Apple Does it Again: Why Companies Win While Economies Lose

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As Washington continues to skate perilously close to the economic abyss, 3,000 miles away in Cupertino, California, this week Apple released its results for the second quarter. To no one’s surprise but to almost universal amazement, Apple managed to sell more iPads (9.3 million) and iPhones (20.3 million) than ever before. Quarterly revenues of $28 billion were up more than 80% from last year, and profits were up 125%.

And it isn’t just Apple that is thriving. IBM this week also surprised Wall Street analysts with the strength of their business, much of which comes from other large companies operating globally looking to streamline their operations with the software and analytics that IBM provides. Even American Express, which is more tied to domestic finances, has reported strong revenues and profits, with $7.5 billion in sales last quarter.

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Clearly, there is a yawning gap between a company like Apple and tens of millions of Americans who are stuck in economic second gear. The explanation for soaring corporate profits is both simple and challenging. Simple because companies increasingly inhabit their own world, “Corporateland.”That world has significant advantages: a global labor force that allows companies to find the cheapest, most efficient workers; technology that continues to make them more efficient and allow for complex and dispersed supply chains and labor arbitrage; a rapidly expanding global middle class in China, Brazil, India and dozens of other countries; cheap capital; the ability to domicile some of their profits in whatever country has the lowest tax rates; and outside of Europe, no demand that they take care of the health or retirement needs of their workers. No wonder they are able to make so much in a world where growth is choppy.

Now think of the challenges for countries and governments: They are stuck with the costs of health care and education; they are stuck with various demands for economic safety nets, whether unemployment insurance or disability pay; they have to maintain security; they have to maintain public infrastructure; and if they don’t – as is the case in countries such as Nigeria or Pakistan – they face a real struggle to attract capital and enrich the lives of citizens. The U.S. is rich compared to most of the world, but even the U.S. can’t compete with Corporateland. There is little on the horizon that will shift the momentum.

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We are likely in the early innings of the boom years of Corporateland, and the contrast with an anemic national economy in the U.S. may only grow sharper. There is a silver lining for the national economy: many of the most powerful and profitable global companies still are American and still feed back into the U.S. economy. Apple does provide jobs, from its stores to its headquarters, and so does IBM – albeit far fewer than in the 20th century. The other upside of the downside is that companies like Apple are thriving in the U.S. because even in a troubled national economy, tens of millions of people are doing well and willing to spend. Last fall, I wrote about the two jobs reports. We pay constant attention to the one released monthly by the Bureau of Labor Statistics that charts unemployment. We pay less heed to the one released quarterly by Apple’s Steve Jobs. One is not more right than the other, but they tell radically different stories of what is going on in both the domestic and global economies. One paints a grim picture of labor and flat wages; the other of a world of powerful and beautiful devices that people spend considerable money to purchase.

The fact that some are doing well shouldn’t make us less concerned about our collective challenges, but it should at least remind us that the narrative of suffering and impoverishment currently so prominent is also incomplete. Apple is a sign of domestic strength even as it shines light on the new world of Corporateland that may not have a seat at the UN but is influencing the lives of billions of people more than most states can or will in the years ahead.