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By Tom Cushing

How much is enough?

Uploaded: Nov 16, 2013

I ran into a friend I hadn't seen in a few years this week on BART. He's about my age, a career professional and marathoner, a programmer who worked for a global telecom company – an outfit with $7.2 billion in 2012 net income. He'd been laid-off two years ago. He's bagging groceries at Safeway – it's all he can find.

Now, before you turn the virtual page and dismiss his personal calamity as probably deserved, or just one of those things, kindly consider this: what if you're wrong about him and his situation? And what if the bell tolls for your career next? Most folks' grip on the middle class is more fragile than any of us would want to believe. There, but for grace ?

There's a drama unfolding to the north that bears on this topic, which I will broadly call the hollowing-out of the middle class. I wrote on an aspect of the phenomenon early in this bloggery series, in the parable of the last cookie – unhealthy wealth migration toward the top has only gotten worse since that time ('unhealthy' used to reflect the fact that a consumer economy relies on a vibrant middle class to buy its stuff). This particular incident arises in the context of Boeing's ongoing strife with the International Association of Machinists (IAM) union representing workers in its assembly plants.

As the world's leading aerospace company with $82 billion in sales and over $7B in core operating earnings in 2012 (plus a $400B orders backlog), Boeing is often held-out as a paragon of enduring US manufacturing prowess. It located and grew in the Pacific Northwest to take advantage of cheap electricity provided by massive public investments in hydroelectric power along the Columbia River. Boeing employs 172K workers, almost half of that total in Washington State. It pays solid wages: machinists earn up to $80K; the CEO took home $27.5 million last year (lest we forget, that '.5' alone is five-hundred thousand dollars – thus, it deserves to not be rounded).

Boeing also has a particularly contentious relationship with those workers, especially the machinists. Collective Bargaining Agreements being typically three years, strikes have been a regular triennial event in Rainier country. After the most recent edition in 2010, the company announced that it was adding an assembly line for its 787 Dreamliner in its newly acquired plant in South Carolina, a right-to-work state. It is no coincidence that Boeing acquired that site immediately after the workers there had decertified their former union: the same IAM that represents the Washington machinists. The company stated publicly that the move was precipitated by the disruptive effects of past and prospective strikes.

The NLRB promptly brought unfair labor practice charges, which, depending on your politics, were either an unprecedented power grab or business as usual – the labor law system working precisely as it was designed to do. Those charges were dropped later that year, after the two sides settled their contract differences.

At current issue is the company's announced plan to seek alternatives for building a new factory to assemble the prospective model 777X passenger plane, coincident with this year's bargaining. Having extracted $8.7B from the state in tax avoidance, and $.5B in government-sponsored training (.5 meaning $500 million this time), the company has sought to extract wage, pension and benefits give-backs from its union over a now seven-year contract offer. Just this week, the union defiantly voted 2-1 to reject that opportunity, and Boeing is jetting off to go shopping.

Is this just Detroit, chapter next, with workers asked to pitch-in together with management to save the company from drowning in red ink? Clearly not – Boeing is immensely profitable, and the CEO does, after all, already pull-down 344X the comp of the best-paid among the rank-and-file. Boeing is doing it because they can (Come to think of it, 344X is a kind of a snappy name for a new Boeing jet model).

So that begs the question: to whom do the Boeing execs answer? As recounted in John Cassidy's brilliant post-Enron review of the subject,CEOs used to be the ultimate bureaucrats, beholden to numerous interests: customers, suppliers, investors, employees, communities and, ultimately, to society at-large by means of an unwritten 'social contract.' They were paid that way, too – an inflation-adjusted pittance compared to today's business behemoths.

That all began to change in the 1970s, as corporate raiders recognized that such a model led to under-valued assets – companies were less than the sum of their parts, and could be dismembered and sold for a profit. By the 1980s, with that succinctly brazen Gordon Gecko slogan in their hearts, if not on their lips, corporate boards began directing their CEOs to use stockholders and share price as their sole guide star, and rewarded them handsomely for it. Having just one primary success criterion, and such a personally profitable one at that, has laser-focused the minds of execs. Profits and productivity have exploded, and terms like downsizing, outsourcing and give-backs have entered the lexicon. Capital looms large and in-charge; employee interests – unionized or not – are in severe retreat.

So I am confident the Boeing execs view themselves as answerable to the shareholders, and are single-mindedly doing their bidding. In that insulated setting, "because we can" is a sufficient answer. But in the biggest picture, they've lost track of the fact that somebody needs to be able to fly in those planes. Henry Ford understood it, when he sought to build a car, and pay his workers, at levels that meant those workers could afford to buy one. There is also a bigger picture about why business exists – just to maximize share value, or to serve human needs? In the latter frame, profits are a very big and necessary thing – but they are not the only thing. I return often in my life to the comic wisdom of one Chris Rock: "just because you CAN do something, that doesn't make it a good idea."

I would argue that the larger social context, and Henry Ford-style leadership are required today. Business needs to be more than just the numbers; its titans must account for human effects, as well, and exercise judgment to know when enough really is Enough. The so-called stakeholder model of CEO accountability has regained some traction, but this time it's pushing back against a tide of self-interested rewards. Perhaps the process of pitting communities and people against each other to beggar one's employee pool can come to be viewed as another negative corporate externality, like unregulated pollution. I'm not optimistic that will happen any time soon.

Meanwhile, my programmer friend bags groceries.

Here are a few articles of possible interest, regarding past topics:

Object of Interest: Cheese Powder, a food-like substance: (Blog:
Taking Leave of GRAS)

Disrespect, Race and Obama: (Blogs: Inheriting the Wind, Does Race Matter?)