24 Oct Corporatism and the Tragedy of Boeing
The following commentary/analysis is one I wrote in my capacity as a senior fellow at “the nation’s oldest consumer protection agency,” Consumers Research, where, among other things, I compile a weekly letter for public pension-fund managers. I am sharing it here today because I thought it might be useful to some of you.
ESG and the Middle Ground
Today’s note is not strictly about ESG. Rather, it is about the general milieu of economic ideas in which ESG exists, the foundational ideology of which ESG is a part.
As I have written elsewhere recently, “Almost from the moment he put pen to paper, Karl Marx’s enemies, as well as his friends, set about explaining why his theories about and solutions to the conflict between capital and labor had no serious application in the real world.” In brief, in the nearly two centuries since Marx first expounded upon his ideas, both those enemies and those friends have been trying either to defuse his catastrophic revolution or advance a misguided version of human progress by marrying the social aspects of his ideology with a more realistic understanding of economics. They have been trying to find the vaunted “Third Way,” which can be seen as the “operational version of the middle ground between Marxism and capitalism.”
The means by which various revisionists attempted to salvage the power of privately held capital while advancing Marx’s social aims are beyond the scope of this note. It should suffice to say that they have been uniformly unsuccessful, largely because constricting, guiding, or “managing” the power of markets is incontestably impossible. Even attempting to do so changes the dynamic so profoundly as to render markets impotent.
Unfortunately, this hasn’t stopped the world’s most powerful men and women from trying to find a more “nuanced” approach to capitalism, in order, presumably, to smooth its rough edges. Perhaps the most persistent of the attempts to do so, to find this middle ground is that which we loosely call “corporatism.” Although traditional corporatism is complicated and can vary from one proposed application to another, the core of the idea is that government and corporate interests (which are presumed to represent the interests of the people) work together to create and implement public policy. Corporatism’s supporters refer to this as “cooperation” between the state and private sector, while its opponents prefer the term “collusion.” In either case, the net effect is collectivist governance that depresses markets and growth, as well as sowing the seeds of corruption and other malfeasance.
Opponents of ESG have argued that it is part of a broader effort to remake contemporary capitalism along corporatist lines. (For my part, I have long argued that there is more than a touch of “corporatocracy” in this relationship, but that’s a story for another day). Many of the world’s leading economic and financial leaders – from the WEF’s Klaus Schwab to the Business Roundtable to Marc Benioff, the CEO of Salesforce – have argued that we need to create a new form of capitalism that is more responsive to the global community’s collective needs than is the current form. ESG, DEI, “corporate social responsibility,” sustainability, and countless other terms and practices have all been advanced by the leaders of governments, corporations, and NGOs as the means by which this new, more responsive capitalism might be engineered. By harnessing the power of corporations and private economy to advance environmental and social goals, governments and others envision a world in which the minutia of democratic conflict can be overcome to promote “progress” and social justice. Or at least that’s how they see it working in theory.
And then there’s Boeing.
As you may have heard, Boeing has had a really tough week. Its machinists voted to stay on strike. It is newly implicated in a plane crash in Ethiopia. Its satellite blew up. Its 737s have new gasket problems. And, of course, it lost more than $6 billion last quarter. All of this comes ON TOP of the rest of the company’s woes and truly ugly year through which it had already been suffering. In short, Boeing is a disaster.
It is also, in many ways, the poster child for modern American corporatism.
Last January, after a series of mishaps – and narrowly averted tragedies – involving Boeing planes, various reporters and activists dug deeply into Boeing’s corporate culture, only to learn that the company participated in various corporatist initiatives intended to improve its “scores,” participation, sustainability, and social impact. In its 2022 proxy statement, the company proudly noted that:
Beginning in 2022, the aircraft manufacturer changed its incentive plan from giving executives bonuses based on passenger safety, employee safety, and quality to rewarding them if they hit climate and DEI targets, according to the filing.
“While our 2021 design incorporated operational performance in the areas of product safety, employee safety and quality, for 2022 we will add two other focus areas critical to our long-range business plan: climate and diversity, equity and inclusion (DE&l),” the filing said.
Separately, Boeing issued a “Global Equity, Diversity & Inclusion 2023 Report,” which noted that “also in 2022, for the first time in our company’s history, we tied incentive compensation to inclusion.”
“Our goal was to achieve diverse interview slates for at least 90% of manager and executive openings,” the report said, adding that the company exceeded the target, “with 92% of interview slates being diverse, resulting in 47% diverse hires.”
“For 2023, we’ve raised the bar and expect at least 92.5% of those interview slates will be diverse.”
Unfortunately, this is hardly the limit of Boeing’s collusion with the state. Indeed, it’s but the tip of the proverbial iceberg. As I have noted before, beginning over 30 years ago, Boeing and the Department of Commerce partnered to sell the former’s planes to the Chinese, using the latter’s political heft as the primary incentive. The following Washington Post article, from 1995, explains the process in part:
China issued a new threat to U.S. business today after a fourth day of talks on ways to end its dispute with the United States over the protection of copyrights, patents and trademarks.
The China Daily newspaper said failure to resolve the piracy dispute might cost Seattle’s Boeing Co. $2 billion in orders for aircraft.
“We might have to turn to other, European models instead,” Ding Yuhua, general manager of China Southern Airlines’ Import and Export Trading Corp., told China Daily. He noted that Europe’s Airbus Industrie consortium had offered to sell planes to the Chinese carrier.
The article appeared to be part of China’s continuing effort to prod American businesses into pressuring the Clinton administration to settle the piracy dispute…. Boeing has been the biggest U.S. exporter of goods to China in recent years.
Back then, the presumption was that this was a win-win-win situation. China got what it wanted. The United States got what it wanted (namely fresh markets), and Boeing got what it wanted, several truckloads of money. What could possibly go wrong?
Well…as I said, markets tend not to handle external meddling particularly well, just as corporations tend not to handle the guaranteed sale of their products and an officially created lack of competition too well. Over time, Boeing grew fat and happy. And then it grew lazy. It ceased to make good products because it didn’t have to. All it had to do was to keep its relationship with the state on positive terms, and everything else would fall into place. Until it didn’t.
To be sure, ESG and DEI are more diffuse versions of corporatism than is a direct foreign-marketing relationship between the state and a corporation. Nevertheless, they are all a part of the same economic process, part of the same ideology, part of the same effort to find a way to soften capitalism and advance collectivist social goals. And they are guaranteed, over time, to produce corporate entities that put profits and quality second, behind relationship-sustaining acquiescence to the state’s demands.
Boeing may be the most profound example of the failure of contemporary American corporatism to date, but it won’t be the last.
