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Sunday, January 5, 2014

Wealth redistribution, Boeing style

by John MacBeath Watkins

Last Friday, the International Association of Machinists and Aerospace Workers (IAM) voted by a narrow margin to accept the contract Boeing said was its last offer. They got a signing bonus and the promise that Boeing will build the 777X and the 737 MAX in the state of Washington, a promise of work for years to come, but they also got a shift from a defined-benefit pension to a 401K type which they will be contributing to.

In short, they took a pay cut over the long term in order to keep the work.

Meanwhile, Boeing CEO W. James McNerney, Jr., has been getting raises of about a million dollars a year. From Wikipedia:
While CEO of Boeing in 2007, W. James McNerney Jr. earned a total compensation of $12,904,478, which included a base salary of $1,800,077, a cash bonus of $4,266,500, options granted of $5,871,650, and Other $966,251.[8] His total compensation in 2008 increased to $14,765,410, which included a base salary of $1,915,288, a cash bonus of $6,089,625, and options granted of $5,914,440.[9] In 2009, his compensation decreased to $13,705,435, which included a base salary of $1,930,000, a cash bonus of $4,500,300, options granted of $3,136,251, stock granted of $3,136,242, and other compensation totaling $1,002,642.[10]
I don't doubt that the Boeing machinists were right in thinking the company would send work elsewhere if they had voted no.

But this is a microcosm of how wealth is being redistributed in this country. One reason McNerney is getting big raises is his ability to cut costs by playing off different states against each other. This has actually proven to be a terrible way to build an airplane. Outsourcing parts of the 787 Dreamliner produced a two-year delay in deliveries and delivered some of Boeing's core competencies to companies that may compete with it in the future. Economist have known since at least 1937 that the whole reason firms exist is to avoid the coordination problems and transaction costs that plagued the Dreamliner.

One of the competing sites for the 777X was the former Vought plant in South Carolina that Boeing purchased in order to straighten out problems with production of the 787. Having purchased the plant because it didn't seem to be up to snuff, Boeing has decided that South Carolina is a great place to build airplanes because it's a right-to-work state, meaning that unions have a tough time there. McNerney figures he's less likely to have work stoppages there, and can play it off against the unionized Puget Sound work force to keep wages down.

In short, it's all about who has the power to determine who gets paid what. That, as much as cost cutting, is what's behind the outsourcing we've seen over the last few decades. It's what's been behind efforts to cripple the unions. It's part of a larger effort, as laid out by Lewis Powell in the Powell memo, to get corporate America to shape the laws of this country. Powell, a corporate lawyer who had worked for the tobacco companies, got a chance to be one of the major shapers of those laws when, not long after he'd written the infamous memo, Richard Nixon appointed him to the Supreme Court.

It has taken more than 40 years to get wealth redistributed upward from the machinists of this country to the CEOs. It will likely take at least as long to swing the pendulum back, even if we start now. To do this, it will be necessary for unions and others representing working folks to take the same approach the business community did. They'll have to get people elected who will pass laws and appoint judges who will redress the balance.

It won't be easy. The money is on the other side.







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