Jack Welch, rock star former CEO of General Electric and Fortune magazine “manager of the century,” has died. Taking the helm at GE just after the 1980 election, Welch was the preeminent corporate counterpart of Reagan’s neoliberal revolution. His two decades as CEO — the longest in GE’s history — signaled the durability of the order that he and Reagan had ushered in, regardless of which political party was in power.
His death, on the other hand, marks the crisis of that era. The confidence and optimism Jack Welch symbolized for the ruling class is today shattered, replaced by a hard-right Trumpism and a “night of the living dead” liberalism endlessly recycling Third Way talking points.
The latter, in particular, has been on full display in the various paeans to Welch that have appeared in the corporate media. A special nostalgic yearning has animated the treatment of Welch. In the New York Times former investment banker William Cohan recounted his last lunch with the “regal corporate titan.” Cohan depicts a Welch boldly and elegantly facing death, but nevertheless wracked by regret about having turned GE over to Jeff Immelt. As a result, he believed “his legacy at G.E. — creating the world’s most valuable company, being named the most admired chief executive of the century, and G.E. being the most desirable place to work — had been utterly eroded.”
To be sure, one can hardly read the business press without encountering the current crisis at GE. While Welch pushed the company’s stock price to unprecedented heights, since his departure it has plummeted — losing 45 percent of its value in 2016 alone, after massive losses forced it to forfeit its place on the Dow Jones. The company, under its third CEO in five years, is now facing federal investigations into its accounting practices, as well as “whistleblower” allegations of a cover-up supposedly surpassing that of Enron.
Yet by no means can the problems at GE simply be placed at the feet of Welch’s successors. In fact, the very strategies that once earned Welch such high praise from Wall Street are directly related to the disaster GE is now facing. Welch left the company in 2001, before the financial crisis raised doubts about the stability of the financialized business model Welch had pursued — investing in fast-growing financial services as industrial profits declined.
More importantly, missing from these accounts is any acknowledgement of the effects of Welch’s strategies and ideas on working-class lives and communities. In fact, Welch can be seen as a leading agent of four decades of scorched-earth neoliberal devastation. At Welch’s GE, industrial plants were shuttered and huge numbers of workers laid off while profits boomed. Yet Welch was not a singular evil.
Rather, these decisions reflected the broader dynamics of neoliberalism — in particular, the rise of the financial sector and the shift in the balance of class forces decisively toward capital. It was the crushing of the working class that made Jack Welch possible; reversing the damage requires a movement to reorient production to serve human and ecological needs, rather than private profits.
Shareholder Value and Lean Production
Welch was best known as the guru of “shareholder value,” which holds that the primary purpose of the corporation is to enrich stockowners. To accomplish this, Welch invested in fast-growing financial markets and implemented “lean production” within the company’s industrial businesses, eliminating jobs and relocating production where wages and other costs were lower.
In his first five years heading GE, Welch eliminated 130,000 of 404,000 employees — over a quarter of the total. While this generated $6.5 billion in savings, in November 1989 he announced he would pass this on to shareholders through a $10 billion stock buyback — the largest to date. He also radically expanded GE Capital, the company’s financial arm, from $11 billion to $70 billion in assets between 1981 and 1991. By the time Welch retired in 2001, financial services contributed 40 percent of GE profits, the coming crisis in finance not yet obvious.
Unsustainable though it proved to be, the restructuring of GE during Welch’s two-decade reign was by no means solely attributable to “bad management.” Rather, broader and deeper structural forces were at the root of these changes. Indeed, the strategies pursued by Welch emerged in tandem with the disciplining of the working class that resolved the “stagflation” crisis of the 1970s. As growth slowed at the end of the 1960s, union wage militancy squeezed profits, leading to falling investment.
After a decade of uncertainty as to how to discipline labor to accept wage restraint, a solution was reached at the end of the Carter presidency: the “Volcker Shock,” a dramatic spike in interest rates which triggered a recession and high unemployment. At the same time, greater international financial integration meant that workers all around the world had to compete for corporate investment, leading to a “ratcheting down” of labor standards and social protections.
Welch exuded the renewed confidence of the capitalist class, as labor was disciplined, trade unions defeated, and the crisis faded into the past. While Reagan cut corporate taxes and slashed already-meager social programs, Welch ruthlessly pursued profits amid the intensifying global competition of the 1980s. Welch’s cuts were implemented not as a last-ditch effort to avert bankruptcy, as firms had done in the past, but rather at a time of economic health, while profits soared. Welch’s assertion of the doctrine of “shareholder value” was a rallying cry for the capitalist class around a reassertion of employer power, confident that the boot of capital was solidly on the neck of labor.
GE’s performance in the 1980s and 1990s especially illustrates just how little growth, profits, and stock prices indicate about the quality of workers’ lives. In fact, there was an inverse correlation: stock prices and profits soared as the exploitation of workers increased with the imposition of neoliberalism.
Thus the balance of class forces was absolutely crucial to Welch’s imposition of “lean production.” Labor lacked the capacity to resist these measures as well as the vision to advance an alternative. But the changes at GE also reflected another major shift in the American economy: the rise of finance. This was partly the result of a huge wave of concentration and centralization of stock in the hands of big “institutional investors” beginning in the 1970s — especially workers’ pension funds won through collective bargaining. Increasingly powerful investors managed vast blocks of stock, and demanded corporate restructuring to enhance margins and increase their cut. This included aggressive cost cutting and offshoring — but most importantly, a laser-like focus on the share price as the very center of corporate strategy.
“Shareholder value” was not merely an economic doctrine, but an ideology of investor power as the neoliberal era got underway.
However, the “financialization” of GE under Welch is not simply a matter of parasitic financiers “hollowing out” old-fashioned industry. As a highly diversified conglomerate, GE’s investments tend to reflect the makeup of the economy as a whole. Naturally, GE managers invest in sectors that showed the most growth, while divesting from those that lagged.
The decline of industrial profits at the end of the postwar boom led GE to look elsewhere — building on the considerable financial capacities it had developed over the postwar years. Rather than “incubating” new businesses, GE now relied on its triple-A bond rating and cash from its industrial operations to support continuously undertaking large-scale acquisitions and divestment of assets. Increasingly, it resembled a private equity company (so-called “vulture capital”), acquiring assets on credit through Leveraged Buyouts, then chopping them up and selling the pieces. This was the fate of RCA, which Welch purchased in 1987 before dismembering and selling off. All of this was very profitable, and required considerably bulking out the company’s financial operations and capacities.
This also helped GE maximize the extraction of value from its industrial operations — cutting costs and restructuring labor processes as necessary to boost margins. Welch also built on longer-term efforts to cut back GE’s expensive bureaucracy, which became more pressing as the padded profits of the postwar Golden Age gave way to intensified global competition.
Ralph Cordiner, the first GE executive granted the title of “Chief Executive Officer,” had initiated the company’s first “decentralization” in the early 1950s. While operational control was relegated to lower-level managers, investment decisions were consolidated in the hands of upper-level “general managers.” By the time Welch took over, GE already resembled a portfolio of investments more than a single integrated industrial operation. In GE’s model, individual business units competed with each other — and possible external acquisitions — for investment from top managers. Only those businesses that could compete would survive; others would be divested.
Such was the fate of GE’s aerospace business, which Welch sold to Martin Marietta in 1992. Since World War II, GE had developed an extensive Research & Development (R&D) operation that was deeply integrated within the military-industrial complex. Technologies developed by GE engineers working on state-funded projects formed the basis for a huge range of consumer and industrial products, which were “spun off” through the company’s various divisions. However, after a bump in the Reagan years, defense spending declined as a percent of GDP — hardly satisfactory as investor pressure to grow faster than the economy as a whole increased. This, together with cuts to GE’s R&D, reinforced GE’s evolution into a financial group managing a portfolio of investments. This, too, was a product not of Welch’s personal corruption, but rather the contradictions of capitalism.
Confronting Welch’s Legacy
Not everyone was as sanguine about Welch’s ideas and strategies as his most enthusiastic Wall Street cheerleaders. Despite the plaudits of Wall Street and the business press, Welch’s ruthless commitment to “downsizing” also earned him the nickname “neutron Jack,” after the bomb that kills humans but leaves buildings intact. Moreover, retrospective assessments of his leadership have hardly been as ebullient as those articulated during his years at GE.
Even Welch himself declared in 2009 that shareholder value is “the dumbest idea in the world.” And more recently, in 2019, the Business Roundtable issued a statement repudiating the doctrine, and insisting that business must also “invest in workers and communities.” Though there was little substance to this, it is hard not to notice the difference in tone from that which characterized earlier proclamations of shareholder value. With an avowed socialist within reach of the presidency, and neoliberalism facing a legitimacy crisis, capital was on the defensive.
Does this mean that “shareholder value” will die along with Welch? Many progressives today counterpoise to shareholder value an idea of a supposedly kinder and gentler “stakeholder capitalism,” which promises to spread the benefits of corporate competitiveness more widely among workers and communities. That this is echoed, at least rhetorically, in the Business Roundtable statement mentioned above should be enough to give us pause. Rather than promoting class solidarity, stakeholder capitalism leads workers to develop a deeper interest in increasing the profit of “their” firm, teaming up with managers to compete with other firms (and workers). Rather than challenging the basic logic of shareholder value, stakeholder capitalism in fact extends it.
Such ideas risk incorporating workers even more deeply within the capitalist structures and logics they so desperately need to oppose.
The truth is that even if the term “shareholder value” becomes toxic, the underlying reality cannot change without a working-class movement capable of consigning neoliberalism — and eventually capitalism itself — to the dustbin of history. Building working-class power requires finding ways to challenge and overcome the force of capitalist competition, not seeing competitiveness as an objective to be sought. As Leo Panitch and Sam Gindin wrote in the Socialist Register two decades ago:
Competition is a constraint that any project for structural reforms has to take into account; but the whole point of addressing alternatives is to liberate ourselves from the notion that it is only through competitiveness that we can address the development of our productive capacities. To accept competition as the goal… is to give up on the project before you begin.
Just as it is not sufficient to attribute neoliberalism’s ills to bad ideas or greedy individuals, it is also not possible to simply roll back the clock to a supposedly less rapacious “Keynesian” era. Capitalist corporations were just as ruthlessly committed to profit maximization prior to Welch’s articulation of “shareholder value” — and they will remain so as long as they continue to be capitalist corporations. Rather than looking back nostalgically at the postwar Golden Age, socialists should promote working-class struggle to extend democratic control over the economy. Only this can create an economy oriented to meeting social and ecological needs, rather than the endless accumulation of private profits. And given the intensifying climate crisis, the task could hardly be more urgent.
“Shareholder value” — like “stakeholder capitalism” — increasingly appears to be incompatible with continued human civilization.