Imperialism in the Twenty-First Century. John Smith
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suppliers and distributors, and the U.S. government, all appearing as value-added generated within the United States. The main focus of the ADB study was the effect of iPhone production on the U.S.-China trade deficit, finding that “most of the export value and the deficit due to the iPhone are attributed to imported parts and components from third countries…. Chinese workers … contribute only US$6.50 to each iPhone, about 3.6 percent of the total manufacturing cost.”55 Thus, more than 96 percent of the export value of the iPhone is composed of re-exported components manufactured elsewhere, all of which counts toward China’s exports but none counts toward China’s GDP.56 The authors do not investigate in detail how these gross profits are shared between Apple, suppliers of services, and the U.S. government, but they can hardly avoid commenting on their spectacular size: “If the market were fiercely competitive, the expected profit margin would be much lower…. Surging sales and the high profit margin suggest that … Apple maintains a relative monopoly position…. It is the profit maximization behavior of Apple rather than competition that pushes Apple to have all iPhones assembled in the PRC.”57
This leads the ADB researchers to imagine a scenario in which Apple moved iPhone assembly to the United States. They assume U.S. wages to be ten times higher than in China and that these hypothetical U.S. assembly workers would work as intensely as the real ones do at FoxConn, calculating that “if iPhones were assembled in the U.S. the total assembly cost would rise to US$65 and would still leave a 50 percent profit margin for Apple.”58 They finish with an appeal to Apple to show some “corporate social responsibility” by “[g]iving up a small portion of profits and sharing them with low skilled U.S. workers” and re-shore iPhone assembly to the United States.59 The researchers do not consider Apple’s “corporate social responsibility” to the Chinese workers who are paid a pittance for their labor and who would be made redundant if Apple were to follow the ADB’s advice. And it should be noted that whether the profit margin is 64 percent or 50 percent, it is not just “Apple’s profit”—Apple must share this markup with its service suppliers and the U.S. government.
The first version of the iPhone was also the first-ever smartphone, so Apple’s initial markup might be thought of, in part at least, as a reflection of its unique status.60 Since then Samsung, HTC, Nokia, and other producers have launched their own smartphones—indeed, in the first quarter of 2014 Apple’s share of the global smartphone market had fallen to just 15 percent by units sold, half Samsung’s share. “Apple remains strong in the premium smartphone segment, but a lack of presence in the entry-level category continues to cost it lost volumes in fast-growing emerging markets such as Latin America,” said one industry analyst.61 Yet, seven years after the launch of the first iPhone, Apple has broadly succeeded in maintaining these exorbitant markups. According to a report by UBS researchers published in September 2013, the production cost of a 16GB iPhone 5C was $156, rising to $213 for a 16GB iPhone5S, while the retail price for each unlocked handset is $549 and $649 respectively, yielding gross profit margins of 61 percent and 67 percent.62 Nevertheless, according to the Financial Times Lex column, “Phones, even Apple’s, are becoming commoditised. Apple is selling more phones, but making less money: each iPhone went for an average $41 less than in the previous quarter as cheaper older models spearheaded an emerging markets push.”63
IT IS PARTICULARLY INSTRUCTIVE TO COMPARE Apple’s profits and share price with those of its principal supplier. In the year to May 2013 Hon Hai made $10.7bn in profits (on sales of $132.1bn), which works out as $8,685 for each of its 1,232,000 employees, compared to Apple’s $41.7bn profits (on sales of $164.7bn), or $572,800 profit for each of its 72,800 employees (47,000 of whom are in the United States). In May 2013, Hon Hai’s share price valued the company at $32.1bn; while Apple, with not a factory to its name, was valued at $416.6bn.64 Since overtaking Exxon in 2011, Apple has reigned supreme as the world’s most valuable company. During that year Apple’s earning growth was large enough to cancel out the decline in the earnings of all other U.S. companies, thereby providing crucial support to the U.S. economy as it struggled to emerge from the post-Lehman crash.65 Further boosting its share price, it has accumulated a huge cash stockpile—standing at $146.8bn at the beginning of 2014, despite returning billions of dollars to shareholders in a share buy-back scheme—that it has no productive use for.66
Meanwhile, in what one study called a “paradox of assembler misery and brand wealth,” Hon Hai’s profits and share price have been caught in the pincers of rising Chinese wages, conceded in the face of mounting worker militancy, and by increasingly onerous contractual requirements, as the growing sophistication of Apple’s and other firms’ products increase the time required for assembly.67 While Apple’s share price has risen more than tenfold since 2005, over the same period Hon Hai’s share price slumped by more than 80 percent. The Financial Times reported in August 2011 that “costs per employee [are] up by exactly one-third, year-on-year, to just under U.S.$2,900. The total staff bill was $272m: almost double gross profit…. Rising wages on the mainland helped to drive the consolidated operating margin of the world’s largest contract manufacturer of electronic devices … from 4–5 percent 10 years ago to a 1–2 percent range now.”68
The company is seeking cheaper labor and reduced dependence on the increasingly restive Shenzhen workforce, and as FT columnist Robin Kwong reports, “Hon Hai … has invested heavily in shifting production from China’s coastal areas to further inland and is in the process of increasing automation at its factories. As a result, Hon Hai last year saw its already-thin margins shrink even further.”69 FoxConn, which in 2013 reportedly relied on iPods and iPhones for at least 40 percent of its revenue, has moved its iPhone 5 assembly to Zhengzhou in northern China, where 100 assembly lines, each with three shifts of 600 workers working around the clock and exclusively occupied in iPhone assembly, churn out 500,000 handsets every day.70 Along with thousands more employed in the production of metal casings and ancillary staff, a total of 300,000 workers are dedicated to meeting Apple’s iPhone orders. Apple’s dependence on Hon Hai is a vulnerability as well as a source of revenues and profits; industry analysts report in April 2014 that Apple is set to dilute its dependence on FoxConn and outsource part of the production of the iPhone 6 to another Taiwan-based electronics contract manufacturer, Pegatron, which to this end is building a giant factory near Shanghai.
The combination of sharply rising wages, heavy capital spending, and relentless cost-cutting by Apple is bad enough, but worst of all is the chronic sickness into which Hon Hai’s and China’s principal export markets have fallen. Kwong concludes, “it is not hard to see why the last thing Gou needs now, after building all those inland factories, is a slowdown in demand.”71
THE CUP OF COFFEE
Our picture is completed by the addition of a third iconic global commodity—the cup of coffee. Perhaps you have one clasped in your hand—don’t spill any on your T-shirt or your smartphone as you read this! Coffee is unique among major internationally traded agricultural commodities in that none of it, apart from small quantities grown in Hawaii, is grown in imperialist countries, and for this reason it has not been subject to trade-distorting agricultural subsidies such as those affecting cotton and sugar. Yet the world’s coffee farmers have fared as badly if not worse than other primary commodity producers. Most of the world’s coffee is grown on small family farms, providing employment worldwide to 25 million coffee farmers and their families, while two U.S. and two European firms, Sara Lee and Kraft, Nestlé and Procter & Gamble, dominate the global coffee trade.
In common with other global commodities, the portion of the final price of a bag or a cup of coffee that is counted as value-added within the coffee-drinking countries has steadily risen over time. According to the International Coffee Organization, the markup on the world market price of coffee for nine imperialist nations that account for more than two-thirds of global imports averaged 235 percent between 1975 and 1989, 382 percent between 1990 and 1999, and 429 percent between 2000 and 2009.72 As this report points out, these impressive figures significantly underestimate both the magnitude of the markup and also the pace of its increase, since it is based on the assumption that all imported coffee is sold to consumers at market prices, whereas an increasing percentage of coffee