Business

12.09.12

A Little Apple Goes a Long Way

The company is being tweaked for its relatively measly investment in U.S. manufacturing. But the impact of $100 million on the economy is nothing to sneeze at, writes Daniel Gross.

Apple CEO Tim Cook created a brief stir this week when he announced the company would be making a small investment in U.S. manufacturing. 

In an interview with Bloomberg Businessweek’s Josh Tyrangiel, Cook defended Apple’s reputation as a manufacturing outsourcer. “It’s not known well that the engine for the iPhone and iPad is made in the U.S., and many of these are also exported—the engine, the processor. The glass is made in Kentucky,” he said. “And next year we are going to bring some production to the U.S. on the Mac. We could have quickly maybe done just assembly, but it’s broader, because we wanted to do something more substantial. So we’ll literally invest over $100 million. This doesn’t mean that Apple will do it ourselves, but we’ll be working with people, and we’ll be investing our money.”

Critics were quick to note that, in the scheme of things, that’s a drop in the bucket. Apple’s annual capital-expenditures budget approaches $10 billion. And even a sizable investment in high-tech manufacturing won’t create a lot of jobs. The manufacturing plant could create about 200 permanent jobs, which seems like a paltry bang for $100 million bucks. As Paul Krugman noted, the construction of manufacturing plants in the U.S. these days often creates more jobs for robots than for people.

But we shouldn’t be so quick to dismiss Apple’s seemingly token investment in U.S. manufacturing. The overall impact on the economy—and on jobs—is likely to be far larger.

Manufacturing is different from other economic sectors. Set up a service like a hedge fund, or a consulting firm, and you’ll need a computer, an assistant, some office space (or maybe not), and a few service providers. Set up a manufacturing firm, however, and you call all sorts of other professions into action. You’ll be acquiring raw materials and shipping them out, buying and maintaining expensive machines. The jobs created go beyond the factory floor—factories hire people to do security, to install and fix the robots, to move goods to and from the factory, to feed workers and maintain the grounds. They buy a lot of electricity, heat, and water from local utilities; they purchase packaging and shipping materials; they fill up truck trailers and railcars. Long story short: when you make stuff, you end up having a pretty broad impact.

So, yes, manufacturing jobs have historically paid higher wages. But it’s really this ability to have a larger impact—the so-called “multiplier effect”—that gets the blood of economic development officials pumping. As this report from the National Association of Manufacturers suggests (see page 18), a dollar of sales of a manufactured products leads to $1.40  in output elsewhere in the economy.

And even in this age of global business, a lot of that activity tends to happen close to the home of the factory. A few years ago, the technology company NCR decided to start a factory to build ATMs and kiosks in Columbus, Ga. Part of its plan is to have as many suppliers as possible within a 250-mile radius. It’s much more efficient to do business that way, even if cheaper sources could be found overseas. And so its decision to build and assemble in Georgia means more work for safe manufacturers in North Carolina and for steel and component manufacturers around the South. The heavier the equipment, the more likely the suppliers are to be local. Wind turbines are the most extreme example. It’s really difficult to ship massive blades over long distances. So when Vestas, the Danish company that makes giant wind turbines, built production facilities in Colorado and elsewhere, it was followed by many of its suppliers.

In addition, the factory floor of Apple—or of any large high-tech manufacturers—is the wrong place to look for jobs. We live in an age of lean manufacturing and long supply chains. What happens on the floors of factories belonging to Honeywell, or General Electric, or Apple, is really assembly, not production. And that’s where Apple’s investment is likely to have an impact. Last year, I went around with GE CEO Jeff Immelt to a bunch of factories. One of the places we visited was the huge gas-turbine plant in Greenville, S.C., which makes $25 million contraptions, mostly for export. The plant employs about 3,000 people. It is highly automated and might strike a casual visitor as depopulated. But this isn’t where the action is. As Immelt told me: “For every person that is in the facility, there are eight jobs in the supply chain.”

Lean manufacturing today means spending a lot of money buying parts, materials, and services from other companies. Which is why evaluating the jobs impact of a factory today by counting heads on the factory floor would be like going to a McDonald’s and arguing that the only jobs created in the restaurant industry were the people taking and fulfilling orders.

Apple’s experience in recent years has taught us that the economic impact of its innovations doesn’t simply lie in its sales of iPhones and Macs. Yes, Apple supports a lot of jobs in factories in China. But Apple, and the economic ecosystem it has created, supports a lot of jobs in retail stores in the U.S., in accessories manufacturers, at technology firms, at app developers, and in every aspect of the publishing, media, and entertainment industry. Some are high paying; some are not. The same will hold true for Apple’s efforts to manufacture finished products in the U.S. The company’s $100 million investment is likely to lead to more economic activity and jobs. And as Friday’s employment report showed, we need all the jobs we can get in this country.

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On an October episode of The Number, Daniel Gross breaks down Apple's financial reality.