1 00:00:01,720 --> 00:00:07,960 Speaker 1: All Zone Media. Welcome to Kadappy here, a podcast about 2 00:00:07,960 --> 00:00:10,920 Speaker 1: things falling apart and how to put them back together again. 3 00:00:11,400 --> 00:00:15,680 Speaker 1: I'm your host, Mia Wong. This is a story about Boeing. 4 00:00:16,640 --> 00:00:18,520 Speaker 1: I'm going to lay my cards on the table from 5 00:00:18,560 --> 00:00:22,400 Speaker 1: the start. I'm from Chicago, but my family is from Seattle. 6 00:00:22,800 --> 00:00:24,639 Speaker 1: Some of my aunts and uncles worked for Boeing in 7 00:00:24,640 --> 00:00:27,120 Speaker 1: the eighties. Of the airline side. Some of our closest 8 00:00:27,120 --> 00:00:29,639 Speaker 1: family friends worked there for much, much longer than that. 9 00:00:31,000 --> 00:00:33,400 Speaker 1: I grew up on the periphery of this industry and 10 00:00:33,440 --> 00:00:36,120 Speaker 1: I have never seen the people in it and the 11 00:00:36,159 --> 00:00:38,840 Speaker 1: people who have left as angry as they are now. 12 00:00:39,320 --> 00:00:42,200 Speaker 1: People are pissed, and they should be. In the last 13 00:00:42,240 --> 00:00:45,320 Speaker 1: six years, Boeing has killed three hundred and forty six people. 14 00:00:45,720 --> 00:00:48,080 Speaker 1: In the years to come, they may well kill more, 15 00:00:48,880 --> 00:00:50,880 Speaker 1: and not a single one of them had to die. 16 00:00:52,040 --> 00:00:58,480 Speaker 1: This is how it happened. What is Boeing. The short answer, obviously, 17 00:00:58,880 --> 00:01:00,920 Speaker 1: is that it's a company that may both civilian and 18 00:01:00,920 --> 00:01:04,039 Speaker 1: military airplanes. It also does some other things, including working 19 00:01:04,080 --> 00:01:06,759 Speaker 1: on space travel, but that's not our media concern here. 20 00:01:08,160 --> 00:01:10,880 Speaker 1: The long answer, however, and it's the long answer that 21 00:01:10,920 --> 00:01:14,039 Speaker 1: we need, is that Boeing is the poster child for 22 00:01:14,080 --> 00:01:19,319 Speaker 1: the post World War Two labor, corporate, militarist alliance. Boeing 23 00:01:19,360 --> 00:01:23,679 Speaker 1: itself was a sometimes uneasy alliance of workers, engineers, and 24 00:01:23,760 --> 00:01:28,080 Speaker 1: the army that made civilian and military airplanes. This is 25 00:01:28,080 --> 00:01:30,720 Speaker 1: also not a terrible description of the entirety of the 26 00:01:30,720 --> 00:01:33,960 Speaker 1: postwar United States, with the proviso at the airplanes that 27 00:01:34,000 --> 00:01:37,520 Speaker 1: the US is making, we're dropping bombs at Vietnam. The 28 00:01:37,640 --> 00:01:41,160 Speaker 1: unwinding of Boeing that we're all watching today as doors 29 00:01:41,200 --> 00:01:44,360 Speaker 1: fall off of planes and more and more grounded, is 30 00:01:44,400 --> 00:01:48,720 Speaker 1: the unwinding of that America. Here I turned to the 31 00:01:48,720 --> 00:01:53,120 Speaker 1: anthropologist David Graber from his book The Utopia of Rules quote, 32 00:01:53,320 --> 00:01:56,360 Speaker 1: I think what happened is best considered as a kind 33 00:01:56,400 --> 00:01:59,600 Speaker 1: of shifting class allegiances on the part of the managerial 34 00:01:59,640 --> 00:02:03,920 Speaker 1: staff of major corporations from an uneasy de facto alliance 35 00:02:03,960 --> 00:02:07,200 Speaker 1: with their own workers to one with investors. As John 36 00:02:07,280 --> 00:02:10,600 Speaker 1: Kenneth Galbraith long ago pointed out, if you create an 37 00:02:10,680 --> 00:02:15,360 Speaker 1: organization geared to produce perfumes, dairy products, or aircraft usel lodges, 38 00:02:15,840 --> 00:02:18,400 Speaker 1: those who make it up will, if left with their 39 00:02:18,400 --> 00:02:21,800 Speaker 1: own devices, tend to concentrate their efforts on producing more 40 00:02:21,840 --> 00:02:25,800 Speaker 1: and better perfumes, dairy products, or aircraft usel lodges, rather 41 00:02:25,880 --> 00:02:29,040 Speaker 1: than thinking primarily of what will make the most money 42 00:02:29,040 --> 00:02:33,200 Speaker 1: for shareholders. What's more, since for most of the twentieth century, 43 00:02:33,360 --> 00:02:36,680 Speaker 1: a job in a large bureaucratic megafirm meant a lifetime 44 00:02:36,680 --> 00:02:40,359 Speaker 1: promise of employment, everyone involved in the process, managers and 45 00:02:40,440 --> 00:02:43,600 Speaker 1: workers alike, tended to see themselves as sharing a certain 46 00:02:43,639 --> 00:02:47,840 Speaker 1: common interest. In this regard over and against meddling owners 47 00:02:47,840 --> 00:02:51,399 Speaker 1: and investors. This kind of solidarity across class lines even 48 00:02:51,400 --> 00:02:56,679 Speaker 1: had a name. It's called corporatism. One mustn't romanticize it. 49 00:02:56,680 --> 00:03:00,800 Speaker 1: It was, among other things, the philosophical basis of fascism. Indeed, 50 00:03:01,040 --> 00:03:03,920 Speaker 1: one could well argue that fascism simply took the idea 51 00:03:04,000 --> 00:03:07,840 Speaker 1: that workers and managers had interest in common, that organizations 52 00:03:07,880 --> 00:03:11,600 Speaker 1: like corporations or communities formed organic holes, and that finances 53 00:03:11,639 --> 00:03:14,360 Speaker 1: were an alien, parasitic force and drove them to their 54 00:03:14,440 --> 00:03:19,079 Speaker 1: ultimate murderis extreme, even in its more benign social democratic versions. 55 00:03:19,120 --> 00:03:23,520 Speaker 1: In America or Europe, the attendant politics often came tinged 56 00:03:23,520 --> 00:03:26,840 Speaker 1: with chauvinism, but they also ensured that the investor class 57 00:03:26,880 --> 00:03:30,560 Speaker 1: was always seen to some extent outsiders, against whom white 58 00:03:30,560 --> 00:03:33,560 Speaker 1: collar and blue collar workers could be considered, at least 59 00:03:33,560 --> 00:03:37,480 Speaker 1: to some degree to be in united common front. Now, 60 00:03:37,680 --> 00:03:41,040 Speaker 1: as a product of the united Front between workers and managers, 61 00:03:42,000 --> 00:03:44,560 Speaker 1: the corporative system of the post war era had a 62 00:03:44,680 --> 00:03:48,920 Speaker 1: very different conception of what a corporation is. It was 63 00:03:48,920 --> 00:03:52,560 Speaker 1: a social entity composed of a variety of classes and 64 00:03:52,800 --> 00:03:56,600 Speaker 1: had an obligation to take care of them. It had 65 00:03:56,640 --> 00:04:00,960 Speaker 1: an obligation to its workers, to its engineers, to its customers, 66 00:04:01,280 --> 00:04:04,760 Speaker 1: and even to its country. By absorbing unions into the 67 00:04:04,760 --> 00:04:08,560 Speaker 1: corporate system, the system itself had been forced to adapt 68 00:04:08,640 --> 00:04:12,840 Speaker 1: a more sociological self conception that vastly differed from the 69 00:04:12,840 --> 00:04:18,680 Speaker 1: ways corporations both view themselves and behave today. As Grayburn notes, 70 00:04:18,839 --> 00:04:22,239 Speaker 1: this class coalition largely wrote capitalists out of the equation, 71 00:04:22,720 --> 00:04:27,039 Speaker 1: reducing them to merror holders of stock, not managers. In 72 00:04:27,160 --> 00:04:31,200 Speaker 1: Boeing's case, those managers were engineers at basically all levels 73 00:04:31,240 --> 00:04:35,480 Speaker 1: of the company. Now we must note here that in 74 00:04:35,520 --> 00:04:39,599 Speaker 1: the post World War two era engineers were extremely powerful, 75 00:04:40,400 --> 00:04:43,479 Speaker 1: and this is not just true of capitalist nations. So 76 00:04:43,839 --> 00:04:46,400 Speaker 1: the US to some extent had an early start on 77 00:04:46,440 --> 00:04:49,040 Speaker 1: the power of engineers in the running of New Deal 78 00:04:49,080 --> 00:04:53,320 Speaker 1: programs like the Tennessee Valley Authority. Engineers are powerful in 79 00:04:53,360 --> 00:04:56,560 Speaker 1: communist countries as well, and it's true in quasi socialist 80 00:04:56,600 --> 00:04:59,720 Speaker 1: countries that had just liberated themselves from the old European empires. 81 00:05:00,360 --> 00:05:03,839 Speaker 1: These engineers were both extremely well paid and very influential 82 00:05:03,920 --> 00:05:07,320 Speaker 1: everywhere you can find them, from Belgium to Peru, and 83 00:05:07,400 --> 00:05:09,560 Speaker 1: the only real difference is whether they were trained by 84 00:05:09,560 --> 00:05:14,039 Speaker 1: the Americans or the Soviets. Now, the fact that you, 85 00:05:14,279 --> 00:05:16,960 Speaker 1: the listener, are not reporting to an engineer right now 86 00:05:17,000 --> 00:05:19,760 Speaker 1: at your job is assigned that they didn't exactly hold 87 00:05:19,800 --> 00:05:24,520 Speaker 1: on to power. In fact, the last vestiges of this 88 00:05:24,600 --> 00:05:28,760 Speaker 1: class of extremely powerful engineers aren't really even in Boeing 89 00:05:28,800 --> 00:05:32,800 Speaker 1: at all. The most prominent remain of the Great Engineering 90 00:05:32,839 --> 00:05:36,120 Speaker 1: International is Shi Jim Ping, who is part of a 91 00:05:36,160 --> 00:05:39,280 Speaker 1: class in China known as the Red Engineers. If you 92 00:05:39,360 --> 00:05:42,040 Speaker 1: want to know more about the Red Engineers, we unfortunately 93 00:05:42,080 --> 00:05:44,640 Speaker 1: do not have time to really go into them here, 94 00:05:44,680 --> 00:05:48,520 Speaker 1: but c Joel Andreas's book Rise of the Red Engineers 95 00:05:48,520 --> 00:05:52,120 Speaker 1: for the most famous treatment of them. Now in China, 96 00:05:52,560 --> 00:05:55,720 Speaker 1: the Red Engineers effectively seized control of the states and 97 00:05:55,880 --> 00:05:59,159 Speaker 1: were the kind of second generation that ruled back the 98 00:05:59,200 --> 00:06:03,760 Speaker 1: social changes of the revolution from the Maoist period. In 99 00:06:03,839 --> 00:06:08,240 Speaker 1: the US, the story is a bit more complicated. In 100 00:06:08,279 --> 00:06:11,960 Speaker 1: some places, the engineers as a class were rolled up 101 00:06:12,080 --> 00:06:15,480 Speaker 1: and brutally destroyed in a war with a newly ascended 102 00:06:15,520 --> 00:06:20,640 Speaker 1: finance class. In others, engineers, feeling the disciplining effects of 103 00:06:20,680 --> 00:06:26,480 Speaker 1: the market, effectively engineered their own destruction. The latter engineers 104 00:06:26,560 --> 00:06:30,560 Speaker 1: leading the company to financial ruin is to some extent 105 00:06:30,760 --> 00:06:35,159 Speaker 1: the story of Boeing, But to get there we need 106 00:06:35,200 --> 00:06:38,520 Speaker 1: to take a look at how the worker management alliance 107 00:06:38,560 --> 00:06:42,880 Speaker 1: Graber described came a part. I have talked at length 108 00:06:42,960 --> 00:06:45,800 Speaker 1: on this show about the economic crisis of the seventies 109 00:06:45,960 --> 00:06:49,640 Speaker 1: in which everything, the entire consensus that had held the 110 00:06:49,720 --> 00:06:53,680 Speaker 1: post war era together fell apart. One of the key 111 00:06:53,800 --> 00:06:58,760 Speaker 1: elements is that in the nineteen seventies, manufacturing becomes zero sum. 112 00:06:59,120 --> 00:07:02,320 Speaker 1: If manufacturing put increases in one country, it can largely 113 00:07:02,360 --> 00:07:06,479 Speaker 1: only come at the expense of production somewhere else. This 114 00:07:06,640 --> 00:07:09,960 Speaker 1: is the product of a general crisis of structural overproduction 115 00:07:10,120 --> 00:07:14,160 Speaker 1: and structural under consumption. This meant that it was no 116 00:07:14,240 --> 00:07:19,120 Speaker 1: longer possible to incorporate everyone into the capitalist welfare system 117 00:07:19,160 --> 00:07:23,240 Speaker 1: while also retaining corporate profits, and so someone was going 118 00:07:23,320 --> 00:07:25,640 Speaker 1: to have to lose everything. It was either going to 119 00:07:25,680 --> 00:07:28,240 Speaker 1: be the capitalists or the workers. And the people who 120 00:07:28,280 --> 00:07:31,000 Speaker 1: lost everything, as I think we're all aware of living 121 00:07:31,080 --> 00:07:33,680 Speaker 1: in the world that we do now, were the workers 122 00:07:33,720 --> 00:07:39,120 Speaker 1: whose power was systematically destroyed. But that largely the story 123 00:07:39,120 --> 00:07:40,960 Speaker 1: of the destruction of unions and the destruction of the 124 00:07:41,000 --> 00:07:45,000 Speaker 1: leftboard broadly is a story for another day for our purposes. 125 00:07:45,560 --> 00:07:49,360 Speaker 1: The important class that was destroyed in the period of 126 00:07:49,400 --> 00:07:53,400 Speaker 1: the seventies is the class of managerial engineers, and these 127 00:07:53,400 --> 00:07:57,440 Speaker 1: engineers were destroyed by a takeover of Corporate America by 128 00:07:57,480 --> 00:08:01,000 Speaker 1: the shareholders the Corporatist Alliance had previews held at Bay. 129 00:08:02,280 --> 00:08:06,240 Speaker 1: The takeover of Corporate America by finance schools had two mechanisms. 130 00:08:06,680 --> 00:08:10,800 Speaker 1: The leveraged buyout, better known as corporate rating, was carried 131 00:08:10,840 --> 00:08:14,160 Speaker 1: out by people like Michael Milkin, and the internal movement 132 00:08:14,280 --> 00:08:18,360 Speaker 1: of executives from inside the corporations themselves, led by people 133 00:08:18,400 --> 00:08:21,320 Speaker 1: like Jack Welsh. We will meet both of these people 134 00:08:21,800 --> 00:08:25,760 Speaker 1: in detail later in this story, but the details of 135 00:08:25,840 --> 00:08:30,560 Speaker 1: the process of how exactly the finance schools came to 136 00:08:30,680 --> 00:08:35,400 Speaker 1: control Corporate America turn out to be extremely important because 137 00:08:35,480 --> 00:08:40,640 Speaker 1: Boeing is destroyed by both of the two mechanisms coming 138 00:08:40,679 --> 00:08:44,959 Speaker 1: together at the same time. Now, as the eighties dawned, 139 00:08:45,240 --> 00:08:47,679 Speaker 1: the world lived in fear of a new kind of 140 00:08:47,679 --> 00:08:53,200 Speaker 1: financial device, the leveraged buyout. The exact mechanisms of the 141 00:08:53,280 --> 00:08:57,440 Speaker 1: leveraged buyout are slightly complicated, but the short version is 142 00:08:57,440 --> 00:09:00,960 Speaker 1: that Michael Milken, a bond salesman who who I eventually 143 00:09:01,000 --> 00:09:03,120 Speaker 1: am going to do a fall behind the bastard's episode 144 00:09:03,120 --> 00:09:05,320 Speaker 1: on because oh my god is the evil and there 145 00:09:05,360 --> 00:09:08,400 Speaker 1: simply is not space to elaborate on all the stuff 146 00:09:08,400 --> 00:09:11,160 Speaker 1: that he did here, including the off that eventually is 147 00:09:11,200 --> 00:09:14,720 Speaker 1: going to send him to prison, figured out a way 148 00:09:14,800 --> 00:09:18,040 Speaker 1: for a person or a group too, with very little 149 00:09:18,280 --> 00:09:22,800 Speaker 1: actual cash on hand, to very quickly take on an 150 00:09:22,960 --> 00:09:26,360 Speaker 1: unbelievable amount of debt, use it to buy a company, 151 00:09:26,720 --> 00:09:29,520 Speaker 1: and then sell that company for parts to pay back 152 00:09:29,559 --> 00:09:35,320 Speaker 1: the debt, pocketing the difference as profit. This was an instant, 153 00:09:35,480 --> 00:09:40,600 Speaker 1: existential danger to a corporate America. Previously, corporate takeovers were 154 00:09:40,640 --> 00:09:44,880 Speaker 1: extremely difficult. Attempting to get two hundred million dollars to 155 00:09:45,040 --> 00:09:48,240 Speaker 1: buy a company required you to have two hundred million 156 00:09:48,320 --> 00:09:52,600 Speaker 1: dollars on hand. But now with the leveraged buyout, a 157 00:09:52,640 --> 00:09:55,000 Speaker 1: group of yahoos with a tiny amount of money could 158 00:09:55,040 --> 00:09:58,320 Speaker 1: simply buy a company for higher van stock price, loot 159 00:09:58,360 --> 00:10:02,480 Speaker 1: it for parts, and destroy it. This completely changed the 160 00:10:02,520 --> 00:10:06,280 Speaker 1: balance of power between shareholders and corporations. One of the 161 00:10:06,320 --> 00:10:09,200 Speaker 1: best accounts of this era is from the anthropologist Karen 162 00:10:09,240 --> 00:10:12,400 Speaker 1: Hoe in her book Liquidated in Ethnography of Wall Street. 163 00:10:13,000 --> 00:10:14,880 Speaker 1: The book was a product with the field work she 164 00:10:14,960 --> 00:10:17,200 Speaker 1: did at a Wall Street investment bank in the nineties. 165 00:10:17,200 --> 00:10:21,240 Speaker 1: And I really cannot emphasize this book enough. This book 166 00:10:21,280 --> 00:10:23,760 Speaker 1: is incredible. Everyone should read. It is a book that 167 00:10:23,920 --> 00:10:27,640 Speaker 1: genuinely changed my life. And one of the things that 168 00:10:27,679 --> 00:10:31,839 Speaker 1: she talks about is this moment, the moments of leverage buyouts, 169 00:10:32,280 --> 00:10:35,480 Speaker 1: and the way that it is constantly brought up by 170 00:10:35,520 --> 00:10:37,840 Speaker 1: the people that she is working with at this bank 171 00:10:37,880 --> 00:10:41,400 Speaker 1: when she's doing her when she's doing her anthropological field work. Everyone. 172 00:10:41,440 --> 00:10:46,400 Speaker 1: She talks about this moment where the corporate waters really 173 00:10:46,440 --> 00:10:51,559 Speaker 1: got going, as the moment the shareholder revolution began. Now, 174 00:10:52,320 --> 00:10:55,960 Speaker 1: we talked earlier about how in post war America the 175 00:10:56,000 --> 00:11:00,000 Speaker 1: corporation was a social entity with responsibilities to its workers 176 00:11:00,120 --> 00:11:03,920 Speaker 1: and country for the shareholders running the new shareholder revolution, 177 00:11:04,400 --> 00:11:09,600 Speaker 1: corporations had exactly one job, getting them more money to 178 00:11:09,760 --> 00:11:15,560 Speaker 1: raise stock prices. They called this shareholder value. And now 179 00:11:15,840 --> 00:11:18,920 Speaker 1: the disciples of shareholder value were able to wield the 180 00:11:18,960 --> 00:11:22,839 Speaker 1: ability to simply buy companies out wholesale and bend them 181 00:11:22,840 --> 00:11:26,840 Speaker 1: to the ends of shareholder value directly. This is what 182 00:11:26,960 --> 00:11:30,120 Speaker 1: is known as the shareholder revolution. Now, do you know 183 00:11:30,160 --> 00:11:33,160 Speaker 1: what else is a revolution in the ways that y'all 184 00:11:33,200 --> 00:11:37,320 Speaker 1: experience capitalism and mass culture at our jobs. It is 185 00:11:37,360 --> 00:11:50,240 Speaker 1: the products and services that support this podcast. We're back. 186 00:11:51,720 --> 00:11:54,959 Speaker 1: The first thing that the corporate raiders and the disciples 187 00:11:55,000 --> 00:11:57,719 Speaker 1: of shareholder value did when they started to take over 188 00:11:57,800 --> 00:12:00,720 Speaker 1: companies was look at the balance sheets of a company 189 00:12:01,040 --> 00:12:04,840 Speaker 1: and destroy everything that didn't immediately look to the Wall 190 00:12:04,880 --> 00:12:08,160 Speaker 1: street goruls like they made money. Now, what are the 191 00:12:08,240 --> 00:12:12,480 Speaker 1: assets on a balance sheet that do not immediately increase 192 00:12:12,480 --> 00:12:15,559 Speaker 1: stock price? Because again, they look like costs. Right. The 193 00:12:15,640 --> 00:12:19,400 Speaker 1: two assets that don't immediately contribute are funds allocated for 194 00:12:19,480 --> 00:12:23,920 Speaker 1: research and development and pensions, the darlings of the workers 195 00:12:23,920 --> 00:12:29,240 Speaker 1: and engineers who comprise the previous corporatist regimes. Mass layoffs followed. 196 00:12:29,720 --> 00:12:32,960 Speaker 1: Companies were reduced to debt financing mechanisms for the corporate 197 00:12:33,040 --> 00:12:37,200 Speaker 1: raiders who took on the debt to acquire them were still. 198 00:12:37,559 --> 00:12:41,120 Speaker 1: As Karen Hoe observes, even companies ran by the old 199 00:12:41,120 --> 00:12:44,480 Speaker 1: elite were forced to embrace the same methods the raiders 200 00:12:44,520 --> 00:12:47,320 Speaker 1: were using, because the only way to keep the raiders 201 00:12:47,360 --> 00:12:50,840 Speaker 1: from buying your company was by increasing your stock price, 202 00:12:51,240 --> 00:12:53,960 Speaker 1: and the only way to increase your stock price was 203 00:12:54,000 --> 00:12:58,640 Speaker 1: to appease the shareholder value fanatics. Control of corporate America 204 00:12:58,760 --> 00:13:02,880 Speaker 1: had shifted from the old managerial work reliance to the 205 00:13:02,920 --> 00:13:09,520 Speaker 1: new shareholder value financiers. Now, the problem with the shareholder 206 00:13:09,600 --> 00:13:14,319 Speaker 1: value people running companies is that they are viscerally physically 207 00:13:14,360 --> 00:13:18,040 Speaker 1: incapable of long term planning. Don't take my word for it, 208 00:13:18,280 --> 00:13:23,640 Speaker 1: here's Karen Hoe quote to actualize their central identity as 209 00:13:23,679 --> 00:13:28,320 Speaker 1: being immediately responsive to their own changing relationship with the market, 210 00:13:28,840 --> 00:13:32,840 Speaker 1: including employees, products, and so on. Their strategy is, in 211 00:13:32,920 --> 00:13:38,440 Speaker 1: a sense, to have no strategy. Ironically, having no long 212 00:13:38,520 --> 00:13:43,280 Speaker 1: term strategy is contradictory and potentially self defeating in that 213 00:13:43,360 --> 00:13:47,600 Speaker 1: investment banks often find themselves making drastic changes, only to 214 00:13:47,679 --> 00:13:53,000 Speaker 1: realize months or weeks later that those changes were unnecessary, premature, 215 00:13:53,320 --> 00:13:57,960 Speaker 1: and extremely costly. For example, in chapter five, I describe 216 00:13:58,120 --> 00:14:01,880 Speaker 1: how investment bankers and because of their access to sensitive 217 00:14:02,000 --> 00:14:06,400 Speaker 1: proprietary information, are not only fired in an instance, but 218 00:14:06,480 --> 00:14:09,840 Speaker 1: must leave the physical premises of the building within fifteen 219 00:14:09,880 --> 00:14:13,640 Speaker 1: to thirty minutes. Given how crucial the control of knowledge 220 00:14:13,679 --> 00:14:16,640 Speaker 1: and the protection of inside information are for Wall Street 221 00:14:16,640 --> 00:14:20,280 Speaker 1: investment banks, it seems self defeating that they do not 222 00:14:20,400 --> 00:14:25,120 Speaker 1: praise any freemium on loyalty. Despite the fact that firms 223 00:14:25,200 --> 00:14:29,240 Speaker 1: try above all to enforce secrecy, they accept it maintained 224 00:14:29,320 --> 00:14:34,760 Speaker 1: this volatility in revolving door policy. To make this clear, 225 00:14:35,400 --> 00:14:40,200 Speaker 1: what carrot Ho is describing is that investment banks, on 226 00:14:40,240 --> 00:14:42,440 Speaker 1: the one hand, turn over like a third of their 227 00:14:42,480 --> 00:14:45,720 Speaker 1: staff every six months, and yet also they are so 228 00:14:45,920 --> 00:14:49,640 Speaker 1: reliant on the secrecy of this proprietary information that they're 229 00:14:49,720 --> 00:14:53,400 Speaker 1: using to make their investment decisions that they are kicking 230 00:14:53,400 --> 00:14:55,600 Speaker 1: the people. They are firing out of the building in 231 00:14:55,640 --> 00:14:58,680 Speaker 1: like fifteen minutes, so they don't have time to plan 232 00:14:58,840 --> 00:15:02,000 Speaker 1: or leak information. But again they're also just firing these 233 00:15:02,000 --> 00:15:05,280 Speaker 1: people on mass, so they're defeating the entire point of 234 00:15:05,400 --> 00:15:10,320 Speaker 1: their operations. These people cannot plan ahead, and the reason 235 00:15:10,320 --> 00:15:13,680 Speaker 1: that they cannot plan ahead. Isn't just that they're sort 236 00:15:13,680 --> 00:15:16,920 Speaker 1: of like naked disciples of pure increase in stock price. 237 00:15:17,640 --> 00:15:24,480 Speaker 1: What Liquidated describes is that these people believe that they 238 00:15:24,560 --> 00:15:29,760 Speaker 1: are effectively constantly reacting to near instantaneous market changes. Right. 239 00:15:30,320 --> 00:15:33,760 Speaker 1: They can't sort of make any kind of long term 240 00:15:33,800 --> 00:15:36,080 Speaker 1: plan because the market is the thing that's making the plan, 241 00:15:36,240 --> 00:15:39,600 Speaker 1: Like this sort of mythical abstraction of the market is 242 00:15:39,680 --> 00:15:43,280 Speaker 1: what is doing all of the actual allocations. So they 243 00:15:43,320 --> 00:15:44,840 Speaker 1: just have to sort of like sit there and have 244 00:15:44,920 --> 00:15:47,280 Speaker 1: no plan and quote unquote respond to what the market 245 00:15:47,320 --> 00:15:52,240 Speaker 1: is doing. Now, large corporations have always, to some extent, 246 00:15:52,320 --> 00:15:55,520 Speaker 1: acted as long term planning engines because they have to. 247 00:15:56,400 --> 00:15:59,640 Speaker 1: Corporations have to do things like research and developments, they 248 00:15:59,680 --> 00:16:02,120 Speaker 1: have to plan product lines, they have to make long 249 00:16:02,200 --> 00:16:06,720 Speaker 1: term decisions about resource allocation, the shareholder value. People are 250 00:16:06,720 --> 00:16:09,760 Speaker 1: incapable of giving a shit about any of this because 251 00:16:09,800 --> 00:16:12,360 Speaker 1: all they care about is immediate stock price movement, because 252 00:16:12,400 --> 00:16:14,960 Speaker 1: they think that immediate stock price movement reflects the will 253 00:16:15,040 --> 00:16:19,720 Speaker 1: of the great efficiency planning engine of the market. And 254 00:16:19,800 --> 00:16:22,280 Speaker 1: you could begin to see here why it would be 255 00:16:22,320 --> 00:16:26,000 Speaker 1: a bad idea if these people who literally cannot create 256 00:16:26,040 --> 00:16:30,720 Speaker 1: long term plans, did something like, for example, take control 257 00:16:30,840 --> 00:16:36,600 Speaker 1: of the world's largest manufacturer of commercial aircraft. Now, the 258 00:16:36,680 --> 00:16:43,520 Speaker 1: shareholder value people also believe that people are effectively interchangeable. 259 00:16:43,640 --> 00:16:46,160 Speaker 1: And they believe this because and this is a very 260 00:16:46,240 --> 00:16:49,520 Speaker 1: key part of why the shareholder value people and why 261 00:16:49,520 --> 00:16:52,040 Speaker 1: these sort of financed people have reshaped the world the 262 00:16:52,040 --> 00:16:55,000 Speaker 1: way they do. They have reshaped the world in their 263 00:16:55,040 --> 00:16:58,960 Speaker 1: own image. And all of these sort of investment bankers 264 00:16:59,280 --> 00:17:02,680 Speaker 1: are interchange right. All of these fucking bankers are fired 265 00:17:02,800 --> 00:17:05,119 Speaker 1: all over the time, and they move from firm to firm, 266 00:17:05,320 --> 00:17:07,600 Speaker 1: and it is fine for them. But the thing is, 267 00:17:08,160 --> 00:17:11,320 Speaker 1: you can't do this with the design of your entire 268 00:17:11,400 --> 00:17:15,800 Speaker 1: aircraft because unlike in finance, where every single one of 269 00:17:15,840 --> 00:17:18,800 Speaker 1: these clowns is really just a replacement level bozo whose 270 00:17:18,840 --> 00:17:21,600 Speaker 1: qualifications are being able to stumble through the chain role 271 00:17:21,680 --> 00:17:26,199 Speaker 1: and vaguely remember calculus, kiss, ask, and play golf, aerospace 272 00:17:26,240 --> 00:17:31,760 Speaker 1: engineers actually do a difficult job and it requires extraordinarily 273 00:17:31,840 --> 00:17:36,040 Speaker 1: large bodies of embedded knowledge to do this job correctly. Now, 274 00:17:36,520 --> 00:17:38,120 Speaker 1: bringing in a bunch of people who think you can 275 00:17:38,160 --> 00:17:41,600 Speaker 1: just fucking replace aerospace engineers will have no negative influences 276 00:17:41,600 --> 00:17:43,919 Speaker 1: on Boeing in the future. Pay no attention to the 277 00:17:43,960 --> 00:17:47,760 Speaker 1: man behind the mirror. Everything is fine. Do you know 278 00:17:47,800 --> 00:17:50,960 Speaker 1: what else is fine? It is the products and services 279 00:17:51,080 --> 00:18:05,480 Speaker 1: that support this podcast. And we are back the shareholder 280 00:18:05,560 --> 00:18:08,840 Speaker 1: value fanatics. The investors who are now taken control of 281 00:18:08,880 --> 00:18:13,600 Speaker 1: corporate America also believe that mass firings make companies more 282 00:18:13,680 --> 00:18:17,159 Speaker 1: valuable because it makes them more efficient. They believe that 283 00:18:17,359 --> 00:18:21,040 Speaker 1: offshoring makes a company more valuable because it makes it 284 00:18:21,040 --> 00:18:24,680 Speaker 1: more efficient. It doesn't actually matter what the effect these 285 00:18:24,720 --> 00:18:26,919 Speaker 1: moves have on the company and its ability to produce 286 00:18:26,960 --> 00:18:30,159 Speaker 1: products and its ability to produce money. It doesn't matter 287 00:18:30,640 --> 00:18:34,760 Speaker 1: at all, because that's how the people who can control 288 00:18:34,800 --> 00:18:39,719 Speaker 1: stock prices by buying the stocks think the world works. 289 00:18:40,320 --> 00:18:42,840 Speaker 1: And so if you do these things, the stock price 290 00:18:42,880 --> 00:18:47,439 Speaker 1: will go up. All quote unquote. Creating shareholder value means 291 00:18:47,560 --> 00:18:50,200 Speaker 1: is convincing a bunch of dipshit quants working one hundred 292 00:18:50,200 --> 00:18:52,600 Speaker 1: and twenty hours a week that your company is valuable, 293 00:18:52,920 --> 00:18:55,919 Speaker 1: so they buy it for a higher price. And these 294 00:18:56,320 --> 00:18:59,640 Speaker 1: are the people who reshape American capitalism to their whims. 295 00:19:00,400 --> 00:19:03,840 Speaker 1: Now importantly for our story, they're also the people who 296 00:19:03,920 --> 00:19:07,040 Speaker 1: ran the second phase of the corporate rating era. The 297 00:19:07,119 --> 00:19:11,280 Speaker 1: mergers and acquisitions boom through the nineties and really to 298 00:19:11,320 --> 00:19:14,879 Speaker 1: this day, Wall Street bankers began to encourage companies to 299 00:19:14,960 --> 00:19:18,239 Speaker 1: buy out other companies as a mechanism of raising their 300 00:19:18,280 --> 00:19:21,840 Speaker 1: stock price. This is, you know, the acquisitions and mergers 301 00:19:21,880 --> 00:19:26,199 Speaker 1: and acquisitions. They also heavily push merging companies together in 302 00:19:26,280 --> 00:19:29,560 Speaker 1: the nineties. The buzzerod behind this was quote unquote synergy. 303 00:19:30,359 --> 00:19:34,879 Speaker 1: Buying companies or merging companies could quote leverage synergies between 304 00:19:34,880 --> 00:19:39,800 Speaker 1: companies to grow shareholder value. Outside of the shareholder value 305 00:19:39,880 --> 00:19:43,120 Speaker 1: fantasy lands, most of these mergers and acquisitions either did 306 00:19:43,160 --> 00:19:45,800 Speaker 1: nothing to help the company if the acquisitions were small, 307 00:19:46,440 --> 00:19:50,479 Speaker 1: or were a complete disaster that destroyed both companies. The 308 00:19:50,520 --> 00:19:53,520 Speaker 1: bankers who orchestrated these mergers and acquisitions didn't give a 309 00:19:53,560 --> 00:19:57,680 Speaker 1: shit though, because they got paid on commission. It did 310 00:19:57,720 --> 00:20:00,719 Speaker 1: not matter to them what happened afterwards. All that matters 311 00:20:00,800 --> 00:20:03,520 Speaker 1: is that the deal goes through. And this is where 312 00:20:03,520 --> 00:20:07,359 Speaker 1: we returned to Boeing because in nineteen ninety seven Boeing 313 00:20:07,400 --> 00:20:10,440 Speaker 1: made an acquisition that would fuck the company forever. They 314 00:20:10,480 --> 00:20:14,240 Speaker 1: bought one of their longtime rivals, an aircraft company known 315 00:20:14,880 --> 00:20:20,280 Speaker 1: as McDonald Douglas. Now hitherto Boeing had been relatively insulated 316 00:20:20,320 --> 00:20:25,800 Speaker 1: from the shareholder revolution. McDonald douglas, however, was not it's CEO. 317 00:20:26,200 --> 00:20:29,640 Speaker 1: Was a man with the incredible name Harry stone Cipher. 318 00:20:30,640 --> 00:20:33,679 Speaker 1: Stone Cipher is different from most aerospace executives because he 319 00:20:33,800 --> 00:20:37,480 Speaker 1: wasn't a McDonald douglas corporate man. He came from Jack 320 00:20:37,560 --> 00:20:41,800 Speaker 1: Welch's General Electric And it's here we need to introduce 321 00:20:41,840 --> 00:20:45,400 Speaker 1: the other mechanism through which the shareholder revolution was realized, 322 00:20:46,000 --> 00:20:48,800 Speaker 1: a new breed of CEOs led by the man himself, 323 00:20:49,240 --> 00:20:53,239 Speaker 1: Jack Welsh. Now we are not going to spend an 324 00:20:53,359 --> 00:20:58,600 Speaker 1: enormous amount of time talking about Jack Welsh in this episode, 325 00:20:59,000 --> 00:21:02,640 Speaker 1: because cool Zone Media podcasts Behind the Bats has three 326 00:21:02,680 --> 00:21:05,359 Speaker 1: hours of episode about this man, which you should go 327 00:21:05,440 --> 00:21:07,960 Speaker 1: listen to their good The short version of it that 328 00:21:07,960 --> 00:21:09,920 Speaker 1: we're going to give here is that Jack Welsh is 329 00:21:09,960 --> 00:21:12,479 Speaker 1: the man who invented the bass layoff. He was one 330 00:21:12,520 --> 00:21:14,440 Speaker 1: of the first CEOs to figure out that again, you 331 00:21:14,480 --> 00:21:17,440 Speaker 1: could raise stock prices by selling off profitable divisions and 332 00:21:17,520 --> 00:21:20,720 Speaker 1: firing workers who are making the company money. Because shareholders 333 00:21:20,760 --> 00:21:25,560 Speaker 1: are ideologically driven maniacs who would believe Welsh's manipulated balance 334 00:21:25,600 --> 00:21:27,640 Speaker 1: sheets that showed the company was doing better than ever, 335 00:21:27,680 --> 00:21:30,520 Speaker 1: even as it sold off all of its assets. He 336 00:21:30,720 --> 00:21:32,960 Speaker 1: was also one of the first people to start practicing 337 00:21:33,000 --> 00:21:38,160 Speaker 1: mass outsourcing, replacing workers directly employed by General Electric with contractors. 338 00:21:38,520 --> 00:21:44,320 Speaker 1: Soon he was outsourcing entire divisions. Offshoring followed. Welsh moved 339 00:21:44,359 --> 00:21:47,480 Speaker 1: jobs from highly paid and highly trained union employees in 340 00:21:47,520 --> 00:21:51,760 Speaker 1: the US to ununionized workers in places like India and Mexico. 341 00:21:52,680 --> 00:21:57,480 Speaker 1: I think people generally kind of understand that offshoing lowers quality, 342 00:21:57,840 --> 00:22:01,560 Speaker 1: but why does that actually happen. It's not about something 343 00:22:01,600 --> 00:22:03,439 Speaker 1: like the natural skill of the workers, which is the 344 00:22:03,440 --> 00:22:05,480 Speaker 1: way it can kind of be presented in these sort 345 00:22:05,480 --> 00:22:09,520 Speaker 1: of nationalist accounts. It is about the level of violence 346 00:22:09,560 --> 00:22:12,399 Speaker 1: that can be inflicted on people. In places like India 347 00:22:12,440 --> 00:22:16,040 Speaker 1: and Mexico and China, there is an extraordinary amount of 348 00:22:16,080 --> 00:22:18,840 Speaker 1: violence that can be inflicted on the working class. And 349 00:22:19,080 --> 00:22:21,800 Speaker 1: because of this violence, because of their ability to destroy 350 00:22:21,920 --> 00:22:24,160 Speaker 1: unions and because of their ability to force people into 351 00:22:24,200 --> 00:22:28,199 Speaker 1: poverty by taking their land, people get paid less money 352 00:22:28,240 --> 00:22:31,399 Speaker 1: to work faster, And those people who are being paid 353 00:22:31,440 --> 00:22:34,160 Speaker 1: less money to work faster with worse training are going 354 00:22:34,200 --> 00:22:36,800 Speaker 1: to be worse at a job than people who are 355 00:22:36,800 --> 00:22:39,919 Speaker 1: paid more to do it better, slower. And Jack Welch 356 00:22:40,000 --> 00:22:42,840 Speaker 1: wants this. He wants to sell shitty, low cost products 357 00:22:42,880 --> 00:22:45,719 Speaker 1: because they're cheaper to make than anything that actually works. 358 00:22:46,480 --> 00:22:50,560 Speaker 1: The long term consequences of this are a disaster. Welch 359 00:22:50,760 --> 00:22:53,640 Speaker 1: drove General Electric, one of the greatest engines of American 360 00:22:53,680 --> 00:22:58,199 Speaker 1: capitalism for a century, into the ground, even after a 361 00:22:58,240 --> 00:23:02,480 Speaker 1: massive government bailout in and it barely exists today. Harry 362 00:23:02,520 --> 00:23:05,679 Speaker 1: Stone Cipher, the CEO of the company Boeing was about 363 00:23:05,680 --> 00:23:09,960 Speaker 1: to buy, said this about Jack Welch quote, Certainly, Jack 364 00:23:10,000 --> 00:23:12,280 Speaker 1: Welch is one of the great leaders in my mind. 365 00:23:12,480 --> 00:23:14,520 Speaker 1: And of course he was selected as CEO of the 366 00:23:14,560 --> 00:23:17,919 Speaker 1: Century by Fortune magazine a couple years ago, and of 367 00:23:17,960 --> 00:23:20,679 Speaker 1: course about twenty years ago that same magazine coined the 368 00:23:20,680 --> 00:23:23,399 Speaker 1: phrase neutron jack, and of course they vilified him at 369 00:23:23,400 --> 00:23:26,120 Speaker 1: every turn. Neutron jack, by the way, refers to like 370 00:23:26,280 --> 00:23:29,600 Speaker 1: a neutron bomb, because effectively, what he was doing was 371 00:23:29,640 --> 00:23:31,840 Speaker 1: firing all the workers and leaving only the sort of 372 00:23:31,880 --> 00:23:34,560 Speaker 1: like physical capital assets, like leaving all of the machines intact, 373 00:23:34,560 --> 00:23:36,480 Speaker 1: which is what a neutron bomb is supposed to do. 374 00:23:37,560 --> 00:23:40,000 Speaker 1: Let's go back to the quote. Quote. Jack had a 375 00:23:40,040 --> 00:23:42,520 Speaker 1: style that was one of trying to change the environment, 376 00:23:42,680 --> 00:23:45,520 Speaker 1: not to just deal with the environment. So he inspired people, 377 00:23:45,560 --> 00:23:49,400 Speaker 1: so he certainly won. So Stone Cipher is a disciple 378 00:23:49,480 --> 00:23:53,480 Speaker 1: of Welch. He immediately starts running the Jack Watch playbook, 379 00:23:53,720 --> 00:23:56,960 Speaker 1: and though and behold, McDonnell douglass was failing when Boeing 380 00:23:57,000 --> 00:24:00,399 Speaker 1: bought it for fourteen billion dollars. And again, like Boeing 381 00:24:00,440 --> 00:24:03,159 Speaker 1: at this point controls like sixty five percent of the 382 00:24:03,160 --> 00:24:07,439 Speaker 1: commercial aviation market, McDonald douglas controls like five. Right, so 383 00:24:07,520 --> 00:24:10,879 Speaker 1: this should have been like Goliath eating David for breakfast, 384 00:24:11,920 --> 00:24:15,919 Speaker 1: but the merger didn't go as planned. Instead of the 385 00:24:16,000 --> 00:24:20,359 Speaker 1: massive Boeing running the tidy McDonald douglas, McDonald douglas executives 386 00:24:20,359 --> 00:24:23,879 Speaker 1: effectively hijacked Boeing and installed themselves in positions of power. 387 00:24:24,880 --> 00:24:28,280 Speaker 1: Stone Cipher and his Padre shareholder value fanatics began to 388 00:24:28,320 --> 00:24:32,000 Speaker 1: consolidate their position and drive out the previous Boeing regime. 389 00:24:32,760 --> 00:24:36,720 Speaker 1: The capstone of this project was moving Boeing headquarters from Seattle, 390 00:24:37,000 --> 00:24:39,919 Speaker 1: where he had been since William E. Boeing founded the 391 00:24:39,920 --> 00:24:43,080 Speaker 1: company in nineteen sixteen, to Chicago, as a way to 392 00:24:43,160 --> 00:24:46,119 Speaker 1: shift the physical center of power of the company away 393 00:24:46,160 --> 00:24:49,119 Speaker 1: from Boeing's engineers and workers and towards the McDonald douglas 394 00:24:49,160 --> 00:24:52,760 Speaker 1: finance goals. Then they began to run the Jack Walsh 395 00:24:52,840 --> 00:24:56,400 Speaker 1: playbook on Boeing in earnest. Every single account of stone 396 00:24:56,400 --> 00:25:01,119 Speaker 1: Cipher's takeover that I've written quotes this exact same line quote. 397 00:25:01,160 --> 00:25:03,439 Speaker 1: When people say I changed the culture of Boeing, that 398 00:25:03,600 --> 00:25:06,120 Speaker 1: was the intent, so that it's run like a business 399 00:25:06,240 --> 00:25:09,639 Speaker 1: rather than a great engineering firm. And what stone Cipher 400 00:25:09,720 --> 00:25:12,200 Speaker 1: is really talking about here, and what everyone is really 401 00:25:12,320 --> 00:25:15,359 Speaker 1: saying when they talk about, you know, the culture shift 402 00:25:15,480 --> 00:25:18,720 Speaker 1: Boeing in this period, what this really is is a 403 00:25:18,840 --> 00:25:21,320 Speaker 1: change in the balance of powers between the engineers and 404 00:25:21,359 --> 00:25:24,280 Speaker 1: workers who actually make the planes and the finance goals 405 00:25:24,320 --> 00:25:26,879 Speaker 1: who own the company. Stone Cipher wanted to crush the 406 00:25:26,920 --> 00:25:29,640 Speaker 1: engineers and workers so he could run Boeing like a business. 407 00:25:30,480 --> 00:25:33,680 Speaker 1: And what he says like a business, he doesn't actually 408 00:25:33,760 --> 00:25:36,159 Speaker 1: mean run it like a business. He means run the 409 00:25:36,160 --> 00:25:40,320 Speaker 1: company like a finance guy. And finance guys don't build planes, 410 00:25:40,359 --> 00:25:43,720 Speaker 1: which is what Boeing had previously been doing. Finance guys 411 00:25:43,920 --> 00:25:46,480 Speaker 1: create shareholder value. Which is to say that they make 412 00:25:46,560 --> 00:25:49,639 Speaker 1: stock prices go up. So if you're just trying to 413 00:25:49,760 --> 00:25:52,919 Speaker 1: raise stock prices, you don't actually need to make an airplane. 414 00:25:52,960 --> 00:25:55,480 Speaker 1: You can outsource the different parts of building the airplane 415 00:25:55,480 --> 00:25:57,840 Speaker 1: to a bunch of random shops around the world who 416 00:25:57,880 --> 00:26:00,560 Speaker 1: work extremely fast, don't have much of idea of what 417 00:26:00,600 --> 00:26:04,080 Speaker 1: they're doing, and do a terrible job long term. Of course, 418 00:26:04,240 --> 00:26:06,719 Speaker 1: this is an absolute disaster. There are very good reasons 419 00:26:06,720 --> 00:26:09,080 Speaker 1: to keep the production line for something as complicated as 420 00:26:09,080 --> 00:26:14,000 Speaker 1: commercial aircraft, in house efficiency, consolidation of knowledge, quality control, 421 00:26:14,040 --> 00:26:17,240 Speaker 1: et cetera, et cetera. But outsourcing is great for his 422 00:26:17,320 --> 00:26:20,879 Speaker 1: stock price, and it's the Jack Welsh model selling shitty 423 00:26:20,920 --> 00:26:24,280 Speaker 1: products for cheap works, kind of if you're General Electric 424 00:26:24,359 --> 00:26:27,080 Speaker 1: making a light bulb. But when Boeing uses these same 425 00:26:27,119 --> 00:26:31,119 Speaker 1: principles to build an aircraft, people begin to die. And 426 00:26:31,200 --> 00:26:33,639 Speaker 1: in the next episode we are going to tell that 427 00:26:33,800 --> 00:26:37,840 Speaker 1: story how Boeing killed three hundred and forty six people. 428 00:26:41,240 --> 00:26:43,720 Speaker 1: It could happen. Here is a production of cool Zone Media. 429 00:26:43,920 --> 00:26:46,960 Speaker 1: For more podcasts from cool Zone Media, visit our website 430 00:26:47,040 --> 00:26:50,600 Speaker 1: coolzonemedia dot com, or check us out on the iHeartRadio app. 431 00:26:50,680 --> 00:26:54,240 Speaker 1: Apple Podcasts or wherever you listen to podcasts, you can 432 00:26:54,280 --> 00:26:56,639 Speaker 1: now find sources for it could happen here, listed directly 433 00:26:56,640 --> 00:26:58,960 Speaker 1: in episode descriptions. Thanks for listening.