I think this guy is missing the obvious. Who is guying the Ipods....Americans. That means every time apple sells an Ipod there is a net flow of $4 to china.
And you're missing something. Every tyme a Chinese buys something made in the US money flows from China to the US.
I don't see the Chinese buying products manufactured here.
Because you're not looking and seeing the whole picture. Behind Germany and China the US was the third largest exporter in 2007. Here are some things China buys from the US.
Falcon
Should there be a Law?
Face it, you are a nation of consumers with no real manufacturing left. You all demand cheap goods, and if that comes with the price of outsourcing to foreign sweatshops, you accept it by turning a blind eye ... if all your manufacturing was done inside the US, none of you could afford to buy anything.
The USA remains by far the largest manufacturer in the world, producing $1.8 trillion in manufactured products in 2006.
If the US refused to import manufactured goods from outside the country, few jobs would be added, since most work would be done by automated machines - they would be cheaper than US human labor.