A tale of three companies
Stories of WaMu, Boeing, and Microsoft reflect the character of the people at the top
Let's take a look at the economic crisis through the lenses of three prominent businesses. We have local, and quite different, case studies at hand with Washington Mutual, Boeing, and Microsoft.
The former WaMu is perhaps Exhibit A of what went wrong in the financial sector. High-flying, heedless officers and directors overpaid themselves, took the company recklessly into mortgage-backed securities, and then were forced by the feds to an acquisition by J.P. Morgan Chase. Employees lost their jobs and shareholders their money because of front-office folly. Let us hope The Russell Co. moves into the nearly empty WaMu Tower and eases the downtown Seattle office-space glut.
Boeing, born and bred locally, moved its headquarters to Chicago for no apparent good reason — except, speculation went, that it would find it easier to close local facilities from a distance than close at hand. It has been hard-nosed in its relations with its unions. The company is well known in Washington, D.C. for its heavy-handed tactics, as exemplified by its efforts to gain a multibillion-dollar air tanker contract from a Pentagon that did not want the tankers, and current efforts pressing Congress to order more cargo planes and fighter jets. Here at home, Boeing got multibillion-dollar public subsidies, courtesy of then-Gov. Gary Locke, the Legislature, and local constituencies when it threatened to move assembly operations elsewhere. It also has gamed the federal tax code to its advantage. In the years 2005-08, according to Business Week magazine, its effective tax rate was 3.2 percent, owing to tax breaks related to overseas sales, research and, to a lesser degree, philanthropy.
Boeing's future is cloudy. Its Dreamliner is way behind schedule and short on sales. Defense Secretary Bob Gates' Pentagon reform plan is likely to be tough on Boeing, beginning with its renewed bid for that air-tanker contract. In a tough state economy, when the Legislature has just been forced to close a $9 billion state budget deficit, Boeing is again declaring it wants new public subsidies or could move operations elsewhere. Bill Boeing's company, known for its loyal, professional cadre of engineers and aircraft makers, is ancient local history.
Microsoft, also deeply rooted here, is making no such threats, and it seems to be weathering recent difficulties. Although it is new-economy, it has been led in a quite traditional way by Bill Gates and, now, Steve Ballmer. I read recently the text of Ballmer's remarks last February 6 to the House Democratic Caucus's retreat in Williamsburg, Virginia. He made the point that, in recent years, unsustainable private debt had replaced innovation and productivity as key drivers of economic growth. Microsoft, he said, had historically resisted corporate debt, even when the company was criticized for it.
Ballmer insisted that American companies would not pull themselves out of the present trough simply with cost-cutting but would need fresh research-and-development investments. He also made a strong case for government investments in human capital, public infrastructure, and basic research. Ballmer's reputation is that of a hard-headed, practical manager. But his remarks showed him to be more than that. They received a strong reception from the Congressional Democrats but, I suspect, would have gotten an equally good reception from the House Republican Caucus.
Microsoft has its critics. But it is does not operate recklessly financially. Nor does it demand billions from local taxpayers, or else, when its profits flatten. WaMu has come and gone. Boeing is not what it was but, instead, is on a down curve in which it depends too greatly on federal and state subsidies and tax breaks. Microsoft has long since supplanted it as the leading private-sector force in the region. It all comes down — as in the public sector — to the character and intelligence of the people in charge.
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Comments:
Posted Thu, Apr 30, 12:18 p.m. inappropriate
Russell moving its headquarters to Seattle would create a tremendous hole in downtown Tacoma, a city more fragile and dependent on that major employer than Seattle would ever be. Ted's suggestion of this is short-sighted and evidence of the kind of Seattle-centric thinking that creates problems in our state.
Posted Thu, Apr 30, 2:37 p.m. inappropriate
Ballmer is also the guy who listed the state's priorities from the Microsoft point of view as "education, education, education." Somehow, this state has become obsessed with "costly transportation infrastructure, costly transportation infrastructure, costly transportation infrastructure." Sound Transit's Disneyland ride to the airport and the new Alaskan Way tunnel-duct show how skewed our priorities have become, as does the Draconian slaughter of education in this last budget.
Note that Microsoft has more or less given up on developing brain power in Washington State and is forced instead to import it from outside the U.S. Unlike Microsoft, our school system does a horrid job of rewarding performance from its employees. As a result, "basic education" has become a downward trending knife that the state legislature keeps tossing to the voters. The astute voter notes that catching this poor performing knife is a fool's errand.
Overall government in this state employ about 350,000 at a cost of about $24 billion in salaries and benefits. So our 6.5 million citizens are each spending about $4,000 to pay government employees. About half of the salary expense is for education, with a family of four is paying roughly $16,000 in educational salaries. For that kind of money, we should be getting significant educational results, not the mediocrity that has been institutionalized by the WEA and by our legislature.
If Ballmer were running state government, the compensation for state employees would skew more towards measureable competence and results, pay for performance, and much less for sitting around waiting for a cushy government pension. (Indeed this is a negative performance incentive!) What this means is that to get more out of government, instead of paying $100K to each employee with $60K going to salary and $40K to benefits, $40K might go to salary, $35K for performance, and $25K to benefits. Employees would have enormous incentive to perform at a high level.
Ultimately each silo of government (and education is among the biggest) must have a performance measurement that shows more productivity over time, so that citizens are continuously reaping the benefits of a more productive government. Businesses get more productive or competition kills them. Governments, unfortunately, tend to avoid competition and put up barriers to productivity to protect the status quo. The only thing worse than a stagnating government and education system is one that is corrupted by the deadly embrace of a business community that buys competitive advantage from government and thus becomes part of the problem.
A good example of this is the Boeing company, which has exacted huge concessions from government (and the taxpayer) and uses politicians to do their bidding in grossly uncompetitive and destructive ways. Boeing, the corporate Goliath, cares about itself. It does not foresee future generations of Boeing workers coming from Seattle's schools. Instead the Boeing Crystal Ball would appear to include migrant workers in El Paso or Tuscaloosa building planes at the minimum wage, or slave labor in Laos or Cambodia snapping together wings and fuselages. The sooner this incarnation of Boeing leaves Washington State, the better.
Both Boeing and Microsoft should be challenged to invest significantly in the educational future of this state through public-private partnerships and through corporate taxation that directly funds education. Either they are part of the solution or part of the problem. Right now they are both part of the problem. Ballmer says "Education, education, education," but the Legislature instead "cuts K12 education, cuts higher education, and cuts education in general." Good luck keeping either company in this state. And good luck with millions of poorly educated citizen flooding our prisons, homeless camps, drug treatment facilities, and other social service organizations.
Posted Thu, Apr 30, 5:56 p.m. inappropriate
I agree with the comment about the huge negative impact the move of Frank Russell would have on Tacoma. It would be really tragic.
Boeing is a mixed blessing. I find myself thinking "what do they really want. How many tax breaks do they need, what regulations are they ticked off about, do they disagree with the goal or with the means to the end. What's their better idea?" We can't win in a race to the bottom. There will always be a low bidder. Whether that state will have a top 10 public research university is an open question. How many nobel prize winners are on the faculty of the University of Mississippi?
Re Microsoft, time to re-read the story written in 2008 and the earlier story about Microsoft's tax breaks by moving key activities to Nevada.
http://crosscut.com/2008/02/02/microsoft/11167/
Another example of a broken tax code. It makes it hard to take Microsoft seriously when it says "spend more on education education education."
Posted Fri, May 1, 12:48 p.m. inappropriate
Funny, I was pissed off by the very same line that got a few of you other commenters. I'm sorry that the WaMu Tower is empty. But if you think that stealing Tacoma's most important employer is good for our region, you're a fool. Russell abandoning Tacoma would be severely damaging to Seattle's second city in too many ways to list. Thinking outside Tacoma, although it's obviously a Seattle goal to host every major employer in the whole region, doing so only exacerbates the city's and region's major transportation problems and leads to more fossil fuel consumption and air pollution.
Posted Fri, May 1, 1:58 p.m. inappropriate
Tacoma Friends: I hope The Russell Co. finds an appropriate place in Tacoma. I am presuming, however, that it will not or it would long since have done so. If Russell does move to Seattle, the WaMu Tower would seem an appropriate place, although I understand there are various issues there which might complicate such a move. Good luck to Tacoma in any and all things.
Posted Fri, May 1, 2:15 p.m. inappropriate
Here's a comment sent to the editor, from Peter Robison:
It's incorrect to say the Boeing Dreamliner is "short on sales." Through April, and net of cancellations, Boeing had orders for more than 850 Dreamliners, the most it's ever received for a new airplane model. By comparison, the 757 and 767 each had just over 1,000 orders in a span of 30 years. While the Dreamliner is undoubtedly delayed, it is undoubtedly in demand. Rgds/ Peter Robison
Posted Mon, May 4, 9:09 a.m. inappropriate
Building on scottacoma's remarks, Seattle's problem has always been that it sees Washington as a city-state, such as Liechtenstein or Monte Carlo. The state is, in Seattle's view, simply it and its environs. If Seattle had an enlightened view of the function of a principal large city (one might even style it a Queen City) in a geographically and politically diverse state, it would work with other cities and regions of the state for the benefit of all. Instead, Seattle gets all huffy and bent out of shape when the Ausländers dare to question its divine right to rule. (A perfect example of this are the recurring calls to "merge" the Port of Seattle with the more competently run Port of Tacoma.) Maybe if Seattle saw its role as first among equals, and not enlightened despot, the whole state might become more prosperous.
Posted Mon, May 4, 9:29 a.m. inappropriate
Peter Robison is indeed correct when he says that early Dreamline orders
have been strong. However, as has often been demonstrated, such orders tend to evaporate when the economic climate forces cutbacks on prospective purchasers. The plane's long delay, combined with a worldwide financial/economic squeeze, is likely to have that effect again. Orders, made in the past, yes; purchases, to be made in the future, chancy.