How Krugman Would Ru(i)n Steve Jobs’ Apple

The Left considers Steve Jobs, the charismatic PC pioneer, a self-centered individualist, who did not conform to elite etiquette.

As Warren Buffet and Bill Gates gave away money with great fanfare, Jobs quietly devoted himself to creating value in Apple. He was conspicuously silent as Buffet recruited the super rich to argue for higher taxes. He told President Obama unwelcome truths (“Apple jobs are not coming back to America”).  He advocated school vouchers and the emphasized the importance of the family (oral history interview). He did not dash to DC to testify on the latest fad or navigate the elite cocktail party circuit. He had more important things to do.

Although Steve Jobs was a major donor to Democrat causes, his errant behavior did not sit well with the “progressive” political class. Now six months after his death at age 56, the attack on his legacy is in full swing, fueled by Apple Computer’s new status as the world’s richest corporation.

The Left’s standard bearer, Paul Krugman  snidely labels Steve Jobs (Jobs, Jobs, and Cars) the “heroic entrepreneur, the John Galt, I mean Steve Jobs-type ‘job creator’ Republicans love.”  Krugman rates Jobs’ achievements as inconsequential relative to Obama’s Detroit bailout – “the single most successful policy initiative of recent years.” Per Krugman, real heroes preserve vital “economic ecology and industrial clusters,” even if it takes taxpayer money. The heroes are not rugged individualists but union-industry-government partners, who, according to Obama’s State of the Union address, “work as a team” and “get each other’s backs.”

Krugman primary complaint is that Apple creates wealth, not jobs and doesn’t care if jobs go to Asia. (The Times chides that Jobs did not even bother to visit Apple’s “sweatshops” in China before his passing). Although Apple’s market capitalization is fifteen times GM, Krugman huffs-and-puffs at its meager  60,400 jobs worldwide compared to GM’s 252,000. Unfortunately, “almost none” of Apple’s 700,000 “indirect employees” are in America. (That seems like a pretty tricky calculation, but somehow Krugman knows the truth). In Krugman’s convoluted world, companies exist to provide jobs, not to earn returns for their owners by efficiently supplying products we  want at prices we can afford.

The Left’s disregard for Steve Jobs has deep roots that transcend specific personalities. A “heroic entrepreneur,” who creates and brings to market life-transforming products at affordable prices, challenges the Left’s familiar narrative of evil capitalists earning obscene profits by  exploiting downtrodden workers. By their narrative, the common man’s only protection is a benevolent interventionist state, which keeps the rich in check and makes them pay “their fair share.”

The Jobs narrative turns the Left’s argument on its head: We are all the beneficiaries of the wealth and consumer surpluses created by the Steve Jobs, who take for themselves only a small portion of the wealth they create. At the time of Jobs’ death Apple insiders owned only one percent of Apple stock, leaving $500 billion for outsiders.  Of even greater value are the new and innovative products (IPads, IPhones. Google, Beta blockers, endoscopic surgery, etc) they create, which improve the quality of lives and raise living standards.

Two scenarios place the competing “heroic entrepreneur versus economic ecology” narratives in context: Apple Computer versus the Apple Computer that a Krugman would create as its CEO.

First, CEO Krugman would unionize Apple employees, except engineers and professional staff.  Apple’s union contract would set favorable work rules, generous fringe and retirement benefits, implicit racial and gender quotas, last-in, first-out hiring and firing, and designated levels of domestic jobs.  The union contract would raise the wages of unionized employees to “fair” levels relative to non-unionized engineers and professionals.

Second. CEO Krugman and his board (comprised of college professors and ex-government officials) would take fixed salaries capped at one million dollars with no bonuses or stock options. They vow not to succumb to corporate greed.

Third, CEO Krugman would agree to pay Apple employees world-wide a living wage (equivalent to the U.S. minimum wage), irrespective of local wage rates. A union vote would be required on outsourcing decisions.

Fourth, CEO Krugman would agree to share Apple’s “outrageous” profits fairly.  Profits would no longer be plowed back primarily into product development. One quarter of Apple profits would be earmarked for a new company, Green Apple, to fight global warming and other ecological dangers. The rest would be shared with shareholders as dividends, employee bonuses, grants to various stakeholders, and set aside to fund a new Apple Charitable Foundation.

Fifth, CEO Krugman would form an Apple, union, and federal government partnership to redirect Apple from frivolous entertainment and networking products to applications that save energy, reduce pollution, and contribute to the general well being of mankind. Apple and union representatives agree to meet regularly with their counterparts in the energy, commerce, and transportation departments to decide on product development and financing.

Sixth, CEO Krugman would make Apple an integral partner in the economic ecology network. CEO Krugman would keep Apple business within the existing supply chain (especially if they are U.S. based) even if newcomers bid lower rates.

Seventh, CEO Krugman would protect Apple from the “misfits, rebels, the troublemakers, the round pegs in the square holes… the ones who see things differently – and not fond of rules…… who are crazy enough to think that they can change the world,” whom Jobs so admired. New products would have to be approved by a technocratic board of management, union, and government to protect stakeholders from systemic risk.

Steve Jobs would be hard pressed to recognize Apple after CEO Krugman has applied his progressive policies to it:

Its market capitalization collapsed as investors realized that unions and government are intervening in product development and that social and political objectives have replaced profit maximization. Apple’s engineers and inventors have taken their ideas to rivals or have formed their own garage companies.  The worldwide “living wage” combined with union permission to send jobs abroad has stopped foreign outsourcing, but Apple’s employment shrinks as it no longer competes in quality and price.  Consumers buy the latest high-tech gadgets from other companies and reject Green Apple’s “good-for-mankind” wares.

In a word: Krugman has turned Apple into GM. It no longer produces the products that excite entire generations. It no longer competes at the cutting edge frontier. But at least  the decadent profits are gone, the few workers employed earn fair wages and benefits, and Apple has gained a social conscience.

Not everyone is happy with Krugman’s handiwork.

The head of the Nebraska State Teachers Retirement Fund, whose Apple investment has fallen 80 percent, threatens to sue Krugman for  abrogation of fiduciary responsibility to shareholders.

The chief of police of Chongding province complains that he must post hundreds of armed guards to beat away ten thousand workers who want to earn $7.25 at Apple’s last standing assembly plant in China. Thai and Philippine authorities report that former Apple employees are working in the sex trade.

Disgruntled Apple engineers and scientists pelt Krugman with letters of resignation, complaining of Apple’s bureaucratization, indifference to new ideas, and that they earn little more than assembly-line workers.

The chair of the Senate Energy Committee invites CEO Krugman to explain why the federal government’s $500 billion investment in Apple’s “personal carbon print monitor” has been wasted.

Krugman’s “economic ecology” is like an ant colony. Each ant has a specified role. Each ant carries the same disproportionate load today as yesterday. The ant-colony supply chain functions smoothly to the admiration of the Krugmans of the world. The Steve Jobs, in contrast, create something entirely new. Tomorrow is no longer like today. As a result of their vision, ten ant colonies replace the one, and  each ant colony’s efficiency improves so that each ant has less work to do and has a higher standard of living.

The Krugmans of the world profess benevolence while actually impeding the general welfare. Our welfare depends more than anything else on the Thomas Edisons, Alexander Graham Bells, Fred Smiths, Bill Gates, Sergei Brins, and Steve Jobs because it is dependent on their innovations. Bureaucratization, regulation, private-state partnerships, protections against risk taking, group-think, homogenization, and defamation of entrepreneurial success kill the innovation goose that lays society’s golden eggs. This point, while obvious to some, escapes the notice of our most innovative minds, who routinely favor the “progressive” cause.

Paul R. Gregory is a Research Fellow, Hoover Institution Cullen Professor of Economics, University of Houston. Gregory has a regular blog http://blogs.forbes.com/paulroderickgregory/at Forbes.com