Welch transformed G.E. from an industrial company with a loyal employee base into a corporation that made much of its money from its finance division and had a much more transactional relationship with its workers. That served him well during his run as C.E.O., and G.E. did become the most valuable company in the world for a time.
But in the long run, that approach doomed G.E. to failure. The company underinvested in research and development, got hooked on buying other companies to fuel its growth, and its finance division was badly exposed when the financial crisis hit. Things began to unravel almost as soon as Welch retired, and G.E. announced last year it would break itself up.
Similar stories played out at dozens of other companies where Welch disciples tried to replicate his playbook, such as Home Depot and Albertsons. So while Welchism can increase profits in the short-term, the long-term consequences are almost always disastrous for workers, investors and the company itself.
Welch was responding to real problems at G.E. and the American economy in the 1970s and early ’80s. If his cure created even bigger problems, what might be a better alternative?
An important first step is rebalancing the distribution of the wealth that our biggest companies create. For the past 40-plus years we’ve been living in this era of shareholder primacy that Friedman and Welch unleashed. Meanwhile, the federal minimum wage remained low and is still just $7.25, and the gap between worker pay and productivity kept growing wider.
There are some tentative signs of change. The labor crisis and pressure from activists has led many companies to increase pay for frontline workers. Some companies, such as PayPal, are handing out stock to everyday employees.