Given that Apple just recently breached the $700 billion stock market valuation we are of course getting articles comparing the net value of the company to the net value of other things. And sometimes those valuations are appropriate: and sometimes, sadly, they’re not really. The problem here from a public policy or more general economic view is that if we run around making inappropriate comparisons of value we can end up making equally inappropriate arguments about what public policy should be. It’s a regular trope that corporations are more valuable than many countries, therefore that we’re all ruled by corporate power rather than the democracy that includes our own views. The problem with such listings is that they’re simply not true: they don’t compare like number with like number and thus grossly inflate the size of corporations. I have, for example, seen people compare the turnover of a company (often Exxon) with the GDP of a country. Such a comparison then shows that Exxon is the size of a large country and look, look, corporate power!
So it is with some of the recent comparisons of Apple’s new valuation at $700 billion. My friends and colleagues at The Register fall into this trap:
Apple’s $700 BEEELLION market cap makes it more valuable than Switzerland
Cuckoo clocks and cheese no match for iThings
Well, no, not really. It is true that Switzerland’s GDP is around $700 billion. But GDP is a measure of value added in a country in one year. That is, it’s the income of the place. Apple’s $700 billion valuation is the total value of the company: this is akin to wealth, not income. And of course the value of a stock is the net present value of all of the future income from it. So, that $700 billion for Apple is the current value (as the market estimates it) of everything that Apple will ever do in the future. The valuation of Switzerland, that $700 billion, is what the place made this year alone. Two very different numbers.
To get to something comparable for Apple we need to work out this year’s added value. A rough and ready definition of that is profits plus wages paid (this is approximately equal to the labour and profit shares in GDP which don’t quite equal total GDP but good enough for rough comparisons). Apple’s profits are around $40 billion, it employs a little under 100,000 people directly. Say each of those is paid $100,000 a year (obviously, some get very much more but when we add in the Genius Bar folks that might be reasonable enough as an average) which gives us another $10 billion. Not entirely accurate but reasonable enough to say that Apple’s value add, the equivalent of GDP, is some $50 billion.
When we go looking for a country at around that we find The Sudan and Luxembourg jointly on some $55 billion. And Luxembourg is some 400,000 people, and roughly half of the people in a country work (take out the kiddies, pensioners, housewives etc, roughly correct) giving us a Luxembourgois workforce of 200,000 people. 100,000 people in one of the most profitable companies on the planet produce about the same value as 200,000 rich world people in a country. OK, that’s impressive for Apple but it’s a much better indication of the company’s economic size than any other measure. It is, around and about, fair to say that Apple produces the same economic value as Luxembourg. And if you could buy Luxembourg for $700 billion (and some of the arguments in the EU over Herr Junker these days are that purchasing the place was rather cheaper than that at times) then their valuations would be the same as well.
There’s also other people making value comparisons and this one I thought was very fun:
It would be enough to buy all of the world’s publicly traded airlines, and still have about $300 billion (roughly Rs. 18,55,935 crores) left over to pay for bag fees, seat upgrades and in-flight snacks.
As Warren Buffett has been known to point out all the world’s airlines have, over time, lost money in total for investors. So, the idea that a massively profitable company is worth more than a loss making business sector shouldn’t be all that surprising.
Apple just isn’t worth the same as Switzerland but it is worth near twice all the world’s quoted airlines.
And to repeat the point at the top, we’re never going to really understand corporate power or the size of the corporate sector (or corporations) until we start to understand what these different numbers being bandied about as valuations and value of production etc really mean. Corporations really are very much smaller than countries: even the largest and most valuable of corporations is really only comparable to a city sized country. To give you a much better idea of the size of Apple relative to economic output of an area then Apple’s about the size of Raleigh, North Carolina, Omaha Nebraska, maybe, just maybe as large as Forth Worth, Texas, or Charlotte, North Carolina. Somewhere in that range at least. Or to use States, perhaps around Rhode Island or Maine.
Corporations just aren’t as large and economically powerful as some seem to think.
My latest book is “23 Things We Are Telling You About Capitalism” At Amazon or Amazon UK. A critical (highly critical) re-appraisal of Ha Joon Chang’s “23 Things They Don’t Tell You About Capitalism”.
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