Boeing’s decision to consolidate production of the 787 Dreamliner in South Carolina challenges at least two widely held axioms of economic development.
First is the efficacy of tax incentives in building, expanding and sustaining prosperity in a region’s business environment.
In fact, localities have handed out billions of dollars in these corporate giveaways for assets as puny as data centers, which create few permanent jobs and are far from the sweet spot of tech headquarters and highly paid coders.
Often these towns, cities and states are trying to replace manufacturing industries that once provided large numbers of good jobs, lost to globalization. Mayors and governors are under pressure to “do something.”
Maybe the result is something, but only just. The old auto assembly, textile mill or furniture factory added to the tax base. The data center lured with subsidies reduces it, affecting funding for schools, utilities, transit and other public goods, and not fully replacing the lost jobs.
The stumbles happen even with supposedly high-end assets. Sometimes spectacularly.
When I worked at the Rocky Mountain News in the early 1990s, we covered Denver’s pursuit of a new, “state of the art” heavy maintenance base for United Airlines. The Mile High City had a massive new airport coming online, a United hub and a simulator facility for training pilots.
But those advantages paled compared with the $320 million in taxpayer money from Indianapolis and Indiana. Indy won the base and 1,200 jobs.
In 2003 United shut it down, a casualty of the airline’s bankruptcy filing after the 9/11 attacks. But it kept the heavy maintenance base open in San Francisco. While the City by the Bay may have had advantages, United might have acted differently had its own money been on the line. Instead, it took the $320 million from Indiana taxpayers and flew.
Such cautionary tales might have affected the bidding for Amazon HQ2. Instead, some 240 localities were prepared to offer billions in incentives for a true prize — an “equal” to what Seattle got for free through organic growth.
Such is the desperation in an America where companies can play off places against each other, and the game is zero-sum.
As for Boeing, it threw its former home state of Washington in the barrel against all comers to build the 787. Gov. Gary Locke steered through an incentive package that was later expanded to win the new 777X. One of the largest such breaks in American history, it eventually totaled nearly $9 billion.
It was certainly a better deal than a data center. But here we are.
Even before the World Trade Organization ruled the incentives were illegal, it was obvious they were akin to paying the mob protection money. Never enough.
The other given among the economic-development elite is that talent and quality will triumph.
Well … not always.
As every Puget Sound schoolchild should know, we offer one of the two leading aerospace clusters in the world (the other being Toulouse, France, the hub of Airbus). We have the tools and we have the talent, to paraphrase from the movie Ghostbusters.
North Charleston started off with just a Vought Aircraft plant making fuselage sections for the 787. This was an outpost of a company better known for military work (e.g. the Navy’s F-8 Crusader), but Vought had been through several corporate ownership changes, which left it weakened in a consolidating industry.
There was no aerospace cluster in the Low Country around North Charleston. Only about 400 employees. But Boeing executives in Chicago saw a chance to stick it to the unions in the Puget Sound region. The second Dreamliner assembly was born. Perhaps not surprisingly, its airliners have been plagued with manufacturing defects.
That was the “thank you” to the unionized machinists and engineers here who saved Chicago’s bacon when the bean-counting regime of Jack Welch protégé Jim McNerney put the 787 behind schedule and plagued it with problems.
Oh, and should we say goodbye to the chestnut of “business friendly”?
No company could have received more cooperation and corporate welfare (incentives) than Boeing did from Washington state and Snohomish County. Boeing’s unions folded to please Chicago. If this isn’t “business friendly,” I don’t know what is.
Unless you want cheap. Like Toulouse, the Puget Sound region provides a relatively high-cost but very high-quality business environment for aerospace. In the anti-union, politically red Southeast, you get what you pay for.
A 2019 report from the Teal Group titled Aerospace Competitive Economics Study found that Washington ranked No. 1. South Carolina ranked 27th, down five spots from the previous year.
Far from trying to “ensure we can be effective in a market that will be smaller in the near-term” because of the pandemic, as Boeing Commercial Airplanes CEO Stan Deal said in justifying the move, this is a reckless decision.
It remains to be seen whether this continues a withdrawal from Washington that began when Boeing moved its headquarters from Seattle to Chicago in 2001. As of Jan. 1, the company had 71,829 employees here, more than any other state, and 6,869 in South Carolina. The Dreamliner consolidation is expected to cost about 1,000 direct jobs here.
But this is not Seattle’s Boeing of old. Like nearly every major corporation, it answers primarily to the short-term appetites of the “shareholder value” fetish. Old Boeing’s primacy of engineering quality and innovation sit in coach class.
As for those economic-development axioms, the verdict is in on tax incentives. They don’t work in the public interest.
Attracting talent and improving quality — via investments in education, infrastructure, environmental protection, tolerance and high quality of life — remain major competitive advantages.
And “business friendly”? It matters — but Lucifer is in the details. Low-tax, “light”-regulation states almost always have second-rate economies, poor schools and rank low on most measures of competitiveness.
On the Dreamliner, Washington and Snohomish County deserve better. But as Clint Eastwood’s character says to Gene Hackman’s sadistic Little Bill in the film Unforgiven, “Deserve’s got nothing to do with it.”
Boeing’s action is unforgiven, too.
This column has been updated to clarify what airplane programs prompted Washington’s incentives.