Books

the Man Who Broke Capitalism

  • In “The Man Who Broke Capitalism,” author David Gelles critiques Jack Welch’s tenure as CEO of General Electric.
  • Gelles writes that Welch was a threat to American capitalism —but his argument lacks nuance.
  • This is an opinion column. The thoughts expressed are those of the author.

Jack Welch, “the first celebrity CEO” who led General Electric from 1981 to 2001, has long had a full-throated takedown coming.

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During his tenure, the company became the most valuable in the world. At his well-attended 2020 funeral, JP Morgan’s Jamie Dimon spoke for the crowd when he described Welch as a “legendary leader” who had “really set the standard as a CEO.” The strength of this conventional wisdom was due in no small part to Welch’s aggressive marketing of his brand in his post-retirement years, through books, business ventures, and relentless television appearances.

And yet, by Welch’s own standards, his tenure was a failure. He once said hissuccess will be determined by how well my successor grows it in the next 20 yearsUnder the leadership of Welch’s hand-picked successor, Jeffrey Immelt, GE was actually the worst-performing stock in the Dow Jones Industrial Average and within a year of Immelt’s departure was removed from the index altogether.

But the cracks in the foundation of “the house that Jack built” — once the world’s most admired company — were already deep when Immelt took over. And according to an angry new book by New York Times Reporter and columnist David Gelles, those cracks extended well beyond GE itself and threatened the basic underpinnings of American capitalism.

Profits above all else

Though Welch presided over an unprecedented explosion of value at GE From $12 billion to $410 billion, Gelles sees few virtues in him, describing him as “hungry for power and thirsty for money, an ideological revolutionary who focused on maximizing profits at the expense of all else.”

But in “The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America – and How to Undo His Legacy,” Gelles is not focused primarily on Welch’s personal flaws or even GE’s stock performance. Instead, he attacks the corporate ideology that he believes has broadly infected America to our detriment: Welchism.

Gelles defines Welchism as “the conviction that executive companies must prioritize profits for shareholders above all else, thats are entitled to enormous wealth and minimal accountability, and that everyday employees deserve nothing more than their last paycheck.” Welch succeeded in disseminating this warped worldview, according to Gelles, through the relentless pursuit of three strategies that define Welchism in practice: downsizing, dealmaking, and financialization.

In Gelles’ telling, Welch’s apparent success was a testament almost exclusively to financial engineering: relentless cost-cutting and deal-making designed to hit short-term targets and obfuscate results. Shifting the mix of business from industrial to financial products ensured that money could be moved around in the last couple of weeks of the quarter to allow for apparent Madoff-like consistency of performance. (The corporate group responsible for long-term strategy was an early victim of Welchism at GE.)

One of the most revealing aspects of The Man Who Broke Capitalism is how unsuccessful a slew of Welch acolytes who followed this same playbook were at securing the same kind of glory. Again and again, the company of any company announcing a new CEO who had trained at the feet of Welch would spike, only to come back to earth when the limitations of this shortsighted were revealed.

There was Bob Nardelli, known as “Little Jack,” who went on to disastrous stints running Home Depot and then Chrysler into the ground. And Jim McNerney, the CEO at Boeing through 2015 when the company made critical decisions relating to the ill-fated 737 MAX aircraft that set “in motion a chain of events that would ultimately leave 346 people dead and the company on the ropes.”

A challenge that lacks nuance

Of course, even a gripping polemic like The Man Who Broke Capitalism can benefit from a little nuance in its critique. Gelles argues that Welch’s career “serves as a line of demarcation” and that it’s not a coincidence that things started to go off the rails economically right around 1981 when Welch took the reins. Of course, Gelles neglects to mention that the stock market hadn’t moved for almost 20 years at that point.

The Man Who Broke Capitalism cover

David Gelles Welch’s “warped worldview” infected corporate America.

Simon and Schuster


The implied equivalence among the evils of all elements of Welchism is not really credible, either. Accounting fraud to hit quarterly numbers (financialization) is never justifiable, but there are plenty of circumstances where outsourcing a non-core function (downsizing) or making a strategic acquisition (dealmaking) can enhance the long-term strength of a business. And there’s something a little ironic that a book committed to countering the cult of shareholder value repeatedly uses poor share performance to demonstrate the failure of the strategies it’s attacking.

Gelles ultimately does make a compelling case for a non-Welchian view of shareholder value that emphasizes long-term considerations and incorporates the interests of a broader group of stakeholders. Unfortunately, Gelles does not end there but uses the book to promote a long list of traditional liberal public policy objectives (eg, raise taxes and the rewrite antitrust laws, give workers the minimum right to elect 40% of public boards) that often seem largely disconnected from the Welch story.

You don’t need to buy into Gelles’ own doctrine, however, to find his book a valuable challenge to that of Jack Welch and his many disciples. That said, given the seismic impact that Gelles demonstrates Welch has had, there might be even greater value in a more careful parsing of the complex legacy of Jack Welch.

Jonathan A. Knee is a professor of professional practice at Columbia Business School and a senior advisor at Evercore. His most recent book is “The Platform Delusion: Who Wins and Who Loses in the Age of Tech Titans.”

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