Tue, Sep 17, 2019 - Page 9 News List

Boeing’s travails show what is wrong with modern capitalism

Deregulation means a company once run by engineers is now in the thrall of financiers and its stock remains high even as its planes fall from the sky

By Matt Stoller  /  The Guardian

Illustration: Yusha

The plight of Boeing shows the perils of modern capitalism. The corporation is a wounded giant. Much of its productive capacity has been mothballed following two crashes in six months of the 737 MAX, the firm’s flagship product: the result of safety problems Boeing hid from regulators.

Just a year ago, Boeing appeared unstoppable. Last year, the company delivered more aircraft than its rival Airbus, with revenue hitting US$100 billion. It was also a cash machine, shedding 20 percent of its workforce since 2012 while funneling US$43 billion into stock buybacks in about the same period.

Boeing’s board rewarded its chief executive officer, Dennis Muilenburg, lavishly, paying him US$23 million last year, up 27 percent from the year before. There was only one problem. The company was losing its ability to make safe airplanes.

As Scott Hamilton, an aerospace analyst and editor of Leeham News and Analysis, said: “Boeing Commercial Airplanes clearly has a systemic problem in designing, producing and delivering airplanes.”

Something is wrong with today’s version of capitalism. It is not just that it is unfair. It is that it is no longer capable of delivering products that work. The root cause is the generation of high and persistent profits, to the exclusion of production. Financiers have been allowed to take over corporations. They monopolize industries and then loot the corporations they run.

The executive team at Boeing is quite skilled — just at generating cash, rather than as engineers. Boeing’s competitive advantage is centered on politics, not planes.

The corporation is now a political machine with a side business making aerospace and defense products.

Boeing’s general counsel, former judge Michael Luttig, is the former boss of FBI Director Christopher Wray, whose agents are investigating potential criminal activity at the company. Luttig is so well connected in high-level legal circles that he served as a groomsman for US Supreme Court Chief Justice John Roberts.

The firm’s board members also include Nikki Haley, until recently the UN ambassador, former NATO supreme allied commander Edmund Giambastiani Jr, former American International Group chief executive officer Edward Liddy, and a host of former political officials and private equity icons.

Boeing used its political connections to monopolize the US aerospace industry and corrupt its regulators.

In the 1990s, Boeing and McDonnell Douglas merged, leaving the US with just one major producer of civilian aircraft. Before this merger, when there was a competitive market, Boeing was a wonderful company.

Journalist Jerry Useem said 20 years ago: “Boeing has always been less a business than an association of engineers devoted to building amazing flying machines.”

Yet after the merger, the engineers lost power to the financiers. Boeing could increase prices, lay off workers, reduce quality and spend its cash buying back stock, and no one could do anything about it. Customers and suppliers no longer had any alternative to Boeing, and Boeing corrupted officials in both parties who were supposed to regulate it. High profits masked the collapse in productive skill until the 737 MAX crashes.

Boeing’s inability to make good safe airplanes is a clear weakness. It is, after all, an airplane aerospace company, but because Boeing is the US’ only commercial airplane company, the crisis is rippling across the economy.

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