Boeing Heads South For Better Business Climate: Washington State Politicians Are Surprised?

by Amber Gunn

On Wednesday, Boeing announced it would put a second 787 assembly line in Charleston, S.C., rather than Everett, WA.

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Union leaders and politicians like Sen. Patty Murray, D-Wash., expressed shock, dismay and outrage at the company’s decision.

Either they are feigning surprise, or they’ve been comatose for the last decade. Your guess is as good as mine.

For years, politicians and labor leaders in Washington have ignored Boeing’s pleas to stay competitive. In 2002, Boeing CEO Alan Mulally told the State House Labor Committee that “the state of Washington is not competitive. . . . meaning it costs us more to operate [here].” He specifically pointed to Washington’s costly workers’ compensation system, which requires employers to purchase insurance coverage from the state or be on the hook to cover all claims costs themselves, rather than allowing them to choose from among competing private providers. As a result, Washington collects some of the highest premiums from employers and injured worker rates are well above the national average.

Boeing’s decision to place its second 787 line in South Carolina is too complicated, however, to be blamed on any single factor. In 2002, Mulally told lawmakers that Washington would have to become more competitive in taxes, unemployment insurance (UI) and regulations, among other factors, in order to keep the state attractive for Boeing.

Unfortunately, rather than engaging in an honest discussion about reform in these areas, legislators decided on a $3.2 billion “incentive package” that included some UI  and workers’ comp. reforms. Just a few years later, however, the legislature rescinded many of those changes. The Evergreen Freedom Foundation fought a lengthy battle to get the details of the state’s contract with Boeing. Once we finally got them (the unredacted portions), we discovered that Boeing could walk away from the deal at any point without penalties, whereas Washington was on the hook for pricey commitments until Boeing decided to cease building 787s.

This is one of many examples illustrating why one-on-one handouts between governments and businesses are bad for taxpayers, and in the long run, bad for the businesses themselves. Once the luster of the handout runs out, the business will scramble for another, and another, and so on. Better to build a strong business climate across-the-board, which is good for large and small companies alike.

Washington’s competitiveness, from a labor standpoint, is dismal. Other states should take note. South Carolina is a right-to-work state, meaning workers do not have to be members of a union as a condition of employment. Workers at the South Carolina plant where Boeing plans to locate its second 787 line recently voted to remove the union from the plant—an unlikely feat in Washington given our current labor laws and the history of organized labor in this state.

It would be difficult to overstate labor’s role in Boeing’s decision to forego expansion in Washington. In September 2008, we wrote that Boeing machinists would likely get much more than they had bargained for when they went on strike. “Given the machinists’ apparent disregard for economic realities and their totally unsustainable demands on their employer, Boeing would be wise to take its business elsewhere.” And so it is.

The 2008 strike was Boeing’s fourth in just two decades, and, at 57 days, the longest since the 69-day strike in 1995, which “poisoned morale for years.” According to the AP, the 2008 strike cost Boeing $100 million a day in deferred revenue and postponement of the 787. That kind of loss won’t be recouped for years.

Boeing’s final offer to the machinists prior to last year’s strike included a 14 percent monthly pension increase, a 2008 lump-sum bonus worth about $3,900 on average, a generous new incentive-pay plan and other perks. All told, Boeing estimated the package was worth an additional $34,000 in extra compensation to the machinists over three years.  

But it wasn’t enough.

When Boeing made the final decision to expand in South Carolina, the company was sending a loud signal to politicians and labor leaders in Washington that the company had had enough. Boeing’s vice president of human resources and one of the lead negotiators in the talks with the machinists told the Seattle Times that the company was “unwilling to indulge the kind of last-minute brinkmanship that has been typical in all recent contract negotiations with the [machinists].”

Unions and politicians alike would do well to remember that capital is mobile. Companies have a bottom line and they must respect it. Businesses will go where they must to operate more efficiently and increase their profit margins.

Politicians should take note. In the end, Boeing had the last laugh.


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Posted Oct 31st 2009 at 7:35 am in Big Labor, Economics, News, Politics, State Politics | 183 Comments