Boeing’s challenges can’t be fixed without a culture change

The phrase “late-stage capitalism” or “late capitalism” has gained traction in academia, activism and other quarters largely on the left of Western society.

It’s a neo-Marxist bag of complaints and aspirations: how the wealthiest are ignoring the plight of the middle class and the poor, how even those with middle income couldn’t care less about those below them, how corporations control the government and the agencies assigned to police them — and of course how “capitalism is digging its own grave.”

The phrase comes from Werner Sombart, a German economist in the early 20th century, not from Karl Marx, and other writers who expounded on it. The alternatives offered by late-capitalist proponents are varied and often hazy.

Which brings us to the Boeing Problem.

The capital letters are appropriate because the largely self-inflicted troubles — some with lethal or potentially lethal consequences — are no longer one-offs, easily explained or brushed aside by the company born and once headquartered in Seattle.

These troubles are heavily the result of the company’s Jack Welch acolytes and General Electric-style management, weak board of directors, union busting, and exchanging Boeing’s history of engineering excellence for McDonnell Douglas’ “bean counters.” Regular readers know I have written about this often.

My colleague Dominic Gates has done an excellent job reporting on the dangerous blowout of a fuselage “plug” from an Alaska Airlines flight. Other fine reporting has been done by The Seattle Times’ Lauren Rosenblatt.

My task is to dig deeper into the Boeing Problem and what it might expose about late capitalism.

The Kansas-based Spirit AeroSystems, the subcontractor for Boeing responsible for building the 737 MAX 9 like the one involved in the Alaska Airlines incident, was once part of Boeing. Wichita was a Boeing city, famous for working out the bugs in the B-29 bomber — the “Battle of Kansas” — in World War II.

But Spirit was spun off as an independent company in 2005, about the time James McNerney became chief executive and chair of Boeing. It was part of a shift in Boeing’s business model, relying on subcontractors all over the world with the airplanes only being assembled at the company’s plants in Renton and Everett.

To break organized labor in the Puget Sound region, McNerney created another nonunion assembly in North Charleston, S.C.

Boeing suffered through delays on the 787 Dreamliner, new 747s to act as Air Force One, the 767 and a tanker for the Air Force.

In 2001, a top Boeing aerospace engineer John Hart-Smith presented an internal paper before top executives warning of excessive reliance on outsourcing — a paper that was lauded by his peers within the company but ignored by management.

Behind all this was one driving force: to keep the stock price up and reap high executive compensation.

Parallels are abundant.

Before the Federal Reserve was established in 1913, recessions and depressions were common in the United States. Many were connected to corruption. For example, the Credit Mobilier scandal of the late 1860s was meant to finance the Union Pacific, one of two components of the first Transcontinental Railroad (the other being the Central Pacific building east from Sacramento, Calif.).

But Credit Mobilier charged the railroad inflated prices for construction materials while Union Pacific executives pocketed the difference and used funds to bribe politicians in the other Washington. UP’s board of directors manipulated the stock price, too.

When the scandal was exposed in 1872, most Union Pacific shareholders were wiped out and the railroad was near bankruptcy.

This was about the time Marx was writing some of his most influential works.

In one letter, he wrote, “the historical trend of our age is the fatal crisis which capitalist production has undergone in the European and American countries where it has reached its highest peak, a crisis that will end in its destruction, in the return of modern society to a higher form of the most archaic type — collective production and appropriation.”

In the Roaring ’20s, stock prices were bid higher than was sustainable. Joe Kennedy (father of JFK) knew something was wrong when he was receiving stock tips from shoeshine boys. He cashed out just before the market crash of 1929. When the Federal Reserve raised rates, a contraction in the economy turned into the Great Depression.

In the Great Panic of the fall of 2008, which caused a bank run on Washington Mutual and led to it being sold to JPMorgan Chase, many of the same characteristics were on display. Among them were captured regulators, charged with minding the hen house but who were wolves paid off to look the other way.

With Washington Mutual, Wachovia, Lehman and other institutions, high executive compensation was based on keeping the stock price high while concealing their underlying problems. The result was the Great Recession.

The Boeing Problem won’t be resolved until real consequences are visited personally on the top executives and the directors. A return to the culture of engineering excellence and reduction of subcontracting may be too much to ask from a company so invested in this business model. But it needs to happen, or more deadly incidents will occur.

“Given what has happened with the two fatal crashes and this incident, the financial targets have to take a back seat for Boeing and its supply chain,” Aengus Kelly, chief executive of AerCap, the world’s largest aviation leasing company, told the Financial Times.

As for late capitalism, we’re more than a generation away from the collapse of the Soviet Union. That’s enough time for memories to fade. For many people to believe that some form of communism is inevitable (even though nominally communist nations such as China and Vietnam use market economies).

Yet, love or hate her, former British Prime Minister Margaret Thatcher’s statement, “There is no alternative” still abides. She meant the debate was over, that market economies were the best and most successful.

But capitalism’s success depends on a balance of what economist John Maynard Keynes called “animal spirits” among investors but also regulation free of corruption.