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The International Trade of Talent

• March 27, 2014 • 10:25 AM

The Tsinghua-Foxconn Nanotechnology Research Center in Beijing, China. (Photo: chinahbzyg/Shutterstock)

Just because a net migration number is negative doesn’t mean there is brain drain. A shrinking population doesn’t always indicate a dying place.

I’m done comparing talent to the commodity of oil. I’ve used another metaphor for talent migration: international trade. However, not everyone agrees that international trade is not a zero-sum game. Thus, negative net migration is brain drain. For the sake of argument, I’ll concede the point. When a trade deficit is actually a trade surplus:

If trade numbers more accurately accounted for how products are made, it is possible that the United States would not have any trade deficit at all with China. The problem, in short, is that trade figures are currently calculated based on the assumption that each product has a single country of origin and that the declared value of that product goes to that country. Thus, every time an iPhone or an iPad rolls off the factory floors of Foxconn (Apple’s main contractor in China) and travels to the port of Long Beach, California, it is counted as an import from China, since that is where it undergoes its final “substantial transformation,” which is the criterion the WTO uses to determine which goods to assign to which countries. Every iPhone that Apple sells in the United States adds roughly $200 to the U.S.‑Chinese trade deficit, according to the calculations of three economists who looked at the issue in 2010. That means that by 2013, Apple’s U.S. iPhone sales alone were adding $6–$8 billion to the trade deficit with China every year, if not more.

A more reasonable standard, of course, would recognize that iPhones and iPads do not have a single country of origin. More than a dozen companies from at least five countries supply parts for them. Infineon Technologies, in Germany, makes the wireless chip; Toshiba, in Japan, manufactures the touchscreen; and Broadcom, in the United States, makes the Bluetooth chips that let the devices connect to wireless headsets or keyboards.

Analysts differ over how much of the final price of an iPhone or an iPad should be assigned to what country, but no one disputes that the largest slice should go not to China but to the United States. That is where the design and marketing of such devices take place — at Apple’s headquarters in Cupertino, California. And the real value of an iPhone, of course, along with thousands of other high-tech products, lies not in its physical hardware but in its invention and the work of the individuals who conceived, designed, patented, packaged, and branded the device. That intellectual property, along with the marketing, is the largest source of the iPhone’s value.

Taking these facts into account would leave China, the supposed country of origin, with a paltry piece of the pie. Analysts estimate that as little as $10 of the value of every iPhone or iPad actually ends up in the Chinese economy, in the form of income paid directly to Foxconn or other contractors.

Emphasis added. How we measure trade can cause the observer to come to the wrong conclusion. The trade advantage for the United States is commonly perceived to be a trade advantage for China. In the hands of someone who understands the wizardry behind the green curtain, the shortcoming of the abstraction can be managed. In the hands of everyone else, we have grounds for World War III or Tea Party revolt. Don’t tread on me, China.

Likewise, negative net migration is bad, always bad. To say otherwise makes you a blind civic cheerleader guilty of moving the goalposts in order to gild a turd. Pittsburgh is dying. Seriously, how could outmigration be a good thing? Say Pittsburgh lost 10,000 people to migration over a decade. That means 10,000 more people left than arrived. Almost certainly, people did move to a dying city. In this case, 20,000 young adults with college degrees moved into the urban core. Meanwhile, 30,000 suburban residents without a high school diploma retired and moved to Phoenix. The workforce grows and gets younger. The workforce gets smarter and per capita income increases. Arizona tackles spiraling health care costs sparked by a bunch of Yinzers tired of Pennsylvania winters. Edward Glaeser declares liberalized zoning regulations of the Sun Belt the winner.

I’m a fan of quality over quantity demographic metrics. Data have to keep up with the times. Play moneyball. The fixation with population and immigration is a late 19th-century artifact. A good example of such a critique from India:

Given this background, there is reasonable expectation that the policies of the Government of India towards emigration would be well settled, dynamic and proactive. Unfortunately, this is not so. Indeed this book is an expose of the inadequacies of our policy framework and institutional failure both at the central and state levels. The book has been written by two authors who are well versed in the area both in terms of academic attainment and administrative experience. Krishna Kumar is the founder Secretary of the Ministry of Overseas Indian Affairs (MOIA) and Prof. Irudaya Rajan is associated with the Centre Development Studies (CDS), Thiruvananthapuram, which has pioneered studies on migration to the GCC countries.

Drawing upon a mass of legal, legislative and regulatory framework, they take a dim view of the current situation. Disheartened, they exclaim, “It is not possible for emigration from 21-century India to be managed under 20 century law inspired by a 19-century mindset.

Emphasis added. Twenty-first century America is manged by 20th-century economic development policies inspired by a 19th-century industrial revolution. Population size matters. Population size doesn’t matter. The quality of change, growth or decline, matters. Just because the net migration number is negative doesn’t mean there is brain drain. A shrinking population doesn’t always indicate a dying city. An iPhone manufactured in China does the United States more financial good than it does China. Those blue-collar jobs aren’t coming back home and that’s the good news.

Jim Russell

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