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.