This is the Wizards of Money. Your money and financial management series… but with a twist. My name is Smithy and I’m a wizard watcher in the Land of Oz.
This is Part 9 of the Wizards of Money Series and it is entitled “Jack and the Sweatshop”.
Introduction
In this the Ninth Edition of Wizards we are going to take a look at the “Manager of the 20th Century” – Jack Welch – GE’s CEO for the 20 years up until Fall 2001. In September 2001 Jack’s much awaited autobiography entitled “Jack – Straight from the Gut” was released with much fanfare. Business professionals are besides themselves with praise for the book from Warren Buffett’s comments that “All CEOs want to emulate him” to the Chairman of SONY corporation’s statement “Jack Welch, the brilliant business magician, has finally disclosed his mysteries of management”.
Since Jack is a “brilliant business magician” and since during his watch he transformed GE’s small credit company into GE Capital – the largest non-bank financial institution in the world and almost half of the modern GE – he is definitely one of the most important Wizards of the 20th Century.
In the midst of the gushing reviews of Jack’s book, his career and management style it is important to analyze his influence on corporate culture in America. From his ability in the 1980’s to turn mass firings of employees from an attack on communities into an almost saintly act of saving companies from inefficiency, to the 1990’s trend of establishing high-tech sweatshops overseas, Jack has built a new model of the American corporation. In this new model the only US employees are managers. These managers get churned out at the “People Factory” in Crotonville, NY (also known as Jack’s Cathedral) and they manage the overseas units where the real work is done at optimal cost. The other key part of the US operation is the Capital Factory – GE Capital – the company’s own mini-Wall Street.
With most real production done outside the corporation what does GE actually produce – what is the measure by which GE is acclaimed to be the great success of the 20th century? Is it great light bulbs, great engines, great electricity or something else? No it’s EARNINGS – GE is the best manufacturer of earnings in the 20th century. It has the sexiest looking balance sheet and income statement book-keeping entries of all. Recall that we spoke extensively about the earnings manufacturing business in Wizards Part 8. You can get all past editions of the Wizards of Money at www.wizardsofmoney.org
In this edition of Wizards, as we look at the Cathedral that Jack built, we will be hearing some excerpts of an interview Jack did with Bob Joss at a Commonwealth Club event on November 12, 2001 with an audience of Stanford
business students. At the other end of the spectrum we will be hearing an interview I did on January 5, 2002 with Jessica Lindberg, housewife and mother in Rome, Georgia on the banks of the PCB laden Coosa River in Northern Georgia. She has been busy trying to get GE to clean up its mess in this North Georgia town and she even confronted Jack at his final GE shareholder meeting as Chairman about this issue.
To get this episode underway and to give a brief overview of Jack’s career and what it was all about I found a fictional story – I’m not sure where it came from – that has some similarities with Jack Welch’s story. The main character is also called Jack and a quick telling of this fictional story should help you get a handle on Mr. Welch’s saga in a quick and easy-to-understand way. The fictional story is called “Jack and the Corporate Ladder”.
Jack and the Corporate Ladder
Once upon a time there was a young man named Jack. He lived with his father and mother in Massachusetts and they were a family of humble means. Jacks father was a railway conductor and always very busy trying to earn a living for his family. So Jack spent a lot of time with his mother, whom he adored and who adored him.
One day Jack left his dear mother and set off for the markets to find a job. He found one in the Land of GE. After some years of hard work, some GE merchants offered Jack a trade that Jack didn’t like – the same bonus level as his colleagues so he decided to quit. But then a more crafty merchant offered Jack a handful of better treats – a larger bonus and some special treatment in return for Jacks future loyalty.
Jack thought this was a pretty good deal and so he went home, banked his bonus and nurtured his ambition. The next day he went back to work and saw a huge Corporate Ladder in sight. An ambitious fellow, Jack began the long climb to the top.
Jack had heard that there were giants at the top of the Corporate Ladder that he might have to fight. He considered it all a Big Game and he really wanted to win. He was determined to deal with those giants.
Along the way up the Corporate Ladder Jack bumped into a giantish looking fellow called Ronnie. Jack and Ronnie made good friends and both were determined to kill the giants when they got to the top. For the giants interfered with freedom, they both agreed. However, about a quarter of the way up, Ronnie was thrown off the Corporate Ladder. The Land of GE had important contracts with the giants and Ronnie’s constant chatter of giant-killing was messing with these deals. Ronnie was determined to get to the top another way – so he started to set his sites on becoming the main giant at the top himself. Meanwhile Jack continued his journey to the top of the Corporate Ladder.
Finally Jack got to the top and there he could see huge amounts of riches and treasures in this new land that he considered rightfully his. But there were some battles to be fought and won in order to claim those riches for himself.
First there was the issue of giants. Not long after he arrived Jack bumped into the leading giant of the land – only to find that it was Ronnie, who had also just made it to the Land of the Top. Jack couldn’t be more pleased. Together Jack and Ronnie vowed to rid the land of the rest of the giants so the riches could be theirs.
Only there were a few other things in the way. Standing between them and the riches were thousands of annoying little creatures that were also trying to get at bits of the riches for themselves. These annoying critters were called jobs and Jack immediately set to killing the ones he really didn’t like and sending the rest to lands far, far away.
Subsequent to that Jack thought he better set up a People Factory so he could churn out people to behave exactly how he wanted them to. Jack used the People Factory to build something of an army to help him get across to the riches and wipe out any other unexpected obstacles on the way.
More trouble arose when Jack and his army got to the Land of the Media where nasty stories were spreading about Jack the Job-Killer and they even called him Neutron Jack – for his ability to kill jobs and leave buildings standing. This really upset Jack – he was only trying to get to what was rightfully his. He put a stop to all this by invading the Land of the Media and taking over a good chunk of it for himself.
Over the next few years Jack and his army collected a hug amount of the riches for themselves. But then came the big river crossing where they met a hostile giant who wanted to take a bunch of their riches. Ronnie was no longer around to help them with this giant. Jack and his army fought a long, hard, nasty battle for more than 20 years but they finally lost and had to concede some riches.
Never mind, Jack and his army just went and found other riches they could take. Jack was getting pretty old by this time and thinking about retiring from the Big Game when he came across yet another hostile giant. This one was from a land far, far away and approached Jack saying “Fee Fi Fo Fum, I smell the makings of a Vertical Monopoly”. This new giant seemed to exhaust Jack and he retired from his life of giant-killing with all the riches he had accumulated along the way.
It’s all about Winning. Business is a Game.
Now back to the real Jack Welch. How does his mind work? How does he justify mass layoffs, the pressuring of contractors to lay-off workers and move factories to Mexico, the stingy wages in the high-tech sweatshops in India, and the constant denial that EPA rated probable carcinogens are perfectly safe?
We’ll let Jack explain this in his own words. Here is an excerpt from the November 12, 2001 Commonwealth Club interview with Jack Welch.
Excerpt from Commonwealth Club Interview: Jack in his own words: “It’s all about winning. Business is a Game.”
In his own mind Jack is unable to separate what he does from a baseball game or a good golf game. Under his logic, the team can only do good if it beats everyone else. The scorecard is the Earnings Report, the abstract has become the real and the real has become completely abstract.
He doesn’t know what it feels like to be on the receiving end of his business decisions – to be laid-off, to work in an overseas sweatshop, or to live in a toxic wasteland that nobody wants to cleanup. This “other side” is perhaps the losing team in Jack’s mind. Certainly the “losing team” in Jack’s game doesn’t see this business as a mere game.
Jack never mentions in his book, nor in his interview, the rather larger handicap he is given by the American taxpayer in this game of business. Tax breaks, subsidies, accounting wizardry, media ownership and your very own mini-Wall Street created through years of favored access to credit can all help tremendously. To link this episode in with Wizards Part 8, let’s take a look at the aftermath of the Enron collapse for example. In Wizards 8 we touched briefly on Enron’s Power operations in India. Partners in this operation were none other than GE Capital and the Bechtel Corporation. Why them you might ask?
Well, for many years GE has taken advantage of the opportunities for high-tech sweatshops in India. India has millions of well-educated, technically trained English speaking people that cost peanuts compared to US workers. Consequently GE has now exported all kinds of technical operations to India – from data entry, to accounting, to customer service, to loans and claims processing and, of course, computer programming. But for years Jack was frustrated – he had the cheap bodies in India – but he didn’t have the electricity to power the high tech sweatshops. Similarly Betchel moved engineering operations to India and the engineers needed electricity too. On Jack’s September 2000 visit to India he is quoted by the Telegraph as saying “When you think of digitizing India there will be a massive amount of power required and I pray to this government that you have to push and push and push to invest in infrastructure.”
The Enron/GE/Bechtel venture into Indian electricity production seemed to start off promising enough. But in 2001 the main purchaser of this electricity, the Maharashtra State Government, stopped paying its bills, partly contributing to Enron’s problems. Then with all its other problems Enron finally collapsed and things looked grim for the three patrons of HighTech Sweatshop Electricity. Crying over their losses they all went to the US government last month to ask for almost a quarter of a billion dollars compensation from the US Taxpayer! Yes this is really true! Fact is Stranger than Fiction. A December 20, 2001 Dow Jones Newswire article that went almost completely unnoticed reported that the three US giants had made a claim to the Overseas Private Investment Corporation, an agency of the US government, for $200 million dollars in “expropriation compensation”.
Well, that’s Globalization for you!
The Globalization Guru and the Georgia PCB/Dioxin Problem
On the topic of Globalization, at the November 12 Commonwealth Club event, people were allowed to ask questions. No – not the questions they really wanted to ask – don’t be silly! When it comes to questions to Business Gurus in the Free World the method runs as follows – you submit them on paper in advance and then a committee decides which are the appropriate questions, and then they get reworded to optimize their appropriateness.
And so it was with questions at this Commonwealth Club event even though it was a very safe audience – Stanford business students. But then Jack had probably thought the audience at the Annual Shareholders meeting in Atlanta earlier that year was probably safe too, but a real question slipped through the cracks. We’ll hear more on this later.
Anyway the following question on “Globalization versus Democracy” posed to Jack at the Commonwealth Club event was probably the closest that one came to a real question. Listen carefully to Jack’s response.
Excerpt from Commonwealth Club Interview: Jack in his own words: Globalization Rules!
Let us take a good look at this issue of exporting world class environmental standards and a little bit of a look at job exporting. We will now listen to an interview I did on January 5 this year with Jessica Lindberg, mother of two in the town of Rome, Georgia who founded a group there called Citizens Action Network. Rome is in the Northwest corner of Georgia, between Atlanta GA and Chattanooga TN. It is also not far from a town called Anniston in Alabama that has received a lot of attention lately.
For about 40 years GE operated a medium transformer manufacturing plant in Rome Georgia. For about half of those years it dumped its waste products into several landfills and waterways of Rome. After NAFTA came into effect GE didn’t waste anytime. They promptly moved operations to Mexico and left their PCBs (polychlorinated biphenyls), dioxins (the killer chemical in Agent Orange) and many other chemical cocktails behind as a reminder of their generosity to communities.
In contrast to Anniston, Alabama, the Husdon River in NY and Pittsfield MA, the Rome, GA toxicity problems get scant media attention both in the mainstream and in independent media. Yet this story is so important.
In the following interview note that the EPD is the Environmental Protection Division an environmental enforcement agency of the GA STATE government. I started the interview by asking Jessica Lindberg how she came to form the Rome, Georgia based Citizen’s Action Network.
Interview with Jessica Lindberg: Founder/Director of Citizen’s Action Network
That was part of the interview I did with Jessica Lindberg of Citizen’s Action Nework in Rome, GA. After this interview I did some more research into the Atlanta lawyer working for both the EPD on water issues and representing GE on the Rome PCB issue. I found that this lawyer is from none other than King and Spalding, Sam Nunn’s law firm. The name of the lawyer in question is Patricia Barmeyer and before joining King and Spalding she worked as the Assistant Attorney Gerneral for the State of Georgia. Ms. Barmeyer of King and Spalding does indeed represent GE in fighting EPD and EPA decisions, and yes also works as a key advisor to the State of Georgia’s EPD on critical water issues. Oh yes, and King and Spalding also represented GE in squashing two class action lawsuits against them for the dumping of PCBs in Rome, GA. So I stand corrected – its not an old boys network after all – there’s some old girls in it too!
Science, The Well Capitalized Way
With all these environmental problems GE has entered the business of funding medical studies in a big way. Miraculously, even though there are numerous studies finding a link between PCBs and serious health problems in animals all the GE funded medical studies find that humans and PCBs get along just fabulously.
Let’s here some of Jacks medical words of wisdom:
Jack on PCBs and Cancer
In response let’s hear some more from Jessica Lindberg about the scientific studies in a world of scarce financial capital:
Jessica Lindberg on Scientific Evidence and Financial Capital
So while government bodies can somehow find taxpayers contributions available for hundreds of millions in “expropriation compensation” no government body can find the resources for a health study desired by the taxpayers.
Never mind. After all, It’s Just a Game.
That’s all for Wizards of Money Part 9. Please note that the Wizards of Money has a Web site located at www.wizardsofmoney.org
