President Obama once asked the late Steve Jobs why the iPhone wasn’t made in America. The answer was a terse, “those jobs aren’t coming back.” This week, as unrest simmered in Foxconn city, we wondered how much profit Apple was making from oppressed Chinese workers.
Not much, it turns out. Technology experts reckon each iPhone has only about four hours of labor content, for an estimated $60 cost savings versus American labor. Multiply that by millions of iPhones, and it’s a lot of money, but still a fraction of the total cost.
The real reason those jobs aren’t coming back was explored in January, by the New York Times. This is a sobering article, and anyone with ideas about “saving the middle class” should read it. The short version is that China enjoys huge advantages in terms of infrastructure, scale, education, and logistics. No approach to industrial policy in America makes sense unless it can address these advantages and, since they were once American advantages, how we lost them.
“Chinese schools graduate roughly 600,000 engineers a year, versus about 70,000 in the United States.”
Not as sober is the reply from Alexander Cockburn. He is too eager to believe that greedy Mr. Jobs sold out his fellow Americans for an extra penny of EPS, and he disregards the fact that Apple must sell into a global market, against global competitors – or maybe he just didn’t read the article. Finally, The Atlantic takes up the challenge and offers some practical ideas.
America needs an industrial policy, but this is a tricky area, and our results haven’t been good. We need enough government support to offset that of our competitors – think Boeing versus EADS, or GM versus Toyota – but not so much that it interferes with market mechanisms. Government support also invites special pleading, if not flat-out corruption – think Solyndra.
The Atlantic observes that, while the right dislikes government “picking winners and losers” at the federal level, they accept industrial policy at the state level. This is actually not inconsistent, if you look at results. Governors are good at it, and Washington is not. Maybe that’s the answer. One wonders if state funding might have kept the iPhone glass business in New York.
America also needs educational reform. China has an advantage in skilled labor, midlevel engineers, and industrial engineers. These are not the sexy jobs American kids go to college for, any more than they want to assemble iPhones – or pick strawberries, for that matter. So, there is a disconnect between wanting the factories in America, and actually staffing them.
One criticism of vocational streaming is that, like generals preparing for the previous war, it can produce an army of obsolete graduates. On the other hand, America has never seen a glut of computer programmers. Silicon Valley perennially begs CIS for more Indian kids to have H1-B visas. Here, a combination of vouchers, incentives – and a culture shift – might do the trick.
American trade negotiators could also press China, under threat of tariffs, to improve conditions for Chinese workers. We would have the moral high ground, helping them to become more comfortable and less competitive. Unfortunately, we would have only our American consumer market as leverage – in Apple’s case, less than half their sales.
Jobs’ blunt assessment may be the final word. The supply chain, the infrastructure, a growing consumer base, and even the supply of minerals favors China and the Pacific region. This is a process that started thirty years ago, with competition from Japan. Even if we could reverse it, we would need another thirty years to rebuild.
The best scenario for America would be the emergence of a new and unforeseen industry. Al Gore, and now President Obama, thought it might be “green energy,” but this has proved not to be a game changer, in terms of global competition or employment. By definition, an “unforeseen industry” is not amenable to central planning.
We have a culture that encourages risk, forgives failure, and celebrates success.
Google, Facebook, and Amazon are made in America because we have first-rate universities and a system of free enterprise that favors innovation. We have a thriving venture capital industry, light regulation, low barriers to entry, and pragmatic bankruptcy laws. We have a culture that encourages risk, forgives failure, and celebrates success. This is our “comparative advantage.” If we have no other industrial policy, we should at least cultivate this one.
See also: On Protectionism