Monday, March 18, 2019

Boeing and the FAA: Rethinking Regulation

This analysis of Boeing’s catastrophic design failure on the 737 Max confirms speculation from other sources; interestingly, it was prepared even before last week’s crash in Ethiopia.  Engineers can pick apart the technical aspects, beginning with the underlying tradeoff between energy efficiency and stability (why nose elevation and drop was such a problem to begin with), but I’m interested in the political economy dimension.

Under the Obama administration, the FAA chose to delegate critical design oversight to Boeing itself; it too went for “resource efficiency” and time-to-market over safety.  Boeing in turn pressured its engineers to approve a dangerously flawed product.  The article provides detail on the corners that were cut, and they are devastating.  The only upside of FAA regulation seems to be that it now allows Boeing to claim, “the FAA considered the final configuration and operating parameters of MCAS during MAX certification, and concluded that it met all certification and regulatory requirements.”  Ironic, when “FAA” in this case means “we”.

But how should regulation be configured in a situation like this?  Is it enough to say that the agency in question, whether the FAA or some other body, should avoid being captured by those they regulate?  Why would we expect that to work?  Part of the problem is simple corruption, since political appointees and even Obama himself stood to benefit from quid pro quo’s offered by regulated firms like Boeing.  That’s structural and hard to dismantle.  (Whenever the solution is virtue we are in real trouble.)  But another part is that Boeing engineers, having been involved in the design process, familiar with its evolution and cognizant of where the bodies are buried, truly are the most qualified to assess adherence to safety standards.  I have no doubt that, in the weeks and months ahead, we will hear stories of engineers who tried to warn the company about the issues with MAX but were brushed aside or even silenced.  From this standpoint, the issue is not that there aren’t resources for scrutinizing safety, but that those resources are too much under the control of management.

Looked at this way, one avenue for reform is greater worker control.  If engineers had more power on the job, for instance through representation on works councils or the board of directors, top brass might not be able to silence them.  Maybe.  But consider the case of Volkswagen, whose workforce was unionized and represented through both a works council and co-management (Mitbestimmung), and where regional government also had a voice in policy.  In some ways this was the most “socialist” of car companies, and yet it was the epicenter of a pollution scandal that has caused at least an order of magnitude more deaths than Boeing.  Ultimately, if your paycheck comes from the company and you face market pressure from competitors, you have the same incentives the people at the top do.

So, while I favor a much greater say for workers on other grounds, I don’t think it solves the problem of regulatory capture.  Here’s an alternative:

1. Deputize the appropriate professional organization, meaning an organization that represents professionals across all employers is given authority to determine whether standards are being enforced.  (I suspect the standards themselves may still need to be set politically, at least in part, but maybe not.)  In the case of Boeing this would mean an independent association of safety engineers would be entrusted with regulating the safety of aircraft, as well as other types of hazardous equipment like automobiles.  You could envision similar roles for professional bodies in accounting, law, environmental management, occupational safety and health, etc.

2. Require, based on payroll size, assets, sales or some combined metric, a certain number of these professional positions (e.g. safety engineers) to work in the firm but be selected by their association.  These people would be employed by the professional group, paid and promoted by them, and subject to restrictions on quitting and taking jobs with the firms they are supposed to be regulating.  Their incentives would clearly be on the side of maintaining professional standards, not bending them for the benefit of a particular enterprise.

3. The “outside” professionals would, however, be free to work on any project needed by the company, provided they were not systematically excluded from operations critical to regulatory goals.  In a sense, they would be free resources to the firm, valuable to the extent they are not discriminated against.  If they are subject to discrimination, this would be immediately apparent, and their parent organization could intervene to challenge it.  Thus, if a major safety challenge with the MAX has to do with controlling pitch due to engine placement, it would be noticeable if an entire group of safety engineers was sidelined from it.  In other words, companies would be required to utilize external professionals in a nondiscriminatory manner, and this stipulation could be enforced just as any other nondiscrimination rule would be.

4. The work of outside people would be evaluated according to the professional standards of the organization they represent.  This includes high quality work for the company they’ve been detailed to, as well as careful monitoring of company performance according to professional criteria.

From a theoretical standpoint, this sort of system (which of course would need a lot more detail in order to become a formal proposal) should be seen as a step toward the socialization of the corporation.  It is a means for exercising social control, but it does not turn to an expansion of government power.  Instead it uses civil society groups as much as possible—groups that are of society and not just hypothetical representatives of its interests.  And it tries to alter what corporations are and how they function, turning them into better instruments for the achievement of social goals rather than simply setting external boundaries to their behavior.  (Incidentally, this applies no matter what form corporate ownership takes.)

This strategy can be used in many other ways to bring economic considerations together with environmental, social and cultural ones.  What’s needed is a structural approach to putting people and planet on a par with profit, not just flowery mission statements.

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