The Washington PostDemocracy Dies in Darkness

Even blue-chip companies fail. Here’s how to save their workers, and towns, when they do.

Sears is just the latest revered company to falter

A dismantled sign leans outside a Sears department store in Nanuet, N.Y., on Jan. 7, one day after it closed as part of the company's multiple store closures in the United States. (Mike Segar/Reuters)

The new year has not been happy for former Sears employees. As the company fights for its life in bankruptcy court, laid-off employees of the 126-year-old retailer recently saw their severance pay stopped by the court at the same time that it approved $25 million in bonuses for the company’s executives.

The contrast is unconscionable but not unique. The history of American business is defined by corporate failure: a long series of panics, recessions, slumps, bankruptcies and depressions. Yet while corporate leaders generally escape the financial repercussions of their own business mistakes, workers and the communities that depend on a company for their livelihoods do not. Workers must therefore prepare for economic failure. They can do so by organizing collectively.

Consider the history of Seattle. Decades before it became Amazon’s company town, Seattle belonged to Boeing. The company may be a successful global aerospace manufacturer today. But almost a half-century ago, Boeing too came close to bankruptcy and nearly took down the city of Seattle with it. What saved the city and its workers? Unions.

During the 1970s, Boeing was coming off a decade of accelerated workforce expansion, having added 50,000 jobs in the Seattle area between 1966 and 1968. Cold War military contracts generated sufficient profits for Boeing to take big risks in the research and design of commercial aircraft. The speed and efficiency of the company’s new jetliners enabled substantially cheaper airfares, generating a mass commercial air-travel market and making Boeing a global leader. Within two years of the introduction of the company’s jetliners, air travel nearly doubled, and by 1964 over a third of all passenger airliners in service worldwide were Boeing planes.

In 1968, Boeing’s Seattle area employment peaked at over 100,000 jobs, a remarkable 19 percent of all the city's workers.

Then, a grave misreading of the market for the company’s new 747 jumbo jet, combined with the unwillingness of the federal government to come to the rescue with aerospace contracts, gave way to what is known in Seattle as the “Boeing Bust.” Executives wildly overestimated Boeing’s capacities, resulting in severe overspending and production delays matched by a souring global economy and a marked decline in the growth of air traffic. To try to survive, Boeing eliminated 60,000 jobs in less than two years, which drove the city’s unemployment rate to 16 percent in June of 1971, higher than that of any urban area in the United States since the Great Depression. Dubbed America’s “food stamp capital” in a congressional report, Seattle’s misery was also broadcast globally when The Economist christened it “the city of despair” in 1971.

But Seattle bounced back quickly, with the recession essentially over by the end of 1972. Many anecdotally credit the entrepreneurialism of laid-off aerospace engineers in diversifying the economy and, ultimately, laying the basis for the future high-tech service economy. Others point to the Pacific Northwest’s environmental beauty and quality of life as magnets that kept middle-class families from fleeing. But in reality, the reach of entrepreneurialism was small, and beautiful views don’t pay the bills.

Seattle’s dramatic rebound actually owed to another, more broad-based and structural source: the region’s high rates of union density. Owing in part to the two unions representing Boeing employees, the International Association of Machinists (IAM) District Lodge 751 and the Society of Professional Engineering Employees in Aerospace (SPEEA), Washington State had the highest rate of union membership in the United States from 1967 to 1969, and placed second only to Michigan through much of the 1970s. In 1968, 60 percent of Boeing’s employees were covered by a union contract, including most of those affected by the layoffs. As Boeing’s prominence in the Seattle economy guaranteed the company’s troubles would wreck the city’s economy, the high degree of unionization at Boeing similarly ensured the impact of union protections in Seattle would be substantial.

In 1973, a study of Seattle’s recession undertaken by the RAND Corporation and researchers at the University of Washington identified the reasons Seattle’s economy had survived. The study failed to mention organized labor, but most of its answers could be traced to the protections afforded by a union. The study found high wages provided aerospace employees a strong base of savings to weather their unemployment and to keep up consumer spending. Collective bargaining contracts ensured living family wages for both skilled engineers and production-line workers alike.

Despite being at the center of Seattle’s unemployment crisis, RAND discovered, aerospace workers found new jobs or returned to work at a higher rate than non-aerospace workers. Why? Seniority rules in union contracts allowed laid off Boeing employees to be the first hired when the company’s business picked up again. And unemployment insurance, a central buoy of the Seattle economy, had been a union lobbying priority in the state legislature for decades before the Boeing Bust.

Boeing’s unions were not perfect. They had a long history of excluding minority workers from the aerospace industry, leaving Seattle’s African Americans the last hired and first fired at the company. During the bust, African American welfare rights activists sought to ally with the thousands of newly impoverished aerospace employees to expand social services and benefits. But Boeing’s unions and their workers turned a cold shoulder, choosing to join the company in lobbying for federal defense dollars rather than demanding an expanded welfare state. As a result, the bust had a disproportionate impact in Seattle’s segregated majority black Central District, where unemployment approached 30 percent in 1971 and poverty rates worsened into the 1980s, even as the city itself recovered.

But for the families of those white male workers fortunate enough to be members, unions made the difference between survival and suffering, providing a base from which to recover. While thousands left the Seattle area, 85 percent of Boeing’s laid-off employees chose to stay. Some found work as Boeing slowly began to rehire, adding back 15,500 employees by 1974 as 747 sales picked up and the company tapped new international markets. Others found work in other sectors of the economy, as Boeing’s share of all Seattle employees declined to 10 percent by 1982.

The lesson of Seattle’s Boeing Bust? As long as business cycles produce frequent failures, workers and communities need their own protections from the sort of collapse that history suggests is inevitable. An organized workforce can provide the structural protections workers need against economic turbulence, offering a platform to fight for a fair share of profits when times are good and supplying a critical basis for recovery when times are bad.

Boeing’s unions may be a structural legacy of a bygone era — after all, the company voluntarily recognized the moderate IAM 751 in 1935 at a historic peak of worker organizing in the United States to stave off a more radical labor union. But there remains potential for that legacy to be renewed in the high-tech age.

Despite major legal setbacks and a hostile federal government, 2018 was a year marked by worker organizing across multiple industries. A wave of teachers’ strikes in eight states, highlighted by dramatic actions in West Virginia, made headline news, while actions by hotel employees found promising parallels in tech worker walkouts. Nationwide, a Gallup poll found Americans approve of unions at the highest rate in 15 years. In another 2018 victory, workers at Toys R Us, victims of a retail bankruptcy similar to Sears, demonstrated the importance of organizing when they fought for and won $20 million in severance.

But to maximize their impact, workers must organize as companies grow, long before the layoffs begin. Boeing taught Seattle that communities relying on any company for their well-being need an economic disaster preparedness plan — and that plan must include the protections of an organized workforce. History shows that a union, once established, can have an impact lasting generations. It is a lesson this generation of workers should heed, now and for the future.