The response to the Boeing 737 Max 8 issues throws up the question of whether the US is losing its advantage in ability to respond to crises. Is institutional degradation taking its toll?
Our working thesis, since at least the global financial crisis, has been that the US has a structural advantage over the European Union when it came to crisis response. Its institutions have been able to act much more quickly and decisively. Getting the key decision-makers into a room and acting, crucial during the dark days a decade ago, proved difficult but possible in the US.
In Europe, by contrast, getting agreement across the dozens of policymakers from different countries, with different political views, different electorates and different election cycles proved almost impossible. This may go some way to explaining why European equities to this day have been lagging US markets.
US advantage absent
This institutional advantage was not on display in the response to the Boeing 737 8 Max issues amid the recent Ethiopian Airlines tragedy. The US was the last of the major economies to take action and ground the planes. Granted, the situation is not comparable with the global financial crisis. Also, Boeing is an American company and a large government contractor so there are greater incentives to be lenient.
But it could also reflect the weakening of US institutions. The Federal Aviation Administration (FAA), which regulates US civil aviation, hasn’t had a confirmed administrator for over a year. An acting administrator will naturally be in a weaker position to lead. This matches the reports that despite an earlier agreement and precendent that the FAA, as the industry regulator, should formally announce the emergency order to ground the planes, Donald Trump spontaneously changed plans and made the announcement himself.
White house parallels
The lack of a confirmed leader is not unique to the FAA. More than halfway into Trump’s four-year term in the White House nearly 40% of the 700 key executive branch positions that require Senate approval remain unfilled or filled with acting officials.
There may be an element of Democrats slow-walking the process, but for 147 of these positions there is no official nominee. Several press reports suggest this is at least partly by design. Without a confirmed position it’s easier to make personnel changes, it makes people more reliant on the president’s goodwill and less likely to disagree. It’s also consistent with the deconstruction of the administrative state that former White House strategist Stephen Bannon talked about.
This is all part of the populist playbook of our new political paradigm thesis; what we like to call institutional degradation. It may not feel like strong institutions matter much during the good times, but when the going gets tough they can be the difference between a recession and a depression.
This week’s news flow doesn’t overthrow our working thesis that the US has a structural institutional advantage, but it challenges our view. One to keep a close eye on as we get closer to the inevitable next recession.