Turbo-Charged Capitalism and Its Consequences

Edward Luttwak

One-thing-at-a-time pragmatism is the hallmark of good old Anglo-Saxon common sense: systemic connections between diverse spheres of human life are the teutonic vice of the likes of Sombart and Schumpeter. But sometimes vice must prevail. Consider three sets of numbers.

On 10 August 1995, the Boeing Co., premier manufacturer of passenger airliners as well as sundry advanced weapons, was so highly regarded by analysts and investors that its shares were quoted at $65 on the New York Stock Exchange. This figure represents 77 times the earnings of the share in the previous four quarters – an enormous ‘multiple’, as stockbrokers say, which implies an equally enormous faith in Boeing’s future prospects. The shares of its nearest equivalent, McDonnell Douglas, were by contrast selling at only 15 times earnings, while the price-earnings ratio for General Electric, that great battleship of corporate America, was only 19.

In that same week, a survey of members of the International Association of Machinists and Aerospace Workers – a union which represents 34,650 of Boeing’s employees, almost all of whom regard themselves as belonging to the middle class – showed that just over 20 per cent thought their own job was ‘somewhat secure’, while over 50 percent declared themselves ‘not secure’.

At the last count (on 31 December 1994) 4.9 million Americans were under some form of ‘correctional supervision’, with some 2.8 million on probation, 671,000 on parole, 958,704 in state prisons, 95,034 in federal prisons and some 446,000 in local jails, to give a total of one incarcerated American out of 189 men, women and children, as compared to the already very high 1980 ratio of one to 480.

Explanations of the first set of numbers are uncontroversial, and can readily be obtained from any number of stockbrokers’ recommendations to their clients. Boeing is a beneficiary of globalisation twice over. Because it sells airliners to a truly worldwide market – now that Messrs Yakovlev and Tupolev have lost their Soviet-sphere monopoly – Boeing’s revenues are not subject to the ups and downs of national or even continental economies. As of now, Japan is in recession but China is booming, Latin America has slowed down but Europe has picked up, while the sum-total of more stable exports offsets the volatility of the home market, where US airlines are ingloriously surviving deregulation by means of cut-throat fare wars, extremes of cost-cutting (service standards compete with those of Aeroflot at its mythic worst), abrupt shifts from expansion to contraction, repeated transits through Chapter 11 bankruptcy, and by what hurts Boeing: sudden cancellations of options or even firm orders for its airliners.

Globalisation serves Boeing the other way as well, in its capacity as a buyer rather than a seller. Whenever a qualified producer somewhere around the world can supply an airframe ‘sub-assembly’ or even a single fuselage panel cheaper than one of its own machine-shops or some outside US ‘vendor’, Boeing’s manufacturing costs are reduced by that much, minus the smaller and smaller contracting, communication and transport costs of ‘offshore procurement’.

Total Boeing costs are being reduced still further by the steady progress of computerisation, and the ‘downsizing’ of employee payrolls it allows. At the design and development stage for both once-in-a-while new airliners and far more frequent modifications, expensive engineering hours are replaced by ever more complete applications of computer-assisted design, and although inventories of parts and tools were computerised a generation ago, it is only now that the entire administration of production and assembly is being fully computerised, to feed a myriad detailed orders directly to machinery that is itself computerised.

At the same time, the computerisation of clerical work is emptying corporate office buildings throughout the United States, including Boeing’s. There, too, the last telephone-answering secretaries are being replaced by voicemail, letter-writing secretaries by word-processing, and filing secretaries by digitalised records, which in turn removes the need for the supervisors of these clerical employees, and therefore for their supervisors, all the way up to the higher executive levels. It is all this cost-cutting, a.k.a. job-cutting, that arouses so much enthusiasm on Wall Street.

Thus the first set of numbers (the high price-earnings ratio of Boeing shares) and the second (the high proportion of Boeing employees who experience acute insecurity) are to a large extent explained by the same fact: that Boeing is a leading beneficiary of today’s technology-powered, deregulated, globalising ‘turbo-charged’ capitalism. The Boeing workforce have every reason to feel that their jobs are precarious because Boeing has joined other American businesses, large and small, in firing employees not only en masse when hard-pressed, as they always did of necessity, but even in prosperity, as a matter of deliberate choice, every day of the week. In theory, it is just the objective force of technology-driven ‘creative destruction’ that is at work: more efficient modes of production displace less efficient ones, releasing manpower (and other resources) that will eventually increase the world’s total production of goods and services insofar as it is re-employed elsewhere. In theory, too, if Boeing becomes more efficient, then the US economy as a whole is made that much more efficient.

You are not logged in