Symbolic Logic: Apple's New $1 Billion, 500, 000 Sq Ft Data Center Added 50 Jobs to the Economy

It's so big it can be seen from space. It cost $1 billion to build. And its opening added exactly 50 new jobs to the nation's economy.

So this building in rural western North Carolina symbolizes the problem the world is confronting. Technology and globalization are providing new opportunities for business as new products are developed and new markets are opened. But those very same factors limit the number of jobs being created - to replace the ones being lost to progress.

This does not mean that a New Era Luddite movement is upon us. But it does suggest that business must be realistic about income levels and consumer demand for the economy of the future in which they are investing now. Henry Ford understood that he had to make his innovation affordable.

It will take a while - perhaps as much as a generation - for the economy to adapt to the technology both driving and constraining it. Governments and their political leaders must also come to terms with this reality. Talk of austerity may be morally satisfying, but it may reflect ignorance of the implications for those who tout it. JL

Henry Blodget comments in Business Insider:

Optimists argue that the solution to the US's sky-high unemployment and income inequality is more companies like Apple--the resurgent tech company that has revolutionized the digital industry and become one of the most valuable companies in the world.

Apple has not not only created amazing, beloved products. It has created enormous profits, vast shareholder wealth, and more than 60,000 jobs. And it is true that having more companies like Apple would certainly help the US. But we would need a lot more companies like Apple to make a dent in our unemployment and inequality problems

Why?

Because Apple also actually exemplifies some of the reasons why we have such huge unemployment and inequality problems: "Digital" businesses like Apple employ far fewer people (per profit) than traditional manufacturing businesses.

Apple's 60,000+ jobs are not just in the US--they're spread around the world.
Apple's extraordinary ~25% profit margin means that the benefits of its success accrue primarily to a relatively small group of shareholders rather than a broad base of employees.

To put this in context, the Economist recently noted that Apple, Amazon, and Google together employ 113,000 people--which is less than 1/3rd as many as a single American success-story from the prior generation, GM, employed in 1980.

A striking example of this phenomenon is Apple's new data center in North Carolina.

Like other North Carolina foothills towns, Maiden was once a thriving home of textile mills and furniture makers. Now it's struggling, with an unemployment rate near 13%.

In the prior generation of American companies, the decision by Apple to locate a huge new facility in Maiden would have been transformative for the town. This is one reason Maiden lured Apple with major tax breaks and crowed about the company's decision to put a data center there.

But as Michael Rosenwald of the Washington Post reports, Apple's new data center in Maiden will create only 50 full-time jobs.

And most of them won't go to Maiden residents, who lack the necessary skills.

The same can be said for the data centers that Google and Facebook and other companies have recently built in the North Carolina foothills. They're helpful, certainly, and the towns and residents are better off with them than they would be without them, but they don't make as much of a difference to the local economies as major manufacturing factories would have.

Most of the "manufacturing" jobs of these companies, meanwhile, are either super-high-tech software programming jobs or contract assembly work outsourced to China and other countries. And even in those countries, companies like Foxconn are working hard to replace labor with more efficient machinery.

Unlike many companies in the hardware and software manufacturing business, Apple's profit margins are high enough for it to be able to afford to make some of its products in the U.S., if it chose to do so. (Apple's margins could be cut in half, and it would still be more profitable than other hardware manufacturers like Dell).

But, for now, Apple has chosen to manufacture its products where it can manufacture them most efficiently--outside the U.S. And Apple's shareholders are benefitting accordingly.

(Importantly, Apple has every right to do that. Like it or not, we live in a global economy now, and Apple sells its products around the world. Chinese citizens need jobs as much as American citizens do, if not more so. Beating up a company for "shipping jobs overseas" smacks of an antique worldview, one that simply doesn't apply to today's economy.)

But the point is that the hope that a few more companies like Apple, Google, and Amazon will restore the U.S. economy to its former glory is misplaced.

The companies create amazing products and vast shareholder wealth, but they don't spread this wealth around as much as earlier industrial giants did. We can talk all we want about how we need to "retrain" our workforce to do high-tech jobs, but even under the best of circumstances, the process will take a long, long time. And until global manufacturing pay-scales get closer to equilibrium--which will likely be accomplished by China's rising and ours falling--companies will still have an overwhelming incentive to build their products where labor costs are cheaper.

So, yes, we should celebrate the success of Apple, Google, Facebook, and Amazon. But we shouldn't delude ourselves into thinking they're going to solve our unemployment or inequality problems.