Commentary Magazine

The New Paradigm in Your Pocket

Image by © PAUL MILLER/epa/Corbis

The iPhone, and its imitators have become so much a part of our culture that it is hard to believe it was introduced only ten years ago. To call it a phone is actually a misnomer; it is, in reality, a powerful pocket-sized computer that happens to make phone calls among myriad other functions. Betsy Morris of the Wall Street Journal wrote a wonderful article that makes clear how much the iPhone has transformed our lives. In the process, she inadvertently taught an important lesson in how our economy functions in ways that no business leader, let alone political leader, can anticipate or control.

One of the iPhone’s more obvious impacts has been to make social media pervasive. As Morris noted, at least 1.94 billion users are now “checking into Facebook at least once a month,” and of course countless millions of others are checking Twitter, LinkedIn, Instagram, Snapchat and other popular social media “apps” (a word that was not in common use in the pre-iPhone era). An indirect consequence has been to devastate advertising revenues for newspaper and magazine companies. Advertising has followed eyeballs onto social media.

With its camera app, the iPhone has also been disruptive in the camera industry. With its navigational apps, such as Google maps, the iPhone has devastated the sales of Garmin’s stand-alone navigation devices (Garmin’s stock went from $100 at the end of 2007 to just $20 a year later), but it has given rise to firms such as Uber and Via that take advantage of the iPhone’s GPS capabilities to connect riders with cars. With its ability to store and play music, the iPhone has accelerated the destruction of the traditional recording industry, based on selling records and tapes, but has given a powerful boost to streaming services such as Spotify, Pandora, Apple Music, and Amazon Music.

Perhaps the most obvious impact of the iPhone is that it has made Apple the most valuable company in the world, with a market cap bigger than all of the wireless phone companies in the United States (Verizon, AT&T, T-Mobile-US, and Sprint) combined.

And this is just what’s happened in the first ten years of the iPhone’s existence.  Another Wall Street Journal article by Christopher Mims imagined what the next decade will look like. By 2027, he predicted that “the suite of apps and services that is today centered around the physical iPhone will have migrated to other, more convenient and equally capable devices—a ‘body area network’ of computers, batteries, and sensors residing on our wrists, in our ears, on our faces and who knows where else.” As a result, “We’ll find ourselves leaving the iPhone behind more and more often.”

This is what Joseph Schumpeter called “creative destruction” in operation at hyper-speed. Of course, it is going on in every single industry, not just in consumer electronics. The overall impact is to benefit society—who could ever imagine, 11 years ago, having access to as much knowledge about the world as anyone can now conjure up with a simple Google search on an iPhone? But the impact on companies, industries, and individuals is highly uneven: Some are greatly hurt, others are greatly benefitted.

According to the New York Times, the top three automakers had revenues of $250 billion and employed 1.2 million people in 1990. By 2014, however, the top three tech companies had roughly equivalent revenues but employ only 137,000 people. The impact of that statistic is somewhat ameliorated by the fact that the major tech companies have spawned countless spinoffs.

But the reality remains that high-tech industries don’t offer as much employment as heavy manufacturing does—and the employment opportunities they offer accrue in large part to those who are better educated. There are simply fewer blue-collar jobs than there used to be, and many of them are migrating to lower-wage markets overseas. That explains the appeal of populists from Donald Trump to Jeremy Corbyn and their claim to be able to stop the process of economic transformation. They can’t, and shouldn’t try. It makes no sense to try to revive Kodak and kill Snapchat or Instagram—but that is the equivalent of what Trump is trying to do by claiming to revive coal and steel jobs.

There is simply no going back. Like it or not, we are engaged in an economic journey into the unknown. We can and should try to cushion the shocks of transformation for the most vulnerable among us, but we cannot and should not try to push the “stop” button. If we do, we will wind up like North Korea—a nation frozen in time. What has always made America great is our willingness to shape the future. That is something that this country will continue to do as long as Washington does not get in the way.

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