Boeing Max 8 Lesson: Why Domestic Manufacturing Is Vital

The Boeing Max 8 lesson is only one of the important articles (dealing with trade issues) at American Greatness by Spencer P. Morrison — here is an excerpt from the above-titled article:

On March 10, Ethiopian Airlines Flight 302 crashed outside of Addis Ababa, killing all 157 passengers and crew. This followed October’s crash of Lion Air Flight 610 in Indonesia, which killed all 189 onboard. Both crashes involved Boeing’s 737 Max 8 jetliner.

China, Indonesia, and Ethiopia grounded the aircraft on March 10, suspecting the crashes were caused by technical problems. The European Union followed on March 12. The Federal Aviation Administration grounded all U.S. flights the next day.

Investigators revealed that the crashes likely were caused by mistakes in the plane’s software, which pushed the planes into uncontrollable dives because of bad data from a single sensor. Evidently, no software or hardware redundancies were in place.

Bloomberg reports that the Max Maneuvering Characteristics Augmentation System (MCAS) and flight-testing software, was in no small part written and developed by Indian subcontractors who had little or no prior experience in the aviation industry. Why would Boeing hire Indian subcontractors to tackle critical tasks? Because American engineers cost between $40 and $80 an hour. Their Indian replacements, in contrast, worked for $9 an hour.

Boeing assumed that by moving its production to the Third World, it could exploit cheap foreign labor. This would allow Boeing to undercut its competitors, thereby gaining market share, boosting profits, and benefiting consumers all at once. No downside.

But that’s not how the world works. Everything has a price. In this case, while Boeing saved money on labor it also burdened itself with extra complexity and exposed itself to more “O-ring” vulnerabilities.

My Kingdom for an O-Ring

In 1993, Michael Kremer, a Harvard-educated developmental economist, wrote a paper called “The O-Ring Theory of Economic Development” in which he tried to explain why workers in some countries earn exponentially more than workers in other countries, despite doing the same job.

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