How Much Would a “Fair Trade” iPod Cost?

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The Harvard Business Review’s Umair Haque discovered that a Made-in-USA, “fair labor” iPod would cost only 23% more than its Made in China counterpart:

…how much would it cost to produce a “Good iPod”? One not produced in a sweatshop, but under decent labour conditions. Like, for example, one produced in the USA — hardly a paragon of labour standards, but a starting point.

That’s what I calculated. The Sloan Foundation data estimate just $4 of an iPod’s cost is the final assembly in China. Using average Chinese hourly compensation costs, that’s about 2.7 hours of labour. I then used American hourly compensation costs to adjust for what that final assembly might cost in the States.

The results are surprising. An American made iPod Classic costs just 23% more than a Chinese made iPod Classic: $58 more, to be precise. The same relationship holds across the iPod family (price differentials in the 20-30% range) The iPod is a durable good, so that’s a difference — but smaller than one might expect.

Haqu claims that charging $58 more for an iPod is not only a reasonable expectation, but necessary to preserve innovation and rebuild the American manufacturing sector. He concludes:

If goods cost what they should, we would consume what we could authentically afford, instead of overconsuming what we couldn’t. If their prices reflected real human costs, perhaps yesterday’s unsustainably large macro imbalances wouldn’t have built up in the first place. And that, from an economic point of view, would be good for everyone.

Not everyone. What about the Chinese supply networks who would go out of business? Or the American consumers who couldn’t afford that extra $58? Or Apple, if it gave up its current competitive advantage by sacrificing a level of affordability?

The bottom line is still, well, the bottom line. Companies should bear responsibility for fair labor practices, but I can’t see Apple, or any other market leader, opting to put itself in second place as a result.