Crises at Boeing and Intel Are a National Emergency
wsj.com
wsj.com
Let them fail. A hundred competitive companies will rise from the ashes.
Look, I want to agree, but you're casting an awful lot of social disruption into play for probably a decade in a belief we get to a better place when agents of chaos like Musk and Bezos would like to feast on the carcase and grow ownership monopolies in them.
I don't personally think the most likely outcome of "let them fail" is a kinder better world.
And in a different pole, completely discrete and different arms for Europe and Asia. No transfer pricing allowed. No rush of licence cash back to the USA.
Not going to happen, for Google or Microsoft or Amazon. But if I had the judges wig I'd be forcing regional and I'd be forcing structural separation wholesale/retail.
Except it did. The eight RBOCs[0] created from the Bell System breakup have re-consolidated into just three gigantic telecoms[1] which include other, non-RBOC corporations as well.
As such, perhaps there's another example you could use. Standard Oil? But that's seen a lot of re-consolidation over the past 100 years too. So maybe there isn't a good example of a broken up monopoly not re-consolidating?
[0] https://en.wikipedia.org/wiki/Regional_Bell_Operating_Compan...
[1] https://en.wikipedia.org/wiki/Regional_Bell_Operating_Compan...
World wars caused things to fall apart too; didn’t prevent Bell consolidation.
We didn’t prevent religious over consolidation.
What’s going to stop people from undoing the mess now and remaking it
What a coincidence. Seemingly same outcome leaving it alone. But if you want to change the outcome of a system, you have to change something about it. I vote for change.
It will collapse. You only get to influence when it will collapse.
But NO MORE BAILOUTS. Next time the US government needs to save something, they should take over the assets as an eminent domain, wipe out equity holders, and put a 10 year ban on all executives/board of directors who authorized share buybacks.
I just wish things could be different. Boeing was in a place of being one part of a duopoly with Airbus, in a era of increasing commercial air travel. At the same time as slowly renewing focus on military aero that has been recovering after large cuts at the end of the cold war. In an era where space went from a tiny field to having a bunch of commercial applications and interest. All places they could have been leaders! But it's just eroded.
I know much of this is just the past repeating itself but I just wish it were different. It's hard not to think being an engineer back in the day working on the 747 was a better gig then it'll be working on whatever Boeing does next.
1. Isn't that what usually happens with government bailouts? AFAIK the us government got stakes in automakers they bailed out in the GFC.
2. I'm not sure whether punishing the board/executives sets up the right incentive here. They're the ones that will be approving/approaching the government for the bailout. Punishing them for accepting it is a good way to run the company into the ground (no punishment) rather than accepting the bailout (punishment).
In part, yes. But that was a real generational crisis. Today, there is no real financial crisis. Boeing and Intel are failing because of their own choices over the last few decades. In non-financial-crises, execs ask for subsidies and general funding. US Govt should say fuck off to that.
> 2. I'm not sure whether punishing the board/executives sets up the right incentive here. They're the ones that will be approving/approaching the government for the bailout. Punishing them for accepting it is a good way to run the company into the ground (no punishment) rather than accepting the bailout (punishment).
We don't need the right incentive. We want them to not make any more money. We don't need them to approve the bailout because the government can seize it via eminent domain.
"Your company isn't doing too well but it hasn't gone bankrupt yet but we're going to seize it anyways because national security™" seems unlikely to constitutional, especially when you want to wipe out existing equity holders. That's closer to expropriation than eminent domain.
Why would the company seek it when both the shareholders stand to lose everything, and the executives stand to lose everything and then some? It's in their interest to crash it into the ground hoping for a hail mary that would save the company. What this typically manifests as is one day the company announces it ran out of money and is ceasing operations effectively immediately. This is very disruptive to both employees as well as customers/vendors. Letting the executives get off scot free might not seem fair, but it's far better than the alternative.
Bailouts usually are negotiated (partial) seizures that avoid the litigation associated with contested uses of eminent domain; the corporate entity (and thereby its employees and other creditors) is bailed out, the existing equity owners lose out.
Isn't that by design? Ideally, business people will capture the market (usually though innovation and disruption) and then optimize the profits by removing costs as much as they can. In a "perfect world", Boeing wouldn't have any engineers, workers and facilities and they will just sell planes without delivering any.
They will be like licensers, middlemen or even better they build just one very powerful plane and whoever owns it has huge advantage over the rest so Boeing will sell "making sure your enemy doesn't have it" rights and extract the profits using a raspberry pi plugged on the wall at a Starbucks, running a code written by the lowest bidder on Fiverr and keeps selling planes and transferring the money into the shareholders bank accounts at the lowest transfer costs possible through the most tax-optimized scheme.
That's the ideal world Peter Thiel describes and he is right. Of course he shows concern for other stuff but that's because of ideological/personal/religious reasons.
The suggested ideal[0] was:
Boeing wouldn't have any engineers, workers and facilities and they will just
sell planes without delivering any.
One could capture even more profit by selling a product to someone, take their money and then murder them and take the product back (or just take the product back with violence, whether or not death occurs), that maximizes profits even more.
Why don't we do that instead? Because It's wrong? I'd say my example is different from GP's only by degree, but is the same in that they're both criminal offenses (felonies, in fact). Then again, if it "maximizes profit," what's bad with that?
In fact, what's with this whole "criminal law" thing anyway? All this stuff should be handled via arbitration paid for by the seller. What could go wrong?
Jack Welch ironically got it right (eventually):
> On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy...your main constituencies are your employees, your customers and your products.
* https://en.wikipedia.org/wiki/Jack_Welch#Politics
Of course many of the top post-MD-merger executives were from MD and were Welch acolytes.
capitalism.
> what kind of change could incentivize different behavior?
worker ownership.
Sorry if that seems terse but really this is the root of the problem. Shareholder value is the end goal and shareholders are generally seeking immediate short term profits (as there's little cost to liquidating a share position and moving to a more profitable company/asset instead). If you want to eliminate this problem, you need the shareholders to be the workers. They need to control the company in a meaningful way because while shareholders generally only care about profits, your workers are going to care about continued employment and the stable maximization of wages and benefits (which as a long term target is only pursuable via real long term growth).
You get problems though when they leave and a professional manager is hired (the agent) to represent the shareholders (the principle). They'd like them to run the company sensible but there are incentives for the manger to say slash r&d and safety to raise apparent profits in the short term and make their options go up and then move on if it falls apart.
It's an old problem - see https://en.wikipedia.org/wiki/Principal%E2%80%93agent_proble...
I had this concept myself as I've always thought c-suit executives are mostly interested in there own interest and that it's exacerbated by them not staying long term. I don't know the stats, but CEO's used to be there for 10-30 years but now many are there for a very short time like 5 or less. Again, those numbers are pulled out of "you know where" but I have read that its much less than it used to be. Feel free to correct me if I'm wrong. Of course, most of us know that politicians don't really represent the populous anymore. There was a Princeton study on that that gets quoted allot and I've found a copy of it, but it's no longer easy to find. I would be interested in why it's so hard to find. Also, I would be interested if there are more studies like that.
You know damn well that the financial wizard management is the primary implicit endorsement of Wall Street and the WSJ megaphone trumpets, and has for... ever? Minimal engineering knowledge, minimal core product knowledge, establishment of anticompetitive cartel/monopoly conditions, reduction of open competition via mergers and acquisitions. Short term thinking and planning. Regulatory capture.
Oh, but now there's two "emergencies". WAIT WAIT WAIT, are we calling for a BAILOUT? THE GOVERNMENT MUST STEP IN!!!!! I love it. Talking out of their mouth and assholes at the same time. FREE MONEY FOR THE MEGACORPORATIONS!?!?!?
Intel and Boeing are symptoms of a catastrophic disease America has: cartels and monopolies and associated corruption, economic damage, inflation, high prices, regulatory capture/bureaucracy, and more.
Globalization and the associated fragile supply chains is a symptom of these megacorporations. Our economy is not resilient to disruption in an increasingly unstable world, with long term trends like demographic disruption, war, global warming will only make it worse.
Healthy competitive markets also mean resilience in supply chain. They go hand in hand. THAT is the real national emergency.
WE NEED TO BREAK UP THE CARTELS. EVERYWHERE.
I have learned by listening. There are many people on both sides smarter than I am. But if they don't listen and discuss, then they are stuck and won't grow in any way. Usually, there are valid points on both sides but you made none.
It was intended as a rueful "I concede that guy has/had a point, should've listened more and judged less."
I think what you're saying is wise.
And people should be angry at them for failing and causing economic disruption (assuming it would even be as bad as prophets of doom say). Their suffering should be publicly attached to its harbingers — greedy and incompetent executives.
People responsible and accountable for the current situation would face natural consequences of their actions.
But of course, I don’t think it will happen. We bought into the delusion that executives and big business can do no wrong, and that they somehow shouldn’t face the results of their actions. Their employees, stakeholders, and the broader economy just keep being “affected by difficult times”.
But neither these companies would be “difficult times” nor subprime mortgage lenders and CRA’s were “difficult times”. They are and were just groups of greedy executive sociopaths getting a free ride off society, knowing full well the negative externalities of their actions.
We keep letting weeds grow in our proverbial garden unchecked and then say “if we take out the weeds then there will be no more garden”. Well guess how that happened, and guess what’s the only way to get a sustainable garden back. Except with weeds, dealing with them requires action, effort. With large corrupt businesses, we don’t need to do anything — just allow natural consequences.
In most cases I agree, but for extremely CapEx heavy industries, this is a death sentence.
For example, the entire semiconductor industry in Taiwan, South Korea, and Japan would not exist without industrial strategy and capital provided by local and central government.
In fact, unlike in the US and Europe, anti-trust never had significant mindshare in Asian economies, and much of the economy in these countries are largely split among a couple dozen conglomerates or holding companies.
This is the model that China is using, as it was Taiwan, Japan, and South Korea that played the largest role in making China a multi-trillion economy by investing in China decades before the US and the rest of the West began investing in the early 2000s.
A purely profit driven incentive structure is diametrically opposed to commodification (which is the ultimate form of production at scale) because the margins pressures would be too severe.
This is exactly what caused the entire semiconductor fabrication industry to collapse in the US in the 2000s-2010s, while Asian countries continued to spend tens of billions subsidizing a handful of conglomerates that represented these industries.
If they’re so important, then they should be nationalized.
There is a reason why formally socialist China and India are trying to develop private sector players in these fields - a private corporation has the ability to be much more nimble around hiring and capital allocation unlike an SOE.
Also, your argument does not challenge my point how Taiwan, Japan, and South Korea leverage massive conglomerates instead of SOEs or small businesses to cement their lead in the Semiconductor Industry.
Are they? After Chinese private tech companies got too big, they reigned them in and made them closer to the state than ever. I'd love to see actual proof that China is really lessening it's involvement in companies, because I haven't seen such a trend in a significant manner.
> Also, your argument does not challenge my point how Taiwan, Japan, and South Korea leverage massive conglomerates instead of SOEs or small businesses to cement their lead in the Semiconductor Industry.
I happen to be based in Korea and be familiar with the insides of the conglomerates.
None of the conglomerate subsidiaries have a monopoly in any sector or country like, for example, Google does in ads and search, or Intel did in CPUs for a decade or so, with >80% market shares.
Hyundai Auto is kind of getting there domestically, but that's it, and it's the exception plus the domestic market is only a small part of their revenue.
Similarly, the overwhelming majority of the subsidiaries are not "too big to fail". During the IMF crisis in the late 90s and in its aftermath, several conglomerates failed. As a result, to this day, the financials of the subsidiaries are not particularly intertwined with each other. Sure, they sometimes give each other contracts (why wouldn't you), but that's always just a small part. They're run very independently. And it still happens that they "fail", or at least do poorly enough that the conglomerate wants to get rid of them, in which case there's usually a buyer looking to snap it up and turn things around.
What’s the excuse now, I wonder. West is not western enough? America not American enough? Is it that it’s not been made great again yet? No, our economy collapsing is the immigrants fault! Or maybe it’s the far right! It could be anything and anyone, so long as it’s not the unethical capitalism. How dare I even suggest that capitalism can be anything but perfect. Maybe I’m the problem.
This the great American distraction. In reality, it is just a number of self-serving executives grifting society. Parasites so attached to the host that it fears removing them. If we just appease the parasites this one more time, do one more bailout, surely things will only get better, right?
All I'm saying is, if Samsung Electronics (SK), SK Hynix (SK), TSMC (Taiwan), UMC (Taiwan), PSMC (Taiwan), Nikon (Japan), and Canon (Japan) can remain private sector conglomerates that are subsidized by public financing, then why can't Intel, Micron, etc?
To this day, state-owned banks like KDB Bank (SK), EXIM ROC (Taiwan), DBJ (Japan), and JFC (Japan) continue to furnish a significant amount of capital to a handful of private sector players no matter what at 0.8-1% rates when market rate is around 1.5-2%.
Why shouldn't the US also provide similar preferential financing to private sector players?
The main difference is the government steps in to subsidize (or "bail out") private sector enterprises, and continues to provide preferential treatment for large conglomerates at the expense of SMEs.
Industries like semiconductors and aerospace are very low margin, which makes commodified production extremely expensive because you are operating barely above break-even.
Unlike the countries listed above, the US did not provide similar subsidizes in the 1990s-2010s for these industries, which is what lead to the collapse of the semiconductor industry in the US by the 2010s.
I'm only talking about the semiconductor industry, and yes, the China at trying to develop a private sector in the entire Semiconductor supply chain via the Big Fund [0].
While the capital provided is coming from SOEs, the actual ownership and entities are privately owned.
I recommend reading "State Capitalism: How the Return of Statism Is Transforming the World" by Joshua Kurlantzick if you want to dig deeper into this - https://www.cfr.org/sites/default/files/State%20Capitalism%2...
> None of the conglomerate subsidiaries have a monopoly in any sector or country like, for example, Google does in ads and search, or Intel did in CPUs for a decade or so, with >80% market shares
Again, I am specifically talking about the Semiconductor industry.
For processor fabrication, Samsung is the primary (like Intel in the US)
For memory fabrication, SK Hynix is the primary (like Micron in the US)
For packaging/OSAT, Hana Micron is the primary (like Micron in the US).
All these entities have historically gotten land and government loans at very marginal prices [1], and are parts of historically prominent chaebols (eg. Samsung Group, SK Group) and continue to gain subsidizes to this day [2].
The key linchpin for financing in the semiconductor space in South Korea is the Korea Development Bank, who is providing 0.8%-1% loans to "established businesses" in the semiconductor industry.
This is similar to the CHIPS Act, yet last I checked, Samsung Group and SK Group remain private sector conglomerates.
> They're run very independently.
Yet the bulk of financing in the semiconductor industry always came from state-owned KDB Bank and lent to basically 2 conglomerates and their vendors, and land acquisition was simplified by providing access to land and financing at marginal rates in clusters like Gumi and Yongin.
You cannot deny that the bulk of these funds do simply go to a handful of "too big to fail" conglomerates.
This is the exact same model Taiwan and Japan followed, and what China and India are starting to do, and imo, this is the same model we need to follow in the US as well for our semiconductor industry.
[0] - https://www.reuters.com/technology/china-sets-up-475-bln-sta...
[1] - https://archives.kdischool.ac.kr/bitstream/11125/29891/1/The...
[2] - https://www.wsj.com/tech/south-korea-unveils-19-billion-pack...
> I'm only talking about the semiconductor industry, and yes, the China at trying to develop a private sector in the entire Semiconductor supply chain via the Big Fund [0].
Interesting! Even then, I can see that only lasting until they get semi-succesful, just like Tencent et. al.
Your main point seems to boil down to "subsidizing semiconductors makes sense", and I think you're absolutely right there! But I don't see many here argue against that. It doesn't contradict the message of the first comment you replied to: "We should let failing businesses fail. Everyone would have learned their lessons a long time ago and we would have less corporate greed/corpo-political corruption". Both can be true at the same time.
One note though, borrowing from your other reply:
> This "capitalist doctrine" of shareholder return is alive and well in Japan, South Korea, and Taiwan. Take a look at KOPSI or Nikkei sometime.
The KOSPI is generally seen both by domestic as well as international investors as a complete joke, and a big reason behind it is in fact the main argument the parent comment was arguing for; unlike the US, shareholder returns are not put above all else by the conglomerate subsidiaries. Investors don't like this, and so see the market as completely unreliable.