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Dean Baker

Dean Baker is co-director of the Center for Economic and Policy Research

February 22nd, 2012 7:08 PM

What If the Next Steve Jobs Is Chinese?

As Apple's stock continues to hit record highs and its sales and profit reports exceed all expectations, Steve Jobs' reputation as an entrepreneurial genius grows ever larger. He succeeded in developing products that people around the world very much want to buy. In this sense, Jobs stands out from the mediocrities that run most corporations and collect huge pay checks in the process.

It may be some time before another innovator comes along who can match Steve Jobs' record, but we constantly see companies developing new products, even if few will have the same impact as the iPod or iPad. The United States continues to be at the forefront in innovation, but this likely will not always be the case. It is worth asking whether we should care. This requires a clear-eyed assessment of the benefits to the country provided by innovators like Jobs.

As the New York Times recently documented, Jobs deserves credit for developing products that people value, but it is less clear that he deserves much credit for creating jobs in the United States. Apple has long outsourced to China and other countries virtually all of its manufacturing operations. Apple has absolutely not been a boon for U.S. manufacturing workers.

Apple directly and indirectly employed tens of thousands of people in the software industry, either designing its new products or designing apps for them after they were invented. However, it is not clear how much of this employment depends on the fact that Jobs happened to live in the United States. While the immediate group of engineers and designers tied to Apple might owe their employment to Jobs' nationality, the much larger group of people who work designing apps for Apple products could do the same work regardless of where the original products were designed.

The nationality of the next Steve Jobs is relevant to the list of issues that the United States pushes in its negotiations China. The media often portray the United States as having a set of complaints against China in which the whole country shares a common interest. This is not true.

The list of complaints represents the interests of particular groups in the United States and in some cases they directly conflict. This is most obvious with the push to increase China's enforcement of U.S. copyright and patent claims. This is a case where the interests of a narrow group who stand to benefit from increased royalties and licensing fees are pitted against the interest of the vast majority of people in the United States.

This is the case for three reasons. First, at the most basic level we cannot just give China's leaders a shopping list of complaints and expect them to act on all of them. Insofar as they make more concessions in one area, they will make fewer in other areas. In this case, we can assume a tradeoff between respect for U.S. copyrights and patents and progress in revaluing the yuan against the dollar.

The more we succeed in getting China to respect Microsoft's copyrights and Pfizer's patents, the less we will succeed in lowering the dollar against the yuan. The continuation of the over-valued dollar will mean fewer exports and more imports, in other words fewer manufacturing jobs. So, the increased profits for Microsoft and Pfizer will come at the expense of hundreds of thousands of manufacturing jobs.

The second reason why there is a tradeoff is the simple economics of the situation. The greater the demand for dollars from China, the higher the value of the dollar -- other things equal. This means that if the Chinese need more dollars to pay Microsoft and Pfizer for their software and prescription drugs, then their increased demand for dollars will drive up the price of the dollar relative to other currencies, making U.S.-manufactured goods less competitive. In other words, there is both a political and directly economic reason that increased enforcement of U.S. intellectual property claims in China will cost manufacturing jobs in the United States.

Finally, there is the question of flows of intellectual products going the other way. At the moment, the United States is a major net exporter of intellectual products; however, this is not always likely to be the case. China is already producing more college graduates with science and engineering degrees than the United States, and the gap is certain to grow much larger over the next decade.

It is only a matter of time before the volume of intellectual output from China to the U.S. exceeds the flow in the opposite direction. At that point, U.S. consumers would certainly benefit from weaker protection, since it would reduce the cost of products, although, it might be hard to justify a regime of weaker intellectual property protection after we have been pushing for a strong one for decades.

In short, the demand that China have greater respect for U.S. intellectual property should be recognized as a demand of a narrow group of special interests, not a demand that serves the country as a whole. If the next Steve Jobs happens to be Chinese, she will be able to deliver just as many benefits to the world, and the United States, as the last Steve Jobs.

 

Follow Dean Baker on Twitter: www.twitter.com/DeanBaker13

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