Adam Smith described an “invisible hand” that, in a free market economy, fosters growth based on competition, supply and demand, and private decision-making. But the economy produces winners and losers, and given the latest jobs report — indicating unemployment surged to 9.2 percent last month — the U.S. needs more winners: companies making smart investment decisions, producing things more people want, and providing more jobs for American employees.
Unfortunately, the National Labor Relations Board (NLRB) is applying a different “invisible hand” in litigation against Boeing that would invalidate fundamental investment decisions and adversely affect thousands of jobs.
This story starts with good news. Unparalleled demand exists for Boeing’s long-awaited 787 Dreamliner, which far exceeds the capacity of Boeing’s primary Dreamliner assembly line in Washington State, where Boeing has 25,000 unionized employees. Demand is so strong that Boeing created a second assembly line in South Carolina, where more than 1,000 employees have been hired.
This is where the NLRB is playing its own hand. It alleges that Boeing’s investment in South Carolina constitutes an illegal transfer away from Boeing’s unionized Washington State operations. Labor lawyers call this a “runaway shop.” Yet, in Boeing’s case, no “shop” has run away — business is booming at the Washington State facilities, no work has been removed, and employment has increased.
NLRB officials argue that Boeing’s new investment in South Carolina illegally punishes Washington State union members for going on strike. However, Boeing recognizes the right of Washington State employees to strike, a right those employees have exercised — in spades. Boeing has experienced five strikes in Washington State since 1975, including a 58-day strike in 2008 that cost Boeing $1.8 billion and shut down operations when Dreamliner production was already 15 months behind schedule.
In 2009, when Boeing decided to build its additional Dreamliner assembly line in South Carolina, the company was influenced (no surprise) by a desire to maximize return and minimize downtime. South Carolina also offered Boeing incentives equal to hundreds of millions of dollars. Federal law protects unions from discriminatory “runaway shops,” but it does not require irrational decisions about new investment.
The NLRB’s heavy-handed theory in the Boeing case is far from invisible. Boeing’s $750 million investment in South Carolina has become a frozen asset that may need to be redirected after years of litigation. Legal costs and uncertainty will impede other management decisions. This hurts Boeing, its employees, state and local governments, and even the unions that — like others — depend on Boeing’s ability to compete successfully in a global marketplace.
During his Twitter town hall meeting, President Obama said America must be successful not just in “cutting-edge industries of the future” but also in “manufacturing” because, in his words, “we have always been a country that makes stuff.” As reflected in the dismal jobs report, U.S. employers apparently lack President Obama’s enthusiasm.
One need not consult Adam Smith to know it is self-defeating to champion U.S. competitiveness with one hand, while undermining it with the other. Companies like Boeing should be permitted to decide where new investment can be put to its highest and best use, which is to revive a lagging U.S. economy.
Philip A. Miscimarra is a senior fellow at the University of Pennsylvania’s Wharton School, coauthor of The NLRB and Managerial Discretion: Subcontracting, Relocations, Closings, Sales, Layoffs and Technological Change (2d ed. 2010), and partner at Morgan Lewis & Bockius LLP.