Apple's Attack on the Knowledge Economy

The New York Times has just published the latest in Charles Duhigg''s important series of pieces  on Apple and the iEconomy (see also "middle class squeezed" and "human costs," written with various coauthors).

This third article is about Apple's global effort at maximum tax avoidance.  The story is mainly about what is in effect one rich company's effort to contribute as little as possible to public coffers, but it shows how Apple's way of looking at society is creating a Bizarro world that steadily undermines its own ability to innovate.

The most important relationship in the story is between Apple and its neighboring community college, DeAnza College.

A mile and a half from Apple’s Cupertino headquarters is De Anza College, a community college that Steve Wozniak, one of Apple’s founders, attended from 1969 to 1974. Because of California’s state budget crisis, De Anza has cut more than a thousand courses and 8 percent of its faculty since 2008.

Now, De Anza faces a budget gap so large that it is confronting a “death spiral,” the school’s president, Brian Murphy, wrote to the faculty in January. Apple, of course, is not responsible for the state’s financial shortfall, which has numerous causes. But the company’s tax policies are seen by officials like Mr. Murphy as symptomatic of why the crisis exists.

“I just don’t understand it,” he said in an interview. “I’ll bet every person at Apple has a connection to De Anza. Their kids swim in our pool. Their cousins take classes here. They drive past it every day, for Pete’s sake.

“But then they do everything they can to pay as few taxes as possible.”

My Problem with Schumpeter

First, some throat-clearning, with Mr. Schumpeter at left very much in mind.

The decline of the middle class has been this blog's theme since it began in 2006. I have been interested in the self-inflicted nature of this decline, and in its social and psychological dimensions. The title of the blog expreses this angle on the problem.   The economic decline of the majority is now common knowledge.  The self-inflicted sources of the decline - not so much.

Most of my blogging since 2009 been about the decline of the foundational institution of the middle class -- college, including community college -- and about the big conceptual and storytelling errors that have gotten middle class voters to go along with the budget cuts and the loss of focus on core educational missions that have made universities increasingly less useful to the students (and faculty) who go through them.

When I consciously try to avoid this theme of public university (self) destruction, I wind up in my other obsessive area, innovation theory.    Which brings me to last week. On Thursday, in Berlin, I gave a talk at the JFK Institute called "Does Cultural Study Need Innovation Theory?" My real topic was the reverse - that innovation theory needs cultural study. This is a slightly obtuse way of saying that there are huge problems with the unchallengeable model of innovation in the US, which is founded in Joseph Schumpeter. Here's my one slide summary of what is wrong with him.

 

i just don't see anything in Schumpeter's model, with its hostility to self-governance and regular people, that is compatible with egalitarian economic development.  Why would a Schumpeterian entrepreneur care about full employment, as opposed to minimizing their own employment of people?  In this system it is inevitable for us to have an Apple Economy now where the wealthiest most admired companies practice the offshoring of jobs as a doctrinal necessity. The now-famously "squeezed middle class" is no longer the beneficiary of innovation and new levels of productivity, but its victim.   We have innovation, but we don't have innovation jobs.

Under Schumpeter, genesis is technology.  Its fountainhead is the entrepreneur, not the toiling multitude.  To a surprising extent, technology is always in opposition to labor, which it seeks to liquidate.  Schumpeter allows economists and anyone else to assume the valuelessness of people -- the valuelessness of how people like to do things.  Schumpeter enables the social darwinism that even Barack Obama has complained about.  He also enables the decoupling of labor productivity from pay, since productivity doesn't really come from labor at all.   The logical consequence is the broken relationship between productivity (up) and wages (flat) that has caused the economic decline of the middle class.

Am I blaming Schumpeter's dominant model of innovation for this decline? Yes I am. 

Looking for an alternative, the day after my own talk I went to the Berlin meeting of the George Soros-funded Institute for New Economic Thinking. More on that tomorrow.