WEBVTT - What’s the Matter With Boeing, Pt. 1: Shareholders Don't Build Airplanes 0:00:01.720 --> 0:00:07.960 All Zone Media. Welcome to Kadappy here, a podcast about 0:00:07.960 --> 0:00:10.920 things falling apart and how to put them back together again. 0:00:11.400 --> 0:00:15.680 I'm your host, Mia Wong. This is a story about Boeing. 0:00:16.640 --> 0:00:18.520 I'm going to lay my cards on the table from 0:00:18.560 --> 0:00:22.400 the start. I'm from Chicago, but my family is from Seattle. 0:00:22.800 --> 0:00:24.639 Some of my aunts and uncles worked for Boeing in 0:00:24.640 --> 0:00:27.120 the eighties. Of the airline side. Some of our closest 0:00:27.120 --> 0:00:29.639 family friends worked there for much, much longer than that. 0:00:31.000 --> 0:00:33.400 I grew up on the periphery of this industry and 0:00:33.440 --> 0:00:36.120 I have never seen the people in it and the 0:00:36.159 --> 0:00:38.840 people who have left as angry as they are now. 0:00:39.320 --> 0:00:42.200 People are pissed, and they should be. In the last 0:00:42.240 --> 0:00:45.320 six years, Boeing has killed three hundred and forty six people. 0:00:45.720 --> 0:00:48.080 In the years to come, they may well kill more, 0:00:48.880 --> 0:00:50.880 and not a single one of them had to die. 0:00:52.040 --> 0:00:58.480 This is how it happened. What is Boeing. The short answer, obviously, 0:00:58.880 --> 0:01:00.920 is that it's a company that may both civilian and 0:01:00.920 --> 0:01:04.039 military airplanes. It also does some other things, including working 0:01:04.080 --> 0:01:06.759 on space travel, but that's not our media concern here. 0:01:08.160 --> 0:01:10.880 The long answer, however, and it's the long answer that 0:01:10.920 --> 0:01:14.039 we need, is that Boeing is the poster child for 0:01:14.080 --> 0:01:19.319 the post World War Two labor, corporate, militarist alliance. Boeing 0:01:19.360 --> 0:01:23.679 itself was a sometimes uneasy alliance of workers, engineers, and 0:01:23.760 --> 0:01:28.080 the army that made civilian and military airplanes. This is 0:01:28.080 --> 0:01:30.720 also not a terrible description of the entirety of the 0:01:30.720 --> 0:01:33.960 postwar United States, with the proviso at the airplanes that 0:01:34.000 --> 0:01:37.520 the US is making, we're dropping bombs at Vietnam. The 0:01:37.640 --> 0:01:41.160 unwinding of Boeing that we're all watching today as doors 0:01:41.200 --> 0:01:44.360 fall off of planes and more and more grounded, is 0:01:44.400 --> 0:01:48.720 the unwinding of that America. Here I turned to the 0:01:48.720 --> 0:01:53.120 anthropologist David Graber from his book The Utopia of Rules quote, 0:01:53.320 --> 0:01:56.360 I think what happened is best considered as a kind 0:01:56.400 --> 0:01:59.600 of shifting class allegiances on the part of the managerial 0:01:59.640 --> 0:02:03.920 staff of major corporations from an uneasy de facto alliance 0:02:03.960 --> 0:02:07.200 with their own workers to one with investors. As John 0:02:07.280 --> 0:02:10.600 Kenneth Galbraith long ago pointed out, if you create an 0:02:10.680 --> 0:02:15.360 organization geared to produce perfumes, dairy products, or aircraft usel lodges, 0:02:15.840 --> 0:02:18.400 those who make it up will, if left with their 0:02:18.400 --> 0:02:21.800 own devices, tend to concentrate their efforts on producing more 0:02:21.840 --> 0:02:25.800 and better perfumes, dairy products, or aircraft usel lodges, rather 0:02:25.880 --> 0:02:29.040 than thinking primarily of what will make the most money 0:02:29.040 --> 0:02:33.200 for shareholders. What's more, since for most of the twentieth century, 0:02:33.360 --> 0:02:36.680 a job in a large bureaucratic megafirm meant a lifetime 0:02:36.680 --> 0:02:40.359 promise of employment, everyone involved in the process, managers and 0:02:40.440 --> 0:02:43.600 workers alike, tended to see themselves as sharing a certain 0:02:43.639 --> 0:02:47.840 common interest. In this regard over and against meddling owners 0:02:47.840 --> 0:02:51.399 and investors. This kind of solidarity across class lines even 0:02:51.400 --> 0:02:56.679 had a name. It's called corporatism. One mustn't romanticize it. 0:02:56.680 --> 0:03:00.800 It was, among other things, the philosophical basis of fascism. Indeed, 0:03:01.040 --> 0:03:03.920 one could well argue that fascism simply took the idea 0:03:04.000 --> 0:03:07.840 that workers and managers had interest in common, that organizations 0:03:07.880 --> 0:03:11.600 like corporations or communities formed organic holes, and that finances 0:03:11.639 --> 0:03:14.360 were an alien, parasitic force and drove them to their 0:03:14.440 --> 0:03:19.079 ultimate murderis extreme, even in its more benign social democratic versions. 0:03:19.120 --> 0:03:23.520 In America or Europe, the attendant politics often came tinged 0:03:23.520 --> 0:03:26.840 with chauvinism, but they also ensured that the investor class 0:03:26.880 --> 0:03:30.560 was always seen to some extent outsiders, against whom white 0:03:30.560 --> 0:03:33.560 collar and blue collar workers could be considered, at least 0:03:33.560 --> 0:03:37.480 to some degree to be in united common front. Now, 0:03:37.680 --> 0:03:41.040 as a product of the united Front between workers and managers, 0:03:42.000 --> 0:03:44.560 the corporative system of the post war era had a 0:03:44.680 --> 0:03:48.920 very different conception of what a corporation is. It was 0:03:48.920 --> 0:03:52.560 a social entity composed of a variety of classes and 0:03:52.800 --> 0:03:56.600 had an obligation to take care of them. It had 0:03:56.640 --> 0:04:00.960 an obligation to its workers, to its engineers, to its customers, 0:04:01.280 --> 0:04:04.760 and even to its country. By absorbing unions into the 0:04:04.760 --> 0:04:08.560 corporate system, the system itself had been forced to adapt 0:04:08.640 --> 0:04:12.840 a more sociological self conception that vastly differed from the 0:04:12.840 --> 0:04:18.680 ways corporations both view themselves and behave today. As Grayburn notes, 0:04:18.839 --> 0:04:22.239 this class coalition largely wrote capitalists out of the equation, 0:04:22.720 --> 0:04:27.039 reducing them to merror holders of stock, not managers. In 0:04:27.160 --> 0:04:31.200 Boeing's case, those managers were engineers at basically all levels 0:04:31.240 --> 0:04:35.480 of the company. Now we must note here that in 0:04:35.520 --> 0:04:39.599 the post World War two era engineers were extremely powerful, 0:04:40.400 --> 0:04:43.479 and this is not just true of capitalist nations. So 0:04:43.839 --> 0:04:46.400 the US to some extent had an early start on 0:04:46.440 --> 0:04:49.040 the power of engineers in the running of New Deal 0:04:49.080 --> 0:04:53.320 programs like the Tennessee Valley Authority. Engineers are powerful in 0:04:53.360 --> 0:04:56.560 communist countries as well, and it's true in quasi socialist 0:04:56.600 --> 0:04:59.720 countries that had just liberated themselves from the old European empires. 0:05:00.360 --> 0:05:03.839 These engineers were both extremely well paid and very influential 0:05:03.920 --> 0:05:07.320 everywhere you can find them, from Belgium to Peru, and 0:05:07.400 --> 0:05:09.560 the only real difference is whether they were trained by 0:05:09.560 --> 0:05:14.039 the Americans or the Soviets. Now, the fact that you, 0:05:14.279 --> 0:05:16.960 the listener, are not reporting to an engineer right now 0:05:17.000 --> 0:05:19.760 at your job is assigned that they didn't exactly hold 0:05:19.800 --> 0:05:24.520 on to power. In fact, the last vestiges of this 0:05:24.600 --> 0:05:28.760 class of extremely powerful engineers aren't really even in Boeing 0:05:28.800 --> 0:05:32.800 at all. The most prominent remain of the Great Engineering 0:05:32.839 --> 0:05:36.120 International is Shi Jim Ping, who is part of a 0:05:36.160 --> 0:05:39.280 class in China known as the Red Engineers. If you 0:05:39.360 --> 0:05:42.040 want to know more about the Red Engineers, we unfortunately 0:05:42.080 --> 0:05:44.640 do not have time to really go into them here, 0:05:44.680 --> 0:05:48.520 but c Joel Andreas's book Rise of the Red Engineers 0:05:48.520 --> 0:05:52.120 for the most famous treatment of them. Now in China, 0:05:52.560 --> 0:05:55.720 the Red Engineers effectively seized control of the states and 0:05:55.880 --> 0:05:59.159 were the kind of second generation that ruled back the 0:05:59.200 --> 0:06:03.760 social changes of the revolution from the Maoist period. In 0:06:03.839 --> 0:06:08.240 the US, the story is a bit more complicated. In 0:06:08.279 --> 0:06:11.960 some places, the engineers as a class were rolled up 0:06:12.080 --> 0:06:15.480 and brutally destroyed in a war with a newly ascended 0:06:15.520 --> 0:06:20.640 finance class. In others, engineers, feeling the disciplining effects of 0:06:20.680 --> 0:06:26.480 the market, effectively engineered their own destruction. The latter engineers 0:06:26.560 --> 0:06:30.560 leading the company to financial ruin is to some extent 0:06:30.760 --> 0:06:35.159 the story of Boeing, But to get there we need 0:06:35.200 --> 0:06:38.520 to take a look at how the worker management alliance 0:06:38.560 --> 0:06:42.880 Graber described came a part. I have talked at length 0:06:42.960 --> 0:06:45.800 on this show about the economic crisis of the seventies 0:06:45.960 --> 0:06:49.640 in which everything, the entire consensus that had held the 0:06:49.720 --> 0:06:53.680 post war era together fell apart. One of the key 0:06:53.800 --> 0:06:58.760 elements is that in the nineteen seventies, manufacturing becomes zero sum. 0:06:59.120 --> 0:07:02.320 If manufacturing put increases in one country, it can largely 0:07:02.360 --> 0:07:06.479 only come at the expense of production somewhere else. This 0:07:06.640 --> 0:07:09.960 is the product of a general crisis of structural overproduction 0:07:10.120 --> 0:07:14.160 and structural under consumption. This meant that it was no 0:07:14.240 --> 0:07:19.120 longer possible to incorporate everyone into the capitalist welfare system 0:07:19.160 --> 0:07:23.240 while also retaining corporate profits, and so someone was going 0:07:23.320 --> 0:07:25.640 to have to lose everything. It was either going to 0:07:25.680 --> 0:07:28.240 be the capitalists or the workers. And the people who 0:07:28.280 --> 0:07:31.000 lost everything, as I think we're all aware of living 0:07:31.080 --> 0:07:33.680 in the world that we do now, were the workers 0:07:33.720 --> 0:07:39.120 whose power was systematically destroyed. But that largely the story 0:07:39.120 --> 0:07:40.960 of the destruction of unions and the destruction of the 0:07:41.000 --> 0:07:45.000 leftboard broadly is a story for another day for our purposes. 0:07:45.560 --> 0:07:49.360 The important class that was destroyed in the period of 0:07:49.400 --> 0:07:53.400 the seventies is the class of managerial engineers, and these 0:07:53.400 --> 0:07:57.440 engineers were destroyed by a takeover of Corporate America by 0:07:57.480 --> 0:08:01.000 the shareholders the Corporatist Alliance had previews held at Bay. 0:08:02.280 --> 0:08:06.240 The takeover of Corporate America by finance schools had two mechanisms. 0:08:06.680 --> 0:08:10.800 The leveraged buyout, better known as corporate rating, was carried 0:08:10.840 --> 0:08:14.160 out by people like Michael Milkin, and the internal movement 0:08:14.280 --> 0:08:18.360 of executives from inside the corporations themselves, led by people 0:08:18.400 --> 0:08:21.320 like Jack Welsh. We will meet both of these people 0:08:21.800 --> 0:08:25.760 in detail later in this story, but the details of 0:08:25.840 --> 0:08:30.560 the process of how exactly the finance schools came to 0:08:30.680 --> 0:08:35.400 control Corporate America turn out to be extremely important because 0:08:35.480 --> 0:08:40.640 Boeing is destroyed by both of the two mechanisms coming 0:08:40.679 --> 0:08:44.959 together at the same time. Now, as the eighties dawned, 0:08:45.240 --> 0:08:47.679 the world lived in fear of a new kind of 0:08:47.679 --> 0:08:53.200 financial device, the leveraged buyout. The exact mechanisms of the 0:08:53.280 --> 0:08:57.440 leveraged buyout are slightly complicated, but the short version is 0:08:57.440 --> 0:09:00.960 that Michael Milken, a bond salesman who who I eventually 0:09:01.000 --> 0:09:03.120 am going to do a fall behind the bastard's episode 0:09:03.120 --> 0:09:05.320 on because oh my god is the evil and there 0:09:05.360 --> 0:09:08.400 simply is not space to elaborate on all the stuff 0:09:08.400 --> 0:09:11.160 that he did here, including the off that eventually is 0:09:11.200 --> 0:09:14.720 going to send him to prison, figured out a way 0:09:14.800 --> 0:09:18.040 for a person or a group too, with very little 0:09:18.280 --> 0:09:22.800 actual cash on hand, to very quickly take on an 0:09:22.960 --> 0:09:26.360 unbelievable amount of debt, use it to buy a company, 0:09:26.720 --> 0:09:29.520 and then sell that company for parts to pay back 0:09:29.559 --> 0:09:35.320 the debt, pocketing the difference as profit. This was an instant, 0:09:35.480 --> 0:09:40.600 existential danger to a corporate America. Previously, corporate takeovers were 0:09:40.640 --> 0:09:44.880 extremely difficult. Attempting to get two hundred million dollars to 0:09:45.040 --> 0:09:48.240 buy a company required you to have two hundred million 0:09:48.320 --> 0:09:52.600 dollars on hand. But now with the leveraged buyout, a 0:09:52.640 --> 0:09:55.000 group of yahoos with a tiny amount of money could 0:09:55.040 --> 0:09:58.320 simply buy a company for higher van stock price, loot 0:09:58.360 --> 0:10:02.480 it for parts, and destroy it. This completely changed the 0:10:02.520 --> 0:10:06.280 balance of power between shareholders and corporations. One of the 0:10:06.320 --> 0:10:09.200 best accounts of this era is from the anthropologist Karen 0:10:09.240 --> 0:10:12.400 Hoe in her book Liquidated in Ethnography of Wall Street. 0:10:13.000 --> 0:10:14.880 The book was a product with the field work she 0:10:14.960 --> 0:10:17.200 did at a Wall Street investment bank in the nineties. 0:10:17.200 --> 0:10:21.240 And I really cannot emphasize this book enough. This book 0:10:21.280 --> 0:10:23.760 is incredible. Everyone should read. It is a book that 0:10:23.920 --> 0:10:27.640 genuinely changed my life. And one of the things that 0:10:27.679 --> 0:10:31.839 she talks about is this moment, the moments of leverage buyouts, 0:10:32.280 --> 0:10:35.480 and the way that it is constantly brought up by 0:10:35.520 --> 0:10:37.840 the people that she is working with at this bank 0:10:37.880 --> 0:10:41.400 when she's doing her when she's doing her anthropological field work. Everyone. 0:10:41.440 --> 0:10:46.400 She talks about this moment where the corporate waters really 0:10:46.440 --> 0:10:51.559 got going, as the moment the shareholder revolution began. Now, 0:10:52.320 --> 0:10:55.960 we talked earlier about how in post war America the 0:10:56.000 --> 0:11:00.000 corporation was a social entity with responsibilities to its workers 0:11:00.120 --> 0:11:03.920 and country for the shareholders running the new shareholder revolution, 0:11:04.400 --> 0:11:09.600 corporations had exactly one job, getting them more money to 0:11:09.760 --> 0:11:15.560 raise stock prices. They called this shareholder value. And now 0:11:15.840 --> 0:11:18.920 the disciples of shareholder value were able to wield the 0:11:18.960 --> 0:11:22.839 ability to simply buy companies out wholesale and bend them 0:11:22.840 --> 0:11:26.840 to the ends of shareholder value directly. This is what 0:11:26.960 --> 0:11:30.120 is known as the shareholder revolution. Now, do you know 0:11:30.160 --> 0:11:33.160 what else is a revolution in the ways that y'all 0:11:33.200 --> 0:11:37.320 experience capitalism and mass culture at our jobs. It is 0:11:37.360 --> 0:11:50.240 the products and services that support this podcast. We're back. 0:11:51.720 --> 0:11:54.959 The first thing that the corporate raiders and the disciples 0:11:55.000 --> 0:11:57.719 of shareholder value did when they started to take over 0:11:57.800 --> 0:12:00.720 companies was look at the balance sheets of a company 0:12:01.040 --> 0:12:04.840 and destroy everything that didn't immediately look to the Wall 0:12:04.880 --> 0:12:08.160 street goruls like they made money. Now, what are the 0:12:08.240 --> 0:12:12.480 assets on a balance sheet that do not immediately increase 0:12:12.480 --> 0:12:15.559 stock price? Because again, they look like costs. Right. The 0:12:15.640 --> 0:12:19.400 two assets that don't immediately contribute are funds allocated for 0:12:19.480 --> 0:12:23.920 research and development and pensions, the darlings of the workers 0:12:23.920 --> 0:12:29.240 and engineers who comprise the previous corporatist regimes. Mass layoffs followed. 0:12:29.720 --> 0:12:32.960 Companies were reduced to debt financing mechanisms for the corporate 0:12:33.040 --> 0:12:37.200 raiders who took on the debt to acquire them were still. 0:12:37.559 --> 0:12:41.120 As Karen Hoe observes, even companies ran by the old 0:12:41.120 --> 0:12:44.480 elite were forced to embrace the same methods the raiders 0:12:44.520 --> 0:12:47.320 were using, because the only way to keep the raiders 0:12:47.360 --> 0:12:50.840 from buying your company was by increasing your stock price, 0:12:51.240 --> 0:12:53.960 and the only way to increase your stock price was 0:12:54.000 --> 0:12:58.640 to appease the shareholder value fanatics. Control of corporate America 0:12:58.760 --> 0:13:02.880 had shifted from the old managerial work reliance to the 0:13:02.920 --> 0:13:09.520 new shareholder value financiers. Now, the problem with the shareholder 0:13:09.600 --> 0:13:14.319 value people running companies is that they are viscerally physically 0:13:14.360 --> 0:13:18.040 incapable of long term planning. Don't take my word for it, 0:13:18.280 --> 0:13:23.640 here's Karen Hoe quote to actualize their central identity as 0:13:23.679 --> 0:13:28.320 being immediately responsive to their own changing relationship with the market, 0:13:28.840 --> 0:13:32.840 including employees, products, and so on. Their strategy is, in 0:13:32.920 --> 0:13:38.440 a sense, to have no strategy. Ironically, having no long 0:13:38.520 --> 0:13:43.280 term strategy is contradictory and potentially self defeating in that 0:13:43.360 --> 0:13:47.600 investment banks often find themselves making drastic changes, only to 0:13:47.679 --> 0:13:53.000 realize months or weeks later that those changes were unnecessary, premature, 0:13:53.320 --> 0:13:57.960 and extremely costly. For example, in chapter five, I describe 0:13:58.120 --> 0:14:01.880 how investment bankers and because of their access to sensitive 0:14:02.000 --> 0:14:06.400 proprietary information, are not only fired in an instance, but 0:14:06.480 --> 0:14:09.840 must leave the physical premises of the building within fifteen 0:14:09.880 --> 0:14:13.640 to thirty minutes. Given how crucial the control of knowledge 0:14:13.679 --> 0:14:16.640 and the protection of inside information are for Wall Street 0:14:16.640 --> 0:14:20.280 investment banks, it seems self defeating that they do not 0:14:20.400 --> 0:14:25.120 praise any freemium on loyalty. Despite the fact that firms 0:14:25.200 --> 0:14:29.240 try above all to enforce secrecy, they accept it maintained 0:14:29.320 --> 0:14:34.760 this volatility in revolving door policy. To make this clear, 0:14:35.400 --> 0:14:40.200 what carrot Ho is describing is that investment banks, on 0:14:40.240 --> 0:14:42.440 the one hand, turn over like a third of their 0:14:42.480 --> 0:14:45.720 staff every six months, and yet also they are so 0:14:45.920 --> 0:14:49.640 reliant on the secrecy of this proprietary information that they're 0:14:49.720 --> 0:14:53.400 using to make their investment decisions that they are kicking 0:14:53.400 --> 0:14:55.600 the people. They are firing out of the building in 0:14:55.640 --> 0:14:58.680 like fifteen minutes, so they don't have time to plan 0:14:58.840 --> 0:15:02.000 or leak information. But again they're also just firing these 0:15:02.000 --> 0:15:05.280 people on mass, so they're defeating the entire point of 0:15:05.400 --> 0:15:10.320 their operations. These people cannot plan ahead, and the reason 0:15:10.320 --> 0:15:13.680 that they cannot plan ahead. Isn't just that they're sort 0:15:13.680 --> 0:15:16.920 of like naked disciples of pure increase in stock price. 0:15:17.640 --> 0:15:24.480 What Liquidated describes is that these people believe that they 0:15:24.560 --> 0:15:29.760 are effectively constantly reacting to near instantaneous market changes. Right. 0:15:30.320 --> 0:15:33.760 They can't sort of make any kind of long term 0:15:33.800 --> 0:15:36.080 plan because the market is the thing that's making the plan, 0:15:36.240 --> 0:15:39.600 Like this sort of mythical abstraction of the market is 0:15:39.680 --> 0:15:43.280 what is doing all of the actual allocations. So they 0:15:43.320 --> 0:15:44.840 just have to sort of like sit there and have 0:15:44.920 --> 0:15:47.280 no plan and quote unquote respond to what the market 0:15:47.320 --> 0:15:52.240 is doing. Now, large corporations have always, to some extent, 0:15:52.320 --> 0:15:55.520 acted as long term planning engines because they have to. 0:15:56.400 --> 0:15:59.640 Corporations have to do things like research and developments, they 0:15:59.680 --> 0:16:02.120 have to plan product lines, they have to make long 0:16:02.200 --> 0:16:06.720 term decisions about resource allocation, the shareholder value. People are 0:16:06.720 --> 0:16:09.760 incapable of giving a shit about any of this because 0:16:09.800 --> 0:16:12.360 all they care about is immediate stock price movement, because 0:16:12.400 --> 0:16:14.960 they think that immediate stock price movement reflects the will 0:16:15.040 --> 0:16:19.720 of the great efficiency planning engine of the market. And 0:16:19.800 --> 0:16:22.280 you could begin to see here why it would be 0:16:22.320 --> 0:16:26.000 a bad idea if these people who literally cannot create 0:16:26.040 --> 0:16:30.720 long term plans, did something like, for example, take control 0:16:30.840 --> 0:16:36.600 of the world's largest manufacturer of commercial aircraft. Now, the 0:16:36.680 --> 0:16:43.520 shareholder value people also believe that people are effectively interchangeable. 0:16:43.640 --> 0:16:46.160 And they believe this because and this is a very 0:16:46.240 --> 0:16:49.520 key part of why the shareholder value people and why 0:16:49.520 --> 0:16:52.040 these sort of financed people have reshaped the world the 0:16:52.040 --> 0:16:55.000 way they do. They have reshaped the world in their 0:16:55.040 --> 0:16:58.960 own image. And all of these sort of investment bankers 0:16:59.280 --> 0:17:02.680 are interchange right. All of these fucking bankers are fired 0:17:02.800 --> 0:17:05.119 all over the time, and they move from firm to firm, 0:17:05.320 --> 0:17:07.600 and it is fine for them. But the thing is, 0:17:08.160 --> 0:17:11.320 you can't do this with the design of your entire 0:17:11.400 --> 0:17:15.800 aircraft because unlike in finance, where every single one of 0:17:15.840 --> 0:17:18.800 these clowns is really just a replacement level bozo whose 0:17:18.840 --> 0:17:21.600 qualifications are being able to stumble through the chain role 0:17:21.680 --> 0:17:26.199 and vaguely remember calculus, kiss, ask, and play golf, aerospace 0:17:26.240 --> 0:17:31.760 engineers actually do a difficult job and it requires extraordinarily 0:17:31.840 --> 0:17:36.040 large bodies of embedded knowledge to do this job correctly. Now, 0:17:36.520 --> 0:17:38.120 bringing in a bunch of people who think you can 0:17:38.160 --> 0:17:41.600 just fucking replace aerospace engineers will have no negative influences 0:17:41.600 --> 0:17:43.919 on Boeing in the future. Pay no attention to the 0:17:43.960 --> 0:17:47.760 man behind the mirror. Everything is fine. Do you know 0:17:47.800 --> 0:17:50.960 what else is fine? It is the products and services 0:17:51.080 --> 0:18:05.480 that support this podcast. And we are back the shareholder 0:18:05.560 --> 0:18:08.840 value fanatics. The investors who are now taken control of 0:18:08.880 --> 0:18:13.600 corporate America also believe that mass firings make companies more 0:18:13.680 --> 0:18:17.159 valuable because it makes them more efficient. They believe that 0:18:17.359 --> 0:18:21.040 offshoring makes a company more valuable because it makes it 0:18:21.040 --> 0:18:24.680 more efficient. It doesn't actually matter what the effect these 0:18:24.720 --> 0:18:26.919 moves have on the company and its ability to produce 0:18:26.960 --> 0:18:30.159 products and its ability to produce money. It doesn't matter 0:18:30.640 --> 0:18:34.760 at all, because that's how the people who can control 0:18:34.800 --> 0:18:39.719 stock prices by buying the stocks think the world works. 0:18:40.320 --> 0:18:42.840 And so if you do these things, the stock price 0:18:42.880 --> 0:18:47.439 will go up. All quote unquote. Creating shareholder value means 0:18:47.560 --> 0:18:50.200 is convincing a bunch of dipshit quants working one hundred 0:18:50.200 --> 0:18:52.600 and twenty hours a week that your company is valuable, 0:18:52.920 --> 0:18:55.919 so they buy it for a higher price. And these 0:18:56.320 --> 0:18:59.640 are the people who reshape American capitalism to their whims. 0:19:00.400 --> 0:19:03.840 Now importantly for our story, they're also the people who 0:19:03.920 --> 0:19:07.040 ran the second phase of the corporate rating era. The 0:19:07.119 --> 0:19:11.280 mergers and acquisitions boom through the nineties and really to 0:19:11.320 --> 0:19:14.879 this day, Wall Street bankers began to encourage companies to 0:19:14.960 --> 0:19:18.239 buy out other companies as a mechanism of raising their 0:19:18.280 --> 0:19:21.840 stock price. This is, you know, the acquisitions and mergers 0:19:21.880 --> 0:19:26.199 and acquisitions. They also heavily push merging companies together in 0:19:26.280 --> 0:19:29.560 the nineties. The buzzerod behind this was quote unquote synergy. 0:19:30.359 --> 0:19:34.879 Buying companies or merging companies could quote leverage synergies between 0:19:34.880 --> 0:19:39.800 companies to grow shareholder value. Outside of the shareholder value 0:19:39.880 --> 0:19:43.120 fantasy lands, most of these mergers and acquisitions either did 0:19:43.160 --> 0:19:45.800 nothing to help the company if the acquisitions were small, 0:19:46.440 --> 0:19:50.479 or were a complete disaster that destroyed both companies. The 0:19:50.520 --> 0:19:53.520 bankers who orchestrated these mergers and acquisitions didn't give a 0:19:53.560 --> 0:19:57.680 shit though, because they got paid on commission. It did 0:19:57.720 --> 0:20:00.719 not matter to them what happened afterwards. All that matters 0:20:00.800 --> 0:20:03.520 is that the deal goes through. And this is where 0:20:03.520 --> 0:20:07.359 we returned to Boeing because in nineteen ninety seven Boeing 0:20:07.400 --> 0:20:10.440 made an acquisition that would fuck the company forever. They 0:20:10.480 --> 0:20:14.240 bought one of their longtime rivals, an aircraft company known 0:20:14.880 --> 0:20:20.280 as McDonald Douglas. Now hitherto Boeing had been relatively insulated 0:20:20.320 --> 0:20:25.800 from the shareholder revolution. McDonald douglas, however, was not it's CEO. 0:20:26.200 --> 0:20:29.640 Was a man with the incredible name Harry stone Cipher. 0:20:30.640 --> 0:20:33.679 Stone Cipher is different from most aerospace executives because he 0:20:33.800 --> 0:20:37.480 wasn't a McDonald douglas corporate man. He came from Jack 0:20:37.560 --> 0:20:41.800 Welch's General Electric And it's here we need to introduce 0:20:41.840 --> 0:20:45.400 the other mechanism through which the shareholder revolution was realized, 0:20:46.000 --> 0:20:48.800 a new breed of CEOs led by the man himself, 0:20:49.240 --> 0:20:53.239 Jack Welsh. Now we are not going to spend an 0:20:53.359 --> 0:20:58.600 enormous amount of time talking about Jack Welsh in this episode, 0:20:59.000 --> 0:21:02.640 because cool Zone Media podcasts Behind the Bats has three 0:21:02.680 --> 0:21:05.359 hours of episode about this man, which you should go 0:21:05.440 --> 0:21:07.960 listen to their good The short version of it that 0:21:07.960 --> 0:21:09.920 we're going to give here is that Jack Welsh is 0:21:09.960 --> 0:21:12.479 the man who invented the bass layoff. He was one 0:21:12.520 --> 0:21:14.440 of the first CEOs to figure out that again, you 0:21:14.480 --> 0:21:17.440 could raise stock prices by selling off profitable divisions and 0:21:17.520 --> 0:21:20.720 firing workers who are making the company money. Because shareholders 0:21:20.760 --> 0:21:25.560 are ideologically driven maniacs who would believe Welsh's manipulated balance 0:21:25.600 --> 0:21:27.640 sheets that showed the company was doing better than ever, 0:21:27.680 --> 0:21:30.520 even as it sold off all of its assets. He 0:21:30.720 --> 0:21:32.960 was also one of the first people to start practicing 0:21:33.000 --> 0:21:38.160 mass outsourcing, replacing workers directly employed by General Electric with contractors. 0:21:38.520 --> 0:21:44.320 Soon he was outsourcing entire divisions. Offshoring followed. Welsh moved 0:21:44.359 --> 0:21:47.480 jobs from highly paid and highly trained union employees in 0:21:47.520 --> 0:21:51.760 the US to ununionized workers in places like India and Mexico. 0:21:52.680 --> 0:21:57.480 I think people generally kind of understand that offshoing lowers quality, 0:21:57.840 --> 0:22:01.560 but why does that actually happen. It's not about something 0:22:01.600 --> 0:22:03.439 like the natural skill of the workers, which is the 0:22:03.440 --> 0:22:05.480 way it can kind of be presented in these sort 0:22:05.480 --> 0:22:09.520 of nationalist accounts. It is about the level of violence 0:22:09.560 --> 0:22:12.399 that can be inflicted on people. In places like India 0:22:12.440 --> 0:22:16.040 and Mexico and China, there is an extraordinary amount of 0:22:16.080 --> 0:22:18.840 violence that can be inflicted on the working class. And 0:22:19.080 --> 0:22:21.800 because of this violence, because of their ability to destroy 0:22:21.920 --> 0:22:24.160 unions and because of their ability to force people into 0:22:24.200 --> 0:22:28.199 poverty by taking their land, people get paid less money 0:22:28.240 --> 0:22:31.399 to work faster, And those people who are being paid 0:22:31.440 --> 0:22:34.160 less money to work faster with worse training are going 0:22:34.200 --> 0:22:36.800 to be worse at a job than people who are 0:22:36.800 --> 0:22:39.919 paid more to do it better, slower. And Jack Welch 0:22:40.000 --> 0:22:42.840 wants this. He wants to sell shitty, low cost products 0:22:42.880 --> 0:22:45.719 because they're cheaper to make than anything that actually works. 0:22:46.480 --> 0:22:50.560 The long term consequences of this are a disaster. Welch 0:22:50.760 --> 0:22:53.640 drove General Electric, one of the greatest engines of American 0:22:53.680 --> 0:22:58.199 capitalism for a century, into the ground, even after a 0:22:58.240 --> 0:23:02.480 massive government bailout in and it barely exists today. Harry 0:23:02.520 --> 0:23:05.679 Stone Cipher, the CEO of the company Boeing was about 0:23:05.680 --> 0:23:09.960 to buy, said this about Jack Welch quote, Certainly, Jack 0:23:10.000 --> 0:23:12.280 Welch is one of the great leaders in my mind. 0:23:12.480 --> 0:23:14.520 And of course he was selected as CEO of the 0:23:14.560 --> 0:23:17.919 Century by Fortune magazine a couple years ago, and of 0:23:17.960 --> 0:23:20.679 course about twenty years ago that same magazine coined the 0:23:20.680 --> 0:23:23.399 phrase neutron jack, and of course they vilified him at 0:23:23.400 --> 0:23:26.120 every turn. Neutron jack, by the way, refers to like 0:23:26.280 --> 0:23:29.600 a neutron bomb, because effectively, what he was doing was 0:23:29.640 --> 0:23:31.840 firing all the workers and leaving only the sort of 0:23:31.880 --> 0:23:34.560 like physical capital assets, like leaving all of the machines intact, 0:23:34.560 --> 0:23:36.480 which is what a neutron bomb is supposed to do. 0:23:37.560 --> 0:23:40.000 Let's go back to the quote. Quote. Jack had a 0:23:40.040 --> 0:23:42.520 style that was one of trying to change the environment, 0:23:42.680 --> 0:23:45.520 not to just deal with the environment. So he inspired people, 0:23:45.560 --> 0:23:49.400 so he certainly won. So Stone Cipher is a disciple 0:23:49.480 --> 0:23:53.480 of Welch. He immediately starts running the Jack Watch playbook, 0:23:53.720 --> 0:23:56.960 and though and behold, McDonnell douglass was failing when Boeing 0:23:57.000 --> 0:24:00.399 bought it for fourteen billion dollars. And again, like Boeing 0:24:00.440 --> 0:24:03.159 at this point controls like sixty five percent of the 0:24:03.160 --> 0:24:07.439 commercial aviation market, McDonald douglas controls like five. Right, so 0:24:07.520 --> 0:24:10.879 this should have been like Goliath eating David for breakfast, 0:24:11.920 --> 0:24:15.919 but the merger didn't go as planned. Instead of the 0:24:16.000 --> 0:24:20.359 massive Boeing running the tidy McDonald douglas, McDonald douglas executives 0:24:20.359 --> 0:24:23.879 effectively hijacked Boeing and installed themselves in positions of power. 0:24:24.880 --> 0:24:28.280 Stone Cipher and his Padre shareholder value fanatics began to 0:24:28.320 --> 0:24:32.000 consolidate their position and drive out the previous Boeing regime. 0:24:32.760 --> 0:24:36.720 The capstone of this project was moving Boeing headquarters from Seattle, 0:24:37.000 --> 0:24:39.919 where he had been since William E. Boeing founded the 0:24:39.920 --> 0:24:43.080 company in nineteen sixteen, to Chicago, as a way to 0:24:43.160 --> 0:24:46.119 shift the physical center of power of the company away 0:24:46.160 --> 0:24:49.119 from Boeing's engineers and workers and towards the McDonald douglas 0:24:49.160 --> 0:24:52.760 finance goals. Then they began to run the Jack Walsh 0:24:52.840 --> 0:24:56.400 playbook on Boeing in earnest. Every single account of stone 0:24:56.400 --> 0:25:01.119 Cipher's takeover that I've written quotes this exact same line quote. 0:25:01.160 --> 0:25:03.439 When people say I changed the culture of Boeing, that 0:25:03.600 --> 0:25:06.120 was the intent, so that it's run like a business 0:25:06.240 --> 0:25:09.639 rather than a great engineering firm. And what stone Cipher 0:25:09.720 --> 0:25:12.200 is really talking about here, and what everyone is really 0:25:12.320 --> 0:25:15.359