9/27/2005

Outsourcing Our Safety

Amid the horrific images that flashed across our TV screens during the past month, there was one last week that stood out because it was so unexpectedly reassuring: that of a supremely competent pilot steering a JetBlue airliner with jammed front wheels to a safe landing at Los Angeles International Airport.

Since last week's landing, though, we've learned a couple of other things that aren't quite so comforting -- for instance, that this was at least the seventh time that the front wheels on an Airbus A-320 have gotten locked in the wrong position.

More surprising still was the news about JetBlue's long-term maintenance of its aircraft. When the planes are inspected for damage and then reassembled, the work takes place either in Canada or El Salvador.

El Salvador?

When JetBlue first took to the air in 2000, rather than hire its own long-term maintenance department, the company subcontracted that work to Air Canada and the Central America-based TACA. It's certainly cheaper: According to a Wall Street Journal story last January, the Salvadoran mechanics make $300 to $1,000 a month -- far less than their U.S.-based counterparts. Roughly one-third of the Salvadoran mechanics have passed the exam that qualifies them for the Federal Aviation Administration's license, while in the United States, such licenses are required for all mechanics employed directly by the airlines.

But such licensed, in-house mechanics are increasingly the exception at U.S. airlines. About half of the long-term maintenance on the planes of U.S. carriers is outsourced, and much of that work takes place overseas, where FAA inspections are a sometime thing. Indeed, the point of this story isn't that JetBlue's decisions are in any way exceptional. To the contrary, by going abroad for work that would previously have been performed at home (and except for maintenance, JetBlue doesn't fly outside the United States), and by prioritizing costs over more closely inspected maintenance, the airline is an exemplar of 21st-century capitalism.

No, the point of this story is that 21st-century capitalism has plunged us into a world of great and avoidable risk. For anyone who wants a clear understanding of this brave new world economy, check out "End of the Line: The Rise and Coming Fall of the Global Corporation," a new book by Barry C. Lynn, a fellow at the New America Foundation and the former editor of Global Business magazine. Lynn's work provides a painstakingly reported, utterly unpuffy look at the modern, outsourcing global corporation and the world it is creating in its own image. Think of it as Tom Friedman for grown-ups.

As Lynn sees it, our age is defined by two epochal decompositions -- that of the nation that sought to steer its own economic policy, and that of the vertically integrated corporation in which shareholders, managers, workers and the community all had a stake and from which they all benefited. "Even as we were busting open the borders of the nation, we were also busting open the borders of the traditional firm," Lynn writes. "The two great economic planning entities of the twentieth century were chased from the stage at almost the exact same moment. So far no one has taken their place."

Lynn pays particularly close attention to such economic wonders as Dell, Cisco, Wal-Mart and General Electric. What he finds are corporations that have outsourced their manufacturing, their back-office work, their research and development, even much of their logistical coordination. Profits accrue less from innovation than from squeezing costs; the number of employees who benefit from the core corporation's increased revenue is greatly reduced; and the vulnerability of these corporations' supply chains to upheavals in distant lands is greatly increased.

There are multiple culprits in this tale, but the primary one is the rise of unchecked shareholder power over the new-model corporation. Today's corporate leader is expected to dismantle and disaggregate his corporation whenever there's a buck in it for his shareholders. The chief executive, writes Lynn, is no longer "the company's man in the boardroom [but has become] the investors' man in the company."..

This shift in corporate control goes a long way toward explaining the anomalies of the current recovery -- the first in post-World War II America in which profits have soared but wages have flat-lined, median family incomes have actually declined and few new jobs have been created. What CEO, answerable to his shareholders and fearful of competitors answerable to theirs, would dare give his employees a raise? What would have happened to JetBlue's stock if its executives had decided to employ their mechanics in-house and in the United States?

Outsourcing Our Safety

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