Nearly everyone who has grown up in the United States, and even those who grew up elsewhere, knows General Electric (GE) in some way, shape, or form. They may know the simple GE logo because it has a prominent place in their kitchen, emblazoned on a stove, oven, or refrigerator. They may have borrowed money from GE Capital at some point in their life, as the GE conglomerate once offered a wide range of financial services, including various forms of consumer credit. They may remember the long-time GE advertising jingle: “GE: We bring good things to living, we bring good things to life.”

They may also remember GE’s larger-than-life former CEO Jack Welch, who led the company from 1981 to 2001 and who passed away in 2020. David Gelles’s newest book profiles Welch and critically examines his time at GE and the management philosophy Gelles calls “Welchism.” Gelles is a correspondent on the climate desk at the New York Times and previously authored the 2015 book Mindful Work: How Meditation Is Changing Business from the Inside Out.

GE before Welch / From the beginning of The Man Who Broke Capitalism, Gelles makes clear that he yearns for the bygone days of the mid-20th century, when there supposedly existed a kinder, gentler corporate model. He writes:

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.

According to Gelles, in those days GE was befitting of the moniker “Generous Electric” because it was

part of the bedrock of the American economy, the culmination of nearly a century’s worth of innovative engineering breakthroughs and careful financial stewardship. GE’s scientists helped win the world wars, and won Nobel Prizes, too. The devices they invented and commercialized ushered in modern life as we know it, full of electrical conveniences and technological marvels.

Not a fan / From the introductory chapter, Gelles makes clear his disdain for Welch and the actions he took at GE:

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.

Welch is not the only one who wears a black hat in the book. Gelles also attacks “free market” economist Milton Friedman, a target in several recent books, including one by Gelles’s Times colleague, Binyamin Appelbaum. (See “Milton Friedman Caused the Financial Crisis—And Other Tall Tales,” Winter 2019–2020.) F.A. Hayek and Ronald Reagan take their lumps, too. Hayek is guilty of laying “the groundwork for Welchism” with his theories that “free markets alone were the best way to address society’s needs” and that “welfare, social safety nets, and excessive protections for workers would inevitably lead to mediocrity and apathy.” Reagan’s offense is leading an administration that “would benefit corporations while marginalizing workers.”

Welch at GE / A reader might be tempted to put aside the book because Gelles telegraphs his conclusions early. But for those readers who stay past the first few dozen pages, he offers a detailed history of Welch’s meteoric rise to the top of GE. Gelles traces Welch’s hardscrabble upbringing, with a railroad conductor father and a homemaker mother who taught him to play poker. Upon graduation from the University of Illinois with a doctorate in chemical engineering, Welch began work at a GE plastics plant in Pittsfield, MA, in 1960. Within eight years, he was head of the firm’s plastics business as GE’s youngest general manager and began to accrue both a large salary and stock options. A series of promotions ensued and soon Welch was well-positioned to lead GE.

Gelles criticizes three features of Welch’s 20 years of leading the conglomerate:

  • Downsizing, which Gelles calls “mass layoffs that destabilized the American working class”
  • Dealmaking, in the form of “compulsive mergers and acquisitions…, [creating] a cash-spewing collection of unrelated businesses” as GE would pursue nearly 1,000 acquisitions while Welch was at the helm
  • Financialization with the creation of GE Capital, which Gelles calls “a giant unregulated bank” that came to represent an outsized portion of GE’s overall share of revenue and profits. GE Capital ultimately received a bailout from the Federal Deposit Insurance Corporation when it stumbled during the Great Recession and a designation as a systemically important financial institution (in other words, too big to fail), all after Welch’s departure.

Gelles gives plenty of examples of each of the events that took GE away from its way of doing business before the Welch era began. I learned a lot about Welch’s tactics at GE and his efforts to build GE Capital into a financial behemoth.

Fair criticisms? / I enjoy a good critique of a CEO’s tenure (or any public figure), and it is reasonable to scrutinize Welch’s decisions during the time he led GE. Still, I believe that some of Gelles’s criticisms are unfair.

For example, he scrutinizes many of Welch’s proteges “who internalized his tactics and took them to dozens of companies around the country” and makes the case that their actions reflect poorly on Welch. These proteges may have thought the tactics were effective and worth duplicating, but Welch had little control over the quality of their implementation. The proteges’ faults, in Gelles’s mind, include John Trani’s efforts as CEO of Stanley Works tool company to outsource work to reduce costs, streamline middle management, and initiate an offshoring of the company headquarters to Bermuda to reduce the company’s tax bill. Gelles describes the last of these actions as “an act of economic treason.”

Another questionable criticism is Gelles’s blaming Welch for the ups and downs at GE after his retirement from the firm. Obviously, the precipitous drop in GE stock shortly after his departure and the handoff to his successor, Jeffrey Immelt, had a great deal to do with the September 11, 2001, terrorist attacks, which occurred four days after Welch’s departure, and the recession that coincided with it. However, to the extent that Immelt was Welch’s “handpicked successor” and may not have been up to the job, that is certainly something for which Welch can be criticized.

Gelles notes criticisms of GE by analysts and investors and the fact that GE’s largest investor “sold off half its position” in the wake of 9/11. But he fails to mention the bounce-back in GE stock shortly after the economy emerged from the 2001 recession. That is another weakness in Gelles’s analysis throughout the book, as he discusses the ups and downs in the level of GE stock without putting them in the proper perspective. A time series graph of the stock level throughout Welch’s tenure or during critical times and compared to the performance of the broader market would have provided useful context. It was trading at about $5 a share when he took over, and was above $300 a share when he departed. Deeper analysis is called for rather than Gelles’s verbal description of spikes and drops during a particular event or over a brief, discrete time frame.

Gelles also makes several subtle and not-so-subtle comments about GE accounting practices throughout the book, calling them “creative,” “fuzzy,” “nimble,” and “games.” He states that GE “bent the accounting rules.” One of Gelles’s more detailed descriptions of questionable GE accounting maneuvers has citations to an article that details a four-year SEC investigation into transactions booked during 2002 and 2003, again after Welch departed from GE. This does not stop Gelles from pointing the finger at Welch: “The tactics appear to have been well honed [during Welch’s time]…. The suggestion [by the SEC] was unmistakable: at the height of Welch’s powers, the same sort of tactics were being employed.” Based on what is presented in the book and provided as supporting evidence, this statement is unsupported.

Good ol’ days / Notwithstanding Gelles’s desires, the U.S. and broader global economy are not going to return to their state during the 1950s. I offer this personal example as a case in point: My father had a union job at Standard Oil of Indiana for 40 years from the 1930s to the late 1970s, just as Welch was taking over GE. Many of those jobs are now gone, in part because union labor made industrial companies like GE uncompetitive. Not unlike today’s environment, the decades of the 1980s and 1990s that Welch had to traverse were a turbulent time, as CEOs had to navigate the aftereffects of inflation, the dramatic changes brought on by globalization, and tough competition from overseas.

Gelles closes the book with a laundry list of potential solutions to Welchism. Suggestions regarding companies voluntarily developing their own “more responsible business model” involving the use of “fewer natural resources” and “improving the financial health of … employees” are reasonable. But he also offers highly centralized, mandated government solutions—such as imposing compulsory requirements to put workers on corporate boards, increasing the minimum wage, raising taxes, and capping executive compensation—that would likely cause more harm than good. I don’t believe capitalism is broken, as Gelles insists in the book’s title. However, the dearth of positive outcomes from government interventions over the past 15 years suggests, instead, that interventionist policymaking is what is broken.