The arguments to lower taxes to create jobs, deregulate to let business compete, and “the market knows best” are often heard to support a “pro” capitalist and ”free” enterprise worldview. While these positions can be systematically and quantitatively disputed, those discussions will be saved for another day.
It’s when excesses of capitalism occur that economic soul-searching begins. If some argue that extremes of socialism lead to communism, then one wonders where extremes of capitalism lead us. This economic soul-searching and the economic path upon which we walk are evident by current developments at Boeing.
Boeing is the largest combined manufacturer of commercial jets and military aircraft in the world. It’s primary operations have been in Seattle, Washington for generations. They are planning to develop a new commercial airline called the 777X and that has what has drawn attention to them.
Before current events can be discussed, it is important to review recent history. Boeing used to compete with a number of U.S. airplane manufacturers for military contracts and commercial airliners. There was the Douglas Corporation and McDonnell that merged into McDonnell Douglas. Rockwell International had a presence in aviation. Lockheed and Martin Marietta merged into Lockheed Martin. It was fairly competitive and that is good.
Boeing acquired Rockwell International some time ago and then, in 1997, the Department of Defense decided it didn’t want to deal with so many aircraft manufacturers. It pushed Boeing to acquire McDonnell Douglas and its 6% share of the military market and 10% of the commercial market. Boeing was happy to oblige and the deal was pushed through the Department of Justice to allay fears of antitrust violations. The deal also had t be approved by a very disapproving European Union who sought to assure fair competition for their Airbus Industrie.
The European Union wanted Boeing to not enforce its contracts with American (now with US Airways), Continental (now with United), and Delta (now with Northwest) to exclusively buy Boeing jets. There were other demands made and dropped by the EU and Boeing essentially said, “Whatever” and stream rolled its acquisition of McDonnell Douglas. The EU was accused of moving “in a very politicized direction” in their negotiations. The Boeing CEO at the time, Philip Condit, said ominously , “In a global economy, a single set of rules is, in fact, preferable. Over time, we have to keep working in that direction”.
So now the United States has one commercial jet manufacturer and its only real competition is the EU’s Airbus. We approved it and this is what remains. Take it or leave it.
Since Boeing is now the sole U.S. commercial airline manufacturer and it wants to build the 777X plane, it places Boeing in the fortunate position to define terms for production. It’s leverage is extreme and Boeing uses it.
Despite Boeing’s extensive operations in Seattle, their loyal and trained work force, and their long-term success, Boeing has decided it wants to explore other locations to manufacturer the 777X. South Carolina touts its non-union (but untrained) labor pool. Missouri is offering financial incentives. California has attractive features including a skilled work force. In total, fifteen states have been contacted by Boeing to see what they and their taxpayers can offer Boeing in order to attract 8,500 direct jobs associated with the 777x assembly.
If the interstate competition was simply based upon socialist tax subsidies to Boeing, the analysis would be fairly straightforward. However, Boeing has a list of additional demands revealed by The Seattle Times:
⁃ An airport with a 9,000 runway capable of heavier weight tolerances
⁃ Easy highway and road access
⁃ Direct access by railroads including a dedicated rail spur
⁃ A seaport (“desired” but not essential)
⁃ A no-cost site (or low cost)
⁃ No-cost facilities (or low cost)
⁃ Infrastructure improvements paid by the state
⁃ Assistance from the state for recruiting, evaluating, and training Boeing employees
⁃ Significantly reduced income tax, franchise tax, property tax, sales tax, business license and receipts tax, and excise taxes.
⁃ Fast-track construction permits
Boeing says these concessions are necessary because they are under siege by overseas competition. Furthermore, Boeing says it also needs union concessions to make this viable. Parenthetically, Airbus is making the same demands on its unions because they are under siege by Boeing.
The state of Washington has already stepped up to the plate and passed legislation to give Boeing $8.7 billion of tax breaks over the next twenty years. The Governor of Washington is pressuring the International Association of Machinists (IAM) union to fall into line and approve concessions.
The IAM has rejected Boeing’s first demand for concessions but a new offer has been made with $1 billion more offered over ten years. That vote will be held on January 3, 2014.
The situation is complicated when Boeing claims the need for tax subsidies and labor concessions and yet they use $10 billion to buyback its stock to raise the stock value for investors. The company has also given its current CEO, James McNerney a 15% raise this year to $21.1 million and allowed his retirement fund to accumulate to $46 million. He will earn about $350,000 per month upon retirement. However, despite the stock buyback for investors, Boeing has underfunded its employee pension plan by $20 billion. Should Boeing struggle, U.S. taxpayers insure this fund and will assume most of the liability.
Furthermore, every American taxpayer has paid more income taxes than Boeing. Boeing has not paid a dime’s worth of state income taxes over the past ten years despite earning $35 billion in profits. At the Federal level, Boeing has received a $1.8 billion income tax rebate (we pay them) over that interval.
One may ask: How does Boeing achieve this power in American and global governance? How do they establish themselves as a virtual monopoly (certainly an oligopoly) in commercial and military aircraft? Is their non-competitive business model viable despite not paying income taxes nor pension obligations, needing labor concessions, and demanding numerous subsidies?
The power may be explained by the fact Boeing has 115 lobbyists. 92 of them were former government officials who know the ropes of legislation and military procurement.
This power enables them to receive government loan guarantees from the Export-Import Bank and influence legislation on environmental rules and transportation regulation. They are also major proponents for the Trans Pacific Partnership as they seek to sell more planes in Asia.
Boeing also influenced recent rulings to reclassify tens of thousands of military items from the State Department’s Munitions List to the Commerce Department’s Control List. That seems like an insignificant designation but it enables Boeing and others to export many new weapons and technology to nations with lax security standards. The reclassification makes it easier for places such as Iran or North Korea to access U.S. military technology but it does add a relatively insignificant increase in revenues for Boeing. The reclassification also creates manufacturing loopholes that allow increased outsourcing of military technology.
Boeing even has its fingerprints on the recent budget deal negotiated by Senator Patty Murray and Representative Paul Ryan. The deal avoids budget cuts arising from sequestration that would have impacted defense spending. Since Senator Murray is from Washington, Boeing’s home, it is worth noting Boeing’s political action committee and employees are her third-largest campaign contributor having donated over $172,000 to her campaign. Boeing’s lobbyists have also produced $151,000 for her accounts.
This is all legal in the world of the Supreme Court’s Citizen United ruling.
Boeing has been the beneficiary of extraordinary anti-competitive, tax, and regulatory legislation that is unavailable to most businesses and citizens. The influence it wields on the Federal government and the leverage it exerts upon state governments has created a major corporation that feeds on unauditable government contracts and taxpayer subsidies.
Unfortunately, since we created Boeing to be America’s single source of commercial jets and one of two sources of military aircraft, there is a national security imperative to keep Boeing viable. That economic security is undermined by Boeing’s support for the Trans Pacific Partnership and our military security is undermined by their support of lax export restrictions of military hardware and their willingness to outsource jobs associated with sensitive military technology.
The fact Boeing pays no income taxes while lobbying against military cuts arising from sequestration is especially galling. In action and deeds, their policy toward the nation’s economic problems are to sustain or increase spending for them while not paying taxes. This is not a sustainable model.
May enlightenment come to the various state legislatures who are vying for Boeing’s facilities. Should the legislators approach local economies with the same vigor they approach Boeing, their communities would be vibrant and sustainable. If not for government socialism and protection, Boeing would fail in a capitalist world.
(00:00) Diana Moss of the American Antitrust Insititute explains how the food industry’s consolidation is hurting competition and consumers. Furthermore, airline mergers have been colossal failures in areas of customer service, higher fares, airline profits, and fewer markets served. Why did the Department of Justice settle to allow the US Airways and American Airlines merger?