Jack Welch Did Not Break Capitalism

Jack Welch Did Not Break Capitalism

Welch was an icon, but he doesn’t deserve that sort of credit.

A friend of mine passed along this New York Times piece about David Gelles’ interviews with Jack Welch, the former CEO of General Electric. The title of Gelles’ book, which is based on the same interviews, is, The Man Who Broke Capitalism. To suggest Welch broke capitalism is an over statement and completely overlooks trends that started before Welch took the reins of GE in 1981.

One thing Gelles gets right is that Welch had god-like status. I worked in the corporate world and was “climbing the greasy pole of management” at a time when Welch would fart, and people would listen.

I remember Welch’s rule about memos: no more than one page. This was drilled into my head, over and over again, and it always bothered me. I used to think, if Tolstoy were alive, would Jack have told him to use fewer words? Of course, it’s convenient for those in power to require concision. If the writer had an idea that challenged “corporate think”, they could forget about getting it across. As Chomsky so eloquently points out, concision is a convenient way to quiet dissent, because it takes time (words) to get across notions that do not conform to conventional thinking. So, if Welch decided the only thing that mattered was increasing shareholder value, and he managed to convince the leadership of a multinational the size of GE this was truth (as if handed down by Moses) then who could possibly explain to him, in the space of a one-page memo, why he may be wrong?

Gelles gives only footnote mention of Milton Friedman in making his case that corporate leaders simply aped Welch, which then led to the breaking of capitalism. We’ll return to the notion of “breaking capitalism” later. It’s that Gelles overlooks the impact of Friedman’s 1970 New York Times article we’ll take-up here.

Milton Friedman was an American economist who hailed from the Chicago school. He was also a devotee of Ayn Rand, whose bizarre ideas include extoling selfishness as if it was a virtue. In 1970, Friedman wrote an article, published in the New York Times, titled, “A Friedman doctrine‐- The Social Responsibility Of Business Is to Increase Its Profits.” Friedman had a penchant for hyperbole, and the article is full of it. He also was a very persuasive speaker, which helps to explain why his ideas caught-on. In the article, Friedman makes the case for what eventually became known as “the theory of shareholder primacy.” Another notion that comes out of the article is what’s called, “the agency theory” of management.

These two ideas, shareholder primacy and agency theory, were gobbled up by corporate leaders during the 1970’s. The first is fairly straightforward: All that matters is making money. Forget any sort of moral duty to society or the environment. That’s out. What puts the theory of shareholder primacy to work is the agency theory, which holds that the manager is an amoral actor beholden to the desires of the shareholders. And if shareholders only care about money, then it’s easy for the manager to turn human beings into figures on a spreadsheet. The agency theory explains why some of the most successful corporate leaders also seem to be, at least partially, sociopathic.

By the late 1970’s, Friedman’s ideas were being fed to some of the best and brightest among us: Harvard MBAs. Duff McDonald’s, The Golden Passport, chronicles the Harvard Business School (HBS) from its inception in 1908, through to the present day. One cannot overestimate just how influential the teachings emanating from HBS have been. McDonald writes, “As the nation’s most prominent – and largest – business school for the last century, HBS has shaped – and continues to shape – the direction not just of its graduates’ lives, but also those of the organizations they work for and the economy itself…Given its position in the business firmament, anything that happens at HBS…has butterfly effects not just in the US economy but globally.” If we teach some of our greatest minds that nothing matters but profit, and a person’s behavior is not hemmed in by a time-honored morality, then is it any wonder we have the sort of wealth inequality and environmental degradation we see today?

Welch took over GE in 1981, and based on what we know about the spread of Friedman’s Doctrine, it’s hard to justify the credit Gelles gives Welch. In 1981, there were plenty of folks occupying mahogany lined offices and strolling Wall Street who thought like Welch. Was Jack Welch a celebrity? Absolutely! But was he some sort of high priest whose pearls of wisdom were used by others to break capitalism? I don’t think so. By 1981, there were legions of consultants at McKinsey, and a multitude of corporate managers who didn’t need to follow Welch: They’d been taught what to do in school.

This brings us to the idea of breaking capitalism. As brilliant and influential as Jack Welch may have been, the one thing he did not do was break capitalism. It wasn’t possible for him to do so because capitalism was broken when it was given birth in the thirteenth century. It is a system based on exploitation, and this is something Marx understood and explained very well more than one hundred years ago. Exploitation is antithetical to justice, so if you’re looking for justice, whether social, environmental or economic, don’t look to capitalist systems.

Eventually, capitalism will exploit everything, including itself. The whole of globalized capitalism is hollowing itself out, and we are rapidly approaching what systems thinkers call “release”, a segment in the adaptive cycle of ecosystems also known as collapse. The vulnerability of the globalized system to supply chain shocks is an example of this phenomenon. We’re experiencing this right now with the baby formula shortage. There are just four baby formula manufacturers in the US; this is because unfettered capitalism tends toward monopolization. Monopolies are not unlike monocultures: They’re vulnerable to disease and collapse. As the system continues its trend toward monopolization, which leads to an ever-increasing concentration of wealth and power, its precarity will increase. The increasing frequency and intensity of extreme weather events will add additional, and likely significant stress to an already vulnerable system. And if even a portion of the prognostications coming out of the UN become reality, we are in for some serious trouble.

Jack Welch was certainly an icon, but to give him the sort of credit Gelles seems to be dolling out is a misread of things. Capitalism is a flawed system for organizing human behavior, and because of this, it’s destined to collapse and be replaced by something that better aligns, or harmonizes with the Earth system itself. Welch did not break capitalism: All he did was contribute to the acceleration of its collapse, and he had a lot of help. We are living through the beginning of that collapse. What lies on the other side is unknowable. What is certain, however, is that a new way is now taking shape. The question is whether we have the capacity to discern what is emerging and work together to nurture its growth.

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