Who makes the iPhone – Apple or Chinese Workers?

This entry is part 1 of 7 in the series GDP Illusion

The GDP Illusion

John Smith

Value Added versus Value Capture

by John Smith

John Smith teaches political economy, human rights, and genocide studies at Kingston University in London. His forthcoming book on imperialism and globalization will be published by Monthly Review Press.

The GDP Illusion


The “GDP Illusion” is a fault in perception caused by defects in the construction and interpretation of standard economic data. Its main symptom is a systematic underestimation of the real contribution of low-wage workers in the global South to global wealth, and a corresponding exaggerated measure of the domestic product of the United States and other imperialist countries. These defects and distorted perceptions spring from the neoclassical concepts of price, value, and value added which inform how GDP, trade, and productivity statistics are devised and comprehended. The result is that supposedly objective and untarnished raw data on GDP, productivity, and trade are anything but; and standard interpretations conceal at least as much as they reveal about the sources of value and profit in the global economy.

Three archetypical examples of the “global commodity”—the iPhone, the T-shirt, and the cup of coffee—validate and illustrate this argument; their diversity serves to highlight what is universal to them and to all other products of globalized production processes. All data and experience, except for economic data, points to a significant contribution to the profits of Apple Inc. and other western firms by the workers who work long, hard, and for low wages to produce their commodities. Yet economic data show no sign of any such contribution; instead, the bulk of the value realized in the sale of these commodities, and all of the profits reaped by Apple and Starbucks from them, appear to originate in the country where they are consumed. These three global commodities are in turn representative of broader transformations in capitalist production.

Economic statistics and their standard interpretation also obscure the relation of exploitation in the relations between northern firms and southern producers. This relation of exploitation does not disappear entirely but remains partially visible in the paradoxes and anomalies which infest standard accounts of global political economy. These paradoxes and anomalies are like blemishes in a distorting lens that alert observers to its existence, making it necessary to identify and characterize this distortion so that the world can be seen as it is. This distortion is the misrepresentation of value captured as value added.

Part One: What Contribution Do Foxconn Workers Make to Apple’s and Dell’s Profits?

One of Foxconn’s Shenzhen factories

What contribution do the 300,000 workers employed by Foxconn International in Shenzhen, China who assemble Dell’s laptops and Apple’s iPhones—and the tens of millions of other workers in low-wage countries around the world who produce cheap intermediate inputs and consumer goods for western markets—make to the profits of Dell, Apple, and other leading western firms? Or to the income and profits of the service companies that provide their premises and retail their goods? According to GDP, trade and financial flow statistics, and mainstream economic theory, none whatsoever.

Apple does not own the Chinese, Malaysian, and other production facilities that manufacture and assemble its products. In contrast to the in-house, foreign direct-investment relationship that used to typify transnational corporations, no annual flow of repatriated profits is generated by Apple’s “arm’s length” suppliers. Standard interpretation of economic statistics, all of which record the results of transactions in the market place, assumes that the slice of the iPhone’s final selling price captured by each U.S. or Chinese firm is identical to the value added each supposedly contributed. They reveal no sign of any cross-border profit flows or value transfers affecting the distribution of profits to Apple and its various suppliers. The only part of Apple’s profits that appear to originate in China are those resulting from the sale of its products in that country.

According to the standard interpretation of economic data, as Marx said, the value of commodities “seem not just to be realised only in circulation but actually to arise from it.”1 And so the flow of wealth from Chinese and other low-wage workers sustaining the profits and prosperity of northern firms and nations is rendered invisible in economic data and in the brains of the economists.

Apple’s products, and those of Dell, Motorola, and other U.S., European, South Korean, and Japanese companies, are assembled by Foxconn, the major subsidiary of Taiwan-based Hon Hai Precision Industries. Foxconn’s one million employees assemble “an estimated 40 percent of the world’s consumer electronics,” according to the New York Times.2 Its complex of fourteen factories at Shenzhen in southern China has become world famous both for its sheer size and for a spate of suicides amongst its workers in 2010.

Foxconn’s Shenzhen workforce peaked that year at around 430,000 workers and is currently being scaled back in favor of plants elsewhere in China. In January 2012 Hon Hai chairman Terry Gou provoked a firestorm with his remark, during a visit to the Taipei Zoo, that “as human beings are also animals, to manage one million animals gives me a headache,” followed by a request to the zookeeper for advice on how to manage his “animals.” Want China Times commented, “Gou’s words could have been chosen more carefully…working and living conditions [in Foxconn’s huge Chinese plants] are such that many of its Chinese employees might well agree that they are treated like animals.”3

(Continued …)

From : Value Added versus Value Capture by John Smith

Courtesy : Monthly Review

Series NavigationiPhone, iPod – Apple stealing from China >>

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