06.21.13
The economy that produces nothing
Paul Krugman has gone ballistic on Apple this week. Although he says it’s not judgmental he analyzes the company for its position atop the American business pyramid, explaining the difference between an economy that once depended on production of material goods for profits (I grew up in the shadows of Alcoa and Bethlehem Steel) and one now largely turned over to what he calls “monopoly rents.”
Which is another variation on rent-seeking, the abandonment of producing anything of particular good for society for collecting money off what control of a market will sustain.
Apple, by contrast, seems barely tethered to the material world. Depending on the vagaries of its stock price, it’s either the highest-valued or the second-highest-valued company in America, but it employs less than 0.05 percent of our workers. To some extent, that’s because it has outsourced almost all its production overseas. But the truth is that the Chinese aren’t making that much money from Apple sales either. To a large extent, the price you pay for an iWhatever is disconnected from the cost of producing the gadget. Apple simply charges what the traffic will bear, and given the strength of its market position, the traffic will bear a lot.
Again, I’m not making a moral judgment here. You can argue that Apple earned its special position — although I’m not sure how many would make a similar claim for Microsoft, which made huge profits for many years, let alone for the financial industry, which is also marked by a lot of what look like monopoly rents, and these days accounts for roughly 30 percent of total corporate profits. Anyway, whether corporations deserve their privileged status or not, the economy is affected, and not in a good way, when profits increasingly reflect market power rather than production.
“You might suspect that this can’t be good for the broader economy, and you’d be right,” he adds. “If household income and hence household spending is held down because labor gets an ever-smaller share of national income, while corporations, despite soaring profits, have little incentive to invest, you have a recipe for persistently depressed demand.”
One wonders what things might be like if Bill Gates had allowed Apple to die when it was on the ropes in desktop computing. I doubt things would be much different but we wouldn’t be surrounded by the smug iJunk servants to the 1 percent and the constant sermonizing on the transforming power of its technological innovation.
Even if you hate it I’m going to shove it at you. Because it’s right on.
One point Krugman didn’t get to in his column was Apple’s destruction of the pop music industry. This also did not depend on any means of production, just leveraging of a design, technology and monopoly power.
While Apple did not invent the technology, the design of its prime bauble — the iPod, allowed it to take the majority of money-making on music sales and redirect it through the iTunes mechanism. In essence, this made Apple the center of the pop music industry in a way that old-fashioned record stores, even chains, tied to location and communities never could be.
If you had told music company execs twenty five years ago that their stuff would all be profit-shifted to Apple and laundered through Luxembourg to avoid paying taxes to Uncle Sam, they would have thrown you out of the room.
Hey, for the second time, did you notice the name change?
Christoph Hechl said,
June 22, 2013 at 12:13 am
I have read anything posted on this blog in at least the last 5 years, even some sentences you edited out later – i did notice.
On the subject:
I have noticed for a long time how the stock value of companies entirely disconnected from their actual assets.
Yet i can’t really put my finger on who or what is to blame for this. Currently i tend to think that PR in general has slowly manipulated the thinking of far too many people, transforming the language and bending thoughts to point in completely different directions than originally intended.
This inversly affected those who use PR which produced a self-amplifying effect.
People in general seem to become ever less aware of verbal finesse and how being told about things “you just can’t say like that” manipulates the way you see things.
A common way to silence people e.g. has become the attack on someones “style”, you just accuse someone of being too agressive or too impolite and thereby discredit that person without having to discuss the matter at hand at all. (Has been done to you some time ago when some scientist accused you of being too personal in your critique of his work)
But if you follow that thought you sooner or later come to the quote from Marina and the Diamonds: “Hollywood infected your brain…”
Maybe i will in the future find some other reason(s), but that is where i am stuck right now.
George Smith said,
June 22, 2013 at 7:11 am
Has been done to you some time ago when some scientist accused you of being too personal in your critique of his work
I don’t even recall it. Although I don’t doubt it must have been quite some time back.
I have noticed for a long time how the stock value of companies entirely disconnected from their actual assets.
Yet i can’t really put my finger on who or what is to blame for this.
There are books on it emerging. I’ve noticed them blurbed. “The Lights In the Tunnel” is one I’ve noticed most frequently.
As for what transpired with Apple. I think Steve Jobs was well-positioned to take advantage of pure luck after Gates and Microsoft came to the rescue. There were lots of MP3 players but the time wasn’t quite right for them when they first showed up, the music acquisition wasn’t as easy and hadn’t been so totally devalued as a legitimate way to make money. The iPod and iTunes story emerged at just the right time to take advantage of it. Subsequently, Apple has made an apex business out of making things of different sizes that all do the same thing.
The American system was refashioned through tax law and the nullification of anti-trust law and labor protections to steal work, minimize all labor, disempower people for the leveraging of the increasing amount of capital at the top. When productivity rose the only part that enjoyed the increasing benefit of it was the top 1 percent which has been mapped by economic data and reshown countless ways in charts and graphs.
Automation and globalization played key roles but weren’t the only reasons. I suspect it did not have to turn out this badly.
Christoph Hechl said,
June 22, 2013 at 12:50 pm
The incident i mentioned was about someone who had written some report on a subject that to your knowledge he used to be good at. But what came out was some sort of shoeshine as you would call it today. You wrote that with age he had apparently not become wiser or something in that vein and he commented personally on this blog to tell how rude he found it, that you would take him up on becoming old. I remember the incident because it was the only time you deleted one of my comments, in which i had stated, that this had from my POV clearly not been the case.
All the mentioned anti-social laws are of course clearly visible but i have started to wonder where all this spin doctoring, biased news stories and lobbying have their origin. I don’t beleive there is some kind of evil masterplan involved, lots of evil people who have lost control over their greed, but no actual plan. That is what brought me to the idea, that the entire lack of responsibility, self control and selfawareness in all things PR have over very long time changed the perception of reality for too many people including all those working in PR.
People now just generate their own bubbles which shape the world to fit the way they want to view it and even if you tell them exactly that, they will find this behaviour perfectly normal.
George Smith said,
June 22, 2013 at 1:14 pm
Now I remember. I’m sorry all around for that. I shouldn’t have done what I did, to him or to you. He was a journalist and I’d had a couple of his books in my collection and I got out the knife for what was one poor piece.