Friday, May 13, 2011

The Power to Regulate Is the Power to Destroy: Three Political Appointees versus 547,461 Shareholders (NLRB vs. Boeing)

Corporation-haters want you to believe big corporations are run in the interests of greedy executives. This is wrong: U.S. corporations align the interests of executives with their bosses, the shareholders. If executives do not act in the interests of shareholders, they will be gone and rather quickly.

The National Labor Relations Board, comprised of three political appointees, has just ruled Boeing’s new $1 billion South Carolina plant illegal because it was chosen to “retaliate” against organized labor. Boeing claims it chose South Carolina, which happens to be a right to work state, for a large number of reasons. One was the need to assure steady production of its new 787 Dreamliner without the threat of strike.

Boeing’s management would not base such a major investment decision on the desire for “retaliation.” It decides on the basis of what serves the interests of its 547,461 shareholders.

Well, even if that is true, are not Boeing’s 547,461 shareholders greedy fat cats. Why should we feel sorry if their investment goes sour?

The top 20 shareholders of Boeing are all investment funds, like Vanguard, CREF, and T. Rowe Price. The largest of them owns 2.1 percent. The 20th largest, Fidelity Blue Chip, owns one quarter of one percent. These are not “fat cats” but investment and retirement funds managing the savings of ordinary people. Among its individual shareholders, there may be “rich” investors, but there are many more ordinary people just trying to get by. All of them are harmed by the NLRB, which does not take its interests into consideration.

John Marshall, Chief Justice from 1801-1835, famously declared “the power to tax is the power to destroy.” Marshall clearly understood the corollary: “The power to regulate is also the power to destroy.” Marshall’s court -- "as a mighty instrument for the protection of the rights of private property" -- consistently held the line against government regulation of private business.

The constitutional protection of private property broke in 1877 with a ruling that businesses “affected with the public interest” can be regulated by the state. Now thousands of federal and state regulators, such as the NLRB, routinely intervene in the affairs of private business, acting, as they claim “in the public interest.”

Is the NLRB ruling in the public interest? If it stands, Boeing will have to write off its $1 billion investment. It cannot meet its orders for the 787, which is already three years behind schedule. South Carolina workers who thought they had a Boeing job do not. The interests of its more than half million shareholders are damaged. Boeing, our premier manufacturing exporter, can lose its competitive battle with European Airbus Industrie. A wiser Boeing then builds its next plant in China, and pundits, who openly welcome the NLRB decision, bemoan the decline of U.S. manufacturing.

Boeing’s only recourse right now may be to throw money at Congress and the President. Maybe they can rein in their NLRB for the right price.

If the NLRB ruling is in the public interest, someone must benefit. The beneficiaries are clear: The couple of thousand union members and their leaders at Boeing’s Washington state plant. They have received their reward for political support of the administration. The country has lost.

Yes, the power to regulate is the power to destroy (and no one can do much about it).

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