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Apple BIGGER than the U.S. ECONOMY? Or Australia? Or ... Luxembourg?

iThing event horizon actually not that close

By Tim Worstall, 28 Apr 2015

Analysis Apple's results are out - and it's time for the traditional game of trying to work out how much richer than which country the company is. With sales at $58 billion for the quarter, profits of $13.7 billion and depending upon how absurd we want to make our method of measurement this makes it the same as the US economy, the size of Ireland or Pakistan, that of Luxembourg or some 0.35% of the US economy.

Steve Jobs figure from InIcons

You know about Jobsian products, axioms etc. But do you know about Jobbesian ones?

If we use the Worstall Method, as we did with Facebook, we'll end up insisting that Apple is now near the size of the US economy and thus the iPhone Event Horizon is truly upon us. There is nothing left for human society but to cheer ouselves out of depression by purchasing ever more Jesusmobe bling, meaning that nothing else is viable to produce, depressing us into purchasing ever more shiny shiny.

This would also be the wrong way to measure it.

Back then, with Facebitch, we were noting that we value the contribution to the society, as recorded in the GDP figures, by the amount of ad slinging that was being done. That ad slinging isn't the consumer surplus being enjoyed by site users. Further, we noted that the consumer surplus on most goods is about twice what consumers pay for them. But that doesn't really work for things where the consumer gets it for free, the advertisers paying for them to get it. And the top end of our estimate was that Facebitch is worth 64 times its recorded contribution to GDP. So, Apple, at a $240 billion per year run rate is worth $15 trillion or close enough to the US GDP of $17 trillion that that's what we'll call it.

Apple is now the size of the entire US.

This is, of course, wrong. Apple consumers pay for their bling directly thus the consumer surplus is only twice sales and so Yah! Boo! to the Worstall Method here.

Which gives us Ireland or Pakistan as comparators. GDP of both countries is around the $240, $250 billion range, Apple's turnover is about that, so - see - the same! Except here we come up against what is this GDP that we are defining. And (whatever the slight changes in definition, gross, net, domestic, national, product, income) what we're actually trying to measure here is value added, not turnover. As an example, the turnover of the foreign exchange markets in London alone is $1.5 trillion a day and up. Yet the total GDP of the UK is £1.7 trillion and whatever the $/£ exchange rate we're obviously not including 250 banking days a year of that turnover in GDP.

What we are including is the profits made from doing so plus the wages of those doing the doing. Thus when we look at the “economic size” of a company we should look at profits plus wages paid.

For Apple, well, wages have been variously estimated at $8 and $13 billion a year by different people and profits are now $14 billion a quarter. Call it, to the standard of accuracy required here, in the $60 to $70 billion range.

Yep, for a company that's still a “Whoa! Fuck!” sized amount. And this is close to the GDP of a country, just not a very big one. Luxembourg, in fact.

And that really shouldn't be all that much of a surprise. Because both the country and the company are a couple of hundred thousand rich world people going to work for a living and we are trying to measure the value add of their doing so. And the value add of going to work is what makes a place a rich world country. So, we rather expect the value add of any random group of rich world people to be about the same.

Because they're all rich world people, see?

So a Genius is only half as good as a Luxem-bourgeois?

Luxembourg, last census, apparently had 400,000 people. About half of whom are not economically active (pensioners, children, stay at home housewives, actually, that percentage might be higher given the place's skewed age distribution) so call it 200k people working.

Apple's got a bit under 100,000 people working in the company (all those at Foxconn etc are not part of Apple's value add).

OK, so the value add per worker at Apple is double or so that in a rich country like Luxembourg. But we're still within hailing distance of each other with these two numbers. The value add of 100k rich world workers is going to be closeish to the value add of another 100k rich world workers. Because their being rich world workers defines them as being so.

From Australia we've yet another comparison:

Could Apple soon be bigger than Australia?

The tech giant's latest financial results show its market capitalisation – the value of all of its stocks – is worth roughly $980 billion. By comparison, the size of Australia's economy is worth $1.58 trillion, by gross domestic product.

Err, no. The share price is the net present value of all future income. GDP is the value of the current year's value added. Maybe it's the standing on their heads all day that causes this. For we really just don't compare flows to stocks in this manner. That's like comparing this month's wage packet with total lifetime income. There's a connection but not a terribly enlightening one.

Or we could use something from Willem Buiter, who a few years back said that the contribution of The City (by which he meant the wholesale financial markets, not the domestic banks nor the legal, accounting etc support network) was about £60 billion, or 4 per cent of the UK's GDP. Not the same but close enough to our $60/70 billion stylee Apple measure of GDP.

Steve Jobs memorial in Russia

In the grim post-iPhone/Pad/Watch Event Horizon world, this man is plainly on his way to work in an Apple Store, the only kind of business that it is economically feasible to run

We've also had El Reg's valiant attempt to predict when the iPhone Event Horizon will arrive.

Which is ever so slightly marred by failing to account for imports. An import, in the GDP figures, is a reduction in GDP. So, the contribution to US GDP made by Apple is not turnover, it's turnover minus imports. Or, as it happens, the same as Apple's profits plus wage bill, as it doesn't manufacture much in the US. And just as a boring technical note, all of Apple's profits, globally, are part of US GNP as correctly recorded and as the US incorrectly does it they're also part of US GDP. Wages belong to whichever country they're paid in but let's not try going to that level of detail.

Which brings us right back to that $60/70 billion sort of range as Apple's contribution to US GDP.

Which really is, for one company, truly a “Whoa, Fuck!” number. But in the context of US GDP of some $17 trillion it's, umm, well, it's 0.35 per cent or so. That event horizon where there's nothing left but Jobbesian* competition for blingphones and wristjobs is still some way off. ®

[*This is of course different to Jobsian. Perhaps we might speak of the post-iPhone Event Horizon society as having fallen into a Jobbesian trap. -Ed]

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