Why Postmodern Capitalism Is Different

A blog about business and economics.
June 21 2013 9:30 AM

What Makes Apple, Google, and Microsoft Different From the Corporate Titans of Yesteryear

These guys would love to invest billions in great new products, they just don't know how.
These guys would love to invest billions in great new products, they just don't know how.

Photo by David Becker/Getty Images

Paul Krugman's column title today is "Profits Without Production," which I think is right on, but a lot of his text ends up focusing on what I think is a side-issue of alleged monopoly rents:

Since profits are high while borrowing costs are low, why aren’t we seeing a boom in business investment? And, no, investment isn’t depressed because President Obama has hurt the feelings of business leaders or because they’re terrified by the prospect of universal health insurance.
Well, there’s no puzzle here if rising profits reflect rents, not returns on investment. A monopolist can, after all, be highly profitable yet see no good reason to expand its productive capacity. And Apple again provides a case in point: It is hugely profitable, yet it’s sitting on a giant pile of cash, which it evidently sees no need to reinvest in its business.
Advertisement

The problem here is that Apple isn't a monopolist in any conventional sense. The vast majority of personal computer owners do not own a Macintosh. The vast majority of smartphone owners do not own an iPhone. The iPad does have a (contested) majority of the tablet market, but this is a rapidly growing market and Apple most definitely is seeking to expand its productive capacity. 

I would point to two different issues. One is that Steve Ballmer or Tim Cook can't exactly get his executive team together and say "interest rates are low, let's go buy $20 billion worth of innovative new product categories" in the same way that Southwest Airlines can decide to go buy a bunch of new planes. If you want to "invest" in growth, all you can do is buy whole companies, and that's exactly what's happening. But it's also not obvious to me that Apple or Microsoft or Google actually is facing low interest rates. The relevant interest rate for investment decision purposes is the real interest rate, and computer-intensive firms are making investment decisions in a strongly deflationary environment. Even at Apple's super-low nominal borrowing costs, the real interest rate involved in building a server farm might be astronomical.

In theory, this is what we have a banking sector for. Apple can make profits selling smartphones and then the banking system reallocates those funds to different firms who have promising investment opportunities—Apple doesn't need to invest its own profits for the profits to recycle through the system.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

Foreigners

More Than Scottish Pride

Scotland’s referendum isn’t about nationalism. It’s about a system that failed, and a new generation looking to take a chance on itself. 

What Charles Barkley Gets Wrong About Corporal Punishment and Black Culture

Why Greenland’s “Dark Snow” Should Worry You

Three Talented Actresses in Three Terrible New Shows

Why Do Some People See the Virgin Mary in Grilled Cheese?

The science that explains the human need to find meaning in coincidences.

Jurisprudence

Happy Constitution Day!

Too bad it’s almost certainly unconstitutional.

Is It Worth Paying Full Price for the iPhone 6 to Keep Your Unlimited Data Plan? We Crunch the Numbers.

What to Do if You Literally Get a Bug in Your Ear

  News & Politics
Weigel
Sept. 16 2014 7:03 PM Kansas Secretary of State Loses Battle to Protect Senator From Tough Race
  Business
Moneybox
Sept. 16 2014 2:35 PM Germany’s Nationwide Ban on Uber Lasted All of Two Weeks
  Life
The Vault
Sept. 16 2014 12:15 PM “Human Life Is Frightfully Cheap”: A 1900 Petition to Make Lynching a Federal Offense
  Double X
The XX Factor
Sept. 15 2014 3:31 PM My Year As an Abortion Doula
  Slate Plus
Slate Plus Video
Sept. 16 2014 2:06 PM A Farewell From Emily Bazelon The former senior editor talks about her very first Slate pitch and says goodbye to the magazine.
  Arts
Brow Beat
Sept. 16 2014 8:43 PM This 17-Minute Tribute to David Fincher Is the Perfect Preparation for Gone Girl
  Technology
Future Tense
Sept. 16 2014 6:40 PM This iPhone 6 Feature Will Change Weather Forecasting
  Health & Science
Science
Sept. 16 2014 1:39 PM The Case of the Missing Cerebellum How did a Chinese woman live 24 years missing part of her brain?
  Sports
Sports Nut
Sept. 15 2014 8:41 PM You’re Cut, Adrian Peterson Why fantasy football owners should release the Minnesota Vikings star.