Will Apple Build A Bell Labs?

Matthew Yglesias says probably not:

Nicholas Thompson notes that Apple has become the biggest company in the world while maintaining a fairly lean R&D budget, so naturally he wants them to turn around and dedicate a hefty share of their remaining stockpile to creating a new version of Bell Labs.

Rather than say whether I agree with this or not, it's worth just saying why it's not going to happen. After paying a dividend and executing a $10 billion share buyback scheme, Apple will still have a ton of cash on hand. But that cash will largely be in nominally "foreign" accounts and can't be "brought home" without paying a hefty tax bill. This isn't just a matter of selling stuff abroad. If Apple Germany pays German corporate income tax on its German operations, those payments can be deducted during the repatriation business. But like other large multinational companies, Apple engages in extensive financial engineering to try to make sure that as many of its profits as possible are "located" in tax haven jurisdictions like Ireland. Apple rationally believes that at some point in the future the US Congress will either enact a corporate income tax cut, or else declare a "repatriation holiday" and they'll be able to fully complete the money-laundering process that lets them accrue profits while paying little tax on those profits. Taking the money home to establish Apple Labs isn't an option for the same reason that taking the money home to pay a higher dividend isn't an option—they're sitting on the money for tax avoidance purposes, and will keep sitting on it until either US tax law changes or else until the Congress sends some kind of credible signal that the tax will never change.

Something else to note is that in Bell Labs' postwar heyday the marginal income tax rate was extremely high. If you're a corporate executive and you know that 90% of any additional income that you pay yourself is going to go to the federal government, suddenly using the corporate account to buy yourself fun new toys instead looks like an appealing alternative. And what could be more fun than a giant wacky research lab!

I like his point on the 90% marginal rate.  Also, I think the idea of shareholder returns have kind of buried the idea of large investments in experimental R&D.  Companies would rather get some gimmick to market than develop something completely out of the box.