I, Smartphone

It sounds so easy that you may be tempted to think you could make a pencil if you had to. But could you really do it all by yourself, without any skills, knowledge, or assistance of any kind from anyone else?

The late Leonard E. Read, founder and longtime president of the Foundation for Economic Education, authored a famous essay in 1958 entitled “I, Pencil.” He demonstrated convincingly that no one person in the world, working from scratch and entirely on his own, could make something as seemingly elementary as a pencil. You’d have to master so many pieces of the puzzle that a lifetime wouldn’t be sufficient to accomplish the task.

Why Not Drill Your Own Teeth?

You’d have to learn all about logging (after you figure out how to make the power saws that cut down trees). You’d have to become a miner, so you’d know how and where to find and extract the graphite as well as the metal for the pencil’s ferrule. Neither the graphite nor the metal is utilized in the form in which it is found in the earth. Other ingredients are added, as Leonard explained all those decades ago, from clay to ammonium hydroxide to sulfonated tallow. I’m guessing that most of you know even less about those things than I do, which is next to nothing.

And the eraser? Good luck in locating the necessary rubber and all the other components that are added to make the eraser do its job–things like vegetable oil, sulfur, and even pumice.

Economics: The Science of Human Cooperation

So, it turns out that the lowly pencil is really a complicated thing. It is the result of untold numbers of people from all over the world focusing on their particular knowledge and skills to contribute to the process. Even the waiters in the restaurant who pour morning coffee for the loggers are part of it. None of these people are a puppet on a string manipulated by an omniscient central planner. With a handful of exceptions, they don’t even know each other. They cooperate as if by magic through the miracle of what we call the marketplace. The division of labor into so many detailed tasks is utterly astonishing.

As Adam Smith might put it, the pencil in your hand results from an invisible hand–by which the Father of Economics meant incentives, the price system, and the profit motive.

A Modern Miracle

We typically think of a pencil as a very mundane thing. It is, however, so much more than that. It is just short of a modern miracle, made more so by the fact that nobody is coerced into becoming even the smallest component of its production and distribution. Each contributor does his part, not so much because he personally wants you to be a writer, but because he stands to gain by providing his service.

For the same reason, the farmer plants, cultivates, and harvests his corn. He doesn’t personally know more than perhaps a very few of the consumers who will ultimately eat it. He does what he does because of his own self-interest, brought to bear by the marketplace to serve many others he’ll never meet.

Now that we’ve established that not one of us is an all-knowing pencil expert, what about another device we’re familiar with, the ubiquitous smartphone? It fits in the palm of your hand, so how difficult could it possibly be to make one all by yourself?

If you now think creating a pencil is beyond your reach, we have an expression in America that applies here: You ain’t seen nothin’ yet!

Did Smartphones Just Evolve by Natural Selection?

Before the early 1990s, smartphones did not exist. Few people anywhere yet knew they even wanted one. No legislature, emperor, or president decreed them into existence. But some far-sighted entrepreneurs sensed that combining into one affordable instrument some attributes of telephones and computers–miraculous inventions in and of themselves–just might be a good idea.

I’m rather risk-averse when it comes to money. If you approached me forty years ago and asked, “Mr. Reed, would you care to invest your hard-earned dollars in an idea of mine called a smartphone?” I would have replied, “Get lost.” I point this out as a way of reminding us of an important point: Those who were willing to take risks and make loans so that smartphone entrepreneurs could get off the ground should not be forgotten. They were part of the process too!

Let’s dig into the making of smartphones. If the story does not leave you awestruck, then it may well be impossible to impress you.

A Vast Array of Ingredients

Consider first the range of metals, rare earth minerals, elements, and other substances (such as plastics, glass and ceramics) that go into the manufacturing. How many would you guess are included? Ten? Twenty? Guess again. The right answer? More than sixty.

One of them is lithium. It is present in every smartphone that uses a lithium-ion battery, which is most of them, and it helps reduce the melting point of glass. It’s both the lightest metal and the third element in chemistry’s periodic table, behind hydrogen and helium. Highly flammable and quick to corrode unless kept in a vacuum or in certain liquids, lithium is not something you’d likely find while out on a hike. Do you know where to find it and how to get it? If not, then you won’t make it to first base to create a smartphone.

The world’s leading producer of lithium is Australia, whose miners blast its ore from hard rock and then send it on to processors who, using complex technology and machinery, extract the pure stuff. A secondary source is the “lithium triangle” of Argentina, Bolivia, and Chile, where the soft, silvery metal is derived from brine deposits.

Imagine for a moment how much a person would have to know to come up with this one substance, lithium! The people involved in the business include metallurgists, miners, chemists, truck drivers, tool makers, and likely dozens if not hundreds of other professions. Not one of them is a master of much more than his own occupation. No “mastermind” who understands it all commands them to work together, yet they do.

Multiply the information required to gather lithium by fifty-nine and you’ll have a rough approximation of the knowledge needed to gather the more than sixty materials in a smartphone. It’s a quantity that would seem to be so voluminous as to be, for all practical purposes, virtually infinite. Nobody has a head big enough to cram it all into.

Many Rare Metals

According to Venditti, a researcher and writer on natural resource topics, nickel is used in the electrical connections and the microphone diaphragm within a smartphone. Copper (from the US, Chile, and Peru) and magnesium (from China and Russia) are in there too. So are palladium and gold, sourced from at least four of the seven continents. Other substances within the device are made from stuff most people couldn’t pronounce, let alone extract from the earth and put to such good use–stuff like neodymium, praseodymium, terbium, dysprosium, gallium, and tantalum.

Make mine a cup of praseodymium with a terbium or two on the side, please. Make it snappy!

Beautiful blue cobalt, a ferromagnetic metal with atomic number 27, is inside your smartphone, too. Presently, almost all of it comes from the African nations of the Democratic Republic of the Congo (DRC) and neighboring Zambia. Mining it in those countries is controversial because of the use of child labor, environmental concerns, and effects on human health and local wildlife. Increasingly, smartphone manufacturers are turning to recycling cobalt and finding new sources that produce it in safe and sustainable ways.

Experts in Dozens of Fields

It took me seconds to type the phrase you just read, “finding new sources that produce it in safe and sustainable ways,” but like everything else about a smartphone, it’s far easier said than done. Countless people are involved, including explorers, deal makers, permit issuers, scientists, physiologists, environmental experts, engineers, etc., etc.

From our discussion so far, we can see that smartphone production is incredibly decentralized. Raw material sources span multiple countries and continents. Professional expertise is drawn from all over the world. Machines necessary for the process are the result of countless bits of knowledge learned, applied, and improved across generations. Who is the puppet master who coordinates all of this? Do you know his name?

Of course, you don’t. Because there is no such entity. This stunningly complex coordination occurs every hour of every day neither by mandate nor by random chance. It happens because the marketplace of the world, something we all take for granted, is guiding human action–rationally, purposely, and efficiently. To what do I refer? Prices!

The Government Can’t Do Things

In the old Soviet Union, where the central government attempted to plan and control the economy, prices were usually set by decree, and they changed only by decree. They were arbitrary, fixed often by officials who knew little to nothing about the stuff whose prices they were fixing. “A toss of the dice will determine the price” is about as “scientific” as it got. The result? Shortages of this, surpluses of that. Empty store shelves, except for piles of shoddy, unwanted merchandise. We know from decades of painful experience that Soviet price fixers could only pretend to know what they were doing. They were like a disabled ship, at sea without a rudder and with sails full of holes.

Prices in free markets, unlike those in government-planned pretend markets (which aren’t real markets at all), are a delicate, information-laden, and interconnected system. They move with changing conditions of supply and demand, both real and expected. They perform two functions indispensable to a functioning economy: They allocate scarce resources, and they direct production.

Think of prices as signals. They communicate information from endless sources, never from the mind of a master planner. There is, in fact, more information on the price of a gallon of milk than anybody inside or outside of the milk business could ever hope to discern. Yes, price tags are physical things that a real person in the grocery store applies with his hand to each item, but how markets respond is the miraculous invisible hand at work.

If demand for milk falls, or if supplies of milk rise, prices will tend to decline. That signals producers to produce less because the scarce resources they utilize may now have more profitable employment elsewhere. If demand for milk rises, or if supplies of milk fall, prices will tend to go up. In turn, this tells producers to take on a few more cows or send more milk to this place instead of that place.

I used milk in the above example, but I could just as easily and appropriately have used cobalt, copper, gallium or any of the other numerous smartphone minerals.

How We Work Together

Some forty years ago, Leonard Read asked me to fill in for him by delivering a speech to about a hundred high schoolers in South Dakota. Most were from farm families. Almost in passing, I said something critical of government involvement in farming, prompting the following memorable exchange during the question-and-answer period:

Student: Mr. Reed, if the government got out of agriculture completely, how do we know if farmers would stay in the business? And if they did, how would they know what to produce? Isn’t it possible that without government in agriculture we might starve?

Reed: Let’s say that without the Department of Agriculture, farmers would stop growing wheat. What do you think would happen to the price of bread?

Student (after a pause): It would go way up.

Everybody seemed to be in agreement.

Reed: I can assure you that I personally know very little about growing wheat or baking bread. But as prices soared, as you admitted they would, I’d start to notice. I would begin thinking about how much I could make if I could supply the widespread and growing demand that the ever higher price indicated. And there is a price at which even I, Mr. Know-Nothing-about-Wheat-and-Bread, would get out of the classroom and figure out how to get into the wheat and bread business. And no politician or bureaucrat would have to order me to.

Until they heard my reply, many of those students had no idea how wondrous the price mechanism of free markets really is. They blindly assumed that if something happens, it must be because wise, altruistic leaders in government thought of it and directed it. In their absence, who could possibly fill the void? This is medieval, if not ancient, thinking. It is certainly pre-economics, which is now well into its third century as a social science.

Not the Iron Fist, But the Invisible Hand

Two and a half centuries ago, Adam Smith told us that material prosperity results not from the iron fist, but from an invisible hand.

We take prices for granted, even as they are doing their work all around us. If someone asked me for a list of the most underappreciated wonders of the world, I would put prices–free market prices, not government-decreed ones–at the very top of that list.

When those old Soviet price-fixers were deciding what prices should be in the Soviet Union, they really had no idea if shovels should sell for more or less than hoes, or whether the state should build a shoe factory instead of a drug store. So, do you know what they often consulted to make sense out of the chaos? Catalogs of goods and their prices in capitalist or free market economies of the West! In their own crude and hapless fashion, they tried to solve their socialist problem by imitating capitalist success.

But why play market, as if it’s some sort of child’s game, instead of allowing a real market? The actual thing is so much more dynamic, accurate, and reliable than any contrivance cooked up in a bureaucrat’s office.

How Little We Really Know

The twentieth century Austrian economist F. A. Hayek expressed this crucial point beautifully when he wrote, “The curious task of economics is to convince men of how little they really know about what they imagine they can design.” He explained that the question is never whether there will be a plan (actors in the marketplace are always making plans), but whether the plans of millions will be overruled by the plans of a few with government power.

You might be thinking at this point, “OK, so the selfish profit motive gets us out of bed and prices tell us what to do and where to go from there. But what about a different impulse, the charitable motive? Isn’t it true that selfless charity gets a lot of good things done?”

I do not denigrate the charitable impulse. If you see someone in need and you help them out without regard to yourself, I respect that. I do it too. But look around you. How much gets done in the world because of charity versus what is accomplished due to the profit motive? I dare say that if one could put numbers to it, we would likely find that for every dollar of good that charity does, the profit motive is responsible for at least a thousand times more. Ever meet a farmer who says he plows his fields because he likes you and wants to help you out?

I’m getting carried away here because I find this stuff mind-blowing. It makes me grateful that there are so many people who know so much more than I do and who cooperate, even when they don’t know each other, to make stuff I want and enjoy, so when I walk into a store to get it, it’s sitting right there. No king, emperor, or parliament ever ordered them to do it.

But let’s get back to the smartphone.

How We Coordinate Human Efforts

We spent some time talking about the raw materials involved, but obviously you can’t call your mother through a pile of metals. They must be put together, through lots of trial and error, in just the right size, shape, juxtaposition, and connectivity to each other that will allow you to make that call, utilize that app, take that picture, and perform dozens of other tasks in your hand. Nobody knows exactly how many design architects have been involved since the first smartphone, but you can bet it’s a big number. They’re key players in transforming a dummy prototype into a working, consumer-friendly model. And they’re still at it as features are improved and added with each new version.

An unknown number of people are employed full-time to simply test those dummy prototypes before mass production ever begins. They drop the dummy phones from various heights and dump them in buckets of water to see what happens. They test the response of the buttons, repeatedly. They might even slam a few of them with hammers. (This is the part of the process I think I would most enjoy.) Designing and testing are just two aspects of the very complicated process of assembly and manufacturing that involves countless people and skills.

By the way, did you know that the world’s first computer, named ENIAC, was built not all that long ago, in 1946? It couldn’t perform a fraction of what today’s smartphone can do, yet it occupied nearly 2,000 square feet and weighed almost thirty tons! Twenty-seven thousand pounds, to be more precise. Suffice it to say that an awful lot of dispersed, unfathomable ingenuity accomplished that extraordinary miniaturization in the decades since ENIAC.

Materials from Across the Globe

Not only are raw materials for the smartphone sourced globally, but the actual manufacturing is spread around too. Nobody dumps all those raw materials in a pile next to one big factory that does everything thereafter. Many of the chips and processors are made in Taiwan, displays in South Korea, sensors in Japan, etc. Final assembly occurs in disparate places too, depending on which company you’re talking about. Many of the world’s smartphones are put together in Vietnam, India and China.

Where all this activity happens is the result of numerous factors, from labor costs to transportation hubs to the availability of managerial talent to geopolitical events and tariffs. Property rights and the rule of law are important elements in the mix too because nobody is going to invest somewhere if their investment is likely to be burned down, taxed away, or nationalized. Everything is risky because nobody knows the future and no one’s success is guaranteed. We’re talking here about flexibility that is not driven from the top down. Rather, it emerges out of decentralized responses to conditions of every kind.

Unpredictable complications frequently arise, requiring responses that keep things moving. For example, from the mineral known as coltan, tantalum is extracted. Tantalum is indispensable to smartphone production because of its role in the phone’s capacitors which store electric charges. But coltan originates in a “conflict zone”–the border region between Rwanda and the DRC. When governments or rebels use such “blood minerals” to finance their wars, it makes life very problematic for others just trying to make a product and a living.

Knowledge Is … a Problem

Let’s turn to F. A. Hayek again. He illuminated what he called “the knowledge problem” that humanity naturally faces. By that, he meant this startling truth, which is a challenge at the same time: No individual or man-created institution possesses all the information needed to issue informed economic decisions for an entire society. The relevant information is spread amongst countless individuals. It may seem counter-intuitive, but creating a rational economic order in the face of that daunting situation isn’t a deliberate edict of a master planner. It occurs every second of every day, across the world, because of market forces. Armed with their “pretense of knowledge,” overconfident government planners think they can manipulate entire economies but, Hayek warned, they only disrupt those market forces and produce waste, inefficiency, and other unwelcome outcomes.

Governments don’t solve the knowledge problem. Like the proverbial bull in a china shop, they create new problems when they try. Markets, however, come far closer to solving the knowledge problem because that’s what they naturally do. It’s their very reason for being.

The Consumer Is King

All along the way, companies cannot lose sight of the consumer. They know that consumers will not automatically buy the final product, no matter how good it is, if it’s unaffordable or unserviceable, or if a competing provider offers a superior alternative.

Amazing, isn’t it, how much harmony arises from what must seem from afar to be chaos with no puppet master pulling all the strings?! Economists call this “spontaneous order.” Adam Smith marveled at it. He wrote,

Imagine if Smith could visit us today and your job was to acquaint him with what a smartphone does and how it does it. He would likely be flabbergasted within the first minute. It would be immensely helpful, of course, if you had one in your hand to show him, but you would have a lot of explaining to do.

High-resolution camera? “What on earth is that?” Smith would surely inquire. Elaborate, and then you could move on to voice recognition software, IOS versus Android operating systems, screen resolution, microprocessor speeds, integrated circuits, semiconductors, cloud storage, Wi-Fi and Bluetooth capabilities. Get past the scientific stuff and then you could show him how to watch movies and play video games on the device while hoping he doesn’t ask you how movies and video games get into something so small.

While the great man would find much of what you’re telling him to be incomprehensible, I know what his reaction would be if you said, “And all this happens without the King or Parliament having anything to do with it. An advanced division of labor, diffuse knowledge, profit incentives and market prices do it all.” I think he would smile and reply, “I know. I told you so in 1776.”

The Supply Chain Sets Us Free

Production and distribution are the two parts of what we call a “supply chain.” For smartphones, the supply chain that starts with extracting raw materials ends up in a maze of functions that put the product where consumers can get it. Try to comprehend even a tiny portion of the knowledge that goes into distribution centers, order processing, packaging and labeling, inventory management, and delivery by rail, road, ship, and air. Staggering!

In recent years, smartphone companies such as Samsung and Apple have shifted portions of their supply chains away from China to other countries, such as Myanmar, Bangladesh, Cambodia, the Philippines, Malaysia, and Indonesia. Why? They are responding to price signals from the marketplace, which convey information about risk, cost, supply and demand, opportunities and challenges, and more.

There you have it: a rough sketch of what’s involved in the making of a smartphone. A very rough sketch, indeed.

Build Your Own Spaceship

More than half a century ago, I had a friend in junior high school I could never figure out or drum much common sense into. He was quite the dreamer. He loved science fiction. His nickname was “Angus”–derived from the fact that he was rather rotund, and our school was surrounded by farm fields. When we grazed at the same lunch table, he would speculate endlessly about what life on other planets might be like. He was very earnest, and very entertaining.

One day I suggested facetiously that Angus stop speculating and go find out for himself. “Build a spaceship someday and fly to the planet of your choice,” I recommended. To my surprise, he took me seriously.

Some days later, Angus excitedly told me he had it all worked out. He had designed the spaceship and even brought the plans to show me. Then, he unfolded a large sheet of brown wrapping paper. There it was–the entire cockpit control panel of the craft that would take Angus to the cosmos. There was a button for everything.

“This is not a plan!” I declared with a laugh. “It’s just a bunch of buttons with labels on them.”

“But it’s all here,” Angus insisted. “I’ve thought of everything–Start, Stop, Land, Take-Off, Dodge Asteroids, you name it, everything you need to know.” He even had an all-purpose button to take care of anything unexpected, which he thought was a genius innovation.

What I remember most vividly about this experience was not the fine detail of my friend’s sketch. It was my frustrating inability to convince him he was delusional, that his plan was no plan at all, that as a fourteen-year-old he wasn’t yet ready for a senior position at NASA. He was what philosopher Eric Hoffer might call a “true believer”–convinced beyond any hope of convincing otherwise that his plan was thorough, perfect, and sure to work.

I lost track of Angus after graduation, but I am quite certain his spaceship never left the ground.

Countless Little Miracles

Smartphones, however, are off and running. They are miracles composed of countless smaller miracles wrapped up in a convenient size and shape.

According to Sunill, about 7.2 billion smartphones are in use today around the world. Each year, another billion or so are produced. This creates significant additions to the waste stream. Proper disposal or re-use of e-waste is the focus of many creative scientists, not only to prevent environmental pollution but also to avoid the loss of the critical substances within smartphones. New methods of extracting and recycling e-waste metals include industrial scale pyrometallurgy and hydrometallurgy, and, believe it or not, the use of living, acidophilic microbes for bioleaching and biosorption.

When Leonard Read wrote “I, Pencil” in 1958, he couldn’t have imagined the technological breakthroughs that would produce a smartphone a couple generations later. If someone had read his essay and then told him, “Leonard, in just thirty years, you’ll be able to send a document through your phone to be printed out immediately at the other end (a fax),” he would be stunned but at the same time, not surprised. Fax machines are all but obsolete now, thanks to newer technology, such as email. If someone remarked, “Leonard, the innovations in technology in the coming years will be so immense that somebody must be in charge of it all so it’s properly planned out,” he would undoubtedly sigh and say, “You missed the point of my essay.”

If you’re tempted to say that an ever more complicated world requires ever wiser central planners, you need to read this essay a second time. For every person, planning his own life is a full-time job. To expect him to have enough time, energy, and knowledge to create a smartphone all by himself, let alone plan a whole economy of millions of people, is laughably preposterous. Great inventions, like smartphones, just don’t happen that way. Nor do economies.

If nothing else, that little device in the palm of your hand should teach you this important lesson: Be humble. You couldn’t make it yourself if you lived a thousand years.