Arnold Kling  

The Ingredients and the Recipes

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The Preponderance of the Evide... Overconfidence...

Hal Varian describes a study that gives insight into the details of globalization.


Even though Chinese workers contribute only about 1 percent of the value of the iPod, the export of a finished iPod to the United States directly contributes about $150 to our bilateral trade deficit with the Chinese.

...The real value of the iPod doesn’t lie in its parts or even in putting those parts together. The bulk of the iPod’s value is in the conception and design of the iPod. That is why Apple gets $80 for each of these video iPods it sells, which is by far the largest piece of value added in the entire supply chain.

Those clever folks at Apple figured out how to combine 451 mostly generic parts into a valuable product. They may not make the iPod, but they created it. In the end, that’s what really matters.


I could have used this example in a talk I just gave at a conference given by the Foundation for Research in the Economy and the Environment. I said that if the world is a kitchen, the value is in the recipes, much more than in the ingredients.

I pointed out that if you dropped me alone in the middle of a forest rich with fish, game and edible plants, I would still starve, because of my lack of knowhow. I would even starve if left alone on a productive farm. I owe my wealth to my own knowledge of recipes (broadly defined to include recipes for using statistics, for finding business partners, using the Internet, etc.) along with the recipes for trade that enable us to benefit from recipes known by others.


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CATEGORIES: International Trade



TRACKBACKS (3 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/726
The author at Trade Diversion in a related article titled Globalization & iPods writes:
    Hal Varian in the NYT: Who makes the Apple iPod? Here’s a hint: It is not Apple. The company outsources the entire manufacture of the device to a number of Asian enterprises, among them Asustek, Inventec Appliances and Foxconn. But this list of compa... [Tracked on June 28, 2007 8:51 AM]
COMMENTS (4 to date)
Eric Falkenstein writes:

or...in music, value is in the composition, not the notes. As my erzatz-Successories poster says: just because you're necessary doesn't mean you're important.

Buzzcut writes:

Just to clarify, does the $150 get accounted towards China's trade deficit? How are the profits that get sent back to Apple accounted for in the trade stats?

Steve Sailer writes:

"Those clever folks at Apple figured out how to combine 451 mostly generic parts into a valuable product. They may not make the iPod, but they created it. In the end, that’s what really matters."

Sure, but what if you, like the average American, is not a clever person?

Ravenor writes:

I like to put it this way: there will never be shortages of resources in the world, but only shortages of human creativity and inspiration...

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