Globalization Sends Boeing into a Spin
By Eamonn Fingleton
Air Line Pilot, May 2005, p.28
Editor’s note: The following article is adapted with permission from “Boeing, Boeing, Gone,” The American Conservative, Jan. 31, 2005, which is posted in the Advocacy tab in Crewroom.alpa.org.
Why should we care what happens to what remains of America’s manufacturing heritage? Manufacturing matters for three key reasons:
Manufacturing jobs generally provide better wages than equivalent service jobs because worker productivity is generally leveraged by more capital and more proprietary know-how.
Manufacturing provides an abundance of jobs for people of ordinary ability as opposed to the Ph.D. types who get many of the jobs at, say, Microsoft. It thus closely matches the job-creation needs of society.
Manufacturing companies are big exporters. In my book, In Praise of Hard Industries, I calculated that, per unit of output, American manufacturing businesses export about 11 times as much as service businesses.
Few manufacturing businesses score better on these three criteria than the airliner industry. Even if it were not so closely intertwined with America’s national defense, the industry would still be of pivotal geopolitical importance. The point is that it has long been America’s biggest export earner. Unfortunately, America’s imports of aircraft and aircraft parts now equal 45 percent of its exports, up from just 5 percent in the 1960s.
Boeing’s resort to outsourcing explains much of the increase--and it comes at a time when Americans are rediscovering the importance of trade. For a while in the 1990s, it became fashionable to say that “the trade deficits don’t matter” and that the United States could with impunity allow its export industries to die on the vine, but this is now becoming widely recognized as a self-serving canard of the foreign-trade lobby. Certainly the Bush administration can hardly feel secure in the knowledge that the only thing standing between the dollar and total collapse is a massive Japanese and Chinese support operation.
As Jack Davis, a prominent advocate of an American manufacturing revival, points out, the ramifications of Boeing’s decline extend beyond aerospace. “We’re not just losing the airliner industry, but all other scientific, engineering, and technological know-how that goes with it,” says Davis. “We are talking here about advanced composites, glass, aluminum, titanium materials technology, the castings and foundry industries, precision tooling and machining, not to mention avionics. And because these technologies are used in jet fighters, bombers, tankers, and space vehicles, we’re hitting the defense industry as well as the [civilian] aerospace industry.”
The most devastating aspect of Boeing’s implosion is what it says about America’s overall economic strategy. A principal element of that strategy has been free trade. And for proponents of free trade, Boeing has long been Exhibit A--supposedly unimpeachable evidence that advanced American manufacturers have little to fear and much to gain from the globalists’ New World Order.
When some of us in the 1980s and 1990s warned that “one-way free trade” was gutting American manufacturing, we were dismissed as Chicken Littles. American manufacturing was not declining, we were told, but rather triumphantly reinventing itself. Free trade might sweep away inefficient, low-tech manufacturers--“buggy-whip makers” in our opponent’s favored terminology--but America was going from strength to strength in more advanced industries such as aerospace. And true enough, all through the 1980s when the alleged buggy-whip makers--companies like Zenith, Xerox, and Chrysler--fell like ninepins before foreign competition, Boeing seemed like a gratifying exception--to anyone who did not look too closely. As late as 1990, Newsweek described concern about Japan’s targeting of various aerospace technologies as “overwrought” and opined that America enjoyed a “lead over Japan that would be difficult to squander.”
Of course, as far as Boeing is concerned there is no problem. It paints its downsizing not only as inevitable but as a good thing. Unfortunately, its excuses are, for the most part, transparent nonsense.
Start with the notion that Boeing is now a “systems integrator.” To those who can’t see through business jargon, a “systems integrator” may sound more impressive than a mere manufacturer. In reality, it is a cop-out, as a glance at some of the industry’s other systems integrators makes clear. Embraer of Brazil is a systems integrator. So is Aviation Industries of China. Like the new Boeing, these companies lack the advanced know-how and machinery to make key components in a modern first-world airplane. Instead, they must import such components from more advanced manufacturers in Japan and Europe.
Boeing’s outsourcing is often excused as merely reflecting a desire to have routine, low-skilled work done cheaply in low-wage countries. This might make sense if Boeing were moving jobs mainly to India or Bangladesh. In reality, an estimated 50 percent of Boeing’s foreign-sourced work is done in Japan. While in the 1970s and 1980s companies like Zenith and Xerox had some excuse for going to Japan, any shift of American work to Japan now seems like an admission of managerial failure. Measured against the dollar, the yen today stands at more than two-and-a-half times its value of 1985. Once a cheap-labor country, Japan today ranks virtually at the top of the world wages table with wage rates between 10 and 30 percent higher than in the United States. Boeing’s decision to buy more and more from Japan is the economic equivalent of water running uphill.
The plot thickens when you realize that foreign outsourcing has not always been a factor in the American aircraft industry. In fact, in the late 1950s, the heyday of America’s domination of the skies, American airplanes were made virtually in their entirety with American labor, despite the fact that American wages were then six times those in Japan and four times those in Germany.
Boeing’s first experiment with foreign contracting came in the 1970s when, in a quid pro quo for airplane purchases by a government-owned Japanese airline, Boeing undertook to buy some Japanese-made components. Similar side deals--known as “offsets”--were soon concluded with other industrially ambitious nations.
Although the early offset deals were small, they proved to be the thin end of a rather thick wedge. By the 1980s, the Japanese alone were making 15 percent of the Boeing 757, and that is modest compared to the plans for the 7E7. Japanese manufacturers are officially expected to make 35 percent of that airplane, but unofficial estimates put their share far higher because in addition to delivering huge fully assembled sections, the Japanese will supply many of the subcomponents needed by Boeing’s American and Italian suppliers. An exact calculation is impossible because an undisclosed proportion of the work will be conducted abroad by Boeing itself (in Boeing-owned factories in Canada and Australia), but aerospace experts David Pritchard and Alan MacPherson are probably erring on the low side in suggesting that 70 percent of the new airplane will be manufactured outside the United States. While the final assembly work will be done in Seattle, the choice of this location was a token gesture aimed at capturing state tax breaks and cannot cover up the fact that the most sophisticated passenger jet ever built will probably be more a Japanese product than an American one.