The Anti-Economist — October 10, 2012, 8:48 am
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The dust-up that former General Electric CEO Jack Welch caused last week caught me by surprise. “Unbelievable jobs numbers..these Chicago guys will do anything..can’t debate so change numbers,” he tweeted. As America now knows, the unemployment rate fell last week to 7.8 percent, the first time it has dropped below 8 percent during Obama’s term as president. (Nice news to offset the drubbing Obama took in the debate.)
Who would bother to take seriously Welch’s accusation that Obama’s team was manipulating the jobs data? Only those who don’t know much about him, I’d have thought. What surprised me is that that seemed to be just about everybody. Even Paul Krugman used his column to defend the estimable Bureau of Labor Statistics; pieces otherwise critical of Welch nevertheless referred to him as a great executive.
But the accusations fit Welch’s profile. He thinks as he does because he himself was often cited as one of the leading book-cookers of his era. Why would he think anyone would approach numbers any differently?
As one of his executives told me while I was researching my book Age of Greed, “Jack always advised me to keep a nickel in your pocket.” In case your earnings per share fall a bit short, in other words, always have something hidden somewhere to boost them. For years, Wall Street bought his charade of increasing profits every calendar quarter to show what a strong and predicable company GE now was, and how it continued to grow under any and all conditions.
GE was a strong profit-generator—but not that strong. Yet Welch’s legend grew, and GE’s stock price soared.
Welch was considered the best corporate executive of his time. He was talented and charismatic. He was also ruthless, and proud of it. He was the man who insisted that every department cut the bottom 10 percent of its staff every year. In the two years after he became CEO in 1980, he gutted or sold businesses that employed 70,000 workers, 20 percent of GE’s workforce. Five years later, some 130,000 of GE’s 400,000 workers were gone. They started to call him Neutron Jack, after the bomb that killed people but didn’t destroy buildings.
Welch was selling stale manufacturing businesses, in his mind, like the venerable appliances division, which made toasters and irons. In their stead he bought RCA, owner of NBC, and eventually Kidder Peabody, a soon-to-be-troubled investment bank. He handled neither investment well.
He was managing in the new fashion, like a takeover artist or leveraged-buyout partner, buying companies that could turn handsome profits with fewer workers and selling older ones rather than trying to remake them. He had not always been like this. When he started out, he was an engineer with a Ph.D., bent on innovation. He oversaw the development of new plastic products early in his career, and made a big successful bet on CT scanners, overseeing major innovations in the technology.
But then innovation was pushed aside at America’s manufacturing giants in favor of buy-and-sell. No one saw it that way for quite a while. Welch preached new managerial methods. He encouraged people to talk back. But a strategic shift was taking place in corporate America, often in emulation of him. As the media, Wall Street analysts, and not a few mainstream economists were lauding the new lean-and-mean corporate America, the nation’s manufacturers were mostly taking the easy way out—stripping down companies, foregoing real innovation, and riding the financialization wave, exploiting securities bubbles along the way.
Nobody did that better than Welch. He turned the greatest manufacturing company in the world into a bank, essentially, his GE Capital Division providing half or more of the company’s profits at a time when banks were printing money—that is, until 2008. Welch retired in 2001. GE’s profits rose ten times, to $13 billion, over his tenure. In 1980, GE was the ninth most-profitable company in America. During the 1990s it was always first, second, or third. At $500 billion, its shareholder value was greater than that of any other company in the nation.
Before Welch got the CEO job in 1980, he’d had to write a long essay to GE’s then chairman, Reginald Jones, about how he would run the company. Under Jones, the company’s goals had been long-term, but Welch argued that times had changed. Stock prices had been down across the board for a decade and had made all kinds of companies vulnerable to takeover. Welch had his eye on the market. “What we have to sell as an enterprise to the equity investor is consistent, above-average earnings growth throughout the economic cycle,” he wrote. “The discipline to balance both short and long term is the absolute of such a strategy.”
One way—perhaps the key way—Welch pushed up earnings “consistently” as CEO was to make last-minute financial trades in GE Capital just before the close of the calendar quarter. As CNN Money pointed out, (euphemistically calling Welch’s actions “earnings management”), “Though earnings management is a no-no among good governance types, the company never denied doing it, and GE Capital is the perfect mechanism.” Welch never made the kinds of aggressive manipulations that brought down Enron or Worldcom, but he was part of an era in which honest accountants were laughed out of town.
After Welch left GE, by the way, the company went downhill. Its banking business was clobbered in the financial crisis—it was heavily invested in subprime mortgages—and Welch’s successor, Jeffrey Immelt, is still struggling to reshape the company, partly by returning to manufacturing. Among his most conspicuous sales was NBC. GE’s stock price is still not nearly as high as it once was. Its stock-market value isn’t even close to today’s leader, Apple, which makes real products.
Welch’s legacy will no doubt continue to fade. He has no moral right to make accusations against one of the U.S. government’s most forthright agencies. He sees in the government what he himself was.
More from Jeff Madrick:
Addressing the graduating cadets at West Point in May 1942, General George C. Marshall, then the Army chief of staff, reduced the nation’s purpose in the global war it had recently joined to a single emphatic sentence. “We are determined,” he remarked, “that before the sun sets on this terrible struggle, our flag will be recognized throughout the world as a symbol of freedom on the one hand and of overwhelming force on the other.”
At the time Marshall spoke, mere months after the Japanese attack on Pearl Harbor, U.S. forces had sustained a string of painful setbacks and had yet to win a major battle. Eventual victory over Japan and Germany seemed anything but assured. Yet Marshall was already looking beyond the immediate challenges to define what that victory, when ultimately— and, in his view, inevitably—achieved, was going to signify.
This second world war of the twentieth century, Marshall understood, was going to be immense and immensely destructive. But if vast in scope, it would be limited in duration. The sun would set; the war would end. Today no such expectation exists. Marshall’s successors have come to view armed conflict as an open-ended proposition. The alarming turn in U.S.–Iranian relations is another reminder that war has become normal for the United States.
Last fall, a court filing in the Eastern District of Virginia inadvertently suggested that the Justice Department had indicted WikiLeaks founder Julian Assange. The Wall Street Journal, the New York Times, and other outlets reported soon after that Assange had likely been secretly indicted for conspiring with his sources to publish classified government material and hacked documents belonging to the Democratic National Committee, among other things.
Harold Jamieson, once chief engineer of New York City’s sanitation department, enjoyed retirement. He knew from his small circle of friends that some didn’t, so he considered himself lucky. He had an acre of garden in Queens that he shared with several like-minded horticulturists, he had discovered Netflix, and he was making inroads in the books he’d always meant to read. He still missed his wife—a victim of breast cancer five years previous—but aside from that persistent ache, his life was quite full. Before rising every morning, he reminded himself to enjoy the day. At sixty-eight, he liked to think he had a fair amount of road left, but there was no denying it had begun to narrow.
The best part of those days—assuming it wasn’t raining, snowing, or too cold—was the nine-block walk to Central Park after breakfast. Although he carried a cell phone and used an electronic tablet (had grown dependent on it, in fact), he still preferred the print version of the Times. In the park, he would settle on his favorite bench and spend an hour with it, reading the sections back to front, telling himself he was progressing from the sublime to the ridiculous.
1. In 2014, Deepti Gurdasani, a genetic epidemiologist at the Wellcome Sanger Institute in England, coauthored a paper in Nature on human genetic variation in Africa, from which this image is taken. A recent study had found that DNA from people of European descent made up 96 percent of genetic samples worldwide, reflecting the historical tendency among scientists and doctors to view the male, European body as a global archetype. “There wasn’t very much data available from Africa at all,” Gurdasani told me. To help rectify the imbalance, her research team collected samples from eighteen African ethnolinguistic groups across the continent—such as the Kalenjin of Uganda and the Oromo of Ethiopia—most of whom had not previously been included in genomic research. They analyzed the data using an admixture algorithm, which visualizes the statistical genetic differences among groups by representing them as color clusters. The top chart shows genetic differences among the sampled African populations, in increasing degrees of granularity from top to bottom, and the bottom chart shows how they compare with ethnic groups in the rest of the world. The areas where the colors mix and overlap imply that groups commingled. The Yoruba, for instance, show remarkable homogeneity—their column is almost entirely green and purple—while the Kalenjin seem to have associated with many populations across the continent.
Ten yards was the nearest we could get to the river. Any closer and the smell was too much to bear. The water was a milky gray color, as if mixed with ashes, and the passage of floating trash was ceaseless. Plastic bags and bottles, coffee lids, yogurt cups, flip-flops, and sodden stuffed animals drifted past, coated in yellow scum. Amid the old tires and mattresses dumped on the riverbank, mounds of rank green weeds gave refuge to birds and grasshoppers, which didn’t seem bothered by the fecal stench.
El Río de los Remedios, or the River of Remedies, runs through the city of Ecatepec, a densely populated satellite of Mexico City. Confined mostly to concrete channels, the river serves as the main drainage line for the vast monochrome barrios that surround the capital. That day, I was standing on a stretch of the canal just north of Ecatepec, with a twenty-three-year-old photographer named Reyna Leynez. Reyna was the one who’d told me about the place and what it represents. This ruined river, this open sewer, is said to be one of the largest mass graves in Mexico.
Cost of renting a giant panda from the Chinese government, per day:
A recent earthquake in Chile was found to have shifted the city of Concepción ten feet to the west, shortened Earth’s days by 1.26 microseconds, and shifted the planet’s axis by nearly three inches.
An Iraqi man complaining on live television about the country’s health services died on air.
At Ivanwald, men learn to be leaders by loving their leaders. “They’re so busy loving us,” a brother once explained to me, “but who’s loving them?” We were. The brothers each paid $400 per month for room and board, but we were also the caretakers of The Cedars, cleaning its gutters, mowing its lawns, whacking weeds and blowing leaves and sanding. And we were called to serve on Tuesday mornings, when The Cedars hosted a regular prayer breakfast typically presided over by Ed Meese, the former attorney general. Each week the breakfast brought together a rotating group of ambassadors, businessmen, and American politicians. Three of Ivanwald’s brothers also attended, wearing crisp shirts starched just for the occasion; one would sit at the table while the other two poured coffee.
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