With ‘Progressive’ Wisdom Like This, Our Economy Is Doomed: Thoughts on Apple’s Future, and Development Versus Production

Progressive wunderkinder Matthew Yglesias demonstrates he doesn’t have a clue as to what it takes to actually manufacture a consumer good:

What I think is interesting, however, is a scenario that we can be completely confident won’t be next for Apple. The company definitely will not return its existing stockpile of cash to shareholders, announce a plan to quietly plug along in its existing profitable business lines, sharply raise dividends, and generally resolve to slowly fade into the darkness as a hugely profitable investment for its owners that’s doomed to be overtaken by some newer more innovative company. Instead, like all the other cash-rich profitable tech companies it’s going to fight for the interests of the firm as such. Rather than parking a nice quiet landing that ensures its owners make money but the firm goes extinct, it’ll furiously try to enter new lines of business in hopes of living forever….

Firms want to live forever! And while some of these gambit succeed, it’s hard to avoid the conclusion that the general instinct toward firm-level survival causes more losses than it avoids.

Without going Full Metal Percy Bysshe Shelley, no doubt Apple will fall at some point. After all, Woolworth’s at the turn of the 20th century looked unstoppable–even built a massive skyscraper. That said, if companies with a history of good product development and manufacturing routinely busted themselves up, we would be a lot worse off.

I realize most people think that the hard part is coming up with the idea, the killer app. Obviously, that’s vital. But equally important is the hard-earned experience of how to build things: making efficient production processes that scale up. Intel’s Andy Gross (boldface mine):

Friedman is wrong. Startups are a wonderful thing, but they cannot by themselves increase tech employment. Equally important is what comes after that mythical moment of creation in the garage, as technology goes from prototype to mass production. This is the phase 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.

The scaling process is no longer happening in the U.S. And as long as that’s the case, plowing capital into young companies that build their factories elsewhere will continue to yield a bad return in terms of American jobs…

A new industry needs an effective ecosystem in which technology knowhow accumulates, experience builds on experience, and close relationships develop between supplier and customer. The U.S. lost its lead in batteries 30 years ago when it stopped making consumer electronics devices. Whoever made batteries then gained the exposure and relationships needed to learn to supply batteries for the more demanding laptop PC market, and after that, for the even more demanding automobile market. U.S. companies did not participate in the first phase and consequently were not in the running for all that followed. I doubt they will ever catch up…

I disagree. Not only did we lose an untold number of jobs, we broke the chain of experience that is so important in technological evolution. As happened with batteries, abandoning today’s “commodity” manufacturing can lock you out of tomorrow’s emerging industry.

Apple has proven teams that can design and produce at scale things people want. At some point, they’ll fail, but we shouldn’t be encouraging the dissolution of companies with good track records. Instead, we should be encouraging them to be successful and to bring these jobs back to the U.S.

We should be a society of builders, not wealth extractors.

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3 Responses to With ‘Progressive’ Wisdom Like This, Our Economy Is Doomed: Thoughts on Apple’s Future, and Development Versus Production

  1. Janne says:

    The point was, I think, that what counts as good product development and manufacturing at one point no longer does later on. Firms need to reinnovate periodically or get overtaken by those that do. But reinnovation often means burning your old business in the transition to your new one, like Apple arguably did when it became a consumer product and services company rather than a computer maker. And they only have to fail that transition once to fade into irrelevance or even die outright. But not doing so is a guarantee they’ll fail and sooner rather than later; again, imagine Apple if they hadn’t done that hard turn.

  2. HeyPK says:

    If Apple could design a better antenna and a better battery, then they would really monopolize the cell phone industry. When it comes to using the I phone as a phone, it still does poorly with only one or two bars and it still needs charging too often.

  3. Hupo Spivey says:

    I think the key words are scale and society. Woolworths got a mention b/c it became so big – not too big to fail, just very big. But size does not alter the central mission of any company, which is to make profit. When the world seemed smaller, an argument could be made that companies of all sizes lived within the society they were physically located. Companies now, no matter where they have their HQ, exist in a netherworld outside society, and pursue their parasitic practises alien and orthogonal to the hearths and hearts around them. Jobs are not seen as people, only as a commodity.

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