Jack Welch was one of many voices in the 1980s and 1990s that oversaw the deindustrialization of the USA. The USA lost almost 2 million manufacturing jobs in the 1980s. We shouldn't blame Jack Welch for much of that deindustrialization, as there were other, larger forces at work. At least in the early part of the 1980s, President Reagan sought a "strong dollar" which made the dollar so strong that USA manufacturers had no hope of competing on international markets, and so in that sense, Jack Welch was only responding to the circumstances he was dealt. But his focus on "shareholder value" also meant that he signaled, and was in favor of, the end of the era when big USA corporations were making long-term bets in speculative technologies. And allowing the rise of GE Capital meant he was very much part of the movement that saw the USA retreat from manufacturing and focus instead on finance. So to the extent that he was simply reacting to circumstance, we can admire his flexibility, but his focus on short-term results, and his retreat from long-term results, we can blame him for his part in the deindustrialization of the USA.
> The USA lost almost 2 million manufacturing jobs in the 1980s.
That's misleading. Via FRED, manufacturing employment in the USA had a long peak lasting from roughly 1970 to about 1990. The largest peak-to-trough drop was in fact about 3 million, from mid-1979 to early 1983, but that had more to do with the Volker recession than any change in corporate culture. Manufacturing employment rebounded (partially) from the post-recession low, remaining steady until about 2000.
The sea change in employment came after 2000, plausibly due to opening trade relations with China. However, at the same time manufacturing production did not decrease much if any. For example, production of durable consumer goods (https://fred.stlouisfed.org/series/IPDCONGD) increased from 1982 to 2005 or so.
That being said, "steady manufacturing employment" does mean that manufacturing employment as a share of all employment fell, thanks to growth in the labour force. That by itself can explain some of the qualitative observations re: the rust belt and such.
Deindustrialization was mostly done in the 1970s, with factory employment as a share of the labor force peaking in the 1950s. Moreover a strong dollar lowers the cost of imported inputs, say iron ore, so it isn’t all bad news for manufacturing. Exports also aren’t the only markets for finished goods.
I’d also point out that the US manufacturers more cars than ever, and makes basically as much steel as it ever has. Sure, no one sees t-shirts anymore.
Back then it was plain to see in real-time that upon GE's acquisition of Cooper Tools, Welch immediately set about destroying what made Cooper uniquely outstanding.
And that was just one company.
Other victim companies had been given the same treatment by then, the de-industrialization was well underway and picking up steam as upcoming American executives "across-the-board" tried to emulate the famous Welch by extracting long-term hard-earned intangibles and posting it as short-term profits in place of the real sustainable thing.
Whether the reserve currency is strong or weak makes no difference -- having one's currency be the world's reserve currency necessarily leads to large trade deficits (e.g., otherwise there is no way to supply that currency to the rest of the world), and therefore deindustrialization.
Good blog article. I think if you combine Reagan's strong dollar policy and political deregulation of banking, you get both deindustrialization and consolidation of the banking/investment banking/insurance, and some of the extreme wealth concentration correlated with it.
That concentrated wealth is then used to influence (and potentially capture) the political process from cradle-to-grave - from campaign finance, to lobbying, to cushy board seats and the like upon leaving office. Making it politically difficult or impossible to fix or mitigate various problems like Too Big To Fail, deindustrialization, etc.
It seems the only way out is either via technological innovation like additive manufacturing, or via another big banking crisis that doesn't get bailed out, but rather resolved like the S&L crisis.
FYI: Not sure if you know, but that article works to block you from reading it and asks you to sign up for something. I don't know, I just back out of any user hostile BS like that point. Maybe you have a better article from a source that isn't clearly hostile to visitors?
For the last century we have glorified greed and individuality and now we get upset about it when it overrides nationalism and sense of community? Capitalism and globalisation has freed the elites and charged us headlong into a cyberpunk world.
The Chinese actually noticed this and they are trying to get the genie back into the bottle. They'll probably fail.
GE capital was a mistake IMO. I worry Apple might make the same mistake with Apple Card or whatever. Easy money in the short run, attracts the wrong kind of zero sum people in the long run (and takes away focus from engineering and building things of positive sum value)
Apple is continuing to invest and do well in their core business though. GE had a policy during Jack's tenure that if GE were not number 1 or 2 in a business segment, they'd get out it. This caused GE to shed many of their traditional capabilities.
I am under the impression Jeff Immelt inherited a barn of cards and the cows finally came home under his watch -making him look less than stellar. It looked like Jack was your great Engineer-cum-MBA but instead there were accounting tricks that eventually caught up to the company after he retired. On the other hand, aiming to be among the top three of anything you were heavily in seems like a good idea to drive improvement and growth to stay there.
There's a good book (albeit, a bit repetitive as you read it) about the fall of of GE. If I remember correctly the book basically confirms what you said about Immelt inheriting a lot of problems that were hidden behind accounting complexity at GE.
I’m sure I remember an interview with him looking back at his time taking over from Welch where a bunch of people basically commiserated him on his appointment because they knew what a bunch of short term financial engineering he was walking into.
He was great for:
-financial engineers
-increasing profit margins
-
he was bad for:
-blue collar manufacturing (which got outsourced to countries with low regulations)
-the environment (due to lack of regulations)
-culture of business leadership
-next generation of workers / young people
Also: "stack and rank" or "stack ranking". He made that popular in the business journals, so all sorts of companies introduced it.
It doesn't matter if every one of your staff are supergeniuses, at least one has to be ranked "subpar" and fired that year. Stack-ranking turned Microsoft from a great place to work for into a festering bunch of backstabby politicians. It isn't enough to be a good or great worker, you must be better than your coworkers - so sabotaging their work becomes job number one.
What does Greatest CEO even mean? Great for who? The shareholders? The employees? The customers? The world? Maybe we shouldn't be looking for "greatness" from a CEO.
>> What does Greatest CEO even mean? Great for who? The shareholders? The employees? The customers? The world? Maybe we shouldn't be looking for "greatness" from a CEO.
Great question. Since the CEO works for the board, which works for the shareholders, I assumed "great for shareholders" -- however, I was asking myself a different question -- "great on what timeline". It is easy for CEOs to borrow from the future, have great earnings, improve stock prices...only to let the company fail in the long term.
Jack liked to film his "town hall" meetings. At one, an employee asked about "company loyalty". Jack replied "if it is Friday, and you got paid, then we're even".
I disliked many things about him, one of which was the insistence that every department had to be a profit center. Like the service department. Do you ever wonder why repair parts are so expensive? Or why they might not be available at all? You can thank Jack for that.
Or the prevalence of "stack and rank"? That's Jack again.
Jack replied "if it is Friday, and you got paid, then we're even".
That's probably one of the few Welch quotes I actually agree with. Granted, I take it from the "employee loyalty" POV, but it works the same going either direction.
Ironically, I get paid today, so we are even. Tomorrow, the company and I start over.
His legend could hardly have been bigger back in the day. A lot of it is the public's desire for a hero to worship. Whatever happened to celebrating the safe-pair-of-hands guy who just stirs his pot? That's still a difficult job, but we absolutely have to have action-men who do cold-hearted things like stack ranking.
> Whatever happened to celebrating the safe-pair-of-hands guy who just stirs his pot
He's running Apple, the world's most valuable company, and he's modestly celebrated for being a competent, fairly quiet, safe pair of hands. He's not a product-visionary person like Jobs, and he's not a loud salesperson like Ballmer; he's a relatively boring logistics person. He's very well paid and so far Wall Street has been quite happy with him and the results he has helped to deliver. While most of the tech side of the stock market cratered, Apple held up well and Apple keeps producing record profits year after year (while not hollowing itself out ala an IBM for short-term gains).
This isn’t a hard call. He destroyed one of the most established and valuable companies in history by fabricating financial results and siphoning off company money.
Not necessarily, he got quite lucky with the macro context.
The roaring 1990s stock market temporarily helped to camouflage a lot of disasters, such as Worldcom, Enron, Adelphia, and the disease spreading inside of GE. When times are that good, big shareholders ask a lot fewer questions generally.
I generally think Jack got it right with performance evaluation, but Rank and yank has done so much damage to the American Worker, corporation value, and deindustrialization that he earns no love from me.
The book "Jack: Straight from the gut" is an interesting read. He has earned his accolades. But the part where he describes and justifies the "5-X-5" strategy of firing people is somewhat disturbing. We are seeing the repercussion of that even today through out various industries. The BBC's "Billion Dollar Deals" series had dedicated one episode to this very subject.
[+] [-] lkrubner|3 years ago|reply
More about that deindustrialization here:
https://demodexio.substack.com/p/why-did-the-west-deindustri...
[+] [-] Majromax|3 years ago|reply
That's misleading. Via FRED, manufacturing employment in the USA had a long peak lasting from roughly 1970 to about 1990. The largest peak-to-trough drop was in fact about 3 million, from mid-1979 to early 1983, but that had more to do with the Volker recession than any change in corporate culture. Manufacturing employment rebounded (partially) from the post-recession low, remaining steady until about 2000.
The sea change in employment came after 2000, plausibly due to opening trade relations with China. However, at the same time manufacturing production did not decrease much if any. For example, production of durable consumer goods (https://fred.stlouisfed.org/series/IPDCONGD) increased from 1982 to 2005 or so.
That being said, "steady manufacturing employment" does mean that manufacturing employment as a share of all employment fell, thanks to growth in the labour force. That by itself can explain some of the qualitative observations re: the rust belt and such.
[+] [-] ch4s3|3 years ago|reply
I’d also point out that the US manufacturers more cars than ever, and makes basically as much steel as it ever has. Sure, no one sees t-shirts anymore.
[+] [-] fuzzfactor|3 years ago|reply
And that was just one company.
Other victim companies had been given the same treatment by then, the de-industrialization was well underway and picking up steam as upcoming American executives "across-the-board" tried to emulate the famous Welch by extracting long-term hard-earned intangibles and posting it as short-term profits in place of the real sustainable thing.
[+] [-] cryptonector|3 years ago|reply
[+] [-] curiousllama|3 years ago|reply
Please pick up the phone. Meta is calling.
[+] [-] SkyMarshal|3 years ago|reply
That concentrated wealth is then used to influence (and potentially capture) the political process from cradle-to-grave - from campaign finance, to lobbying, to cushy board seats and the like upon leaving office. Making it politically difficult or impossible to fix or mitigate various problems like Too Big To Fail, deindustrialization, etc.
It seems the only way out is either via technological innovation like additive manufacturing, or via another big banking crisis that doesn't get bailed out, but rather resolved like the S&L crisis.
[+] [-] 29athrowaway|3 years ago|reply
[+] [-] jasonlotito|3 years ago|reply
[+] [-] WeylandYutani|3 years ago|reply
The Chinese actually noticed this and they are trying to get the genie back into the bottle. They'll probably fail.
[+] [-] unknown|3 years ago|reply
[deleted]
[+] [-] onlycoffee|3 years ago|reply
[+] [-] breck|3 years ago|reply
[+] [-] PaulWaldman|3 years ago|reply
[+] [-] scarface74|3 years ago|reply
[+] [-] HWR_14|3 years ago|reply
[+] [-] lotsofpulp|3 years ago|reply
[+] [-] bredren|3 years ago|reply
So far each component they’ve taken on has set new expectations unseen in consumer banking.
Notably privacy of purchase history and shared credit history between couples who share a credit card.
[+] [-] mc32|3 years ago|reply
[+] [-] apohn|3 years ago|reply
https://www.amazon.com/Lights-Out-Delusion-General-Electric/...
Not that Immelt was a star either, but he he wasn't the person who created a lot of these problems.
[+] [-] noneeeed|3 years ago|reply
[+] [-] mensetmanusman|3 years ago|reply
he was bad for: -blue collar manufacturing (which got outsourced to countries with low regulations) -the environment (due to lack of regulations) -culture of business leadership -next generation of workers / young people
[+] [-] Tangurena2|3 years ago|reply
It doesn't matter if every one of your staff are supergeniuses, at least one has to be ranked "subpar" and fired that year. Stack-ranking turned Microsoft from a great place to work for into a festering bunch of backstabby politicians. It isn't enough to be a good or great worker, you must be better than your coworkers - so sabotaging their work becomes job number one.
https://www.theverge.com/2013/11/12/5094864/microsoft-kills-...
https://slate.com/technology/2013/08/stack-ranking-steve-bal...
[+] [-] rexreed|3 years ago|reply
[+] [-] TuringNYC|3 years ago|reply
Great question. Since the CEO works for the board, which works for the shareholders, I assumed "great for shareholders" -- however, I was asking myself a different question -- "great on what timeline". It is easy for CEOs to borrow from the future, have great earnings, improve stock prices...only to let the company fail in the long term.
[+] [-] objektif|3 years ago|reply
[+] [-] dehrmann|3 years ago|reply
[+] [-] Tangurena2|3 years ago|reply
I disliked many things about him, one of which was the insistence that every department had to be a profit center. Like the service department. Do you ever wonder why repair parts are so expensive? Or why they might not be available at all? You can thank Jack for that.
Or the prevalence of "stack and rank"? That's Jack again.
[+] [-] mikestew|3 years ago|reply
That's probably one of the few Welch quotes I actually agree with. Granted, I take it from the "employee loyalty" POV, but it works the same going either direction.
Ironically, I get paid today, so we are even. Tomorrow, the company and I start over.
[+] [-] lordnacho|3 years ago|reply
[+] [-] adventured|3 years ago|reply
He's running Apple, the world's most valuable company, and he's modestly celebrated for being a competent, fairly quiet, safe pair of hands. He's not a product-visionary person like Jobs, and he's not a loud salesperson like Ballmer; he's a relatively boring logistics person. He's very well paid and so far Wall Street has been quite happy with him and the results he has helped to deliver. While most of the tech side of the stock market cratered, Apple held up well and Apple keeps producing record profits year after year (while not hollowing itself out ala an IBM for short-term gains).
[+] [-] thrillgore|3 years ago|reply
[+] [-] CPLX|3 years ago|reply
[+] [-] thomasjudge|3 years ago|reply
[+] [-] thrillgore|3 years ago|reply
[+] [-] mjhay|3 years ago|reply
[+] [-] beckingz|3 years ago|reply
He was great at hiding how much damage he was doing though!
[+] [-] adventured|3 years ago|reply
The roaring 1990s stock market temporarily helped to camouflage a lot of disasters, such as Worldcom, Enron, Adelphia, and the disease spreading inside of GE. When times are that good, big shareholders ask a lot fewer questions generally.
[+] [-] newsclues|3 years ago|reply
[+] [-] namelessoracle|3 years ago|reply
[+] [-] thrillgore|3 years ago|reply
[+] [-] _448|3 years ago|reply
[+] [-] MilStdJunkie|3 years ago|reply
[+] [-] refurb|3 years ago|reply
It worked great until the financial crisis and they woke up and realized there wasn’t much left.
[+] [-] mitchbob|3 years ago|reply
[+] [-] ElfinTrousers|3 years ago|reply
[+] [-] zrobotics|3 years ago|reply
[+] [-] nytesky|3 years ago|reply
https://www.npr.org/2022/05/31/1102165413/did-jack-welch-bre...