Sunday, 26 August 2012

Apple, Steve Jobs and Capitalism in the Era of Free Trade: A Note for Labour Day

On August 20, 2012 the business press announced that Apple Inc. had become the largest company in history based on a market capitalization of $665 billion. Its long time CEO, Steve Jobs, was widely seen as a technological genius and had become the popular personification of the modern American capitalist. But as Labour Day approaches, Apple’s success also explains why the organizations which represented large corporations and their political and academic supporters have been so determined to push through the “free trade” agenda.

Apple is a classic American success story. Founded by three friends in 1976, it went public in 1980, sold its first Mackintosh computer in 1984, and it first portable computer in 1989. It has held its own in competition with Microsoft. Today it leads the technological industry with its Mackintosh computers and its personal electronics: the iPod, iPhone, and iPad.

In the early days Apple proudly proclaimed that its products were “Made in the USA.” But this has changed with the competitive drive to maximize sales and profits. Production was shifted abroad. By 2002 it only had one production unit in the USA, the plant at Elk Grove, California. Its call centres are still based in the USA, and its head office remains in the Silicon Valley. Today it reports 43,000 employees in the USA and 20,000 overseas. But through contractors for the production, it employs another 700,000, all of them overseas, mostly in China.
Foxconn workers for Apple. Inc.

Using offshore tax havens
 Walter Isaacson’s biography of Steve Jobs has been on the best seller’s list for a long time. Strangely, it ignores the importance of utilizing the features of the “free trade” agreements to the economic and financial success of the corporation.

Apple established subsidiaries in well-known tax havens: Ireland, the Netherlands, Luxembourg and the British Virgin Islands. The headquarters for Apple’s operations in Europe, the Middle East and Africa were established in Cork, Ireland. Like other large transnational corporations, Apple has used all the tricks to maximize its profits in these countries and to get around paying taxes on its profits. In the business this has been referred to as “A double Irish with a Dutch sandwich.”

Shifting production to China 
Apple does not own production facilities abroad. Instead, it uses contractors. The most important by far is Foxconn International, a Taiwanese corporation with extensive operations in Shenzhen, China and elsewhere. Foxconn has around one million employees and produces around 40% of the world’s consumer electronics.

The reasons for the shift in production to China are clear. In 2010 the Asian Development Bank reported that the iPhone cost $178 to manufacture and sold in the United States for $500. This produced a gross profit of 64%. Overall, the profit rate for Apple has been around 40%, compared to the 10% to 20% which is the range for other high tech corporations. Recently the Chinese government raised the minimum wage for Shenzhen to the equivalent of US$238 per month, with employees working six days a week. Foxconn is now moving its factories to other areas of China and South Asia where wages are lower.

In February 2011 President Barrack Obama had dinner with Steve Jobs and other key figures in the high tech industries in Silicon Valley. Obama asked Jobs why this industry could not be brought back to the USA. “These jobs are not coming back,” he replied. Much lower wages are a major factor. But as the New York Times reported, “Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that ‘Made in the U.S.A.’ is no longer a viable option for most Apple products.”

 Of course this was what the “free trade” agreements have been all about. Trade in itself was already largely free, as tariffs had been radically reduced as had other barriers to trade. What corporate executives wanted was the freedom to invest anywhere in the world and to repatriate profits without government interference. The results were as expected: the steady decline of manufacturing in all of the advanced industrialized countries.

1 comment:

  1. hi..Im student from Informatics engineering, this article is very informative, thanks for sharing :)

    ReplyDelete