The 737 MAX is designed by clowns, who are supervised by monkeys! That’s what Boeing’s own employees say about the 737 MAX that caused the two crashes. On January 9th Boeing released more than 100 pages of internal communications with employees of the 737 MAX, which showed off communication problems with regulators and aviation customers, even cheating and flouting them.
The document was sent to the Federal Aviation Administration (FAA) and both houses of Congress before Christmas 2019 to help investigate the design of the 737 MAX model, many of which revolve around the development and certification process for the Max simulator in 2017 and 2018, China News reported. The analysis said the documents revealed boeing’s interaction with the FAA at the time the aircraft was certified, which could have made the 737 MAX flyback even more remote.
In October 2018 and March 2019, two Boeing 737 MAXes from Lion Air Indonesia and Ethiopian Airlines crashed, and subsequently, countries around the world, including the United States, grounded the aircraft, stopped local airlines from receiving the aircraft, and banned it from flying over airspace.
The 737 MAX’s largest customer, Southwest Airlines, and American Airlines and United Airlines, confirmed in November that there were no plans to introduce or resume the 737 MAX until March 2020, and United Airlines announced shortly thereafter that it would not return to the aircraft until June 2020. And in early December, 50 Airbus’s latest A320XLR orders were placed.
Although United Airlines claims the new Airbus aircraft is intended to replace the aging Boeing 757, it is also a narrow-body aircraft that abandoned the 737 MAX and switched to Airbus, a sign that the American aviation community is losing confidence in Boeing.
Ahead of the 2019 Christmas holidays, Boeing announced a temporary shutdown of the 737 MAX aircraft from January 2020, with no date yet to be announced.
Earlier this month, Boeing told the FAA that it had identified a manufacturing hazard that could leave the plane’s engines vulnerable in lightning conditions.
When the MAX aircraft was assembled, workers at Boeing’s assembly plant in Washington state grind the panel housing on top of the engine to better adapt to the aircraft. But in doing so, they inadvertently remove the coating that protects the panel from lightning, removing important protection swashes from the fuel tank and the burning road.
So far, about 400 brand-new 737 SXEs have been parked in Seattle, waiting quietly for a re-entry order.
In addition to the trouble with the best-selling narrow-body 737 MAX in recent years, Boeing’s wide-body aircraft are also a frequent problem:
In 2013, the Boeing Dreamliner 787, which had just been commercialised, had several accidents in 10 days, not fatal, but caused the aircraft to be temporarily grounded around the world.
In September 2019, Boeing’s new 777X, which challenges the Status of the Airbus A350, also had problems before it could be commercialised. A 777X opened a hatch during a stress test and the body structure ruptured during the test.
For Boeing, commercial aircraft such as the 737, 777 and 787 are its most important business, and the commercial aircraft business has contributed about 60% of Boeing’s revenue in recent years.
Dennis Muilenburg, who served as Boeing’s CEO for four-and-a-half years, announced before Christmas that he would step down as CEO in January under pressure from the board.
Boeing, the airline giant that is regarded as the pride of America’s high-end manufacturing industry, has faded in its glory days.
Who ruined Boeing?
Boeing’s share price has risen sharply since the 2008 financial crisis, but the continued volatility of the company’s share price since 2018 shows that the market’s attitude to its prospects is uncertain
One of the few bipartisan consensuses in the United States is to conclude that Boeing is vital to the U.S. economy, exports and jobs.
On the one hand, Boeing, with more than a century of history, has become the only american aviation giant by all means, and it was not until nearly 20 years ago that Airbus had the ability to challenge Boeing. Boeing, which has long enjoyed excess profits from its monopoly position in the market, has long since lost its focus on research and innovation.
On the other hand, neoliberal reforms since the 1980s have allowed the financial sector to flourish, and U.S. manufacturing has struggled to make a difference in the “financialization” wave, either by trying to do what Boeing does to make its own performance more in line with Wall Street’s appetite, or by making money with GE capital, or by making money like Timken. , under pressure from Wall Street, they were dismembered.
In the process of financialization, manufacturing companies are no longer as investing in research and development to ensure quality, but all for Wall Street shareholders.
Boeing is just one of the bulwarks that has fallen in the tide of American economic financialization.
01, quick! Fast! Fast!
Prior to 2013, Boeing had been working hard for nearly a century to establish the company’s unique status and reputation in the global aviation industry. The slogan “Integrity, Quality, Safety” gives the world peace of mind about Boeing’s products.
However, things began to change on January 7, 2013.
In the 10 days from January 7 to 16, There were six accidents involving Japan Airlines and All Nippon Airways’ 787 aircraft, one of which caused the plane to make a landing and several people were slightly injured as they were evacuated using inflatable slides.
On the 16th, All Nippon Airways grounded all its 787s, and two days later, the world’s civil aviation regulators have asked airlines to ground 787s. It is also the first time in Boeing’s history that its products have been grounded worldwide, less than a year and a half after the 787 went into commercial use.
The Japan Airlines 787 aircraft exploded at Boston Airport on January 7, 2013 (file photo from Wikipedia)
After modifying the battery design, the Federal Aviation Administration (FAA) agreed in April of that year to resume flight seventy-seven flights.
Just as people were beginning to forget about the 787’s accidents, in 2014 Al Jazeera aired a news-investigation program hosted by journalist Will Jordan: “The Boeing 787: Broken Dreams.”
During the program, Will Jordan visited Boeing’s suppliers, interviewed Boeing executives and employees, and even photographed the 787’s production workshop.
In Boeing’s workshop, the biggest conflict is the contradiction between production progress and quality and safety.
In the survey, Boeing’s factory workers in South Carolina admitted that the assembly line, built after the 2008 financial crisis, had problems, which was a major reason why the 787 and other airliners continued to delay delivery, causing trouble.
Terrifyingly, the 787 is not an isolated case.
Aircraft failures and delays alone are not enough to destroy Boeing’s century-old reputation, but two consecutive 737 MAX crashs in 2018 and 2019 have left many losing confidence in the company.
The 737 MAX is highly anticipated by Boeing and is seen as the killer of Boeing’s response to the Airbus A320 series, especially the latest A320neo challenge.
But the two crashes brought to an end Boeing’s plans.
After the 737 MAX was grounded, the U.S. Congress, the FAA and others began investigating Boeing. On December 11th, an unusual witness was heard by the U.S. Congress on the Boeing 737 MAX accident: Ed Pierson, a former executive at Boeing’s Renton plant in Washington state.
The veteran, who served in the U.S. Navy for 30 years, confessed at the hearing that he “cried a tearful man” after hearing about the first fatal accident at the 737 MAX.
In Pierson’s view, both tragedies were caused by Boeing itself.
Prior to the 737 MAX, Boeing’s classic 737 series was arguably the most legendary narrow-body airliner in the history of civil aviation in the world, especially with its outstanding flight safety record. But when Pierson began to come into contact with the 737 MAX project, he had to admit, “Things are starting to get out of hand.”
In Pierson’s view, Boeing is more focused on competing with Airbus than safety.
Since the 21st century, the Airbus A320 has been competing in the two major series of Boeing 737s and Airbus A320s in the global narrow-body market, delivering the 737 series over the past 20 years.
Boeing has also repeatedly referred to Airbus as an “ambitious competitor” in its earnings reports (pictured from Wikipedia)
Pierson said Boeing had previously set a production target for the 737 MAX to assemble 47 aircraft per month, but raised its monthly assembly target to 52 in order to deliver more aircraft quickly.
As a result, Boeing employees, especially the mechanics at the assembly plant, have to work overtime and fatigue.
Pierson told NBC that during the 737 MAX assembly process, the mechanic’s workload was severely overworked, working even more than twice the planned hours, the mechanic’s workload reached 50 to 60 hours a week, and some employees worked eight weeks in a row without a day off. Oversaturated working conditions inevitably lead to errors in the assembly of aircraft.
Some mechanics have had to ignore established workflows and skip some of the steps of safety checks in order to keep up with the demanding production schedules set by Boeing’s management.
Pierson told NBC that some mechanics even do untrained jobs in the 737 MAX project to catch up.
Pierson, who has deep concerns about safety, emailed the 737 MAX’s project manager four months before the first 737 MAX crash to explain his safety concerns and suggested that Boeing shut down its plant for weeks. He even pointed out that during his military career, the army facilities would be briefly closed for maintenance.
But the project manager’s response to Pierson will never be forgotten:
The army doesn’t need to make money!
Pierson blames himself after the 737 MAX Indonesia Lions plane crash:
After I saw the news, I was very angry with myself and I could have done more before. I cried to a tearful man.
After the crash, Pierson told Boeing’s CEO and board of directors about his concerns about the safety of the 737 MAX, but the emails were in the dark.
Boeing spokesman Gordon Johndroe responded to Pierson’s interview and testimony to Congress.
Although Mr. Pierson did not provide any specific information about the quality or scraps, Boeing took his safety concerns seriously and has been reviewed at the highest levels of the company. We have found no link between Mr. Pierson’s concerns and the recent MAX accident.
Eric Havian, Pierson’s lawyer, said Boeing ignored Pierson’s warning and that What Pierson had done was “just to stop Boeing from putting its profits above safety”.
Profits above safety? What happened to Boeing, which had previously been a safety-oriented man?
Safety or profit?
In 1997, Boeing acquired Maddow, making it a global aviation behemoth that no one could match for a time.
After the merger, Boeing employees found that Boeing’s culture had quietly changed.
Harry Stonecipher, Boeing’s CEO after buying Maddow, told employees in a 1998 speech:
Don’t think of Boeing as your home anymore, it’s a team! If you don’t do well in the team, you shouldn’t stay here!
For many older Boeings, the new, bigger Boeing is not just about transforming the company from their home to a team, it’s a dramatic change for the whole company.
In 2011, the Seattle Business Journal admitted:
Boeing has moved from a family-oriented research company to a benefit-driven manufacturing plant.
In September 2008, Boeing’s mechanics went on strike for 57 days. Nearly two months of strikes have left Boeing’s 787s on time for delivery, and Boeing’s management is struggling to cope with strong unions, making it hard to give Wall Street investors a satisfactory answer.
That reinforces Boeing’s idea of a second production line outside Seattle.
In 2009, Boeing built a second 787 assembly line in South Carolina, thousands of miles away in Seattle, and in December of that year, the 787 was officially unveiled.
In September 2011, the world’s first Boeing 787 Dreamliner was delivered to Japan’s All Nippon Airways, which became the first airline to operate the 787 (pictured from Airways)
However, the 787 assembled in South Carolina is problematic.
After the 787 was briefly grounded around the world in 2013, Will Jordan, an Al Jazeera investigative reporter, saw how the plant was actually working through a miniature camera brought into the workshop by employees at Boeing’s Nanka plant:
Many of the mechanics Boeing employs at the Nanka plant have been “street-mixed”, just trying to make money to fill their stomachs, or some of the people who used to make sandwiches at fast-food restaurants.
You can’t expect a man who makes hamburgers at McDonald’s to have heart surgery on you. But that’s exactly what Boeing did at its South Carolina plant.
Boeing’s customers are more or less aware of the Nanka plant, so some have made it clear when they sign orders with Boeing that they only need to assemble the aircraft in Seattle.
In addition, in order to control costs, Boeing 787 is also the first time Boeing to the world’s multinational professional manufacturers to share the risk of the way to manufacture 787, including Japan, South Korea, Europe, the factory to complete the manufacture of various parts, and then all kinds of parts shipped to the United States assembly plant to complete the final assembly, and follow-up testing, delivery.
For Boeing, this “global collaboration” approach effectively controls costs, but because of the different technical standards, a series of problems are inevitable.
For example, 787 lithium batteries with more than 787 problems are produced by Japan’s GS Toasaki. More than a third of the 787’s components are made by Japanese manufacturers, and the Japanese media even proudly referred to the 787 as Japan’s “quasi-domestic machine”.
The 737 MAX’s main component manufacturer, although from the United States and European manufacturers with a long history of cooperation with Boeing, has adopted a “speculative” approach to the design of the aircraft.
The LEAP-1B engine used by the Boeing 737 MAX is larger, more thrustand and more forward-engine hangers than other 737-series aircraft, which makes the aircraft prone to stalling during take-off periods with more thrust.
In order to pass FAA airworthiness certification requirements, Boeing has installed the MCAS system (mobility enhancement system) on the 737 MAX, which automatically presses the head when the aircraft is in steep turns, at low speeds and flaps retracted.
The MCAS system was designed to improve aircraft safety, but the problem is that MCAS systems that are extremely sensitive to the outside world have more authority than pilots. That is, when the system deems it necessary to start MCAS, it will start without notifying the unit, and the crew will not even be able to shut down the system.
Both 737 MAX crashes were related to the sensitive MCAS system: the MCAS system was unable to shut down the MCAS after a continuous automatic trigger, and eventually the entire plane dived down, causing tragedy.
After the two incidents, as the accident investigation progressed, it was surprising to find that when Boeing introduced the MCAS system on the 737 MAX, there may not have been a rigorous safety review.
In a 69-page report released in October, the Joint Technical Review Group (JATR), organized by the FAA, said:
In the certification file submitted to the FAA, MCAS was not evaluated as having complete and integrated functionality.
The lack of top-down unified development and evaluation of system functionality and its safety analysis by Boeing and FAA, coupled with a large number of fragmented documentation, makes it difficult to assess whether compliance is fully proven.
In other words, in order to compete with the Airbus A320neo, Boeing has chosen to act rashly on key safety issues, with non-compliant safety inspection procedures and even sloppy ness to the regulator, the FAA.
What happened to the Boeing that emphasized safety and innovation?
Boss also with innovation?!
Boeing’s story began in Seattle, a town in the northwest united states.
Seattle, on the Pacific coast, is home to a natural harbor, backed by mountains and rich in forest resources. After the arrival of European colonists, timber harvesting and shipbuilding have long been the backbone of the economy.
In 1916, less than 13 years after the Wright brothers invented the powered aircraft, a modern aircraft, William Edward Boeing, a German-American who made his fortune in the timber business, and George Conrad Westervelt, a U.S. Navy technician, co-founded what is now Boeing’s predecessor, The B. W (taken from the initials of two people’s last names).
During the two world wars, Boeing received large orders from the U.S. military and quickly grew into an important U.S. aircraft manufacturer.
In a relatively peaceful post-war environment, Boeing, which relies on bombers and fighter jets, had to look to civil aviation. But in this area, Boeing has been no match for old rival Douglas (later Maddow).
In the early 1950s, after several failures, Boeing decided to focus on the jets that were not popular at the time. At that time, many people believed that the jet jet development and manufacturing costs are too high compared to piston-engined aircraft.
Still, Boeing decided that the jet was the future of civil aircraft, so it decided to invest $16 million in 1952 to develop the jet.
Five years later, after several competitions with Douglas for the jet liner DC-8 in product style and so on, it won the favor of American Airlines and other airlines, with four engines of the 707 became the most popular aircraft of the time, a total of 1010 aircraft, 707 also became a successful 727, Prototypes of the 737 and 757 aircraft.
A 707 from Global Airlines in Shanghai in 1980 (pictured from Wikipedia)
Boeing’s path to the break did not end there.
Although the 707 has been able to operate transatlantic routes between the United States and Europe, in the 1960s, with the popularity of air travel, American airlines such as Pan Am wanted to develop longer-distance intercontinental routes.
Boeing won the competition, developing the world’s first wide-body aircraft, the Boeing 747, which was officially launched in 1968.
The plane, known as the Jumbo Jet, has a wingspan longer than the Wright brothers’ first flight. Until the Airbus A380 went into service in 2007, the 747 held the record for 37 years of being the world’s largest passenger aircraft and led Boeing to become the only company in the United States to produce ocean-going cruise capability wide-body aircraft.
The 747’s huge load also makes the aircraft an ideal cargo model, with its nose open to efficiently load and unload large cargo (pictured is a 747 aircraft owned by China Airlines Cargo in Taiwan, China, loading and unloading cargo at the airport, pictured from wikipedia)
After the success of the 747, Boeing approved the development of the 777 in 1990 in order to adapt to changes in the aviation market. At that time, Boeing, with the customer as the center, established a “Together Work” collaborative plan in the development of the 777 aircraft, working with United Airlines, American Airlines, Delta Air Lines, British Airways, Cathay Pacific, Japan Airlines, All Nippon Airways and Qantas to determine the performance of the new aircraft. At that time, these major customers have different demands, as Party B Boeing is not easy, but still in this collaborative mechanism to complete the development of 777 aircraft.
Nearly three decades later, the Boeing 777 has also been a huge success, having, along with the Airbus A330, has long been the most mainstream wide-body aircraft for many airlines.
After boeing’s 777, Boeing’s dominance in the civil aviation industry seemed unshakable: its old rival, Maddow, was even taken over by Boeing in 1997, while Airbus, which was built by a group of European sons and down from Boeing, was just a hawk with no ability to break into the most important U.S. market in the global aviation industry at the time.
Boeing, which is “high above the cold”, has also suspended the development of new aircraft after taking the throne of civil aviation.
Of course, in Boeing’s view at that time, innovation is simply not necessary, whether it is the civil aviation sector or the military sector, Boeing’s position is irreplaceable: the world’s civil aviation companies as long as the need for large aircraft, can only choose Boeing;
Why innovation is needed when there are no rivals in the world that can match it?
Boeing, which spends a lot of time and money developing new aircraft, is more focused on how to please Wall Street investors and how boeing’s share price can rise and deliver substantial returns.
As a result, Boeing’s plans for new aircraft development since the 777 have barely been supported by investors and shareholders until 2005, when it began developing the 787 Dreamliner.
However, in 2005, the global civil aviation industry has changed dramatically.
Boeing has wiped out almost all of its U.S. civil aviation rivals, but Europe’s Airbus is on the rise: the Airbus A320 series of orders and deliveries go straight to the most successful 737 series in the Boeing narrow-body series; “Tuhao Airlines Division” made enough face, but also to Airbus has brought considerable benefits. Not to mention the new wide-body A350 that Airbus was developing at the time, and the more energy-efficient narrow-body A320neo series, which began in 2010.
Emirates is the largest customer of the Airbus A380 and currently operates 115 A380s.
Dubai Airport has even built the luxury terminal T3A for Emirates’ huge A380 fleet (pictured from The Emirates’ official website)
At this time, Boeing panicked, a half-century-old leader in the world’s civil aviation industry, encountered challenges from Europe, and the year Boeing looked down on Airbus, its new modelseems to have been more popular, Boeing in the civil aviation sector, from the far-fraced, to airbus on a par, even in some areas have been reduced to followers.
Boeing’s change is not uncommon among U.S. manufacturing companies: in neoliberal reforms led by President Reagan and British Prime Minister Margaret Thatcher, the Political and Economic System of the West, which emerged after World War II, has changed its position, and the financial sector has become increasingly important.
After neoliberal policies, manufacturing giants found that making money from airplanes, engines, light bulbs, washing machines and cars was far less quick or far from making money. As a result, the U.S. economy and manufacturing industry appeared “financialization” situation, regardless of long-term interests into research and development, but only short-term shareholder returns, trying to please Wall Street, and even become a member of the financial capital game. In the long run, and that’s one of the big reasons for emptying Boeing.
Not just Boeing.
Boeing has not been the only U.S. manufacturing leader with many problems in recent decades.
In the wave of neoliberal reforms, the financial sector has become more and more in control of manufacturing, and some manufacturing companies have even tried to become part of financial capital, others have been forced to compromise with Wall Street, even because of the power of Wall Street, and buried their own century-long hard-fought lifeline.
Ge must be no stranger to Americans. From light bulbs and white goods, to everyday energy and airplane engines, GE is everywhere in American life. GE, the “evergreen” industry, has long been one of the most important cases in the world’s major business schools.
But it was such a manufacturing giant that suffered a serious crisis after 2001. In June 2018, GE was removed from the Dow component after 111 years on the dow.
In fact, GE had the most glorious period in its more than a hundred years of history before the crisis. In the two decades from 1981 to 2001, GE’s market value grew by $450 billion under jack Welch, the boss, about 40 percent of which came from GE Capital.
Data from GE Results, Wall Street Insights
GE Capital was originally a financial subsidiary for the GE Group, because for such a big mac, leasing, loans and other financial activities are very large, GE Capital was established to meet the needs of the entire GE.
But under Welch, GE Capital, which has backed GE’s reputation, has earned a AAA rating from S.P. and has entered financial markets, engaging in highly leveraged financial activities, like many hedge funds.
During Welch’s 20 years in power, GE has shifted from a manufacturing company focused on research and development investments to a Wall Street firm.
In the U.S. industry, many people criticize Welch for not caring whether GE’s business has accumulated for decades, whether it should update the product, thereby consolidating the market position and opening up new markets.
In Welch’s view, GE, which already has a number of manufacturing segments at the top of its list, doesn’t need to worry about that at all, and he’s more focused on how to make GE’s quarterly results look good, and more about convincing Wall Street investors that GE is a very profitable company.
So he invested heavily in the most lucrative industries of his time: media and finance. During his tenure, GE bought Kidder Peabody, an investment bank, and NBC, a well-known television station, was included in GE’s arm.
For GE, the acquisition is aimed at making its earnings look better and winning over more Wall Street investors. So, for these new acquisitions, GE’s strategy is simple: open source savings, trying to get these companies to create a steady stream of cash flow, for GE Group’s financial data.
It’s obviously much easier for a big mac like GE to make money from research and development and new products.
But such good days didn’t last long. In the wake of the financial crisis, GE was in a slump, and even in 2015, in the face of excessive debt, GE had to sell most of GE Capital’s business.
U.S. rating companies, such as Standard and Poor’s, are also unimpressed with GE. In October 2018, S.P. downgraded GE’s credit rating from A to BBB-plus, the lowest level of investment grade. From 1974 to 2009, GE’s credit rating was the highest aAA rating for 35 years.
Another example of manufacturing companies being manipulated by the financial industry is St. Louis, Missouri-based bearing and mechanical power transmission giant Timken.
In 2013, Timken split into two, and its special steel business was split up to form a new company.
At the time, Timken’s president, Ward Timken, and CEO James Griffith did not support the split. Griffith says:
The reason why our company manufactures these two materials and products, the purpose is to provide the market with higher quality products at the same time to better meet customer needs.
For example, the very large bearings used by our customers in the manufacture of wind turbines are up to 2 meters in diameter and weigh up to 4 tons, and must withstand extreme wind and temperature conditions. For these customers, we control the entire value chain from raw materials (steel) to finished products (bearings), and we can fine-tune steel properties to meet their different needs to produce products that are more responsive to their needs.
But Timken’s investors don’t think so.
At the time, about a third of Timken’s business was in the steel industry, and the other two-thirds were made in machinery, and for investors, Timken’s structure was too complex compared to a company that focused on just one business, which led to a low valuation on Wall Street. But once the spin-off, Timken became a company specializing in the art industry, making it easier for Wall Street to be favored.
Like Timken, GE and Boeing, the fate of U.S. manufacturing companies, which are either invisible or tangiblely manipulated by Wall Street, is not in the minority.
We can’t help but wonder why U.S. manufacturing giants such as Boeing, GE and Timken have changed dramatically in the past few decades: one product is full of security risks and is overtaken by competitors in all directions; And another, under pressure from investors, had to split the mature industrial chain into seven-and-a-half years.
One inevitable reason for this is the financialization of the United States since the Reagan reforms.
Screenshot from the American drama Mr. Robot (Hacking Corps)
The scary thing is that this may be the reality.
Since the 1980s, neoliberalism has gradually affected the world under the impetus of President Reagan and British Prime Minister Margaret Thatcher. The biggest impact on the financial sector is “unregulated”.
The reform at the time undeniably brought an increase in wealth to the world, but the loss of the financial sector, which was strictly regulated after World War II, was like a monster that broke free of its cage and squeezed the living space of American manufacturing and commerce a little bit.
Academics have even emerged with a proper term called “financialization”, which describes the development of financial capitalism in the United States since the 1980s, characterized by the rise in the debt-to-equity ratio and the rapid development of the financial sector across the country compared with other industries.
Boeing and GE are the two bastions of financialisation.
In the 1970s, finance and insurance contributed less than 5% to U.S. GDP, according to the Commerce Department’s Bureau of Economic Analysis, and the industry’s contribution to GDP has remained between 4% and 4.8% over the decade, with all investment banking assets accounting for less than 2% of U.S. GDP. Because the banking industry of that era had little to do but take deposits and lend to businesses and individuals, the banking industry was even called “boring banking”, and there was no wall Street’s arrogance today.
According to the Bureau of Economic Analysis, the broad financial sector includes finance, insurance, real estate, leasing and other industries;
But deregulation in the 1980s has revolutionized the financial sector. The size and profitability of the financial sector has grown rapidly, with the financial and insurance sectors contributing more than 7% of U.S. GDP in 2018, while the broad financial sector, including real estate, has contributed more than 20% of U.S. GDP in the last five years.
Moreover, it is worth noting that profits in the financial sector grew by 800 per cent in the 25 years between 1980 and 2005.
In the 1970s, the U.S. financial sector made twice as much profit as the non-financial sector, but by 2007, on the eve of the financial crisis, it was six times as profitable. Making money with money is obviously much faster than making money from engines, airplanes, and Coca-Cola.
Financialization is a profound crisis for U.S. manufacturing.
Until the 1980s, the contribution of U.S. manufacturing to the U.S. economy was not to be underestimated, with its contribution to GDP, which was close to 30 percent in the 1950s, and has remained above 20 percent for a long time.
But since the early 1990s, The contribution of U.S. manufacturing to GDP has been lower than that of the broader financial sector. After Mr. Trump took office in 2016, the U.S. manufacturing sector’s contribution to GDP remained around 11 percent, despite the slogan of reviving manufacturing.
After deregulation, the financial industry shifted its focus from long-term goals such as technology research and development and product upgrading to short-term returns on capital. As a result, companies such as Boeing and GE have had to leave their own destiny to Wall Street to large extent in the process of “following the trend”:
Boeing continues to reduce its research and development costs, even since 2011 began to develop the latest 737 MAX series aircraft, research and development investment ratio has not significantly recovered;
GE, with more than a century of strong roots in the manufacturing sector, wanted to build its own “financial empire”, but failed to turn its fate over to Wall Street again;
Timken’s shareholders, without regard for product quality and the consistency of the industrial chain, split a mature segment into two companies with good-looking performance…
Susan Berger, a professor of political science at MIT, points out that:
Since the 1980s, pressure from financial markets has gradually deprived manufacturing companies of their enduring competitiveness.
In the course of the economic and financialization of The U.S. manufacturing industry over the past few decades, it has lost not only factories, jobs, but also the long-standing “master-and-get-apprentice” mechanism, basic research, the promotion of innovative technologies and the investment that turned innovation theory into reality, for Wall Street, These investments and investments are too long to deliver short-term visible economic benefits to shareholders.
The financialization of the U.S. economy has caused concern among many in the U.S. industry. Many people point out that the competitiveness of an economy comes from innovation, and industry innovation comes from investment in manufacturing technology research and development, especially long-term and continuous investment, but now Wall Street is still willing to invest in manufacturing research and development for a long time?
Now, as financialization has reached almost every listed U.S. manufacturing company, there has been a marked shift in its investment strategy.
Over the years, for example, U.S. stocks have been rising, but their share of research and development in earnings has been declining. So where’s all the money gone?
The answer is a share buyback. Today, listed companies in the S.P. 500 spend about 95 per cent of their earnings buying back their shares or paying dividends to boost share prices and “benefit” shareholders.
Still take Boeing.
In 2010, Airbus unveiled its latest narrow-body model, the A320neo, which, unlike its old models, will be more efficient in saving energy.
Initially, Boeing was not impressed with the A320neo. It wasn’t until July 2011, when Boeing’s longtime customer, American Airlines, announced that it would order 130 A320ceos and 130 of the latest A320neo, breaking Boeing’s monopoly on American Airlines’ narrow-body aircraft, that Boeing was quick to improve its 737 series in order to compete effectively with the A320neo. Boeing’s new model is the 737 MAX.
Typically, Boeing’s investment in research and development should increase during the 737 MAX research and development phase from 2011 to 2015, but according to the company’s disclosure of research and development costs, the absolute value of research and development for commercial aircraft has not only not increased in recent years, but the share of research and development costs in the company’s revenue has continued to decline.
Data from Boeing’s annual earnings, Wall Street insight
Just as Boeing has scaled back its research and development spending, starting in 2013, after a four-year hiatus, the company has again launched a massive buyback program and has been increasing its dividend in recent years.
Data from company announcements, Wall Street insights (fY19 contains only first-to-third-quarter data, fourth-quarter buyback data has not been disclosed)
Boeing paid $3.95 billion in dividends in fiscal 2018 alone (data from the company’s announcement, Wall Street news)
In fact, it is not just old manufacturing companies such as Boeing and GE that are under pressure from Wall Street, but also wall street pressure is everywhere for newly listed companies.
According to a Stanford University study, new IPO companies spend an average of 40 percent less on research and development after going public, largely because of pressure from Wall Street. If research and development costs are too large, the company’s earnings will certainly not look good, so it will be difficult to stabilize the confidence of Wall Street investors.
William Levinson, a columnist for Industry Week, a manufacturing-focused website, points out:
The disease that is harming the health of the American economy is the financial plan. One of the symptoms is the erosion of America’s manufacturing base. Manufacturing is the cornerstone of the U.S. economy and military might.
Boeing, the 103-year-old U.S. manufacturing leader, will not be down because of two plane crashes and management turmoil.
But it is worrying how long Boeing, which is losing its ability to innovate and has a safe foundation for profit, can lie on the credit books of history.