UPDATE BELOW
The rear cover of the iPhone tells you it is designed in California and assembled in China. The phone sells, in the absence of carrier subsidy, for about $700. Purchased components – clever pieces of design such as the tiny flash drive and the small but high-performing camera – may account for as much as $200 of this. The largest supplier of parts is Samsung, Apple’s principal rival in the smartphone market. “Assembled in China” costs about $20. The balance represents the return to “designed in California”, which is why Apple is such a profitable company.
Manufacturing fetishism – the idea that manufacturing is the central economic activity and everything else is somehow subordinate – is deeply ingrained in human thinking. The perception that only tangible objects represent real wealth and only physical labour real work was probably formed in the days when economic activity was the constant search for food, fuel and shelter.
This is from John Kay, “Fetish For Making Things Ignores Real Work.” The whole piece, which is short, is excellent. My only issue is that I would have changed the title to “Fetish for Making Things Ignores Real Value Added.”
HT to Mark Brady.
UPDATE:
Here is the hot link to the piece that the first commenter below, Steve Fritzinger, wrote. Well done, Steve.
READER COMMENTS
Steve Fritzinger
Nov 16 2012 at 8:58pm
I made a similar point in this BBC commentary last year. Including a generous quote from Don Boudreaux.
http://www.bbc.co.uk/news/world-us-canada-12774290
bryan willman
Nov 16 2012 at 9:06pm
I’m sure that observation is true.
There’s another one worth noting with respect to political discourse – “manufacturing jobs” is sometimes a code phrase for “jobs that will pay well for people without special skills or elaborate training” and who the speaker presumes will vote for the speaker in the next election.
DK
Nov 16 2012 at 10:26pm
This is all wonderful but I wonder what fate John Kay and David Henderson envision for about 50% of adult population that is 1) not capable of designing things to be made elsewhere, and 2) not needed in service jobs to cover needs of those who are capable?
Douglass Holmes
Nov 16 2012 at 10:59pm
Manufacturing jobs is also a code phrase for “jobs that can be unionized.” Until, that is, the union work restrictions and threats of strikes force the jobs oversees.
Like the cargo cultists, waiting for the return of the war that brought them wealth for a short time, many Americans long for the day when manufacturing jobs gave them opportunities to go to work right out of high-school.
Costard
Nov 17 2012 at 12:33am
But not so deeply ingrained as egotism, or whatever it is that leads an economist make offhanded generalizations about the nature of human thought.
The iphone is worth $700. Its parts are worth nothing without an iphone to put them in, and the idea is similarly worthless without the production that makes it a “tangible” product. It is really absurd to look at Apple’s unusual margins and then draw conclusions like Plato about the metaphysical hierarchy of Ideas and Things.
Has anyone bothered to come up with a theory – even a rudimentary one – for why development should make a nation less competitive? This is like flinging snot at the industrial revolution. We are not dealing with an issue of comparative advantage — not when unemployment is at 8% and has been uncomfortably high for over a decade. What John Kay is really saying is that the most advanced country in the world cannot make a competitive toothbrush, or squeeze a profit from underwear.
If that is true, then our economic and trade policy is to blame, not the invisible hand.
Eric Hosemann
Nov 17 2012 at 4:02am
I remember seeing a lot of American-made shovels, spades and rakes for sale in hardware stores, 30 years ago. Now, most garden implements I see for sale are made in China. As best I can tell, this is an ideal situation for all parties. I cannot think of one good reason why American workers should be condemned to make shovels forever, or Chinese workers should be condemned to poverty. That would be the result if American manufacturing fetishism had a lock on policy making back in the 80’s.
David R. Henderson
Nov 17 2012 at 8:52am
@DK,
This is all wonderful but I wonder what fate John Kay and David Henderson envision for about 50% of adult population that is 1) not capable of designing things to be made elsewhere, and 2) not needed in service jobs to cover needs of those who are capable?
I can’t speak for John Kay, but I don’t envision a specific fate for whatever % of the population it is. (I don’t know where you got your 50% number but I’ll take it as given.) No one can. But neither John Kay nor I needs to. Probably no one envisioned people who would have been telephone operators instead becoming baristas. We can’t know that. What we can know is that there will be job opportunities for them and what we need to work on is getting rid of government barriers to their getting those opportunities.
@Costard,
Has anyone bothered to come up with a theory – even a rudimentary one – for why development should make a nation less competitive?
Yes. Ricardo came up with it. It’s the theory of comparative advantage. It’s not that a nation becomes less competitive generally. It becomes less competitive in some things and more competitive in others. Check this article.
daubery
Nov 17 2012 at 3:30pm
“Manufacturing fetishism – the idea that manufacturing is the central economic activity and everything else is somehow subordinate – is deeply ingrained in human thinking.”
Is it? If you go back about 200 years people seriously argued that agriculture was what produced “real” value and manufacturing was subsidiary. This makes some sense in a world where famines still occurred in most European countries – having cutlery and glass in your windows is not nearly as important. Today, people scarcely recognise agriculture as part of the economy because it is so easy. Food just exists in huge quantities without the perception of effort required to produce it.
I think people might just be about 50-100 years behind the times in their thinking regardless of what that happens to be.
DK
Nov 17 2012 at 3:48pm
@David Henderson:
I don’t envision a specific fate for whatever % of the population it is. … No one can.
At least someone should think about it and try to envision what happens. Particularly if that someone proposes to do away with manufacturing fetish.
What we can know is that there will be job opportunities for them
Really? I am not sure about it. Let’s hear more. How do you know that we can know? Simply declaring that “services will do nicely” does not sound particularly convincing.
Steve
Nov 17 2012 at 10:56pm
Must agree with DK I am not sure why you are so optimistic about job opportunities. It seems like it will only become harder to add value. The advent of the dumb machine allowed even below average workers to add a lot of value and an economic boom ensued. But as machines become smarter it requires their operators to become smarter as well. When the machine does the job better than the most skilled human then that “job” goes away. Even service industry jobs are not secure. I am looking forward to the fully automated fast food restaurant where my order is never messed up and the fries are cooked correctly every time. Let’s face it slowly but surely those at the top of the economic ladder will want fewer interactions with those at the bottom. Currently the idea of funding the welfare state annoys the top people but eventually they will see it as a ticket to never having to deal with the “lower class” again.
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