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HOW JACK WELCH HELPED CREATE BERNIE SANDERSBy John Cassidy
March 3, 2020
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When Jack Welch, the longtime C.E.O. of General Electric, retired, his exit package was worth more than four hundred million dollars.Photograph by Richard Kalvar / Magnum It was purely a coincidence, of course, that Jack Welch, the
corporate titan who led General Electric from 1981 to 2001, died two days before Super Tuesday. But the obituaries for Welch, who was eighty-four, should serve as a reminder of how we reached the point where a self-proclaimed democratic socialist like Bernie Sandersseems likely to win
Democratic primary contests in California and other big states. Welch was a Republican. (In 2016, he endorsed Donald Trump, then withdrew his endorsement after the “Access Hollywood” tape came to light.) But Welch’s major contribution to history was the brutal management model he pioneered during his twenty years atop G.E.—a model that focussed on raising the company’s stock price regardless of the impact on its employees or other stakeholders. Although he would later partiallyrenounce
the
“shareholder value” movement, he was widely regarded as its godfather. Many other corporate leaders followed the example that he set. Together they created a more intensive form of American capitalism, one which greatly enriched owners of capital—themselves most definitely included—but ultimately led to a populist backlash that gave Sanders his opening. Politics aside, Welch and Sanders shared some traits. Both were born while Franklin Delano Roosevelt was in the White House, and they grew up in working-class households—Welch in Peabody, Massachusetts; Sanders, in Midwood, Brooklyn. After attending local high schools, they went on to top-notch colleges. Welch got a bachelor’s degree from the University of Massachusetts, Amherst, and then got a Ph.D. in chemical engineering at the University of Illinois at Urbana-Champaign. Sanders went to Brooklyn College and transferred to the University of Chicago, where he majored in political science and joined the youth section of the Socialist Party of America. After college, the two men’s lives followed very different paths, of course. Sanders moved back to New York, and then to Vermont, where he tried his hand at writing and carpentry. He was active in the antiwar movement, and, in 1972, he represented the locally founded Liberty Union Party, which was (and is) avowedly socialist, in a U.S. Senate race. Nine years later, he was elected as the mayor of Burlington. Welch joined G.E. in 1960 and worked his way through the ranks. In 1977, he was asked to run the firm’s consumer-appliances division, famous for its refrigerators and washing machines. In 1981, at the age of forty-five, he became the youngest C.E.O. in G.E.’s history. Looking to make his mark on the sprawling conglomerate, Welch closed down divisions that he deemed to be underperforming and laid off tens of thousands of workers—earning him the nickname Neutron Jack. He also shifted the company’s emphasis away from manufacturing, acquiring RCA, which owned the NBC television network. All of this was done in the name of strengthening G.E.’s competitiveness and maximizing returns to shareholders. Wall Street and the business media cheered Welch on. G.E.’s market value rose from twelve billion dollars, when he took over, to more than five hundred billion dollars, in 2000. In 1999, _Fortune_ called Welch the “leading management revolutionary of the century.” Video From The New Yorker Welcome to Iowa: The Final Weeks Before the First Democratic Vote Even as the media put Welch on a pedestal, some critics inside and outside of G.E. noted the darker side to his tenure, which went beyond ruthless downsizing. To keep the company’s managers on their toes, he ranked all of them annually and fired the bottom ten per cent. To cut costs, he slashed G.E.’s research budget, which had made it a world leader in many areas. To boost profits (and goose the company’s stock price), he created a giant bank inside of G.E.—G.E. Capital—which engaged in many kinds of risky lending. Welch also revolutionized G.E.’s executive-compensation policies. With the connivance of the board of directors, he was afforded all sorts of corporate perksand huge
grants of stock options. When he retired, in 2001, his exit packagewas
worth more than four hundred million dollars. The heads of big American companies had always been well paid, but, under this new model of corporate capitalism, Welch and other C.E.O.s retired as richas Croesus.
G.E., however, was left in less rosy shape. Under Welch, the company had skimped on investing in the technologies of the future, such as green energy. G.E. Capital was a time bomb. During the financial crisis of 2008 and 2009, it almost went off—and the federal government had to bail it out. Even though G.E. Capital didn’t have any ordinary depositors, the Federal Deposit Insurance Corporationagreed to guarantee
a hundred and thirty-nine billion dollars of its loans. The taxpayers’ guarantee reassured G.E.’s creditors, and the company didn’t end up having to call on it. But its issuance was invaluable. That was an example of what Sanders calls socialism for the rich. In retrospect, the financial crisis was a tipping point. Many ordinary Americans turned against the imperial leaders of corporate America. In 2016, when Stan Greenberg, the veteran Democratic pollster, surveyed middle-class voters, one of the things that stood out was the level of hostility toward C.E.O.s, who were widely seen to be out for themselves. At an event during the Democratic National Convention, in Philadelphia, Greenberg presented some of his findings and said, “The corporations and the C.E.O.s are the entry point to what is happening in the country.” Greenberg tried to persuade the Hillary Clinton campaign to tap into this populist feeling, with limited success.
Sanders didn’t need any prompting. He has been inveighing against corporate America for forty years or more. At times, his attacks on “billionaires” and “the one per cent” get a bit repetitive, but they reflect an underlying reality. In 1981, the year Welch took over as C.E.O. of G.E., the richest one per cent of households received about ten per cent of all pre-tax income, according to the Berkeley economist Emmanuel Saez. By 2017, the figure had more thandoubled ,
to twenty-two per cent. The rise in the share of the top 0.1 per cent was even more dramatic. To be sure, Welch and other corporate leaders can’t be held solely accountable for these developments. Technological changes, globalization, and conservative policies all played significant roles, too. But make no mistake. If the lopsided form of capitalism that Welch embodied hadn’t so disfigured the American economy in recent decades, Sanders would still be a fringe figure. Today, though, many of his critiques ring true. John Cassidy has been a staff writer at The New Yorker since 1995. He also writes a column about politics, economics, and more fornewyorker.com.
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Learning to Love Bernie Sanders, or Trying To Older liberals, having lived through a rightward turn that was barely tolerable, are terrified not that Sanders can win but that he can’t.By Adam Gopnik
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On the Campaign Trail with Michael Bloomberg, Money Talks At times, New York’s former mayor sounds like an investor in the Democratic Party who is worried about his returns.By Eric Lach
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How Bernie Sanders’s Outreach into Latino Neighborhoods Is Working The reporter Stephania Taladrid speaks with Latino voters in Nevada who affectionately call the Vermont senator “Tío Bernie.”By The New Yorker
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