There is a tendency to say that everything that is going wrong in our society is down to government underfunding, and then to blame neoliberal policy for that failure of the state.
This claim is, however, wrong. It is not just the state that is failing because of neoliberal thinking. Industry is as well. As the FT reports this morning:
The head of Emirates Airline has warned Boeing was in the “last chance saloon” as he prepared to send his own engineers to oversee the plane maker's production lines after witnessing a long decline in its manufacturing performance.
the report continued, saying:
Sir Tim Clark told the Financial Times he had seen a “progressive decline” in Boeing's standards, which he put down to long-running management and governance mis-steps, including prioritising financial performance over engineering excellence.
That there is a decline of this sort is indisputable: 'one disaster after another' now appears to be an appropriate description of what is happening at Boeing. What is key to this story is the explanation that Clark has to offer. He is saying that putting finance first is destroying this company.
This matters, at least to Americans. Boeing is, for all practical purposes, one of only two major passenger aircraft manufacturers left in the world and the only one in the USA.
For the safety of everyone who flies, this most definitely matters.
And there is the impact on already concentrated economic power that the failure of Boeing would represent, with that failure now looking to be a real possibility.
What is creating this outcome is the supposed desire for profit maximisation, although in reality that long ago became the desire for the maximisation of executive director reward - as seen as the goal of management almost everywhere.
And what it all comes down to is the same thing that is undermining the effectiveness of the state and the services it supplies: an over-concentration on money, employee productivity (which is a euphemism for increasing exploitation) and the focus on delivering a financial return within a chosen constraint when it is glaringly obvious that better is possible but the opportunity to do it is being denied.
That will sound familiar to anyone in the NHS and so much else of the UK's public services. It will also be little comfort that employees in business and business itself are suffering from the same malaise.
The question to be asked is a simple one. It is whether or not neoliberalism is not just killing the effective supply of government services, and so democracy itself, because I think that is beyond dispute, but whether it is also killing the functioning of almost all the mechanisms of supply within society as a whole? I think that is also possible.
As I suggest here, quite often, the purpose of big business is now very hard to determine. We know that the world's survival depends on us consuming less whilst business wants us to consume more. The conflict is obvious.
It's also hard to think of business's last useful innovation - and please do not say that AI represents that, because it clearly does not when the primary motive for its invention is the creation of ever more widespread unemployment, lower pay, and so a rise in inequality. Meanwhile, in the absence of any such innovation, all businesses do is spend billions to make us feel inadequate, which is the sole purpose of advertising, in the hope that our egos will drive us to buy more of what is functionally the same as what we have already had.
Meanwhile, need, which much of business has little incentive to address, is going unmet.
It is not just Boeing that cannot get things right in that case. The obsession with financial returns that is destroying it is destroying value everywhere. This is the near-universal malaise now.
I noted Martin Wolf saying yesterday that:
Th[is] country, in sum, needs not a smaller state, but a more active and more focused one, along with substantial reforms often in contentious areas. Business as usual has just not worked. Radical change is now urgently needed.
The problem is that Wolf really did not go far enough. Business as usual is not just failing government in the UK; it is failing business itself right around the world. The lifeblood of possibility that business can create and deliver is being drained away by the rentier capitalism that is the actual end-point of neoliberalism. And that is a disaster for everyone, the rentiers included at the end of the day.
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“Business as usual”?
Here is business as usual. Chris Heaton-Harris the NI Minister, telling the NI Government about the “fair and generous finding package we have given them”, when the NI Government (among the poorer parts of the UK) ask for more funding. This is the modern Union. England is the arbiter of Union generosity. It decides the case, and tells everyone else what is “fair”.
Does anyone see the flaw buried in the argument?
Well, quite. Financial engineering over actual physical engineering. Short-term so-called “efficiency” (notwithstanding the fragility that can create) over investment in resilience (which delivers added value over the longer term).
I would argue that the problems are due to neoliberalism and predatory capitalism, where the emphasis is on profits, at the expense of everything else: workers, regulation, quality, etc.
We see the same in our water industry, where government subsidies pay for shareholder dividends, and little goes towards infrastructure and preventing raw sewage from being pumped into our rivers.
And of course public services are suffering from underfunding.
We suffer from underfunding for essential needs and overfunding for destructive industries and projects such as more fossil fuel exploration and production, arms manufacturing ,increasing wars around the world, Trident, nuclear power stations, HS2……………..
Once “Investors” acquire a significant shareholding in a manufacturing company wealth creation will be supplanted by wealth extraction.
The Assets will be stripped.
It has been happening to Rolls Royce Aero engines for the last decade and Boeing is now showing signs of it being terminal.
Tragically, for both companies their best chance of survival may lie in the frightening current increase in the amount of conventional war taking place around the planet.
Clearly if the workers had an equal say through capital ownership in a business there would be less chance of asset strippers and rentiers undermining companies.
Netflix has a really good documentary about Boeing which I would heartily recommend
‘Downfall: The Case Against Boeing’.
It seems that a merger with another great American aviation company – Gruman (who was involved in the NASA programme) – already infected with race to the bottom ethics – inflicted huge damage on the venerable giant.
But the most troubling thing to me is that the then CEO is not in prison. He got a $60 million pay off and has found more work. He started as an intern in Boeing in the 1960s.
No doubt his flexibility about things and being eager to please got him noticed.
But this is how cheaply the rich hold the lives of the rest of us to be – doesn’t it?
This is why some of is get really angry and talk about pitchforks and so forth. And this is how the UK will end up with Starmer helping us on our way as rich people’s money buys out politics.
Matt Stoller had a long piece on the Boeing saga ten days ago, noting:
‘ In essence, Boeing both merged with McDonnell Douglas to consolidate power, and then spun off a supplier to make its balance sheet look better. And that supplier in turn outsourced work to contractors, so now contractors of contractors are building Boeing aircraft and no one in power knows how anything works. The Boeing-Spirit split was the worst kind of break-up, taking apart teams that should be collaborating, presided over by neoliberal financial engineers who have a fundamental contempt for reality. ‘
https://www.thebignewsletter.com/p/the-nationalization-of-boeing-begins
Thanks
Thank you, Neil.
The Stoller article does not mention Boeing relocating its HQ to tax efficient Chicago and opening a factory in anti-union and tax efficient South Carolina. Before, the units were alongside in Seattle, so facilitating quality control and an emphasis on mechanical quality.
The financial engineers are not above getting their hacks to blame diversity hires in factories, especially in South Carolina, for their failures.
A prof I know at Harvard has been developing a case study of Boeing for a number of years. (He started a consultancy I worked for and went back to Harvard when he retired). He worked for them in his younger days and has followed their decline. When they merged with McDonnell Douglas, the MD people emerged at the top. They were obsessed with profit at all costs whereas Boeing had historically been run by engineers. Plane spotters will recall that the DC-10/MD-80, their last commercial airliner, did not cover itself in glory. Nicknamed the Death Cruiser.
The problems are deep rooted as they have so changed the company, with outsourcing of manufacturing and moving the head office from Seattle to Chicago, making the head office and management ever more remote from manufacturing. Spending the money on share buy-backs. The problems emerged with the 787, continued with the disastrous 737 Max and now with new models of the 777. You can see what professionals in the industry think here: https://www.pprune.org/rumours-news/657084-boeing-x-roads.html (Sorry – I am a plane spotter and did engineering!) They speculate on whether Boeing will even survive.
I distinguish clearly between ‘business’ and ‘finance’. It’s not business per se that is the problem but the malign influence of finance which means that businesses are run solely to generate maximum profit for share holders and fees for financial institution. Anything that gets in the way of that goal gets trashed – like enronmental issues. As a result, senior managers are dominated by financiers, accountants and lawyers and are paid large sums to make sure they do what they are told by their financial masters. Whatever that means for the underlying health of the company, its customers and employees. It’s been said that most business employees ‘do not get out of bed for shareholder value’. They get stuffed as much as anyone.
Rana Faroohar wrote about it in her book Makers and Taker: How Wall Street Destroyed Main Street. It’s why we have so little real investment – the City is entirely about speculation, wealth extraction or fee earning. Woe betide any major company that tries to stand up to them, as a few do where they have particularly courageous leaders who will not be bought. Talk to SMEs and their struggles to get finance – only of interest if they can be bought and sold later, perhaps by VCs (with fees along the way), or sold dubious financial products (see RBS).
Until we fundamentally change the role and focus of the City and finance in the UK, the rest of the economy will struggle. Not to mention the rest of the country outside London. That Reeves and Starmer are buying the old line that ‘we pay lots of taxes’ (whilst helping others to avoid them) is especially depressing.
Agreed
Thank you and well said, Robin.
With regard to taxes by banks, they pay relatively little in comparison to their employees, but add the employee taxes to make it sound a lot.
In addition, the banks add all sorts of employees, including reception staff, cleaners and catering staff, to bulk up their numbers, so they can boast of how many they employ and to pretend all are in receipt of bonuses.
We came up with these scams at the trade body.
I first started dealing with the City in the 70s, the days of brokers, jobbers, merchant banks, private banks as well as the clearing banks (and there were more of them). Then there were the building societies and other aspects of finance – insurance, reinsurance etc. I don’t doubt that there were crooks back then and later there were the asset strippers like Hanson who were a bit like the predecessors of private equity. However, there was not I don’t think, that sense of arrogance, extreme rewards, and there was I think some sense of finance serving wider business and the economy. Maybe I was more naive back then…
The big shift started with Thatchers Big Bang as many small firms merged or were acquired, and the investment banking elements with their more speculative activities emerged as the dominant players. It has been downhill ever since as those financial institutions have shown less and less interest in their customers and the wider economy. Concentrated in the City with processing centres of lower paid staff scattered around the country. Paying themselves extreme sums, whilst crashing the economy, for which they never have been held to account.
They have become a law unto themselves with a dangerous level of power over government. The hedge funds and others behind Brexit. It may sound like nostalgia but I can’t help thinking that breaking them back into their component parts, and rebuilding the banks national networks is a big part of the solution. We need a finance sector, unless you are a total anti-capitalist, but not the one we have. Another ‘Big Bang’ is needed, but going in the opposite direction to the last one.
I’d be interested to hear any thoughts from the Colonel or others who have seen the City first hand.
I started in the City in ‘79
It was a very different ethos
Snobby and elitist, yes. But not arrogantly entitled as it is now
I still disliked it though
I think the problem is, indeed, a focus on finance and profit. That is all part and parcel of the neo-liberal philosophy. Like so much else about neoliberalism it’s crazy.
A lot of people study MBAs, and the like. If you believed what they thought you’d think there was recipe for successful businesses. You start by looking round the entire economy and finding the niche that is most lucrative (nonsense one). Then you engineer the finance and recruit the skills you need.The skills, of course, will always be in abundance without having to do any training. Nonsense two. And, nonsense three, too many MBAs and the like, seems to think that Universities have a 101 in innovation and invention. That is, that there’s well known methodology on how to invent. So you can leave that to those inferior oiks, and cream off the profits because of your inherent excellence (even if you can’t, actually, do anything).
All of which is, of course, nonsense. I find it hard to believe that many successful businesses start without passion and a gut feel that something is worth doing. It’s not financial analysis that’s starts a business, it is passion, knowledge and skill. Talking about aerospace, does anyone really think that Boeing, Rolls Royce and others, would be successful businesses without passion and belief from their founders.
So just like in public finance, neoliberalism completely lacks understanding of business.
Your conclusion is spot on.
MBAs of course being disproportionately skewed towards finance. Massively underestimating the importance of operations (how stuff actually gets made and delivered) and people (who are not just ‘human resources’). Operations management tends to be way down the pecking order in most sectors and too often just directed to cut costs regardless of consequences.
Some years ago I was a tutor in a first year course for business students. There was one lecture in business ethics, which I attended, in a very large lecture theatre that seated 500. When the lecturer said “Now I suppose some you might think that there should be no ethics in business …” there was a gutteral roar and about two thirds of the students raised their fists in unison. It probably seems incredible, but I’m not making this up. I was deeply shocked at the time that 18 and 19 year olds could think this way, and express it in such a way. Not all thought that way of course (mostly the arts students doing a BA with some business courses in hope of getting employment), but the vast majority of these so-called “tech savvy” kids had simply no idea how anything was made or worked in the real world, and I doubt they would have by the time they got their MBA.
There is a lot of research that shows that undergraduate course material changes attitudes
Economics undergraduates lose empathy as a result of doing their courses
“Why Nations Fail: The Origins of Power, Prosperity, and Poverty”, by Daron Acemoglu and James A. Robinson, was published more than a decade ago; taking an institutional and economic history analysis of the development (or not) and the long-term resilience and growth (or decline) of various nations and empires. A key difference being: did they establish and maintain a participatory, inclusive (economic) culture, or an extractive one. For instance, Britain, with the Glorious ‘Revolution’, developed inclusively (at least for British merchants and entrepreneurs: we’ll set aside the appalling exploitation of some other races and nations); whereas the Spanish empire failed to do so, with their wealth based (literally) on extraction, fueling extravagance and leading to decline, not robust development. (There’s an inflation story there too, in an era of metal currency: but perhaps a key idea is that the excess money went into elite consumption, not productive capacity.)
Present day Britain seems to have moved to the extractve culture, with the majority in ‘encomienda’: the ordinary, indigenous people forced to work for the extractve elites.
And of course there’s always a comprador class – willing to sell out for their own gain – which the Starmer-Reeves LINO Labour party has enthusiastically joined.