Obamacare’s 787 Moment (Healthcare.gov and outsourcing)

[marmar]

from truthdig:



Obamacare’s 787 Moment

Posted on Nov 6, 2013
By Moshe Adler


Q: To which of the following debacles is the rollout of Obamacare most similar? (a) The several-year delay in the rollout of the Boeing 787? (b) The failure of Halliburton to deliver food and mail to our fighting soldiers in Iraq in spite of exorbitant payments? (c) The theft from New York City of $500 million by the contractor that was hired to create CityTime, a computerized payroll system? If your answer is (d) all the above, you got it right.

Each of these examples involves a large investment in a product for a single client. To use the economists’ terminology, each involves “specific capital.” The best way to produce specific capital, economists Benjamin Klein, Robert Crawford and Armen Alchian explain, is to produce it in-house. Why? Because when specific capital is involved, outsourcing means a total loss of control over the product under conditions that are hard to reverse.

In the case of the 787 Dreamliner, the delays were caused by Vought, a South Carolina firm that had been contracted by Boeing to produce the fuselage. Not only was the product that Vought was hired to produce specific to Boeing, it was also new—Boeing had never before produced a passenger fuselage made of composites—which meant that Boeing’s specifications for the product kept changing. And just as any management manual could have predicted, Vought failed repeatedly to produce a fuselage that met Boeing’s needs. But in spite of all the grief, Boeing could not simply replace its supplier, because starting from scratch would have delayed production even longer. So, for more than two years, Boeing tried to get Vought to deliver. In the end, Boeing had no choice but to buy the company and bring fuselage production in-house.

Of course, not all of the parts that go into a Boeing plane need to be produced by Boeing. The company has never produced engines, for example. But engines are not specific to Boeing and are produced by several manufacturers. If one had produced a faulty product, it could have been replaced relatively quickly. The key, then, is the level of specificity. The product that Boeing was buying from Vought was highly specific to Boeing, and Boeing therefore ultimately had to be directly in control of its production. .........................(more)

The complete piece is at: http://www.truthdig.com/report/item/obamacares_787_moment_20131106