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The Man Who Broke Capitalism: A Book Review

If you are interested in learning more about the history and impact of one of the most influential and controversial figures in American business, you might want to read The Man Who Broke Capitalism by David Gelles. This book is a captivating and revealing account of how Jack Welch, the former CEO of General Electric (GE), transformed GE into a global powerhouse, but also ushered in a new, cutthroat era of American capitalism that has led to many social and economic problems today.

Introduction

The Man Who Broke Capitalism is a book written by David Gelles, a reporter and columnist for The New York Times. Gelles has covered business, technology, and sustainability for more than a decade, and has interviewed many prominent leaders and entrepreneurs. In this book, he draws on his extensive research and interviews to tell the story of Jack Welch, who was the CEO of GE from 1981 to 2001.

Jack Welch is widely regarded as one of the most successful and admired CEOs in history. He grew GE into the most valuable company in the world, and was praised for his visionary leadership, innovation, and management skills. He was also known as a celebrity CEO, who golfed with presidents, mingled with movie stars, and wrote best-selling books. However, Gelles argues that Welch’s achievements were not based on some superior intelligence or business acumen, but rather on a ruthless pursuit of increasing GE’s stock price and profits by any means necessary.

Gelles shows how Welch’s strategies, such as downsizing, outsourcing, offshoring, mergers and acquisitions, financialization, and shareholder value maximization, had devastating effects on workers, consumers, innovation, and the economy. He also shows how Welch’s legacy influenced many other companies and leaders who followed his example, creating an economy that is more concentrated, less dynamic, more unequal, and more unstable. He also offers some suggestions on how to undo Welch’s legacy and create a more sustainable and humane form of capitalism.

This book is relevant today because it helps us understand how we got to where we are now in terms of our economic system and its challenges. It also helps us question some of the assumptions and myths that have shaped our views on capitalism and corporate America. It also provides some insights and lessons that can help us shape a better future for ourselves and our society.

Summary of the book

Jack Welch’s rise to fame as the CEO of GE

The book begins by introducing Jack Welch as a young engineer who joined GE in 1960. He quickly rose through the ranks, impressing his bosses with his intelligence, charisma, and ambition. He became the youngest vice president in GE’s history in 1972, and was appointed as the CEO in 1981. He inherited a company that was already successful and diversified, but he had a vision to make it even bigger and better.

Welch’s vision was to make GE number one or number two in every market it operated in. He wanted to create a leaner, faster, more competitive company that could adapt to changing customer needs and market conditions.

Welch’s strategies to boost GE’s stock price and profits

Welch had a simple mantra: “Fix it, close it, or sell it.” He applied this to every business unit and division within GE, and demanded that they either become the leader in their market or get out of it. He also set aggressive targets for revenue growth, profit margins, and return on equity, and rewarded managers who met or exceeded them with generous bonuses and stock options. He also punished those who failed to deliver with demotions, pay cuts, or firings.

Welch also embraced financial engineering as a way to boost GE’s earnings and stock price. He expanded GE Capital, the company’s financial arm, which offered loans, leases, mortgages, insurance, and other financial products and services. GE Capital became a major source of profits for GE, accounting for more than half of its earnings by the late 1990s. Welch also used accounting tricks, such as “cookie jar” reserves and “big bath” charges, to smooth out earnings and meet Wall Street expectations.

Another strategy that Welch employed was to acquire other companies that could add value to GE’s portfolio. He made hundreds of deals during his tenure, spending more than $100 billion on acquisitions. Some of his most notable deals were the purchase of RCA (which owned NBC) in 1986 for $6.4 billion, the merger with Honeywell in 2001 for $45 billion (which was later blocked by European regulators), and the joint venture with Vivendi Universal in 2004 to create NBC Universal.

The negative consequences of Welch’s legacy for workers, consumers, innovation, and the economy

While Welch’s strategies may have boosted GE’s performance in the short term, they also had many negative consequences for workers, consumers, innovation, and the economy in the long term. Here are some of them:

• Welch’s layoffs and outsourcing devastated many communities and workers who depended on GE for their livelihoods. He also reduced wages, benefits, pensions, and health care for many employees, while increasing his own compensation to astronomical levels. He created a culture of fear and stress within GE, where employees had to constantly compete with each other and prove their worth or face termination.
• Welch’s focus on financial engineering and shareholder value maximization led to a neglect of GE’s core industrial businesses and innovation capabilities. He also engaged in risky and unethical practices that exposed GE to legal liabilities and reputational damage. For example, he was accused of insider trading, tax evasion, environmental pollution, fraud, bribery, price-fixing, and antitrust violations.
• Welch’s influence on other companies and leaders created a wave of corporate greed, corruption, and short-termism that harmed the economy and society. Many CEOs followed Welch’s example and adopted his methods of cost-cutting, financialization, mergers and acquisitions, and shareholder value maximization. This resulted in a loss of jobs, wages, benefits, innovation, competition, and trust in the corporate sector. It also contributed to the rise of income inequality, financial instability, environmental degradation, and social unrest.

Analysis of the book

The strengths of the book

The book has many strengths that make it a compelling and insightful read. Here are some of them:

• The book is well-researched and well-written, with a clear and engaging style that keeps the reader interested and informed. Gelles uses a variety of sources, such as interviews, documents, reports, articles, books, and data, to support his claims and arguments. He also provides a balanced and nuanced perspective, acknowledging Welch’s achievements and contributions, but also exposing his flaws and failures.
• The book is timely and relevant, as it addresses some of the most pressing issues and challenges facing our economy and society today. Gelles shows how Welch’s legacy has shaped the current state of American capitalism and corporate America, and how it has affected various aspects of our lives, such as work, consumption, innovation, inequality, democracy, and the environment. He also offers some suggestions on how to reform and improve our economic system and corporate culture.
• The book is provocative and challenging, as it questions some of the conventional wisdom and myths that have surrounded Welch and his leadership style. Gelles challenges the idea that Welch was a genius or a hero who saved GE and revolutionized American business. He also challenges the idea that Welch’s strategies were the best or the only way to achieve success and growth in a competitive global market. He also challenges the idea that Welch’s legacy was positive or beneficial for the economy and society.

The weaknesses of the book

The book also has some weaknesses that limit its scope and impact. Here are some of them:

• The book is too focused on Welch and GE, and does not provide enough context or comparison with other companies or leaders who have followed or opposed Welch’s model. Gelles does mention some of the Welch acolytes, such as Jeff Immelt (Welch’s successor at GE), Bob Nardelli (former CEO of Home Depot), Larry Bossidy (former CEO of Honeywell), and John Chambers (former CEO of Cisco), but he does not go into much detail about their performance or impact. He also does not mention some of the critics or alternatives to Welchism, such as Paul O’Neill (former CEO of Alcoa), Ray Anderson (former CEO of Interface), or Muhammad Yunus (founder of Grameen Bank).
• The book is too descriptive and not enough prescriptive, meaning that it does not provide enough concrete and actionable solutions or recommendations on how to fix the problems caused by Welch’s legacy. Gelles does offer some general suggestions on how to create a more sustainable and humane form of capitalism, such as increasing regulation, taxation, transparency, accountability, diversity, innovation, social responsibility, and stakeholder value. However, he does not provide enough specific examples or cases of how these suggestions can be implemented or achieved in practice.
• The book is too pessimistic and not enough optimistic, meaning that it does not highlight enough of the positive signs or trends that indicate a possible change or improvement in our economic system and corporate culture. Gelles does acknowledge some of the movements and initiatives that are challenging or resisting Welch’s legacy, such as the rise of social entrepreneurship, impact investing, corporate social responsibility, environmental sustainability, worker cooperatives, benefit corporations, and stakeholder capitalism. However, he does not give enough attention or credit to these movements and initiatives, nor does he explore their potential or impact in depth.

The main arguments and evidence of the book

The main argument of the book is that Jack Welch’s legacy as the CEO of GE was not as positive or beneficial as it is often portrayed, but rather was detrimental and harmful for workers, consumers, innovation, and the economy. Gelles supports this argument with various types of evidence, such as:

• Financial data and metrics that show how Welch’s strategies boosted GE’s stock price and profits, but also increased its debt, risk, and volatility, and reduced its investment in research and development, capital expenditure, and organic growth.
• Historical and anecdotal evidence that show how Welch’s layoffs and outsourcing affected millions of workers and communities across the US and the world, who lost their jobs, incomes, benefits, skills, and dignity.
• Case studies and examples that show how Welch’s mergers and acquisitions created monopolies and oligopolies that reduced competition, innovation, quality, and consumer choice in various industries, such as media, energy, aviation, health care, and finance.
• Expert opinions and testimonies that show how Welch’s influence on other companies and leaders created a culture of greed, corruption, and short-termism that eroded trust, ethics, and social responsibility in the corporate sector.
• Statistical and empirical evidence that show how Welch’s legacy contributed to the rise of income inequality, financial instability, environmental degradation, and social unrest in the US and the world.

Conclusion

In conclusion, The Man Who Broke Capitalism is a book that offers a critical and revealing look at Jack Welch’s legacy as the CEO of GE. It shows how Welch’s strategies to boost GE’s stock price and profits had many negative consequences for workers, consumers, innovation, and the economy. It also shows how Welch’s legacy influenced many other companies and leaders who followed his example, creating an economy that is more concentrated, less dynamic, more unequal, and more unstable. It also offers some suggestions on how to undo Welch’s legacy and create a more sustainable and humane form of capitalism.

This book is a must-read for anyone who wants to understand how we got to where we are now in terms of our economic system and its challenges. It also helps us question some of the assumptions and myths that have shaped our views on capitalism and corporate America. It also provides some insights and lessons that can help us shape a better future for ourselves and our society.

FAQs

Where can I download the PDF version of the book?

You can download the PDF version of the book from this link: [The Man Who Broke Capitalism PDF].

How did George Soros break the Bank of England in 1992?

George Soros is a billionaire investor who is known for his role in breaking the Bank of England in 1992. He did this by betting against the British pound sterling, which was pegged to the German mark under the European Exchange Rate Mechanism (ERM). He believed that the pound was overvalued and that the UK would be forced to devalue or exit the ERM. He borrowed billions of pounds from various banks and sold them on the market, creating a downward pressure on the pound. He then bought back the pounds at a lower price after the UK announced its exit from the ERM on September 16, 1992. He made an estimated profit of $1 billion from this trade.

What is the European Exchange Rate Mechanism (ERM)?

The European Exchange Rate Mechanism (ERM) was a system that was established in 1979 to stabilize exchange rates among European countries. It aimed to reduce currency fluctuations and promote economic integration. It involved setting a central parity rate for each currency against the European Currency Unit (ECU), which was a basket of currencies of all ERM members. Each currency was allowed to fluctuate within a certain margin around its central parity rate. If a currency reached its upper or lower limit, the central banks of both countries had to intervene in the market to restore it to its parity rate. The ERM was a precursor to the European Monetary Union (EMU) and the euro.

Who are some of the Welch acolytes mentioned in the book?

Some of the Welch acolytes mentioned in the book are:

• Jeff Immelt: He was Welch’s successor as the CEO of GE from 2001 to 2017. He tried to continue Welch’s strategies of financial engineering, mergers and acquisitions, and shareholder value maximization. However, he faced many challenges and crises during his tenure, such as the 9/11 attacks, the 2008 financial crisis, the Fukushima nuclear disaster, and the coronavirus pandemic. He also faced criticism and pressure from investors and regulators for GE’s poor performance and scandals. He was replaced by John Flannery in 2017, who was later replaced by Larry Culp in 2018.
• Bob Nardelli: He was the CEO of Home Depot from 2000 to 2007. He tried to apply Welch’s methods of cost-cutting, centralization, and financialization to Home Depot, which was a successful and customer-oriented company. He alienated many employees, customers, and shareholders with his authoritarian and arrogant style. He also failed to adapt to the changing market conditions and competition from Lowe’s. He was ousted by the board in 2007 with a $210 million severance package. He later became the CEO of Chrysler from 2007 to 2009, where he also faced many challenges and controversies.
• Larry Bossidy: He was the CEO of Honeywell from 1999 to 2002. He was a close friend and ally of Welch, who helped him orchestrate the merger between Honeywell and AlliedSignal in 1999. He also tried to merge Honeywell with GE in 2001, but the deal was blocked by the European Commission on antitrust grounds. He also implemented Welch’s strategies of downsizing, outsourcing, and financialization at Honeywell, which resulted in lower quality, innovation, and customer satisfaction. He retired in 2002 after failing to revive Honeywell’s growth and profitability.
• John Chambers: He was the CEO of Cisco from 1995 to 2015. He was one of the most successful and admired CEOs in the tech industry, who led Cisco’s rapid expansion and dominance in the internet and networking market. He was also influenced by Welch’s philosophy of growth, acquisitions, and shareholder value. However, he also faced some setbacks and criticisms during his tenure, such as the dot-com bust, the 2008 financial crisis, the rise of competitors like Huawei and Juniper, and the decline of Cisco’s innovation and culture.

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