The Simplicity of Unit Cost Logic

The art of conversation is not something I put a great deal of value in. Don’t get me wrong, I like talking to people, about literally anything, but I don’t put a lot of worth into what I say (or what other people say) when I am in a conversation. In my experience, 99.9999% of what anyone (especially me) says in any single conversation is absolute garbage, and not worth a second thought. The eternally irrelevant conversation to me is just a way to keep things ticking along nicely whilst in a group, so that everyone is acknowledging each other’s existence in some way and not just sitting there, silently plotting to murder each other.

Since I don’t value conversation, it would therefore be unfair of me to judge people too much on the minute details of what they say to me, and in truth, I rarely do. Anyone can say absolutely anything to me, and I will generally view the extreme cases as isolated outliers, and not put too much thought into it, and not put anything I disagree with down as a stain on the character of the speaker. Saying something stupid or racist or sexist to me doesn’t automatically make the person stupid or racist or sexist, it’s just a bit of meaningless conversation that helps us all escape our inner monologues for a brief moment (of course, if there is repeated instances of this behaviour over a certain period of time, I may start to form some sort of judgement). I said at the beginning of this paragraph that this is mostly true of me, yet there are exceptions: I have some trigger sentences that if I hear, are very difficult to come back from. It may seem completely innocuous to most of you reading this, but if someone tells me that the cost of producing an iPhone is €20, then that person will have to work hard to ever convince me that he/she is not an idiot.


It’s not that I disagree with the fact: I am sure that the cost of the individual parts used to construct the iPhone and/or the Chinese manufacturing labour (unit) cost are exactly equal to the cost quoted in the article that the fictitious person who said this to me recently read. Quite the contrary, I am sure the journalist who wrote that bullshit article did his/her homework and that everything checks out. The problem I have with this information being presented to me by someone is that a) they must find it interesting in “some way”, and 2) this “some way” must be that they think the retail price for the iPhone should be close to the unit cost, around €20 with maybe a mark-up to ensure a profit and keep Apple going.

Of course I am not talking about just iPhones, I am talking about any seemingly overpriced luxury good. There are people a lot smarter than me reading this, so I am not going to waste too much time explaining why the retail price of a luxury good like an iPhone can be so much higher than its manufacturing or unit cost. Employing a few thousand highly educated scientists over many years to develop sophisticated technology is not cheap, and is not reflected in any “unit cost articles”. Getting the production of a highly sophisticated, cutting edge product down to the efficiency level where it can be produced absolutely anywhere for a €20 unit cost is not cheap, as it requires the most meticulous logistical planning imaginable, yet it is not reflected in unit cost articles. Having a worldwide distribution network that can bring this highly advanced, cheaply produced product to you in any part of the world is not cheap, and it is not reflected in any unit cost articles. Having a massive international advertising and marketing campaign to produce awareness of this highly advanced, cheaply produced and easily available product is definitely not cheap, and is not reflected in any unit cost articles. Having enough money to be able to do this for many products simultaneously, and for the investment necessary to produce similar products in the future is not cheap, and this is not reflected in any bullshit article you will ever read about the unit cost of an iPhone.

All of this obviously costs billions, and is true of any big product meant for mass consumption. Medicinal pills for example, cost billions to develop before they are ever even deemed safe enough to mass-manufacture. Pfizer would probably have gone bankrupt by now if someone had not realised that a failed heart disease treatment drug of theirs that had cost over a billion dollars in development had the adverse effect of stimulating erections. A swift re-brand, and they could produce each pill for probably about €0.20. I have no idea how much a Viagra pill costs (well, maybe on the streets of Bangkok), but it is definitely a lot more than 20 cents, and few could really argue that it should not.

Sportswear companies also get a lot of criticism for such unit cost related issues, as it was popular a decade ago to produce articles/documentaries on how much it costs to produce a single pair of Nike trainers (less than €1), compared to the price paid for that pair of Nike trainers in a Nike Store (around €100). All the big sportswear companies would, and still do, pay workers in Asian factories subsistence level wages to produce the actual product, yet they would regularly announce multi-million dollar deals with sportsmen such as David Beckham and Tiger Woods to promote the exact same products. The articles implied that the factory workers should be paid similar levels to the athletes who promote the products, as they were both doing the same job, and this is where my issue with anyone who repeats such arguments originates. I mean absolutely no offence, but people weren’t buying a cheap Asian shoe, they were buying the super-shoe worn by David Beckham. One is cheap, and the other should cost money.

An iPhone is meant to be expensive. It’s meant to be just out-of-reach enough to make every owner of one feel like it is meant to represent something about his/character. This is established through millions and millions of euros investing in a brand that tells everyone just this. It is an expensive campaign for an expensively developed product that has been expensively harmonised to the point where its production can be outsourced to anywhere in the world for virtually no cost for every extra unit. But to get to that level of sophistication costs billions of euros, over many years, which is not present when accounting for the price of the actual materials that go towards assembling your iPhone/Nike trainers, and this discrepancy is apparently supposed to cause some sort of outrage in all of us when revealed. I really do understand why articles about the unit cost of such luxury goods are published, as I think everyone in any sort of job always questions their personal pay relative to how much the actual product they produce costs, and therefore tries to imagine themselves in the situation of a worker earning under €1000 per year, producing several iPhones per day, each delivered to Western markets costing at least €600 each.

The issue of the value of individual labour once again rears its head here on my blog, and unfortunately when it comes to the western outsourcing of manufacturing to Asia, this value is negligible. Factories and assembly lines there are designed to have as replaceable a workforce as possible, and therefore the work is completely unskilled. Donald Trump is lying when he says he will bring manufacturing jobs back to the US: that ship has sailed. Manufacturing jobs of mass-manufactured products are standardised, unskilled, monotonous tasks that will soon be taken over by robots. This part of a products life cycle has been ground down to the point where it costs virtually nothing to the investors, yet to get to that point (and beyond) costs billions, and this is what you pay for when you buy a luxury item like an iPhone, or a pair of Nike trainers, or a Viagra pill, or a Bose sound system. To reduce any of those products to a single person, with a simple bag of the necessary tools and materials, and estimate the cost of the final product based on just this part of the production process requires a degree of naivety that I often struggle to overcome. I do feel a bit ashamed that I judge a person immediately if I feel he/she is partial to this kind of logic, yet even still I can’t help it. To know the manufacturing cost of an iPhone is interesting only to know how well Apple have done at efficiently standardising their factories, and nothing else: it adds nothing to how much the iPhone 7 should cost, and the same is true of any similar product. You don’t want the cheaply made product, you want the expensive one you have been told to like in multiple advertisements. Someone should just change the conversation to something a little more meaningless.


Family, Demography, and the End of the World

Just over a month ago I was back in Ireland at the funeral of my last remaining grandparent, my paternal grandmother, who had lived to the grand age of 98. Since she was so well on in her years that the event was less a tragedy, and more a celebration of a long life that had begun before even the creation of an independent Ireland. Yes, my grandmother was older than Ireland, and many people came to pay their respects last month at her funeral, the most important of whom being her own family. She was the mother of 7 children (including my own father), a number that seems extremely large nowadays but at the time was quite normal for an agricultural Irish family. These seven children proceeded to make their own ways in life, settled down and altogether produced 20 children (including myself). This group of 20 between them (so far), they have produced 5 members for the next generation, who would be my grandmother’s great-grandchildren. Adding up all her children, grandchildren and great-grandchildren, there are 32 people on this Earth whose existence could be directly attributed to my late grandmother.

This is a pretty impressive number obviously, but again, in the Midlands of Ireland, it’s nothing extraordinary: people have a lot of children, and countrywomen live well into their nineties. The number of my grandmother’s descendants is impressive, but the really interesting part of it is the generational breakdown. My grandmother (with my grandfather!) had 7 children, these 7 had 20, and this 20 thus far have had 5. The average age of my generation of 20 grandchildren is just under 31, so there is still plenty of time to add to our meager return, but the extreme likelihood (unless all my cousins go on breeding missions!) is that this figure will probably end up below 30. My grandparents represent a single couple, therefore produced an average of 7 children. These seven children produced an average of about 3 children (20 divided by 7) each, but the next (/my) generation most likely will not even produce two each. That’s quite a shift in just three generations.

This breeding breakdown is the story of Ireland’s past century in the form of fertility rates. When my grandparents started their family in the 1940’s, Ireland was a much poorer country than it is now, and people had larger families, especially in farming communities, as extra family members were a way to help with the workload. The theory goes that as a country get richer and move away from agriculture (as Ireland has done over the past 30 years), fertility rates drop significantly. This can be seen starting with the increasing prosperity and declining fertility rates of my fathers generation, and even more extremely with my own generation, who seem to need some motivation. It seems counterintuitive when written down, but poor people have more children, and richer people have less. To us residents of Europe this is nothing strange, as it is a fact that has been thrown at us since high school, as the various education boards of Europe thought it prudent to instill in all of us from a young age that if Germans keep breeding as they are currently breeding, soon enough there would be no more Germans (to pay for all of our stuff). Germany currently has a fertility rate of 1.38 births per woman, which means that two Germans (a couple) contribute one German (their child) to the next generation. To keep a stable population, each couple in a country must produce 2.3 children. Germany is obviously well below this and therefore its population will halve with every generation, and become increasingly old in the meantime. The same is true all over Europe, even in Catholic Ireland, as the projected fertility of myself and my cousins was detailed above. Developed, affluent, boring countries will soon die out, so what do we do?


A perceived answer, for a decade or two now, has been that accepting young, unskilled migrants from poor countries outside Europe is the only way to ensure European population stability, and even growth. The theory is that these migrants are much poorer, will have more children than the native population, and this will increase the overall fertility rate, while at the same time the current migrants work in the country and pay into the social security system which takes care of the increasingly ageing population. This logic has been used by Open Borders campaigners for a few decades now, but it has been thrown around again in the past few weeks as a justification for allowing refugees to enter and settle within Western Europe: they are poor, they can work, and they will/would/could have a lot of children. It’s a crude, desperate logic, and one that I have never liked, since if you take the logic to its natural conclusion, it ends with the elimination of the human race.

As a thought experiment imagine, all other things equal, that the borders of the world were suddenly removed, and anyone, from any country, could move where they wanted. We would have a lot of people from poorer countries moving to richer countries in order to pursue a better life (in theory). These poorer migrants would probably have a lot of children in their first generation, adding much needed youth to the population pyramids of rich industrialised countries. However, just like the breeding structure of my own extended family through the past few generations, it is likely that further generations of those families would probably have decreasing fertility rates, and with increased wealth these fertility rates would soon reach the current German levels, which brings us back to the point of how to save the Germans! Once a certain point is reached, each generation of the new, open borders world will be half the size of the previous generation, only in this open borders case there is no source of young, poor migrants to exploit and prop up the population pyramid. In this scenario, with the population halving every generation, it will only be a few hundred years until the human race is at the level of the humble panda, being encouraged to procreate in order to save its species. So, based on the fertility rate theory of economic development, open borders will one day lead to the destruction of the human race, through long-term demographic erosion and boring, sex-deprived affluence. The only way to save humanity therefore is to ensure there are always poverty-stricken parts of the world with overflowing populations, ready to send their best breeders to prop up the social security system of Western and Central Europe, generation after generation.

I realise that my ravings above could easily be used by right-wing anti-immigration politicians, however none of those guys knows what a long-term issue is, so I think I am safe. The point is that neither of these long-term results of the ‘bring in migrants to pay for social security’ argument really sounds right, and therefore I am extremely uneasy about the idea as a whole. Demography (the study of population structure) is more of an observational social science than anything else, and probably should not be used to govern policy, or political debate. An economic argument to welcome migrants, and refugees in particular, is probably not a good one. Welcome refugees because it’s the right thing to do- not because their kids will pay for your pension, would be the main thing to take away from this. For those afraid of immigrants and their large families, don’t worry, they will be just as abstinent as you in a few decades, as the example given by the generational structure of my family over the past 70 years. We are educated a lot about how different religions affect fertility, and generally are told those that encourage a high birth rate, such as Catholicism, are bad for society as they hold back the economic participation of women in an egalitarian, capitalist society. Rarely do we realise that the affluence that capitalism sometimes brings with it also affects fertility, by lowering it significantly, as shown by the economically dirt-poor yet high-fertility rate of my grandmother in 1940’s Ireland, and comparing it to the economically prosperous yet negligible birth-rate of my generation. Anyway: 98 years and 32 people, an average of one descendant added every 3 years, is probably the record to beat, and I think I can say already that it will never be beaten by any member of my extended family.