Like capitalism itself, business journalism is broken. Can it be fixed?
Talking to New York Times reporter David Gelles about the implosion of capitalism, the failure of the business press to tell that story, and how it can do better now
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It is a rare and powerful thing these days for someone to admit they were wrong. In our culture of competitive certitude, it is a risk too many of us are unwilling to take.
That’s just one of the reasons I admire the New York Times business reporter David Gelles’s powerful new book, “The Man Who Broke Capitalism,” about Jack Welch and the larger crisis he fomented. It’s out today.
The main target of the book’s criticism is clear from the subtitle: “How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America — and How to Undo His Legacy.” But as you’ll see in my conversation with David below, this is also a project rooted in his own realizations about his own past failures as a business reporter and, frankly, the failures of much (but not all) of the business press at large.
“When I think back to some of my early stories and my early jobs, like at Forbes magazine, I was essentially playing a boosterish role with the business world and trying to celebrate the success of businesses on their own terms,” David told me the other day, capturing how much of the business media has tended to write about business in an era of growing elite capture and savage, widening inequities.
But then covering stories like the Boeing 737 Max crashes awakened David to what he had missed in all those years of reporting. He realized that he, like so many in his guild, had given CEOs too much faith. That set him on the road to telling the story of how one CEO above all, the CEOs’ CEO, Jack Welch, broke American capitalism.
You won’t want to miss our conversation below about Welch, the larger crisis he shaped and reflected, and where business journalism should go from here.
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“He's on the Mount Rushmore of men who screwed up this country”: a conversation with David Gelles
You're a business reporter for The New York Times, and, for people who don't know your work already, you play it straight. You're a serious, sober reporter. You stick to the facts, and your reporting has led you to conclude that capitalism is broken, which is not something we're used to hearing from New York Times business reporters. Why is that your conclusion?
It wasn't where I started my journey when I was studying and then practicing business journalism more than 15 years ago. In retrospect, I clearly had a much more credulous approach to my job.
When I think back to some of my early stories and my early jobs, like at Forbes magazine, I was essentially playing a boosterish role with the business world and trying to celebrate the success of businesses on their own terms. As I looked deeper and wrote more stories over the years, and as those stories took me out of the boardrooms and into communities and the lives of real, everyday people, it became clear that the way this economy works simply does not distribute the riches of this land in an equitable way.
The coverage I did of the aftermath of the Boeing 737 Max crashes brought this home in a visceral way because I spent time with families who lost their loved ones in those crashes. As one woman said to me, this was corporate manslaughter.
I'll never forget those words because this was a company that had been celebrated for years and years. And at the end of the day, I understood what she was saying. At this point, Boeing was a company that had completely lost its ethical compass and had created planes that were flawed and led to the deaths of hundreds of people. That was a seminal moment for me. As much as I was still in the thralls of business and capitalism on its own terms, it was impossible to continue to be after covering that story.
When you think about Boeing planes falling out of the sky, explosions happening at GE, as you recount in the book, and the entire American working class stiffed over a generation, all because of certain ways of running a business, do you see that as capitalism breaking down or capitalism realizing itself to the fullest?
I don't know if it's capitalism realizing its truest nature because I believe in capitalism, at least in some respects. I think free enterprise has its merits and has lifted tens, maybe hundreds, of millions of people out of poverty into better living conditions.
So I don't want to lose sight of that broader narrative. The way I would personally refine that question is to ask, Are those types of dramatic negative externalities necessary? Are they inevitable? I would say the answer is no, because we know that companies have choices. These are choices that people make about how they run their companies. Individuals, mostly men, made a series of choices that led us to those places. If we can restructure some of the incentive systems and reset the morals and values of the people running these companies, there might be fewer or less disastrous negative externalities that we have to reckon with.
You’re a fact-based reporter. When you conclude that Jack Welch is singularly responsible for breaking America in many ways, you're not saying it as a rant or as a tweet. You're saying it as an evidence-based conclusion that you came to. Where do you place Jack Welch in the pantheon of American individuals who made life worse for a vast number of people and communities?
I think he's on the Mount Rushmore of men who screwed up this country. What he did at GE essentially became a standard operating procedure for every other company in this country and for many companies in other countries around the globe. It created this slow-motion revolution in what was deemed acceptable behavior by CEOs and corporations.
It spread this enduring legacy that we're still living with that has effectively normalized the practice of using mass layoffs to boost your earnings per share in a quarter. It created a world where it's acceptable to do everything in your power to pay the government the absolute minimum that you can in tax revenues while shoveling as much of your profits as you possibly can back to shareholders and executives in the form of buybacks and dividends. We're well past the place of being able to measure or calculate the damage brought by that type of behavior over more than 40 years now.
For many people under a certain age, the world of capitalism you're describing before Jack Welch feels quite remote. An era of companies being nice to workers may even feel fantastical to people. Can you describe the business world Jack Welch entered as a young man and tried to upend?
Many people have described it as the "golden age of capitalism." That may well be overstating it because there was still a lot of inequality and misallocation of opportunity and resources for marginalized communities of all shades and stripes in that period from roughly 1945 to the late '70s. But it's undoubtedly the case that businesses and CEOs operated with a fundamentally different orientation and understanding of their role in society in that era.
Specifically, the way companies distributed their profits and how they talked about their purpose is virtually a 180-degree change from what we see in big business today. In the 1953 GE annual report, the company proudly ticked off how much money it paid its workers. It was screaming from the rooftops how wonderful it was that it was the largest payroll ever in its history. It talked about how much money it was paying its suppliers and giving them really good rates so they could continue to make profitable goods and services and take good care of their employees.
GE even proudly talked about how much it paid the government in taxes, making the case that what was good for the company was good for the country and vice versa. I don't need to tell you that that is not the world we live in today, but it did exist.
Before I ask why that world broke down, can I ask: Why did that world take hold in the first place? Why did greed not dominate at that time? What was stopping people from trying to grab the most they could in the way that has now become normal?
Let's remember what had just happened. The country had just finished with World War II, and there was a sense of patriotism. There was a recognition that this country was really in it together, in a way that we haven't been for a long time now. Business, which was instrumental to the war effort, came out with its sense of civic patriotism intact. I think it persevered for quite some time. This was also the time of Keynes. There was an understanding that the government played a meaningful role in setting the guardrails of what was acceptable for business in shaping the economy.
It was a slow process, but by 1971, some on the economic right were beginning to challenge those ideas. It took ten years of them postulating about this stuff before Jack Welch ultimately came and did something about it. But, remember, Milton Friedman had written in The New York Times Magazine that a business's social responsibility is to increase its profits ten years before Jack took over GE. So the reaction to that golden age of capitalism was well underway, at least in the zeitgeist, even before Jack took over.
One thing that was very striking to me in the book was this moment under Jack Welch where labor went from being seen as an asset to being seen as a cost. What is the difference between an asset and a cost?
An asset is something you see as intrinsically valuable, something you're going to cherish and try to protect. Cost is something in the business world that you try to minimize for the most part. This was a crystallizing way for me to understand how Welch viewed his workforce. It was also very instructive when I thought about what labor in the United States looks like today.
In that golden age of capitalism, major corporations understood their employees were their most valuable asset. They treated them as such, giving them excellent pay and sterling benefits far beyond what most companies offer today. Then Welch arrived, and he came to the job with this explicit view that GE employed too many people. And what did he do about it? In his first couple of years on the job, he fired more than 100,000 people in a series of jarring mass layoffs that fundamentally destabilized the American working class and set a precedent for other CEOs to follow in his footsteps.
My colleagues at The New York Times like Brad Stone and Jodi Kantor have since revealed that when Jeff Bezos founded Amazon in the 1990s, he was channeling Jack Welch. He wanted a transactional relationship with his employees, not one where they felt they could count on their company to care for them. That represents a fundamental shift in how major corporations relate to so many Americans.
What is Welchism?
Welchism is the ideology that encompasses all of Jack Welch’s skewed priorities. I identify several tactics he used to propagate this, like downsizing, deal-making, and financialization. But Welchism is the full-throated belief in shareholder primacy, mixed with an aggressive, materialistic, and domineering style of management that sidelines opinions that run counter to that ideology and thrives on self-promotion and the celebration of the CEO as a national hero.
Part of the story you tell is GE's transition from being a heavily industrial company to essentially a bank that happens to have some factories. Welch figures out GE can lend money and engage in all these different financial transactions that can help it manage its earnings, which becomes crucial to its success. This is part of a much larger phenomenon called financialization. Financialization is one of these things people vaguely know has been an important force in their lives, but often they don't really know what it means. Can you explain what financialization is in the context of GE and beyond it?
Financialization is a term that encompasses the economy's broad shift away from an economy of things and toward an economy of services, specifically financial services. Welch saw this coming in the 1980s and positioned GE to capitalize on it. Wall Street was the fastest growing industry in the country, as new technology-enabled banks, hedge funds, private equity firms, and trading outfits created more complex financial instruments to trade more volume at ever greater speeds.
What financialization enabled is almost more influential than the practice itself because it manipulated earnings. By squeezing profits out of the company with a black box financial entity like GE capital, Jack Welch was able to be at the vanguard of this enormous revolution of shoveling the profits earned by a corporation back to shareholders in the form of buybacks and dividends. Remember, that was the money that used to be going to its employees, suppliers, and the government in taxes.
As all those parties got a smaller and smaller piece of the economic pie generated by these big companies, want to know who got an ever larger piece of pie? It was the institutional shareholders, namely the Wall Street firms and the executives themselves, through greater and greater stock-based compensation. Again, these were choices people made. It was a deliberate series of choices to prioritize financialization in their own self-interest.
For an average American reading this who didn't work at GE or a company like GE, can you tell them what Jack Welch did to them indirectly that they may not realize?
Before Jack came on the scene, it was not unreasonable for people to expect that if they got a job at a major American company and worked hard, they could expect to retire there. Jack Welch was the one who put an end to that world. He did it explicitly. He said he did not want anyone to think that they might have a job for life. Before Jack, it was unheard of that a corporation might shut down a factory simply to boost its share price or lay off 1,000 or even 10,000 people because its profitability for the quarter was in jeopardy. Jack Welch did that first, and many other companies followed and continued to do so.
In instance after instance, you can point to some of the most perverse labor practices today and look back 40 years to the moment when Jack was the first mainstream CEO of a big company to do each of these things.
When GE was at its peak, it seemed unimaginable that it could have a downfall. It made me wonder whether there are companies right now that may appear as resilient and invulnerable as GE did in the '80s or '90s but that you think are ripe, potentially, for a similar kind of downfall.
There's another book out right now about the downfall of GE along similar lines as yours, and Jeff Bezos tweeted something about how it was a very cautionary tale. If you had to say which companies you think could be candidates for that collapse because of what's happening inside, which ones would you name?
Meta certainly comes to mind, and we're starting to see that reflected in the stock price in the last few weeks. But two things, in particular, make me wonder whether a company like that will still be as dominant as it is today in 20 years. The first is that advertising patterns and habits are known to change very abruptly with the rise of new technologies. Second, with every passing day, we learn more and more about just how harmful and destructive social media usage can be, especially to young people. To me, that seems like a company poised for a reckoning.
Another company that I talk about in the book is Boeing, a company directly shaped by Welch through the influence of three of his proteges, who ran that company for over 25 years and essentially turned it into a carbon copy of GE culture.
Boeing benefits enormously from what is effectively a duopoly with Airbus in the commercial aviation market. Yet when I talk to Boeing insiders, even today, there's genuine concern about the company's long-term viability and its ability to break free from the spell of Welchism and create world-class leading airplanes for the 21st century as it did for so much of the 20th century.
In the end, do you think Jack Welch knew that he made the world worse?
I had the opportunity to interview Bernie Madoff in prison many years ago, and I asked him a version of that same question. Did he really understand the consequences and the deep waves of suffering he unleashed? He didn't. Madoff was unrepentant and, in the way of a true sociopath, he seemed incapable of actually acknowledging that he had caused other people to suffer.
Welch was unrepentant to the end as well. He passed away in 2020, but right up until the end, he was cheering on his proteges. He was talking up his friend, Donald Trump, in the White House. He was singing the praises of anyone who continued to propagate his legacy of downsizing, deal-making, financialization, and short-term profits for investors and executives at the expense of workers. He may have understood that the world had changed around him dramatically. Still, I don't get the sense that he ever accepted responsibility for the influence his practices had on the economy at large.
While I was reading the book, it occurred to me that if millions of regular workers were suffering the blood bath you detail, if the financial shenanigans you write about were being normalized to such effect, then what the hell was business journalism doing over the last generation?
It's a fair question that deserves serious reflection. I should note that people did call Welch out for some of his misdeeds from the outset. He was known as "Neutron Jack" by the early '80s because Newsweek, “60 Minutes,” and others talked to the workers he fired and documented the fact that he closed their factories.
But as GE's stock price kept going up, it was impossible for the majority of the mainstream media not to be enthralled by the creation of so much paper money. It happened at a moment when many people saw their retirement accounts and their stock market portfolios go up and up.
I think there was a sense that, Well, there've been negative externalities — this economic term used to describe all the unfortunate consequences of businesses running roughshod over their communities. But, on balance, many in the business press felt we were living in a really prosperous age.
I do believe that it has taken time. I think the 2008 financial crisis was a seminal moment for recognizing that maybe things were deeply unequal in an enduring, systemic way. I also think Covid has brought that home all the more dramatically. As we saw, especially in the early phase of the pandemic, the people with the least means suffer the most.
There has been a lot of good business journalism, of course. What I question now is why we give fawning coverage to CEOs and executives without more caveats. I'll include myself in this conversation because I've written a lot of Corner Office columns and a lot of CEO profiles. More than once, I've looked back and wondered if I didn't miss something and if there wasn't a deeper, darker story beneath the somewhat flattering profile I might have just written.
If you were to ask people if they think business journalism has failed working people or the reality of the story over the last generation, I think you'd hear two different narratives.
One would be a more structural story, which essentially says business journalism is dominated by large corporations themselves, often owned by very prosperous people who have a vested interest in things not changing. The other narrative might be about human fallibility. It's hard to see the bigger picture for journalists who are occupied by the day-to-day task of telling stories and who don't have the mental space to step back and say, Wait, what is actually happening in this society?
How do you think those two narratives are present in this failure of business journalism that we're talking about?
On the first narrative, I've been at The New York Times for almost 10 years now. I was at The Financial Times before that. I have not experienced that pressure personally.
On the second narrative, I think there's probably a lot of truth to that. And it's reflective of my own journey, which is that I came into the business world, I was enthralled by the amazing things businesses could do, including the creation of astonishing goods and services. I was enraptured by the heroic journeys that many entrepreneurs, founders, and CEOs seem to go on. I think the way we lionize them and make them the heroes of our age speaks to this hunger that we as humans have for great narrative arcs. They've been symbolic of this quintessential patriotic success story that is so tightly intertwined with our national identity.
Against that backdrop, I don't think it's surprising that so many people and business journalists have had a hard time getting out of Plato's cave, seeing past the shadows, and understanding the truth of what's going on. While businesses do create lots of valuable products and services, this is an economic system that rewards the few at the expense of the great many. That's the system Welch helped create, and it's one I hope we might be able to change.
If you were designing a vision for business journalism from scratch with the best reporters in the world to throw at the problem and could structure it however you wanted, what does a business journalism adequate to the crisis you write about look like?
That's a fun question and not one I've entertained. I imagine three pillars: accountability, solutions, and advocacy.
The first piece is accountability journalism of companies' failings -- the ways in which they fail their employees, communities, the climate and environment, government, the social fabric, and beyond.
The second piece is where I think most mainstream media outlets have the hardest time, and that's proposals for solutions. A real willingness to not only take a position on what an effective solution might be but to bring the same reporting muscle to effective solutions would be an important part of it.
The third is the most critical and maybe the hardest to accomplish, and that's advocacy. It's identifying the levers available to implement those solutions and trying to pull them. Policy advocacy with senators, representatives, and state-level representatives all matter. Figure out the set of laws and solutions, like tax policy. But we also know that companies respond to employee and consumer pressure. You only need to look at what's happening inside Amazon and Starbucks right now. So I think advocacy at the employee and consumer level could be a potentially really effective tool to accomplish some of those changes.
You write about a moment a few years ago when the Business Roundtable turned its back on what you call Welchism. As it happened, you wrote the front-page story in The New York Times when they renounced that doctrine and claimed stakeholder capitalism as its new-old mantra. Merely announcing that they wanted to do that being on the front page was a measure of how seriously people took that. I was, of course, more skeptical of it. You were nice enough to quote me at the end of that article, saying this is probably BS and voluntary virtue won't work, which resulted in Jamie Diamond emailing me to complain. But I digress…
Since then, have you seen any evidence that the pledge resulted in businesses behaving differently, workers being treated differently, and taxes being paid differently? Did that shift cause anything, or was it window dressing?
The pandemic hit just months after the Business Roundtable companies made that pledge, and it became a crucial test of how these companies would behave. The immediate answer is, undoubtedly, no. Nothing really changed. We saw companies institute mass layoffs. We saw companies turn their backs on employees in their greatest moment of need. There is a study showing that the companies that had signed the Business Roundtable statement were more likely to lay off workers than companies that hadn't signed that statement in the first months of the pandemic. You can easily make a case that these men and a few women are all talk and no action.
That said, I cover the business world and the CEO community closely. Whether or not you think they're all full of shit, something has indeed changed in how they broadly view their role in society. For better or worse, no one asked them to have such enormous sway over our lives. More big companies recognize that retaining talent and satisfying investors who are looking at climate risk as a long-term threat to profitability requires starting to take actions that run counter to Welchism.
I think it's important to recognize that this is a generational project that Welch, Friedman, and their acolytes and proteges undertook. It was a 50-year journey that got us here. I think we're at the point where the pendulum briefly pauses before it tilts back the other way. I think it will be decades before we see the results that start manifesting and improving lives en masse in any tangible way.
You cite some examples of CEOs who, in your view, are the antithesis of Jack Welch, such as Paul Polman of Unilever. I wanted to challenge that a little bit. Isn't the antithesis of Welchism things like public policy, taxes, and regulation that make it impossible to practice business as he did? As opposed to some individuals who don't engage in practices they're still totally free to do if they change their mind?
I think that's a valid point. I would point out, though, that we don't live in that world. We don't live in a world where regulators have stepped up. We don't live in a world where policymakers have figured out how to put effective guardrails on corporations. In the absence of any meaningful checks on their power, the best we can ask for is that our CEOs aren't assholes.
But isn't that the best we can hope for because the CEOs are still lobbying to ensure we don't do public policy?
Yes, without question. I'm not trying to downplay the degree to which the business community has lobbied and worked assiduously to preserve and entrench the status quo. No doubt about that. But there are a few examples of CEOs who are starting to behave differently. That, to me, is evidence, however scant, that we are at least approaching a moment where CEOs more broadly, hopefully, might reconsider the consequences of their actions as well.
Towards the end of the book, you openly champion raising taxes, curbing executive compensation, and strengthening antitrust policies. Putting my spin on it, you're advocating policies that are attempting to shift the power equations of the country.
Then you explain that these policies aren't just ethical and just -- they're also good for business. I was going back and forth on that. First of all, I wonder why we need to assure business of that given its track record.
But on a deeper level, the book argues that we need to drastically rebalance power. You're talking about an enormous power differential throughout the narrative between workers, consumers, taxpayers, government, all on one side of the equation, and business, on the other. The power equation has gotten crazily out of whack.
So wouldn't the measure of change be that, actually, things would get a little bit worse? Wouldn't we only know we've succeeded if we make things a little bit worse for business?
It depends on how we define what's good for business. I'm not saying that it would be good for short-term profits, executives, and shareholders, and managers of large investment firms. I'm saying it would be good for the economy overall. Part of the grand delusion we've all been suckered into is believing that the share price of these companies and the wealth created by the buybacks, dividends, and executive compensation packages are somehow good for our country and economy at large. They simply are not the same thing.
What's good for business is a healthy, sustainable economy where a growing number of people have the means to buy goods and services. That doesn't happen when the minimum wage stays stuck at $7.25. It should be close to $25 if it had just kept pace with inflation over the last 25 years. So “good for business” is not good for business as we know it. It's good for a more sustainable kind of business that would be acceptable for all of us.
David Gelles is a reporter for the climate desk and the Corner Office columnist at The New York Times. His new book is “The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America—and How to Undo His Legacy”