What’s the Matter With Boeing, Pt. 1: Shareholders Don't Build Airplanes

I grew up on the periphery of this industry and I have never seen the people in it and the people who have left as angry as they are now. People are pissed, and they should be. In the last six years, Boeing has killed three hundred and forty six people. In the years to come, they may well kill more, and not a single one of them had to die. This is how it happened. What is Boeing. The short answer, obviously, is that it's a company that may both civilian and

military airplanes. It also does some other things, including working on space travel, but that's not our media concern here. The long answer, however, and it's the long answer that we need, is that Boeing is the poster child for the post World War Two labor, corporate, militarist alliance. Boeing itself was a sometimes uneasy alliance of workers, engineers, and

the army that made civilian and military airplanes. This is also not a terrible description of the entirety of the postwar United States, with the proviso at the airplanes that the US is making, we're dropping bombs at Vietnam. The unwinding of Boeing that we're all watching today as doors fall off of planes and more and more grounded, is

the unwinding of that America. Here I turned to the anthropologist David Graber from his book The Utopia of Rules quote, I think what happened is best considered as a kind of shifting class allegiances on the part of the managerial staff of major corporations from an uneasy de facto alliance

with their own workers to one with investors. As John Kenneth Galbraith long ago pointed out, if you create an organization geared to produce perfumes, dairy products, or aircraft usel lodges, those who make it up will, if left with their own devices, tend to concentrate their efforts on producing more and better perfumes, dairy products, or aircraft usel lodges, rather than thinking primarily of what will make the most money

for shareholders. What's more, since for most of the twentieth century, a job in a large bureaucratic megafirm meant a lifetime promise of employment, everyone involved in the process, managers and workers alike, tended to see themselves as sharing a certain common interest. In this regard over and against meddling owners and investors. This kind of solidarity across class lines even had a name. It's called corporatism. One mustn't romanticize it.

It was, among other things, the philosophical basis of fascism. Indeed, one could well argue that fascism simply took the idea that workers and managers had interest in common, that organizations like corporations or communities formed organic holes, and that finances were an alien, parasitic force and drove them to their ultimate murderis extreme, even in its more benign social democratic versions.

In America or Europe, the attendant politics often came tinged with chauvinism, but they also ensured that the investor class was always seen to some extent outsiders, against whom white collar and blue collar workers could be considered, at least to some degree to be in united common front. Now, as a product of the united Front between workers and managers, the corporative system of the post war era had a

very different conception of what a corporation is. It was a social entity composed of a variety of classes and had an obligation to take care of them. It had an obligation to its workers, to its engineers, to its customers, and even to its country. By absorbing unions into the corporate system, the system itself had been forced to adapt a more sociological self conception that vastly differed from the

ways corporations both view themselves and behave today. As Grayburn notes, this class coalition largely wrote capitalists out of the equation, reducing them to merror holders of stock, not managers. In Boeing's case, those managers were engineers at basically all levels of the company. Now we must note here that in the post World War two era engineers were extremely powerful,

and this is not just true of capitalist nations. So the US to some extent had an early start on the power of engineers in the running of New Deal programs like the Tennessee Valley Authority. Engineers are powerful in communist countries as well, and it's true in quasi socialist countries that had just liberated themselves from the old European empires.

These engineers were both extremely well paid and very influential everywhere you can find them, from Belgium to Peru, and the only real difference is whether they were trained by the Americans or the Soviets. Now, the fact that you, the listener, are not reporting to an engineer right now at your job is assigned that they didn't exactly hold on to power. In fact, the last vestiges of this class of extremely powerful engineers aren't really even in Boeing

at all. The most prominent remain of the Great Engineering International is Shi Jim Ping, who is part of a class in China known as the Red Engineers. If you want to know more about the Red Engineers, we unfortunately do not have time to really go into them here, but c Joel Andreas's book Rise of the Red Engineers for the most famous treatment of them. Now in China, the Red Engineers effectively seized control of the states and were the kind of second generation that ruled back the

social changes of the revolution from the Maoist period. In the US, the story is a bit more complicated. In some places, the engineers as a class were rolled up and brutally destroyed in a war with a newly ascended finance class. In others, engineers, feeling the disciplining effects of

the market, effectively engineered their own destruction. The latter engineers leading the company to financial ruin is to some extent the story of Boeing, But to get there we need to take a look at how the worker management alliance Graber described came a part. I have talked at length on this show about the economic crisis of the seventies in which everything, the entire consensus that had held the

post war era together fell apart. One of the key elements is that in the nineteen seventies, manufacturing becomes zero sum. If manufacturing put increases in one country, it can largely only come at the expense of production somewhere else. This is the product of a general crisis of structural overproduction

and structural under consumption. This meant that it was no longer possible to incorporate everyone into the capitalist welfare system while also retaining corporate profits, and so someone was going to have to lose everything. It was either going to be the capitalists or the workers. And the people who lost everything, as I think we're all aware of living in the world that we do now, were the workers

whose power was systematically destroyed. But that largely the story of the destruction of unions and the destruction of the leftboard broadly is a story for another day for our purposes. The important class that was destroyed in the period of the seventies is the class of managerial engineers, and these engineers were destroyed by a takeover of Corporate America by the shareholders the Corporatist Alliance had previews held at Bay.

The takeover of Corporate America by finance schools had two mechanisms. The leveraged buyout, better known as corporate rating, was carried out by people like Michael Milkin, and the internal movement of executives from inside the corporations themselves, led by people

like Jack Welsh. We will meet both of these people in detail later in this story, but the details of the process of how exactly the finance schools came to control Corporate America turn out to be extremely important because Boeing is destroyed by both of the two mechanisms coming together at the same time. Now, as the eighties dawned, the world lived in fear of a new kind of

financial device, the leveraged buyout. The exact mechanisms of the leveraged buyout are slightly complicated, but the short version is that Michael Milken, a bond salesman who who I eventually am going to do a fall behind the bastard's episode on because oh my god is the evil and there simply is not space to elaborate on all the stuff that he did here, including the off that eventually is going to send him to prison, figured out a way for a person or a group too, with very little

actual cash on hand, to very quickly take on an unbelievable amount of debt, use it to buy a company, and then sell that company for parts to pay back the debt, pocketing the difference as profit. This was an instant, existential danger to a corporate America. Previously, corporate takeovers were extremely difficult. Attempting to get two hundred million dollars to buy a company required you to have two hundred million

dollars on hand. But now with the leveraged buyout, a group of yahoos with a tiny amount of money could simply buy a company for higher van stock price, loot it for parts, and destroy it. This completely changed the balance of power between shareholders and corporations. One of the best accounts of this era is from the anthropologist Karen Hoe in her book Liquidated in Ethnography of Wall Street. The book was a product with the field work she did at a Wall Street investment bank in the nineties.

And I really cannot emphasize this book enough. This book is incredible. Everyone should read. It is a book that genuinely changed my life. And one of the things that she talks about is this moment, the moments of leverage buyouts, and the way that it is constantly brought up by the people that she is working with at this bank when she's doing her when she's doing her anthropological field work. Everyone. She talks about this moment where the corporate waters really

got going, as the moment the shareholder revolution began. Now, we talked earlier about how in post war America the corporation was a social entity with responsibilities to its workers and country for the shareholders running the new shareholder revolution, corporations had exactly one job, getting them more money to raise stock prices. They called this shareholder value. And now the disciples of shareholder value were able to wield the ability to simply buy companies out wholesale and bend them

to the ends of shareholder value directly. This is what is known as the shareholder revolution. Now, do you know what else is a revolution in the ways that y'all experience capitalism and mass culture at our jobs. It is the products and services that support this podcast. We're back.

The first thing that the corporate raiders and the disciples of shareholder value did when they started to take over companies was look at the balance sheets of a company and destroy everything that didn't immediately look to the Wall street goruls like they made money. Now, what are the assets on a balance sheet that do not immediately increase

stock price? Because again, they look like costs. Right. The two assets that don't immediately contribute are funds allocated for research and development and pensions, the darlings of the workers and engineers who comprise the previous corporatist regimes. Mass layoffs followed. Companies were reduced to debt financing mechanisms for the corporate raiders who took on the debt to acquire them were still.

As Karen Hoe observes, even companies ran by the old elite were forced to embrace the same methods the raiders were using, because the only way to keep the raiders from buying your company was by increasing your stock price, and the only way to increase your stock price was to appease the shareholder value fanatics. Control of corporate America had shifted from the old managerial work reliance to the

new shareholder value financiers. Now, the problem with the shareholder value people running companies is that they are viscerally physically incapable of long term planning. Don't take my word for it, here's Karen Hoe quote to actualize their central identity as being immediately responsive to their own changing relationship with the market, including employees, products, and so on. Their strategy is, in

a sense, to have no strategy. Ironically, having no long term strategy is contradictory and potentially self defeating in that investment banks often find themselves making drastic changes, only to realize months or weeks later that those changes were unnecessary, premature,

and extremely costly. For example, in chapter five, I describe how investment bankers and because of their access to sensitive proprietary information, are not only fired in an instance, but must leave the physical premises of the building within fifteen to thirty minutes. Given how crucial the control of knowledge and the protection of inside information are for Wall Street investment banks, it seems self defeating that they do not

praise any freemium on loyalty. Despite the fact that firms try above all to enforce secrecy, they accept it maintained this volatility in revolving door policy. To make this clear, what carrot Ho is describing is that investment banks, on the one hand, turn over like a third of their staff every six months, and yet also they are so reliant on the secrecy of this proprietary information that they're using to make their investment decisions that they are kicking

the people. They are firing out of the building in like fifteen minutes, so they don't have time to plan or leak information. But again they're also just firing these people on mass, so they're defeating the entire point of their operations. These people cannot plan ahead, and the reason that they cannot plan ahead. Isn't just that they're sort of like naked disciples of pure increase in stock price. What Liquidated describes is that these people believe that they

are effectively constantly reacting to near instantaneous market changes. Right. They can't sort of make any kind of long term plan because the market is the thing that's making the plan, Like this sort of mythical abstraction of the market is what is doing all of the actual allocations. So they just have to sort of like sit there and have no plan and quote unquote respond to what the market

is doing. Now, large corporations have always, to some extent, acted as long term planning engines because they have to. Corporations have to do things like research and developments, they have to plan product lines, they have to make long term decisions about resource allocation, the shareholder value. People are incapable of giving a shit about any of this because all they care about is immediate stock price movement, because they think that immediate stock price movement reflects the will

of the great efficiency planning engine of the market. And you could begin to see here why it would be a bad idea if these people who literally cannot create long term plans, did something like, for example, take control of the world's largest manufacturer of commercial aircraft. Now, the shareholder value people also believe that people are effectively interchangeable.

And they believe this because and this is a very key part of why the shareholder value people and why these sort of financed people have reshaped the world the way they do. They have reshaped the world in their own image. And all of these sort of investment bankers are interchange right. All of these fucking bankers are fired all over the time, and they move from firm to firm,

and it is fine for them. But the thing is, you can't do this with the design of your entire aircraft because unlike in finance, where every single one of these clowns is really just a replacement level bozo whose qualifications are being able to stumble through the chain role and vaguely remember calculus, kiss, ask, and play golf, aerospace engineers actually do a difficult job and it requires extraordinarily

large bodies of embedded knowledge to do this job correctly. Now, bringing in a bunch of people who think you can just fucking replace aerospace engineers will have no negative influences on Boeing in the future. Pay no attention to the man behind the mirror. Everything is fine. Do you know what else is fine? It is the products and services that support this podcast. And we are back the shareholder

value fanatics. The investors who are now taken control of corporate America also believe that mass firings make companies more valuable because it makes them more efficient. They believe that offshoring makes a company more valuable because it makes it more efficient. It doesn't actually matter what the effect these moves have on the company and its ability to produce

products and its ability to produce money. It doesn't matter at all, because that's how the people who can control stock prices by buying the stocks think the world works. And so if you do these things, the stock price will go up. All quote unquote. Creating shareholder value means is convincing a bunch of dipshit quants working one hundred and twenty hours a week that your company is valuable,

so they buy it for a higher price. And these are the people who reshape American capitalism to their whims. Now importantly for our story, they're also the people who ran the second phase of the corporate rating era. The mergers and acquisitions boom through the nineties and really to this day, Wall Street bankers began to encourage companies to buy out other companies as a mechanism of raising their stock price. This is, you know, the acquisitions and mergers

and acquisitions. They also heavily push merging companies together in the nineties. The buzzerod behind this was quote unquote synergy. Buying companies or merging companies could quote leverage synergies between companies to grow shareholder value. Outside of the shareholder value fantasy lands, most of these mergers and acquisitions either did nothing to help the company if the acquisitions were small,

or were a complete disaster that destroyed both companies. The bankers who orchestrated these mergers and acquisitions didn't give a shit though, because they got paid on commission. It did not matter to them what happened afterwards. All that matters is that the deal goes through. And this is where we returned to Boeing because in nineteen ninety seven Boeing made an acquisition that would fuck the company forever. They bought one of their longtime rivals, an aircraft company known

as McDonald Douglas. Now hitherto Boeing had been relatively insulated from the shareholder revolution. McDonald douglas, however, was not it's CEO. Was a man with the incredible name Harry stone Cipher. Stone Cipher is different from most aerospace executives because he

wasn't a McDonald douglas corporate man. He came from Jack Welch's General Electric And it's here we need to introduce the other mechanism through which the shareholder revolution was realized, a new breed of CEOs led by the man himself,

Jack Welsh. Now we are not going to spend an enormous amount of time talking about Jack Welsh in this episode, because cool Zone Media podcasts Behind the Bats has three hours of episode about this man, which you should go listen to their good The short version of it that we're going to give here is that Jack Welsh is the man who invented the bass layoff. He was one of the first CEOs to figure out that again, you could raise stock prices by selling off profitable divisions and

firing workers who are making the company money. Because shareholders are ideologically driven maniacs who would believe Welsh's manipulated balance sheets that showed the company was doing better than ever, even as it sold off all of its assets. He was also one of the first people to start practicing mass outsourcing, replacing workers directly employed by General Electric with contractors.

Soon he was outsourcing entire divisions. Offshoring followed. Welsh moved jobs from highly paid and highly trained union employees in the US to ununionized workers in places like India and Mexico. I think people generally kind of understand that offshoing lowers quality, but why does that actually happen. It's not about something like the natural skill of the workers, which is the way it can kind of be presented in these sort of nationalist accounts. It is about the level of violence

that can be inflicted on people. In places like India and Mexico and China, there is an extraordinary amount of violence that can be inflicted on the working class. And because of this violence, because of their ability to destroy unions and because of their ability to force people into poverty by taking their land, people get paid less money to work faster, And those people who are being paid less money to work faster with worse training are going to be worse at a job than people who are

paid more to do it better, slower. And Jack Welch wants this. He wants to sell shitty, low cost products because they're cheaper to make than anything that actually works. The long term consequences of this are a disaster. Welch drove General Electric, one of the greatest engines of American capitalism for a century, into the ground, even after a

massive government bailout in and it barely exists today. Harry Stone Cipher, the CEO of the company Boeing was about to buy, said this about Jack Welch quote, Certainly, Jack Welch is one of the great leaders in my mind. And of course he was selected as CEO of the Century by Fortune magazine a couple years ago, and of course about twenty years ago that same magazine coined the phrase neutron jack, and of course they vilified him at

every turn. Neutron jack, by the way, refers to like a neutron bomb, because effectively, what he was doing was firing all the workers and leaving only the sort of like physical capital assets, like leaving all of the machines intact, which is what a neutron bomb is supposed to do. Let's go back to the quote. Quote. Jack had a style that was one of trying to change the environment, not to just deal with the environment. So he inspired people, so he certainly won. So Stone Cipher is a disciple

of Welch. He immediately starts running the Jack Watch playbook, and though and behold, McDonnell douglass was failing when Boeing bought it for fourteen billion dollars. And again, like Boeing at this point controls like sixty five percent of the commercial aviation market, McDonald douglas controls like five. Right, so this should have been like Goliath eating David for breakfast,

but the merger didn't go as planned. Instead of the massive Boeing running the tidy McDonald douglas, McDonald douglas executives effectively hijacked Boeing and installed themselves in positions of power. Stone Cipher and his Padre shareholder value fanatics began to consolidate their position and drive out the previous Boeing regime.

The capstone of this project was moving Boeing headquarters from Seattle, where he had been since William E. Boeing founded the company in nineteen sixteen, to Chicago, as a way to shift the physical center of power of the company away from Boeing's engineers and workers and towards the McDonald douglas finance goals. Then they began to run the Jack Walsh playbook on Boeing in earnest. Every single account of stone Cipher's takeover that I've written quotes this exact same line quote.

When people say I changed the culture of Boeing, that was the intent, so that it's run like a business rather than a great engineering firm. And what stone Cipher is really talking about here, and what everyone is really saying when they talk about, you know, the culture shift Boeing in this period, what this really is is a change in the balance of powers between the engineers and workers who actually make the planes and the finance goals

who own the company. Stone Cipher wanted to crush the engineers and workers so he could run Boeing like a business. And what he says like a business, he doesn't actually mean run it like a business. He means run the company like a finance guy. And finance guys don't build planes, which is what Boeing had previously been doing. Finance guys create shareholder value. Which is to say that they make

stock prices go up. So if you're just trying to raise stock prices, you don't actually need to make an airplane. You can outsource the different parts of building the airplane to a bunch of random shops around the world who work extremely fast, don't have much of idea of what they're doing, and do a terrible job long term. Of course,

this is an absolute disaster. There are very good reasons to keep the production line for something as complicated as commercial aircraft, in house efficiency, consolidation of knowledge, quality control, et cetera, et cetera. But outsourcing is great for his stock price, and it's the Jack Welsh model selling shitty products for cheap works, kind of if you're General Electric making a light bulb. But when Boeing uses these same

principles to build an aircraft, people begin to die. And in the next episode we are going to tell that story how Boeing killed three hundred and forty six people. It could happen. Here is a production of cool Zone Media. For more podcasts from cool Zone Media, visit our website coolzonemedia dot com, or check us out on the iHeartRadio app. Apple Podcasts or wherever you listen to podcasts, you can now find sources for it could happen here, listed directly

in episode descriptions. Thanks for listening.