Edward Lotterman
One might not think that Boeing and the Minneapolis Police Department have much in common, but they do.
Both had longstanding unseen negative issues that suddenly exploded into public scandal and internal crisis. Both face difficult and uncertain recoveries.
How each came to these points and how each might recover don’t involve pure economics any more than pure psychology or sociology. Yet all three disciplines study actions and interactions of human beings with insights that bear on current headline problems.
What answers does economics provide?
Economics studies how humans allocate finite resources to meet their needs — as individuals, in businesses and other organizations, or through government. Introductory econ study assumes a simplified model of real life: Choices are made by individuals; decisions of organizations are assumed to directly reflect interests of stakeholders; those of governments reflect the needs of citizens. But these assumptions seldom hold fully true in real life, where randomness can force choices that deviate from academic models.
So what about real life? Let’s start with Boeing.
Forty years ago, when three U.S. companies manufactured jet airliners, Boeing was an undisputed world leader. Its finances were sound even as competitors Douglas and Lockheed struggled. Boeing’s manufacturing was world-leading with excellent quality controls.
Now, Boeing is in crisis. Perhaps this happened gradually, and largely unseen, as a new generation of management took hold. But then came the debacles of two 737 Max crashes caused by near-criminal design errors that collectively killed 346 people, a series of manufacturing faults including a door panel blowing out midflight and whistleblowers listing reprehensible cost-cutting practices and coverups. For many, the first verb in the old saying “If it ain’t Boeing, I ain’t going,” has been changed to “is.” Stakeholders are angry. Some customers research the type of aircraft they are flying before booking a flight. So are investors with shares down by half from five years ago despite markets setting records.
Now consider the Minneapolis Police Department. It long had a good reputation as one cleaner than those in many other big cities. It was generally effective. A spate of murders in 1999 gave the city unwanted national attention as “Murderapolis,” but crime rates declined in parallel with violent crime nationwide.
George Floyd’s killing four years ago blew that apart. While effective and generally corruption free, the department had a long-established internal culture of “thumping” — the beating of some arrestees. Most victims were members of minorities and from lower socio-economic classes. Relations with important communities were fraught with fear and anger. Union intransigence worked to maintain this old-school order. Floyd’s murder brought this perhaps not-so-hidden culture to the fore.
Now the department struggles to cope with rising crime rates, including, again, a spate of murders, including one of its own officers — the first killed on duty in two decades. Like departments in other major cities, it is critically understrength. There is funding for positions, but hiring is extremely difficult.
How would economics compare and contrast the two?
In Econ 101, Boeing’s directors would choose new managers capable of fixing things; Minneapolis elected officials would hire a police chief capable of fixing things. Each would follow stakeholder needs and could hire from an ample pool of qualified people.
In the real world, however, where the interests of stakeholders may not bring consensus, how does new leadership bring troubled organizations back?
Reconstitution and renewal are easier when there is a “going concern.” Strictly speaking, this accounting term describes organizations with stable finances. No serious intrinsic problems threaten going forward. More broadly, going concerns are organizations with staff, technology, procedures and funding to operate. Startups with great inventions, talent or vast funding are not yet going concerns. Nor are ones circling the drain like Donald Trump’s Truth Social.
Crippled organizations like Boeing and the MPD are a different matter.
Consider two examples I experienced in the military. After parachute training in March 1968. I joined an 82nd Airborne Division in turmoil. Five weeks before, in response to the Vietnam War’s jarring Tet offensive, one of its three brigades had moved to Vietnam in five days. Hundreds of those who went had been pulled from two brigades remaining. So I and 54 other newbies joined a depleted company in one shot. The same happened to other companies. Eleven days later, Martin Luther King was assassinated. Despite hundreds of us barely knowing each other, our brigade was now patrolling streets of Washington D.C. Depleted as it was, the 82nd was a going concern, with a cadre of NCOs and officers with decades of experience in packing up and moving out. So getting my platoon to guard a half-looted liquor store and maintain order in our nation’s capital went like clockwork. However, we would have been useless in a Southeast Asian jungle.
Fast forward to 1970 when, after a long detour through Brazil, I joined the 173rd Airborne Brigade in Vietnam. In 1965, as an elite outfit, it had been the first U.S. Army combat unit, as opposed to trainers, sent to Vietnam. But in late 1967, a series of battles in the Central Highlands with hundreds of dead and wounded rendered the brigade ineffective. An OK unit, it was in some combat daily. But politics dictated cycling soldiers through 12 month assignments as individuals. Officers’ careers were enhanced with six months as company leaders and six in staff jobs. Developing unit coherence was impossible.
So are Boeing and the MPD going concerns that can be revived easily? Because of the needs of their stakeholders, neither can be stood down for months or years to retrain and regroup. Airplanes must be delivered, streets patrolled and crimes solved. So how does Boeing regain its historic excellence? How do Minneapolis cops restore public safety while never returning to past unacceptable practices?
At bottom, these knotty questions relate to those posed by economist Adam Smith in 1776. Why do some economies become more successful than others?
Why did Japan and now China and Vietnam make industrial and technological leaps to prosperity while India as yet has not? Why was the Connecticut River valley such a rich source of manufacturing technology and management in the 1800s, or Silicon Valley from the mid-1900s on?
Or consider failures. Why was Argentina so rich by 1910, but stagnant thereafter? Why did Brazil’s automobile sector grow explosively for three decades but never become and export giant — as South Korea’s did? Then why did Brazil’s ag sector, especially soybeans, beef, sugar cane and citrus, grow apace to world market leadership?
We only have partial answers for nations. Broadly educated entire populaces is key, one in which Japan, Taiwan, South Korea and China excelled but Brazil and India fell short. So is research and technology development. China now is challenging others to become a world leader in that. Taiwan excels in semiconductors. Brazil’s ag research and extension system is world class.
Well-defined property rights and coherent, uncorrupted legal systems are important. Japan and Taiwan achieved those, Korea is improving, but Brazil and India lag. Xi Jinping’s return to communist central control coupled with rampant corruption threatens China’s dramatic technological successes.
So we have examples of specific economies forging ahead when conditions were right — just as for military units. Ditto for specific businesses or nonprofits. There are cases of police departments and corporations shaking off bad, failed practices.
Not hiring any more former GE executives tutored by “Neutron Jack” Welch, who ultimately drove that company into the ground, is one suggestion for Boeing. Dynamic, unified leadership from the mayor and city council down to patrol leaders can improve sick public safety departments. But sure-fire prescriptions for success remain as elusive at the micro level of corporations and government departments as at the macro level for nations.
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St. Paul economist and writer Edward Lotterman can be reached at stpaul@edlotterman.com.
