Engineers vs crony capitalism. Sound familiar? Think submarines and electricity

The tragic decline of a great company based on engineering excellence derailed by the the corrupting effect of political interference.

Not block quoted for easier reading.

In 1993, Clinton’s Deputy Secretary of Defense, Bill Perry, called defense contractor CEOs to a dinner, nicknamed “the last supper.” He told them to merge with each other so as, in the classic excuse used by monopolists, to find efficiencies in their businesses. The rationale was that post-Cold War era military spending reductions demanded a leaner defense base. In reality, Perry had been a long-time mergers and acquisitions investment banker working with industry ally Norm Augustine, the eventual CEO of Lockheed Martin.

Perry was so aggressive about encouraging mergers that he put together an accounting scheme to have the Pentagon itself pay merger costs, which resulted in a bevy of consolidation among contractors and subcontractors. In 1997, Boeing, with both a commercial and military division, ended up buying McDonnell Douglas, a major aerospace company and competitor. With this purchase, the airline market radically consolidated.

Unlike Boeing, McDonnell Douglas was run by financiers rather than engineers. And though Boeing was the buyer, McDonnell Douglas executives somehow took power in what analysts started calling a “reverse takeover.” The joke in Seattle was, “McDonnell Douglas bought Boeing with Boeing’s money.”

The merger sparked a war between the engineers and the bean-counters. The key corporate protection that had protected Boeing engineering culture was a wall inside the company between the civilian division and military divisions. This wall was designed to prevent the military procurement process from corrupting civilian aviation. As aerospace engineers Pierre Sprey and Chuck Spinney noted, military procurement and engineering created a corrupt design process, with unnecessary complexity, poor safety standards, “wishful thinking projections” on performance, and so forth.

At any rate, when McDonnell Douglas took over Boeing, the military procurement guys took over aerospace production and design. The company began a radical outsourcing campaign, done for political purposes. In defense production, subcontractors were chosen to influence specific Senators and Congressmen; in civilian production, Boeing started moving production to different countries in return for airline purchases from the national airlines.

Engineers immediately recognized this offshoring as a disaster in the making. In 2001, a senior Boeing engineer named L. Hart Smith published a paper criticizing the business strategy behind offshoring production, noting that vital engineering tasks were being done in ways that seemed less costly but would end up destroying the company. He was quickly proved right.

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29 Responses to Engineers vs crony capitalism. Sound familiar? Think submarines and electricity

  1. This is somewhat similar to what happened in the ADF with the Commercial Support Program, where so-called non-core jobs were outsourced. It had a major impact in both short-term and long-term capability and flexibility and, in many cases, made things more expensive than previously. I had first-hand experience in the entire process and raised alarms that were ignored because it wasn’t accepted philosophy. The Defence procurement process has gone downhill ever since.

  2. the not very bright Marcus

    SSHHHHH … Boeing is one of our few remaining manufacturers here in Victoriastan

  3. Iampeter

    The tragic decline of a great company based on engineering excellence derailed by the the corrupting effect of political interference.

    Yea mean like exactly what Cat posters and you are so vociferously advocating should happen to tech companies?

    It must be liberating to never have to be consistent from one talking point to another.

  4. stackja

    737 Max comes to mind.

  5. stackja

    Usual suspect forgets socialist engineering produced the Trabant and Castro’s Cuba still has 1950s motor vehicles.

  6. Tom

    Not long after the pencil necks in the office at McDonnell Douglas reverse-engineered their takeover of Boeing, Boeing moved its headquarters from its traditional base at Boeing Field, Seattle, to Chicago — which smashed its reputation as a company run by cautious engineers.

    It has taken 20 years, but the decision to separate Boeing management from its engineers is finally — disastrously — bearing fruit.

    The 737 MAX fiasco, which has allowed a series of shitbucket Third World airlines and other rivals like China to sue the company for billions, would never have happened if engineers were still running the company. Boeing is reaping what it sowed when Wall Street spivs moved into the top office.

  7. Nighthawk The Elder

    Rafe, your post has exactly described the electricity industry over the last 10 or so years. Take a closer look at the qualifications at the very top of the electricity companies (and I mean go back as far as their overseas head office) and see how they have de-engineered the executive over that time.

    Too busy chasing the elusive green fairy (as long as taxpayer subsidies hold out) and pandering to woke millennials on social media, selling them overpriced “socially aware” services that their parents actually pay for.

    And then we wonder why in the glorious republic of VictoriaDan we went from producing some of the world’s cheapest electricity to being net importers of some of the most expensive.

  8. Crossie

    This wall was designed to prevent the military procurement process from corrupting civilian aviation. As aerospace engineers Pierre Sprey and Chuck Spinney noted, military procurement and engineering created a corrupt design process, with unnecessary complexity, poor safety standards, “wishful thinking projections” on performance, and so forth.

    The result? F35 that costs billions and billions and still not ready after all these years. An absolute win for the money interests and nobody else. Hope Trump does something about them should he be re-elected, if he isn’t it won’t matter.

  9. Crossie

    Too busy chasing the elusive green fairy (as long as taxpayer subsidies hold out) and pandering to woke millennials on social media, selling them overpriced “socially aware” services that their parents actually pay for.

    The lazy and ignorant journalists are the real culprits, it’s so much easier to publish the companies’ media releases than to do actual work. But then again the media managers allow it or even promote it, either way – the media.

  10. Entropy

    I had first-hand experience in the entire process and raised alarms that were ignored because it wasn’t accepted philosophy. The Defence procurement process has gone downhill ever since.

    Defence Procurement has always been polluted with snouts feasting at the trough.
    I recall on occasion where the then defence minister decided to clean the place out. He didn’t last long after that of course, but one of the SES it was attempted to give the heave ho was married to a liberal party fixer. So she was parachuted into a line agency where a naive young chap had just set up a temporary stat authority which was intended just be a paper authority run by the department for a specific purpose. So a real CEO position was created over the weekend for this person, completely different to the usual person in the department, where let’s just say the culture was more service oriented, and it just wasn’t done to spend a heap of money on offices or trips.
    The first three weeks was taken up with ordering new furniture for the office as the bog standard gear wasn’t good enough, then it was decided a Melbourne office was needed too. So Monday, fly down to a Southbank apartment and offices. Fly back Friday. Departmental staff did the actual work. She shook a lot of hands.
    The only justice was the the woman who lined up with her on the old slipstream theory of advancement, discovered that the constituency the department served saw through the bullshit artist immediately, and thus her career was over and the NT Government was the only option. The SES officer of course, retired to her husband’s Ferrari.

  11. Behind Enemy Lines

    Every time I stop to wonder and laugh about US defence procurement, I remember Australian defence procurement. Jesus wept. Off the top of my head, I can’t think of any local program that hasn’t been disastrously undermined by politics and money interests. We enjoy a perfect storm of incompetence and corruption. The US might survive the near-peer war that it would take to fully reveal and force a reform to the massive problems in defence strategy and procurement. Australia cannot. In fact, we can’t even defend ourselves from company- and platoon-sized actions by Sudanese skinnies carrying hand tools.

    bemused
    #3122933, posted on August 4, 2019 at 8:09 am
    This is somewhat similar to what happened in the ADF with the Commercial Support Program, where so-called non-core jobs were outsourced. It had a major impact in both short-term and long-term capability and flexibility and, in many cases, made things more expensive than previously. I had first-hand experience in the entire process and raised alarms that were ignored because it wasn’t accepted philosophy. The Defence procurement process has gone downhill ever since.

    I’ll bet our paths have crossed somewhere along the way. I wasn’t part of that, but I was close enough to watch. Things were just as you described. A clever ‘savings’ program dreamed up by people who’d never been to war and who assumed we’d never have another.

    Crossie
    #3122966, posted on August 4, 2019 at 9:02 am

    The result? F35 that costs billions and billions and still not ready after all these years. An absolute win for the money interests and nobody else. Hope Trump does something about them should he be re-elected, if he isn’t it won’t matter.

    This was always going to happen. It doesn’t owe anything to the 1990s mergers. In any case, I wouldn’t rush to condemn the F-35. Whenever you find a salivating constituency in favour of limitless spending on their pet project, you’ll find another salivating constituency running that project down in hope of getting the funds diverted to their pet project. There is also the legion of cleverdick armchair warriors eager to parade their ignorance in the press. Which is not to say F-35 is a great project or great kit. It’s just to say that one needs to carefully weigh which lies are closer to the truth.

  12. Defence Procurement has always been polluted with snouts feasting at the trough.

    This is true, but many of the changes that were supposedly implemented in the 90s/00s to improve things became a major disaster that affected not just procurement, but the operational side of Defence as well. When they combined capital procurement with support, it became a fully Canberra run organisation and many highly experienced support staff were put on the scrap heap. I watched all of this happening while on the sidelines and could only shake my head.

  13. Behind Enemy Lines

    bemused
    #3122985, posted on August 4, 2019 at 9:40 am
    Defence Procurement has always been polluted with snouts feasting at the trough.

    This is true, but many of the changes that were supposedly implemented in the 90s/00s to improve things became a major disaster that affected not just procurement, but the operational side of Defence as well. When they combined capital procurement with support, it became a fully Canberra run organisation and many highly experienced support staff were put on the scrap heap. I watched all of this happening while on the sidelines and could only shake my head.

    It’s a national disgrace. This wasn’t just a simple mistake by well-meaning people. Any person with practical experience or a knowledge of history could see exactly what was going on, and how it would end up. No matter. Senior public servants got rich by selling Australia down the river for generations to come. Worse yet, there’s no sign they’ll ever be held to account for it.

  14. duncanm

    What,

    beancounters and political operatives destroy engineering company ?

    Unheard of!

  15. Aynsley Kellow

    Eisenhower’s farewell address, where he warned of the rise of the military-industrial complex was prescient,

    In 1988 I was on study leave in the US, and my host took me to the meeting of the Southern Regional Science Association. It was mostly wall-to-wall (entirely suspect) input-output models and I recall the sheepish confession in a presentation that in an evaluation for the local government, an analyst assessing the benefits of a stadium expansion in Orlando included all seats, rather than just the additional seats — because that’s what the client wanted.

    My sole task was to act as discussant on a paper from a guy at the Siberian Branch of the Soviet Academy of Sciences – apparently one of Gorbachev’s advisers. It might have lost something in the translation, but it suggested that perestroika was not resting on a solid intellectual foundation!

    A the dinner, I found myself sitting next to Joe Cartwright, President-elect of the SRSA, from the Department of Defense. I learned the depths of the political basis of the military-industrial complex. The Defense Department had an input-output models that could identify the benefits of expenditure on defence contracts Congressional district by Congressional district. Thus the consequences of supporting or opposing votes on defence procurement contracts could be sheeted home to politicians.

    The very essence of ‘distributive’ policies and politics (as Theodore Lowi described them), aka park barrel politics. Best captured (ironically) by Nikita Khrushchev, who once remarked that politicians are the same the world over – they promise a bridge, even when there is no river.

  16. Bruce

    Bushmaster?

    A dubious attempt at a riot-control vehicle, foisted on the Army as an Infantry Mobility Vehicle.

    A vehicle utterly devoid of any lessons learned from the South Africa experiences of a decade before. Information freely available, even in publicly-available books at the time.

    Then there was the “One Track” policy. Destroy the “old” Leopards by dumping them in public parks and FILLING THEM with concrete, to rust into “public hazards” before final destruction. Not: well, we can swap the running gear to match the M-1 Abrams, re-fit the turret toys and use them for “training’ or “second-line”, etc, or remove the turrets and use the upgraded hulls for engineering variants. Nope, just scrap them.

    Just another note on the old Leopards; When they first went into service, it was quickly discovered that their claim to fame, high off-road speed was true. They out-paced the old M-113 APCs in all terrains (except unprepared water crossings). thus, in order to properly function with infantry support, either the tanks had to slow-down and become better targets or the APC fleet had to be radically upgraded. Hmmmm…. That went well!

    Picking “bits” of different integrated systems is no way to ensure an effective “new” combination of capabilities. With the Leopards, should have come not only the air-defence Gepard” variant (devastating on “soft” ground targets as well), but the upgraded “Marder 1” IFV / APC of similar vintage and national source. The M-1A1 is very quick, too. However, there is the issue of size and weight, (70 Tonnes); Compatibility with sea-lift barges and actual shops (decks, hoists, etc.), Oh dear! The cutting and stretching of the old M-113 fleet is an interim solution at best, but, there seems to be a LOT of that about.

    Back when I wore the “other baggy green”, I was cheeky enough to ask a rather senior person in the Artillery Corps why the ADF didn’t have any self-propelled artillery. The answer boiled down to, basically, “It’s not doctrine”.

    Naval and Air-superiority stuff is not really my thing, but with them, as with everything else; FOLLOW THE MONEY, ESPECIALLY the “spillage”.

  17. 2dogs

    Engineers immediately recognized this offshoring as a disaster in the making. In 2001, a senior Boeing engineer named L. Hart Smith published a paper criticizing the business strategy behind offshoring production, noting that vital engineering tasks were being done in ways that seemed less costly but would end up destroying the company. He was quickly proved right.

    Crossie, when I said, on the other thread, that Tech Giants are in for a nasty shock if they offshore to India, this is the kind of thing I was talking about.

  18. Behind Enemy Lines

    Bruce
    #3123138, posted on August 4, 2019 at 12:49 pm

    Back when I wore the “other baggy green”, I was cheeky enough to ask a rather senior person in the Artillery Corps why the ADF didn’t have any self-propelled artillery. The answer boiled down to, basically, “It’s not doctrine”.

    That didn’t even make sense during the Viet Nam era, but I can see why the ADF might feel compelled to ‘officially’ think that way during the 80s. After Gulf War I, however, there was no excuse for it. Defending Australia ’94 and all the force development activity that fell out of it was very poor thinking. Happily, successive governments never felt constrained by that document or any of the other tosh burped up by what was then IP Div.

  19. Behind Enemy Lines

    Oops, I’ll try that again with quotes:

    Bruce
    #3123138, posted on August 4, 2019 at 12:49 pm

    Back when I wore the “other baggy green”, I was cheeky enough to ask a rather senior person in the Artillery Corps why the ADF didn’t have any self-propelled artillery. The answer boiled down to, basically, “It’s not doctrine”.

    That didn’t even make sense during the Viet Nam era, but I can see why the ADF might feel compelled to ‘officially’ think that way during the 80s. After Gulf War I, however, there was no excuse for it. Defending Australia ’94 and all the force development activity that fell out of it was very poor thinking. Happily, successive governments never felt constrained by that document or any of the other tosh burped up by what was then IP Div.

  20. vagabond

    The warnings have come too late. The next generation of engineers will not be like the ones that came before:

    https://www.nationalreview.com/corner/social-justice-engineering-higher-education-martin-center-article/

    Accountants, engineers, interpretive dance artistes – it will all be the same blather.

  21. John Constantine

    We can just buy our drones and killer robots from the Hezbollah workshops out next to the backyard abbotoirs in western Sydney.

  22. Tel

    We can just buy our drones and killer robots from the Hezbollah workshops out next to the backyard abbotoirs in western Sydney.

    My understanding is that Iran is the primary supplier at the moment. I doubt the backyard boys are going to come up with anything good.

  23. Petros

    I doubt that the Russians allow this sort of crap to occur. Apparently they have a specific word for people who are no good at maths or science.

  24. Crossie:

    F35 that costs billions and billions and still not ready after all these years. An absolute win for the money interests and nobody else.

    I agree that the F35 program has been a financial and military disaster, but what to do?
    Cancel the program and make sure the shareholders get a bloody nose?
    Cancel the program, sack all the department heads and bankrupt the companies involved?
    I don’t have any answers – perhaps the F35 will be an excellent aircraft – the Red Flag Exercises have been given a dirty great big thumbs up to the program, but in the famous words of Mandy Rice-Davies, “They would say that, wouldn’t they?”

  25. Bruce:

    Then there was the “One Track” policy. Destroy the “old” Leopards by dumping them in public parks and FILLING THEM with concrete, to rust into “public hazards” before final destruction. Not: well, we can swap the running gear to match the M-1 Abrams, re-fit the turret toys and use them for “training’ or “second-line”, etc, or remove the turrets and use the upgraded hulls for engineering variants. Nope, just scrap them.

    Stupid, stupid act. The Leopards could have been upgraded – as you say – with the MA Abrams running gear, the turrets removed and the casemate built up to hold a 120mm main gun. Somewhat like the SdKfz173 or JagdPanther. Used in the TD role, and with their higher speed, bigger fuel and ammunition storage, it would be an excellent addition to the A/T capability of the Army.
    That these fine vehicles met their end filled with concrete was a typical bastard decision coming from Canberra. Perhaps we should make sure these swine have their children drafted to crew the Collins Class NBN Minitel subs. That would create some focus.

  26. Petros:

    I doubt that the Russians allow this sort of crap to occur. Apparently they have a specific word for people who are no good at maths or science.

    I would hope not, but remember “Lysenkoism.”

  27. Aynsley Kellow

    Almost 30 years ago I taught at the Army staff college at Fort Queenscliffe. Two memories relate to this topic.
    I arrived one day to find a LAV sitting outside. The class (all majors, seeking clearance for promotion to staff rank) told me it was not a good buy, but the manufacturers had seduced Kim Beasley by presenting him with named overalls and letting him drive one.
    The view of the Leopard tank was also not complimentary: no air conditioning, so horribly uncomfortable in the tropics. They pointed out that it could operate down to -30°C, which upset the Russians, because it didn’t get that cold in Germany – but it did in Russia.

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