The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland
To understand a civilization, consider its heroes. Ancient Egyptians glorified the pharaohs, intermediaries between gods and men. Romans celebrated their generals, who expanded the empire through conquests abroad. The Greeks had their philosophers, searching for the truth. Other great societies were defined by their poets, their painters, their sculptors, and composers. More recently, explorers, scientists, and civil rights leaders have emerged as the iconic figures of their eras. Our heroes reflect our collective aspirations, offering clues to our deepest desires, idealized behaviors, and societal priorities. They bend the arc of history, defining their times and influencing events long after they are gone. Generations from now, when future anthropologists try to make sense of this moment in the American experiment, looking to our idols for clues about our priorities, they will need to contend with a perplexing but undeniable fact: in America, we worship our bosses.
We put our chief executives up on pedestals, granting them wide latitude to influence our national discourse and endowing them with vast wealth while absolving them of accountability. We herald entrepreneurs and venture capitalists as our most brilliant minds, lionizing their achievements and celebrating increased shareholder value as if it were a major medical breakthrough. We elevate the richest among us to positions of moral authority, letting CEOs, not religious leaders or philosophers, shape our views on the fraught political and social issues of the day. We elect billionaires as mayors and private equity barons as senators, and have would-be monopolists for our most prominent philanthropists. Surveys routinely show that the public has more faith in CEOs than it does in politicians or priests, more confidence in corporations than in the government. Our faith in bosses is so absolute that we even elected a failed businessman who played a successful one on television as president of the United States.
Yet even when the results are disastrous, even when our heroes turn out to be crooks, we can’t help but want for more. How could we not? In a nation made powerful by its staggering industriousness and titanic economy, captains of industry are the very embodiment of American success. CEOs as much as presidents have ushered us from one epoch to the next. Railroad tycoons and robber barons gave way to industrialists, who gave way to media moguls, who gave way to financiers, who gave way to technologists. And still, even in a society obsessed with successful businessmen, there is one CEO above all others who was revered as a cultural and economic hero in his own time, who radically transformed the world around him and continues to hold sway even after his demise, who seized on changes in the zeitgeist and used them to rewrite the rules of our economy: Jack Welch.
As chairman and chief executive of General Electric from 1981 to 2001, two decades that shaped the world we inhabit today, Welch exerted unmatched influence on American capitalism. In his heyday, as head of one of the country’s most powerful companies, he was lauded as a visionary. He identified the promises of globalization and rapidly reshaped GE to compete on the world stage. He could see around corners and pushed GE into the media and finance industries at just the right time. Above all, he understood the power of the stock market, and used GE’s might and complexity to reward those lucky enough to own the company’s shares. The financial results he delivered were undeniably great. During his tenure, GE posted annualized share price growth of about 21 percent a year, far outpacing the S&P 500 even during a historic bull market. When Welch took over, GE was worth $14 billion. Two decades later, the company was worth $600 billion—the most valuable company in the world.
All that material success obscured darker truths. Welch was not, as he would have liked us to believe, a patrician steward of sound business judgment and good character. Nor was he just another skilled manager with a knack for dealmaking and a good golf game. Rather, he was hungry for power and thirsty for money, an ideological revolutionary who focused on maximizing profits at the expense of all else. The changes he unleashed at GE transformed the company founded by Thomas Edison from an admired industrial behemoth known for quality engineering and laudable business practices into a sprawling multinational conglomerate that paid little regard to its employees and was addicted to short-term profits. And we all went along for the ride.
For the fifty years before Welch took over, corporations, workers, and the government enjoyed a relatively harmonious equilibrium. Most companies paid decent wages, employees put in their time, just about everyone paid their taxes, regulations were accepted as necessary safeguards, and the government invested in things like education and infrastructure. It wasn’t perfect, and there were certainly inequities, but it worked well for much of the twentieth century, giving rise to a diverse, thriving economy and a prosperous middle class.
Then in the 1970s, the established order came under attack. A cadre of economists including Milton Friedman reimagined the purpose of the corporation and its role in society, laying the philosophical groundwork for an upending of the economic order. In their view, companies ought to maximize profits for shareholders at any cost, markets should be free, governments should stay out of the way, and the rest of society ought to take care of itself. Their views were anathema to the postwar balance that seemed to be working so well, and at first they failed to gain traction. Indeed, the dream of unrestrained markets and a world where profits came first was so drastic that for a decade it remained almost entirely theoretical. There were policy papers, academic treatises, and speeches, and some of its chief proponents began ascending to positions of power. Yet by 1981, no one had truly put this philosophy to work. No one, that is, until Welch.
Some disruption was inevitable when Welch took over. All CEOs want to put their own mark on a company, and the world was rapidly changing in ways that would force GE to adapt, whoever was in charge. American corporations had grown complacent. Overseas competition was on the rise. Technology was upending everything from plastics to banking. Yet in responding to these challenges, Welch decided to take GE—the epitome of the benevolent postwar employer—in a sharp new direction. He embraced the strategies promulgated by the economic revolutionaries on the right, devised his own mercenary twists, and refashioned GE from the inside out.
Welch employed three main tools in his crusade: downsizing, dealmaking, and financialization. He is best known for the first of these. Upon taking over, he instituted a series of mass layoffs that destabilized the American working class. For generations, it was generally true that once you got a job at a company like GE, you could keep it until you retired. This was blasphemy to Welch. He found the notion that a company should be loyal to employees to be laughable, and he undertook a crusade to disabuse workers of the belief that GE owed them anything more than yesterday’s wages. He fired workers by the thousands, convinced that a smaller head count was a desirable end in its own right. After all, he reckoned, a leaner workforce meant lower labor costs, which meant juicer profits, which meant a higher stock price. To codify this new, transactional relationship between employer and employee, Welch developed a new policy, colloquially known as “rank and yank.” Each year, managers rated their employees. Those who were in the bottom 10 percent were let go.
When he couldn’t fire workers outright, Welch devised other ways to wash GE’s hands of the responsibilities that come with being an employer. Welch championed offshoring and sent thousands of union jobs overseas to countries like Mexico, where labor was cheap. And he reveled in outsourcing, turning to other companies to provide back-office functions like accounting and printing. It was enough to earn him the nickname “Neutron Jack,” a reference to the neutron bomb, which purportedly kills people while leaving buildings intact. Welch’s affinity for downsizing, which his own employees called the “campaign against loyalty,” fundamentally altered GE. No longer was it a model employer, the kind of company where successive generations of machinists could prosper. Instead, it became the kind of place where even a long-tenured employee might find themselves suddenly out of a job just before retirement, a company where what mattered most was not the quality of its people, but the quantity of its profits.
The second main weapon Welch employed in his quest to make GE the world’s most valuable company was dealmaking. Through compulsive mergers and acquisitions, he transformed GE from a proud domestic manufacturer to a cash-spewing collection of unrelated businesses, unleashing an M&A boom that would extend well beyond GE and lead industries from media to finance to become more concentrated and less competitive. GE made nearly 1,000 acquisitions during Welch’s tenure, spending some $130 billion buying up companies. At the same time, GE sold some 408 businesses for about $10.6 billion. No company had ever done so many deals so quickly. The biggest of these took GE far from its industrial roots. Often, the deals were disasters. Sometimes, Welch quickly sliced up the companies he bought, then sold them off for parts. Yet even when the results were less than optimal, dealmaking served several of Welch’s greater goals. Welch wanted every business GE operated to be number one or number two in its respective category. If it couldn’t achieve that, it would be jettisoned. “Fix it, close it, or sell it,” he would say. By selling companies—even ones that were regarded as central to GE’s identity—Welch was able to retain only what he believed were the most profitable businesses, even if they had little to do with GE’s legacy manufacturing operations. And with his relentless acquisitions, he took out competitors and consolidated industries, gaining market share while pushing GE to expand in every direction imaginable.
The third dark art that Welch mastered was financialization. GE was an industrial company when Welch took over. By the time he retired, the company derived much of its profits from GE Capital, which was essentially a giant unregulated bank. Welch got the company into all manner of risky debt instruments, insurance products, and credit cards. The finance division became GE’s center of gravity, ultimately accounting for 40 percent of revenues and 60 percent of profits. To Welch, it seemed easier—and cheaper—to make money through financial wizardry than by producing quality products. With so much money coursing through the finance division, Welch used it to his advantage, shifting zeros throughout a sprawling international web of subsidiaries, and extracting whatever he needed to meet or beat analysts’ estimates for nearly eighty quarters in a row, an unprecedented run. Earnings targets were achieved using dubious accounting methods. Black box financial models and limited public disclosures afforded the public with little understanding of GE’s inner workings. Yet quarter after quarter, the profits flowed, and Welch used them to reward shareholders with a gusher of buybacks and dividends.
All three of these tactics—downsizing, dealmaking, and financialization—served the same aim for Welch, aiding his endless quest to enrich his investors. If that meant cutting hundreds of thousands of jobs, so be it. If that meant companies were acquired and then sold for parts, c’est la vie. If it meant playing fast and loose with accounting rules, what was the harm? Welch had a lust for money, yes. He wanted GE to be as profitable as possible. But simply reducing what motivated Welch to greed is insufficient. He was possessed with a world-beating ambition, a drive to make his GE a company for the ages. He believed he had the skills, the means, and the divine right to make General Electric the greatest generator of profits in history, and he harbored extreme prejudice against anyone who doubted him, stood in his way, or couldn’t contribute to his relentless pursuit of financial glory. Welch was the embodiment of the shareholder primacy dogma hatched by Milton Friedman, and for twenty years just about everything he did worked. GE did become the most valuable company on earth. GE shareholders were showered with riches. Welch was revered as the greatest CEO of all time.
Along the way, he elevated the role of the chief executive from that of a people manager to something closer to a pop star, chasing the limelight and mastering the art of self-promotion. The business press adored him, splashing his piercing eyes on magazine covers and chronicling GE’s every move. Business schools treated Welch like an oracle, turning his strategies into case studies and curricula. Wall Street analysts marveled at his seemingly magical ability to hit the numbers, quarter after quarter. And though Welch didn’t start a company or invent a breakthrough new product, he earned millions of dollars, then tens of millions of dollars, then hundreds of millions of dollars, his net worth finally topping out at nearly $1 billion, landing him on Forbes’s list of the 400 richest Americans. In retirement, GE picked up the tab for his apartment in the Trump International Hotel and Tower, his meals at Michelin starred restaurants, his floor seats to Knicks games, and more. Welch was the personification of American, alpha-male capitalism, a pin-striped conquistador with the spoils to prove it. His exploits were so over-the-top, his personal wealth so enormous, it was impossible for other executives not to try and emulate him. At the end of his illustrious career, Fortune magazine dubbed him “Manager of the Century.”
That kind of success, over that long a run, made Welch singularly influential in the corridors of economic power. Most CEOs make a splash for a few years, then either retire or are pushed aside. Welch never went away. His reign atop GE spanned three decades and four U.S. presidents. A tenure that began during the uneven economy of the Reagan administration endured through Clinton-era globalization and the bursting of the dot-com bubble, ending just days before the terrorist attacks of September 11, 2001. He was the first celebrity CEO. Welch golfed with presidents and mingled with movie stars. His love life was tabloid fodder, and his gargantuan pay packages were glorified at a moment when conspicuous consumption was in vogue. His roaring success inspired countless imitators, as an entire generation of managers sought to emulate his techniques, his growth strategies, and his values. Without anyone quite realizing it was happening, Welch redefined how corporations measured success, setting the standard for a generation of business titans.
But while Welch made GE the most valuable company on earth, his strategies ultimately destroyed what he loved so dearly. Not long after he retired, GE fell into a spiral of decline set in motion by Welch’s short-term decision-making. Within months of his departure, it became clear that GE was deeply troubled, and in a matter of years, the corporation was falling apart. His handpicked successor tried to replicate Welch’s success by following the same playbook, but it was a losing strategy. Welch’s underinvestment in research and development caught up with the company as it failed to introduce new, innovative products. A habit of incessant dealmaking resulted in a series of bad trades that burdened the company with money-losing divisions when it could least afford the losses. And the quest for ceaseless growth in the finance division led GE to become a major holder of subprime mortgages just in time for the financial crisis of 2008. At its nadir, GE needed a $139 billion rescue from the Obama administration and an eleventh-hour investment from Warren Buffett to stave off collapse. GE stock fell 80 percent in the years after Welch retired, becoming the worst performer in the Dow Jones Industrial Average. Finally, in 2021, executives announced a plan to break up GE, separating what was left of the company into three distinct corporations, and abandoning Welch’s world-conquering aspirations once and for all.
Although Welch’s legacy was tarnished by the collapse of GE, his worldview continues to shape much of corporate America to this day. The methods he devised nearly a half century ago are still in use, the priorities he established still shape decision-making in boardrooms across the country, and some of his disciples are still in charge of major multinational corporations. This enduring influence is a testament to the power of the man himself, but also to what he stood for, which we might call Welchism. The prevailing power dynamic of our economic age, Welchism has at its heart the conviction that companies must prioritize profits for shareholders above all else, that executives are entitled to enormous wealth and minimal accountability, and that everyday employees deserve nothing more than their last paycheck. Welchism ascribes moral worth to material success, bestowing millionaire CEOs with the veneer of virtue, almost entirely irrespective of their actions. It thrives on downsizing, dealmaking, and financialization. And the Welchist worldview adopts a Darwinian attitude toward the labor market, a smug conviction that those who don’t make it are to blame for their own misfortune, that the poorest among us ultimately deserve their fate. The closest historical analog to Welchism is probably imperialism. The empires of yore had a comparable multinational reach to today’s biggest corporations, a similar willingness to confer absolute power upon their rulers, and the same tendency to exploit their subjects. Yet unlike imperialism, which has largely faded into history, Welchism still thrives today. Forty years after Welch took power, his warped worldview is still shaping our economy in ways large and small.
In GE, Welch had the perfect apparatus to disseminate his new ideology. For much of the twentieth century, the company was a pioneer of organizational design and executive training. That continued under Welch. Not only did his underlings study his ways, parroting his mannerisms and internalizing his maxims, but they also went to what was known as GE University, a leafy campus where budding titans were sent to learn the ropes, and where Welch infected a new generation of business leaders with his values. In time, those executives went on to lead dozens of other major companies—including Boeing, 3M, Honeywell, Chrysler, Home Depot, Albertsons, and many more—where they seeded new clusters, spreading Welchism across the whole of corporate America. At the time of Welch’s retirement, sixteen public companies were run by men who had studied at his knee. Several more would appoint his pupils in the years that followed. At each of these corporations, the arrival of a CEO from GE was met with great fanfare, investors believing the board had appointed a leader who possessed the Midas touch. Sometimes, the executives were able to engineer short-term gains. Yet inevitably, whether in months or years, many of them failed.
There is capitalism in America before Jack Welch, and after him. His career serves as a line of demarcation, a split between the past and the present. Look at the trend lines for any number of key economic indicators—wages, mergers and acquisitions, manufacturing jobs, union representation, executive compensation, corporate tax rates—and it’s clear that right around 1981, the year Welch took over, things started to go off the rails.
American manufacturing jobs peaked at nearly 20 million just as Welch came to power, accounting for nearly a quarter of full-time employment in the country. Once he began his merciless campaign of cost cutting and outsourcing, that figure began to decline, and has never recovered. Today, there are roughly half as many manufacturing jobs in the United States as there were in 1980.
Mergers and acquisitions were relative rarities when Welch took over, acts of unusual corporate ambition or desperation. In 1980, the value of all the corporate deals in the United States amounted to a few tens of billions of dollars. Welch changed all that. Thanks in part to GE’s own uptick in dealmaking, that figure doubled and doubled again during the early years of Welch’s reign. By the end of his tenure, the value of mergers and acquisitions topped $1.5 trillion annually for three years in a row.
As Welch’s lawyers did their best to pay the Internal Revenue Service the absolute minimum necessary under the law, the share of taxes U.S. corporations paid to the government steadily fell. When Welch became CEO, the effective tax rate on capital income was 46 percent. Twenty years later, it was down to 35 percent, and would continue to fall. Today it is just 21 percent.
Wealth grew more concentrated during his reign. Before Welch, corporate profits were largely reinvested in the company or paid out to workers rather than sent back to stock owners. In 1980, American companies spent less than $50 billion on buybacks and dividends. By the time of Welch’s retirement, a much greater share of corporate profits was going to investors and management, with American companies spending $350 billion on buybacks and dividends in 2000.
And Welch’s outsize pay packages helped usher in an era of runaway executive compensation that has steadily taken wealth out of the hands of workers and placed it in the accounts of managers. In 1980 the average pay for a CEO of one of the top American companies was $1.85 million. In 2000, it was $21.5 million. Whereas CEOs made less than 50 times the annual worker salary when Welch took over, they were making 368 times as much by the end of his term. Put another way, CEO compensation has grown by 940 percent since 1978. During the same time, the average worker’s wage has increased by 12 percent. Slashing jobs, rampant dealmaking, outsourcing, financialization, and supersized executive compensation—all these trends became widespread only after Welch implemented them at GE and continued to evangelize for them as an elder statesman.
Welch, who died in 2020, was able to witness this great unraveling. He fretted as GE fell apart and lamented the misdeeds perpetrated by other corporate bad actors. Never the most self-reflective type, he brushed aside any suggestions that he might bear some responsibility for this national catastrophe. Instead, in retirement, he transformed himself into a management guru, offering inspiration to a new generation of capitalists and doing everything he could to enshrine his ideals as gospel. He penned columns for Businessweek, Reuters, and Fortune. He sat for interviews with the Harvard Business Review. He created a $50,000 online MBA offered by the Jack Welch Management Institute. And he wrote books, made speeches, and appeared on cable news, praising the executives he had groomed while continuing his assault on taxation and regulation.
The bluster of a former CEO might seem insignificant. But Welch’s star remained largely undimmed after he left GE, and his opinion continued to hold great sway. During panel discussions, he disparaged organized labor. On CNBC, he extolled mass layoffs. In all, it amounted to a twenty-year campaign to make his warped vision of capitalism the norm. And for the most part, it worked. His extreme practices became commonplace. The myth that Welch’s way of doing business was a winning strategy lived on. Over the years, his influence reshaped the economy, eroding this country’s middle class, sowing distrust in once revered institutions, chipping away at the tax base, and exacerbating inequality.
The empty factories, hollowed-out cities, and unemployed workers—all lorded over by a wealthy ruling class—have contributed to the broad sense of disenfranchisement afflicting so much of the country, a combustible mix that helped lay the groundwork for the political rise of Welch’s friend, Donald J. Trump. Welch and Trump orbited each other for decades. GE Capital partnered with Trump while Welch was CEO. In retirement, Welch trafficked in conspiracy theories about the Obama administration and the Clinton Foundation. When Trump ran for president, Welch put wind in his sails. And when Trump won, Welch celebrated him as an exemplar leader and traveled to the White House to advise the president on economic issues.
In recent years, some business leaders have come to realize the damage that Welchism has wrought. Instead of pursuing profits at any cost, a new generation of executives is beginning to express a renewed commitment to serve not just shareholders, but all stakeholders, including workers, communities, and the environment. They recognize that if they don’t pay wages that create a strong middle class, the economy will ultimately grow weak. They understand that companies that leave their communities polluted and impoverished will wither before long. And by gently downplaying the importance of the stock market, they are even questioning the very measure of success that was so sacrosanct to Welch.
There are tentative signs of progress. Companies that for years promoted policies that exacerbated income inequality and gutted labor unions are suddenly expressing concern about the plight of everyday workers. After decades of lobbying for environmental deregulation, big business is now beginning to tackle climate change. And there are new standards, certifications, and even stock exchanges emerging to support this work. No longer is the purpose of a corporation to maximize shareholder value, according to this new cohort of enlightened captains of industry. Instead, CEOs are talking about themselves as part of an interconnected whole—just as they had done a half century ago, before Welch came on the scene.
Stamping out Welchism will be a formidable challenge. The great hero of late-twentieth-century American capitalism, Welch occupies an exalted place in the business world’s collective imagination. Even today, with the ruinousness of his methods clear to see, he is revered as a master strategist, peerless in the art of maximizing shareholder value and empire building. Tactics he pioneered are still commonplace, values he embodied are still championed, and in many instances, disciples he groomed are still in charge. Twenty years after he surrendered his office to one of his loyal acolytes, we are all still very much living in Jack Welch’s world.
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