"the lengths to which they went to ensure all prior institutional knowledge regarding how to properly build a plane was systematically destroyed."
why do this intentionally?
why do this intentionally?
Fire all the longest-tenured, highest-salaried employees. Now you have a company that appears to look similar but with millions of dollars fewer per year in headcount expenses.
Boeing's stock price went up 10x in the time frame covered by the article. The people responsible for gutting the company have cashed out.
Why does the stock market reward idiot shit like this?
I've seen the same whit a a large US semiconductor company. In the 2008 crunch, the fired the most tenured employees and offshored the work abroad. Granted, the company didn't fail, their stock went up and now it's 5-7x that amount.
Well at a first order, the answer is that the stock market as a system for promoting value creation is an imperfect approximation of an ideal value creator, and more and more we are beginning to see the myriad of ways this concept produces antisocial results. (See for example the state of hospitals and schools, and the rising rate of individuals with crippling medical and college debt.)
More directly there has been some criticism of the stock market for rewarding short term gain over long term value, which among other things has led to the creation of the Long Term Stock Exchange:
https://www.shareable.net/public-housing-works-lessons-from-...
>Fixing housing could be cheaper than them using the ER or paying for their prison space, and it would also make the streets of San Francisco smell a LOOOT better (and BART)
It's extremely unfair to blame "market based solutions" for failing to fix SF housing problems when it's pretty clear the largest hurdle is NIMBYism politically blocking new housing developments.
For example here: https://www.sfchronicle.com/sf/article/s-f-housing-clash-yim...
The locals won't even LET other people build new housing. They definitely aren't going to start footing the bill and building the housing themselves
What happened to all the public toilets in US/UK? I remember there being many more, am I hallucinating this?
Many 2nd world countries still have them, for good reason!
See, while India is building public toilets and becoming more civilised, we, with this attitude, are moving in the opposite direction.
If we can manage to maintain a toilet in Russia and India, 1st world countries somehow cannot - that’s just a statement of social distinction.
> use them for shelters, or drug ingestion stations
I mean yes, dealing with that is the basic responsibility of running a toilet
Singapore on the other hand was close to 100%.
And we have human rights, and so does India
Why do you need to come up with wild excuses?
western-est west has decided they can’t be bothered to deal with some issues, like hygene, or, in case of UK, human waste in rivers
Vienna's approach worked because it happened after WW2 when the country was bombed and broken, land, construction materials and labor were dirt cheap, so the state built over half the city's homes and turned them into public housing cheaply no problem.
But fast forward to today where most of the land and buildings in a city are privately owned, how to you expect a city, any city, to buy up over half the buildings in the city at today's market and turn them into public housing?
The city would probably have to go broke or into huge amounts of debt and everyone would be screaming communism.
Even in the rest of Austria, this approach today would not be feasible due to how insane the cost of urban housing ahs reached no city could afford to buy up over half of it.
The monetary appreciation of housing prices and and turning it into an speculative asset is the west's biggest policy failure. You'd have to undo this first before you can think of implementing Vienna's policies.
It didn't though, they already started in the 1920ies! The most famous builing, Karl-Marx-Hof, started construction in 1927.
And they are building new public housing to this day, making use of inner city land that comes available from old factories, storage facilities, rail yards or alongside private construction projects etc. Other austrian cities do this too.
Agreed on the policy failure though.
Sure, a bit yes, but the bulk was acquired/made back when property was dirt cheap, not at today's prices. Vienna couldn't replicate the same move from scratch today.
You cannot start to do today in any city what Vienna started 100 years ago. It's too late now. The fiscal policies of the last decades have made that unfeasible.
>Other austrian cities do this too.
Not even remotely as much as Viena. Graz has next to no public housing, it's mostly private.
I’m also saying that it could be worth considerable effort to try to make those changes, because the reward is a much better system.
For example we might introduce bills now that help stabilize (reduce) housing prices by limiting large scale corporate speculation on housing, such as these two bills [below] introduced into congress. With cheaper housing available, the need for social housing goes down and so does the cost to build it, dramatically lowering the total cost to implement.
https://projects.propublica.org/represent/bills/117/hr9246
https://projects.propublica.org/represent/bills/117/s5151
> everyone would be screaming communism
Yes and part of what I’m saying is that we might want to stop doing that and think about what is actually going to fix our problems, even if gasp the government is involved. Nobody can afford housing and our planes are falling out of the sky and we’re having a cold-war political debate while every other major country offers cheaper medical care and education.
yet
> See for example the state of hospitals and schools, and the rising rate of individuals with crippling medical and college debt.
Ummmm. State hospitals and schools are not traded on our stock exchanges. If there's a failure here, it's not with equities markets.
There's an obvious common denominator between the examples you give, and that these are the most highly-regulated industries in America. My first guess as to where to lay blame would be on those regulations - although we'd really need to dig into whatever the specific failures you're thinking of, if we want to be sure.
> My first guess as to where to lay blame would be on those regulations
Considering medical and educational costs (total system costs including government expense) are much higher here than they are for example in Germany which has State run institutions for both, I would see this as a poor assumption.
However I’m not actually advocating for State-run institutions, as I would rather see locally owned cooperatives for housing and schools, and larger federations of cooperatives for medical research. My point is that short term market-based winner-take-all approaches are hurting us.
I should add that the broad topic of discussion here is Boeing, which degraded in critical safety metrics after moving to a relaxed regulation environment and focusing on market based short term optimization.
Yes I forgot every aspect of state run hospitals are the same…
But except wait.. almost every aspect of what makes that hospital is on the stock market.
It is a very old story. People build a company with deep knowledge and caring about what actually makes great products. Financial managers get involved to manage the money aspects of the business. Financial types want a lot more control to make the company more profitable.
The financial management has no actual clue what makes the company valuable. They only know what makes more or less cash flow in this or that direction. But, credit where due, they DO know how to make that work.
They start financially 'engineering' the company for near-term profits and higher stock prices. This works. This works fantastically well. Everything looks leaner, teams of younger workers are sometimes orders of magnitude cheaper than the highly experienced teams, and no one can tell the difference from outside. Profits are higher, stock prices hit record high after record high. Cash is spent on stock buybacks and not R&D or retaining institutional knowledge. Warning flags start showing up in product and service quality indicators, but are ignored and even suppressed. The problems start multiplying at increasing rates, then exponentially increasing rates.
Eventually, it starts to get serious. But by then, the "financial geniuses" have long since cashed out and the core of the company's workforce, ethos, and institutional knowledge has been so gutted that there is no recovery. The death spiral starts in earnest.
The only questions are whether for Boeing, being a critical keystone in the US aerospace and defense industry can or will be allowed to fail, and, if not, if there will be an actual engineering-based turnaround, or if it will be a Soviet-like zombie company for how many years?
Forkin' MBAs, they'll kill it every time.
Boeing is one of two manufacturers for planes of this size. The other is totally backlogged with orders. The stock market has assessed, correctly, that Boeing can withstand this loss of knowledge and keep generating profit. Does it result in shit equipment that literally kills people? Sure. But how many people are going to stop flying because of it? Not many. Throw in the lucrative military connections and you’ve got yourself a sure bet.
As a counterpoint, I work at very large financial firm in technology and in general, the 20+ year veterans who’ve been here forever are terrible. They are hidebound in their actions, years behind in industry best practices and they maintain little fiefdoms simply because of their intimate knowledge of the banks arcane and idiosyncratic policies. The place would be better of without the bulk of them.
That is to say we are the complete opposite of what Boeing was. But the most charitable interpretation you could offer the Boeing management is that they thought they were in the situation of my company rather than the situation they actually had.
I don't know whether the point where the market for Boeing aircraft travel is one disaster away or ten disasters away, but it is out there. When it comes, people won't stop flying, but they will fly less, and it will cost more. It can happen.
Most people dont have the faintest idea of who makes planes, and what plane models exist or how save they are.
And there isn't any system to activly avoid certain planes even if you wanted too.
Sure at some point with enough failures this can happen. But this is unlikely. Most Boeing plans are already built and are already flying and they are mostly very safe. They are flight proven.
Boeing wont interduce a truely new model for the next 10 years.
And after that, such a plane would need to comply to very strict regulation and it would take a long time for that plane to be built in large numbers.
So practically speaking the scenrio you suggest is impossible.
If a half-dozen (or whatever the magic number ends up being to set the zeigeist on fire) of Boeing aircraft suffer fatal or near-fatal accidents in the near future, everyone will suddenly know who makes which planes, and there will be systems to make sure you don't fly Boeing.
And while I think such a scenario is unlikely, it's hardly impossible. The real driver would be a combination of years of Boeing's own neglect coming together with margin-cutting airlines (you'd think they be extra safety conscious now, but any large organization is its own worst enemy), and any other of dozens of factors that could add up to push aircraft travel in an unsafe direction.
Or to put it another way, my intuition is that air travel (particularly in the US) has been very safe for a very long time, because it has operated with a very large safety margin. There are any number of perverse incentives to cut that safety margin, and it is largely possible to get away with cutting corners because of how deep the margin is. But if you keep cutting, eventually you run out of margin - and the sorts of people who do that sort of cutting can easily have have no idea how much margin there really is, or how much is actually needed to keep operating safely. So eventually things get to the point where you're not operating safely anymore, and then you can get multiple bad outcomes in a short period of time.
Witch is why I said 'practically'.
> So eventually things get to the point where you're not operating safely anymore, and then you can get multiple bad outcomes in a short period of time.
Assuming no margin is ever added.
Goodhart’s law, unfortunately. Whatever metric the stock market rewards gets gamed like there is no tomorrow (or next quarter, here.)
In both cases of the stock market and a popular search engine, I don't really know if there is a solution that prevents people from trying to game it.
This implies that Google is helpless to do more, which I kind of doubt. I think the misaligned incentive here is that it's unprofitable to do more to fight spam. They already have the vast majority of the market, making search 40% better isn't going to get them 40% more money.
I think it's just a calculated decision to keep search "good enough" to not lose too much market share, while not having to spend too much on engineer salaries.
I also kind of suspect the markets left to try to capture are either less profitable or more difficult to serve (specializing in niche content).
There's ___just___ enough laws around it to keep people somewhat okay with it.
Markets are the best way we’ve come up with to allocate capital. Committees and commissars do not do a better job.
Then why is internal governance and resource allocation inside companies done by committees and commissars and dictators, instead of by an unplanned free market?
Properly regulated, competitive markets. Aerospace regulation is based on a lot of trust, which Boeing seems to have exploited, causing this problem. The market is not competitive; there are only two players and the output of only one of them cannot meet demand.
> Committees and commissars do not do a better job.
Dichotomies are good for making punctual arguments online, but you do yourself a huge disservice by using them to frame the options in your own mind. Do you honestly think that the options are 1. Antisocial free market allowed to do whatever it wants for capital gain, or 2. Despotic communism? You are smarter than that.
I do favor markets in general and I understand their limitations.
And with respect to allocating capital, stock markets have proven to be better than the varying degrees of state economies.
> You are smarter than that.
True. :-)
Because Boeing is in an absolutely unique position where they are part of a duopoly in a market where demand for airplanes massively outstrips supply. Boeing's customers have no alternative and Boeing will be selling them planes and the market knows that.
Additionally the stock market can only look a tangible results. There is no measure of "engineering competency" which you could track year over year, which makes these mistakes hard to realize unless you are inside the system.
Wall St geniuses are not engineers.
That said, I bought Boeing stock and held over that time frame. I did so because I could see that humans were going to need more planes over the long term, and there are only two vendors. Also I visited the Everett plant with my family on vacation. It didn't occur to me that it would be worthwhile introducing KPI BS and McDonald's management style when constructing things worth 100 million and safety-critical.
Additionally, not all investors are savvy on what's going on with companies, so they decide to invest in ETFs (which mind you, is now the lion's share of investment activity). Now not all ETFs are the same basket of stocks. Some may have 15 stocks, whereas others may consist of 50. This is done so people can "choose their risk tolerance", which is calculated based on various things such as how diversified the fund is (50 stocks is more diversified than 15), what the market caps of the companies are, etc. Anyhow, the point is, choosing to invest in said investment vehicles, has little to do with investing based upon fundamentals, or rewarding productive companies, and more to do with managing a person's personal investment risk. The result? Companies are detached from fundamentals because, quite literally, the majority of investors are not investing based on fundamentals, but based on risk.
I don’t think the market rewards it, at least not by itself.
The problem is that the real money isn’t in the market, the institutional investors make most of their money on commissions. So while short term gains are a nice bonus, it’s only secondary to driving volatility and with it trade volume. So the incentive is to just stir shit up, because that’s what makes them money, both as stock prices go up and down.
Also institutional investors have disproportionate voting power that lets them put their own shit stirrers on the board and subsequently in the C-suite.
They're exploiting the uninformed, which in this case are retail investors.
Because Boeing boosted revenue from $60 to 101 billion during the time frame. And had just a single competitor.
The current stock price is less than half of its 2019 peak.
Because as someone buying stock, I have no idea whether these kinds of things are right and necessary to reduce bloat and redundancies in the firm, or idiotic and self-destructive.
All I know is that I probably want to be buying stock in firms that are more profitable, as opposed to less profitable. Or, at least, firms that other people think are going to be more profitable.
I get that statistically DIY'ing your portfolio will almost always lead to worse returns but I really do wish I could exclude certain stocks from my index funds.
2) You can effectively remove certain companies from an index using derivatives in addition to the index fund. Alternatively, look into direct indexing, where you attempt to track an index by directly owning an appropriately weighted basket of stocks, though it tends to be more complicated, have greater tracking errors, and have higher fees.
Oh this is exactly what I was trying to claim. I don't have any source for it though, just general distrust of our financial system and awareness that there's many incredibly smart people trying to find every loop hole and turn every random fluctuation to their advantage.
Thanks for the info on how to effectively remove certain companies from an index though, I'll put that to use
I don't know how much they saved by forcing out highly-paid employees, but it was a tiny amount compared to the 40 billion in additional revenue earned between 2008 and 2018 (60 to 101 billion). The stock market rewarded the company primarily because of the revenue gains.
That's much better than basically destroying your own company because you don't know how to progress forward and upward. This privilege is reserved for the few who can I guess.
Who are these folks that deserve to be outted for gutting an American institution? I'm sure they're still around, practicing their strain of vulture capitalism.
UPDATE:
Looks like the article points out the following main culprits: * Jim McNerney * Dave Calhoun
Making it illegal to be a bad CEO is one of those things that sounds intriguing on paper, but would be a nightmare to implement in real life.
Prosecutor: "You inflated investor returns by sabotaging the future survival of the company and made shoddy products that killed people."
Former CEO: "So what?"
The worst part is that this is a real problem. So many formerly strong companies have been brought down by this behavior that it is becoming notable when it doesn't happen. We are allowing these guys to destroy the American economy slowly just because it makes them and their close buddies ridiculous money. And of course the government is largely captured by these same people, so Washington isn't going to help. Just so frustrating.
1. Founder led companies have higher returns. And it's by A LOT. Hard to quantify exactly but, I've seen quoted numbers as high as 20% outperformance for founder led companies.
2. The biggest corporations never remain the biggest. Where is the Dutch East India company today? More recent examples: IBM was overtaken by Nippon Telephone, was overtaken by Exxon Mobil, was overtaken by GE, was overtaken by Microsoft etc.
3. It's not very common that a company stays in the S&P 500 for more than 30 years. The average lifespan is 21 years.
The common thread is that as soon as the sociopath MBA's take over, they Boeing the whole business.
And where is GE these days? They even sold off their consumer appliance division to the Chinese company Haier. They still make jet engines and some other big industrial stuff, but they're not as huge as they used to be.
If a car manufacturer pulled something like this they either have to fix it really fast or have to face severe financial consequences.
You have to realize that Boeing's customers have no alternative. They will be buying planes from Boeing.
Boeing at this point is a sort of nationalized industry.
> Boeing had come under the spell of a seductive new theory of “knowledge” that essentially reduced the whole concept to a combination of intellectual property, trade secrets, and data, discarding “thought” and “understanding” and “complex reasoning” possessed by a skilled and experienced workforce as essentially not worth the increased health care costs.
1) Company starts to notice a lot of quality problems.
2) Company institutes a good QA program.
3) Company notices less quality problems.
4) Company cuts QA program because there seems to be less need for it.
Wash. Rinse. Repeat.
(The same can be said for safety when dealing with low probability events).
It is raining.
I use an Umbrella.
Still raining, but I am no longer getting wet.
I must not need the umbrella.
Close the Umbrella
Get wet again.
Also, in my experience, "tribal knowledge" is an essential ingredient in classical Maximum Quality engineering. I'm not saying that it's the only way, but I have seen many, many other ways fail.
It's something that -no exaggeration- humans have been doing for thousands of years.
It's just that we have a crew at the top that sincerely believe they know better. Every now and then, one hits it out of the park.
The rest ... not so much.
"A new car built by my company leaves somewhere traveling at 60 mph. The rear differential locks up. The car crashes and burns with everyone trapped inside. Now, should we initiate a recall? Take the number of vehicles in the field, A, multiply by the probable rate of failure, B, multiply by the average out-of-court settlement, C. A times B times C equals X. If X is less than the cost of a recall, we don't do one."
None of the executives responsible for this have paid any price. None of the investors or board members who allowed this paid any price.
And the worst part: it's not clear you can fix it, now. Even if you completely busted out every executive and wiped out the investors, there is no path forward since those executives pushed out all the engineering knowledge.
Not just senior = higher pay. Senior = more likely to stick to existing (known good) safety/QC processes. Boeing didn't want QC at all - they wanted the guys assembling the planes to do their own QC (which is likely illegal per FAA regulations).
Toss in a side of union busting. And a dessert serving of outsourcing to the lowest bidder, regardless of that bidders history in the space.
its many factors, effecting all aspects of our lives now honestly.
- young people's disregard for the knowledge of people older than them. This can be an essay in itself, but there's the idea that the reasons why people are doing things the way they are is because they are stupid, something like: "you are young and you knows how to do everything right if only these dumb old people would get out of my way." I had a friend do a start up to make bourbon in 3 months. He thought all those alcohol producers that take 5-30 years making them were doing it wrong. I am like, definitely give it a go but understand that "I am sure they thought about this'.
- management focuses on nonsensical metrics. In recent history, you have to be data driven, focus on metrics, ignore everything else, its the new religion. An example is how technical support teams focus on having 0 tickets open, so support engineers just close tickets even if the customer isn't helped. but hey, that red line is pointing down and to the left right? win! And as with boeing, they made their metrics look really good, look, no more defects! all you have to do is stop reporting them.
- companies willing to outsource critical components of their business. I never understood this one, I don't care how 'cheap' it is, you don't outsource critical parts of your business. at best, they don't have the same stakes as you do on the matter, at worst they steal your IP and/or become your competitors.
I realize this is focusing on the example, but no, established bourbon distillers aren't going to stop barrel aging. It's part of the brand, it's part of what people pay for, and they have no reason to.
Your friend might have been overconfident, I don't know, but macerating oak chips at high temperature, getting the process right, adding flavorants: if he succeeds in making a high-quality product, great! Am I skeptical? Yes. But again, the established distillers didn't consider and reject the idea of making liquor this way because it's a bad idea, they wouldn't do it because that's not bourbon.
If he's successful, they still won't do it, because it's not bourbon. He can sell to people who don't care, though. If it's good, I'd get a bottle.
It should be certainly possible (I'm not sure how) to replicate this process in a speedier way.
However, I think the thing being missed by the start-up guy is that, like Louis Vitton crap and genuine De Beers diamonds, most people aren't looking for something that replicates the "genuine" product, they want "the real thing" because there's some kind of emotional factor in owning some massively overpriced shirt made by sweatshop workers and sold in a fancy store by appointment, or a rock that was really dug out of the ground by an enslaved child in Africa. I suspect barrel-aged bourbon is similar.
More -> intentionally cut cost by eliminating experienced people.
Not -> intentionally getting rid of knowledge. even the worst managers wouldn't admit to wanting to loose knowledge.
Myopia + greed is a hell of a drug.
That's not always bad, sometimes employees drag their feet when they shouldn't. But in some situations (for instance, one arm of the company gaining the upper hand), the people in power are so convinced that their own perspective and goals are right, that they think they don't need to listen or understand the big picture.
Ad to this that sometimes an exec has sociopathic tendencies, and you have an explosive cocktail of harassment and destruction of valuable knowledge. The more resilient the company, the more entrenched this behaviour can get, and the more irreversible it will become.