Jobs vs. Obama: Productive Capacity

This one is a bit off-topic, but hey – there’s things to be said and I need a place to say them. Some excerpts from Steve Jobs’ biography were released online this afternoon, and one of the bits that caught my attention from his rantings was this bit on business regulation:

“You’re headed for a one-term presidency,” he told Obama at the start of their meeting, insisting that the administration needed to be more business-friendly. As an example, Jobs described the ease with which companies can build factories in China compared to the United States, where “regulations and unnecessary costs” make it difficult for them.

Now, before you dismiss this as another CEO whining about how tough his life is, keep in mind a few things: Jobs was an uber-liberal who put Apple squarely behind the gay rights movement in California and who brought Al Gore onto the Apple board of directors, Apple is one of the top two most valuable companies in the world, and it is one of the few major US corporations that actually seems to be making things these days. This is not a Detroit or Wall St. executive complaining that his bailout isn’t big enough. It’s the CEO of one of America’s greatest companies saying that the regulatory environment is uncompetitive. (Full disclosure: I used to work for Apple in a minor sub-managerial capacity as a business sales rep in its retail division.)

As is clear from other excerpts in that link, Steve comes across as a bit of a Mad King and one needs to filter out his cantankerousness. Still, his complaint/advice to Obama should be heeded given what the source is. Jobs has no interest in undermining a Democratic president. He does have an interest in maintaining his company’s competitiveness – Apple used to manufacture its own products but outsourced that to China many years ago (you can still get a few of Apple’s computers, such as the MacPro, assembled in the US, but the mobile devices and all the components are manufactured abroad).

Now, Jobs’ complaints should be taken with a grain of salt in another respect as well – the Foxconn factories Apple contracts with in China are notorious for their workplace standards – Foxconn employees are known for their penchant towards suicide. Sometimes a little regulation is a good thing, even if it sticks in the executives’ craw.

No, the issue that Steve points to is a larger one that Apple is a case study of – that the combination of America’s regulatory regime and the lowering of trade barriers has contributed to an exodus of manufacturing from the US into low-regulation/low-wage countries. To compensate, the American economy has become more reliant on financial services and intellectual property (IP) to drive growth. The intellectual property sector can only be as successful as the legal regime protecting that property – and that regime does not extend to developing countries such as China, which are taking manufacturing jobs as well as ignoring patents and pirating material. Meanwhile the unreliability of financial services as a driver of national growth should be self-evident after the past four years.

Looking past the bile and the self-interest, what Jobs was drawing Obama’s attention to was that the loss of manufacturing capacity to developing countries has effects on other areas of the national economy, because it puts greater pressure on other sectors to produce the kind of economic growth that the public demands, but that a government that has been unable to protect manufacturing is also unable to protect IP. This causes further reliance on the financial services that caused the Great Recession.

Simply declaring that new sectors of the economy can step up to compensate for manufacturing, which is the neoliberal’s stock slogan on behalf of free trade, is not sufficient for dealing with the underlying structural problem: that America has opened its doors to free trade with developing countries without demanding regulatory reciprocity as part of those free trade agreements. What happened to industry over the last three decades will also happen to IP in the coming ones unless this core issue is addressed.

Lowering America’s industrial regulations to those of China’s makes no more sense than lowering America’s intellectual property safeguards to China’s, either. The only reason we have not heard the free trade crowd braying for reduced IP protection is because lower labor protections helps those with capital while lower property protections harms them. For that, if for no other reason, it is more likely that future rounds of trade negotiation will see IP better-protected than labor has been, though this is in no way guaranteed.

We have no way of knowing what Steve Jobs really meant when he spoke to Obama, but his words do lead us to an important insight: that the lack of an international trading regime based on the principle of regulatory reciprocity has actively undermined America’s economic strength, and that what happened to American manufacturing could very well happen to other sectors of the economy that are supposed to compensate for manufacturings’ decline.

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About Daniel Clinkman

I recently completed my PhD in History at the University of Edinburgh. My academic interest is in the transition from feudalism to liberalism in early modern Britain and its empire. My non-academic interests include public policy, political thought, international politics, social institutions, and travel. I grew up near Boston before attending the American University in Washington, DC. I now live in the San Francisco Bay Area. Follow me @dclinkman on Twitter.
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