The Betrayal of the American Dream

by Donald L. Barlett

  Each additional billion dollars in exports creates nearly 20,000 new jobs here in the United States (George H. W. Bush, 1991).

  Every time we sell $1 billion of American products and services overseas, we create about 20,000 jobs at home (Bill Clinton, 1993).

  Jobs in exporting plants pay wages that average up to 18 percent more than jobs in non-exporting plants (George W. Bush, 2003).

  We need to export more of our goods because the more products we make and sell to other countries, the more jobs we support right here in America (Barack Obama, 2010).

  Many of America’s fastest-growing exports in recent years are commodities you’d expect to see shipped from a Third World country: nuts, animal feeds, rice, oilseeds and food oils, sorghum, barley and oats.

  There is only one category in which the nation is an undisputed export giant—civilian aircraft. But its days as an export powerhouse are numbered.

  BOEING’S FAUSTIAN BARGAIN

  The United States had a $43.6 billion trade surplus in civilian aircraft in 2010, when it exported $67 billion in passenger jets and imported $23.4 billion. Adjusted for inflation, that was about equal to the industry’s trade surplus of twenty years earlier. In 1990, roughly 400,000 production workers were employed in the U.S. aerospace industry; in 2010 there were only 275,000. So even in an industry where the United States is said to enjoy a competitive advantage, we are losing jobs. Why? Like other multinationals, Boeing has been steadily moving work offshore.

  To build its latest plane, the much-anticipated 787 Dreamliner, Boeing turned to suppliers in Sweden, Italy, South Korea, and China to make sections of the plane that previously would have been made in America by Boeing or domestic suppliers. Fully 70 percent of the Dreamliner is foreign content, according to the Society of Professional Engineering Employees in Aerospace, the union that represents Boeing engineers. In contrast, Boeing’s 727 was originally built with about 2 percent foreign content.

  Outsourcing is supposed to save money, but in Boeing’s case it backfired. The Dreamliner came in at several billion dollars over budget and three years behind schedule before it made its first flight in late 2011. Many of the problems stemmed from Boeing’s over-reliance on a vast web of global suppliers, some of whom weren’t up to the task. Some components were poorly made; others were missing crucial parts. There were problems with the environmental controls and electrical systems. Subcontractors who missed deadlines disrupted the production schedule for the entire plane.

  “We gave work to people that had never really done this kind of technology before, and then we didn’t provide the oversight that was necessary,” Jim Albaugh, the company’s commercial aviation chief, told a group of Seattle business students in 2011. “In hindsight, we spent a lot more money in trying to recover than we ever would have spent if we tried to keep many of the key technologies closer to Boeing.” In other words, Boeing would have been better off had it done the work domestically.

  Does this mean the company will bring jobs back to the States? Hardly.

  The most unsettling thrust of Boeing’s offshore strategy is the Faustian bargain Boeing has made with China.

  China is buying more Boeing planes than any other country except the United States, and as a trade-off Boeing is shifting more and more of its aircraft production to China. Boeing has cut deals with China’s largest state-owned aviation company, Aviation Industry Corporation of China (AVIC), to make parts for Boeing 737s, 747s, 767s, 777s, and now 787s at plants in China. Boeing officials say that more than six thousand Boeing planes worldwide use Chinese-made components.

  For the Dreamliner, Chinese factories were, for the first time, the exclusive manufacturer of several crucial components, including the rudder, the wing-to-body parts, and the leading edge of the vertical fin. It’s no wonder that when Boeing took the Dreamliner on its global introductory tour in the fall of 2011, the first stop was China. “There’s no more fitting place to come than Beijing,” Boeing executive Marc Allen told the press after the 787 touched down.

  Boeing began shifting work to China years ago, but the pace is accelerating. As the company expands manufacturing there, Boeing is underwriting research and training, including a lab run by the Chinese Academy of Sciences, to explore the possibility of using more biofuels for jet fuel. The most ambitious research project to date was announced in 2011 by Boeing and the state-owned aircraft company AVIC to open a joint manufacturing innovation center (MIC) in Xi’an to increase China’s “efficiency and capacity to supply high-quality parts of Boeing airplanes.”

  According to a Boeing press release, “the MIC, which will open in 2012, will provide classroom training for AVIC employees and hands-on training for workers in AVIC factories. The training will replicate Boeing’s successful production methods for sustainable quality to strengthen AVIC’s manufacturing and meet Boeing’s quality, cost and delivery requirements.”

  Boeing and Chinese aviation officials maintain that the partnership benefits each party. Former Boeing China president, David Wang, says that China is now an “essential part” of Boeing’s capability to manufacture first-class aircraft and that Chinese suppliers are gaining the know-how to do high-quality manufacturing. “So I think the interdependency means we must have continuous friendly relationship for both countries to succeed in the future,” Wang says.

  But will the partnership last?

  At the same time it professes to be Boeing’s partner, China is moving at full throttle to establish a civilian aircraft manufacturing industry of its own to build airplanes like those it now buys from Boeing. In 2008 the Chinese Communist government created the Commercial Aircraft Corporation of China Ltd. (COMAC), a wholly owned state enterprise, to “build a large Chinese passenger aircraft that will soon be soaring through the blue skies.” Composed of domestic Chinese aircraft companies, some of which are Boeing partners, COMAC has already built a prototype, the C919, a narrow-body, single-aisle plane that closely resembles Boeing’s 737—the bread-and-butter plane that accounts for more than half of Boeing’s orders. COMAC has taken orders from Chinese airlines for 165 of these medium-range jets and plans to introduce them into service in 2016.

  Even for the Chinese, with their incredible record of economic development in recent years, creating a civilian aircraft manufacturing industry in such a short time was no small feat.

  But they had a lot of help. From Boeing.

  When Boeing turned to China and other suppliers to make the 787’s components, it not only gave them a lucrative contract but turned over to them the technical know-how for building planes—something the company had never before done.

  “Before the 787,” says Dick Nolan, a former Harvard Business School professor now at the University of Washington, “Boeing had retained almost total control of airplane design and provided suppliers precise engineering drawings for building parts. . . . . The 787 program departed from this practice.”

  Nolan, writing in the Harvard Business Review, concluded that Boeing effectively gave China and other suppliers “a large part of its proprietary manual, ‘How to Build a Commercial Airplane,’ a book that its aeronautical engineers have been writing over the last 50 years or so.” As a result, Nolan predicted, Boeing will face a “competitor from hell” that “will be different and tougher than anything Boeing has encountered to date.”

  And that’s just the beginning. COMAC also has another passenger jet about to enter service, a regional jet called the ARJ21. Though not a direct competitor with Boeing’s planes, the airplane provides more evidence of how quickly the Chinese are putting to use the technology and know-how that Boeing and other aircraft makers have turned over to them. In COMAC’s view, the rapid emergence of this new industry shows the “political superiority of the socialist system which is capable of concentrating all of its resources in achieving great things.”

  Outwardly, Boeing doesn’t express concern over China’s plans to challenge the company in the civilian aircraft market, though company offi
cials have said repeatedly that they expanded in China in part to be able to tap the fast-growing Chinese market for passenger planes. Industry analysts estimate that China will need more than four thousand new planes over the next two decades. On a visit to COMAC’s Shanghai headquarters in 2011, Boeing’s president, CEO, and chairman, James McNerney, was all smiles as he posed for photos with COMAC executives while holding a model of the C919 midrange passenger jet that is already taking orders away from Boeing.

  At the end of 2011, Boeing had 160,000 employees, roughly the same number as in 1990. So at a time when the total U.S. workforce grew by 20 percent, Boeing’s job force grew not at all. But that doesn’t tell the full story. In 1997 Boeing merged with aircraft maker McDonnell Douglas, and when McDonnell Douglas’s 60,000 former employees are counted, it’s clear that Boeing’s total employment fell sharply over the last two decades. Given the extent to which Boeing is building airplanes with parts manufactured offshore, the jobs that remain are vulnerable.

  In contrast, the economic forecast couldn’t look better at a modern Boeing plant in Tianjin, China, a historic port city southeast of Beijing. Boeing Tianjin Composites Company Ltd., a joint venture of Boeing and a Chinese government–owned corporation, manufactures components for every Boeing plane. The plant is expanding, and by 2013 the Tianjin workforce is expected to grow by 30 percent, thanks largely to Boeing.

  To Boeing, Tianjin is a prime example of what the company has characterized as its “win-win collaboration” with China, a partnership that Boeing says accounts, either directly or indirectly, for 20,000 jobs in China. At the groundbreaking to expand the plant in Tianjin, Ray Conner, a Boeing vice president, told beaming Chinese officials: “We rely on our Chinese partners to produce high-quality components for Boeing airplanes, and we are excited to expand this successful joint venture to increase production and employment.”

  Rather than being the positive stimulus predicted by America’s economic elite, the version of free trade practiced by Washington has progressively undermined the nation’s economic future. Instead of supporting American workers and domestic industries, the approach that Washington and corporate America have advanced has left employees and small industries at the mercy of unscrupulous sweatshop operators abroad and opportunistic multinational corporations at home. The resulting loss in jobs and companies has been devastating. Congress has been giving away the store for forty years, and soon there’ll be precious little left unless the policy changes.

  CHAPTER 3

  MADE IN AMERICA?

  Innovation is the pride of America. But as we show in the following stories of two companies, the benefits of innovation can be squandered all too easily, and a venture whose success could benefit the entire country can be transformed into a corporate asset that rewards only the few who own or trade its shares. Unless the companies that innovate remain securely anchored within U.S. communities, no innovation, however inspired, can provide the basis for long-term economic growth.

  In the last century, America routinely created new enterprises that did just that and provided millions of jobs—businesses that produced television sets, household appliances, toys, and hundreds of other products. These inventions were often the inspiration of young men and women who were fired with an idea and who brought their products to market through grit, hardship, and the help of dedicated coworkers, launching businesses that became job creators in the American economy for generations to come.

  One of the countless products that came to symbolize American know-how and ingenuity originated in a Nebraska farm town of five hundred persons. DeWitt, Nebraska, one hundred miles southwest of Omaha, was home for eighty-four years to one of the most familiar tools to ever take its place in American homes. The product was the invention of a Danish immigrant, William Petersen, a blacksmith by trade and a tinkerer at heart who designed a pair of pliers with teeth that could be locked in place, freeing the user’s hands for other tasks. He called his invention Vise-Grip. Petersen began producing the locking pliers in his shop in 1924 and sold them to local farmers and mechanics out of the trunk of his car.

  The tool was an immediate success, and Petersen soon converted a defunct drugstore in DeWitt to a factory to produce Vise-Grips for sale nationally. The company weathered the Depression and prospered during World War II, when thousands of Vise-Grips were used by U.S. defense contractors, builders of Liberty cargo ships, and the British aircraft industry.

  The tool was so popular that eventually Vise-Grip employed more people than DeWitt had residents. These were good jobs, with decent benefits and a Christmas bonus to round out the year, plus the possibility of near-lifetime employment and perhaps even a job for a son or daughter. William Petersen’s sons and daughter followed him into the business and kept its family-run spirit alive. They helped employees with mortgages and would sometimes swallow increases in health insurance costs rather than pass them on to workers. It was hard work molding and stamping out the tools, but employees felt that they would always have a job as long as they worked hard. They knew that in tough times the family, confident that business would eventually rebound, would take less profit rather than lay them off.

  Over and over in their annual reports, the Petersens stressed the debt they owed to their employees: “We want to say how highly we regard the people who make up this organization,” the family said in a 1972 report. “It is their loyalty, industry, and skill which, over the years, have made it possible for this firm to grow . . . every job is an important job and every worker a valued and respected person.” Generations of townspeople felt much like Linda Colgrove, who performed a variety of jobs at Vise-Grip in the nearly four decades she spent there: “You couldn’t ask for a better place to work.”

  From this out-of-the-way village in rural Nebraska, Vise-Grips poured forth by the millions to supply the U.S. market and overseas customers as well. By the mid-1970s, more than 30 percent of the 7 million tools made in DeWitt were sold abroad. A decade later, the plant was making almost as many Vise-Grips for export as it had once made for U.S. consumers. Before economists and politicians began touting export jobs as a cure-all for America’s job woes, Vise-Grip was ahead of the curve. Here was a unique product invented in the USA, manufactured in the USA, and shipped around the globe from the USA. It was a perfect template to map out America’s future in the global economy.

  The Petersen family owned the company for sixty-one years before selling it in 1985. In the following years Vise-Grip passed through more owners, but through it all the DeWitt plant remained central, producing the famous wrench, what the company called “the world’s most versatile hand tool.” In 2002 the company was bought by the Newell Corporation, a multinational corporation known for its rigorous cost cutting. Then everything changed.

  Randy Badman remembers the time well. Badman was typical of so many in the plant: his father, mother, uncle, aunt, and grandfather had all worked there. He’d been there thirty-three years the day Newell arrived.

  He had started as a tool and die maker, manually cutting the dies that were used to shape the components that were stamped out of molten steel by the plant’s big presses. The plant did it all. “The raw steel came in one end, and the Vise-Grip went out the other,” Badman said. In between, workers made virtually everything else: they forged the steel components, cut the teeth in the pliers, even made the screws, springs, and rivets that made the locking pliers unique.

  In the 1980s, the plant had begun converting to computerized numerical control (CNC) machines to do the work long done by hand. When the first one arrived, the company sent Badman to Omaha for training in how to program and operate the equipment that was revolutionizing factory floors across America. As more CNC machines arrived at the plant, Badman’s responsibilities grew. Eventually he headed the entire thirty-nine-man round-the-clock department of tool and die makers. The new machines were reducing manual labor, but even with the new efficiencies employment grew, rising to more than six hundred.

  Af
ter Newell bought the plant, the spirit that had powered decades of growth and job creation vanished. “Everyone had a very uneasy feeling when it was sold,” Badman recalled. “You never know once a big corporation gets a hold of something.”

  Badman said it wasn’t long before the new corporate owners began insisting on cuts—they told him to cut 5 percent in his budget. From then on, all he heard was, “You’ve got to cut, you’ve got to cut, you’ve got to cut.” So, Badman said, “we gave them that, and then they wanted more. Once that started, we knew it was not going to be good.”

  Workers at the non-union plant took a series of voluntary pay cuts, and Badman said they took a hard look at all internal processes to see what could be streamlined. “We did all the things you can do,” Badman said. Some changes made the plant more efficient, “but that can only go so far,” Badman said. “When you get a little too far, then you have to stop and say, ‘Okay, we’ve cut it to here. This is good. We’re making good profits. Now let’s run with it. Let’s sell more because we’re more efficient.’”

  Early one morning in 2005, Badman was working at his desk when he saw his boss pass by on his way to human resources. Soon Badman was summoned to the same office. Seated behind a desk was a woman from Newell he did not know, and in front of her was a pile of papers. She told him to sign them. The company was “realigning,” she said, and he was being dismissed. He was escorted through the plant and out the door of the factory where he’d worked for thirty-six years and told to contact HR for an appointment to come in and clean out his desk. That same day twelve other midlevel managers and supervisors, including Badman’s boss, were fired. As bad as things had been, Badman was stunned. “You don’t think that they’re going to take out everybody who knew what was going on and who was running the place,” he said.