Wichita and Boeing

Reminded of this, following this news. From What’s the Matter with Kansas? by Thomas Frank:

Two hundred miles east of Garden City lies Wichita, Kansas, a metropolis of 340,000 that is to civil aviation what Detroit used to be to automobiles. Maps of what is called the Air Capital are crisscrossed with the landing fields of the various manufacturers: Boeing, Cessna, Learjet, and Beechcraft* each build planes there, and McConnell Air Force Base keeps the sky filled at all hours with KC-135s and the occasional B-52. As the aircraft industry’s fortunes have risen and fallen, so have those at Wichita: The city’s population exploded during World War II, as the defense contracts rolled in and the Boeing B-29s roared off for the Pacific. In the fifties and sixties Wichita built B-47s and B-52s; in later years it produced Boeing 737s and contributed elements to the company’s other airliners.

Until quite recently Wichita enjoyed the sort of blue-collar prosperity that is only a dim memory in places like Cleveland and Pittsburgh. Wichita is in trouble today, following the aircraft industry into a sharp nosedive, but in its fundamentals the place is still intact, its factories still open for business. The huge Boeing plant that sprawls for several city blocks is the largest private employer in Kansas. Entire neighborhoods are populated with Boeing workers, union members with excellent benefits and wages good enough to allow them to afford the sort of ranches or split levels that would elsewhere be the prerogative of white-collar types only.

Later:

Corporations are mobile; cities are not. They extract billions from us in bonds, tax abatements, water rights, and outright grants by threatening to pick themselves up and haul their machines and their buildings and their jobs to some sunnier clime. A state like Kansas that is watching its prime industries blow away in the hot summer wind is more vulnerable to this tactic than most. The meatpackers found it a prodigious help in dealing with Garden City. Sprint used it to great effect in Overland Park. Everyone doing business in Kansas City, Missouri, where the state line is never much more than a few blocks away, knows the power of the threat.

The firm with which the state will forever associate this particular species of extortion, though, is Boeing. As the largest employer in Wichita, Boeing has long been able to get that desperate city to a very expensive “yes.” Then, in 2003, the corporation decided to fish in even deeper waters. It began taking applications from states to see which one would get to build its new 7E7 airliner. Ordinarily, of course, businesses are the ones that make bids for government contracts; in this case, though, it was Boeing that was reviewing the bids from governments, an innovation that unleashed a form of civic competition very much like the county-seat wars of the nineteenth century. The prospect of winning the 7E7 work triggered an immediate race to the bottom in Kansas and Washington, the states where the company’s largest manufacturing facilities are located. Soon Michigan, Texas, and California had thrown their wallets into the ring as well. Anyone who wonders how, exactly, the corporate vision gets translated into the nuts and bolts of state law would do well to study the bidding war that followed.

The winning community, Boeing announced, would furnish the company with quality schools, low absentee rates among its labor force, good services, low taxes, cheap land, and “local community and governmental support for manufacturing businesses.” Got it? The competing states certainly did; they responded by generating statements of high romantic love for Boeing and obsequious promises of eternal meekness. People in the Puget Sound area remembered how Boeing had once criticized the state for having high taxes and workers’ comp costs; now they declared themselves ready to change all that, with attractive tax incentives and a promise to make the state’s troublesome environmental bureau into a “more business-friendly” outfit.

Plainspoken Kansas tried to compete in its direct, red-state way by heaping money at Boeing’s feet. In April 2003, the company informed the state that it would need to cough up $500 million in order to stay in the running for the 7E7. The state legislature, meanwhile, was dealing with damnably difficult budget shortfall, fighting over teachers’ salaries and the penny-ante usual, but the assembled pols immediately dropped their cudgels and complied with Boeing’s wishes. They voted a bond issue of the requested face value and added a special incentive, the sort of business-friendly innovation that Kansas wants to be known for: although Boeing would eventually have to reimburse the state for the principal, all interest on these bonds would come out of the state taxes of people working on the 7E7 project. These workers would not necessarily be new hires, remember, just existing Boeing employees who had been given a new task. The main change would be that their state taxes no longer went to into the general revenue but into a special fund to pay back the debts of their employer.

Quite a deal for Boeing shareholders, and quite a curious move for a state government facing the worst budget shortfall in its history. But can we blame Kansas, or any state, for reacting as it did? Every free-trade agreement we have signed in recent years has been designed to make cities vulnerable in precisely this way.

Boeing eventually decided to produce the 7E7 in pretty much the same manner as it produces its other jetliners: part of the work will be done in Wichita, and the final assembly will be done in the Puget Sound region. The bonds and tax breaks voted by the people of Kansas and Washington changed nothing but the company’s bottom line. Still, Kansas leaders were proud of the “signal” they had sent. Everyone in the corporate-relocation community was “familiar with the Boeing legislation,” boasted the state’s lieutenant governor. “They know [Kansas is] pro-business and pro-jobs.” A little more than a month later, however, Kansas would learn the true measure of the corporate world’s respect, and the lesson would make the state’s blood freeze: According to a memo leaked to a Seattle newspaper, Boeing was considering selling the huge plant on which Wichita’s prosperity depended. A decade’s worth of legislative favors and florid pro-business declarations, it now appeared, were like so many valentines to a blackguard. Profit alone swlled Boeing’s cold heart, and its fancy was now fixed on outsourcing. All that was left for Kansas to do was swoon in self-pity.

* Cessna is now owned by Textron, Learjet is owned by Bombardier, and Beechcraft is now known as Raytheon.

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