Jack Welch was a false prophet who worshiped at the altar of capitalism. There I’ve said it, and I feel good about that because it’s exactly what I have thought for many years but was afraid to say.
I just read a new book, The Man who Broke Capitalism: How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America—and How to Undo His Legacy. Author David Gelles supports my theory and takes Welch’s career apart as expertly as old “Neutron Jack” took apart GE and left it an unsustainable disaster.
You see, Welch was an advocate of the economist Milton Friedman, who built his entire career around the idea that the only purpose of business is to make money for the shareholders. Now let’s not mix up shareholders with stakeholders. Shareholders are the owners of the company, whether they be individuals or people who own shares. Stakeholders are anyone associated with the company including owners, employees, and customers.
Armed with Friedman’s false theory, Welch proceeded to take GE apart division by division by only focusing on one thing: making money for the shareholders. Of course, Wall Street loved him. But then again, Wall Street always gets it wrong, but we continue to believe in them whatever they do, right or wrong, including bailing them out when they are completely wrong… 2008 anyone?
So, I gloat because this “greed is good” way of thinking created the 2008 fiasco where, according to our wiser economists, our economy was so close to collapsing that you were a mere 72 hours away from having no access to your money. At that point, the problem would have been, “What money?”
The reason I decided to pounce on an old dead white guy ( a couple of them, actually) was to point out how the problems we have today are a direct result of the business theories of Neutron Jack and that other practitioner of corporate cruelty, “Chainsaw Al” Dunlap. Both were proclaimed superheroes of their day. Both were daily recipients of Wall Street standing ovations while they were doing their dastardly deeds.
To further my point, here are the policies that these two “geniuses” lived by:
- The company is not a family and there is no need for workforce loyalty. If employees don’t like what we are doing, they can leave. Everyone from the best operations manager to the lowliest worker is dispensable. Employees are a dime a dozen, and we’d rather keep the dime than the dozen. Hence Welch’s first act at GE was to lay off the first hundreds of thousands of employees who had made GE what it was—one of America’s most respected companies. Wall Street gave him a standing ovation.
- Stop investing in the future. The time for profits is now. Wall Street and our shareholders want profits now, so quit wasting money on R&D. Welch’s theory was to make money now and to hell with the future. No updating facilities, no investing in the future. Wonder how that worked out? Just ask his successor Jeffrey Immelt who was left holding Welch’s bag that he had left behind. Wall Street once again gave him a standing ovation.
- Develop the cheapest supply chain possible. Move manufacturing to countries that have cheap labor and are unencumbered by pesky government and EPA regulations. Love Canal anyone? Yes, Wall Street gave him another standing ovation.
They continued standing and applauding even after he retired. He was wined and dined and lauded as a great American who had done great things for GE and the economy. He was on the cover of every business magazine in the country. He gave classes where he taught the next generation of company leaders to follow in his destructive footsteps. He even sunk so low as to publicly condemn his successor (Immelt) who was truly the direct victim of the disastrous legacy he left behind at GE. Who talks much about GE today, right?
My big problem with all this is how much Welch was emulated. How much he influenced other companies who followed his lead of having little to no respect for employees, or even customers. Companies followed his path of cheap offshore supply chain links. They beat on their American vendors (nearly to death, in some cases) for the good of the shareholders. Companies learned from him how to play fast and loose with government regulations knowing that they were too big to reprimand and, as we learned in 2008, too big to fail.
Remember Welch when you are affected by his true legacy (and we all are everyday):
- Lack of general respect for corporate America.
- An almost complete destruction of company infrastructure, leading the most independent country in the world to depend on our frenemies for, for well for just about everything—as COVID has taught us.
- A complete and disastrous labor shortage that will affect us for years. The employees are in charge now, right? They are the ones making the decisions. It was their fathers, mothers, grandfathers, and grandmothers that Neutron Jack and Chainsaw Al Dunlap axed by the hundreds of thousands, damaging the very fabric of their families lives forever and making this new generation more than wary about putting their own lives in the hands of corporate America.
Thanks for the memories, Jack; yeah, thanks a whole bunch.
It’s only common sense.
Dan Beaulieu is president of D.B. Management Group.