Boeing heads south—and you’re surprised?
Posted by Amber Gunn - October 30, 2009
On Wednesday, Boeing announced it would put a second 787 assembly line in Charleston, S.C., rather than Everett.
Union leaders and politicians like Sen. Patty Murray, D-Wash., expressed shock, dismay and outrage at the company’s decision.
Either they are feigning surprise, or they’ve been comatose for the last decade. Your guess is as good as mine.
For years, politicians and labor leaders have ignored Boeing’s pleas to stay competitive. In 2002, Boeing CEO Alan Mulally told the State House Labor Committee that “the state of Washington is not competitive. . . . meaning it costs us more to operate [here]." He specifically pointed to Washington’s costly workers' compensation system, which requires employers to purchase insurance coverage from the state or be on the hook to cover all claims costs themselves, rather than allowing them to choose from among competing private providers. As a result, Washington collects some of the highest premiums from employers and injured worker rates are well above the national average.
Boeing’s decision to place its second 787 line in South Carolina is too complicated, however, to be blamed on any single factor. In 2002, Mulally told lawmakers that Washington would have to become more competitive in taxes, unemployment insurance (UI) and regulations, among other factors, in order to keep the state attractive for Boeing.
Unfortunately, rather than engaging in an honest discussion about reform in these areas, legislators decided on a $3.2 billion “incentive package” that included some UI and workers’ comp. reforms. Just a few years later, however, the legislature rescinded many of those changes. EFF fought a lengthy battle to get the details of the state’s contract with Boeing. Once we finally got them (the unredacted portions), we discovered that Boeing could walk away from the deal at any point without penalties, whereas Washington was on the hook for pricey commitments until Boeing decided to cease building 787s.This is one of many examples illustrating why one-on-one handouts between governments and businesses are bad for taxpayers, and in the long run, bad for the businesses themselves. Once the luster of the handout runs out, the business will scramble for another, and another, and so on. Better to build a strong business climate across-the-board, which is good for large and small companies alike.
Washington’s competitiveness, from a labor standpoint, is dismal. South Carolina is a right-to-work state, meaning workers do not have to be members of a union as a condition of employment. Workers at the South Carolina plant where Boeing plans to locate its second 787 line recently voted to remove the union from the plant—an unlikely feat in Washington given our current labor laws and the history of organized labor in this state.
The 2008 strike was Boeing’s fourth in just two decades, and, at 57 days, the longest since the 69-day strike in 1995, which “poisoned morale for years.” According to the AP, the 2008 strike cost Boeing $100 million a day in deferred revenue and postponement of the 787. That kind of loss won’t be recouped for years. Boeing’s final offer to the machinists prior to last year’s strike included a 14 percent monthly pension increase, a 2008 lump-sum bonus worth about $3,900 on average, a generous new incentive-pay plan and other perks. All told, Boeing estimated the package was worth an additional $34,000 in extra compensation to the machinists over three years.
But it wasn’t enough.
The machinists’ unreasonable display of “solidarity” has landed them squarely in the boat of irrelevant. Union leaders foolishly carried on as though competition from other states did not exist. “Given the country's economic condition, it would be hard for Boeing or any company right now to make the investments needed to put Charleston in the realm of a first-class aircraft-assembly site," Tom Buffenbarger, the machinists’ president told the Seattle Times this July.
The union called Boeing’s bluff, and turned out to be wrong.
For its part, Boeing had had enough. Just after the company made the South Carolina announcement, Boeing’s vice president of human resources and one of the lead negotiators in the talks with the machinists told the Times that the company was “unwilling to indulge the kind of last-minute brinkmanship that has been typical in all recent contract negotiations with the [machinists].”
Unions and politicians alike would do well to remember that capital is mobile. Companies have a bottom line and they must respect it. Businesses will go where they must to operate more efficiently and increase their profit margins.
Politicians should take note. In the end, Boeing had the last laugh.
Thoughts? Add Comment -
Piper Scott said on Oct 30 2009 at 4:09pm
Bravo, Amber - hit 'em a lick!
John Chittick said on Oct 30 2009 at 6:27pm
I'm not sure if Boeng had a laugh about their announcement but they certainly repeated history for the gazillionth time. Its been my experience that the average (private sector) union worker, who shares their leader's hubris, doesn't believe that management will actually carry through on its word until they arrive at the shop gate with their lunch buckets to find it locked. The North American (British) confrontational labour model is, in the long run, toxic to virtually all workplaces. The free market always eventually brings wage and benefit distortions down or up to the reality of the day but that "creative destruction" can be messy. Too bad no such discipline exists for public sector unions.
Steve Holben said on Oct 31 2009 at 11:16am
This is yet another example of the mobility of capital, and could be used as a recruiting tool for states if they will keep them free of excessive taxes, regulations, and burdensome laws. Colorado's (democrat majority) legislature wants to kill what's left of it's Tabor Amendement that has been credited with keeping the state competitive for attracting business. Us Republicans will do all we can to stop it's demise.