iPhone, iPod – Apple stealing from China

This entry is part 2 of 7 in the series GDP Illusion

2.

iPods and iPhones

Steve Jobs

The Apple iPhone and related products are prototypical “global commodities,” the result of the choreography of an immense diversity of concrete labors of workers on every continent.

The Apple iPhone and related products are prototypical “global commodities,” the result of the choreography of an immense diversity of concrete labors of workers on every continent. Contained within each handheld device are the social relations of contemporary global capitalism. Examination of who makes these products and who profits from them reveals many things. The most striking and significant of these is the huge scale of the shift of production processes to low-wage nations, and, corresponding to this, the greatly increased dependence of firms and governments in North America, Europe, and Japan on super-profits obtained from the living labor of these countries.

Research on the Apple iPod, published in 2007 by Greg Linden, Jason Dedrick, and Kenneth Kraemer, is particularly valuable because it reveals two things absent from many more recent iPhone studies: (1) their study quantifies the living labor directly involved in the iPod’s design, production, transportation, and sale; and it also reports (2) the vastly different wages received by these diverse groups of workers.4

Foxconn workers

Foxconn workers

In 2006, the 30Gb Apple iPod retailed at $299, while the total cost of production, performed entirely overseas, was $144.40, giving a gross profit margin of 52 percent. What Linden, Dedrick, and Kraemer call “gross profits,” the other $154.60, is divided between Apple, its retailers and distributors, and—through taxes on sales, profits, and wages—the government.

All of this, 52 percent of the final sale price, is counted as supposed value added generated within the United States and contributes towards U.S. GDP. They also found that “the iPod and its components accounted for about 41,000 jobs worldwide in 2006, of which about 27,000 were outside the United States and 14,000 in the United States. The offshore jobs are mostly in low-wage manufacturing, while the jobs in the United States are more evenly divided between high wage engineers and managers and lower wage retail and non-professional workers.”5

Foxconn workers

Dormitories for Foxconn (iPhone) workers – 9 in a room, 3 in a bunk

Just thirty of the 13,920 U.S. workers were production workers (receiving on average $47,640 per annum); 7,789 were “retail and other non-professional” workers (whose average wages are $25,580 per annum); and 6,101 were “professional” workers, i.e., managers and engineers involved in research and development. This latter category captured more than two-thirds of the total U.S. wage bill, receiving on average $85,000 per annum. Meanwhile, 12,250 Chinese production workers received $1,540 per annum, or $30 per week—just 6 percent of the average wages of U.S. workers in retail, 3.2 percent of the wages of U.S. production workers, and 1.8 percent of the salaries of U.S. professional workers.6 The number of workers employed in iPod-related activities was similar in the United States and China, yet the total U.S. wage bill was $719 million and the total Chinese wage bill was $19 million.

A study published by the Asian Development Bank (ADB) in 2010 reported on Apple’s latest product, revealing an even more spectacular mark up. “iPhones were introduced to the U.S. market in 2007 to large fanfare, selling an estimated 3 million units in the United States in 2007, 5.3 million in 2008, and 11.3 million in 2009.” The total manufacturing cost of each iPhone was $178.96 and sold for $500, yielding a gross profit of 64 percent to be shared between entities such as Apple, its distributors, and the U.S. government, all of which appears as “value added” generated within the United States. The main focus of this report was the effect of iPhone production on the United States-China trade deficit, finding that “most of the export value and the deficit due to the iPhone are attributed to imported parts and components from third countries.”

iPhone

more than 96 percent of the export value of the iPhone is composed of re-exported components manufactured in third countries

However, Chinese workers “contribute only US$6.50 to each iPhone, about 3.6% of the total manufacturing cost.”7 Thus more than 96 percent of the export value of the iPhone is composed of re-exported components manufactured in third countries, all counting as Chinese exports to the United States, while none of it towards China’s GDP. The authors do not investigate in detail how these gross profits are shared between Apple, suppliers of services, and the U.S. government, but they can hardly avoid commenting on their spectacular size, noting that if “the market were fiercely competitive, the expected profit margin would be much lower…. Surging sales and the high profit margin suggest that…Apple maintains a relative monopoly position…. It is the profit maximization behavior of Apple rather than competition that pushes Apple to have all iPhones assembled in the PRC.8

This leads the ADB researchers to imagine a scenario in which Apple moved iPhones assembly to the United States. They assume U.S. wages to be ten times higher than in China and that these hypothetical U.S. assembly workers would work as intensely as the real ones do at Foxconn, calculate that “if iPhones were assembled in the United States the total assembly cost would rise to us$65 [from $6.50 in China, and] would still leave a 50% profit margin for Apple,”9 and finish by appealing to Apple to show some “corporate social responsibility” by giving up “a small portion of profits and sharing them with low skilled US workers.”10 They might just as well suggest Apple give a much-needed boost to demand in the Chinese economy by sharing its $110 billion cash pile among Foxconn’s workers.

(Continued …)

From : Value Added versus Value Capture by John Smith

Courtesy : Monthly Review

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

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