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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

October 29, 2009 at 9:50 AM

Learning the right lessons from the Boeing calamity

More thoughts on Boeing’s choice to hike the Appalachian Trail:

–The new plant is in North Charleston, not Charleston. Fritz Hollings, the former South Carolina governor and long-serving senator had a saying: “There are two kinds of people in Charleston: Ones who don’t wear shoes, and ones who look at you like you don’t wear shoes.” This is a place of huge income, class and racial disparity. More to the point, Boeing is not going to the wealthy, storied city on the harbor. It’s going to cheap land in the homely exurbs.

–Did I mention hurricanes?

–The more I think about it and hear from sources, the more I think there was nothing Washington could have done to prevent it. Boeing is joining a race to the bottom for wages and docile workers. This has profound implications for a state such as Washington, which built a quality economy that included a strong, well-paid middle class. It doesn’t mean we’ll turn into Michigan. It does mean we’re in a battle royal with a world that has an oversupply of workers. The world is not flat. It’s spiky, as Richard Florida says, with a wide dispersal of winners and losers.

–In such a world, South Carolina has many worries. It’s used the “Southern strategy” to throw massive incentives to lure Boeing, and before that, BMW. But overall, the strategy hasn’t lifted most living standards there; the state continues to underperform most others. World competition has decimated its textile and apparel backbone. The Southern strategy can be used against us again, nevertheless. But in the race to the bottom, South Carolina should worry about places like El Salvador. Boeing has no loyalty.

–I covered the auto industry in the 1980s and 1990s, and there are parallels. The biggest one is continued mismanagement by top executives with no accountability to shareholders. Detroit was taken over by bean counters and marketers. Likewise, Boeing has altered the traditional paramountcy of engineering and technical innovation. The prime culprit in both cases was management, not the unions.

–The immediate challenge for the Puget Sound region is to separate the angry, useless blaming from the lessons that are useful going forward. It won’t be an easy task. The long knives are out.

–I heard some union folks talk about the relationship with Boeing as a long marriage — with ups and downs, but still strong — and suddenly Boeing walks in with this shapely blonde (South Carolina). The real analogy is being married for decades and waking up with a complete stranger. This is not the high-quality, aerospace-focused Boeing of Seattle and Puget Sound. The headquarters move was only the first signal. This is a new company. I think it’s making a strategic error of the first proportions by moving the second 787 line to South Carolina, but short-term monetary gain is the driver, plus a longer-term determination to downsize us. So how do we leverage our aerospace cluster? If there’s really this world of competition out there that Boeing keeps telling us about, maybe we should court them. Maybe it’s time to declare our independence, just as Boeing has done.

–In this spiky world, it won’t be easy to compete for some specific assets against low-cost competitors. But a South Carolina will never be a magnet for talent, software, gaming, biotech, etc. Yet we don’t want to become a Bay Area, a place of wildly unequal income where most of the old industries have left even though the world’s top tech cluster remains. It’s diversification that has helped Seattle punch above its weight class. But it’s also quality: We can’t turn Washington into a low-wage, low-education Southern state. Who would want to?

I’d love to know what Gary Locke really thinks. As governor, he orchestrated a Northwest Southern strategy with massive tax breaks to keep Boeing building here. That bought time and kept jobs. It also showed Boeing executives they could play desperate regions off against each other.

A final thought: Our chief competition isn’t North Charleston. It’s every high-quality metro area in the world. That’s where the best practices are to be found.

One more thing: I oversaw coverage of South Carolina for five years at the Charlotte Observer; wrote extensively on BMW, etc., and am married to a native South Carolinian and USC grad (no, not that USC). So I’m not predisposed to “hate” South Carolina.

The Back Story: The recession is officially over with today’s report that the economy grew by 3.5 percent in the third quarter. Feel better?

Of course not. Like the Dow, GDP is increasingly an esoteric number disconnected from the real economy that is lived everyday by most Americans. With all the federal money flooding the banks, and the financial industry, American’s now premier sector, back to its risky reindeer games, naturally GDP would get a bounce. The labor market, foreclosures, credit-card debt and a mountain of mortgages due to reset — not so much.

The disconnection comes back to the topic at hand, Boeing. If we’re in a race to the bottom with 3 billion new capitalists in the world, more Americans will be losers. That so little of the stimulus is going to infrastructure and the seeding of new industries won’t help the situation.

Today’s Econ Haiku:

Break out the bubbly

The recession is ending

But your job is toast

Comments | More in Aerospace/Boeing

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