By Kevin D. Williamson
Sunday, August 5, 2018
Everybody is talking about Apple this week. We should be
talking about Microsoft.
Apple hit a milestone last week, becoming the first
company to achieve a market valuation of $1 trillion. Between the usual
anti-capitalist banalities — Oh, inequality!
Corporate concentration! The shrinking middle class! The horrifying spectacle
of Asian people working in manufacturing jobs! — there have been a few
mildly awestruck appreciations of the fact that, not so very long ago, Apple
was on the verge of bankruptcy, about 90 days away from running out of cash,
according to the late Steve Jobs. Apple was so diminished that there were
rumors that it was going to become a small and not especially important
division of Sony.
Microsoft was riding high. Bill Gates was the wealthiest
man in the world and a cult figure. Conservatives loved him for boasting that
his company had no Washington office (this was before the antitrust lawsuit;
Microsoft has staffed up in Washington since that sorry episode) and
Republicans, knowing nothing about his politics, dreamed of running him as a
presidential candidate. (The Republicans eventually figured out that Gates
wasn’t one of them, but never quite got over their superstitious regard for
wealthy businessmen.) He camped out on the cover of Time magazine: “Computer
Software: The Magic Inside the Machine!” “Bill Gates: My Twelve Rules for
Success in the Digital Age!” “The Private World of Bill Gates! Master of the
Universe!” Microsoft, the business and tech press assured us, was going to
rule the world. Steve Jobs and his cute little computers? Stuff for graphic
designers laying out bistro menus in Soho, maybe.
It didn’t work out that way, exactly. Microsoft, once
denounced as a monopolist because of its dominance of the operating-system
business, is no longer the biggest fish in that pond: Google’s Android is now
the world’s most popular operating system. Microsoft was slow to appreciate the
importance of the Internet and was a generation behind Apple in the smartphone
business, which is the main thing that drove Apple to its current $1 trillion
valuation. But Microsoft has learned how to eke out a living in . . . all the
boring stuff that Microsoft does: In May, it passed Alphabet, Google’s parent
company, to become the third-most-valuable corporation in the world, behind
Apple and Amazon, another cute little business (an online bookstore) that grew
into a colossus. The Wall Street Journal
expects that Apple, Google, Microsoft, and Amazon may reach a combined value of
$4 trillion in the near future.
Facebook used to be on that list. It probably will be
again, but its recent downward turn — it lost 20 percent of its market
capitalization, or $120 billion in value — has dulled its luster a bit, and all
the nice California progressives are blaming poor Mark Zuckerberg for the
election of Donald Trump.
That’s the way things go: Firms that once looked
invulnerable slip and slide, and some of them disappear. Names that used to
define the Dow Jones Industrial index — firms such as U.S. Steel, whose very
name suggested indestructibility — have disappeared or been reduced to shadows
of their former glory. U.S. Steel was the first company to achieve a market
valuation of $1 billion; by 2014, it was no longer big enough to make the
S&P 500.
The steel business may seem like a dusty remnant of the
J. P. Morgan era, but what Microsoft and Apple have in common is that they are,
in corporate terms, a couple of old geezers, founded in 1975 and 1976,
respectively. They are already survivors: In the 1950s, the average age of an
S&P 500 company was about 60 years, but by last year it had declined to
under 20 years. Shake Shack went from food cart to IPO in a decade. If Facebook
were a person, it wouldn’t be old enough to drive. Many big names survive, but that
hides underlying changes: The corporate entities today known as Baker Hughes,
DowDuPont, Activision Blizzard, and AbbVie (formerly Abbott Labs) all are under
ten years old; ExxonMobil and ConocoPhillips are under 20 years old.
The iPhone has existed for a little more than a decade,
and Google for a little more than two.
The Bill Gates for President movement ran out of steam a
long time ago. (The Draft Steve Ballmer movement was never a thing, and Satya
Nadella, born in Hyderabad, is ineligible for the office.) Steve Jobs’s
epigones have proved somewhat less charismatic, but Apple is, for the moment,
the top dog. Maybe that will last. Maybe it won’t. There was a time when some
believed that we’d be ruled by 10,000-year dynasties of Rockefellers and
Morgans.
With big, enormously profitable firms such as Apple and
Facebook, there are two competing forces at work. One is the power of size: Big
companies can do things that smaller companies usually cannot. (Walmart, for
example, dictates terms of business to its vendors to a self-serving extent
that practically no other retailer could dream of.) Apple is a big company with
a lot of little partners who are not eager to cross their biggest customer,
which can put would-be competitors at a disadvantage. Social-media companies
such as Facebook and Twitter benefit from the telephone effect: In the early
days, telephones were not all that useful to their owners, because most people
didn’t have them, so there were few people to call. That changed once most
households had a telephone. The more people use Facebook or Twitter, the more
useful Facebook and Twitter become. (To an extent; Matt Yglesias is on
Twitter.) Those who have tried to launch competitors from scratch have found it
tough going. And all those big firms are sitting on giant piles of ready cash,
meaning that if they spot a small, nimble competitor on the horizon, they can
just buy it up.
And those giant piles of cash are the second force. When
a firm or an industry produces extraordinary profits, that draws competition.
It’s not some straight-line graph from an economics textbook (and even the
economic textbooks don’t claim that it is) but there is a lot of capital out
there looking to get a piece of what Apple and Google have. (And, of course,
Apple and Google are among each other’s toughest competitors.) That drives
innovation, which is what this is all really about. Mobile phones existed
before Steve Jobs put on his turtleneck and showed off that first iPhone — they
just weren’t very good. Microsoft didn’t invent the operating system. (As
critics will remind you, Microsoft didn’t even really invent the operating
system it got big selling.) But it made it more useful. Electric cars could be
found on the streets of New York and London in the 19th century — but Tesla
made them cool, and made it clear that there was enough money in that market to
really get BMW and the rest into the game. (Now, even Harley-Davidson is going
electric.) That’s how competitive markets work, and they do work — if we let them.
Apple’s market milestone has occasioned a great deal of
dumb talk about corporations’ “share” of income vs. what’s paid out in wages
and other forms of compensation for workers, or about the share of certain
markets commanded by this or that big company. But it is not as though there
was or is some big bucket marked “income”
and Apple figured out a way to sneak itself a bigger share of it. Apple got big
— and $1 trillion is big — mostly by inventing something new, radically
expanding the possibilities of familiar products. It didn’t take over a market
— it created one. Income isn’t a bag of marbles that get traded around and
divided up. Some companies — some people — make new marbles.
Apple wasn’t the only company that made crazy money in
the smartphone market: Google’s Android business piggybacked on Apple’s
innovation, and everybody who’s ever sold a smartphone app is along for the
ride, too. That’s where new and better things come from. That’s how material
progress happens. Material progress isn’t the only good thing in life, but it
isn’t something to turn your nose up at, either.
We live in an age of wonders, full of new and delightful
things made possible by the beneficial collision between imagination,
intelligence, and money that we call, for lack of a better word, capitalism. But it also is an age full
of old and familiar things: envy, resentment, ignorance, fear, greed, laziness,
mediocrity. The former have a funny way of bringing out the latter, which is
why it is so unsurprising to hear new calls — often from Republicans — for
government intervention in and regulation of the part of our economy that is,
at the moment, working best.
Apple went from corporate basket-case to $1 trillion
bigfoot in 21 years, its corporate low point having come in 1997. Time flies:
21 years before that, Apple was just a little project in a garage in Los Altos,
Calif.
Lots of garages out there.
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