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Wealth vs. Job Creation
Shout Bits Blog ^ | 12/10/12 | Shout Bits

Posted on 12/10/2012 8:08:10 AM PST by Shout Bits

Last week, Apple Computer raised a few eyebrows in announcing it will build more of its computers in the US. Apple is well known for building many of its products at Foxconn factories in China. These workers toil for pay that most Americans would not accept. A typical factory worker in the US earns ten times that of his Chinese equivalent, so how can Apple afford to build in the US? The logic behind Apple's move is revealed by the number of US hires – only 200 or so. 200 jobs does not put any kind of dent in the US unemployment problem, but it does show how US labor productivity creates wealth.

It takes thousands of Chinese to assemble apple's products, but it takes only 200 Americans to do the same. The difference is the investment in highly automated factory equipment in the US. When investing millions per employee in automation equipment, the tenfold labor cost difference becomes trivial when locating a new factory. While the US has an entitled and overregulated labor force, it is mostly free of China's rampant graft problem. Private property is generally not subject to seizure, so factory assets are safe. In the US, unlike China, trade secrets such as how the automated machinery works can be kept safe. All this plus the avoidance of tariffs and international shipping make a large investment in the US perfectly logical.

Still Apple is creating only 200 new jobs. That can be dismissed as a publicity stunt or simply insignificant compared the US's many problems. Apple's goal is wealth creation – in particular for its owners, but also for its customers. The factory will create wealth in the form of computers that can be used to create more wealth. There are many nations with nearly full employment, but they do not compare to the US because their jobs create minimal wealth. Only wealth creation creates prosperity; jobs are a byproduct of wealth creation, not vice versa.

Nearly all politicians talk about creating jobs, pandering to the populist notion that jobs drive the economy. Supposedly no matter how a job is created, people's lives get better. When Pres. Obama talks about creating "green jobs," he is really talking about the destruction of wealth to pay for the jobs he wants. By taking resources that could be used to create factories like Apple's and redirecting them toward windmills and solar cells that do not work very well, wealth is destroyed. It is easy to count the number of subsidized and unsustainable 'green jobs,' it is harder to see the productive Apple-like jobs that weren't created for lack of capital.

Apple is likely to invest something like $3.8 million per job at its new factory, while Obama's stimulus spent only $787,000 per job. Doesn't that make government jobs more efficient? The difference is that Apple has calculated that its investment will create wealth, while the government knows nothing about the concept. Private sector investment in jobs is much more likely to create wealth than politically directed spending made-up to resemble investment.

The Old Media sometimes gets wealth creation vs. job creation partly right. They sometimes refer to 'good jobs,' such as the ones the Keystone XL Pipeline would create. To them 'good jobs' mean high paying, high skill jobs, but that is simply the flip side of wealth creation. A job pays well because of the wealth it creates, so skill simply refers to how much value a job has. The classic example is the man with a shovel vs. the man with a hydraulic back hoe. The back hoe job is much easier work, but it also pays much more because the back hoe allows the worker to create more wealth (by moving more dirt). The back hoe may put 100 men with shovels out of work, but it creates more wealth, which is the goal.

By focusing on wealth creation (i.e. profit) instead of job creation (i.e. consumption) people from back hoe companies to Apple Computer might appear to be creating scant employment, but in reality they create all the material benefits taken for granted by people who demand 'jobs.' So cheers to the crafty people who seek wealth creation, and not so much for the politicians who destroy wealth to simply create jobs.

Shout Bits can be found on Facebook: vs. Job Creation

TOPICS: Politics
KEYWORDS: jobs; obama

1 posted on 12/10/2012 8:08:16 AM PST by Shout Bits
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To: Shout Bits
Last week, Apple Computer raised a few eyebrows in announcing it will build more of its computers in the US. ... The logic behind Apple's move is revealed by the number of US hires – only 200 or so. 200 jobs does not put any kind of dent in the US unemployment problem, but it does show how US labor productivity creates wealth.

I wonder if these jobs are primarily for certain contracts which either require US made equipment or give a bonus/subsidy for it. Are there some defense contracts which they can get by snapping a Chinese made mother board into a Chinese made case here in the US rather than in China?

2 posted on 12/10/2012 8:31:55 AM PST by KarlInOhio (Big Bird is a brood parasite: laid in our nest 43 years ago and we are still feeding him.)
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To: KarlInOhio

The details are limited, but the reports I have read suggests that there will be a fairly extensive assembly and manufacturing process in the US. Many iMacs require careful machining of case parts. Also, motherboard assembly lends itself to US manufacturing already because it is nearly lights-out automation.

I think this is a substantial manufacturing investment, not a Potemkin show.

3 posted on 12/10/2012 8:45:30 AM PST by Shout Bits
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To: Shout Bits

You’re basicallly right, although any “machining” is going to be done on automated CNC machines, the vast majority of parts are going to pop out of a molding machine or stamping press all ready to go.

Electronic assembly has been getting less and less labor-intensive for 40 years. The days of rooms full of workers hunched over manual wirebonders or stuffing parts into PC boards are from the 1970s. SMT assembly equipment like that used for making iThings can place upwards of 10 components per second (they look like a gatling gun in operation) and cost a million dollars or more each. Specialized standards have been developed for transferring parts and assemblies (both physically and electronically) between machines without any human intervention. These parts are indeed made in the closest thing to a Lights Out factor that we have in industry.

There are still humans but for technicians and manufacturing enginers, process specialists, and automation gurus, not low-skilled low-wage workers.

I remember back in the 1980s, touring the Control Data plant in Minneapolis where they made the Cyber70 supercomputers. The guys doing repair and rework of their 21-layer PC boards had PhDs...not because they were underemployed but because they were material scientists and this was the skill level required to salvage assemblies worths $10K each.

If Apple does this it will be for PR value only, it will have absolutely no impact on anything else other than 200 paychecks for people who are probably not unemployed now, and will bring the skills Apple needs.

4 posted on 12/10/2012 8:54:44 AM PST by bigbob
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To: Shout Bits

China is building dams to produce cheap electricity. They can put up coal power plants because their environmental regulations aren’t as stringent. We can yammer about unemployment, but we need to have jobs for people to come off welfare for. It’s time to kick the environmentalists in the behind. We have to use our advantages in a competitive world. Screw the salmon. Screw the spotted owl. Welfare slaves don’t go and look at owls. We need to put people ahead of animals. At least until we pull out of this depression. Relax the government regulations for a few years.

5 posted on 12/10/2012 10:49:51 AM PST by blueunicorn6 ("A crack shot and a good dancer")
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