Did Jack "Welch" on America?

David Gelles' recent, easy to read 231 page book about Jack Welch, "The Man Who Broke Capitalism,” about the former CEO of General Electric, is a must read for anyone interested in what went wrong with American Capitalism at the turn of this century. Mr. Welch was until recently considered the best American CEO of the 20th Century, and this book chronicles how he, during his 20 year tenure as CEO, made GE the most valuable company in the world, but along the way planted the seeds of ruin that became apparent not long after his retirement.

In addition, with Mr. Welch’s apparent success and celebrity, he unwittingly "single-handedly ushered in a new cutthroat era of American Capitalism that persists today." His obsession with "downsizing” (he eliminated 10% of GE employees ever year), “deal-making” (he acquired dozens of major companies through mergers and acquisitions), and “financialization” (he made GE a bank and used its cash for dividends and stock buybacks, rather than research and development or employee wages), allowed Mr Welch to drive profits and GE's stock price to ever increasing heights. Obsessed with his own success he eventually engaged in unethical and illegal business and accounting practices that would have driven this once AAA-rated company to extinction, but for the generous assistance it received from our government during the 2008 financial crisis.

The book highlights not only Mr. Welch’s career, but those of the many executives he trained who would go on to become CEOs of other world class corporations, such as 3M, Boeing, Home Depot, Chrysler, Allied Signal, and Honeywell. Many of the stories will be familiar to readers who have followed corporate America for the past 20 years, although the book offers many details about the events that most readers will find new and interesting.

As worthwhile a read as it is, the book veers off course a bit toward the end when it injects some partisan politics and begins to suggest remedies to our “broke” capitalist system. It compares the persona and the politics of Mr. Welch with that of former President Trump, suggesting that both men are cut from the same cloth as Republicans and suggesting that Mr. Trump's elevation to the Presidency was facilitated by his relationship with Mr. Welch.

The last chapter in the book, titled Beyond Welchism, tries to prescribe some ways to “fix” capitalism by specifically changing the practices of large corporations so that they are more beneficial to society at large. Unfortunately, the chapter is vague and unconvincing, referring to "studies" that claim to support the author’s ideas, but leaves readers with generalities. For example, he claims that "studies" have shown that increasing minimum wages make employees more productive and happier, but ignores other studies that show that raising minimum wages cause companies to reduce their workforces, thereby hurting the segments of the workforce they’re attempting to lift out of poverty or to a higher standard of living.

He mentions the need to "strengthen anti-trust policies" but offers no commentary on monopolistic and, by the way, liberal leaning companies like Facebook and Google, and other high tech companies that virtually control their markets. These companies also sell products that enable companies to employ fewer workers. Although the author comments on Jeff Bezos and Amazon, and depicts Amazon as possessing the worst anti labor relations imaginable, he omits the fact that Mr.Bezos is the owner of the liberal leaning Washington Post newspaper.

He talks about the need to raise taxes on the rich, especially on capital gains, but makes no mention of the most egregious tax policy in existence, that of treating carried interest income of uber rich hedge fund managers as capital gains instead of ordinary income, a policy that the Democrats failed to outlaw when they controlled congress back in 2009 (and failed again just this week).

He talks about the middle class fallout from the 2008 financial crisis, how the middle class lost their jobs while the corporate fat cats made millions, but again, fails to mention that the Democrat controlled congress in 2009 failed to hold many, if any, of those fat cats accountable with fines or jail time.

My point is that there’s probably enough blame on both sides of the political aisle for the failures of capitalism. Mr. Gelles seems to suggest that our government should try to “fix” our corporations, which is ridiculous when we realize that Congress “broke” our government decades ago and that government grows more dysfunctional each year.

Capitalism in its purest form, which does not exist today (and probably never did), needs an environment of unfettered economic freedom and fair competition in order to exist, and a profit motive to propel it forward. Interjecting more government and more regulations will only worsen the problem.

Mr. Gelles' book is essential reading for anyone interested in the back stories of many of the most important business headline stories of the past two decades, and I believe the book would be even better had it avoided bringing politics into the discussion. Moreover, instead of offering prescriptions for the future, this reader would have preferred, for example, that the author compare today’s failures with the practices that made those corporations great back in the first half of the 20th century.