2011 January 02 Sunday
Boeing Depleting Intellectual Capital With Suppliers?

Michael Mandel, concerned about knowledge capital depreciation due to transfers to developing countries, points to a December 2009 Harvard Business Review blog post by Dick Nolan about how Boeing has transferred key airplane design knowledge to potential future competitors.

To finance the development of the 787 and secure global orders, Boeing agreed not only to outsource an unprecedented amount of the plane’s parts to partners in Europe, Japan, and China, but also to transfer to them unprecedented know-how. Before the 787, Boeing had retained almost total control of airplane design and provided suppliers precise engineering drawings for building parts (called “build to print”). The only exception was jet engines, which have long been designed and manufactured by suppliers such as GE, Rolls-Royce, and Pratt & Whitney.

The 787 program departed from this practice. Boeing effectively gave Tier 1 suppliers a large part of its proprietary manual, “How to Build a Commercial Airplane,” a book that its aeronautical engineers have been writing over the last 50 years or so. Instead of “build to print,” Boeing provided suppliers with performance specifications for parts and components and collaboratively worked with them in the design and manufacturing of major components such as the wing, fuselage section, and wing box

Airbus caved in to Chinese government mercantilism even more than Boeing.

Both Boeing and Airbus continue to share know-how for building advanced airplane parts with Chinese suppliers. And while Boeing has resisted transferring the system-integration knowledge needed to perform final assembly to the Chinese, Airbus has caved: It recently completed a jointly owned final assembly plant in China.

So the Chinese will become low cost builders of commercial aircraft. One of the few areas where the United States runs a big trade surplus will end up going the same route as so much of American industry. Sigh.

Mandel sees more rapid knowledge spread as slowing Western economic growth. Retired Intel CEO Andy Grove says manufacturning outsourcing is costing us a long term competitive advantage. The scale of the technological challenge posed by the Chinese has not sunk thru to US policymakers or the US public. We need to raise our game.

Aircraft are the single biggest category of US exports accounting for about $75 billion in exports in 2009. Given that the United States runs a very big deficit the US needs continued success in aerospace exports. The Wikileaks of US diplomatic cables show the US State Department is heavily involved in negotiating aircraft sales to assorted nations around the world.

Share |      By Randall Parker at 2011 January 02 09:42 PM  Economics Globalization

Sgt. Joe Friday said at January 3, 2011 7:49 AM:

I don't know about anyone else, but I sure as hell wouldn't fly on a jetliner made by the Chinese, even if it got FAA certification as airworthy. That said, I can very easily envision a situation where the Chinese government, holding so much of our debt, would pressure the US government to issue said certification and our government would quietly go about making sure it happened, the calculation being that a few plane crashes (and a few thousand lives lost) are just part of the cost of doing business. Much more important that we not give offense to our "banker."

jerry said at January 3, 2011 10:51 AM:

The Chinese leadership does things for the Chinese people, culture and nation. Our leadership is a deracinated group who consider themselves to be citizens of the world who gag at the idea of preserving our culture, people, and nation. It isn't hard to see who'll win this contest in the long run. If you need a hint, look at Detroit or East L.A.

no i don't said at January 3, 2011 5:48 PM:

Chinese are already copying Russian war planes so well, they won't need to buy from them or anybody; real soon.

Can you believe that some are predicting that China will be growing at 20% by the end of 2011?

Captain Jack Aubrey said at January 4, 2011 9:54 AM:

Short-term thinking. Too many corporate execs and their advisors are paid based on the results of this quarter and no farther. Politicians are no different. George W. Bush was willing to keep feeding the economic bubble with cheap money and cheap labor in order to keep that bubble from bursting on his watch, and Obama is willing to waste trillions to boost economic growth by mere fractions of a percent.

Why wouldn't Boeing's management think short term? Their pay is all primarily stock options and salary. Rapid rises in stock price are more important to them than long-term growth.

Based on my count, Boeing CEO James McNerney has worked for at least 6 companies since graduating from college. His last job prior to Boeing was as CEO at 3M, which he held for all of 4 years. He's been with Beoing since 2005. How long, you think, before he leaves Boeing for someone else?

Of course we'll never get real executive compensation reform because corporate execs give far too high a share of political contributions, but if there's one element of reform I'd suggest it'd be requiring that a large fraction of any executive pay be in the form of stock, and requiring them to hold on to that stock for a very long time. Congress has made damn sure that I can't cash out on my 401(k) early without paying a huge tax penalty, so I don't see why they couldn't do the same thing for corporate execs, too.

I suspect we'll never get real reform anyway, because giant multinationals have simply become too big to be controlled by their individual shareholders, even the institutional ones.

Steve Sailer said at January 4, 2011 8:07 PM:

Michael Crichton's 1996 thriller novel "Airframe" is a good fast read on exactly this subject.

Rohan Swee said at January 5, 2011 9:01 AM:

The scale of the technological challenge posed by the Chinese has not sunk thru to US policymakers or the US public. We need to raise our game.

To raise "our" game, there has to be an "our". The "U.S. public" and "U.S. policymakers" don't belong to the same "our"; the latter belong to the same "our" as MNCs like Boeing (which has been trying to shake itself loose from any obligations it might have as an "American" entity for a long time now).

I see no evidence that the "U.S. policymakers" who have overseen the nation-wrecking policies of recent times have done so because they're innocent dimwits who didn't understand the consequences of their actions. Occam's razor suggests that they just don't give a crap about this nation and are rationally pursuing their own self-interest. I also take Grove and his like with large helpings of salt when they show up fretting about American competitiveness and loss of technical pre-eminence. It's hard not to conclude that they do this to keep the rubes deluded that their companies are "American", which is very useful come FTA, bailout, and subsidy time (or if the Chinese really start screwing with them, in which case they'll play jingo to get the stupid American rubes to protect their assets).

While it might be satisfying to imagine these guys getting played by the Chinese (or whomever) in the end, the fact is they're not the ones who are going to get burned. The fate of America is pretty much irrelevant to their lives and personal comfort. The only bright spot here is that maybe, just maybe, all the kool-aid drinking idiots I've run into over the years, who brandish aerospace technology, and Boeing in particular, as examples of unassailable American high-tech "comparative advantage", will finally, finally start to get a f*^&%$# clue.

NotProgressive said at January 5, 2011 9:34 PM:

The founding fathers saw much, but they didn't see it all. Political, Judicial, and Religious tyranny are all blocked in our political system. But, the MONEY POWER, was given away at the founding or our country. We've been in battle with it ever since. So, tyranny has found a back door. Ultimately, if we don't control our money system, then those who control the money control everything. It is easy to see the effects: Wall Street funds the entire transfer of industries because "overseas" has overhanging labor. WS uses our money to fund the transfer of "knowledge capital" while making short term gains on their balance sheets. Senators and other Politicians all have their price and they can be corrupted; and ultimately they are corrupted the longer they hang around in Washington.

It should be easy to fix. Admit that money power does not belong in private hands, and that it belongs to the people. New money creation must be tightly controlled by the Law. That would take care of a host of ills within our society. Why do we give unelected people the power to coin money of the realm, when they will just use the power to benefit themselves? We need a fourth branch of government, the fourth MONEY POWER shield against tyranny that the founders missed.

With regards to Mercantilism and other manipulations in international trade, Keynes had the answer: Bancors. Bank Clearing houses would punish Countries that have trade surpluses. International trade would have a mechansim that automatically forced trade to balance.

It has only been since the mid 90's when China was fully admitted to the world trading system. So much change in just a few years should tell anyone that we have a systemic problem, and isn't just with our political, religious, or judicial spheres.

Reader said at February 26, 2011 7:35 AM:

I am tired of all the economic negative news. I think the reason the economy sounds bad has less to do with an actual recession than media sensationalism and doomsday pessimism. Everyone was in a panic in 2008 because the price of oil was rising, but the sky did not fall. I don’t think the media should lie about a high unemployment rate, but I would like to hear more positive news stories.


I did some research and found that there is plenty of good news out there:

The recession officially ended in June 2009:


The stock market has risen 53% recently and is still cheap:


Wells Fargo, Apple, Ford, SkyWest, Adidas, Men’s Wearhouse, Kroger’s, General Mills, AutoZone, CarMax, Walgreen, Dell, and Disney are some of the many companies to have declared profits recently:














US housing starts have increased:


Business confidence has risen:


Factory orders have increased:


Consumer confidence has risen:


Consumer spending is up:


North Dakota has an unemployment rate of just 3.7%. South Dakota and Nebraska have unemployment rates of less than 5%. Unemployed people who move there will find work and need to buy homes, food, and services creating more jobs. If you don’t have a job, move. If you can’t sell your house at the price you want, you shouldn’t have paid so much for it. If you don’t want to move and make trade-offs, I guess that you aren’t that desperate for work.




The United States will face a labor SHORTAGE in the next few years as millions of baby boomers retire. There are 76 million baby boomers, but Generation X only has 46 million people.



If you really want to stay where you are and haven’t found a job, think of a way to make money from your hobbies. Find a need and fill it. Do you like to cook? Are you good at fixing things? Do you like to paint? I strongly believe that if you do what you love, the money will follow. Just because someone says there is a recession, doesn’t make it true. Just because most people used to believe the world was flat, did that make it true? If you are feeling negative, I highly recommend the book “You Can Have it All”:


You might also feel less sorry for yourself or the economy if put your life in perspective. Would you rather live in Zimbabwe where the GDP per capita income is $200 per YEAR?


Even if things are really bad for you and you become homeless, there is a safety net of food banks, shelters, general relief, and food stamps. You could join a commune or a monastary.

America needs a good pep talk instead of negativity. I really think Obama would be more helpful to the economy by talking about the positive sides instead of pushing expensive stimulus programs. People should live within their means to avoid crashing the economy, but even when overextended, the United States has managed to pay the massive debts of the Depression and WWII.


Americans need to think more like immigrants. Politicians are too afraid to say it, but Americans should stop whining, get up, take responsibility, lower their standards, bite their lips, tough it out, and get busy. Americans should stop buying SUV’s and McMansions they can’t afford and pay off their debts. I have no sympathy for the sheep who went in debt to buy expensive restaurant meals, clothes, vacations, cars, and overpriced homes when times were good instead of saving for a rainy day. Buy LOW and sell HIGH. If people had put their money in the bank instead of wasting it they would still have it. The United States is capitalist not Communist. There is social Darwinism and survival of the fittest here. If Americans want a handout, they should move to Sweden. I have seen refugees from places like Vietnam immigrate to the US with NOTHING and own houses and cars five years later, while some lazy Americans who haved lived in public housing and on welfare for GENERATIONS complain about how poor they are. Why can a third world immigrant who doesn’t speak English make more money in five years than some Americans who have lived in the US their entire life?



The negative thinking about “tough times” and the supposedly “decline of the US” kills me. The USA is by far the richest and most powerful country in the world. Who invented the assembly line, telephones, movies, light bulbs, airplanes, air conditioning, elevators, skyscapers, television, the atomic bomb, the pill, calculators, microwaves, lasers, the Internet, mobile phones, the space shuttle, and landed on the moon? What country wins the most medals at the Olympics despite having only 5% of the world’s population? If the United States is dying, why do so many people want to immigrate there?




I think the best years of the United States are ahead of us, not behind us. I would be shocked if the USA won’t be the first country to put a person on Mars, invent mass-produced hydrogen and solar cars, and cure cancer. Americans who worry about the future are ignoring the facts and aren’t doing anyone any favors.

While I am not blind to the difficulties that may exist in the present economy, I just think people should be more optimistic and look at the good sides. I remember when I was in middle school in the mid 1980’s and had a teacher who asked my classmates whether the USA was on the way to the peak of power, at the peak, or on the way down. I was the only student who said the US hasn’t reached the peak yet. A few years later the Soviet Union collapsed, the Japanese economy crashed, and America was the only superpower.

I am not sure if there is a recession, but if there is one, I think it will be over soon.


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