As is well known in these quarters, Apple makes beautiful kit. Actually, that’s not quite true. Apple designs beautiful kit, but the stuff is made by Foxconn, a huge oriental company. That’s why, on the back of my iPad, it says: “Designed by Apple in California. Assembled in China.” And therein lie a number of tales.
The standard narrative is the ironic one about rich westerners with more money than sense enjoying luxury gadgets manufactured by poorly paid Chinese workers under commercial security so paranoid that it has allegedly led to suicides. But there are other narratives which receive less attention. The one that concerns me just now is what all this “designed in California, made somewhere else” syndrome means for us.
This thought was prompted by a recent broadside from Andy Grove, the former CEO of Intel, the world’s leading chip-maker. In the real world, Grove may not be exactly a household name, but in the computing business nobody sleeps at the back when he’s talking.
He’s famous for the mantra: “Only the paranoid survive”, which summed up his attitude to competition when he ran Intel. But as well as being fanatically competitive, he’s also far-sighted and perceptive. In 1999, for example, he became briefly notorious for predicting that “in five years’ time, companies that aren’t internet companies won’t be companies at all”.
Grove was widely ridiculed for this statement. Was he saying, critics inquired sarcastically, that every fast-food joint and grocer would have to be into e-commerce by 2004? Not at all: what he meant was that the internet would become an everyday utility like electricity, something that every company uses, but very few generate, and none can do without. And he was right.
In an essay entitled How to Make an American Job Before It’s Too Late, Grove pointed out that whereas Apple has 25 000 employees in the US, Foxconn has 250 000 in southern China alone. “The company,” he points out, “has grown at an astounding rate, first in Taiwan and later in China. Its revenue last year was $62-billion, larger than Apple Inc, Microsoft Corp, Dell Inc or Intel. Foxconn employs more than 800 000 people, more than the combined worldwide head count of Apple, Dell, Microsoft, Hewlett-Packard Co, Intel and Sony Corp.”
Grove cited these figures to attack what he regards as a pernicious mindset that now afflicts government policymakers in most Western countries — “Our own misplaced faith in the power of start-ups to create US jobs. Americans love the idea of the guys in the garage inventing something that changes the world. New York Times columnist Thomas L Friedman recently encapsulated this view in a piece called Start-Ups, Not Bailouts. His argument: let tired old companies that do commodity manufacturing die if they have to. If Washington really wants to create jobs, he wrote, it should back start-ups.”
After the eureka moment
Grove thinks this is baloney and he’s right. Start-ups are wonderful but — at least in technology — they generally don’t create jobs on the scale that Western economies need. What really matters is what comes after that eureka moment in the garage, as the new idea goes from prototype to mass production. “This is the phase,” Grove writes, “where companies scale up. They work out design details, figure out how to make things affordably, build factories and hire people by the thousands. Scaling is hard work but necessary to make innovation matter.”
At the moment, any successful start-up engaged in scaling up will immediately plan to outsource production to China or Taiwan, because it’s the economically rational thing to do. As a result, most of the jobs created by the new idea will not be in the US (or Britain) but somewhere in the far east. “No problem,” say the venture capitalists who are funding the process. “The intellectual property — and the value — stay here while the grunt-work of mass production goes elsewhere.”
All of which is true. But consider the outcome: the new company has a smallish number of highly qualified (and well-paid) workers in its home base, oodles of incoming revenue (eventually) and a great deal of government and media approval. But the only other jobs it creates will be in low-paid service occupations — cleaning, warehousing, shipping and the like.
And so the hollowing out of Western economies continues, even as they continue to be powerhouses of innovation and technological ingenuity. Every time you buy the latest gizmo — smartphone, tablet, flat-screen TV, broadband router, camera — you’re an unwitting participant in it. And it’s all the product of our fanatical commitment to economic rationality.
The Greeks used to say that those whom the gods wished to destroy, they first made mad. Now it seems that they just make them rational. – guardian.co.uk