THE INNOVATION TRAP: HOW THE IPHONE ISN’T SAVING AMERICA
Found this via Pharyangula:
The US economy faces a number of challenges—among them a lack of job creation and an ever-growing trade deficit. Many policy-makers believe that encouraging business innovation is the best response to these particular challenges. Sounds plausible but experience suggests otherwise.
For the sake of discussion, they assumed that assembly line wages in the U.S. are ten times higher than in China. Given that Chinese production workers earn roughly $1 an hour, that is not an unreasonable assumption. The higher wages would mean that the total assembly cost per phone would rsie to $65 and the total manufacturing cost would approach $238. If Apple continued to sell the iPhone for $500, the company would still earn a very respectable 50% profit margin.
Moreover, as the authors point out:
In this hypothetical scenario, iPhones, the high-tech product invented by the U.S. company, would contribute to U.S. exports and the reduction of the U.S. trade deficit, not only with the PRC, but also with the rest of world. More importantly, Apple created jobs for U.S. low skilled workers; those who could not be the software engineers needed by Apple. Giving up a small portion of profits and sharing them with low skilled U.S. workers by Apple would be a more effective way [than depreciation of the exchange rate] to reduce the U.S. trade deficit and create jobs in the United States.
Of course, shifting production to the United States would mean that Apple would earn less money and there is little reason to believe that the company is prepared to sacrifice its profits for the good of the country. If we want to tackle our employment and trade problems were are going to have to do more than promote more attractive conditions for business.
One could also speculate, for example, what it would mean to the USA economy if, say, WallMart came out and said that they would buy from USA manufacturers if they could come within 10-20% of current Chinese prices, and WallMart would maintain the same net profit, as opposed to raising prices by 10-20%.
But why should they do that?//