Innovation and Economic Analysis: The Rise of Samsung’s Stock and Apple’s Fall (삼성 주가 상승과 애플 하락)

Of course, patent lawsuits are not a trigger for the rise of Samsung’s stock or Apple’s decline. I’m reposting the comment I made in my prior post re Samsung vs. Apple.

As one can see in the below charts, Samsung’s performance got stronger. The irony lies in that in a sense, Samsung’s rise may reflect a heap of increasing problems Korea has to tackle. As discussed, the challenges Korea is facing are multi-faceted and structural in nature, and the chaebol system is a part of them.

Samsung, a symbol of Korean conglomerates, transitioned from a homegrown chaebol to a platform company, operating globally. Despite its strong performance, they have continuously shifted its manufacturing overseas over the years. That’s why I have argued it has been a moral choice of Samsung to offshore jobs. Their profits are up, but jobs in Korea are gone. Large portions of Samsung products are being manufactured outside Korea.

As with Japan’s high-tech companies and the U.S. high-tech firms for that matter, Samsung would argue that they don’t have any other choice but to outsource and offshore to remain competitive on the global stage. And yet, profit maximization has been the name of the game. Again, it all boils down to social considerations and moral choices given all the favorable regulations and subsidies provided to Samsung. The necessity of globalization doesn’t outweigh moral considerations. History has repeatedly shown us that big business hasn’t stood for the general public.

Again, we are seeing what has happened to the U.S. after most of manufacturing jobs are gone. Apple is being made outside the U.S. Further, while Apply has been a brand of quality and innovation that gave customers what they wanted and revolutionalized the mobile device, it has been the biggest hedge fund hotel in the world.

Like Apple is a social reflection of the U.S., Samsung may well prove that its becoming more of MNCs mirrors the rise of fall of Korea’s productive capacity. As mentioned, Samsung has been the ultimate beneficiary of the Korean political economy as well as the global political economy dynamic. It has been the product of Korea’s mercantilist central planning. Samsung has also adopted the global corporate workplace model. Both models have significant flaws. At their extremes, both became extractive largely in the service of a small elite.

Another point to consider is the purpose of innovation/technology and its role in society at large. In the course of rapid industrialization, it had been pursued because the elites needed a means of production. It has served the political expediency well. As pointed out, if innovation and technology development is geared toward promoting the broader social interest (e.g., boosting living standards of the general public) by enhancing the long-term productive capacity, therein lies a significant flaw in Korea’s chaebol-centered innovation approach. Since the production base was rapidly built and the manufacturing jobs were created in the early decades of industrialization, people don’t seem to grasp the full picture. The case of Samsung may have to be viewed in this context. Samsung has been predatory and its success has impose costs on the Korean society (e.g., limiting opportunities for others). Samsung’s technological prowess doesn’t necessarily equal Korea’s competitiveness and the so-called trickle down innovation has hardly occurred.

From Zero Hedge:

The much-heralded $1.05 billion patent lawsuit win on August 24th appears to have marked "Peak AAPL-ness" as investors look through the first-round win for Apple to Samsung's potential second- and third-round wins on margins and revenues as a supplier to their rival. As Bloomberg's Chart of the Day notes, since that analyst-exuberance-inspiring date, Samsung is +16.8% (or 23% in USD terms) and Apple is -18.4%.