“Apple’s poisonous business practices,” The Colorado Springs Business Journal, March 18-24, 2016, p. 27.

Beware of the Apple, It’s Poisonous

As the latest debate over Apple’s stance on privacy and its refusal to help federal investigators access the iPhone of the San Bernardino attackers, we should recall an earlier stance that seemed principled at the time, but was not.

For those who may have forgotten, Apple appealed a 2014 settlement that found it guilty of antitrust violation in relation to e-books. The settlement amount was $450 million. Its appeal to the Supreme Court was just denied, so the original settlement is binding.

In that case, Apple’s CEO, Tim Cook, made a passionate argument on behalf of “free enterprise” and the right of Apple to conspire with publishers to artificially inflate the price of e-books. At the time, Amazon.com, which had its own disputes with publishers, was setting the benchmark price for e-books.

Apple may argue about its monopoly-like right to set prices in the marketplace as much as it wants; it even can try to present itself as a martyr for free enterprise; but the truth is that it was hurting consumers to enrich itself, called profiteering.

One wonders if today’s debate about privacy isn’t a similar case where the veneer of an ideal ends up being just that, a veneer. The real point is a marketing ploy to convince present and future customers of its protective corporate culture. Fighting “the government,” as many presidential candidates are finding out, is quite popular!

Apple’s hypocrisy need not be measured exclusively by the yardstick of its entanglements with the government, as these two cases illustrate. Instead, it seems that Apple is unabashedly pursuing maximal profits, pure and simple.

To begin with, let’s examine what has set Apple on its path to American iconography. It is outrageously successful, valued at more than $750 billion (biggest in the world), profits of over $53 billion (October 2015), and over $180 billion in cash. Its legendary leader, Steve Jobs, has been lionized as a design guru and creative genius (despite some less than flattering books and documentaries).

Apple came out of IBM’s and Microsoft’s shadows to capture our imagination and pocketbooks; we are so enamored by its products that we stand in line for hours to pay premium prices for the latest revision of its latest gadgets. But there is something dark about Apple, so dark that good publicity, as the one now enjoyed by Apple, is needed to distract our attention from its fundamentals.

First, Apple produces its gadgets overseas, primarily by Foxconn in China. This outsourcing has become ubiquitous, but it sheds light on the awful working conditions of Apple’s sub-contractors’ employees (nets have been set in workers’ dorms so they won’t jump to their death). As president Obama beseeched Steve Jobs to bring jobs back to America during the Great Recession, Jobs scoffed at him and said it’ll never happen.

Second, as Mariana Mazzucato argues in her The Entrepreneurial State (2011), Apple has licensed most if not all of its patents and intellectual property from government sources. Apple doesn’t “invent” as many new technologies or processes as one might believe, but uses others’ inventions for its own designs. It’s R&D budget in 2015 came close to $8 billion, pittance as percentage of its sales of $234 billion (just over 3%). By comparison, Microsoft spent over $12 billion on R&D out of $93 billion in sales (close to 13%).

Third, there are some who are wondering about Apple’s legal behavior both domestically and globally, as it continues to be embroiled in patent disputes with its rivals (Samsung), overseas antitrust allegations, and class-action suits at home. Some have speculated that Apple spends more money on legal fees and fines annually than on R&D. If true, how “entrepreneurial” is it?

Fourth, if you have missed it, Apple has been under scrutiny for its tax-evasion tactics, most of which are perfectly legal, yet fly in the face of it being a good corporate citizen. It’s not that Apple doesn’t pay taxes at all, as it does ($8 billion as Cook told Charlie Rose on “60 Minutes”). Yet, between channeling some sales through offshore distribution networks and keeping over $180 billion in offshore accounts it avoids paying much more. Shouldn’t it contribute to the infrastructure that guarantees its sales?

As we piece the narrative about Apple’s corporate behavior, what may seem a principled stand against government intrusion into citizens’ privacy turns out to be a smokescreen. Is there really no technological way to accommodate federal investigators? We see instead a legal machine with exuberant profits enjoying the American framework of markets without contributing its fare share to ensure its operation. Just like those who came for dinner and never quite contributed their fair share. Perhaps legal, but is it right?

Raphael Sassower is professor and chair of philosophy at UCCS. He can be reached at rsassower@gmail.com See previous articles at sassower.blogspot.com

“The global economy and local stress,” The Colorado Springs Business Journal, March 2 - 8, 2012, 21.

GLOBAL ECONOMY, LOCAL STRESS

There are those, like Thomas Friedman of the New York Times, who want us to get over our economic gripes about outsourcing, and realize that by the twenty-first century things are “Made in the World.”

Forget about where something is made, and get used to the fact that the global economy is here to stay: whoever provides the cheapest labor force or raw materials is chosen. Whoever responds to a call for proposals, architects from Germany or interior designers from Brazil, is competing with the entire world, regardless of the target location.

In the Digital Age, physical or geographical location means nothing: any set of ideas or designs or drawings can be digitally transported across oceans and mountain-ranges in seconds. The Internet has connected us not only socially, but also professionally and financially. Experts can bid from anywhere to perform tasks anywhere they are needed.

I met a physician in South Africa that was reading and interpreting MRIs and X-Rays for hospitals in the United States. Her services were rendered during the day (her time), while it was night-time here. Isn’t this efficient? Doesn’t it solve our fast-pace hunger for immediate responses?

There are others, like Joseph Stiglitz, winner of the Nobel Prize in Economics (2001), who is concerned about the optimistic view of globalization. For him, there is a fundamental asymmetry between the developed and developing countries, such that the kind of policies imposed by the former on the latter would cripple any potential benefits that could come from “the removal of barriers to free trade and the closer integration of national economies.” What is good for Germany may not be good for Egypt or even Greece (as we have recently seen).

National differences are easily observed in the laws countries enact, from tax codes to zoning and labor safety. Simply expecting the same rule of law across national borders is a folly: different cultures have different beliefs and ideals they enshrine in their laws.

It’s not that the Chinese refuse to abide by Western intellectual property laws; it’s that they have ancient traditions that find personal ownership of ideas quite perplexing. The idea that some can copyright an idea is foreign to them. And the Indians think of the legal system as an ongoing conversation whose interpretive flexibility would be dumbfounding to American lawyers.

When Adam Smith encouraged us to think in terms of the division of labor and added foreign trade as a source of national wealth (1776), he couldn’t have imagined current globalization trends. For him, trade was supposed to enrich all parties, rather than some at the expense of others. But as we look around us, we feel impoverished at the expense of Chinese and Indian ascendancy.

A befuddled President Obama was chastised by the late Steve Jobs about Apple’s labor practices. Jobs was clear in asserting that 20,000 overseas jobs (plus around 700,000 subcontractors in Asia and in Europe) “were not coming back.” Wake up, this is the real world, and not fantasy American labor-land (with about 43,000 Apple-related jobs)! But we want to make things here: we want factories to work three shifts a day, employing skilled labor at reasonable wages, the way it was a century ago.

Is the American dream of manufacturing over? The car industry is proving otherwise, with record profits at GM, Ford, and Chrysler, and added jobs from Michigan to Tennessee. Yes, two of the three got bailout money. But unlike the banks that got much more, this industry added jobs over time. While banks reduce their workforce to become more profitable, robotics on assembly lines still require human labor.

The sanctity of Jobs’ legacy should come under closer scrutiny when it comes to profiteering from cheap labor abroad while Americans are the main target consumers. Does Apple have a moral obligation to employ Americans rather than exploit Chinese workers at Foxconn? Should Apple care about the economic well-being of America? Should it sacrifice a lower profit-margin to sustain the health of the local economy?

This may sound xenophobic, even protectionist; it may sound contrary to classical economic principles of capitalism and even of communism, where the laborers of the world must unite. Instead, this is meant as an urgent reminder that the fruits of a global economy may turn out to be sour at the end.

Bud and Sam Walton would turn in their graves, unlike Jobs who didn’t care, if they knew that Wal-Mart employees can’t afford to buy the items sold there. Their efficient distribution genius wasn’t intended to increase joblessness in America and create a permanent unemployed class.

Capitalism’s dream was to make everyone more prosperous, not to make some richer at the expense of others. Can we revive the dream?

Raphael Sassower is professor of philosophy at UCCS. He can be reached at rsassower@gmail.com Previous articles can be found at sassower.blogspot.com