
Apple and Google embody two alternative models of capitalism - nthuser
https://www.theatlantic.com/business/archive/2017/07/apple-google-capitalism/532995/?single_page=true
======
eldavido
There is so much wrong with this article I hardly know where to begin.

First, it presumes a 19th-century separation of "capital" and "labor" where
"capital" is a bunch of greedy pigs trying their damndest to exploit labor,
with little crossover between the two groups. The modern reality is way more
complicated. Almost every member of "labor" has some form of pension, 401(k),
IRA, or personal stock holding, and even if they don't, their governments do.
Huge pension funds like CalPERS are heavily invested in the stock market,
which matters because (a) many state employees rely on them for income, and
even if you don't work for the state, (b) your taxes are directly tied to the
investment performance of these funds. Bottom line, it's complete folly to
suggest the stock market is a "rich person's problem" even if you're poor.
Anyone invested in the S&P 500 is going to have a large position (relatively)
in Apple.

Second, this article makes no mention of Google's hiring of Ruth Porat or the
recent moves to put better capital allocation processes in place. I, for one,
wish Google would behave more like Apple. I think it shows admirable restraint
that Apple can pay so much cash out without wasting it on dumb things.

Third, it's just a sloppy article in general. They make no mention of whether
the "performance" of the two includes the cash thrown off by dividends, which
in Apple's case, is significant. They also didn't mention the complex back-
story of why the Irish subsidiary is used [1], nor any of the academic finance
research suggesting that "Short-term" decision making actually benefits
investors long-term.

[1] [https://stratechery.com/2016/apples-eu-tax-problem-how-
apple...](https://stratechery.com/2016/apples-eu-tax-problem-how-apple-pays-
taxeseventually-everyone-is-a-loser/)

~~~
frgtpsswrdlame
80% of the value of stocks are held by the top 10%. The fact that 401ks which
were initially retirement plans for executives have permeated labor is an
indictment of the system. Capital owners have removed defined benefit plans
forcing labor to jump into the same boat. But make no mistake about who really
benefits from that convergence and who forced it in the first place.

~~~
eldavido
For my money I would much, much rather own shares of stock in my retirement
plan than have a state- or corporate-backed pension.

Have you seen the movie Casino? That actually happened, the Teamsters pension
fund came under control of the mob.

What about Illinois, which is facing a $120 billion pension shortfall due to
decades of accounting gimmicks?

What about the UAW guys, who were counting on pensions from the big 3?

All I'm saying is, look at how it _actually_ works, in practice, vs. how it
_could_ work, in theory. The reality is, DB plans are getting phased out
because they're too expensive to service, and too risky for employees.

You can make the argument that people aren't getting compensated enough, and
maybe that's true, but that's not an argument about DB vs. DC.

The point is, there are no certainties in this world, and if someone tells you
there are, they're lying.

~~~
Retric
And I vastly prefer the reverse. Pensions avoid the classic hopping you die
before you run out of money.

Further, money enough to cover the basics is vastly more important than
'extra'.

~~~
dv_dt
Pensions aren't portable - in the modern labor market where people are
expected to have multiple emplyers and possibly even career arcs, that's a
pretty limiting. Personally, I feel that too many pensions plans (private and
state) are at financial risk and have seen too many companies go under (wiping
out pensions), or severely cut back (changing their payouts and coverage).
Really, I'd prefer something more portable than even a 401k. Rolling over to
an IRA after you change companies is ok, but I'd really rather have savings
separated from employers to a greater degree even when it's accumulating.

~~~
taneq
That's why pensions should be provided by the government, as one of the things
paid for by all those taxes you paid over the years.

Which is why I get really mad when the current Australian government tries to
spin it that retirees are 'bludgers' and are a drain on the system when they
draw their (paltry) pensions. No, these people paid 40 years' worth of taxes
to the government, and being supported by the government after they retired
was _part of that deal_.

You can't offer to pay me tomorrow for a hamburger today, and then when I ask
for my money tomorrow, call me a beggar.

~~~
briandear
How about lowering taxes and let people be adults and plan for their own
retirement? With those 40 years of taxes invested in an index mutual fund, I’d
be a millionaire many times over rather than hoping for a paltry check each
month.

Any retirement plan dependent on government means that you will get less value
out than you put in. Think about “management fees” on an index fund – a
fraction of a percent generally. Think about the de facto management fee taken
by government – orders of magnitude more. Not to mention your return on
“investment” is rather low and you can’t pass on a government pension to your
children. So if you die at 50, the government keeps all that excess you “paid
in.” That isn’t fair. People ought to have the freedom to opt-out.

A compromise might be to require paying in to a system, but you get to direct
where that money is invested. Somewhat like a mandatory IRA. In the US, you
are forced to pay into social security – why not “force” people to have an IRA
instead? However I think the real reason that doesn’t work is that it would
make people less dependent on particular political parties – because the
government no longer has as much power over your survival. “Vote for us or
else <the other party> will cut your benefits and make you starve.

Unfortunately, with all the talk of freedom, it’s mostly just talk. Actual
freedom means being able to make your own decisions as well as living with the
good or bad consequences of those decisions.

~~~
taneq
Sure, if you're starting on that basis. But it's a different thing entirely if
you start out with an explicit deal saying "you pay 30% of your income to the
government, and you get a pension when you retire" and then after you fulfill
your part of the bargain, the government says "oh uh, that money you paid, we
spent it."

We now have mandatory superannuation contributions which work pretty much how
you're suggesting, and the government is pushing towards getting rid of
pensions in future.

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frgtpsswrdlame
It's worth mentioning on a post like this that there is no legal (or
historical) basis for the idea that maximizing shareholder value is the
primary concern of a corporation. See these two sources:

[https://hbr.org/2010/04/the-myth-of-shareholder-
capitalism](https://hbr.org/2010/04/the-myth-of-shareholder-capitalism)

[pdf]
[http://scholarship.law.cornell.edu/cgi/viewcontent.cgi?artic...](http://scholarship.law.cornell.edu/cgi/viewcontent.cgi?article=2311&context=facpub)

~~~
jpttsn
So what if there isn't? I see this trope thrown around a lot. I find it
suspiciously vacuous: it seems like an attempt to dress up political opinions
as "research."

It's as trite as saying "there is no historical basis for the idea that
getting a higher salary is the primary concern of an employee." What would
that add to a discussion about wages?

If you think corporations should do something differently, why not just say
so, and say what?

~~~
afthonos
Depending on context, it can be important. Too often, corporate behavior is
explained by saying that the “only responsibility” of a corporation is to
“maximize shareholder value”. The words “only responsibility” are not
descriptive, but prescriptive, meant to end debate about the morality of an
action. In those contexts, it's useful to know that this is a fiction and a
debating trick, not a description of law, natural or human.

~~~
jpttsn
If I say the responsibility of a corporation is to replant the rainforest, or
to expand human wisdom, or to entertain the public with a compelling narrative
of underdogs beating titans, then I'm clearly just expressing my opinion.

The question of what a company "ought to do" is obviously a question of
values, not fact.

It's just tiresome to rebut _opinions_ with "you can't prove that!" or "does
the law say so?" Of course there's no natural or human law that proves blue is
my favorite color. So what?

~~~
frgtpsswrdlame
>It's just tiresome to rebut opinions with "you can't prove that!" or "does
the law say so?"

My original comment is a rebutting of popular opinion with law, is it not?

~~~
jpttsn
I don't think so; you're rebutting a popular opinion with the _absence of law_
as your argument.

Like arguing that "there's no law that says the main character in a movie
should be relatable."

Technically, of course, you're right. Yet I suspect stressing that fact is a
straw man argument.

Who really believes companies are _legally_ obligated to maximize shareholder
value?

------
skywhopper
I'm disappointed that two other large pieces of the economic puzzle are left
out: workers and government. Corporations have more cash than they know what
to do with? That means that 1) wages are too low, and 2) taxes are too low.

More specific to Apple's case, the hoarding of cash overseas to avoid paying
US taxes on it is one of many poisonous symptoms of our international
capitalism. The amount of tax Apple would pay if those profits did come to the
US would make a not-inconsequential dent in the federal deficit. The whole
take-on-debt-to-pay-dividends strategy is so skeevy that while I don't doubt
it's legal, it's very questionably ethical.

All that said, I think US tax policy contributes to the problem. During the
Bush administration, an effort was made to argue that taxes on dividends
amounted to double taxation because the corporation had already paid taxes on
that money, so why should the investors also pay tax on it. And while dividend
income was not made tax free, it is now (or at least was for a while, I
haven't kept up) taxed at a significantly lower rate than "earned" income. But
the fix that makes the most sense to me, and which would solve Apple's
problem, is to exempt corporations from paying taxes on the money they then
pay out as dividends, and tax the individuals earning the dividends their
normal marginal tax rate. This would encourage corporations to pay more
dividends, end the "double" taxation, solve some percentage of off-shore
hoarding, increase US government revenue, and put more money into the economy
and not in corporate bank accounts.

~~~
krick
I guess this may be not popular opinion here, but I don't see anything wrong
with legally avoiding taxes. It might be wrong that the whole system is
convoluted enough that this would be very hard for your average honest
citizen, but easy enough for resourceful corporation, if anything. But
avoiding taxes seems only logical, if you think you can manage and allocate
resources better than your government. And rest assured: somebody always does.

So the reward inequality of the people who make wealth seems a larger concern
here. But then, if everybody makes lots of money in capitalistic system --
nobody really does.

So, no, I'm pretty sure that system is corrupt in its essence, but is working
just as intended too.

~~~
robotresearcher
> if you think you can manage and allocate resources better than your
> government.

This phrase gets used from time to time to give some moral or net efficiency
argument for avoiding taxes. I don't think it's useful. A corporation and
government have completely different responsibilities and constituencies. Of
course Apple can allocate resources better _for Apple_ than the government
would choose to, because Apple has no duty to care about most of the issues
the government is tasked with.

> And rest assured: somebody always does.

We only have to consider the bizarrely inefficient US healthcare system
compared to the rest of the developed world to see that 'always' is not true.

~~~
luxuryballs
The other side of the coin is that regardless of who is holding the money the
government not being able to spend it could be considered a better allocation
just because they are so damn wasteful. Just because the government SHOULD be
correct doesn't mean it actually is, and just because a law says money shall
be allocated for X doesn't mean any real value is coming out of X, and the
work the money is doing by being kept away from the government should also be
considered as a loss when paying for X (so more than just the cost of X is
spent).

~~~
robotresearcher
Again, that claim is easily refuted by considering the state of medical
spending in the US.

Unless by 'government' you mean only the US government. Many other governments
are daily demonstrating their ability to deliver more affordable and cost-
effective healthcare than the US.

~~~
conanbatt
> Again, that claim is easily refuted by considering the state of medical
> spending in the US

One could argue that the medical system the us has right now is inefficient
BECAUSE of the current legislation. It is a very regulated industry, it hasnt
gotten to this point because of its unregulated capitalism.

------
jtraffic
> they embody two alternative models of capitalism, and the one that wins out
> will shape the future of the economy.

Even in such a vague form, this is a touch sensationalist. The impact of 'the
one that wins' may be negligible. There also may be no winner.

~~~
MR4D
I originally thought that too, until I read through the entire article.
Technically, the "one" that wins is not the company, but the style of how they
treat shareholders.

Effectively, these two companies embody fairly different points on the
spectrum of shareholder control: Google being effectively a public closely-
held company; Apple being a public widely-held company. True, Google has
millions of shareholders, but the _control_ is closely held, hence why I am
using that term.

The control that shareholders (and activists and raiders) can have on Apple is
significantly different than on Google. And that is what the article is about.

Over time, the market could adjust from the Apple model (which is the status
quo in public companies) to the Google model. The implications are tremendous,
as the idea of a public company that is closely-held over the long term hasn't
really been done before.

~~~
itcmcgrath
Except, given that both models ended up #1, and #2 respectively, doesn't it
imply that both models can work and other factors are more important in
success? Following that, doesn't it imply that shareholders should/will care
more about those other factors?

~~~
johnsmith21006
But Google is also 22 years younger? Google passed $100b market cap at age 7
and Apple at 29. Google other as in non ad revenues in 2016 at age 18 is
greater than all of Apple revenues when they were the same age. Plus Google
grew income by 29% last quarter and Apple earnings have declined over the last
two years.

------
l5870uoo9y
> More importantly, though, how do these strategies impact the lives of
> everyday people? A capitalist system aims for the efficient allocation of
> capital, and indeed, workers have a better shot at seeing median wages
> increase when money is being put to its most productive use. So to an
> extent, how they fare under each system has to do with who is deciding where
> and how profits get invested. When managers reallocate profits, that
> reallocation benefits from the capabilities and knowledge that companies
> have built over decades, but suffers from the possibly poor incentives of
> managers. When investors are the ones reallocating profits, however, the
> scope of the reallocation can be broader, theoretically leading to more
> innovation; at the same time, those investors don’t have preexisting
> organisational capabilities and they may suffer from their own short-term
> time horizons.

In the end the economist unwillingly reveals that the actual ramifications are
highly theoretical (bordering on non-sense) and and leaves the reader only to
conclude that this won't as stated "decide the future of capitalism". In
discussing the future economy I would be much more inclined to ask: "How do we
create a model where wealth and power is distributed broadly across society?",
"What constitute infrastructure in a modern economy?", "How do know we aren't
underperforming?" and so on.

------
theonemind
Apple got to this point by notoriously never paying out dividends. Paying out
dividends obviously takes away money usable for growth. I don't see any
competition between these two models. You issue stock to get capital to
compete with other behemoths. If not for having contributed cash to the
endeavor, the investors function more like parasites that want to extract the
maximum they can from the host. Such massive payouts will probably stop Apple
from becoming a major conglomerate with varied tech/science/engineering
interests in the distant future and limit them to high end consumer
electronics. They got to this point by acting more like Google, and they will
likely degrade like HP or IBM now.

A very silly article comparing two companies with similar money-management
history and acting like some competition exists between the models because
investors recently got an upper hand with Apple. They wouldn't have gotten
their market position doing this. It strikes me like comparing two athletes
when one recently acquired a disability and suggesting that the disability
contributed to their historical success and suggests some new model for the
sport going forward.

------
_nalply
When I read the title I thought about the difference that Apple is selling to
users and Google to advertisers. These are two different ways of capitalisms,
too.

~~~
Kurtz79
Well, they really are two different business models, not really two different
models of capitalism.

The title is a bit pompous, but the article does actually relate the policies
of the two companies with a basic concept of capitalism (allocation of
capital).

~~~
_nalply
Well you are right... But at least the business model of users being goods is
a new take on capitalism.

------
wageslaving
The issue with yielding to investors is that investors are primarily
interested in making money for themselves, rather than growing the companies
they are investing in. An investor will always vote to have large companies
take loans in order to purchase the hundreds of millions of dollars worth
shares they just purchased back a 25% increase over their current market
value, or get a lump sum in the form of the newly issued dividends as it was
in Apple's case. And then they take the money they made, reinvest in another
large company they can leverage and do it again.

There's absolutely no reason to seek growth based returns which carry risk
while this approach is available. Dividends and stock-buybacks represent a no-
value-created system of incentives for the richest people in the world,
directly extracting the surplus value of laborers at the expense of workers
and long-term investors. Only when a company starts to topple does there seem
to be any interest in moving into new markets or improving their existing
lines of business.

------
auserperson
I don't respect any article about the future of economy that does not take
into consideration climate change, sustainability and the anthropocene.
Capitalism will have to change dramatically soon, our world is collapsing. But
sure. let's talk about apple vs google. I am not a fan of capitalism, but I'm
not even criticizing capitalism per se, only that all big companies nowadays
are existing in a world and way of producing that will for sure destroy itself
in at max 100 years. So that is the future. Not Apple way of managing. I feel
like saying wake up sheepele, because that's how it feels reading an article
like that. I have no idea what will happen and hope for the best, but let's
start accepting that we know major changes are needed and are going to happen
whether we plan them or not. Climate change/mass extinction/deforestation/etc
is not just about polar bears, is about our energy and ways of consumption and
production of goods.

~~~
JCzynski
Capitalism won't change. It has no reason to; those changes don't affect the
underlying processes of the economy, they just change the circumstances and
incentives.

------
johnsmith21006
Google broke $100B market cap at seven years old. Apple mail did it at 29
years old. Google never has declined for a single quarter YoY since day 1. Not
a single time.

Apple had $2.33 EPS for Q2 2015 and for Q2 2017 reported $1.90 EPS. So
declined over the last 2 years.

Google other revenues (non ad) were over $10B for 2016 and growing at 50%.
Apple total revenues in 2004 when it was 28 years old were less than just
Google other. Just sayin.

Btw, Google holds the record of getting to $100B cap faster than any other.
Even accounting for inflation.

------
thedevil
tldr: Google founders have more voting rights than Apple executives. In case
you didn't know, this impacts corporate behavior, especially dividends.

I thought this would be about the way each interacted with customers, which is
far more interesting.

~~~
lostboys67
Which Wall Streat and the City don't like on UK media company that has this
dual share class structure got kicked out of the FTSE index for this.

------
mschuster91
There is a third way of capitalism: the Musk way. Whatever money he made, he
invested it in a way that benefits society:

\- by building a payment service that's way cheaper and easier than e.g.
Western Union or banks

\- by using literally every last cent in his pockets to make SpaceX work
(which benefits the whole world in terms of cheap, reliable, environmentally-
friendly, russian-free § launches as well as the planned Mars colony)

\- by launching the maybe most successful pure electric car, which soon goes
into mass-market price range

This is what I as a socialist see as the one example of capitalism that
actually WORKS.

§ not meant to be racist at all, but political - given the obvious tensions
between Russia and the Western world, e.g. by Russian meddling in US
elections, financing at least the German and French neonazi parties and
invading Ukraine, it's simply unacceptable to depend on Russia honoring their
rocket engine delivery contracts.

------
spectrum1234
I was expecting this to be about open source vs closed source. After reading
this, I really wish it had been.

------
wffurr
"As companies continue to generate more profits than they need to fund their
own growth, the question becomes: Who will decide what to do with all those
profits—managers or investors?"

That's not the question that comes to my mind at all. Why limit it to just
managers and investors? What about employees? Citizens of the countries that
enabled these companies to make all that money in the first place?

That agglomeration of wealth is just absurd and frankly immoral.

------
HugoDaniel
"Google is, like Apple, making loads of money. From 2013 to March 2017, it
generated $114 billion in operating cash flow. How much has the company
distributed to shareholders? In contrast to Apple’s 72 percent payout rate,
Google has only distributed 6 percent of that money to shareholders."

Apple is way older than Google, maybe this has an influence in both diff.
approaches...

------
stretchwithme
How can anybody look at how much Apple executives are currently taking home
and think that lush perks are being limited by large shareholders?

------
gaius
Neither pay their taxes

~~~
bkohlmann
If they are violating the law, they will be sued by the government and forced
to pay what they owe just as any tax payer who violates the law. As it stands,
they are paying what taxes they owe as allowed by our existing tax code. Out
of curiosity, what, in your estimation, is the legal amount they have failed
to remit?

~~~
nisa
3.6 billion dollar -
[https://www.bloomberg.com/news/articles/2016-12-21/google-
lo...](https://www.bloomberg.com/news/articles/2016-12-21/google-
lowered-2015-taxes-by-3-6-billion-using-dutch-sandwich)

but sure - it's somewhat legal or not illegal but don't pretend it's not
sketchy.

------
shmerl
I wonder if it influences Apple's common nasty behavior.

