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What the IPOD tells you about the British economy

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In my column this morning on manufacturing (Shock news – Britain still makes things) I didn’t have space to mention one other important misconception about manufacturing: that just because something is “made in China” or somewhere else in the emerging world doesn’t necessarily mean that the money from its construction goes to that place alone. This helps explain why, in broad terms, a developed economy does not need a trade surplus (or even a balance) in order to survive.

Let’s take the iPod (or the iPhone for that matter) as an example. On the back of it it says “Designed by Apple, Made in China” or words to that effect. What this tells you is who designed it and who put it together. What it doesn’t reveal is the complex economic web that the product represents – that the cash you pay for one of them is scattered to many different countries around the world.

In a very enlightening series of papers on precisely this, a team of US academics (Greg Linden, Jason Dedrick and Kenneth L. Kraemer, all of the University of California, Irvine) have found out where the money goes, and their conclusions might come as something of a surprise.

For one, although in trade statistics the Chinese export value for a unit of a 30GB video model in 2006 was about $150 (in other words for every iPod sold $150 went onto the Chinese exports ledger) Chinese producers really only “earned” around $4. China, you see, is really just the place where most of the other components that go inside the iPod are shipped and assembled. The remaining cash instead went to the US, Japan and a host of other countries (among which the UK is one) who made the parts that go inside. In other words, where the product is not necessarily where gets the lion’s share of the profits.

Read more: http://blogs.telegraph.co.uk/finance/edmun...conomic-future/



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