Its bald-faced, bare-knuckled display of corporate muscle shocked and infuriated many, but ultimately it worked for Boeing Co. With the willing assistance of Washington state political leaders, the highly profitable aerospace giant shamelessly bullied Machinists union members into a corner and twisted their arms into accepting a new contract that ends their traditional defined-benefit pension.
The sad truth is that Boeing’s successful strategy will become a template for other private sector companies offering defined benefit pensions, no matter the size of their profit margins.
It’s not that the members of the International Association of Machinists and Aerospace Workers caved, exactly. The contract was approved by a razor-thin margin – 51 to 49 percent. And it’s not that their contract was about to expire – this is an eight-year extension of a pact that runs to 2016. And it’s not that Boeing – a manufacturing marvel that’s one of the world’s two dominant aerospace companies – is in trouble and needed the workers’ concessions to survive.
Quite the contrary. Boeing’s decision to play hardball comes at a time of unprecedented prosperity for the company. Its 2013 net income is expected to be a record $5 billion. It closed the year with its shares up nearly 81 percent, by far the biggest gainer among the Dow Jones Industrial Index’s top 30 stocks. In December, Boeing raised its dividend on shares by 51 percent – which will put about $2.2 billion into the pockets of its shareholders next year. The company also announced a $10 billion stock buyback, further enriching shareholders.
Boeing’s strategy was to issue the kind of threat that could only be made in the current economy. It was a threat that made Washington state officials tremble and Boeing employees fear for their jobs.
Without concessions from the machinists and tax incentives from the state, Boeing said it would move thousands of jobs out of Washington to a new plant elsewhere to assemble the next generation of passenger jet – the 777X – and to construct an advanced, composite airplane wing.
So state lawmakers approved a stunning $8.7 billion in tax breaks – thought to be the largest corporate incentives package on record – to ensure that 777X production stays in Washington. And at a news conference shortly before the machinists’ vote, a half-dozen elected officials publicly urged the machinists to agree to concessions and sacrifice their DB plan for the “good of the community and our economy.”
The pressure mounted when no less than 22 states jumped at the chance to land the Boeing 777X facility, even though the demands in Boeing’s RFP (which was leaked to the media) were formidable. The company wanted land, building and facilities estimated to cost $10 billion – but it expected that site to be provided at “low or no-cost.” Boeing wanted infrastructure improvements, tax breaks and other incentives as well.
With the U.S. economy still sluggish at best, with unemployment and underemployment still high and with many private sector companies still struggling, who wouldn’t want an extremely profitable manufacturer to bring thousands of well-paying, long-term jobs to their community? What community wouldn’t compete for that opportunity? What community wouldn’t compete to keep that manufacturer from moving?
And what corporation wouldn’t exploit the opportunity to squeeze every last penny it could in tax breaks and other incentives from those suitors?
The fact is that massive corporate tax breaks and lowering the wages and benefits of workers cannot become the cornerstone of our economic development policy. If the purpose of economic development is ultimately to retain existing businesses and attract or build new ones to provide jobs and generate tax revenues, giving away billions in tax breaks, especially to exceptionally profitable enterprises, doesn’t make sense. Lowering worker wages and reducing their benefits would seem antithetical to the goal as well.
It appears that what’s really happening is that Boeing is determined to shortchange the workers who made it successful and exploit taxpayers for favors that will add to its already record profits – while steering the financial fruits to its shareholders and executives.
A few weeks ago, more than 20,000 Boeing machinists could count on a stable retirement. Now they will have to take their chances on a 401(k) plan which puts the responsibility for investment decisions and management on each individual worker – and if their investments don’t prosper, if the economy takes another sudden and unexpected downturn, well, too bad. At least it won’t affect Boeing’s astronomical profits or tax breaks. For them, like for so many other American private sector workers, retirement security is no longer guaranteed. It has become wishful thinking.
As one Boeing machinist told a local newspaper, “If I knew about stocks and bonds, I wouldn’t be a machinist.”
What happened at Boeing is particularly troubling, and not just because more private corporations will be emboldened to strip their employees of their DB plans. Washington state elected officials joined with Boeing to pressure machinists to give up their DB plans. How can those same officials now stand up for public pensions? There are efforts underway in Washington state to convert public pensions to defined contribution plans – and politicians who threw in their lot with Boeing have forfeited the capital to defend public DB plans.
That’s why NcPERS views its mission as promoting retirement security for all. While our primary focus is and must be public sector pension plans, we must also defend defined benefit plans in the private sector. DB plans are the most efficient, most effective and least costly instruments for providing retirement security, and the long-term risks to our economy and our taxpayers of abandoning the DB model in either sector are significant.