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Friday, December 2, 2011

Update on Boeing: Union to Drop NLRB Complaint, but Will Subsidy Shoe Drop, Too?

As I reported in September, Boeing and the Machinists' union were in a big dispute about awarding the second Dreamliner assembly line to South Carolina, rather than keeping it in Washington state, where the company had received $2 billion in tax breaks (present value) for the original production line. The battle reached the National Labor Relations Board because Boeing officials made public comments suggesting their decision was prompted by labor strife in Washington -- a prima facie violation of the National Labor Relations Act, because it is illegal to retaliate against workers engaging in their legally protected right to strike.

After rumors yesterday afternoon, it was officially announced late last night that a pact had been reached (h/t Talking Points Memo): in exchange for locating production of the new Boeing 737 MAX in Renton, Washington, Boeing and the union would sign a 4-year contract extension, and the union would drop its NLRB complaint against Boeing over the South Carolina plant. The company also said it would relocate defense work from Kansas to Washington if it closes what is reported to be a money-losing Kansas plant. The contract provides for a $5000 signing bonus for Boeing workers, 2% annual increases, and potential bonuses that could reach 4% per year. Boeing workers vote on the agreement December 7.

I can't help asking: what about subsidies? Basic bargaining theory in international political economy would say that if Boeing has no choice in where it locates the 737 MAX facility because of the union contract, it should not have any bargaining leverage over Washington state. Assuming the contract is ratified next week, Boeing can no longer tell state and local governments in Washington that it could move the plant somewhere else. It would be under a contractual obligation to put them in Washington, which should put the state in the driver's seat in subsidy negotiations. As we all know, that would be a very unusual outcome here in the U.S. After all, Boeing got a package for the Dreamliner equivalent to a $2 billion cash grant, more than twice the cost of the $900 million factory (see my new paper I mentioned in my last post). Are we going to find out in a couple of weeks, or a couple of months, that the state guaranteed subsidies as part of this deal? I'd say it's very possible, but if the Boeing-Machinists' union deal really did tie down the company, there is no reason for the state to give away the store again. As President Bush so eloquently put it, "You can't get fooled again."

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