The Atlantic recently published an article ”How McKinsey Destroyed the Middle Class”, which is worth a read as a general point of reference. There are lot of other perspectives I could go into (Fordism versus Post-Fordism), but I want to steer away from academic jargon and attack, basically, the McKinsey economy.
As the Atlantic outlined in its article, for many decades American companies built up a base of mid-management talent in company. Not only were middle managers people who rose up the ranks—meaning they had experience and empathy for the lower levels of the work force—but they had extensive control and input over policy and workplace conditions. In turns, within the workplace itself, workers had group leaders and workers had substantial input and autonomy, not least because of the personal connections built between those workers and their middle management. Lost in all the discussion of the explosive wage growth of CEOs, Boards of Directors and upper management, is that this wage growth has also occurred with an explosion of their power.
Whereas until the 1980s and even 1990s, most companies had broad horizontally and vertically integrated power bases, decision-making and company policy making has now been concentrated almost entirely in the hands of CEOs and their Boards of Directors, often with little to no input from their employees, and with little insight or knowledge of the companies bottom line. Not surprising that since then we have developed a glamorous culture, with private jets, world-hopping cocktail parties and socializing disguised as critical business deals, fat pay checks, limousines and chauffeurs—even as middle managers make less money than ever, and many are hired outside the company, mainly among MBAs and ex-analysts from companies like McKinsey, or simply outsourced entirely as contractors.
This brings me to Boeing. Specifically in 1997, Boeing merged with its major rival, McDonnell Douglas, to create an aviation behemoth. Boeing, had long been a famously blue-collar company, inspiring a loyalty bordering on American patriotism among its workers, who by and large worked for the same company their whole lives, earning good wages and benefits, and often raising up into middle management. Boeing had a strong tradition of giving great power to its workers and wide leeway to its specialized engineering staff, focused on creating cutting edge planes to maintain and expand market share long-term, even at enormous research and development cost. Boeing was also famously picky about controlling its supply lines, and all its R&D, to maintain quality and supervise every aspect of plane construction, most of it done in America, by well-paid, high-skilled workers
McDonnell Douglas changed all that. More specifically, as many long-term Boeing employees who were already established at the company in 1997 and have since retired will tell you, and as Ron Woodard opined, “Boeing was [fucking] bought with its own money.”
In a clash of corporate cultures, where Boeing’s engineers and McDonnell Douglas’s bean-counters went head-to-head, the smaller company won out. The result was a move away from expensive, ground-breaking engineering and toward what some called a more cut-throat culture, devoted to keeping costs down and favoring upgrading older models at the expense of wholesale innovation. Only now, with the 737 indefinitely grounded, are we beginning to see the scale of its effects.
By 1997 McDonnell Douglas was almost a complete failure of a company (please check out the article). Had Boeing not bought it, the company probably would have collapsed in the 2001 recession. Yet, the management staff of M-D were placed strategically throughout Boeing and the failed company basically took over Boeing and changed the corporate culture there permanently. Within a year the M-D carryover COO was berating employees for acting like a family and saying “If you don’t perform, you don’t stay on the team.” The modern, stereotypical, hyper-competitive, narrow-minded corporate culture had taken over, with an eye on whipping profits out of workers, cutting costs (including those good wages and benefits) and outsourcing vast parts of R&D and construction to contractors all racing to offer the cheapest option (which in turn meant more labor to low-cost factories in Latin America, and deeply underpaid contractors barely scrapping by, mainly by paying their workers pennies and cutting corners on development).
The MCAS system designed by Boeing is so blatantly faulty that a simple google search can give you a dozen highly qualified articles written by aviation professionals (pilots and engineers alike). Basically, it was a cheap software fix that relied entirely on a single sensor, failing to take into account other available data on the plane. The instruction manuals didn’t even include ways to turn it off, nor were there warnings about how to deal with a MCAS induced stall. Several flights almost went down until flight crews managed to figure out how to shut off MCAS. MCAS was a necessity because the short-term profit and stock price obsessed corporate staff had one concern: getting a new, bigger and more fuel efficient 737 up quickly and cheaply. And they used their political influence to rush it through and silence professionals worried about the safety of the design.
The entire corporate system has produced irreparably broken management. Boards of Directors and chief managing staff are completely beholden to shareholders. And shareholders are not uncle Bob down the street. They are massive pension funds, billionaires, other companies, and banks sinking capital. These people want one thing, and that is high dividends and consistent, endless share price growth, and they have all the power to unilaterally oust management and take over companies, even dismantling and selling for profit those companies that are producing massive profits. Within companies, the entire horizontal power system has been gutted, by the destruction of unions, but also the outsourcing and the displacement of middle management to career business types and MBAs, rather than in-company talent with a long-term career plan and loyalty to their own company.
The result is stupid decision making. CEOs make more money than ever, but their decision-making and results ever more clearly point out how much they don’t deserve those wages. Boeing Stock Plunges
Boeing stock is down 57% from highs last year. The stock plunged 18% yesterday alone. Why? Because of news that Boeing is planning to draw the entirety of its 13.825 billion dollar credit line as it fears banks may freeze credit in the event of a full-blown recession. The irony, as the title puts it, is that Boeing has earned plenty of cash in recent years, and even received a big tax cut in 2017. But rather than investing in the company, in its employees, facilities, bottom line, and in plain just keeping liquidity for the event of a recession or a company crisis (or both as the company is facing now), the company instead spent 43 billion dollars in stock buybacks, much like all corporations have done, spending nearly the entirety of their tax cuts on stock buybacks that disproportionate benefit banks, corporations, and billionaire stockholders, and do little to nothing for the average joe, except maybe make the folks with a decent sized stock portfolio IRA moderately better off for retirement (at least until the stock market crashes; my grandparents’ IRA, after the 2001 and 2008 stock market crashes ended up being worth about the same as if they had simply bought bonds and precious metals throughout their working years and they were among the lucky working class people with stock IRAs).
So now Boeing finds itself without cash liquidity, and with utterly devalued stock, having wasted most of its cash reserves from 2013 on, on trying to artificially overvalue its stocks to make big shareholders happy. One reform that any Democratic president should look at making, Day 1, is making stock buybacks illegal; right now indeed we are sitting on a stock bubble nearly entirely funded by stock buybacks and fueled by Trump’s tax cuts. The entire system is broken, and we need to fix it, both for workers, for middle class managers and stockholders, and for greater opportunity for people across America. But for now, file this one away with Evidence #121463 of corporate incompetence and negligence, to point to when anyone says executives and board members deserve their gaudy wages.