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Global Crisis/Innovation Blog

 “Desperation Rises over Debt Crises”:  It’s All a Sham!

By Shlomo Maital

US debt mountain?  $14.6 trillion?  Nope…less than $10 trillion.  

That is the headline in the Global New York Times, on the front page. Desperation. As Obama storms out of negotiations with the Republicans, again America walks to the edge, and global capital markets ponder the specter of American not able to pay for its bonds when they mature, after August 2.

   And it’s all a sham!  Because America is not even close to its legal debt ceiling of about $14.5  trillion.  In fact, it is $4.6 trillion below it!

   Here is why.   The current total public debt outstanding of the United States is approximately $14.22 trillion dollars.   Of this total, $9.6 trillion is “debt held by the public”, while the remainder (approximately $4.6 trillion) is in the form of “intragovernmental holdings”.   “Debt held by the public” is debt that has been purchased by pension funds, foreign governments, foreign investors, American investors, etc. If you buy a US savings bond, then this goes into the “debt held by the public” category.  This is real debt, owed by the U.S. govt. 

    But what are “intragovernmental holdings”?   It is “balances of Treasury securities held by over 230 individual federal government accounts with either the authority or the requirement to invest excess receipts in special US Treasury securities that are guaranteed for principal and interest by the full faith and credit of the US Government”.

   Translation: Money the U.S. govt. owes…to itself.  In other words: On a balance sheet, the liability is offset by an asset (the money that the debt was sold for). 

   According to the Government Account Office GAO:   “The majority of intragovernmental debt holdings are Government Account Series (GAS) securities. GAS securities consist of par value securities and market-based securities, with terms ranging from on demand to 30 years.”    As of September 30th, 2010, gross intragovernmental debt holdings totaled approximately $4.53 trillion.   A large majority of this intra-governmental debt (57 per cent) was held by the Social Security Administration Trust Fund, the sum of $2.399 trillion.  This is money the Federal Govt. owes to itself!   And the debt is backed by an asset – the money itself!

    So why is it included in the official legal definition of “US public debt”?  Why is it subject to the official U.S. govt. debt ceiling?  And why is this crisis over America’s debt occurring, over a hugely mistaken interpretation of what debt is? 

    If you, John Q. Public, owe $100, let’s say, and you have a $100 bill in your pocket, is your net debt $100?  Or is it zero?

   Why then is the U.S. Govt. treated differently?

  It beats me.  The whole U.S. debt ceiling crisis is a sham, a misunderstanding.

  That won’t prevent global capital markets from a major nervous breakdown, come August 2 and no agreement. 

    There is simply no end to the ways the world of finance complicates matters, to mystify innocent bystanders.  We are heading for a global crisis, because the way America’s public debt is defined is misguided, mistaken, misinterpreted and wrongheaded.

     Can someone please explain this to the Republicans? 

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Global Crisis/Innovation Blog

Euro Crisis: Italy is the REAL Problem!

By Shlomo Maital

       If  little Greece (11 m. people) and tiny Ireland (6 m. people) rattled Europe’s windows, because of their debts, Italy is about to blow up Europe’s shaky house.  Here is why.  Italy is huge (60 m. people, $2 trillion economy,  $34,000 per capita GDP), and nearly bankrupt.  Italy has the world’s third largest bond market, and its public debt is 120 per cent of GDP.  (The comparable figure for Greece was 115 per cent in 2009, but that will rise to 149 per cent, says the IMF, by 2013).  According to the Financial Times:

    “Global banks’ exposure to Italy dwarfs their exposure in the three eurozone countries that have already been bailed out – Greece, Portugal and Ireland. In fact, at $262bn, the aggregate sovereign claims of foreign banks on Italy exceed  their combined sovereign exposures to Greece, Ireland, Portugal and Spain, which total about $226bn, according to research by analysts at Collins Stewart.”

 Who holds Italian Government bonds?

    “French banks hold nearly $98bn worth of Italian sovereign debt, while Germany holds $51.2bn, according to the Bank for International Settlements. Italy is such an integral part of the financial system that most developed countries have a material exposure – Japan, for example, has a sovereign exposure of $29bn, according to Collins Stewart.  Within Italy itself, about 65 per cent of domestic banks’ own equity is exposed to the sovereign [debt], according to the Bank for International Settlements.”

In other words: Default by Italy on its bonds will bring down Italian banks, and severely shake banks in France and in Germany. 

      How close is Italy to default?  Close.  In the past few days, interest rates on Italian bonds have risen to three percentage points higher than rates on German bonds.  Why? According to The Economist, “this week’s anxiety was caused in part by a quarrel between Silvio Berlusconi, the prime minister, and Giulio Tremonti, the finance minister, and by uncertainty over the passage of an austerity budget.”  

    What a superb time for Italy’s skirt-chasing Prime Minister to quarrel with his Finance Minister.  The $68 b. budget cut passed Italy’s Parliament – but its shaky government and embattled PM bode ill. 

     While everyone watches Greece, Italy has begun a dangerous slide down the slippery slope of higher interest rates, rising risk premiums and increasing difficulty to recycle its bonds. According to one expert, if the risk premium on Italian Government bonds rises to 5 percentage points above German bunds, Italy will be bankrupt.  Right now, the gap is 3.  It is worth thinking carefully what it might mean if Italy needs a bailout. Who will bail it out?  By how much? What will be the terms?  I expect a lot of European bankers and officials are losing a lot of sleep over Italy.  Greece, in comparison, will seem like a tea party.

 

Global Crisis/Innovation Blog

When Millions Die of Hunger and Thirst – Do We Care?

By Shlomo Maital

 Somali refugee: “I don’t know what to do!”   

I write this, sitting in a comfortable easy chair, watching TV and sipping a cold drink.  What I am watching is the unfathomable misery of millions of Somalis, who are helpless in the face of drought and civil war. 

  According to the website Huffpost, 

   “the head of the U.N. refugee agency, Antonio Guterres, speaking in Dadaab, Kenya,  said Sunday that drought-ridden Somalia is the “worst humanitarian disaster” in the world after meeting with refugees who endured unspeakable hardship to reach the world’s largest refugee camp.  The Kenyan camp, Dadaab, is overflowing with tens of thousands of newly arrived refugees forced into the camp by the parched landscape in the region where Somalia, Ethiopia and Kenya meet. The World Food Program estimates that 10 million people already need humanitarian aid. The U.N. Children’s Fund estimates that more than 2 million children are malnourished and in need of lifesaving action.”

  There are already 390,000 people in the camp, whose maximum capacity is only 90,000.  Kenya is reluctant to admit any more refugees from Somalia.  And Somali radical Muslim gangs – the Shabab – kill UN personnel who dare to enter Somalia to offer humanitarian aid. 

        “Guterres spoke with a Somalia mother who lost three of her children during a 35-day walk to reach the camp. Guterres said Dadaab holds “the poorest of the poor and the most vulnerable of the vulnerable.” “I became a bit insane after I lost them,” said the mother, Muslima Aden. “I lost them in different times on my way.” Guterres is on a tour of the region to highlight the dire need. On Thursday he was in the Ethiopian camp of Dollo Ado, a camp that is also overflowing.”

   Somalia is abysmally poor, ranking 224th in the world in per capita income. It achieved independence in 1960, and has been torn by civil war since 1991.  It is a nation essentially without a government.  It is bordered by Djibouti, Kenya and Ethiopia. Ethiopia at times has sent soldiers into Somalia, to establish some order, but it was futile.      

    Scenes on TV from Dadaab are horrendous. Yet I wish there were far more.  I wish they would be shown every single night, to wake up the world.   As world population touches 7 billion, and as climate change produces terrible droughts on several continents, I fear Somalia is only the first act in a long series of tragedies.   I don’t see how any of us can remain comfortable or complacent, in the face of such horrible suffering.   

Global Crisis/Innovation Blog

How to Play the China Card

By Shlomo Maital

    China’s economy grew by 9.5% in the year to the second quarter,  cooling slightly.   As America struggles with 9.2 per cent unemployment, and Europe seems impotent to resolve the euro crisis now spreading to Italy,  China’s market seems one of the few places where new and old businesses can find growth.

   But where? And how?

   A new McKinsey   report provides suggestions, from their office in Shanghai. Here are some of their recommendations, based on five key sectors:

  • New strategic industries are singled out for global leadership.
  •  Domestic-consumption engines drive consumer growth in the homeland.
  •  Restructurers are under government mandate to change.
  •  Reinventors are mature industries that must innovate and reinvest to close the gap with global leaders.
  •  Social utilities are large state-owned enterprises managing significant components of the national infrastructure.

    Here’s what they mean. China wants to dominate biotech and cleantech. This area will get high priority and ample funding. If this is your line, China is your (gold)mine.   Airlines, food, pharma, shipping, tourism – these are domestic consumption engines, which will boom as the Chinese middle class expands and spends. To win here, you have to offer products precisely tailored to the Chinese middle class and its rapidly changing tastes. They seek global brands, prestige, quality and fair prices.  Real estate and banking are both shaky. China’s government wants to restructure them, reinvent risk management models, and stress affordable housing. If you have expertise in these areas, you can do well in China.  China has a lot of mature manufacturers who need to upgrade.  If you have productivity tools to help them, you can prosper in China. China’s infrastructure – power, railroads, roads, communications – are state-run, often poorly. China’s government knows this and seeks ways to upgrade the management of its infrastructure, as it spends billions on the physical infrastructure itself.

   China’s 12th Five-Year-Plan is worth reading carefully. It offers massive business opportunities for those who know how to imagine, move..and scale.  And China has scale in spades.

Guangyu Li and Jonathan Woetzel , “What China’s five-year plan means for business”, McKinsey Quarterly,  July 2011.

Global Crisis/Innovation Blog

The Euro Crisis for the Fifth Grade

 By Shlomo Maital

  In Europe, the answer is definitely, No!     

 

Are you smarter than a fifth grader?  This is the name of a popular US TV show, that matches adults’ knowledge against that of kids.  More often than not, the kids win.  Today, in Europe,  we can ask the leaders of Europe –  European Central Bank, the leaders of France and Germany, and others – whether they are as smart as fifth grader.  The answer is a resounding no!      

      Here is my effort to explain the current euro crisis to fifth graders.    If you’re i12 years old, n fifth grade and want to rescue the euro (and the world) from spineless scoundrels, please, contact me.   If you cannot explain something well enough so a 12-year-old can understand it, you probably don’t understand it well enough yourself.

       Every country has its own kind of money. Europe’s money is called the ‘euro’.  A lot of people are worried about the euro.  Here is why.  Some countries in Europe are in trouble.  This is because a country, even though it is big, is just like you and me. When you spend more than your weekly allowance, sometimes you can borrow from your mom or dad. But then you owe money. Because they keep track. And next week, when you get your allowance, you have to pay back what you owe. That leaves you with a lot less money for movies or treats. Sometimes you might not have ANY money that week. That is real trouble.  Countries, too, borrow money. Then they have to pay it back.  To pay back what they owe, they often borrow more.  But, what if nobody wants to lend them money?  Like, what if your mom and dad refused to lend you money against next week’s allowance? Countries can’t get along without borrowing money. In Europe, countries like Ireland, Portugal, Italy, Spain and now Greece have borrowed too much.  Some of what they owe has to be paid back soon. To pay it back, because they have no money, they have to borrow more. But what if nobody will lend to them? What if people are afraid that if they lend to them, they won’t get their money back?  What if there are rumors that these countries are broke and can’t pay back what they owe?  The rumors themselves worsen the problem, because they make it even harder for countries to borrow.  When you borrow too much, your mom and dad say, hey, get real.  Stop wasting money.  When countries borrow too much, they have to say to themselves, too,   hey, get real – stop spending and borrowing so much.  But this is really hard.  Nobody likes to hear those words, and sometimes the country’s leaders don’t want to say them, because people get mad and don’t vote for them.  So in Europe some countries have to go to their ‘mom and dad’ (the bigger countries in Europe that do have lots and lots of money, like Germany and France) and ask for emergency help.  Like mom and dad, the rich countries in Europe say, sure, but first, get real! Cut your spending!  And then the people of these countries in trouble get real upset, because they can’t buy all the great stuff they used to buy, with the borrowing.  Now, your mom and dad can tell you what to do, more or less. But in Europe, the rich countries don’t seem to be very good at telling the countries in trouble what to do.  Just like you may say to your mom and dad, come on folks, you have oodles of money, why don’t you give me some of it?  — so  these poor countries in Europe say, hey, rich countries, help me out!  Just forget I owe you all that money, or at least some of it.  And the rich countries say,  uh uh!  No way!  If we do that, you’ll never change, you’ll never learn to handle money properly – just like your mom and dad.  Grow up!  So that’s where things stand. And the real problem is, nobody seems to have enough brains, like a fifth-grader, to realize that the problem has to be solved once and for all, it cannot go on like this.  Neither the rich countries (the moms and dads), nor the poor countries (the fifth-graders who borrowed too much against their allowances) seem very good at discussing things and reaching a deal that is fair for both sides.   Maybe we should send some real fifth-graders to knock sense into both sides.  They can’t do any worse than the bunglers who are running things today.

Global Crisis/Innovation Blog

How to Kill a 168-year-old Business Without Trying: Murdoch, Sleaze and the Zimbardo Prison Experiment

 By Shlomo Maital

 News of the World: Last Issue.  No Thank You!

 What in the world is the connection between a 40-year-old psychology experiment, that continues to haunt the experimenter, distinguished psychologist Phillip Zimbardo,  and Sunday’s closing of the sleazy yellow tabloid News of the World, after 168 years of continuous operation?

   Let’s start with London’s News of the World, owned by media tycoon Rupert Murdoch, who owns News Corp.   Journalists tapped into the phone of a murdered teenager and erased messages, to keep the story alive and sell newspapers.  Writing about the mess, New York Times columnist Joe Nocera comments, “Reporters who work at pressure-packed scandal sheets quickly become inured to crossing lines and destroying lives; it’s what they do. On the other hand, it’s still hard to believe that not a single reporter or editor at The News of the World had the sense to realize that tapping into the cellphone of a murdered teenager was deeply wrong.”

   Now back to Zimbardo. 

   In his Stanford prison experiment, run from August 14th to 20th 1971 , twenty-four students were selected out of 75 to play the role of  prisoners and live in a mock prison in the basement of the Stanford psychology building, while others were told to play ‘officers’ and  torture the prisoners.    Roles were assigned randomly. The participants adapted to their roles well beyond what even Zimbardo himself expected, leading the “Officers”   ultimately to subject some of the prisoners to torture.  Many of the prisoners developed passive attitudes and accepted physical abuse, and, at the request of the guards, readily inflicted punishment on other prisoners who attempted to stop it.    The entire experiment was abruptly stopped after only six days. The experimental process and the results remain controversial.   

  Zimbardo was surprised that when told to play a role of prison guard and officer, including torture, many of the subjects agreed.  He has found it hard to live down being known as the “prison guy” for the last forty years, and has developed a training program to help young people to defy the ‘everybody does it’ rationale of immoral behavior and instead, act as responsible moral leaders.   Rupert Murdoch should enroll.

   Why did not a single News of the World reporter blow the whistle, protest, inform the police that a serious crime had been committed?   It was the ‘prison’ mentality,  ‘this is what we do, this is how we act, this is the norm, if you’re one of us, you better fall in line’.  The Zimbardo experiment’s result shows the obedience of people, their readiness to do evil, when provided with a legitimizing ideology and social and institutional support.

     Who created this mentality?  Tycoon Rupert Murdoch himself.  He will escape unscathed.  After closing News of the World – not because his conscience troubled him, but because the paper lost its advertisers and hence had no business raison d’etre —   he will likely (and soon) launch a new scandal sheet under a different name, probably equally profitable and equally devoid of ethics.  Those who buy and read it are as morally blemished as he is.

Global Crisis/Innovation Blog 

 Happy Birth Day, South Sudan!

By Shlomo Maital

    

  Flag of South Sudan

Today, a new nation was born,  South Sudan,  joining 195 other independent countries.  There were joyous celebrations in the capital city, Juba.  The birth of South Sudan marks the end of a long and bitter civil war with the North, primarily Muslim, in which 2 million civilians were killed. 

   South Sudan has a flag, an army, a leader (President Salva Kiir), an anthem, all the trappings of a nation.  No doubt these symbols are hugely important for the dignity of the South Sudanese people.  But there is also desperate poverty. The life expectancy in South Sudan is a desperately-low 42 years. The infant mortality rate is 112 out of 1,000, among the highest in the world. Most of the country lives on a dollar or two a day; perhaps as many as 6 or 7 million out of the 8 million population. 

   The importance of South Sudan’s independence lies in the fact that at long last, the United Nations has shown it has at least minimal competence in bringing to an end bitter civil wars and conflicts. UN Secretary-General Ban Ki Moon was present at the independence day festivities and look especially happy.  The real test comes now.  As the euphoria of independence fades, the new nation faces immense difficulties.  It has oil wealth, but apparently its wells are beginning to dwindle. It pumps oil, but the ports, refineries and pipelines all are in the North.  So South Sudan will have to rely on, and collaborate with, its more populous, more powerful neighbor Sudan and its leader, Omar al Bashir, declared a war criminal by UN Human Rights officials.  Sudan has about 30 million people, and a well-equipped well-trained army of over 200,000 soldiers.  Its economy is growing, partly due to oil, but the people of Sudan are still desperately poor.  Sudan is the 3rd largest country in Africa, after Algeria and the Democratic Republic of Congo, with nearly 2 million kilometers of land. 

    South Sudan has a highly capable Finance Ministry.  It will face two key issues: infrastructure and foreign investment.   There has been a huge rush by oil companies to grab land and oil rights in South Sudan.  But pulling oil out of the ground does not help ordinary South Sudanese, any more than it does in oil-producing Arab nations in the Mideast and North Africa.  Will wealthy nations come to the aid of South Sudan? Will South Sudan use its oil wealth to build roads, schools, communications?  There are now 55 nations in Africa, and most face drought, poverty and internal corruption.  We all wish South Sudan well.  We wish wealthy Arab nations (South Sudan has been invited to join the Arab League, even though it is largely Christian) would donate generously.    South Sudan has declared it will exchange ambassadors with Israel. Israel knows a lot about arid-land agriculture and can help South Sudan a lot.  A small increase in the productivity of its subsistence agriculture can make a huge difference to its people. 

    Today is euphoric. Tomorrow, reality dawns.  Let us hope South Sudan and its leader Kiir will have the wisdom to educate its people and build a future of hope and peace for them.  Like people everywhere, they have earned it. 

Innovation Blog 

How Technology Helps Those with Disabilities:  iPad, GPS and more

By Shlomo Maital

  iPad SayText

 

 The latest Bloomberg Businessweek issue has an interesting article on how iPad helps those with disabilities.  I’ve also collected several examples.  The disabled are, alas, much too numerous for us to be complacent, but many too few to form a large profitable market.  And the market is fragmented, because the variety of disabilities is very large and diverse.  Nonetheless, if more bright innovative minds were put to work on this problem, the lives of many of the disabled could be changed. Here are some examples.

● “Jonathan Avila uses his iPad in ways most people might not realize are possible: The device reads e-mail to him while he’s traveling to work, tells him which way to walk when he is lost, and even lets him know if there’s a sidewalk on the other side of the street. Avila needs these features because he’s visually impaired.  “Work bought it as a testing device, but I’ve claimed it as my own since it makes me more efficient,” says Avila, chief accessibility officer for SSB Bart Group, a firm that helps companies implement technology for people with disabilities.”

●  “Dorrie Rush is marketing director of accessible technology at Lighthouse International, a nonprofit organization dedicated to fighting vision loss . She was diagnosed with early-onset macular degeneration. Twenty years later, her visual acuity is low, although she retains some peripheral vision.  “I used to be on the bus and I would see people reading the newspaper and I’d be so jealous,” Rush says. Then she bought an iPhone and downloaded the New York Times (NYT) app.  Her phone now reads the news to her on the bus each morning.” 

●  I have a friend whose startup is developing software to convert a smartphone with GPS and camera into a device that gives vocal instructions to the blind regarding where they are and how to proceed to their destination.

●  “Workers who find it difficult to speak because they have cerebral palsy or have suffered a stroke once needed to spend thousands of dollars on speech-generating devices. Instead of shelling out $3,000, they can now buy an iPad for $500 and an app called Proloquo2Go from AssistiveWare that sells for about $190.”

● “For people who need to read office memos or other printed materials, Freedom Scientific sells a scanning and reading appliance for $1,800. Alternatively, there’s a free app called SayText that uses the camera from the iPhone 4 to take a photo of a document, prompting the app to read the text aloud. The same app can be used to take photos of business cards, after which the contact info is automatically scanned and uploaded into the phone’s contact directory. Similarly, ZoomReader, an app from Ai Squared that sells for about $20, reads the text in images from the iPhone 4 camera.”

● “Identifying money can be a challenge for visually impaired or blind people because a $1 bill comes in the same size and color as a $100 bill. Reizen sells a portable money reader on Amazon.com (AMZN) for $99.95.  In March the LookTel Money Reader app was released for the iPhone, selling for just $1.99. In April the U.S. Bureau of Engraving and Printing released EyeNote, a free money reader.”

   Actually my initial statement, about how the market for disabled-assistive technologies is limited, may be wrong.  According to Rachel King,  “The global market for assistive technologies, including those used in the home, is projected to reach $40.9 billion in 2016, up from $30.5 billion this year, according to a report from BCC Research that’s scheduled to be released this month.”  Part of the reason is our aging society – the baby boomers, as they age, are going to need more and more assistive devices, and many of them have the money to pay for them.

   Innovators – can you help the hearing-impaired, visually-impaired, those unable to walk?  What better way is there to do good, and perhaps to do well, as well.

* The IPad’s Secret Abilities, by Rachel King.

 

 

Global Crisis/Innovation Blog

Robert Reich Connects the Dots: What’s Wrong with America in 200 Simple Words

By Shlomo Maital

 

  

 

  Robert B. Reich was a Harvard U. professor and Secretary of Labor under President Bill Clinton.  He is a liberal. Here is his ‘take’ on what’s wrong with America, in clear simple language, and in 200 words.  You can view his short talk on YouTube *.  Here is the text:

   “What’s the problem with the economy?   Let me connect the dots in less than 2 minutes.  

 ● Since 1980 the US economy has doubled in size, but most people’s wages have barely increased.   

● Almost all the gains have gone to the super-rich. The top 1% used to take hom 10% of total income, before 1980,  now it takes home more than 20%, and holds 40% of the nation’s  entire wealth.

 ● All this money at the top has given the super-rich political power, especially to lower their tax rates [and to keep Congress from restoring the “temporary” Bush tax cuts on the wealthy].  Before 1980, the top marginal income tax rate was 70%, now it is down to 35%, and much of the income of the wealthy is capital gains, 15% tax.  The Internal Revenue Service reports that the  richest 400 Americans pay only a 17% tax rate.

● Total tax revenues are down to 15% of the economy, the lowest in 60 years, so public services are being cut. Kids are crowded into classrooms, roads, bridges, health care, all are sacrificed.

●Instead of joining together for better wages and jobs, people are so scared, they compete with others for the remaining scraps.  Public workers fight private sector workers, native Americans fight immigrants, etc.   No longer does  the middle class have the purchasing power to get the economy going, so we have high unemployment and an anemic recovery.

   The only way to have a strong economy is to have a strong middle class. “

   And, Reich might have added, a militant united  fighting middle class, one able to stand up for its rights and vote out of office the scoundrels who deprive them of those rights.

 *  http://front.moveon.org/scribbling-sharpie-illustrates-the-truth-about-our-economy/#.TfreVdij6mH

 OR  http://www.youtube.com/watch?feature=player_embedded&v=JTzMqm2TwgE

Global Crisis/Innovation Blog

Why the iPod is Not the Apple of America’s Eye:  And Why America’s Rich Don’t Care

By Shlomo Maital

Apple’s iPod  

I’m a big fan of Chrystia Freeland, Reuters correspondent and NYT columnist.  In a recent column she supplies a set of data regarding the jobs and wealth created by Apple’s iPod, derived from an excellent study by three economists. *  My friend Paul drew my attention to it.

   Here is why iPod, and Apple in general, cannot be the Apple of America’s job creation eye.  The numbers speak for themselves.

  • In 2006, the iPod employed nearly twice as many people outside the United States as it did in the country where it was invented – 13,920 in the United States and 27,250 abroad.
  • Fewer than half of the foreign iPod jobs – 12,270 – are in China. An additional 4,750 are in the Philippines. 
  • Even though most of the iPod jobs are outside the United States, the lion’s share of the iPod salaries are in America.  Those 13,920 American workers earned nearly $750-million (U.S.). By contrast, the 27,250 non-American Apple employees took home less than $320-million.
  • However, more than half the U.S. jobs – 7,789 – went to retail and other non-professional workers, like office support staff and freight and distribution workers. But those workers earned just $220 million. More than half the American iPod jobs are relatively poorly paid and low-skilled.
  • The big winners from Apple’s innovation were the 6,101 engineers and other professional workers in the United States who made more than $525-million. That’s more than double what the U.S. non-professionals made, and significantly more than the total earnings of all of Apple’s foreign employees.
  • Most of the wealth accruing from iPod went to Apple’s American shareholders, who benefited from the cheap foreign labor and the cheap American labor.

   In a poignant p.s., Freeland quotes Keith Banks, president of U.S. Trust, the private wealth management arm of Bank of America, who has said that for his millionaire and billionaire clients, the recession was over.   Nor, Mr. Banks told her, were they overly worried by the lackluster U.S. economy or Europe’s even weaker performance. That’s because the global economy over all – powered by the emerging markets – continues to grow strongly, and Mr. Banks’s American “high-net-worth individuals” are not just U.S. citizens, but global capitalists.  My own translation: America’s “global capitalists” love screwing American workers, provided they continue to grow wealthy as a result.   I’ll bet Mr. Banks’ clients sing The Star Spangled Banner with tremendous fervor and patriotism.  And, at every opportunity, they insist that America is the greatest country in the world [for them!].      

­­­_____

Greg Linden, Jason Dedrick and Kenneth Kraemer,  “Innovation and Job Creation in a Global Economy: The Case of Apple’s iPod,”   The Journal of International Commerce and Economics, May 2011.

 

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