The 737 Max and Late Stage Capitalism

Before any more time goes by I want to call your attention to something not directly Trump related — “Crash Course: How Boeing’s Managerial Revolution Created the 737 Max Disaster” by Maureen Tkacik at New Republic. It’s a bit long, but very much worth reading.

Basically, the 737 Max is the plane built by MBAs and financial experts instead of engineers; the fruit of popular business theory. The flaws are bigger than just glitchy software. The creation of the plane from inception to crash was marked by corner-cutting and disregard for engineering and production skill.

Here, a generation after Boeing’s initial lurch into financialization, was the entirely predictable outcome of the byzantine process by which investment capital becomes completely abstracted from basic protocols of production and oversight: a flight-correction system that was essentially jerry-built to crash a plane. “If you’re looking for an example of late stage capitalism or whatever you want to call it,” said longtime aerospace consultant Richard Aboulafia, “it’s a pretty good one.”

The glitchy software — mostly written in “coding sweatshops” in India by coders making $9 an hour — was necessary to correct the airplane’s awkward build, which was awkward because Boeing refused to pay for a thorough re-design but basically put big new engines on an older plane model designed for smaller engines.

This alteration created a shift in the plane’s center of gravity pronounced enough that it raised a red flag when the MAX was still just a model plane about the size of an eagle, running tests in a wind tunnel. The model kept botching certain extreme maneuvers, because the plane’s new aerodynamic profile was dragging its tail down and causing its nose to pitch up. So the engineers devised a software fix called MCAS, which pushed the nose down in response to an obscure set of circumstances in conjunction with the “speed trim system,” which Boeing had devised in the 1980s to smooth takeoffs.

Why not start over and redesign the plane instead of relying on a patch?

Abuzz with new ideas about factories to sell and components to outsource, Boeing was hemorrhaging market share to Airbus, and even the newest Jack Welch protégé on the board, James McNerney, was pushing for a new plane. Stonecipher and John McDonnell, who seemed almost irrationally intent on the Salieri-style project of seeing Boeing fail at the enterprise that had done in his own family business, issued what Sorscher called a “medieval” ultimatum: Develop the plane for less than 40 percent of what the 777 had cost to develop 13 years earlier, and build each plane out of the gate for less than 60 percent of the 777’s unit costs in 2003. The board ultimately approved a development budget, estimated by those in the industry to be $7 billion, for a project labeled at the time as the 7E7—later to be known as the 787—but that figure came with a huge asterisk, because managers promised the board they would require subcontractors to foot the majority of costs.

As in many other kinds of businesses, the smart guys running Boeing believed in saving money through outsourcing. Functions that used to be in-house were given to lowest bidders. Everything but “design, final assembly, and flight testing and sales” was offshored or sent to non-union shops in the South somewhere.

Down in South Carolina, a nonunion Boeing assembly line that opened in 2011 had for years churned out scores of whistle-blower complaints and wrongful termination lawsuits packed with scenes wherein quality-control documents were regularly forged, employees who enforced standards were sabotaged, and planes were routinely delivered to airlines with loose screws, scratched windows, and random debris everywhere. The MCAS crash was just the latest installment in a broader pattern so thoroughly ingrained in the business news cycle that the muckraking finance blog Naked Capitalism titled its first post about MCAS “Boeing, Crapification and the Lion Air Crash.”

It goes on and on. The people in charge of Boeing knew nothing about airplanes, just money. “Airplane manufacturing is no different from mortgage lending or insulin distribution or make-believe blood analyzing software—another cash cow for the one percent, bound inexorably for the slaughterhouse.” Their big obsession was getting maximum profit out of net assets such as factories, warehouses, office buildings, etc. If a physical asset was seen as a cost, the soluton was to sell it and outsource the functions. Engineering staffs were cut to the bone, then cut some more. The people in charge never seemed to have asked how this would affect the quality of their products. Maybe they didn’t care.

Do I want to ever fly again? Not at the moment. However, nothing in this surprises me. I saw the same thing in the book publishing industry; so many functions are outsourced that it’s now common for books to be published without anyone on the publisher’s full-time staff ever reading them. But bad books are not going to kill people, as a rule.

In response to this article, John Cole wrote,

This blog has been around for awhile, so I inevitably repeat myself from time to time, but I want to say it again. Whenever someone does the whole time travel/kill baby Hitler thing, I always say to myself, “To hell with Hitler, I’d go back and kill whoever was responsible for the first MBA program.” We beat Hitler and recovered nicely, and he never did near as much damage to the country as our current profits over people management.

Beoing is still talking about getting its 737 Maxes back in the air in time for the Christmas travel season. If they do, and you need to fly somewhere, good luck. For that matter, other Boeing 737 planes recently were found to have cracks in the pickle forks, which attach the plane’s body to its wing structure. Amtrak is looking better all the time.

18 thoughts on “The 737 Max and Late Stage Capitalism

  1. One other article, a link to which I no longer have, pointed out that with merger between Boeing and McDonnell/Douglas the MD management team took over from the Boeing management.  This meant that a company steeped in military contract which had no real cost containment controls, who could build crap and then get paid to "fix" it, there was far less focus on building a quality product that was profitable.  The became a "quick and dirty" company that figured they could just fix it later, as they always have for the military, without realizing that in the commercial market where your customers were corporations looking for reliable, profitable products they could use, that kind of crap wouldn't fly.  (pun intended)

    Wish I could find the  link.

  2. The New Republic article mentions "Neutron" Jack Welch, who gained the nickname by destroying work forces and leaving only the buildings, something like a neutron bomb. I'm personally familiar with a bit of his handiwork. In 1986 Welch got control of RCA. Until that time TVs were built and sold in America at close to no profit because RCA also owned NBC, which made lots of money selling ad time. It was something like the cellphone market.

    Welch kept the profitable NBC and sold off the consumer electronics portion, where I was an engineer, to a French company. Evidently, the French hadn't understood how the market worked, and after a few years realized big changes would have to be made.

    They were more surgical than Welch, and went through departments firing only the highest paid technical people. One was a physicist who was an expert in wave solder, a process that helps create circuit boards. He was replaced with a newbie just out of school, with no experience, who was probably paid around half what the old guy made.

    The first circuit boards the poor guy tried to design had a big problem, and the failure could happen in a lot of places and cause a variety of symptoms. That made it extremely hard for repairmen to fix.

    So, the French saved around $80 thousand on technical salary and ended up paying over $6 million in warranty costs. To my knowledge no TVs are built in America now.

    • The destruction of American businesses, not to mention human damage, caused by Jack Welch and his dispersed numbers-numbskull MBA disciples, must run into the trillions.

      I remember how lavishly the US business press tongue-bathed him during his career. What a pack of sheep.

      • Ah, the heady days of the 1980s, when the "liberal" media constantly praised the genius of Welch, Carl Icahn, T. Boone Pickens, Al "Chainsaw" Dunlap and a lot of other con artists at private equity firms. Creative destruction in capitalism. What a story. The smoke over the rubble is still clearing.

        • The smoke over the rubble is still clearing.

          I'd say the fires are still burning, actually, nd still being fuelled. 

        • I stand corrected. The fires aren't out yet, but a picture is emerging.

          Absolutely snark. That's why the scare quotes.

  3. One thing that should have ground the project to a halt near its inception is a proper FAA inspection process. I don't have the background material but it's my understanding that the FAA grants waivers to modifications of existing proven planes out of hand – almost casually, but they have a grueling process of testing for any/every new design. The FAA defends the obscenely expensive process with the word no one can contest – safety.

    Boeing may have insisted the inherently unstable 737 be advanced (rather than redesigned) for the sole purpose of exploiting a loophole in FAA procedures. As long as it was a "737" on paper, Boeing wouldn't have to pass stringent examination. The "loophole" some say is carefully designed to protect existing manufacturers by making competitors eat testing costs that Beechcraft doesn't have to because they hang the same name on their twin-engine that they have for 30 years of continual tweaks.

    What possible motive would the FAA have to protect existing builders and drive competition out of business with cost before they ever get a plane approved? There's nothing to prevent an FAA administrator with 25 years of government service from quitting the gov't job and taking a job with much higher pay with.. Boeing. From a much nicer office, the Boeing (retired) FAA expert can smooth out problems with gov't safety at a much lower cost.. using his connections within the FAA to make problems go away. 

    This is a major feature of corruption which doesn't include elected officials. Beaurocrats with the Bureau of Prisons, the FAA or the Department of Education can and DO move back and forth, almost invariably finding solutions that benefit the corporation if they run up against regulation that protects, say, the flyer.

    You will hear the term for it – the "Revolving Door." No one should be able to sell their government expertise in the private market with the industry they previously regulated – not if they ever had significant policy authority. If the government hires (as a policy administrator) an expert from industry it should be a one-way trip. They can't go back to industry.

    If this seems impossible because it would infringe on the employee's rights, do check up on the "non-compete clause" which has been upheld in all 50 states to protect the corporation's financial interests at the expense of an executive or techie who is barred from working in the same industry.

    I'm not suggesting anything in the article is wrong. I read it and I'm enormously impressed. I'm tossing out a facet that wasn't mentioned. 


  4. I work the counter at a small airport serving a large university.  Whenever someone is flying to Seattle for a job interview it is always with Microsoft, never Boeing

  5. Late Stage Capitalism or Stage 4 Capitalism is a foreboding term.  I am more partial to Rampant or Unbridled Capitalism but yours is sure a better lead.  If the airlines jam the Max to service prematurely, and disasters result, hindsight will certainly favor the more foreboding terminology.   

    The MBA mentality is rightly viewed as a sign or omen that capitalism is in near death rattle state.  Who could argue with that?   I watched them circle over Enron for some time and witnessed personally nest egg cadavers it left in it's collapse.  John Cohn's view that a proper evil scale rates the MBA program creator way above Hitler is spot on as the Brits say.

    One notion that has been hinted at, but never stated specifically, in the Boeing Max Fail Debacle, is one I have toyed with a number of times.  We are a long way from the days of the Renaissance Man, and even getting a long way from Liberal Arts Education.  The Renaissance Man was a master of all knowledge.  Liberal Arts Education touted exposure to all knowledge areas.  Now college graduates are not even expected to have basic knowledge of areas not in their specific branch of a discipline.  More and more compartmentalized knowledge develops but so does "that's not my job" or "that's not my area of responsibility".  With the Boing Max Fail Debacle that seemed to be the main problem.  No one knew enough of how all the systems worked, and no one could get the big picture of how they might not work together to see the potential fail.  Are we at the point where no single person can have a big picture of complicated devices and maintain influence in huge corporations.  I fear those necessary people face extinction.  MBA driven casualties of death by power point and cost reduction.  

    • The MBA mentality is something I've been bitching about since my long-ago days in the publishing cube farms. People who have no clue, no hands-on experience making the product, shouldn't be in charge of decisions about how the products get made. And most of the people who end up in the top floor offices get there through finance and marketing, not production, engineering, or whatever. I saw so much stupid waste and so many costly blunders come about because of conditions imposed on our department by the top floor guys, or worse, by those worthless creatures called "consultants" they would overpay to impose "efficiency." 

  6. Renaissance Men, or persons if you will, are no longer possible. In my field, decades ago, knowledge became so specialized that I would often have to first establish a common language with another electrical engineer before a technical problem could be addressed. It's probably the same in medicine, law, and a lot of other areas. In aerospace, where I also worked, there are systems engineers whose job is to understand the product from the 30,000 ft. perspective. You can bet there was at least one who understood the 737 Max and warned management only to be ignored. Often management doesn't know what it doesn't know and sees only through the lens of profit.

    I would quibble about capitalism disappearing altogether, however. Not everything about it doesn't work. The larger problem is that it has nothing whatever to do with providing for a healthy society. It needs to be controlled and used like any other tool. That's where America has failed miserably.

    • @ Winston on September 29, 2019 at 1:05 pm

      <i>I would quibble about capitalism disappearing altogether, however. Not everything about it doesn't work.</i>


      I am not so sure about capitalism working, the free market component works quite well in many cases well though certainly not at all but capitalism overall seems to me to be a fairly destructive influence.


      • Unrestrained capitalism is certainly destructive. We have plenty of proof for that. However, there doesn't seem to be a viable alternative other than societal (governmental) restraint.

        Capitalism also ran amuck during the Gilded Age between the Civil War and late 19th century. Around the turn of the century adjustments were made during the Progressive Era and the economy began serving more of society again, albeit with more problems to come. My guess is we're in a similar phase.

  7. I'd add one more to the MBA mess, and I agree with all that has been said about it here.  Marketing Departments have destroyed otherwise good businesses and organizations.  Sadly, it isn't just corporate America that suffers from the poison of marketers run amok and running the company, it is also large non-profit organizations. 

    Large non-profits, like United Way, suck all the oxygen out of the room to the point that small, local, deserving organizations cannot get support under their umbrella unless they pledge obeisance to the United Way's idea of what should and should not be done.  Otherwise effective local organizations can wither and die if they fail to do so.  In addition, at least historically (don't know if it is still done), UW automatically rejects any requests for funding on the first go, regardless of need, regardless of the effectiveness of the local organization.  It is about UW's image above need and UW will strongarm any local group they do agree to eventually fund until the local identity and mission has been destroyed and become subservient to UW.  It's frankly pathetic.

    The field I work in as a volunteer and now part-time contractor has the same problem.   At this point any non-profit with a slick magazine and marketing campaign is suspect until proven otherwise.

    Marketing departments are natural fit with the MBA mentality.  They all should be taken out and given a flotation test as far from shore as possible.

  8. One reason for the 737Max was that Airbus had a more fuel efficient 737 competitor, and a redesign would have cost 10 years of orders. That really drives home *why* an aerospace engineer needed to be in charge. 

    Yes, ten years of orders, lost, but once it was clear that the engines they needed didn't fit the plane, they should have poured resources into leapfrogging Airbus, either in 737-space, or elsewhere, over putting a passenger plane in the air that needed automatic oversight to stay stable. 

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