5 Ways the Tech Companies Are Making Monster Profits by Stealing from Our Future
Young people in America, and their parents and grandparents, are all contributors to the greatest revolution in technology in the history of the world. Yet as we heap praise and money on tech leader Apple, and generate billions in advertising revenue for Google and Facebook, we're not getting back as much as we're giving.
Yes, these companies provide quality products and much-desired entertainment. They deserve a sizable profit. But while they're making unprecedented profits, they're creating little more than low-wage positions, investing minimally in the country that funded their growth, and making a mockery of the tax laws that are supposed to pay for the next generation's education.
We all like free websites, but it's easy to miss the fact that they're not really free. We're all contributing, in little pieces from our purchases of ad-related products, to the fortunes of a few savvy and well-positioned individuals and corporations. And we're paying dearly for our communications devices.
Here, then, is a story of greed and duplicity that impacts all of us, especially America's young adults:
1. Tech companies built their businesses with our money and effort.
As summarized by Joseph Stiglitz, "Apple, like Google, has benefited enormously from what the U.S. and other Western governments provide: highly educated workers trained in universities that are supported...by government."
He's right. Public funding provided almost half of basic research funds into the 1980s, and even today supports about 60 percent of the research performed at universities.
Apple's first computer was introduced in the late 1970s. Apple still does most of its product and research development in the United States, with U.S.-educated engineers and computer scientists. Google's business is based on the Internet, which started as ARPANET, the Defense Department's Advanced Research Projects Agency computer network from the 1960s. The National Science Foundation funded the Digital Library Initiative research at Stanford University that was adopted as the Google model. Microsoft was started by our richest American, Bill Gates, whose success derived at least in part by taking the work of competitors and adapting it as his own.
2. They don't pay their required taxes.
Apple got its tax bill down to 9.8% in 2011. The company paid a combined US/foreign tax rate of 15.3% in 2008-'12, which comes to $25 billion in avoided taxes over that time. It uses tax schemes like the "Double Irish" to find tax havens for its profits, two-thirds of which remain untaxed overseas. According to the New Yorker, one of Apple's Irish subsidiaries (Apple Operations International) made $30 billion in profits from 2009 to 2012 but paid ZERO corporate income tax.
The long-time Cupertino, Calif. resident also avoids state taxes by claiming residence in tax-free Nevada. And while doing everything possible to avoid taxes, Apple is engaging in a massive stock buyback, which has the effect of enriching executives rather than investing in jobs or new technologies.
Google, like Apple, is a master of the Double Irish revenue shift to Bermuda tax havens, while using tax loopholes to bring a lot of the money back to the U.S. without paying taxes on it.
Microsoft is one of the biggest offshore hoarders, using tax strategies to bring much of its untaxed money back to the U.S., where the company also avoids state taxes.
3. They show contempt for the U.S. education system, which is underfunded because of unpaid taxes.
An Apple executive said, "We shouldn't be criticized for using Chinese workers. The U.S. has stopped producing people with the skills we need." He's right about the skills issue. Half of the companies surveyed by the San Francisco Chronicle said they couldn't find qualified graduates for positions within their organizations.
But tech companies aren't paying the taxes needed to train America's young people to work for them.
As corporate taxes have plummeted, education financing has declined by 24 percent, and tuition at state schools has increased 72 percent. Since 1985, while consumer prices have approximately doubled, tuition has risen almost 600%.
Total state education cuts for fiscal 2012 were $12.7 billion. A study by Citizens for Tax Justice noted that 265 of our nation's largest companies avoided about the same amount in state taxes each year from 2008 to 2010.
Even at the most basic level of education, the lack of corporate tax money is evident. Spending on K-12 public school students fell in 2011 for the first time since the Census Bureau began keeping records over three decades ago.
4. They provide low-wage jobs, if any.
Libertarian Rand Paul proclaimed, "What we need to do is apologize to Apple and compliment them for the job creation they're doing."
Apple claims to have added 500,000 jobs to the U.S. economy, but it only has 43,000 U.S. employees. It is estimated that the company makes $400,000 profit per employee while paying an average of $12 per hour for its store workers.
And those are U.S. workers. Embarrassment turns to shame with a visit to the exploitative Foxconn factory in China.
In the U.S., more than half of college graduates were jobless or underemployed in 2011. Over the last 12 years, according to a New York Times report, the United States has gone from having the highest share of employed 25- to 34-year-olds among large, wealthy economies to having among the lowest. The Wall Street Journal recently noted that nearly 300,000 people with at least a bachelor's degree were making the minimum wage in 2012, double the number in 2007.
Our "representatives" in Washington are little help. In October 2011 Senate Republicans killed a proposed $447 billion jobs bill that would have added about two million jobs to the economy. More recently, only one member of Congress bothered to show up for a hearing on unemployment.
The result of all this, for our young adults, is an average of over $27,000 in student loan debt. Class of 2013 grads average an astounding $35,200 in college-related debt. For degree holders in the bottom quintile of Americans, the liability consumes nearly a quarter of their household income.
5. They turn Internet freedom into money.
We hear a lot of rosy predictions for the newest generation, such as this from Michael Barone of the Washington Examiner: "The good news is that information technology provides the iPod/Facebook generation with the means to find work and create careers that build on their own personal talents and interests...creating your own career will produce a stronger sense of satisfaction and fulfillment."
Create your own job? No, it doesn't work that way. Most young people are productive and reliable workers who perform best in the employment of an organization that has set up a process to utilize their skills. In his book Who Owns the Future? Jaron Lanier gives us an example of technology's opposite direction:
At the height of its power, the photography company Kodak employed more than 140,000 people and was worth $28 billion. They even invented the first digital camera. But today Kodak is bankrupt, and the new face of digital photography has become Instagram. When Instagram was sold to Facebook for a billion dollars in 2012, it employed only 13 people...What happened to the wealth that those middle-class jobs created?
A Forbes response assures us that people are made richer by their "ability to take photographs." Apparently satisfaction with a nice snapshot pays the bills at Forbes.
Music is an even better example. Not long ago a "middle class" of music industry workers provided services and earned salaries. Now, as Robert Levine says in his book Free Ride, "For-profit technology companies deliberately set out to make money from piracy and never came up with a workable plan to pay artists...Napster was essentially building a business on piracy." Now the money is made by a few powerful organizations while the rest of us "share" for free.
Many of us have come to believe that "open" systems, with freely accessible information, serves all of us, and helps to even the field of opportunity. That's what Google would like us to believe. As Wired magazine writer Michael Wolff notes, "Google...may represent open systems and leveled architecture, but with superb irony and strategic brilliance it came to almost completely control that openness."
One of Google's aims is the weakening of copyright laws, and to that end it takes advantage of a Digital Millennium Copyright Act that allows copyrighted information to remain online unless the owner directly demands removal. It's making billions of dollars from the raw materials of millions of contributors. Sort of a "digital colonialism."
There is a possible solution to this, according to Levine and advocate Jim Griffin. A "blanket license" (or "collective license") grants rights for the distribution of works for fees, which are redistributed to copyright owners. Unfortunately for America, another generation of young adults has been led to believe that any collective action is a socialist threat. Success with the concept has primarily been realized in Scandinavian countries.
Ultimately, cooperative networking should enable young adults, and all the rest of us, to control our rights and properties. But first we have to understand how the big technology corporations are using us.