Sunday, December 25, 2011

Distribution of Profits - ideas come first

One key concept in the new globalized world is how important ideas have become.   These two charts demonstrate that fact clearly.   The first is for the iPhone.  It divides all of the inputs into the creation of the iPad and iPhone among all the people in the chain that makes the product - from idea to manufacture and distribution.

In products like these the design takes place among Apple employees in California.  For the phone the device is then manufactured in Asia and then distributed throughout the world.   The carriers that provide the phone service derive some of the profits, so do the retailers.   But in the end the largest share of profits come from the ideas.

For the iPad the distribution is a bit different and the parts are a bit more expensive.  So the distribution of profits are a bit more distributed.

Politicians in Washington keep yammering about keeping production in the US and the supposed loss of our manufacturing base (although there is plenty of evidence that the US manufacturing base is beginning to come back as the value added of US manufacturing becomes more apparent).   What they should be concentrating on is assuring that we have the educated workforce that can continue to provide these benefits to our society - that takes a first class educational system - and at least in the K-12 arena - there is plenty of evidence that we are failing to provide that critical need.   The original graphs for this come from a paper by three economists at UC Irvine, Berkeley and Syracuse that was originally published in July of this year.

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