Steve Jobs and the Economics Behind a Cult of Personality

The recent unveiling of the iPad 3 confirms a view that I’ve held privately for a long time now: without Steve Jobs, Apple is having trouble innovating. And the reason lies in a curious but lasting truth about dictatorships and political economy.

To understand, we have to travel back in time – the 1950’s – when the world consisted of two spheres: the communist east, and the U.S.-led west. These two spheres had two distinctly different economic models. See if you can guess which one resembles Apple. Or, more to the point, see if you can guess which one resembles Apple during Steve Jobs tenure, and which resembles Apple after.

Back during the Cold War, Western economies engaged in what economists calls intensive development. That is, these investment directed their money towards improving their productivity through innovation by encouraging free flows of information, enabling free capital markets, and generally taking us from a world of black and white TVs and radios in 1945, to VCR’s, moon landings, and, eventually, the personal computer by 1989. This was the world of innovation.

By contrast, in the East, economies focused on extensive development. That means they took the technology they already had, and built more and more of it. That’s why traveling to any one of these economies – even day – means seeing row upon row of identical concrete apartment blocks, and mile after mile of steel mill. The reason they did this is straightforward: it’s a lot easier to make carbon copies of something that already exists than to innovate, especially if you are a society that squelches free speech.

What does this have to do with Apple? Apple Pre-Steve Jobs and Apple Post-Steve Jobs are, in my view, two different companies that resemble two different models of dictatorships. The former looks like what the West did under communism. The latter – today’s Apple – is beginning to resemble the communist East.

If both models are a dictatorship, why did Apple under Steve Jobs resemble a free market? Simple. Under Steve Jobs, Apple endured a clear rarity in the world of dictatorships: an enlightened dictatorship. There have been scattering throughout history: for example, Kemal Ataturk, the one-time dictator of Turkey, turned a losing-World War I state into a progressive democratic country. When a dictator has a vision and the means to execute it, the country he runs can create innovation simply through force of his or her own vision. And with the right kind of vision, Intensive development occurs. Ideas are brought in from the outside; others are created from within by a circle of advisors, or by the dictator himself. Steve Jobs, like Oliver Cromwell of England, Frederick the Great of Prussia, and a handful of others, was an enlightened despot. Innovation took place.

But like, I said, such dictators are rare.

In the absence of Steve Jobs, there is no vision, so the company begins to make carbon copies of what it knows how to do. In Apple’s case, this means letting the engineers take over the existing product line – and make copies, while updating the innards at the speed of technologic progress. Faster processors, higher resolution displays, and improved wireless networks are well and good, but that’s not what made Apple products revolutionary over the past decade.

Judging by Apple’s products since Steve Jobs’ death – the iPhone 4S (faster processor) and the iPad 3 (more pixels) – the company is turning into a textbook case of what happens when a country or a company is reliant on a single cult of personality rather than a democratic, open framework. And now we are seeing a textbook case of what happens what that personality passes away.

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