How ‘Neutron Jack’ fired thousands, made Trump and ‘broke capitalism’


  • Jack Welch led General Electric from 1981 to 2001 and helped reshape the American business landscape.
  • In “The Man Who Broke Capitalism,” NY Times reporter David Gelles assesses Welch’s legacy.
  • Gelles says Welch was responsible for the aggressive firings and populism that helped elect Trump.

Few people born since the 1980s have heard of Jack Welch. But they know about Trump, the Boeing 737 Max disasters and an American economic landscape that has led to populism and rising inequality.

“When people look around and say ‘why is the system like this? Why are things unfair?’ there was actually a guy who made it happen. There was a guy who set a precedent for today’s economy, and that guy was Jack Welch,” says journalist David Gelles. at the New York Times and author of a new book called “The Man Who Broke Capitalism“.

Welch took over as CEO of General Electric in 1981 when it had 400,000 employees and was a reliable and innovative household name making light bulbs but also more sophisticated equipment such as jet engines and fuel systems.

Coined “Neutron Jack” after the neutron bomb, which supposedly kills people while leaving buildings intact, Welch was a mascot for an era of deregulation and cheap thrills, which quickly crumbled into the


recession

of the late 200’s.

During his two-decade tenure, GE grew to hundreds of billions of dollars and was the most valuable company in the world at one time. But, Gelles argues, he did it while severing the American fabric, leaving not only GE but the United States worse off than when he found it.

A “vitality curve” of laid-off workers

Welch was obsessed with growth and spent an estimated $130 billion on nearly 1,000 acquisitions while running GE, though many of them failed. Under Welch, the company’s financial services division, GE Capital, grew to be huge, but then needed a $139 billion bailout from the US government following the 2008 financial crisis, as well as additional funding. $3 billion bailout investment by Warren Buffett, Gelles said.

Welch also pioneered the “stack ranking system”, in which the bottom 10% of employees were fired each year, a practice he called the “vitality curve”. Companies such as Goldman Sachs still use this approach to keep staff “motivated”.

Welch cut GE’s workforce by 112,000 between 1980 and 1985 as well as outsourcing and offshoring jobs to cheaper markets like Mexico.

“What Welch did was fire people when things were going well,” Gelles told Insider. “And that was a deal breaker – the behavior of firing people to make a bigger profit.”

Economics didn’t drive Welch’s work practices, says Andrew Mawson, co-founding director of Advanced Workplace Associates: “Firing 10% of underperformers every year seems like a bad way to overcome a weak performance management system.”

Others say that beyond hurting morale and productivity, focusing only on labor costs is inefficient. Simon Geale, from supply chain consultancy Proxima, told Insider: “Some business leaders like it because the pay line is easy to measure and quick to act, but the reality of job cuts is that they deal with proportionally low expenses relative to supplier costs in most industries.”

“Jack Welch rigged the game” for Trumpism

More detrimental, however, was the thought that Welch inspired in other business leaders. Gelles says his approach was taken by Jim McNerney, who as Boeing CEO was accused of embarking on a series of cost-cutting measures that contributed to the Boeing 737 Max disasters that killed 346 people at five-month intervals.

“It was clear, talking to hundreds of Boeing employees over the past few years, that he’s just poorer because of Welch’s influence,” Gelles said.

Jack Welch discusses the new Boeing 777-200X airliner which used GE engines at a press conference in New York in February 2000.

Jack Welch at a press conference for the Boeing 777-200X airliner which used GE engines in New York in February 2000.

Getty Images


Inevitably, actions of such magnitude would have political ramifications. Gelles says the layoffs and outsourcing initiated by Welch helped form the basis of the “rust belt” that put Donald Trump in the White House.

“What Welch did with his series of mass layoffs and plant closures really destabilized the American working class,” Gelles says.

“And it was from this disgruntled base that Trump found many of his most ardent supporters. But the reason they felt like it wasn’t working for them was because Jack Welch rigged the game.”

After Welch’s death in March 2020, Trump said they “did a wonderful business together.”

A turning point

Gelles believes the United States is at an inflection point, with the pendulum swinging back in favor of working people. He points to new patterns that have emerged, including former Unilever CEO Paul Polman’s decision to ditch the quarterly forecast in pursuit of longer-term gains, and PayPal CEO Dan Schulman’s decision , to focus on the benefits for its staff.

However, many companies are still focused on short-term results, as evidenced by the recent upheaval in the tech industry, with falling stock prices leading to job cuts.

“The fact that one or two bad quarters lead to mass layoffs is crazy to me. The fundamentals haven’t changed much, but CEOs feel they have to do something,” Gelles says, suggesting it would be “decades battle” to compensate for the changes Welch helped spark.

Gelles adds, “These were choices that companies made, about how they were going to treat workers, what they were going to prioritize and how they were going to present themselves in their communities, and that’s important. It’s going to take a long way to come back.”

Previous 5 Best Online Payday Loans - Online Payday Loans Same Day Deposit & No Rejection Payday Loans Direct Lenders in 2022
Next The Weekly Authority: 📱 Pixel Prototype