What’s Good for Apple is Not Good for the Country - Printable Version
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What’s Good for Apple is Not Good for the Country - shakur420 - 06-08-2012 03:29 AM
What’s Good for Apple is Not Good for the Country
Apple Economics: Maximizing Profit, Minimizing Employment
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?
May 4-6, 2012
RE: What’s Good for Apple is Not Good for the Country - shakur420 - 06-08-2012 03:37 AM
Apple’s Tax Avoidance: Evil Scheming, Good Business, or Both?
The New York Times is out with the latest installment of its iEconomy series, which focuses on Apple, the world’s most profitable company. The article details the elaborate — and legal — ways that Apple, and other tech companies, minimize their tax bills. The piece raises several questions: Is Apple to be condemned for its tax-avoidance strategies, or praised for maximizing profits for shareholders? (Is it even possible for a corporate giant to be both “evil” and “good” at the same time?) Is the real culprit the complex U.S. corporate tax code? Or is this just an example of one of the world’s best-performing companies taking advantage of a globalized, increasingly digital economy to push the limits of U.S. tax law?
At a time when the cash-strapped federal and state governments are looking for ways to boost revenue, corporate tax avoidance strategies have taken on urgent importance. There’s no doubt that Apple, which is poised to set a record this year for profits by an American company, pays less in taxes than other firms. Last year, The Times says Apple paid a global cash tax rate of only 9.8% — $3.3 billion on profits of $34 billion — compared to a tax rate of 24% for Walmart, which the paper says is about average. Apple avoided paying $2.4 billion in federal taxes last year, the paper said, citing research by former Treasury Department economist Martin A. Sullivan. (There’s some dispute about the way The Times analyzed the tax numbers, but the paper stands by its reporting, a spokesperson told me Monday.)
What’s not in doubt is that Apple is off to a staggering year, and it’s looking for every available way to hold on to its ballooning profits. Last week, the company reported quarterly earnings of $11.6 billion, compared to $6 billion one year ago, on revenue of $39.2 billion, a 59% increase over last year. Wall Street analysts predict that Apple could earn as much as $47 billion in profits during its current fiscal year.
Among the major findings from The Times story:
All in all, pretty sophisticated stuff. Apple responded to The Times piece with a lengthy statement, which touts the companies contributions to the U.S. economy.
“In the first half of fiscal year 2012 our U.S. operations have generated almost $5 billion in federal and state income taxes, including income taxes withheld on employee stock gains, making us among the top payers of U.S. income tax,” Apple’s statement read, in part. “Apple has conducted all of its business with the highest of ethical standards, complying with applicable laws and accounting rules.”
So do Apple’s tax avoidance practices, which have no doubt been intensely scrutinized by the companies lawyers to make sure they’re legal, constitute evil corporate conduct? Or should the company be commended for pushing the limits to maximizer shareholder value? Apple is an astonishingly successful company filled with brilliant people. It should really be no surprise that it’s running circles around the tax man. This is clearly a bad outcome for state and federal budgets, which desperately need the revenue. But as The Atlantic‘s Derek Thompson points out, it’s not clear there’s much we can do to stop it.
One thing’s for sure: As the two major drivers of the world economy continue apace — globalization and technology — it’s clear that financial innovation, especially with respect to tax avoidance, has dramatically outpaced domestic and international taxation oversight structures.
May 1, 2012