From its own political arrogance and willingness to distort economic realities, the United States has fomented income/wealth inequality and other forms of economic distortion like never before. Today, CEOs of major companies routinely make 300+ times the compensation of their average worker… up slowly over time from the 50+ multiple in the 1950s. Since the 1970s, US presidents have routinely violated the economic notion of belt-tightening in wartime (the old guns or butter axiom) by cutting taxes when they know they are spending vastly more. A major political party has routinely presented, as a success strategy, the supply-side/trickle down “incent the job creators” theory (under the laughable Laffer Curve) with low taxes, even though it has been totally discredited. Tax cuts are routinely sold under this failed theory even though the benefits go to the ultra-rich, and the resulting deficits (with lots of interest) are passed down to all taxpayers… with no overall benefits to the nation.
We have made increasing educational instruction and/or highly specialized trade school training a major prerequisite for a good job, all the while increasing tuition at a rate that is triple the annual cost of living indices. As we spend increasing sums on executive compensation and wages, willing to borrow to sustain that lifestyle, we are avoiding the very necessary investment in our present and future. Look at how long it took to pass even a modest infrastructure bill, even as our dams, bridges, highways and levees were/are failing at an alarming rate; our power grids are in dire need of replacement… but kicking that can down the road has become an American pastime more popular than football or baseball. Effectively, we are living on the massive post-WWII investments in our future. After WWII, the rest of the world was way behind us, many developed nations deployed their investment capital to repair wartime devastation.
Slowly, the rest of the world not only caught up, their “new” investments represented serious upgrades to manufacturing technology that were far more competitive than American old-world facilities. We hired “specialized” immigrants – now a wildly unpopular theme – to fill STEM requirements, because there were not enough qualified Americans able to fill those jobs. Now we want to push them out… as Canada, the UK, lots of EU nations, Australia, New Zealand, etc. are ready to bring them in to grow those nations’ economies.
We often use the word “Great” in our political discourse, but neither party gets it right. I suspect the MAGA GOP gets it significantly less often than the Dems, but there is no pride in protective efforts to eliminate the need to upgrade our competitiveness. Too many American billionaires got there from artificial financial games: roll-ups, private equity buy and flip strategies, highly leveraged restructuring, off-balance sheet tax-avoidance efforts, weird derivative investments, share buybacks, to name just a few. And no, Donald, tariffs are not paid by foreign nations; their cost is usually borne by US consumers. They are a poor substitute for upgrades to competitiveness… and making cutting-edge manufactures.
So, today, I would like to visit two major American corporations – Ford and Boeing – that are waking up to reality… examples of how the whole country is getting it wrong. The first exploration is based on a September 14th piece by Mike Colias in the Wall Street focused on Ford CEO Jim Farley’s revelation after visiting carmakers in China: “Jim Farley had just returned from China. What the Ford Motor… chief executive found during the May visit made him anxious: The local automakers were pulling away in the electric-vehicle race.
“In an early-morning call with fellow board member John Thornton, an exasperated Farley unloaded… The Chinese carmakers are moving at light speed, he told Thornton, a former Goldman Sachs executive who spent years as a senior banker in China. They are using artificial intelligence and other tech in cars that is unlike anything available in the U.S. These Chinese EV makers are using a low-cost supply base to undercut the competition on price, offering slick digital features and aggressively expanding to overseas markets… ‘John, this is an existential threat,’ Farley said.
“For years, Tesla was the main source of consternation for auto CEOs trying to tackle a transition to electric vehicles. Now, it is the rapid rise of nimble automakers in China that have rattled executives from Detroit to Germany and Japan. Even Tesla’s Elon Musk recently called the Chinese the ‘most competitive’ carmakers in the world.” Viable Chinese EVs are hitting the global market with retail prices from $12K-$25K per vehicle. And no, this is not the result of “cheap” Chinese labor; it’s not cheap anymore. It is instead the result of state-of-the art automation based on sustained excellence in engineering. The United States has killed the potential for substantial sales of these vehicles here with exceptionally high tariffs, a practice mirrored in most of the developed world where car-making is a major industry. But those PRC cars are selling well everywhere else!
Now, Let’s take a look at a typical American practice: substituting quality engineering leadership with cost-cutting “profits are all that matters” financial leadership. Michael Hiltzik’s September 10th editorial brings home the story of Boeing, having left its Washington State manufacturing hub for a finance driven headquarters in Chicago… now moving once against to the Washington, DC area (as a major government contractor): “Reporting on the announcement … that Boeing Co. had reached a landmark contract agreement with its largest union [later rejected by its members] tended to focus on its economic components, such as wage increases of 25% to 33% over four years, a reduction in employee costs for healthcare and improvements in retirement benefits…
“‘This contract deepens our commitment to the Pacific Northwest,’ Stephanie Pope, chief executive of the company’s commercial airplanes division, said in a video message to workers. ‘It is where generations of workers have built incredible airplanes that connect the world.’… Yet there may be more to that commitment: It’s a tacit acknowledgment that Boeing’s decades-long effort to juice its share price and maximize its short-term profits by undervaluing its traditions of superb engineering and rigorous quality control has failed by turning it into a corporation that makes neither money nor trustworthy products.
“Boeing hasn’t turned a profit since 2018. Its aircraft have a troubling reputation for falling out of the sky and coming apart in mid-flight… Its Starliner, which is designed to ferry crews to and from the International Space Station, has been judged so unreliable that NASA determined that it was safer to strand two astronauts on the ISS until February than to bring them back to Earth on the Boeing craft. (The Starliner returned to Earth Saturday [9/14], minus the astronauts.)… The first misstep was Boeing’s acquisition of the failing McDonnell Douglas in 1997. ‘In contrast to Boeing’s culture of engineering excellence, McDonnell Douglas focused on cost-cutting and upgrading older airplane models at the expense of all-new aircraft,’ [said] Bill George, an executive fellow at Harvard Business School…
“Cost-cutting became the theme of Boeing’s operational decisions. In 2019 it announced that it would move all manufacturing of its wide-body 787 Dreamliner to its plant in North Charleston, S.C., ending split responsibilities between that plant and Washington state. The company attributed the change to the need for efficiency, but given South Carolina’s position as a nonunion state, it was widely viewed as a slap at the machinists union, which had staged a 58-day strike in 2008….
“Another cost-cutting move — outsourcing design and manufacturing of Dreamliner components to subcontractors around the world — resulted in a comedy of errors causing so many problems that executives acknowledged it would have been cheaper to keep the work in-house. Some parts manufactured by far-flung suppliers didn’t fit together. Some subcontractors couldn’t meet their output quotas, creating huge production logjams when crucial parts weren’t available in the necessary sequence.
“Rather than follow its old model of providing parts subcontractors with detailed blueprints, Boeing required suppliers to create their own blueprints. At least one major supplier didn’t even have an engineering department when it won its contract, according to an analysis of the 787 by the European consortium Airbus, Boeing’s top global competitor.” Given the multiple crashes for it 737 Max and the blowout of a badly installed door in an Alaska Air 737 Max, clearly moving the company far from its manufacturing hub, prioritizing cost-reduction above all else, and tanked Boeing’s reputation everywhere. The new CEO, Kelly Ortberg, was hired from the outside. He has a huge problem to fix. But what is reflected in the above problems at Ford and Boeing just may be what’s wrong with America’s corporate ethos: prioritize profits over quality. We all lose.
I’m Peter Dekom, and letting “business leaders” become our political leaders suggests that we just might be able to import losing business strategies into running our nation… into the ground.
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