On Oct. 26, 1958 history was made when Pan Am flew a new commercial Boeing 707 jetliner from New York to Paris. That was when manufacturing had been the backbone of the U.S. economy --- when only 8 percent of all cars sold in the United States were imports.
Also in that same year, a small Japanese company called Toyota sold its first vehicle in California; it sold 288 Toyopet sedans to American consumers. By comparison, General Motors produced 2.1 million cars in the U.S. that year.
That was a time when Americans once took great pride in the Made in the USA label --- and when usually only teenagers worked at one of the 34 McDonalds restaurants --- and when Walmart was only a local Five-and-Dime store in the small town of Bentonville, Arkansas.
But since the 1970s, a new trend began when America's job creators learned to offshore jobs for greater profits and much higher executive pay.
Companies such as Boeing represent a perfect example how and why America, as a country, has declined as a world leader in manufacturing over the past 40 years — and how, in a global economy, multinational corporations have betrayed their host country and it's citizens with their insatiable thirst for exponentially more profits — with the lion's share going to large institutional shareholders (such banks, hedge funds, and private equity firms) and to the company's top executives (who are also stockholders with stock-option grants).
Companies such as Boeing may have once been considered an American icon, but theirs CEO and board of directors can in no way be considered American patriots, and now are more or less leeches on the American taxpayers. (Some have even called them traitors.)
In their quest to maximize profits, Boeing has turned citizens against one another, using jobs as hostages, while blackmailing and bullying state and local governments for government subsidies and tax breaks — while using an army of tax attorneys and lobbyists to avoid taxes, subvert democracy and poison the American Dream.
For decades now, their primary goal has only been one thing: stuffing the pockets of its top executives. Just like other U.S. companies (such as Apple) Boeing has been offshoring jobs for decades. From the Economic Populist:
"The manufacturing index is important due to the economic multiplier effect. While manufacturing is about an eighth of the economy, it is of scale and spawns all sorts of additional economic growth surrounding the sector ...While the employment index is at a two and a half year high, the reality is, manufacturing jobs have just been hammered going all the way back to the 1990's." (Also read: Outsourcing Pays Big to Private Companies While Americans Suffer).
Manufacturing has a larger multiplier effect than any other major economic activity. According to one article, as factories get "smarter" and more advanced, the multiplier increases significantly. In some advanced manufacturing sectors, such as electronic computer manufacturing, the multiplier effect can be as high as 16-to-1 (meaning that every manufacturing job could support 15 other jobs).
According to the Bureau Labor Statistics, there were 398,887 private manufacturing establishments of all sizes in the United States during the first quarter of 2001. By the end of 2012 there were 334,800 --- or 64,087 less from 12 years ago. Meaning, the U.S. has lost an average of 5,340 factories during each of those 12 years --- or almost 15 factory closings every single day since 2001. Many were driven out by monopsonies like Walmart, who have such great economic power with their economy of scale, that their suppliers had no choice but to agree to their terms for lower prices.
The offshoring of jobs has been going on for the past 40 years, and that doesn't even include the multiplier effect when considering the additional jobs lost. A study shows that almost 1/3 of all current domestic jobs are still prone to being outsourced or offshored.
Forbes: Boeing's Dreamliner is probably the most extensively outsourced passenger plane in American aerospace history, and is now threatening the future of America’s last remaining serious manufacturing industry (not to mention U.S. national defense).
Only 35 percent of the Dreamliner is being built in the United States — and that may be an overestimate Another 35 percent is being contributed by Japanese suppliers (that we defend) — and this may be an underestimate. As for the remaining 30 percent, it is coming from all over, not least from Italy, Korea, France, Germany --- and even China (thanks to offshored jobs), who after recently surpassing Japan as the world's 2nd largest economy, is now predicted to overtake the US as the world's largest economy in just a few short years.
In contrast, the original version of the Boeing 747 — the jumbo jet launched in 1970 — was about 98 percent American-made. Since then Boeing has transferred vast tranches of Boeing’s vital manufacturing technology (that has been accumulated through decades of "learning by doing") to foreign suppliers.
The sorry story of Dreamliner’s outsourcing is recounted in great detail in a cover story just published in the American Conservative called Boeing Going to Pieces:
"Given that Boeing now subsumes most of the erstwhile independent companies that put Neil Armstrong on the moon, its eclipse constitutes a major part of a larger story of American decline." (More redacted passages from the article below.)
In the 1980s Boeing came under increasing pressure to enter into “work-share” agreements with various technology-hungry foreign partners, most notably the Japanese. The trend intensified as Boeing planned the 777, which entered service in 1995. On Boeing’s numbers, various Japanese companies took on in aggregate about 21 percent of the 777’s airframe.
Then came the 787, Boeing’s newest passenger plane which entered commercial service in 2011. For several reasons the 787 constitutes a watershed, not only for Boeing, but for the entire global aerospace industry. Otherwise known as the Dreamliner, it is the most technologically advanced passenger jet ever built. It is also the first progeny of a portentously redefined relationship between Boeing and Japan. On the company’s own figures, the Japanese account for a stunning 35 percent of the 787 .
As Business week says, "The Boeing 787 Dreamliner isn't very Made in the U.S.
Boeing would henceforth delegate many of its most technologically challenging manufacturing tasks to a consortium of three Japanese “Heavies” – Mitsubishi Heavy Industries, Kawasaki Heavy Industries, and Fuji Heavy Industries.
Ralph Gomory: “If the world economy were working in textbook fashion, Boeing’s technology transfer policy would not make sense. The Dreamliner story illustrates in high relief a fundamental, hitherto generally unnoticed, flaw in the theoretical case for globalism.”
For a start, in contrast to the standard case for outsourcing, Boeing’s increasing reliance on Japan can’t be explained as a search for cheap labor. The fact is, Japanese wages are notably high – probably, when all is said and done, higher than American levels. By the same token, labor costs in several other nations where key Boeing suppliers hang their hats (Germany, France, and South Korea, for instance) are also high.
By transferring production know-how to overseas partners, the American aerospace industry is cutting its own throat – and why would anyone do that? (There's already been reports of bogus parts in our military hardware.)
By the early 1990s Boeing’s willingness to reveal previously closely held manufacturing secrets to the Japanese became so notorious that Boeing employees vulgarly referred to it as the “open kimono” policy. The erstwhile Leviathan of the global aerospace industry was the one in the kimono.
Perhaps the single most controversial aspect of Boeing’s partnership with Japan is that the 787 flies on Mitsubishi wings. To add insult to injury, these are no ordinary wings. They constitute the first extensive use of carbon fiber in the wings of a full-size passenger plane. In the view of many experts, in outsourcing the wings, Boeing has crossed a red line.
In outsourcing so much of the Dreamliner, Boeing has flouted the opinion of its own top engineers. The company received a particularly well-argued caution at an in-house conference as far back as 2001. One of Boeing’s senior engineers delivered a paper on the dangers of excessive reliance on outside partners – a paper that subsequently went “viral.”
McDonnell Douglas was also once a brilliant company that flamed out after decades of increasing reliance on foreign partners. It eventually succumbed to a merger with Boeing in 1997.
Boeing’s future chief executive Harry Stonecipher had served as chairman of McDonnell Douglas and in that capacity had presided over a particularly toxic outsourcing fiasco involving technology transfer to China. By 2003 he was chairman of Boeing and oversaw the early stages of the 787’s development.
How does Boeing justify its retreat from manufacturing? The company is not saying and requests for interviews were refused. Meanwhile independent sources who had been helpful for a previous article in 2005 inexplicably refused to cooperate this time. A pattern of self-censorship also seemed to extend to the U.S. Senate: one outspokenly pro-manufacturing Senator only offered a few irrelevant platitudes that carefully avoided any criticism of Boeing.
Not the least controversial aspect of this story is that Boeing’s policies seem at odds with its communitarian obligations. On the one hand Boeing has received considerable government support over the years. Meanwhile, though the company claims that nearly 500,000 workers worldwide participate in its programs, most of those jobs are outside the United States. Certainly jobs in the company’s civilian jet division have been cut by more than 20,000 in the last three decades.
Much of the technology that Boeing has transferred abroad was subsidized by the U.S. taxpayer and it was entrusted to Boeing to look after. Instead Boeing has sold it off. There has been a substantial amount of cashing out and top executives have treated themselves extremely well.
On one estimate, in the three decades to the mid-1980s, more than 70 percent of the U.S. aircraft industry’s development funding came from Washington, D.C., mainly thanks to spinoffs from military and space projects. More recently Boeing benefited greatly from low-interest finance from the U.S. government.
Another factor often mentioned in mitigation of Boeing’s outsourcing is a perceived need to enlist financial partners who can help fund the development of new planes. In the case of the Dreamliner, the Japanese Heavies provided much of the funding. But did Boeing need such help? Boeing had plenty of in-house financial muscle.
But instead it chose to use its cash to reward shareholders via hefty dividend increases and, even more irresponsibly, huge buybacks of its own shares (to increase the value of Boeing executive's stock-option grants on the remaining outstanding shares). Boeing’s buyback policy is much different than Japan's --- companies there do very little buying back of their stock --- they reinvest in their businesses.
What is clear is that Boeing’s stock price has done well. The rising stock price has in turn powerfully boosted executive stock options. Hence in large measure the fact that Boeing’s current chairman Jim McNerney made $27.5 million in 2012. This compares with a total of $1,725,000 for then chairman Phil Condit in 1997 – and Condit’s package was probably rich by previous Boeing standards.
The Boeing story strongly suggests that America’s defense base has become dangerously eroded. Had the United States not significantly contributed to this migration (such as tax and trade policies), it would have been considered a major triumph of an adversary nation’s strategy to undermine U.S. military capabilities.
In discussions of the unintended consequences of globalism, the leakage abroad of valuable production technology is the elephant in the room. It is consistently ignored in all standard theoretical accounts of free trade.
In short, a historic ratchet effect is at work. With high-value jobs disappearing never to return, America’s imports and current account deficits rise with each succeeding economic cycle. On present policies, the United States is destined to continue on a downward spiral of indebtedness similar to that of the late-era Ottoman empire.
New York Times: As part of Washington State's efforts to woo Boeing, the state legislature approved $8.7 billion in subsidies for Boeing through 2040 if it placed 777X assembly in the state, where Boeing now does most of its production. Boeing workers narrowly approved an eight-year contract extension, their union announced late Friday, in a move that will assure production of Boeing’s new 777X aircraft in the Puget Sound area. The workers voted 51 percent to 49 percent in favor, responding to pressures from top union officials and Washington State lawmakers, who warned that Boeing might place 777X production elsewhere, potentially costing Washington more than 10,000 jobs.
My related posts:
- Offshoring from Sea to Shining Sea
- Defense Spending, Bogus Parts, Transnational Mergers
- America Needs to Make Stuff Again
- Boeing is a tax dodger and a blood-sucking leech
* Google "Bud Meyers TPP" for info on our horrific trade agreements.