The only good thing about the unsurprising news that Boeing might put a second 787 production line in South Carolina is that there are so many people we can blame.
The typical blame will be levied at unions, state government, liberals, and the pressures of globalization. Boeing officials explain their recent outsourcing of so much of the 787 in terms of having to place work around the world in order to get orders from around the world. There'ês some truth to that, but it doesn'êt explain South Carolina. The real issues are much deeper, however, and can'êt really be pinned on Washington'ês much-maligned business climate.
The Machinists probably will have to agree with some concessions to placate Boeing, because the leaders of the new Boeing are apparently dim enough that they really would put a production line in a plant that is so bad Boeing had to send its own people there to straighten things out. This happens a lot when Boeing outsources work, a fact that the company routinely pretends not to notice.
Apparently buying this South Carolina plant will solve that problem for good because, according to the General Electric management model under which Boeing now operates, workers are basically interchangeable parts. It doesn'êt matter what you pay them — even though it apparently matters greatly what you pay top management. So, you can build anything anywhere and it all turns out the same. The fact that GE'ês far-flung manufacturing operations are not very profitable doesn'êt matter; it must be the workers'ê and the government'ês fault, anyway.
But that begins to get us to the deeper problems with Boeing and its troubled new plane, the 787, which one aerospace observer, Richard Aboulafia, is starting to worry may be a mediocre model. Aboulafia also points to the real root of the problem: That grim day in late 1996 when McDonnell Douglas, a steadily failing aerospace and defense firm, essentially used Boeing'ês money to acquire Boeing.
Douglas Aircraft was once the world leader in commercial airplanes, but they sold so many planes so cheaply that they had to be acquired by McDonnell, essentially a defense contractor. During the Cold War, when the government would buy anything that would make a big enough boom, you could run a reasonably efficient operation and make money because your one customer — the U.S. government — had a yen for weapons and a fat wallet.
But then the Cold War ended and the blank checks began to go away. McDonnell absorbed Douglas but didn'êt really understand the commercial airplane business. It steadily lost market share to Boeing and, increasingly, to the European jobs program known as Airbus. (The next time that one of your market-addicted friends tells you that we must have free trade at all costs, remind them that the problem with the theory of comparative advantage — make what you'êre good at, buy the rest — is that Airbus is flying proof that if you invest enough money, you can buy comparative advantage.)
Harry Stonecipher, who should be known as the man who tried to kill Boeing, was the last CEO of McDonnell Douglas. When I interviewed him in the early 1990s, he bragged that he had made the company profitable without selling any airplanes. That'ês not a business model, unless your goal is Chapter 11.
McDonnell Douglas was not well run. Like a lot of U.S. firms in the 1980s and 1990s, McDD leaped into the W. Edwards Deming school of participatory management without really understanding how it works. They called it the Total Quality Management System (TQMS), which their employees came to call 'êTime to Quit and Move to Seattle.'ê By acquiring this failing enterprise, Boeing thus added a whole fleet of managers adept at arrogant failure.
McDonnell Douglas'ê final act was to finish third in the three-firm competition for the F-22 Joint Strike Fighter, leaving Boeing and Lockheed Martin to slug it out in round two. But the new McBoeing put the McDonnell Douglas people in charge of the F-22 round two bid, which they proceeded to lose once more.
This was only the beginning. Phil Condit, who had seemed like a pretty good second officer to the underrated CEO Frank Shrontz, got bowled over by the new McBoeing board of directors, resigned, and was succeeded by Stonecipher. Commercial airplane sales dried up, because under the McBoeing model, you only sold at an immediate and substantial profit. Hamstrung Boeing salesmen got their tailfins kicked by the ever-aggressive Airbus team.
Stonecipher got fired over an ethics violation or McBoeing might be out of the business by now. In the ensuing six months, with no CEO to get in the way, sales went through the roof. Happy days returned, and Boeing even landed the 787 production line in Everett.
How difficult was it to decide to put a production line where you have an incredibly productive and loyal workforce, state and local governments that actually understand what you need, and substantial existing investment? Not very, but that didn'êt prevent McBoeing from flirting with half the states in the union before grasping the obvious and settling on Everett.
Times change. The McBoeing board passed over Alan Mulally, who is now rescuing Ford without federal bailout funds, for new CEO W. James McNerney Jr., whose previous job was making Post-it Notes. (OK, he ran GE'ês aerospace division back in the day.) The conversion of Boeing from a far-sighted, careful, and clever operation to just another American company was in full flight.
So Boeing subsequently parted out so much of its 787 production that it had trouble putting it all together. Boeing blamed its production woes on a two-month-long Machinists' strike, but as one engineer put it, 'êYou can'êt blame a two-year production delay on a two-month strike.'ê As usual, settling the strike right away would have been cheaper, but damn those workers: Executive pay bonuses are at stake!
Which brings us to South Carolina, which has really low unemployment compensation tax rates, unlike Washington's. So low, in fact, that their compensation fund went broke this year, unlike Washington'ês. The latest shining representative of the party of family values, Republican Gov. Mark Sanford, had to be sued by his own Republican-led Legislature to accept federal bailout funds.
Nonetheless, Boeing is probably determined to put a second 787 production line in a fiscally inept state by buying the factory that caused them so much trouble in the first place. That ought to put pressure on those darned Machinists. It will also put pressure on Washington state government to prostrate itself even further. And Boeing can probably get South Carolina to take another step in its race toward the bottom and largely avoid those pesky taxes and regulations altogether.
It should be amazing that people can criticize workers for wanting more money and more job security, even while executives and corporate directors still argue that top management compensation has to be hundreds of times what workers make so that these top brass don'êt jump ship. (To where? In this market? Kill me now.)
And so, if Boeing is short-sighted enough to make its Carolina dreaming become reality, then this region needs to be far-sighted enough to start looking ahead to a post-Boeing economy. We will need to think about how we go forward with a local economic development policy that isn'êt just about getting Boeing to stay here, or about tempting other firms to relocate.
Unfortunately, there still is no catalog of employers out there that you can order up for delivery. The southern strategy of offering up a tax-free, low-wage, non-union environment hasn'êt helped those states overcome historically uneven quality of life, and disparities of wealth.
Meanwhile, Washington'ês business tax structure is not terribly onerous, and the Legislature and cities should probably resist the temptation to jack up taxes sharply, even when the economy recovers. Further, we need to continue to invest in both infrastructure and education. Infrastructure, because the movement of goods and services is essential to the economy, and because good public facilities, from parks to libraries, make life better. Education, because in this economy you have to have advanced skills or practice saying 'êWelcome to Wal-Mart!'ê
An educated, skilled, and regularly retrained workforce keeps local firms more competitive, and also increases the chances that the next Boeing, Microsoft, or Starbucks gets started here.
And that brings us to the less conventional part of my prescription: more support for entrepreneurship. More loans, more small business advising, maybe even more tax breaks for the smallest, youngest firms. Historically, most of the job growth and product innovation comes from small business, not from the bloated behemoths.
Most small business loan programs require recipient firms to be lead-pipe cinches before they get any help, a far higher standard than venture capitalists use to judge where to put their dough. If some new firms succeed and thrive, that will probably do more to help the economy than groveling for a sub-assembly plant that pays squat and leaves in five years so they can relocate to Outer Mongolia.
Sadly, some things are partially beyond our control. For example, until the world economic system fully accounts for the cost of carbon emissions, it will be technically cheaper to ship goods around the world to places where they could just as easily be made. But as long as the cost of transportation does not also include the real cost of contributing to climate change, it'ês cheaper to buy a manhole cover from India than from Indiana.
That doesn'êt mean we shouldn'êt try to encourage a diverse and vibrant local economy. And inasmuch as McBoeing isn'êt the company so many of us grew up with, it'ês definitely time to start looking ahead.