Saturday, March 10, 2007

Globalization of the military-industrial complex

Part of the appeal of massive defense budgets has been that they were widely believed to be useful in creating jobs. For American workers.

Even that notion has been grossly oversold. But outsourcing is adding a qualitatively new dimension to it. Bruce Stokes writes in "Aerospace Jobs Landing in Asia" National Journal 2/10/2007:

Pursuit of lower labor costs in low-wage countries and nonunion factories certainly accounts for some of this move toward systems integration. But the allure of cheaper capital - provided by foreign subcontractors or their governments - may be an even more important driver of outsourcing. That foreign capital reduces the self-financing needed to launch an airplane such as the Airbus A350, which will cost more than $15 billion to develop. Such daunting price tags have led Boeing and Airbus to unload some of their expenses by requiring hardware and airframe suppliers to contribute to development costs, to finance preproduction and test hardware, and, in some cases, to become full risk-sharing partners. Airbus, for example, hopes to get foreign partners to absorb $2.5 billion of the A350's development costs.

"Systems integration ... means shifting the financial risks to suppliers, especially those who, like the Japanese and the Italians, are subsidized by their governments," writes John Newhouse in his new book, Boeing Versus Airbus.

"This is all bad news for the traditional North American and European supplier," Pritchard and MacPherson write. Though it may make sense from a financial standpoint, the duo says, this outsourcing leads to a lot of technology transfer, the delivery of proprietary information to foreign contractors, and "home-country job losses among skilled workers with expertise in design, engineering, and R&D."

Job loss grabs the most attention. Boeing, which employed more than 90,000 workers at the beginning of the decade, now has half that number. Employees are particularly upset about the outsourcing of more than 1,300 technical jobs to Boeing's Moscow Design Center. This is skilled work that free-trade theorists once argued would stay in the United States even as assembly-line labor migrated overseas. "They do work that could be done by folks at Boeing," said Bill Dugovich, spokesman for the Society of Professional Engineering Employees in Aerospace.

The outsourcing of such jobs could result in the loss of what aircraft industry analysts call "tribal knowledge," the accumulated human expertise gained only by getting one's hands dirty in designing and building aircraft. In the long run, outsourcing critics contend, the erosion of tribal knowledge could undermine Boeing's much-vaunted core competence as a systems integrator. "Can you run the systems integration process after you've outsourced the store?" Newhouse quoted one experienced Boeing engineer asking rhetorically. "It's easier to integrate if you have a clear knowledge and feel for the pieces."
(my emphasis)
This article is interesting to me on a couple of levels. One is that comment I've bolded that outsourcing is not just a matter of cheap labor. Capital costs are also a factor, costs which are driven higher by huge US national debts run up during the Cheney-Bush administration primarily to provide huge tax subsidies to the wealthiest individuals.

The other is the perspective it adds on military spending. Whereas it's long been true that other types of government spending can generate significantly more jobs than defense spending, what we're seeing now is that an increasing portion of the jobs created by American defense spending is providing more jobs for people other than Americans. Even for the Russians!


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