How Jack Welch re-shaped capitalism

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

Publisher: Simon & Schuster

Price: $28

Pages: 272

In 2020 I published Evil Geniuses, a history of the ruinous transformation of the US political economy since the 1970s by the right and the rich. So I was psyched to read The Man Who Broke Capitalism. It sounded like a perfect case-study companion to my wide-angle chronicle, a book by a long-time business reporter now at The New York Times, focusing on Jack Welch, “revered as the greatest CEO of all time,” and General Electric, the company he ran from 1981 to 2001, “two decades that shaped the world we inhabit today.”

David Gelles describes unbroken capitalism’s exemplary big companies in the 20th century that treated employees fairly and focused on long-term growth — such as GE. After the New Deal and the enormous unionisation it enabled, economic fairness increased significantly along with prosperity in the United States, as “corporations, workers and the government enjoyed a relatively harmonious equilibrium,” and “worker pay grew in tandem with worker productivity.” With a “steady rise in earnings” through 1980, GE was “more profitable than all but nine other companies in the Fortune 500.” 

In the 1980s, as American culture and politics were suddenly celebrating money and robber-baronism with a new go-go giddiness, “Welch was tapping into profound changes in the zeitgeist,” Mr Gelles writes. “An intellectual revolution had been coursing through academic, economic, legal and political circles,” but “no one had truly put this philosophy to work … until Welch.” By means of all-out “downsizing, deal making and financialization,” he became “the personification of American, alpha-male capitalism.”

He “instituted a series of mass layoffs,” and enthusiastically industrialised even this process by rating every employee and then each year firing the lowest-rated 10 per cent.

As a maniacal deal maker, Welch oversaw the acquisition, on average, of one $130 million company every week for 20 years, and sold off a business every two weeks. And, man, did he financialise. This was the one area in which he made sure GE continued innovating — by reducing costs with his “rank-and-yank” regime, and turning GE into “essentially a giant, unregulated bank” that used more and more of its profits to buy up its own stock.

Welch (who died in 2020) was “quick-witted, and coiled with energy,” “a cursing, kinetic tornado of a man” who “wore jeans and rolled-up shirt sleeves whenever he could get away with it.” And also, no surprise, a jerk — “heavy on yelling and short on empathy.”

While Mr Gelles’s basic takes are all correct, they’re also basic, in the new, pejorative sense: unsurprising, unoriginal, conventional wisdom conventionally expressed, passable in thousand-word pieces of journalism but not at book length. Welch himself comes across as a stick figure. For instance, exactly how does the son of a union railroad conductor who “preferred chatting up machinists to sitting in a boardroom” become such an enthusiastic generalissimo in the class war? No explanation. Likewise, Mr Gelles mentions Welch’s 2012 tweet alleging that a decline in the unemployment rate was a fiction constructed by Barack Obama’s Labour Department to help him win re-election, which Fox News and The New York Post and Donald Trump instantly repeated. But again, no explanation of why this reality-based engineering PhD and CEO had become an alternative-facts conspiracy nut.

When Mr Gelles’s thinking isn’t warmed over, it’s often half-baked. He properly blames the press and US intelligentsia for “celebrating increased shareholder value as if it were a major medical breakthrough,” but he also uncritically equates companies’ success and failure with their stock prices. “By 1987,” he writes, “shares in the company had risen a full 250 per cent from the time Welch took over,” and in 2001 were worth $600 billion — making GE “the most valuable company in the world.” And his successor is a bust because during his time running GE it “was the worst-performing stock in the Dow.” So why are share prices an inferior metric to earnings, and what is the problem with funnelling corporate earnings into stock buybacks? Mr Gelles doesn’t really provide answers. One of the book’s main arguments is that after Welch left GE “his strategies ultimately destroyed what he loved so dearly.” But if so, why haven’t all the other companies still practising those crazily financialised anti-worker strategies also been punished by the stock market?

Jack Welch was unquestionably an emblematic figure in America’s paradigm shift, but Mr Gelles takes his book title too literally. “Capitalism in America,” he writes “was working well right up until 1981, when Jack Welch broke it.”

After 200 pages of a lot of ham-handed critique, Mr Gelles devotes most of his last 30 to a fairly ham-handed celebration of the chief executives of Unilever and Paypal and the other “lonely voices in the business world” — in particular the founder of the billionaire-convening World Economic Forum in Davos — who “call for a more holistic approach to capitalism.” He finishes with boilerplate progressive prescriptions: “renounce the toxic myths that allowed our current system to become so horribly imbalanced,” improve pay and benefits, “make a habit of distributing profits” to workers, enact higher taxes on big business and “a wealth tax on the very richest” individuals. Yes, absolutely, great — but Mr Gelles doesn’t begin to suggest how or if any of those reforms might come to pass, because nowhere has he closely examined the entrenched and powerful political foundations of the system his book is about.

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