A Q&A with David Gelles, author of The Man Who Broke Capitalism

It wouldn't be a stretch to say that GE literally invented much of American life as we live it today, giving us everything from the light bulb, electric toaster, and refrigerator to the television and modern jet engine. It also helped invent the social contract, being—as David Gelles writes in his new book—“among the first American companies to offer its employees retirement plans, a share of the profits, health insurance, and life insurance.”  

That all began to change when Jack Welch took over as CEO in 1981. One of the first things he did was embark on what GE’s employees called the “campaign against loyalty”—announcing rounds of mass layoffs, upending the expectations of secure employment, and ending the example GE had long set as a model employer. And, over the 20-year tenure at the helm, he not only disinvested in the company’s employees, but in GE’s long history of industrial innovation, turning his sights instead to meeting ever-increasing quarterly earnings expectations and financial machinations that would help him do that. As Gelles notes in The Man Who Broke Capitalism, “during his long tenure, the closest thing to a breakout new product that GE recorded was the debut of CNBC, the all-business cable news network that turned stock watching into prime-time entertainment.” Which seems appropriate—a mirror of his own stock watching and management. 

But, as Gelles reveals, it didn’t stop with Jack Welch and GE. I recently sent the award-winning journalist some questions I had upon completing the book, and he was kind enough to respond. Below is that conversation.  

Porchlight Book Company: You come to a lot of clear conclusions in the book, some of which will likely feel counterintuitive to many readers at first. The idea that the man who made GE into the most valuable company in the world may have ultimately undermined its success—and so much more beside it—will likely meet with some resistance. But before we even get there, one of the first ideas that surprised me is that “in America, we worship our bosses.” Can you speak to that a little bit, and help us understand how Jack Welch became such a popstar in the American imagination?  

David Gelles: The United States has had a complicated relationship with money since its inception. It’s often done a lot of good. Our industriousness helped give rise to a stunningly economic superpower, kickstarted a huge amount of innovation and has benefitted countless families with material wealth.  

But there’s also been a dark side to capitalism in America from the outset. From slavery, to poor working conditions in factories, to the excesses of the gilded age, to more recent crises and scandals, money has been causing a whole lot of headaches here, too. 

And in a country that never had a royal family and that is a melting pot by design, it has been our business leaders who have emerged as our cultural touchstones. Millionaire and billionaire entrepreneurs and manager embody not only the personal wealth that so many people aspire to, but also seem to represent the whole over-the-top history of money in America. And there was no CEO more brash, boastful and gleefully in-love with the whole enterprise than Jack Welch.  

PBC: GE was once seen as a model employer that helped construct the nation’s social contract during a “Golden Age of Capitalism” between World War II and the 1970s. In 1953, GE’s annual report touted how much it paid in taxes and how much it paid its employees, proud to state it had “the biggest pay roll in the Company’s history—with more people at work than ever before.” Johnson & Johnson also touted “high taxes paid” to its shareholders. The era had its flaws, of course, but how did we get from that era of openly stated civic mindedness to one in which Wall Street celebrates mass layoffs and tax avoidance?  

DG: The way we got there is Jack Welch. For roughly 30 years after World War II, corporate America was, while by no means perfect, a place where the spoils of labor were distributed with some semblance of equality. Workers were generally paid well. Bosses weren’t paid too much. Suppliers were well-compensated. And the government got its fair share in taxes. 

Welch changed all of that. He wanted GE to be the most valuable company in the world, and he systematically set about reshaping the company’s priorities and processes to achieve that goal. That meant shifting capital away from workers and towards share dividends and buybacks, which tend to boost a company’s stock price. And it meant closing factories to reduce labor costs, and finding ways to reduce the amount of money GE paid the government. And where Welch went, other companies followed.  

PBC: We have been reading about the damaging effects of shareholder maximization for years, but most of the literature focuses on the academic roots of the theory, never really explaining how it came to be implemented so widely throughout the economy. One of the revelations of your book is how much it needed a champion like Welch to put it into practice. Can you explain how his success not only gave other CEOs permission to dismantle the social contract in pursuit of profits, but pressured them to do so? 

DG: For the better part of a century, GE was the company other CEOs looked to for guidance on how to behave. From the late 1800s, the company established itself as a pioneer when it came to organizational management and design, and as GE went, so went the rest of the corporate world. Then Welch came along and used all that clout, all that authority, to advance the agenda of shareholder primacy.  

And once he got going – pushing GE’s stock higher at any cost – it was almost impossible for other CEOs not to follow suit. As Welch normalized mass layoffs, massive buybacks and dividends, other companies understood that they could do the same thing, and it would often result in short-term boosts to their stock prices. And once Wall Street understood that Welch’s playbook had the capacity to turbo charge returns – at least for a while – they began pressuring companies to pursue a strategy like the one Welch was advancing at GE. Before long, the whole economy was going along for the ride.  

PBC: Given what you describe as the “great unraveling” of GE in the 20 years after Welch left, and the considerable damage done by GE managers who went on to lead other companies using the Welch playbook—which you discuss at length in the book—why does Welchism persist to the point that it is still not only the norm, but a single-minded pursuit of profits over people is still blindly considered a “good business decision” in corporate America? 

DG: The rise of Welchism was a generational project. It took decades for executives, investors, workers and the general public to be lulled into thinking that maximizing profits at the expense of employees, the environment and communities was not only acceptable, but somehow the natural order of things. It will take many years to for us to change this narrative, and many more years to devise a new economic system that is more equitable for all.  

But I do think things are starting to change. The rise of so-called “stakeholder capitalism” is just one indication that the leaders of big business are beginning to understand their role as going beyond simply maximizing returns for investors. And at some companies, from PayPal to Unilever and beyond, we’re beginning to see real changes in the way corporations operate. But Welchism’s roots go deep in this economy, and it will take a long time before systems really change.  

PBC: Do you think that Jack Welch could have succeeded in what he did for so long without the cover of one of America’s premier industrial institutions and its heritage behind him? His actions clearly undermined GE in the end, but it blew up more immediately when implemented by his protégés elsewhere. Those that did succeed elsewhere seem to have used a different playbook that looked more like the Golden Age one. So, was it Welch or the legacy of GE that held it together for so long, and do you think his approach could have worked anywhere else and taken such a firm hold over the economy if it weren’t being done first at GE?  

DG: It's hard to entertain a counterfactual like that, but it’s undoubtedly true that one of the things that made Welch so powerful was this combination of the right person at the right company at the right moment in history. Ideas about changing the role of business in society had been percolating in some corners of the economic right for years. But it was only when a man as ambitious arrived at a company as influential as GE at a moment so right for change that the whole economy begin to change.   

PBC: Welch retired just days before the 9/11 attacks, an event that rocked the country and the company. But you believe his successor Jeff Immelt had a unique opportunity to reset the company in the wake of the tragedy, to reign in the financial exposure and the expectations Welch had set for never-ending increases in earnings, and recommit to GE’s industrial roots. What could he have done to reset the culture and expectations at GE at that point? 

DG: By Immelt’s own account, he had a major chances to reset the company after 9/11. The whole of corporate America was hurting, and if GE had missed its earnings targets for a quarter or two, investors would likely have understood. But the alure of hitting the numbers – which Immelt described as “seductive” – was powerful. And rather than do the tough work of resetting GE – a process that would likely have entailed deemphasizing GE Capital and reinvesting in the industrial businesses, an experience that would have likely been expensive in the short-term but set the company up for greater long-term success – Immelt turned to the finance division once more, made good on expectations for Wall Street, and barreled onwards.   

ABOUT DAVID GELLES 

David Gelles is the “Corner Office” columnist and a business reporter for the New York Times. Since joining the Times in 2013, he has written about CEOs, finance, technology, media, and more. He was part of the team that covered the fallout from the crashes of two Boeing 737 Max jets, work that won the 2020 Gerald Loeb Award for Breaking News Reporting. A student of Buddhism and a meditator for more than twenty years, David is an authority on the intersection of mindfulness and the business world. His 2015 book, Mindful Work: How Meditation is Changing Business from the Inside Out, was published by Houghton Mifflin Harcourt. Before joining the Times, he was a reporter for the Financial Times. 

ABOUT THE MAN WHO BROKE CAPITALISM  

New York Times reporter and “Corner Office” columnist David Gelles reveals legendary GE CEO Jack Welch to be the root of all that’s wrong with capitalism today and offers advice on how we might right those wrongs. 
 
In 1981, Jack Welch took over General Electric and quickly rose to fame as the first celebrity CEO. He golfed with presidents, mingled with movie stars, and was idolized for growing GE into the most valuable company in the world. But Welch’s achievements didn’t stem from some greater intelligence or business prowess. Rather, they were the result of a sustained effort to push GE’s stock price ever higher, often at the expense of workers, consumers, and innovation. In this captivating, revelatory book, David Gelles argues that Welch single-handedly ushered in a new, cutthroat era of American capitalism that continues to this day. 
 
Gelles chronicles Welch’s campaign to vaporize hundreds of thousands of jobs in a bid to boost profits, eviscerating the country’s manufacturing base and destabilizing the middle class. Welch’s obsession with downsizing—he eliminated 10% of employees every year—fundamentally altered GE and inspired generations of imitators who have employed his strategies at other companies around the globe. In his day, Welch was corporate America’s leading proponent of mergers and acquisitions, using deals to gobble up competitors and giving rise to an economy that is more concentrated and less dynamic. And Welch pioneered the dark arts of “financialization,” transforming GE from an admired industrial manufacturer into what was effectively an unregulated bank. The finance business was hugely profitable in the short term and helped Welch keep GE’s stock price ticking up. But ultimately, financialization undermined GE and dozens of other Fortune 500 companies. 
 
Gelles shows how Welch’s celebrated emphasis on increasing shareholder value by any means necessary (layoffs, outsourcing, offshoring, acquisitions, and buybacks, to name but a few tactics) became the norm in American business generally. He demonstrates how that approach has led to the greatest socioeconomic inequality since the Great Depression and harmed many of the very companies that have embraced it. And he shows how a generation of Welch acolytes radically transformed companies like Boeing, Home Depot, Kraft Heinz, and more. Finally, Gelles chronicles the change that is now afoot in corporate America, highlighting companies and leaders who have abandoned Welchism and are proving that it is still possible to excel in the business world without destroying livelihoods, gutting communities, and spurning regulation.