Steve Jobs Didn't Save America; Nor Will Innovation

♠ Posted by Emmanuel in , at 10/06/2011 02:09:00 PM
Owning neither an iPad, iPhone, MacBook nor whatever iGadget the Apple Corporation is flogging at the current time, I am not really a fanboy of the Cupertino concern. That said, I must admit that Steve Jobs' acumen for creating innovative products had virtually on peer--especially in his later years. Revolutionizing not only the computer but the film (Pixar), music (iTunes), and telecom (iPhone) industries, his broad vision of what's possible when combining new media with portable devices was truly astounding. Like many others, I recognize greatness when I see it.

I've been meaning to write this post for the longest time, but Jobs' passing has finally spurred me to do so. In discussions of hegemony, I keep hearing this refrain: "Why, US hegemony is secure. America has no match in terms of generating innovations used the world over. Look at Apple, Google, etc." As a marketing major, let me further observe that American political science people bloviating about innovation is particularly predictable since it's usually going to end up as another paean to the Enduring Greatness of American Innovation.

Having written quite a lot on the subject myself, let me instead tell you why contemporary innovation may be undermining America. To understand how this situation is possible, we need to update the states and markets debate. My argument is underpinned by the idea that what benefits corporations (American ones in this instance) does not necessarily benefit their home states. In other words, what was good for GM may have been good for America in 1955, but what's good for Apple is not necessarily good for America in 2011.

Without further ado, consider:

1. Innovation is not necessarily beneficial; consider financial innovation - It was not so long ago that American thought leaders alike Larry "Wooden Racquets" Summers in government and John Lipsky of JP Morgan then the IMF were all in a tizz over how we were entering a new era of financialization where risk would finally be conquered via the deployment of advanced derivatives. Supposedly, we were entering a time when our understanding of finance coupled with computing horsepower would enable us to quantify risks precisely and enable market participants to diversify risks to those who could bear them.

We all know how this American born-and-bred idea ended. It was an innovation that roiled the world, but most of all those who came up with such fantastical beasts in the first place. Colour me unimpressed. Not every US innovator is Steve Jobs, and one big, bad idea like subprime globalization has already swamped any number of helpful ones.

2. The relation of innovation to revenue generation is not necessarily positive - The California Myth is a regional variation of the American Dream that has been reinforced by, among other things, Beach Boys songs, Hollywood, pornographers in the San Fernando Valley, and oh, I almost forgot--Silicon Valley. Be that as it may, a remarkably consistent thing about California has been running among the largest if not the largest budget deficit for the longest time. In other words, the general public has not really availed of all the supposed fruits of innovation in one of the most innovative parts of the world. If Apple can't even save keep California afloat, how can it save America?

We return to a pillar of the global governance debate: What legitimately constitutes "We the People"? Politicians may be voted out of office via political processes with public sanction, but corporations have increasingly been able to use their clout to not only lower corporate tax rates at home, but also use transfer pricing strategies abroad to legitimately escape the reach of the tax man. They even openly advertise such strategies...visit Ireland! It is thus no wonder that US revenue collection is at an all-time low as a percentage of GDP. So corporations can earn billions and billions but the revenue collected by the United States of America is becoming increasingly minuscule due to constant pressure to reduce marginal tax rates and the commercialization of tax avoidance strategies into a veritable global industry.

How exactly do these help solve America's money problems? Simply, they don't. Tax avoidance is itself another brilliant American financial services innovation, so don't get me started. All I can say is, "We the People"--or even "We the Residents of California" haven't seen wondrous fruits of all this innovation especially as of late.

3. Innovations promote "creative destruction" of entire industries - Schumpeter wrote about innovation resulting in the demise of old industries as new ones superseded them in terms of consumer appeal or technological advancement. Well, consider how American film and music industries have fared in the Internet age. The recording industry has plummeted in recent years as high-bandwidth networks have made it possible to pirate virtually all new releases from whatever T&A bimbette the majors are promoting as well as the entire back catalogues of established artists. Ditto for books, films, TV shows, and video games--though they have suffered less due to mitigating factors such as the continuing appeal of physical media, movie theatres, and online multiplayer interaction.

While there are indeed many iTunes customers, it is generally accepted that those using pirated software remain far more plentiful. On one hand the Internet age made nearly limitless amounts of copyrighted material accessible for "free," while various Apple iDevices have made them more convenient to access. There are excellent reasons why the likes of Apple don't use zero-loophole digital rights management (DRM) implementations. It is tacit acknowledgement that rampant piracy which has terminally damaged a large part of American entertainment industries is here to stay since it benefits hardware sales, Anti-Counterfeiting Trade Agreement (ACTA) be damned (more on ACTA later; stay tuned).

4. The global supply chain inevitably results in leakages of proprietary knowledge - While branding and product design remain far more lucrative than simply manufacturing components to spec, spillovers effects do occur which benefit host countries. In time, these host countries eventually develop designs which rival those from the ones originally OEMed abroad by home countries alike the US.

Once more, technological innovation actually harms the US cause. For instance, it took years for the United States to copy textile manufacturing equipment from the United Kingdom. However, today's near-instantaneous communication of massive amounts of data makes it easy to replicate erstwhile trade secrets and copyrighted material (see point#3).

All in all, then, the honest truth is this: It is likely no coincidence that America is being flushed down the toilet of history at the same time that Apple Inc. has become the world's largest (or second largest) company. Its success has been built in no small part on diffusing innovations that facilitate the undermining of copyrights and other forms of intellectual property. If Apple's market capitalization reaches $1 trillion out of creating value for others, more power to them. All I can say is that's it's far from certain that it will be creating value for America as we know it. More so in this day and age, American corporations' interests do not neatly coincide with those of America. Apple products may be insanely great, but America certainly isn't. Not by a long shot.

Chew on that, America #1 cheerleaders, as you read this on your iDevices.

UPDATE: Someone over at Free Exchange make Jobs' passing a warning about how inequality has sharpened during an age of intellectual innovation. Same banana: technology companies do not really benefit "America" via large-scale job creation, but only a select few.