June 28, 2007
iPod: Savior of Capitalism
Everyday Economist links to a NYTimes story about a study that tries to answer the question "Who makes the Apple iPod?" EE provides the great headline: "I Pencil: iPod Edition." I just recently learned that I, Pencil comes originally from Leonard Read, not Milton Friedman.
Three researchers at UC Irvine have traced its 451 components all over the world, with the most expensive components being the hard drive, display and a few chips. The study tries to allocate value geographically.
So $73 of the cost of the iPod would be attributed to Japan since Toshiba is a Japanese company, and the $13 cost of the two chips would be attributed to the United States, since the suppliers, Broadcom and PortalPlayer, are American companies, and so on.But this method hides some of the most important details. Toshiba may be a Japanese company, but it makes most of its hard drives in the Philippines and China. So perhaps we should also allocate part of the cost of that hard drive to one of those countries. The same problem arises regarding the Broadcom chips, with most of them manufactured in Taiwan. So how can one distribute the costs of the iPod components across the countries where they are manufactured in a meaningful way?
I use the iPod more and more in my defense of free market capitalism. It is the one thing you'd never get from any other system. I have a 40GB RCA MP3 player that was one of the competitors squashed by the iPod. It works okay; it's the size of four iPods glued together and is 84.36% less cool, but I loved it. When I bought it, iPod was a Mac only thing and my RCA brick was $100 cheaper.
I tell my nieces and nephews that there would have been no reason to improve the RCA or even make one in the first place. It's a luxury item - who would make it unless they thought they could make a bob or two?
I will now add this column to my arsenal. Without globalization, kids, no iPod. Think about it.