At Any Cost: Jack Welch, General Electric, and the Pursuit of Profitby Thomas F. O'Boyle
"O'Boyle has researched and written a monumental book that should be mandatory reading for all CEOs and anyone concerned with business ethics." The Philadelphia Inquirer
"Superb . . . a spirited study of General Electric, and of its sometimes brilliant, sometimes bungling, but always ruthless boss, Jack/i>
"O'Boyle has researched and written a monumental book that should be mandatory reading for all CEOs and anyone concerned with business ethics." The Philadelphia Inquirer
"Superb . . . a spirited study of General Electric, and of its sometimes brilliant, sometimes bungling, but always ruthless boss, Jack Welch." Chicago Sun-Times
With convincing passion and meticulous research, Thomas F. O'Boyle explores the forces behind General Electric's rise to the top of Wall Street, questioning if GE, with chief executive officer Jack Welch at the helm, is still "bringing good things to life." Welchexplosive, profit-hungry, and pragmaticcatapulted GE's stocks to the top, up 1,155 percent from 1982 to 1997. O'Boyle argues that these astounding results have come only with the heavy price of employees' lives, blighted under the tyranny of "Neutron Jack" Welch, so named for his bomb-like ability to eliminate staff without disturbing surrounding operations. During Welch's reign, hard-nosed success tacticsunblinking downsizing, ruthless acquisition negotiations, and the virtual abandonment of manufacturing in favor of the more glamorous entertainment and financial services industriescoexist with scandals like price-fixing, pollution, and defense contract fraud. Sure to spark controversy, this gripping, comprehensive account begs the greater question: Is Jack Welch's GE a model company for business in the next century, or is it time to change the way the world does business?
"Smoothly written and thoroughly researched." USA Today
"This book makes a valuable contribution to our understanding of corporate America. . . . Thomas F. O'Boyle persuades you that GEJack Welch's GEbrings bad things to life. In abundance." Washington Monthly
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MADE IN AMERICA
Everything that we identify today as the General Electric Company--the products, profits, dividends, services, assets, and people that make up one of the world's most powerful corporations--has its origin in a single idea. The idea wasn't a new product per se; the products, thousands of them, would come later. Rather, it was a way of marshaling Yankee ingenuity to create a truly revolutionary concept: the industrial research laboratory.
Before 1876, only the cultivated devotees of pure science possessed laboratories, and they used them either as teaching instruments or to add to the sum of human knowledge, not to make things. The laboratory of plant physiology, established in Paris at the Museum of Natural History in 1873, was created so that plants could be studied through means of modern chemical analysis. At the same time, Louis Pasteur was exploring human disease at his Parisian lab, while the HMS Challenger, the world's foremost oceanographic vessel, left the harbor in Plymouth, England, with passengers on the most ambitious scientific exploration yet planned--to map the depths of the seas and to report on the flora and fauna encountered.
Thomas Edison, just twenty-nine years old and already a prolific inventor with more than one hundred patents, brought a new approach to the endeavor of scientific research. The lab he founded in 1876, a modest woodframe structure in the quiet countryside of Menlo Park, New Jersey, would be the world's first to unite practical engineering with theoretical science. Edison was obsessed with inventing not just devices but whole systems, and it was in the lab that he began inquiries into the phenomenon he called "the electric light problem." Two years later he founded the Edison Electric Light Company to support his incandescent light research with a staff of "twenty earnest men," as he called his Menlo Park colleagues, among whom were several distinguished mathematicians, physicists, and university-trained engineers, as well as clockmakers and machinists. Their goal was simply to make things in the facility that Edison called his little "invention factory." "We've got to keep coming up with something useful," he told his associates. "We can't be like those old German professors who spend their whole lives studying the fuzz on a bee."
Edison never showed much interest in profit--he railed against wealth and declared that "interest is an invention of Satan," while repeatedly losing whole fortunes--yet the Edison laboratory held true to its mission. It was prodigious in its inventive creativity: At Menlo Park the first cries of the infant phonograph were heard, the brilliant light of the Edison lamp shone forth, America's first full-scale electric locomotive rumbled over a small track outside, and the mysterious vacuum tube also appeared, hinting at the future of electronics and radio. "There is no similar institution in existence to this one," Edison wrote. "We do our own castings, forgings, and can build anything from a lady's watch to a locomotive.... Inventions that formerly took months and cost large sums can now be done [in] two or three days with very small expense, as I carry a stock of almost every conceivable material."
Asked on his eightieth birthday what he considered his greatest invention, Edison replied, "The research laboratory." Inventions were merely the byproduct of the invention factory, which brought forth a new way of focusing the talents and energies of his team. Edison had "made a business out of invention itself," German economist Werner Sombart later wrote. Among the people who recognized their indebtedness to Edison and his revolutionary idea of industrial research was Henry Ford, who attributed much of his success in the mass production of automobiles to his friend and camping buddy, and built an exact replica of the invention factory at his Henry Ford Museum in Dearborn, Michigan. When the museum was dedicated in 1929, on the fiftieth anniversary of the electric light breakthrough, Edison reenacted his triumphant moment as hundreds of dignitaries, including Ford, Orville Wright, Madame Curie, Will Rogers, Harvey Firestone, and President Herbert Hoover, looked on. When Edison--the most important person of the millennium, according to one 1997 ranking by the editors of Life magazine--died in 1931, Americans dimmed their lights on the night after his funeral.
Since that time a deluge of technological invention has transformed the world we live in, activity that derives its essential form and character from the invention factory Edison pioneered in 1876. Menlo Park was the birthplace of modern American technology, the beginning of science and industry working side by side in the pursuit of innovation, and the ushering in of a new era of American commercial supremacy. It also signaled the birth of the General Electric Company, and of the spirit of creative innovation that would propel its growth in the next century.
The electrification of America was soon in full swing. Edison's discovery of incandescent light was the seminal event representing the end of one era and the beginning of another--the steam age was dead, and the electrical age had begun. But what set Edison apart from his inventive peers of that era was that he was not content merely to invent the lightbulb; he created an entire electrical infrastructure, manufacturing and installing everything that was required to deliver electrical light. The new age took a giant step forward on September 4, 1882, when, at 3:00 in the afternoon, Edison and his team of engineers lighted up four city blocks on the southern tip of Manhattan, including the offices of his financial backer J. P. Morgan and the New York Times, with electricity generated by the first American power station, on Pearl Street, using huge coal-fired generators known as dynamos to generate the current that illuminated the light bulbs. The early Edison Electric Light Company was consolidated with other Edison interests in 1889 to form the Edison General Electric Company. Three years later, Charles Coffin, president of the Thomson-Houston Company of Lynn, Massachusetts, and a rival of Edison's, merged his company with Edison General Electric to form GE, breaking a stalemate in patent disputes between the two. The new company was the leader in nearly everything electric, a manufacturer of fans, dynamos, lightbulbs, trolley cars and locomotives, motors, and heaters.
By 1893, the new General Electric Company proudly proclaimed that its lamps extended "in an unbroken line around the earth; they shine in the palace of the Mikado as well as in the Opera House of Paris." Talk of electricity was everywhere. H. L. Mencken later nicknamed the 1890s "the Electric Decade" while Andrew Carnegie declared electricity "the most spiritual, most ethereal of all departments in which man has produced great triumphs." In 1899, an advertisement in the Times proclaimed:
ELECTRICITY lights our city.
ELECTRICITY runs our street cars.
ELECTRICITY causes wagons without horses to go.
ELECTRICITY permits us to talk great distances.
ELECTRICITY will do our cooking and heating.
ELECTRICITY will soon do everything.
In the early years of the new century, a few large industrial concerns, among them GE, the Bell System, and Eastman Kodak, established laboratories of their own. The scope of their activities broadened beyond those of Edison's inaugural lab to include basic scientific research as an adjunct to practical inventive work. In 1922, Edison, by that time an American icon, visited, after an absence of twenty-five years, General Electric's huge plant and industrial research laboratory in Schenectady, New York. The factories that had grown up out of the old Edison Machine Works he had established there in 1886 encompassed most of the downtown area and employed eighteen thousand workers who, at the order of President Gerald Swope, assembled to welcome and cheer Edison. A bronze plaque was unveiled in his honor at the door of the laboratory he had initiated, the successor to Menlo Park. Staffed with hundreds of technicians, among them the nation's leading scientists and engineers working in fields of technology that Edison had only dimly imagined, the lab turned out inventions in such a torrent of creativity it had been dubbed "the House of Magic." Edison beheld devices that even he could scarcely have imagined: a lightning machine that discharged 120,000 volts of electricity in a single bolt, lamps thousands of times more powerful than the incandescent bulb he had invented, vacuum tubes for long-distance radio transmission, and photoelectric mechanisms that reproduced sound on tape for motion pictures and phonographs.
In the intervening quarter century the men who had succeeded Edison had worn the inventive mantle well. The most significant of them was Charles Proteus Steinmetz, who joined the company in its second year. He was a German emigre, a dwarfed hunchback with a salt-and-pepper beard and a domed forehead, a cigar-chomping mathematics-professor-in-residence, a patent-winning engineer, a textbook author, and a peripatetic luminary on topics ranging from the behavior of alternating current to management theory. In 1900, Steinmetz proposed that GE should respond to Westinghouse's advances in electric lighting by setting up a research lab to pursue work in the field. In December of that year, the company hired Willis Whitney to be the first director of the research lab, which was then a barn in back of Steinmetz's house. The barn burned down the following spring, and the lab was relocated to a small building with the GE facilities. Soon thereafter Whitney, who would guide the lab's efforts for thirty-two years, and Steinmetz began attracting some of the brightest scientific minds of this or any other century. There was Ernst Alexanderson, the Swedish emigre whose high-frequency alternator made the first, historic radio broadcast possible; William Coolidge, who perfected the modern X-ray tube and whose discovery of how to make tungsten ductile revolutionized many products, including the Edison lamp; and Irving Langmuir, who greatly enhanced the efficiency of lightbulbs by putting gas in them, and whose work measuring the sizes and shapes of atoms and molecules received international recognition in 1932 when he became the first industrial scientist to receive a Nobel Prize. These men were the technological giants of their time, and their bequest to GE, and to the nation, was enormous.
The General Electric breakthroughs in the first half of the twentieth century were at the leading edge of modern technology, fundamentally changing American life, and representing a rich legacy. Indeed, it is not overstatement to say that GE was the world's most significant company technologically in the first half of this century. As engineer John Broderick wrote in his 1929 memoir Forty Years with General Electric. "The General Electric Company is not a manufacturer in the sense in which manufacturing is commonly understood, but is that and something more. It originates the products which it supplies to the public. In addition to executives, salesmen, and manual workers, its organization is made up of scientists, research and designing engineers, and inventors--men who contribute in one way or another to the development of apparatus and devices for the generation, distribution, control, and use of electric energy."
GE made things that stood the test of time. Anyone who has an old GE appliance that still functions after fifty years can attest to that. The inventions weren't merely durable; they also endured because they were unique. Seven of the nine manufacturing businesses in which GE remains had their genesis in products created by Edison, Steinmetz, Alexanderson, Coolidge, Langmuir, and other contemporaries: the electric light (1879), the electric meter (1882), the electric motor (1887), the steam turbine (1901), the X-ray machine (1913), the diesel-electric locomotive (1924), and the refrigerator (1925). The two other businesses, plastics and aircraft engines, also reflect breakthrough technology, though of 1950s origin. Engineering, research, and manufacturing were the elements that defined GE and made it a significant force in American life. The list of achievements and inventions seems improbable by today's standards. GE research gave us products as diverse as the first motion picture with talking sound, the first jet engine, the first synthetic diamond--and the first children's Silly Putty. GE products were fixtures in nearly every sphere of American life: in the home, in the factory, in space, aboard trains, planes, and ships, in communications, in sports arenas, even in the Panama Canal. The GE system that runs the canal, including more than one thousand electric motors and countless relays, switches, and control devices, has operated continuously since the canal opened in 1914.
No decade better exemplified the old General Electric than the 1950s. A 1955 article in Fortune magazine summed up the company's scope in manufacturing this way: "One measure of GE's vast diversification is the fact that the company is presently engaged in manufacturing in twelve of the twenty-one major industries. Looked at this way, a share in General Electric might be called a share in an investment trust engaged in manufacturing." In 1956, Reader's Digest described "that factory of the future you've been reading about." The factory was Appliance Park, which when it opened four years earlier had represented an investment of $156 million, a white-goods colossus spread out over ninety-three acres of buildings in Louisville, Kentucky. In one day, more than 3,000 job applicants lined up in response to a GE announcement of additional hiring at the park.
Appliance Park was the vision of Ralph Cordiner, the then CEO, who hired Ronald Reagan. The future president was just what Cordiner wanted: Tall, handsome, and well spoken, he would project a presence that the public would soon come to associate with the GE way of life. The company furnished the Reagans' "all-electric home," which was featured in GE advertisements of that time: "Ronald and Nancy Reagan, circa 1954, relax in the living room of their GE all-electric home," proclaimed one ad, with Nancy gazing upon Ron while he sat and read. The home had gadgets not yet on the market, including a dishwasher with built-in garbage disposal. Reagan became America's most conspicuous consumer, fulfilling Cordiner's vision of a pitchman who would literally create demand. The future president also spent two of the eight years he was under contract to GE on the road, visiting each of the company's more than 130 manufacturing facilities in the United States and addressing all of its 250,000 employees. Reagan of course was best known as the host of GE Theater, the weekly Sunday night television drama that ran on CBS from 1954 to 1962. "In engineering, in research, in manufacturing skill, in the values that bring a better, more satisfying life," each segment began with a crescendo, "at General Electric, progress is our most important product."
It is impossible to tour the Hall of Electrical History in Schenectady--its name is simply the Hall of Electrical History, with no reference to GE--and not see truth in those words. The evidence is literally right before you, in the artifacts, photographs, and papers that the Hall preserves, a treasure trove of GE memorabilia that provides insight into the products that made GE great and the men who made them.
One of the most significant inventions that GE contributed to twentieth-century society was radio, which, contrary to popular misconception, wasn't invented by Guglielmo Marconi. Marconi's invention, "wireless telegraphy," was a means of sending Morse code through the air, and though it was an unqualified breakthrough, the next step of transmitting the human voice without wires wouldn't have been accomplished without the ingenuity of Steinmetz and his brilliant associates. GE's involvement with radio began in 1901, when Reginald Fessenden, a thirty-three-year-old university professor in Pittsburgh and former chief chemist to Edison, wrote Steinmetz a letter. Fessenden, an early radio pioneer and student of Marconi's wireless telegraph, asked Steinmetz to assist in the creation of a device that would generate electromagnetic waves strong enough to broadcast voices and music over long distances. The machine Fessenden envisioned would have to spin at tremendous velocity, a machine capable of spitting out one hundred thousand wave cycles per second. He had tried himself to build the elusive generator but had failed; it was an engineering feat that everyone Fessenden consulted said was impossible.
A generator capable of producing 100,000 cycles per second would have to operate at a speed of twenty thousand revolutions per minute. Steinmetz, whom the American writer John Dos Passos later called the most valuable apparatus General Electric had, accepted the challenge. A man of immense creativity and brainpower, Steinmetz had already formulated the law of hysteresis, a formula that put the properties of alternating current into mathematical form, and made electrification of the nation practical. Yet not even Steinmetz could produce the generator Fessenden wanted. Its speed was limited to four thousand revolutions per minute--beyond that the armature began to fly apart--and the waves of ten thousand cycles per second it generated were incapable of carrying sounds properly. Steinmetz gave up. But in 1904 Fessenden renewed his request, and Steinmetz gave the task to Ernst Alexanderson, a recently hired immigrant from Sweden. "The alternator was one of the inventions I had to make in order to hold my job," he later quipped. Within two years, Alexanderson's new alternator had arrived at Fessenden's radio station at Brant Rock, Massachusetts. The tapered disc that generated the waves rotated on a stationary armature at an incredible speed of seven hundred miles an hour at its periphery, yet because of its ingenious design wobbled no more than three one-hundredths of an inch. By Christmas Eve 1906, a few telegraph operators on ships in the North Atlantic heard not the usual dots and dashes but Fessenden reading from St. Luke's Gospel. As an encore, he played "O Holy Night" on his violin--music that reached listeners as far away as Norfolk, Virginia. Soon, amateur radio operators in the United States and elsewhere were using Alexanderson's invention to chat with each other, hurling the sounds of a human voice across continents and oceans. Nor was he finished inventing: On a January afternoon in 1928, he transmitted from the lab to his home in Schenectady a video image three inches square. The image--of a man removing his glasses, putting them back on, and blowing a smoke ring--wasn't much to look at, but it marked the beginning of a device that would become even more powerful and influential than radio. It was the world's first television broadcast, and within four months of Alexanderson's demonstration, GE was broadcasting images three times a week.
The Alexanderson alternator was the most powerful generator of radio waves then known, and hence had tremendous commercial significance. In 1915, Marconi, whose American Marconi Company had already purchased one alternator for broadcasting purposes, agreed to pay $4 million for several more after touring the Schenectady General Electric plant. GE was about to install a huge two-hundred-kilowatt machine when the United States entered the First World War. Completed in 1918, the two-hundred-kilowatt alternator broadcast news of the armistice across the Atlantic, but the war had convinced many people in government that radio was more than merely a communications tool; it was a vital national interest. Franklin Delano Roosevelt, then assistant naval secretary, did not want control of this equipment to pass into foreign hands. Bowing to pressure from Roosevelt and others in government, GE subsequently refused to sell American Marconi any additional alternators. It was a devastating blow in that Marconi was convinced that the Alexanderson alternator was the only means by which he could span the globe with wireless communications, an opinion seconded by David Sarnoff, a young Russian emigre and technical genius who had been asked by Marconi, his boss, to evaluate the machine.
The leaders of American Marconi subsequently accepted GE's proposal to combine their interests in a new American company, Radio Corporation of America, which when founded in 1919 was immediately a powerhouse in radio and, eventually, in television. Ironically, thirteen years later, in November 1932, government trustbusters declared the radio monopoly anticompetitive, and forced GE to give up its ownership of RCA just three days after FDR swept to victory and four days before the case was set for trial. History would again reverse itself in 1986, when less aggressive enforcement of antitrust law, this time under the administration of former GE pitchman Ronald Reagan, would allow GE to reacquire RCA.
A discussion of GE's technological achievements wouldn't be complete without some mention of the lightbulb, of which there are dozens, of varied vintage, on display in the Hall of Electrical History. In solving the "electric light problem," Edison, who had only a grade-school education, and his chief assistant, Charles Bachelor, had methodically tested dozens of carbonized materials, including cedar, coconut hair, and fishing line, before hitting upon the one that worked--cotton sewing thread. But the carbon in Edison-type lightbulbs evaporated readily. These bulbs also wasted electricity, making them costly to use, because they radiated much of their energy as heat rather than as visible light. At the turn of the century, there was considerable interest in other forms of electric lighting that might rely on new physical principles or employ new filament materials. Tungsten, an intractable, brittle metal, offered great promise; hard to work with, costly to fabricate, it nonetheless had unique physical properties, among them a very high melting point, which made it the ideal metal as a substitute for metallized carbon filament. In 1905, Willis Whitney, director of the GE Research Laboratory and a onetime chemistry professor at the Massachusetts Institute of Technology, hired William Coolidge, a former MIT colleague, who immediately took up the task that had confounded Whitney--the taming of tungsten.
Each day, as the buoyant Whitney greeted researchers at the lab with his characteristic "Having good fun today?," Coolidge toiled to find a way that would render tungsten pliable. After two years of heating, hammering, squeezing, rolling, and pressing the metal, Coolidge finally found that by drawing tungsten through hot diamond dies, it could be fabricated into wire thinner than a human hair yet stronger than any other substance known to man. The conquest of tungsten was a breakthrough as significant as Edison's own discovery, for it represented a giant leap forward in incandescent lamp technology. Introduced in 1911, Coolidge's lamp had a rugged tungsten filament that could withstand the vibrations of automobiles, railroad cars, and trolleys. It also yielded seven times more light per watt than Edison's first carbon lamps, while consuming just a fraction of the energy. The Coolidge process, which GE still uses today with only slight modifications, saved the nation $200 million in 1914 alone.
The next big breakthrough came just two years later. Irving Langmuir, the chemist who would go on to win the Nobel Prize, was curious as to why the bulbs of incandescent lamps blackened, dimming severely after only a few hundred hours of use. Following extensive inquiries into the gases inside the lamp, Langmuir found that a new coiled-helix filament sealed inside a globe of inert gas--first nitrogen, and later argon--would greatly enhance its efficiency and reduce bulb-blackening. He had arrived at the electric lightbulb in the form we use today. Protected by patents, it regained for GE the unassailable position that the company had previously held with its Edison-type bulbs. Langmuir's curiosity had a dual benefit as well: As part of his inquiry into gases inside the bulb, he had invented an exhaust pump that produced a higher vacuum than ever before achieved. Langmuir's mercury condensation pump left only one molecule of air in ten billion, a quantum leap from the one in a hundred thousand that was previously thought to be a vacuum. The breakthrough allowed Langmuir to patent a new type of vacuum tube, one that would succeed the Alexanderson alternator in the next generation of radio transmission technology. Langmuir's achievement would also aid Coolidge in his next breakthrough--the modern X-ray tube. Introduced in 1913, the "Coolidge tube," as it was known, combined his knowledge of tungsten with Langmuir's vacuum achievements to create a device that has been the basis for all X-ray tubes manufactured since.
The number and quality of products that GE scientists and engineers invented and manufactured in the first half of this century leave one awestruck, as does the ideology that guided the creators' endeavors. It was a unique time in American history, a time when technologists everywhere were imbued with a sense of "civic religion." They believed that their inventions were advancing the "American way of life" and that they were building a better tomorrow. In the thirties, American engineers built the Hoover Dam, the Golden Gate Bridge, the Empire State Building. Engineers were heroes, and the confidence of that age in technology was perhaps best represented in the 1939 New York World's Fair. Regular commercial television broadcasts began in New York on April 30, 1939, the fair's opening day.
At the General Electric pavilion--one of the most popular sites at the fair, situated on the Plaza of Light just beyond the fair's theme structure, the towering, blazing-white Trylon and the squat Perisphere--visitors gaped at lightning bolt demonstrations in Steinmetz Hall (which did not disrupt the FM broadcast signal they were also demonstrating). New gadgets were on display in the Hall of Electrical Living, such as an automatic electric dishwasher and a TV picture tube.
The ideology of that era is captured in a GE advertisement from 1939 that extols the virtues of electricity and the industrial progress it had wrought:
Fifty years ago, there were only 4,000,000 factory jobs in this country-- today there are twice as many. Because industry devised machines to make products at low cost, more millions of people could buy them.
General Electric scientists and engineers, by applying electricity to the machines of industry, have been responsible for much of this progress. Their efforts today are creating not only MORE GOODS FOR MORE PEOPLE AT LESS COST, but also MORE AND BETTER JOBS AT HIGHER WAGES.
Today, research, engineering, and manufacturing are not the priorities they once were to the company that virtually invented them. Now, GE makes more money in financial services, and finds the opportunities more exciting there, than in the gritty business of making things.
An exchange in 1995 between Jack Welch and Roberto C. Goizueta, then chief executive of Coca-Cola, was a reminder that Welch's aversion to manufacturing strikes even fellow CEOs as peculiar. The occasion was a discussion between the two, moderated by the editors of Fortune magazine. When the editors asked, "What's on the agenda for the rest of the decade?," Goizueta made it clear he was sticking with the soft-drink business, but Welch hedged. "I think, without question, that financial services, because of the opportunities available, will become an increasing mix of our business. That is absolutely going to happen." To which Goizueta replied, "That's interesting. I would never find excitement in the financial services. I would like to produce something that I could touch." It was an odd juxtaposition: Goizueta, the consummate marketing man, hardly a nuts-and-bolts guy, reminding the head of what was once the nation's preeminent manufacturer about the satisfaction that comes from making a product.
Manufacturing fell out of favor at General Electric more than a decade ago, which is unfortunate for the United States because manufacturing jobs pay better wages than service jobs and generally have more economic and intellectual spinoffs associated with them. And for the communities that have depended upon GE--or any other company that has abandoned manufacturing--for much of this century, that has meant anguish and chronic uncertainty. In contrast with the abiding belief, in 1939, that the future held great promise, and that "more and better jobs at higher wages" were laudable contributions to society, the nineties are characterized by diminishing jobs, and a diminished faith in the future. Companies move jobs all the time, to be sure. But seldom do they move them with as little consideration given to the human and societal consequences as does GE. Consider Welch's announcement in January 1998 of another year of record profit. Buried in that proclamation was a $2.3 billion charge to cover, among other things, the costs of eliminating more than four thousand manufacturing jobs. Fifteen hundred of them would move from Louisville to Georgia and Mexico, another nine hundred from Schenectady to a suburb of Atlanta and points overseas, and still another six hundred from Fitchburg, Massachusetts, also to points overseas. In all three cities, union and government officials had engaged in months of negotiations, offering wage concessions, tax breaks, anything, so that their locals and communities would be allowed to keep the jobs. In the case of Schenectady, the lobbying effort enlisted two of the most prominent Republicans in the state, Governor George Pataki and Senator Alphonse D'Amato, both of whom made personal appeals to Welch on behalf of the city--to no avail.
No city has been hit harder by the continual contraction of GE's manufacturing presence than Schenectady, where GE now employs a tenth of the forty thousand people who once worked there, in a town only twice that size. While Detroit made cars, Akron made tires, and Pittsburgh made steel, Schenectady was identified with a single industry, that of electrical equipment. Edison had intended to give that distinction to Buffalo, New York, but the vacant broom factories in Schenectady that he spied from his train in 1886 would be ideal, he thought, as the new home for his Edison Machine Works. A century later, Schenectady has become the casualty of an ethos far different from what drove Edison. In the process, Schenectady, which has twenty-two thousand fewer GE jobs than it did in 1978, has gone the way of many older "tank towns" that were once pillars of the GE empire: Erie, Pennsylvania, six thousand fewer; Pittsfield, Massachusetts, eight thousand fewer; Lynn, Massachusetts, seven thousand fewer; Fort Wayne, Indiana, four thousand fewer; Louisville, Kentucky, thirteen thousand fewer; Evendale, Ohio, twelve thousand fewer. All of these communities have the same worn, dazed look, that puts one in mind of a losing prizefighter about to answer the bell for the fifteenth round. Jobs have vanished and buildings have been torn down. It's a story that has been repeated a thousand times in cities across the once vibrant industrial heartland, repeated with such frequency that America has become inured to it, much like stepping over a drunk in the street. Cities that once offered good wages and stable employment to generations of workers don't anymore. If the contentious debate over the North American Free Trade Agreement of 1993 represented anything, it was this: Good jobs have gone away, and only the disenfranchised who have lost them--and the self-styled populists courting their votes, politicians like Pat Buchanan and Ross Perot--seem to care.
The subject of the vanishing job has special poignancy when considering General Electric, partly because GE jobs were so plentiful in another era and partly because the company has earned record profits while eliminating them. Throughout its history, GE had engendered loyalty through a paternalistic employment philosophy that eschewed layoffs, even during the Great Depression, when sacrifice was shared as workers cut the length of their workweek to keep as many people working as possible. When Charles Coffin, the first chairman, retired in 1922, GE employed 82,000 people; by 1980, the year before Jack Welch took over, the GE payroll had swelled to 402,000 people, 285,000 of them in the United States, and the company had a net profit of $1.5 billion on revenue of $25 billion. What was the nation's fourth-largest employer then--it is the tenth-largest now--has made a great deal of money since. Its $90.8 billion in revenue in 1997 generated $8.2 billion in net income, but with vastly fewer people: GE now employs 276,000--165,000 of whom work in the United States--for a net job loss of 128,000 over the seventeen-year period. There are 120,000 fewer Americans on the GE payroll than in 1980, and that number understates the magnitude of the job loss in manufacturing, since it includes employment gains from financial services, which has grown fivefold as a proportion of GE's whole. GE has either closed or sold ninety-eight plants in the United States during the Welch era, 43 percent of the 228 it operated in 1980. That's a larger reduction, percentage-wise, than in companies the public typically associates with retrenchment strategies, such as General Motors.
Did it have to be so Malthusian? Certainly the days of eschewing layoffs are long gone; even the Japanese (and IBM) have long ago capitulated on that. And certainly, outlawing layoffs would not be the appropriate answer. That's what Germany has effectively done, but the result is a cosseted economy that lacks vitality, which employers are fleeing to escape the onerous employment rules and restrictions. Earlier in this century, Austrian economist Joseph Schumpeter likened the process of decay and renewal in modern economies to "the winds of creative destruction," but in Germany and, to a lesser extent, Japan, inefficiency is not swept away. This was true when the United States government, in the sixties and seventies, protected the grossly inefficient U.S. steel industry from greater foreign efficiency, which only made the cataclysm that much more wrenching when the protection was removed in the eighties. The role of government should not be to outlaw change but rather to soften the blow to those affected by it. Layoffs are an important part of the creative-destructive dynamic Schumpeter spoke of, in that they can enhance efficiency and promote greater productivity, which fuel the engine of any economy.
The problem with General Electric--and, for that matter, most large American corporations recently--is that the emphasis has been placed too heavily on destruction and too little on creation. Welch's defenders--and there are many, among them Robert Allen, AT&T's former CEO, who in January 1996 announced plans to dismiss forty thousand people as part of its breakup into three companies--assert that he did exactly the right thing for GE's shareholders and for the health of the company. They argue that had GM executives been more courageous and taken the bold steps that Welch took, the company would now be more competitive in the world auto industry and would have rewarded shareholders with fatter dividends and heftier stock gains, which is, after all, the sole responsibility of a CEO. "The job of industry is to become competitive--not to be a social experiment. God help us if we pass legislation to make American companies less productive and compromise our global competitiveness," argues Albert Dunlap, the former CEO of Scott Paper, known to detractors as "Chain Saw Al," after engineering the merger of Scott with Kimberly-Clark and pocketing more than $100 million in the process. Welch himself argues that his greatest mistake, in hindsight, was that he did not move fast enough, that he was too cautious and evolutionary in executing his strategy of change.
But this argument overlooks the fact that all too often (and certainly in the case of GE, as we will see), downsizing is not done to improve the health of the organization and keep it from being overrun by third-world rivals; it's done to satisfy the immediate demands of Wall Street. As such, it represents the chief flaw of American business: its fixation on the short term. Firing people is now trendy in American business, and it is a quick and dirty way to appease investors, who twenty years ago viewed layoffs with disdain but now consider them a sign of management's mettle, its willingness to get the job done. But very often, downsizing is not in a company's long-term best interests. Companies can become so fixated on cutting back and cutting costs that they forget how to grow, and how to nurture new opportunities. That's exactly what has happened in GE's manufacturing businesses. Adjusted for inflation, its sales of manufactured goods in 1995 were about 10 percent less than they were in 1980.
Downsizing also wrecks morale among those who survive. People come to feel that the organization doesn't care about their welfare, and they respond by becoming nine-to-fivers, unwilling to put forth extra effort, certainly unwilling to take risks, and in some instances embracing a work ethic and practices that are openly disloyal. The American Management Association found in a survey of one thousand companies that fewer than half had laid off people and managed to increase their operating profits afterward. That would seem to explain why the U.S. economy's productivity gains have been relatively modest considering the extent of recent personnel cutbacks.
"The conventional economic wisdom has it that the prime job of management is to maximize profits. But through my research and that of others, one message rings clear: Don't put profits first!" argues business theorist and consultant Robert H. Waterman Jr., in his latest book, What America Does Right. "Today's top enterprise does the best job for its shareholders by treating them as only one of the three main constituent groups essential to their success. The other two are quite clearly their people and their customers. This doesn't mean that shareholders get ignored. The point is that shareholder interests sit on the same plane as those of others who have a stake in the company."
An example of a company that doesn't put profits first--and a useful counterpoint to General Electric--is Motorola, which in recent years has established itself as one of America's preeminent high-technology manufacturing concerns. Motorola's origins were hardly the stuff of lightbulb legend. It was founded in 1928 by Paul Galvin, who began his business career making "battery eliminators" for Sears radios. At that time, radios ran only on batteries, but thanks to Galvin's product, people could plug their radios into wall sockets. Galvin knew the battery eliminator would become obsolete when radios were made to run off household current, and he had prepared for that eventuality by developing a successor product, the car radio. By the 1930s, Galvin had recast his enterprise as a maker of car radios and had changed its name to Motorola. Walkie-talkies and televisions would follow.
Despite its humble beginnings, the Schaumburg, Illinois, company has proven that an old-line manufacturer can transform itself into a high-growth enterprise by investing in new technology and new manufacturing. As recently as the mid-1980s, for instance, Motorola was being driven out of the paging business by Japanese rivals, and its situation in the nascent cell-phone business was so desperate that it was close to withdrawing from it altogether. But rather than quitting, as GE did in consumer electronics, Motorola fought back against the Japanese with radical designs that set new standards in miniaturization and highly automated, high-precision manufacturing. The numbers tell the story. In 1992, Motorola invested $1.4 billion in new plant and equipment, the same amount spent by General Electric, which had about three times more revenue from manufacturing. Despite the enormous size disparity, Motorola spent the same amount on research and development, $1.3 billion. And in 1993, its spending was $224 million, or 17 percent, more than GE's, marking the first time in Motorola's history that it outspent General Electric in R&D, a difference that has widened since to almost $1 billion. GE has slipped to sixteenth place among corporate R&D spenders, even though it's first in profit.
As the global leader in a new generation of electronically based products--cellular phones, pagers, two-way radios, and microchips, businesses in which GE no longer competes--Motorola has added 43,000 manufacturing jobs since 1992. Though market shares have slipped recently, as it bungled the move from analog to digital wireless phone technology, Motorola still has a commanding 85 percent share of the global market for pagers, and 40 percent of the world market for cellular phones. While Motorola has hitched its star to electronics, GE has withdrawn from the manufacture of electronic components, as well as many products that contain them. Ironically, forty years ago General Electric invented and patented many of the solid-state components that opened up the electronic age, and made pagers, cellular phones, and countless other products possible.
For several years in the early nineties, Motorola was a darling of Wall Street. Its shares appreciated 62 percent, 77 percent, and 26 percent, respectively, in 1992, 1993, and 1994, while GE registered gains in the first two years of 15 percent and 23 percent and a loss in the third of 2.7 percent. But in 1995 the market soured on Motorola when its profits came in a hair or two below expectations. Its shares were down 1.7 percent, during a year in which the Dow Jones industrial average soared 33.5 percent, while GE shares registered a 41 percent gain. But Motorola--which has done some restructuring of its own recently, announcing plans to eliminate 15,000 jobs in response to weak Asian markets, overcapacity, and generally weak prices--didn't respond to Wall Street's disfavor by slashing R&D (likely the reason its shares were shunned). On the contrary, it is plowing ahead with such futuristic ideas as Iridium, a satellite-based telecommunications project that will span the globe, enabling users to place calls from anywhere on the earth's surface with a small handheld phone. Most of today's communications satellites move in sync with the Earth above a fixed point 22,300 miles up. Iridium's sixty-six satellites are instead being placed between four hundred and one thousand miles up. This lower-orbit network, which began service in September 1998, will permit the use of smaller, lower-powered gear, such as pocket-size phones, and will transmit signals without the intervention of ground stations, and hence without delays.
And on the human front, at the very time that Wall Street was pounding its stock, Motorola rolled out a new series of courses designed to teach its employees how to be better parents. The company already requires every employee to take forty hours of job-related training each year. The parenting classes, which count toward the forty-hour requirement and were designed by a team of consultants to be specific to a variety of family situations, reflect the company's belief that it must address the needs of its people.
Motorola has also sought to promote loyalty and create a sense of belonging among its work force. In 1975, when the company was struggling to find an identity and had reduced its payroll by 30 percent, CEO Robert Galvin, son of Paul Galvin, decreed that no member of the Service Club (for employees who have worked at Motorola for ten years or more) could be dismissed. Some had been, and when Galvin discovered it, he demanded that they be rehired. Today, according to Motorola's recruiting booklet: "Employees with ten or more years of service cannot be released without the explicit concurrence of the Chairman of the Board." About 47,000 of Motorola's 150,000 employees are Service Club members.
Motorola's commitment to on-the-job education is widely considered the strongest of any corporation in America. Symbolic of this commitment is Motorola University, which has headquarters in Schaumburg, a budget of $120 million, and fourteen branch campuses stretching from Tokyo to Honolulu. Unlike GE, where only the elite receive classroom instruction at its Management Development Institute in Crotonville, New York, Motorola training embraces everyone in the corporation, from the lowliest mill hand to the CEO. Motorola U. also lends assistance to public school districts in Florida, Illinois, and Massachusetts, where the company has large concentrations of employees.
This commitment to education isn't born out of a 1960s-era desire to change the world but reflects instead hard-headed business decisions from a company that views education as a competitive weapon. It has learned to harvest the knowledge of its workforce, with stunning results, achieving quality standards in manufacturing that even the Japanese envy. Since 1987, it has lowered its defect rate per million parts from six thousand to about 20, a level of near-perfection known in engineering parlance as "six sigma quality," saving the company $11 billion from 1987 to 1996. The savings so intrigued Welch that GE in 1996 adopted a six sigma program amid the usual huzzahs in the business press, which is curious because he was actually about a decade late in discovering "quality." In any event, GE has a lot of catching up to do: Its defect rate per million of twenty-three thousand, two years after adopting the program, is still significantly higher than Motorola's was when it began six sigma in 1987.
Motorola's investments in quality, new products, and people reflect the same sort of confidence about the future that GE scientists at the 1939 World's Fair exhibited. R&D is the basis for new products, and when a nation or a company rein in that investment, its future is imperiled. Although cutting back on research saves money, a huge price is paid in lost opportunities. Unfortunately for the United States, corporations and government are increasingly, and shortsightedly, unwilling to fund cutting-edge research. And while Motorola has been bucking that trend, GE has been leading it.
The diminished importance of research to General Electric, once the pre-eminent American R&D corporation along with IBM and Bell Labs, is such that it no longer ranks among the top ten corporate spenders in America. GE reinvests 1.9 cents of every sales dollar in R&D, about half the average for all U.S. industry and significantly less than its two main world rivals, Hitachi of Japan and Siemens of Germany, with 7 cents and 8 cents, respectively. Even excluding from this measure GE's revenue from financial services, whose only interest in R&D is improved methods of debt-collecting, doesn't help GE's standing: It reinvests 3 cents of each manufacturing-derived dollar.
Patents, a measure of technological output, tell another important aspect of this story. For decades, GE was the undisputed and unchallenged king of the hill, garnering more U.S. patents each year for its innovations than any other company, foreign or domestic. GE hit its peak patent year in 1965, when the United States Patent Office issued it 1,063, while Hitachi had fourteen patents (it had only two in 1960). By 1980, Hitachi had 391 to GE's 770; six years later Hitachi overtook GE for the first time and has patented more inventions than its American rival every year since. Hitachi in fact has been the top U.S. patent recipient in three of the last ten years, and its challengers for the top spot have been mostly Japanese, including Canon, NEC, Mitsubishi Electric, and Toshiba, and more recently IBM and Motorola, which has tripled its annual patent output in the last decade and was issued 40 percent more patents in 1997 than GE.
Siemens, meanwhile, has spent billions of dollars in the past decade investing in microelectronics, trying to pull equal with the Japanese in technology after having fallen far behind. In December 1993, it announced spending of more than $1 billion to build a new semiconductor production facility in Dresden, Germany, which is now making the latest generation of microelectronic wizardry--the 64-megabit D-Ram memory chip. The memory chips are key parts in computers and satellite television and are regarded as vital for the development of increasingly sophisticated multimedia products that will be invented in the years to come. Siemens could have abandoned the chip business and improved its overall profitability, which is about half that of General Electric. The semiconductor business continues to be unprofitable primarily because of the heavy instruments required to build new production facilities, and there's little doubt that Welch, had he been calling the shots, would have jettisoned it long ago. That's exactly what he did in the late 1980s, even though GE's market position then was superior to Siemens's, which was the equivalent of a mile behind its Japanese and American rivals in the middle of a ten-mile race. But to Siemens, which caught up, immediate profits are not the sole consideration.
The same was true in November 1997, when Siemens announced plans to buy Westinghouse Electric's power-generation division for $1.53 billion. Westinghouse had decided that it could no longer tolerate a business characterized by excess capacity, slow demand, and price-cutting, particularly in light of its new, more profitable profile as the nation's largest owner of radio stations, as well as CBS. When the Wall Street Journal asked Albert Hoser, CEO of Siemens's U.S. unit and the executive who had negotiated the deal, why his company would expand its presence in an industry Westinghouse was abandoning, even though the market shares of the two companies were roughly equivalent, he replied: It would be "unthinkable" for Siemens to abandon a business so basic to electricity. Siemens management has an ideology that guides their thinking, one that is product- rather than profit-driven, and they view a continued presence in everything involved in electricity--from the turbine that generates it to the microchip that exploits it--as crucial to their corporate mission to be "one of the most competitive companies in the field of electrical and electronic engineering and [to] set the pace for advances in technology." To underscore that point, Hoser, during his encounter with the Journal, reached for a 150th-anniversary book about Siemens, pointing to a section on Werner von Siemens, whose invention of the dynamo laid the basis for modern power generation.
While manufacturing has become increasingly less important to General Electric, services have become increasingly more so, as GE has mirrored, and perhaps led, a similar evolution of the American economy. As recently as 1969, GE's own ideology, according to the mission statement then in force, sounded remarkably similar to Siemens's--"to carry on a diversified, growing, and profitable world-wide manufacturing business in electrical apparatus, appliances and supplies." Now, as opposed to Siemens, which has identified electrical and electronic engineering as a core field where it believes it is poised to lead globally because of its unique history and expertise, GE's values statement cites the personality attributes that the dynamic GE manager should exhibit: He or she is, among other things, "decisive," "reality-based," "self-confident," "aggressive," has a "passion for excellence" and "enormous energy," "hates bureaucracy" and "relishes change." Because Welch believes that a manager can manage anything, General Electric added a television network, NBC, to its portfolio, even though it knew nothing about broadcasting, while greatly expanding its participation in financial services, buying and later selling the once venerable Kidder, Peabody, even though it knew nothing about running a Wall Street securities firm. Today, financial services, which contributed 8 percent of corporate earnings in 1980, generate about 40 percent. The company Thomas Edison began generates more revenue from selling insurance, lending money, servicing residential mortgages, managing credit cards, leasing jet aircraft and railcars, and a myriad of other financial activities than it does from its five largest manufacturing businesses combined. And while GE spent $1.5 billion in 1997 to continue the activities of Edison's greatest invention, the research lab, NBC spent $1.75 billion that same year to continue broadcasting pro basketball.
From a corporate perspective, the metamorphosis from manufacturing to services might seem sensible. Manufacturing can be a tough way to make money, and services offer several advantages: There are generally fewer unions to deal with, fewer liabilities to incur, lower capital outlays for new products and new equipment, and often higher profit margins (the earnings of GE Capital Services have grown an average of about 20 percent annually since 1978). But as GE has retreated from manufacturing, the consequences have been profound, for there are few American companies of the size and clout of a GE to step into the breach. While many American companies know how to lend money, and have a long tradition doing just that, and while many know how to run a television network, and understand the creative dynamics of the entertainment business, GE was unrivaled as the nation's top manufacturer of highly engineered electrical and electronic products. But rather than reinvesting heavily to fully exploit its historic skills, as Hitachi and Siemens have done, an American icon has chosen to quit business after business because the money to be made lending money or producing television shows was greater than the Edisonian mission of making things. In the process, the importance of a significant American institution has been diminished.
To see the national consequences in this shift from manufacturing to services, one need look no further than the consumer electronics industry. Once GE had sold out to France's Thomson, abdicating its role as the U.S. standard-bearer in consumer electronics, only Zenith, a company whose resources pale in comparison to GE, was left to fight the war with the Japanese. It surrendered in 1995, selling out to a South Korean company. Thus, we have increased our reliance on foreign companies and thereby weakened our international trade position in a very significant industry, one that is likely to become increasingly so in the years to come. When politicians like Pat Buchanan call for tariffs on Asian imports to encourage Americans to buy goods made in America, that proposal ignores business reality, at least in consumer electronics--all the products are manufactured by foreign entities. Welch denounced the criticism he received at the time for selling out to a foreign company as "ludicrous, absolutely ludicrous." Yet when Westinghouse agreed to sell its power-generation division to Siemens, leaving GE as the only American player left in that industry, GE lobbyists in Washington immediately voiced opposition to the sale. It should not be permitted, they and others, most notably South Carolina Senator Ernest Hollings, argued, on the grounds that it jeopardized America's national interests.
The contrast between the philosophy of GE and that of Hitachi, which almost never lets go of a business, couldn't be more striking. Back in the 1960s and early 1970s, when Matsushita Electric, RCA, and GE quit the computer field, Hitachi stuck it out, enduring high R&D outlays while the division lost money. But Hitachi top management, by tradition engineers rather than M.B.A.'s and financial types, continued to subsidize computers with cash from heavy-equipment and consumer-products businesses. Within a decade the computer business had evolved into Hitachi's biggest cash generator, and today computers and the chips that run them account for about one-third of its sales. Hitachi and Japanese rival NEC have already built prototypes of the first chips capable of storing more than one billion pieces of information, sixteen times more storage capacity than the 64-megabit version that Siemens, Hitachi, and others have begun producing, and the equivalent of ten copies of the complete works of Shakespeare on a thumbnail-size sliver of silicon.
The man who founded Hitachi in 1910 was Namihei Odaira, whose founding invention--a five-horsepower induction motor--is enshrined in a museum that tour guides call "the holy place," where visitors must remove their shoes. Odaira's statement of his credo is still inscribed on walls throughout Hitachi City. "Though we cannot live one hundred years, we should be concerned about one thousand years hence," he wrote. It's not empty rhetoric. The size and scope of Hitachi's research effort make General Electric's look lilliputian in comparison. Hitachi's R&D expenditures exceed $5 billion a year, about 6 percent of all corporate research spending in Japan and nearly four times what GE spends, even though the two companies are of comparable size. Hitachi maintains nine separate research centers in and around Tokyo, each with a different focus, that employ more than five thousand scientists and engineers, including sixteen hundred Ph.D.'s (GE has five hundred).
If Hitachi's preservation of continuity sounds odd to American ears, GE's lack of it sounds just as odd to the Japanese. One has to go back to Welch's predecessor, Reg Jones, to find a CEO of General Electric who paid public tribute to GE's founding fathers, much less the daily ritual that people at Hitachi relish in Odaira. In 1978, Jones presided over festivities commemorating the one-hundredth anniversary of the founding of the Edison Electric Light Company, which included a two-hour prime time television special that GE sponsored on ABC, hosted by John Wayne. As part of the celebration, Jones, then nearing the end of his tenure as steward of the Edison legacy, gave a speech in which he defined what he called "the spirit of General Electric."
Standing between portraits of Edison and Steinmetz, Jones said, "We have roots. We are not merely a `bundle of assets hastily thrown together in a feverish search for profits,' as somebody once said about one of our competitors. Rather, we are a product of history, shaped and tempered by time. We have our legendary people, places and events, our famous firsts and our famous failures. Out of all these and many other nameless, long-forgotten events we have forged a distinctive set of traditions, values and beliefs that we call `the spirit of General Electric.' It inspires great loyalty, it encourages moral integrity, and it honors innovation. In my view it is one of our most valuable assets."
Neither Jones nor the people who had come to pay their respects to Steinmetz and Edison foresaw the change that would soon engulf not only their beloved General Electric but all of American business.
Jones's speech marked the final expression of the ethos that had guided business in America in the twentieth century. For decades the men who had steered the giant enterprises had held true to the axiomatic belief that the job of management wasn't just to maximize profits and satisfy shareholders but also to satisfy two other constituencies that had to be given equal weight in a corporation's considerations--employees and communities. When Jones invoked the "spirit of General Electric," defining as its hallmarks loyalty, morality, and innovation, he was echoing a values-based theme that had been invoked many times before by prominent American businessmen and perhaps was best articulated in a series of lectures in 1962 at the Columbia University Graduate School of Business. Those lectures were delivered by Thomas Watson Jr., who by then had succeeded his father as chairman and chief executive officer of International Business Machines Corporation. The lectures, later published under the title A Business and Its Beliefs, advanced the thesis that "the most important single factor in corporate success" was not technology, not strategy, but the corporation's commitment to "a sound set of beliefs."
"Beliefs," Watson said, "must always come before policies, practices and goals. The latter must always be altered if they are seen to violate fundamental beliefs. The only sacred cow in an organization should be its basic philosophy of doing business." This was the "final and most important lesson" to be learned from the history of IBM. The first belief, Watson said, was "respect for the individual," the second "to give the best customer service of any company in the world," and the third "the force that makes the other two effective. We believe that an organization should pursue all tasks with the idea that they can be accomplished in a superior fashion."
By the late 1970s, however, Watson's values-based thesis had given way to a new philosophy that in the 1980s and 1990s would come to be accepted in the business world as dogma. This philosophy was perhaps best stated in the late-1970s best-seller Looking Out for #1. "Clear your mind," Robert J. Ringer advised his readers, "... Forget foundationless traditions, forget the `moral' standards others may have tried to cram down your throat, forget the beliefs people may have tried to intimidate you into accepting as `right.' Allow yourself to take control as you read, and, most important, think of yourself--Number One--as a unique individual.... You and you alone will be responsible for your success or failure." The philosophy was hardly new--Niccolo Machiavelli's The Prince had laid the intellectual groundwork as early as 1513--but what made it seem new was its widespread acceptance in the American business community.
Ringer's Darwinian vision of the future came to fruition in the events that followed, as the 1980s and 1990s brought unprecedented change and trauma to corporate America. Between January 1981 and January 1986, 10.8 million Americans lost their jobs because of plant shutdowns and corporate restructurings. CEOs swapped assets like baseball cards in the greatest flurry of merger and acquisition activity in the history of American business, which peaked in 1988, a record surpassed in 1994 and eclipsed in every year since. But there were consequences to the "screwor-screwee" theory that Ringer advanced in his book ("The screwor is always the other guy; the screwee is always you"). The demise of values-based thinking brought with it significant curtailments in research and investment. It brought with it great scandals and unprecedented litigation, a me-first ethic that was put on vivid display as the largest insider-trading scandal in American business history slowly unfolded. Yet for all the media attention that Ivan Boesky and Michael Milken received, there were indictments galore against many companies in the mainstream of American business, many of them against General Electric.
Above all, the new zeitgeist brought with it the notion that "gamesmanship" was superior to "industrial enterprise," and the values of frugality, industry, hard work, and perseverance. Those values had no place, it was decided, in a more competitive business environment. Maximizing profits was management's sole objective, and some people represented fat that had to be trimmed if the objective was to be met. As people became increasingly irrelevant to the corporate game plan, American business laid the groundwork for a cynicism that soon spread to politics, sports, the arts, education, law, science, medicine, religion. Only winning mattered, only money mattered, only enhancing the wealth of shareholders mattered. If that meant extraordinary measures, well, then, why not, for these were extraordinary times, uncharted in the history of American business and, for that matter, American society. Being first, being the biggest, that was the only way to succeed, the only way to ensure one's survival, the only way to keep predators from your doorstep. Businessmen began to redefine themselves as citizens of a global economy, with a corresponding decline in the loyalty and responsibility they felt to communities under their control. The notion that business could serve society in ways other than measured by money and profits--through promoting quality of life, jobs, stability, values, ethics, the beliefs that Watson, Jones and countless other businessmen spoke in favor of for generations--was suddenly considered as old-fashioned as Henry Ford's Model T or Thomas Edison's carbon filament lightbulb. Even Watson's own IBM cut its payroll by 180,000 people.
There were, to be sure, a handful of big companies that still clung to traditional business values. Hallmark Cards and its CEO, Irv Hockaday, continued a tradition, begun when the greeting card company was founded by the Hall family in 1910, of keeping people on the payroll during periods of slack demand to do community service work while they were retrained for new jobs; when Hallmark closed two plants in 1992, it offered all affected employees a chance to relocate to other work sites, and many did. Cooper Tire & Rubber, the world's ninth-largest tire-maker, which for thirty years had occupied the same spartan headquarters in Findlay, Ohio, didn't let the phenomenal 6,800 percent increase in the value of its shares in the 1980s alter the company creed of valuing people. And Levi Strauss adopted the most rigorous ethics policy in corporate America, an "Aspiration Statement" written by top management that commits the apparel maker to "responsible commercial success," "leadership in satisfying our responsibilities to our communities and to society," and creating a work environment in which employees "feel respected, treated fairly, listened to" and achieve "balanced personal and professional lives." Under the program, the company has doubled the percentage of women and minorities in its managerial ranks since 1984, when Robert D. Haas, the great-great-grandnephew of founder Levi Strauss, became CEO.
Even when Levi Strauss announced plans to close eleven of its thirty-seven apparel factories in North America, as it did in November 1997, it distinguished itself with a generous severance package that treated hourly and salaried employees alike. All of the 6,395 affected workers were paid full salary for eight months beyond their last working day, and an additional three weeks of pay for each year worked. They received company-paid health benefits for eighteen months, incentives to take early retirement, up to $6,000 each for education, moving, or job training, and a $500 bonus check as soon as they had found new work. In addition, the Levi Strauss Foundation granted $8 million over three years to the eight communities where the factories were situated. One union official, with whom Levi Strauss negotiated the severance terms, called the package "by far the best severance settlement apparel workers have ever gotten, which will enable the affected workers to move forward with their lives."
Companies like Hallmark, Cooper Tire & Rubber, and Levi Strauss were, however, marching to the beat of a different drummer. Most CEOs were dancing to the tune of the profit rhumba, with Jack Welch playing his theme song: Control Your Destiny or Someone Else Will (the title of his authorized hagiography). For better or worse, he would be the man of our times, the quintessential business leader of the 1980s and 1990s, and he would take General Electric and this nation on one wild ride.
Meet the Author
Thomas F. O'Boyle lives near Pittsburgh.
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