In our post yesterday, we discussed how Boeing management was on a path that would result in the liquidation of the company. We did not dwell overmuch on how significant a development that would be, given Boeing’s heft as a company (for instance, it is America’s biggest exporter) and its critical role as a supplier to civilian airlines and as a defense contractor. Boeing is an apex play in two very large economic ecosystems.
Reader GM offered an alternative line of thinking. He argued that the Boeing management’s seeming self-destructive conduct was economically rational given the likely trajectory of the airline industry, and the long time frames for capacity addition and major new product development. GM was not suggesting that this sort of calculus, as opposed to good old fashioned greed and bad incentives, was driving Boeing’s implicit strategy. Recall Boeing has been engaged in a high level of stock buybacks, as opposed to investing in its business, starting in 1998, as in almost immediately on the heels of McDonnell Douglas executives taking control of the company. But it may come to serve as an ex post facto justification if anyone starts to question their conduct.
Note that there will be many second-order effects of this trajectory. Many items are shipped by cargo as opposed to by sea. Many multinational corporations depend on air travel, despite the leap in the use of Zoom and other teleconferencing tools, because some things, like factory and vendor facility visits, need to be done in person. Plus experience suggests that a minimum level of in-person contact is necessary for physically-dispersed personnel who need to collaborate closely on complex matters to have smooth dealing with each other. GM’s trajectory implies a big unwind of globalization and far-flung supply chains. How quickly will big multinationals get on board with the new reality before it is forced on them? Or is this simply another element of the conundrum that we need to adopt a radical energy paradigm pronto or be run over by it?
GM’s comment yesterday:
Air travel is doomed on a time scale of a few decades from now, because of oil depletion and geopolitical destabilization.
It will be reduced to private jets for the mega wealthy. Perhaps it will be maintained internally within the Russia-China-Iran (plus perhaps the Gulf states) triangle for a bit longer, but that will run on Chinese and Russian technology.
Thus it does actually make sense to start liquidating Boeing, if one understands that long-term predicament.
The problem is that much more likely this is not at all the reason why Boeing is being liquidated, and it is not even a conscious long-term decision. It’s simply the perverted logic of chasing short-term profits, raising the stock price and the revolving door of execs with purely financial background and zero attachment to the core business looking to grab as much as possible before they move on to the next gig. The solution to this short-term optimization problem is to gut the company by slashing R&D, crushing the unions, outsourcing, taking every possible shortcut on QC, and redirecting the “savings” towards share buybacks.
GE is the archetype — it doesn’t even properly exist anymore, and it is an incredibly sad exercise to read what the company produced once upon a time and how it used to carry out Nobel prize winning research, and what it was reduced to towards the end. But Jack Welch, despite destroying GE, and being a climate change denying lunatic, and an ideological fanatic on shareholder value, is still regarded as a model to follow, at some point taught the next generation of MBAs at MIT and other places, and his influence is all-pervasive to this day.
This is only going to get worse, until complete collapse, because there is no mechanism in the system to halt it. The government is fully captured, and full of spineless incompetents who share the same ideology.
The big problem is that this will be a slow collapse, not a fast and hard one. In general, it is better to collapse fast and hard, because the alternative is slow decay, and slow decay is much more thorough.
The Soviets collapsed fast and hard and before the planet as a whole really hit ecological limits. So then Russia spent 15 years in the gutter, but managed to recover a bit, though still far from what it once was. With such a fast and hard collapse, the people who knew how to build things were still alive and available to start reconstituting. As a classic example, most of Putin’s 2018 super-duper doomsday weapons are late Soviet developments that were resurrected after the US pulled out of the ABM treaty, and they were supervised to completion in the 2000s and 2010s by the same people who worked on them in the 1970s and 1980s before they were mothballed in the 1990s. The guy who supervised the Avangard HGV program was born in 1933 and worked with and succeeded Chelomey after the latter’s death in 1984. Had that program restarted a decade later, it is not clear if the institutional knowledge would have still been there to successfully push it through.
And this is the prospect that the US is facing now — slow collapse, the people who know how to build things die out, there is nobody to replace them, then there is just a void and you have to start from scratch. But that will also coincide with the planet as a whole hitting ecological limits, and who knows if there will be any recovery possible at all.
You already see the manifestations of the problem in real life — there were the complains about the Minuteman ICBMs not being serviceable anymore because they are so old that the documentation has been lost and the people who designed them are all dead now. Another famous story was about Fogbank, which is some kind of an aerogel that has to go in between the stages of the nuke. And it turned out they had forgotten how to make it, everyone who knew anything about it was dead, and NASA had to reverse engineer it, which cost them two years, lots of setbacks and tens of millions of expenses. That sort of thing.