Being a Georgia boy, President Carter had long had a close relationship with Paul Austin and Coca-Cola—to the point of barring Pepsi from White House vending machines. “You know, ma’am, our crowd likes a good old Democratic drink: Coke,” Bert Lance, the budget director, told a secretary when he came upon her sipping the rival soda. But as the US economy continued to sag in the late 1970s, Carter turned for guidance to an ever-wider group of executives, including DuPont’s Irving Shapiro, AT&T’s John deButts, and Thomas Murphy of General Motors, who in 1974 had replaced Richard Gerstenberg as the automaker’s CEO. No business leader, though, had more influence on the president than did Reg Jones of General Electric, his first name pronounced with a hard g, it was said, as in “God.”
Jones, who had become GE’s chief executive in 1972, following Fred Borch, had a most dignified bearing—a CEO straight out of Central Casting. This was not a posture that he came by naturally. Reginald Jones was born in Stoke-on-Trent, England, into a blue-collar clan. His father was a steel-mill inspector. Their outhouse was in the back. When Jones was eight years old, the family moved to New Jersey, where his dad became an electrician at Acme Rubber. After high school, Jones attended the University of Pennsylvania on a scholarship. He earned a little cash by stuffing a classroom full of kids and helping them cram before exams, charging two dollars a head. He also washed dishes at his fraternity.
Jones joined General Electric in 1939 in Schenectady, New York, and after a management training course, he became a traveling auditor, providing him a glimpse inside nearly every GE plant in the country. Through the years, he picked up the social graces that one needed to make it big in corporate America: Jones dressed immaculately and learned to play a respectable round of golf (though he retained one habit of the working class—chain-smoking). By 1961, he’d become a GE vice president and in 1968 the company’s chief financial officer. “It’s really the Horatio Alger story on steroids,” said Jones’s son, Keith.
By the late 1970s, Jones was the most admired businessman in the country, gladly giving advice to President Carter on taxes, trade, and training. The president needed whatever help he could get. The economy had brightened since the 1973–1975 recession, but it still wasn’t doing very well. Inflation and unemployment hung on at high levels; stagflation was a virus that America just couldn’t shake. And by early 1979, the nation was getting sicker again. The downturn was caused partly by another energy crisis—this one set off by the Iranian revolution.
But gasoline lines or not, Americans’ attitudes had already undergone a basic shift. After a decade of sharp price increases, with very little pause, people now assumed that high inflation was here to stay. And why wouldn’t they? The government calculated the Consumer Price Index, its representative market basket of goods and services, at a baseline of 100 in 1967. In 1970, the CPI had climbed to 116. In 1975, it was at 163. By 1979, it had increased to 217—a nearly 90 percent rise in prices in less than ten years. Paying more had become rooted in families’ expectations, in their daily choices about buying and borrowing. As long as wages kept going up, there was no reason to restrain one’s self from purchasing new things or, better yet, putting them on credit before prices could go up again. “Inflation doesn’t slow people down the way it always has,” said Jay Schmiedeskamp, research director at the Gallup Economic Service. “That’s a rather historic change. There used to be a brake—inflation came along and people stopped buying. That isn’t happening now.”
Yet unlike during the Golden Age of the 1950s, the consumerism of the late 1970s was freighted with anxiety. Beneath all of the buying, people were unsure where the country was going, unsure how long inflation and unemployment could remain so high without terrible consequences. “For the first time, we actually got numbers where people no longer believed that the future of America was going to be as good as it was now,” recalled Carter’s pollster, Patrick Caddell. “And that really shook me, because it was so at odds with the American character.”
The president tried his best to reverse this “crisis of confidence,” as he called it. On July 15, 1979, he spoke to the country in a tone befitting one of the Sunday school classes he loved to teach at church. “In a nation that was proud of hard work, strong families, close-knit communities, and our faith in God, too many of us now tend to worship self-indulgence and consumption,” Carter said. “Human identity is no longer defined by what one does, but by what one owns. But we’ve discovered that owning things and consuming things does not satisfy our longing for meaning. We’ve learned that piling up material goods cannot fill the emptiness of lives which have no confidence or purpose.
“The symptoms of this crisis of the American spirit are all around us,” the president went on. “For the first time in the history of our country a majority of our people believe that the next five years will be worse than the past five years. Two-thirds of our people do not even vote. The productivity of American workers is actually dropping, and the willingness of Americans to save for the future has fallen below that of all other people in the Western world.”
Carter got a brief bump in the polls from his solemn address. But the pundits—labeling it the president’s “malaise speech,” even though he didn’t actually use that word—came down hard. They accused him of blaming the public for all the things that Washington couldn’t fix. Whether or not that was a fair assessment, one thing was undeniable: the president and his aides were at a loss for how to cure the economy.
In early 1980, Carter submitted his new budget to Congress. But the financial markets had no faith in the administration’s projections, and investors fled from bonds. “In the executive offices of most securities firms,” the Wall Street Journal reported, “the atmosphere of apprehension and doom is as thick as the carpets.” The Federal Reserve added to the fretfulness. The strong-willed Paul Volcker, who now led the central bank, was out to attack inflation in a more serious way than had previous Fed chairs. But stage-managing the money supply was quite difficult. And well before Volcker could engineer inflation to fall, interest rates raced to their highest point since World War II. Economic activity was choked off. Builders, facing construction loans of more than 20 percent, stopped digging new holes. Appliance dealers, unable to afford financing at 19 percent to carry inventory or to meet other working capital needs, stopped placing orders from factories.
In March, still trying to beat back inflation, the president and the Fed pushed forward with a program of emergency credit controls. The scheme worked—only too well. In a perverse sort of patriotism, people cut up their credit cards and mailed them in to the White House. Visa lost half a million accounts. Retail spending screeched to a halt, much to the dismay of Sears, J.C. Penney, and other national chains. “The idea was not to make the economy go into the tank,” said Fred Schultz, the Fed’s vice chair. “It was supposed to allow the economy to grow but without excesses. Instead, the consumer got it into his head that the government was telling him not to use credit. The darned economy just fell off the cliff.” America was now in the midst of another recession; by the summer, the jobless rate was near 8 percent. Inflation, meanwhile, was still sky high, with consumer prices soaring at a 13 percent pace.
Many of the other alarming trends that had begun in the late 1960s and had festered through the seventies were worse than ever. “US business finds itself challenged by aggressive overseas competitors,” Reg Jones said in his letter to GE shareholders in 1980. “National productivity has been declining and, in industry after industry, product leadership is moving to other nations. Companies that refuse to renew themselves, that fail to cast off the old and embrace new technologies, could well find themselves in serious decline.” In reality, many corporations were already in decline—inexorable decline.
Among them were the one-time industrial stalwarts along the Mahoning River in the “Steel Valley” of eastern Ohio. Youngstown Sheet and Tube had announced in 1977 that it was shutting down its Campbell Works and laying off 4,000 employees. Many directed their anger at President Carter for not doing enough to keep out the foreign-made metal being imported from Asia and elsewhere. “We helped put him in office and look at this,” said William Maskell, one of the steelworkers who was let go. “Maybe he ought to run for President of Japan.” Within the next three years, some 10,000 people in the Youngstown area would lose their jobs due to mill closures; during the next decade, 50,000 jobs there would disappear. Cities like Youngstown were being hollowed out by “deindustrialization,” a dry euphemism for the mothballing of some 1,000 factories across America in the 1970s. One study estimated that large manufacturers were cutting jobs at a rate of more than 900,000 a year.
This ruination, which would gain steam through the eighties, resulted in a kind of writerly ritual: reporters would visit these once-vibrant sites and then author their obituaries. One said of Youngstown: “The dead steel mills stand as pathetic mausoleums to the decline of American industrial might that was the envy of the world.” In Dundalk, a blue-collar section of Baltimore, it was noted: “Older folks mourn the passing of not only prosperity but the strong sense of pride and self-sufficiency that once defined” the place. The wreckage in Homestead, Pennsylvania, brought this: “America uses things—people, resources, cities—then discards them.” Similar fates befell dozens of other locations, leaving them struggling to catch up for decades on end: Warren, Ohio; Allentown, Pennsylvania; Newark, New Jersey; Buffalo, New York; New Bedford, Massachusetts; Decatur, Illinois; Port Arthur, Texas; as well as large parts of Philadelphia, Milwaukee, Cleveland, St. Louis, Detroit, and other spots. Because they were disproportionately concentrated in inner-city neighborhoods where many plants were being closed, black workers were often the hardest hit.
In the title track of his 1975 album Born to Run, Bruce Springsteen spoke of a working-class desire to escape from all the desolation: “We gotta get out while we’re young,” he wailed. But by 1980, with the release of his new record The River, the singer had determined that there was nowhere to go:
I got a job working construction for the Johnstown Company
But lately there ain’t been much work on account of the economy
Now all them things that seemed so important
Well, mister, they vanished right into the air
Now I just act like I don’t remember
Mary acts like she don’t care
For Carter, the timing of the economy’s collapse couldn’t have been worse. 1980 was an election year, and, as opposed to President Nixon, who had pulled out every expedient he could in 1972, right before people entered the voting booth, Carter seemed totally helpless. “Only Herbert Hoover, whose name is forever linked with the Great Depression of the 1930s, carried into an election economic problems as severe as those that burdened the thirty-ninth president,” Georgia Tech professor W. Carl Biven has written.
At one point, Reg Jones had offered Carter his own plan to fight inflation. It was a rather unimaginative agenda—a typical corporate wish list. Jones, for instance, proposed tax cuts and new incentives for companies to invest in facilities and equipment, and he urged lower government spending and reductions in regulation. He also suggested that the president ask businesses to “exercise a decent restraint” in pricing their goods and serves, unions to avoid pressing for wages that would cause inflation to “spread like a cancer through the economy,” and consumers to comparison shop for the best prices.
None of Jones’s ideas, or anyone else’s, were enough to save Jimmy Carter. On November 4, 1980, he was trounced in the election by the old host of General Electric Theater, Ronald Reagan. But Jones wasn’t done leaving his imprint on the economy. Two weeks later, on November 20, he did something that would have a much greater impact on the lives of thousands of workers than anything he’d recommended to President Carter: he formally told the GE board that his preferred choice to succeed him as the company’s chairman and CEO was Jack Welch.
If Reg Jones was a starched Brooks Brothers button-down, Jack Welch was a loud Hawaiian top—brash, colorful, informal, in your face.
Welch had been raised in a working-class section of Salem, Massachusetts, the son of a railroad conductor (and active union man) on the Boston & Maine commuter line. Though he’d grow to be only five foot eight, he was a good-enough athlete—and scrappy enough—to captain his high-school hockey team. He also excelled at golf, a game that he learned by caddying at the local country club. Welch went to the University of Massachusetts and then landed a fellowship at the University of Illinois, where in just three years he earned his PhD in chemical engineering.
In 1960, Welch joined GE. Yet he almost left just a year into his job, when his boss gave him a $1,000 raise. That seemed plenty generous on top of the $10,500 he was earning at the time—until Welch learned that he’d received the same pay increase as the three other guys who shared his office. Welch felt that he deserved more because he had done better work, helping to design and build a pilot plant for a new type of plastic, PPO. It was a perspective that would guide him for the next forty years. “Winning teams come from differentiation,” Welch has said, “rewarding the best and removing the weakest, always fighting to raise the bar.” Giving everyone a standard amount was what bureaucrats did, and Welch had no tolerance whatsoever for bureaucrats. “Dinks,” he called them.
GE persuaded Welch to stay by upping his raise to $3,000 and giving him more responsibility. He advanced rapidly from there—to general manager of the plastics business; then vice president of the chemical and metallurgical division; then group executive overseeing medical systems, appliance components, electronic parts, and more—a $2 billion chunk of GE’s business. At every stop, Welch waged what he liked to call “constructive conflict” while, as one review of him put it, he displayed “an antiestablishment attitude toward General Electric.” But no one could argue with the performance of each of his units, which was consistently excellent and sometimes better than excellent. In 1977 Welch was placed in charge of the company’s $4 billion consumer sector. And in 1979, he was made one of three GE vice chairmen, setting up the horserace for who would succeed Jones.
Welch never lost his edge as he climbed the ranks. But he was politically savvy enough—and, by the early 1970s, ambitious enough to be thinking about running GE some day—to stay just on the right side of a rigid system. “I was a renegade,” Welch said. “But I wasn’t stupid.”
Still, when Welch claimed GE’s top position, it was a surprise. He was only forty-four, and his reputation for what many perceived as arrogance and rudeness preceded him. Welch’s two competitors for Jones’s job were older and cut more in the traditional company cloth. Welch had a bad temper and a voice that became shrill when he got wound up, which was often. He chewed gum, at times stuffing most of a pack of Wrigley’s into his mouth at once. He stammered and bit his nails, once referring to himself as a “stuttering overachiever.” If he didn’t like a report he’d been given, he’d send back a fax with a single image drawn on it: a fist with its middle finger raised.
Yet Reg Jones, who had championed Welch for years, to the chagrin of many of GE’s hidebound executives, saw something special in him. Maybe it was the working-class background that they shared—though Welch loved to play up his “Irish street kid” persona while Jones suppressed his proletarian past. Whatever it was, Jones had become convinced that Welch’s passion, intensity, and irreverence were just what the company needed to make it in a fast-changing, cutthroat world. Jones was very much part of the old GE, having just a couple of years earlier declared that the corporation’s “distinctive set of traditions, values, and beliefs… inspires great loyalty” and “is one of our most valuable assets.” Yet he’d clearly concluded that, going forward, these attributes would no longer suffice. And in Welch, Jones had found the rarest of creatures: a leader who had managed to ascend to the apex of a century-old corporate giant (where one’s rank in the hierarchy was measured by how many ceiling tiles he had in his office) but who, nevertheless, thought and behaved more like someone at a start-up, dying to buck the status quo. Harvard business professor Richard Vancil has remarked that, in effect, “GE was able to select an ‘outsider’ from inside.”
Welch wasted no time in breaking with the past. Governments, he said, were likely to combat the high inflation of the early eighties by keeping the supply of money tight. That, in turn, promised slow economic growth. GE also faced tougher and tougher foreign competition—a fact that Welch acknowledged by making sure that statistical comparisons prepared for the board no longer be made just to Westinghouse, as was the company’s custom for many years, but to Siemens, Hitachi, and Toshiba. In this kind of climate, Welch asserted, “there will be no room for the mediocre supplier of products and services—the company in the middle of the pack.” Welch’s mandate, then, was for GE to be first or second in every one of its markets. If the company couldn’t achieve that in a particular line of business, it needed to get out: Welch’s famous “fix it, close it, or sell it” strategy.
Yet being number one or number two wouldn’t happen automatically. In a 1981 speech to securities analysts, Welch called for “an atmosphere where people dare to try new things—where people feel assured in knowing that only the limits of their creativity and drive, their own standards of personal excellence, will be the ceiling of how far and how fast they move.”
At this early point, Welch’s words sounded like nothing more than the usual corporate blah, blah, blah. It would take many years of repeating himself for Wall Street, and even his own employees, to truly fathom what Welch was getting at—the degree to which he was going to blow up the old GE and put in place a new structure, which was far leaner and quicker to make decisions, and where people would be rewarded for the strength of their ideas, no matter where they happened to fall on the company org chart. In due time, thousands and thousands of those who worked for GE under Welch would come to love the wide-open culture that he built. “Power may corrupt,” said Bill Lane, Welch’s longtime speechwriter, “but it also can liberate, and he began to instinctively conceive ways for us to free ourselves from the corporate crap that had enslaved and bored” lots of employees for many years.
There was another side to it as well, however. While many at GE reached for the ceiling, others felt the bottom drop out on them. To achieve the level of agility that Welch demanded meant first flattening the organization as much as possible. GE wasn’t the only American company that had gotten puffy around the middle. By 1980, managers made up 10 percent of the US workforce, compared with just 4 percent in Japan and 3 percent in Germany. But GE had more flab than most. Upon taking office, Welch was stunned at all the paper-pushers that the company had accumulated over the years, like barnacles on the underside of a boat. “We had layer on layer on layer,” he said. “They added no value. I didn’t need those people, all those armies.”
Worst of all, perhaps, the reports that they endlessly churned out were, as often as not, terribly abstruse. Said Walter Wriston, the chairman of Citicorp and a GE director: “You’d take the size of the guy’s shirt collar and divide it by the Gregorian calendar and multiply it by the square root of pi, and you’d come out with a number that was totally meaningless.” Ralph Cordiner had created the network of middle managers that generated all this paperwork. Fred Borch and Reg Jones had refined the system but hadn’t changed the guts of it. Jones, in fact, seemed to luxuriate in the bulging briefing binders that, as Fortune magazine described it, “had grown to… dense impenetrability.” Welch, by contrast, was completely sickened by the red tape. Nor did he trust the information being presented. In a world that was moving faster, five-year business forecasts no longer made sense.
At GE’s main office, in Fairfield, Connecticut, one group had been assigned to evaluate and grade the corporation’s strategic-planning book. “It was crazy,” Welch said. “I fired them all.” He then dismantled the strategic planning department itself. He dumped the corporate economists, too. He pared the finance staff and the company’s band of internal management consultants, which Harold Smiddy had once led. Individuals who couldn’t get in line with Welch’s vision were culled as well. From his third-floor office, it was not uncommon to hear Welch yelling something like, “You asshole! You’re in deep shit! You get this cleaned up or you’re outta here.” Or this: “We’ve got to get rid of this fucking idiot. Do you want to do it, or should Glen do it?” Welch never cared for doing it himself; firing employees directly wasn’t in the chairman’s job description. What’s more, in spite of his confrontational style, Welch wanted people to like him. Many did. Many others didn’t. In the winding corridor running through the east and west buildings at HQ, somebody in the mid-1980s defaced an art exhibit of wildlife portraits by scrawling “Jack Welch” on the frame of a shark painting. The security guard said that the vandalism had been committed by an executive vice president whom Welch had “sent home”—his preferred term for sacking somebody. In all, the head count at GE headquarters dwindled to about 900 from more than 2,000.
The real cutting, though, came outside of Fairfield: in Schenectady, GE eliminated 22,000 jobs; in Louisville, Kentucky, 13,000; in Evendale, Ohio, 12,000; in Pittsfield, Massachusetts (Welch’s old home, when he ran the plastics business), 8,000; in Lynn, Massachusetts, 7,000; in Erie, Pennsylvania, 6,000; in Fort Wayne, Indiana, 4,000. “GE is where our fathers and grandfathers worked,” said Pete Pallescki, a machine operator in Schenectady. “We didn’t expect them to let us down so badly.” All of a sudden, it felt like the doomsday scenario laid out during that 1954 session at GE—the one where the union had gotten a copy of the meeting notes and warned that the company “is planning a depression” by proposing to wipe out most of the jobs in these old industrial centers—was coming true.
GE was hardly the only company that reduced its workforce through the early 1980s. Another recession—this one even worse than the contraction of 1973–1975—began in the summer of 1981 and lasted until the fall of 1982. Normally, the Federal Reserve would have injected money into the economy at such a time. But Paul Volcker, hell-bent on finally killing off inflation, did just the opposite, adding greatly to the recession’s severity. President Reagan was fully supportive. “I’m afraid,” he said, “the country is just going to have to suffer two, three years of hard times to pay for the binge we’ve been on.”
It paid dearly. By late ’82, the unemployment rate had reached almost 11 percent, a postwar high. In autos, some 23 percent of the labor force was jobless; in steel and other primary metals, the figure was 29 percent. Overall, about 20 million Americans were now either out of a job, working part-time when they wanted a full-time position, or had stopped looking for employment altogether. Thousands of small enterprises went bankrupt. Homebuilders sent two-by-fours to the Fed to symbolize all the houses that they weren’t constructing. Auto dealers mailed in keys to unsold cars.
Despite the pressure, the Fed held steady. And by late 1982, high prices had finally been slain. Inflation for the year rose just a bit over 6 percent—4 percentage points less than in 1981. In 1983, they increased about 3 percent. “The long nightmare of runaway inflation,” Reagan proclaimed, accurately, “is now behind us.” The recovery was also finding its momentum; what would turn out to be the longest economic expansion since the Kennedy-Johnson years was now beginning.
For many workers, however, the “Reagan economic miracle” came with an asterisk. It would take until 1987 for the annual unemployment rate to fall below 7 percent. High-paying factory jobs were still being shed, with US manufacturing employment having peaked in 1979. The unions, which had their strongest presence in these blue-collar industries, were now in full retreat. In 1978, a big attempt by the political left to strengthen labor law had failed in Congress. Then, President Reagan broke the air-traffic controllers in 1981, legitimatizing the replacement of strikers in the eyes of most companies. “In ninety days,” said a former antilabor consultant, “Ronald Reagan recast the crimes of union busting as acts of patriotism.” Deregulation, which President Carter initiated and Reagan accelerated, was another gut-punch to the unions. That’s because many of the companies suddenly able to enter and compete in previously closed markets weren’t organized. For example, the portion of the workforce in the trucking industry that was unionized would go from 46 percent to just 23 percent in the two decades following deregulation. At telecommunications companies and the airlines, similar declines would hit labor.
But government action and inaction could explain only so much. The “hard line” that management had taken against unions since the late 1950s had gotten progressively harder. More and more employers used a combination of tactics—legal and also illegal—to stifle unionization efforts. “Unions responded predictably, by filing an increasing number of unfair labor practice charges against companies and demanding back-pay and the reinstatement of workers unlawfully terminated during election drives,” the sociologist Jake Rosenfeld has written. “They won a lot of these legal battles, but would lose the war.” Whereas labor was still successful in a majority of representation elections through the mid-1970s, they were victorious in fewer than 50 percent now. Wage concessions in various industries followed, and pay continued to decline across the economy. In 1985, 40 percent of unionized employees lost cost-of-living adjustments from their contracts; the great stabilizer of purchasing power, popularized by General Motors and the United Auto Workers after World War II, was now being aggressively killed off.
In 1988—while President Reagan spoke of the “economic and social revolution of hope based on work, incentives, growth, and opportunity” that his administration had brought about—inflation-adjusted weekly earnings hit their lowest point since 1960. The percentage of private-sector workers with pensions fell during the 1980s, the first time that had happened over the course of a decade since World War II. The portion of workers with company-provided medical coverage also began to go down for the first time since the war. In terms of the social contract between employer and employee, things were now going backward. The political economists Bennett Harrison and Barry Bluestone would call this “The Great U-Turn.”
Certainly, the economic “boom” of the 1980s was far different from anything that had come before. Even as the United States economy took off, it seemed to be falling behind—to the Japanese, in particular, who now dominated the world stage. The Reagan administration tried to help American businesses, imposing tariffs, quotas, and surcharges on imports of steel, electronics, autos, and other products. But these interventions didn’t have much effect. By the mideighties, Japan’s industrial output had nearly caught up to that of the United States. And at the end of the decade, the Japanese seemed to have totally vanquished US industry, when Mitsubishi purchased a majority stake in one of America’s great landmarks—Rockefeller Center. “New York, a subsidiary of Mitsubishi,” a voice intoned as the opening credits rolled on Late Night With David Letterman.
Within a few years, Japan’s economy would enter a long period of stagnation; America’s “Japan Problem,” as Foreign Affairs called it, had in many respects been overstated. But the underlying danger that Japan Inc. seemed to pose would never go away. Whether it was because of competition from Japan, India, China, or some other country, American executives felt besieged as never before. To measure up, they needed to be as efficient and cost conscious as possible—and the social contract for US workers became more ragged as a result.
In the past, American companies would routinely recall many, if not most, of their laid-off workers as business recovered after a recession. Now, they decided that they couldn’t afford to bring back their employees anymore; they opted to restructure instead, terminating positions for good. By 1984, so many businesses had gone this route that the federal Bureau of Labor Statistics began tracking “displaced workers” for the first time, distinguishing them from those who had been furloughed temporarily and got their old jobs back. Another sign of the times: by decade’s end, Washington had enacted the Worker Adjustment and Retraining Notification (or WARN) Act, requiring companies to provide advanced, sixty-day notice of plant closings and mass job cuts. “Virtually all workers are now subject to displacement at some time during their working lives,” cautioned a panel put together by the National Planning Association. Its very name was haunting: the Committee on New American Realities.
Even the most unstinting employers felt the need to do more with less. Kodak, which was being taken on by the Japanese film manufacturer Fuji Photo, offered an early retirement package to 5,000 workers in 1983. Three years later, in a move unheard of for Rochester’s “Great Yellow Father,” it laid off nearly 13,000 people. The company also cut its cafeteria hours and got rid of free medical checkups. At General Motors, a reorganization was announced in 1984 that was meant to streamline things by putting all of its automobile design, engineering, and manufacturing in the United States and Canada into two groups: one for large cars, the other for small cars. As part of the reshuffling, GM did away with its Fisher Body division, which had been established in 1908. “We were destroying some long-lived loyalties,” conceded John Debbink, a GM veteran who had helped plan the overhaul. “Here was Fisher Body celebrating its seventy-fifth anniversary, and within a year we come around and say, ‘Fisher, you are no more.’” GM, however, believed it had no alternative: “The automobile market has become a global market,” the company’s chairman, Roger Smith, told top company executives. “Demand has shifted away from our traditional strengths into areas where foreign manufacturers now hold significant advantages.… We need to do things differently.” Under its new setup, GM hoped to make gains in efficiency as it consolidated duplicate staff jobs and trimmed white-collar employment.
The list went on and on. One out of every five jobs that existed at DuPont at the beginning of the 1980s was gone by the end. The number of production workers at US Steel declined to 30,000 from more than 100,000 during the decade. AT&T slashed 24,000 positions at its information-systems division in 1985. The next year, the telecommunications company announced that it was eliminating another 27,000 workers, or nearly 9 percent of its total. Ford jettisoned 10,000 white-collar jobs. Chevron shrank to about 52,000 workers in 1986 from 79,000 two years earlier.
Nobody, though, chopped deeper or faster than Jack Welch. By the early 1990s, nearly 170,000 jobs had been lost at GE due to layoffs, attrition, and other cuts—most of them by 1986. That’s about as many people as who live in Fort Lauderdale, Florida, or Providence, Rhode Island. And this didn’t count the 135,000 employees who were in parts of the company that Welch sold to others.
Welch was playing in a mergers-and-acquisitions market that had heated up tremendously in the early 1980s. For his part, he divested 117 business units in total. Some of these sales, like the unloading of the company’s small-appliance lines (with their signature GE monogram logo) to Black and Decker in 1984, demoralized employees. But at Welch’s GE, there were “no sacred cows.” He also bought tens of billions of dollars worth of businesses, including a majority stake in the Wall Street investment bank Kidder Peabody in 1986 and RCA in 1987—and swiftly put his stamp on these new acquisitions.
After Kidder cut 1,000 jobs, or about 15 percent of its workforce, it was obvious where the orders had come from. “Prior to GE’s investment in Kidder, the firm was one of the most paternalistic on Wall Street, one that paid out high bonuses and found it hard to let people go,” said one industry watcher. “I don’t think Kidder would have moved to the extent they have without a lot of prodding from General Electric.” As for RCA, once its radio and TV manufacturing operations were merged into GE’s consumer-electronics business, the plan was to winnow the number of factories from twenty-three to fourteen, while cutting the ranks of salaried personnel by 44 percent and hourly employees by 18 percent. That all changed in a hurry, though, when Welch suddenly decided to abandon consumer electronics—one of six RCA businesses that GE sold or closed in just eighteen months—and swap it for a medical-imaging-equipment business that had better prospects not only in the United States but outside of it as well. “You have to be global in this business to survive,” Welch said, a comment that would prove prophetic, as nearly every American corporation would soon be compelled to start thinking on a worldwide scale.
Not long after the bloodletting at GE got underway, the media started calling Welch “Neutron Jack,” a nickname meant to convey that he took out all of the people but left the buildings standing. (Actually, this wasn’t quite right. Bill Lane, the speechwriter, remembered being with Welch one day while a wrecking ball and a bulldozer razed some of GE’s locomotive-manufacturing facilities in Erie. “A time-tested management technique,” Welch said to him.) Welch wasn’t the first to be stuck with such a sobriquet, and he wouldn’t be the last. In the 1960s, Chrysler’s John Riccardo was christened “the flame thrower” for his ruthless demeanor. Al Dunlap, the CEO of Scott Paper and then of Sunbeam, would come to be called “Chainsaw Al” and “Rambo in pinstripes” for his cold-blooded focus on the bottom line. But while those other executives reveled in their notoriety, Welch never thought “Neutron Jack” was fair or accurate.
In many ways, it wasn’t. Welch preached “soft landings—give them soft landings” whenever people were shown the door at GE. And, by all accounts, that’s what most of his soon-to-be-ex-employees received. Lane recounted the time that GE’s vice chairman, Larry Bossidy, fired three senior vice presidents in the same day, hopping on and off the corporate jet to dismiss one executive at the company’s lighting business in Cleveland, another in Fort Wayne, and the other in Columbus, Ohio. Inside the company, this trip became known as the “Midwest Massacre.” Lane could only imagine that after Bossidy delivered each fatal blow, the fallen executive “staggers away from his desk and slumps facedown into a huge pile of cash, options, pension, supplemental pension, and free appliances.”
The rank-and-file weren’t treated nearly so well. Most, though, got substantial exit packages. “We’re trying to be lean and compassionate,” not lean and mean, Welch said. When he sold GE’s Utah International mining subsidiary for nearly $2.5 billion in 1984, for instance, Welch set aside more than $1 billion of that to fund large severances for the tens of thousands of people who lost their jobs because of the deal. In general, “we gave people a lot of notice,” Welch said—up to six months, compared to just one week at many companies. “We gave them health care. We weren’t in a crisis. We had a nice cushion. So we could be tough but fair; in our minds, fair.”
Welch also hated being tagged “Neutron Jack” because it made it seem like he took some wicked pleasure in firing people when, as he saw it, he had no other choice. To survive in the 1980s and beyond, GE had to have a big boost in productivity. The only way to get there was to become more agile. And the only way to do that was to cut loose those who, for whatever reason, couldn’t keep up. “Any organization that thinks it can guarantee job security is going down a dead end,” Welch said. “Only satisfied customers can give people job security. Not companies. That reality put an end to the implicit contracts that corporations once had with their employees. Those ‘contracts’ were based on perceived lifetime employment and produced a paternal, feudal, fuzzy kind of loyalty.… I wanted to create a new contract, making GE jobs the best in the world for people willing to compete. If they signed up, we’d give them the best training and development and an environment that provided plenty of opportunities for personal and professional growth. We’d do everything to give them the skills to have ‘lifetime employability,’ even if we couldn’t guarantee them ‘lifetime employment.’”
Sometimes, Welch’s rewriting of the social contract worked out wonderfully well for individual employees, as it did for Michael Watson. Other times, it didn’t work out at all, as was the case with Wilbur Hany.
In the early 1940s, when Hany was six years old, his father walked out on his mother, and the family lost their 80-acre farm in central Illinois, about 125 miles southwest of Chicago. “It was devastating,” he’d later recall. From then on, his mom had to work two jobs, cleaning houses and babysitting. As he grew up, Hany excelled at sports, but his mother told him that he couldn’t participate because if he got hurt, she’d have to skip work to take care of him; they’d be out on the street. Hany was so gifted, however, that the coach at Gridley High School assured her that he’d find someone to tend to her son should he ever get injured. Hany went on to win sixteen varsity letters—in football, basketball, baseball, and track—and the local newspaper would later call him “arguably the finest all-around athlete in school history.”
As he got ready to graduate in 1955, Hany thought about pursuing a scholarship at Bradley University, Western Illinois University, or the University of Wisconsin. But he decided to take a job at General Electric and earn a little money instead. His plan was to work at GE’s nearby factory in Bloomington, Illinois, for a year and then suit up in a college football or basketball uniform and get his degree. He never did. He threw himself into his work and remained at GE for the next twenty-nine years.
Over that time, Hany was a solid employee, and he was promoted on several occasions at the plant, which produced a variety of electrical equipment, including on-and-off switches for industrial motors. He starred on several company-sponsored sports teams. He became president of the local General Electric Employees Club, an expanse of parkland where blue- and white-collar workers and their families would swim, play tennis, fish, and shoot trap. He made a good living and raised two kids.
Hany ended up in purchasing, where he bought aluminum, copper, brass, chemicals, and other materials to make the factory go. Then, in 1982, things started to change. A new boss took the reins of GE’s general-purpose control department, which oversaw the Bloomington plant and a handful of other facilities. Jesse Lawrence had been at GE since 1960, but he wasn’t beholden to the old way of doing things, not in the least. “We had a lot of people who had… gotten into some bad habits, who had forgotten the sense of urgency, had forgotten customers, were really on a treadmill, doing the same thing over and over and over every day,” he said. As an executive, Lawrence was a ball of fire, a junior Jack Welch. “He was autocratic,” said Ken Sampen, who ran the Bloomington factory under him. “He believed in results.”
Results were hard to come by when Lawrence stepped in to his new job. The entire department was losing money, and Bloomington would ring up a deficit of about $12 million for the year. Like many other parts of GE, the factory had become wildly inefficient. It had too many products chasing too few customers. And it had too many employees for the amount of revenue being brought in. “We had to restructure the business,” Lawrence said. “It couldn’t afford the numbers of people that it had. It couldn’t afford the things they were doing. They were all busy. That was not an issue. They all worked, and they worked hard.… But the business couldn’t afford it.”
Over the next four years, Lawrence had one goal: “to fix the business and fix it as quick as possible.” And eventually, he would turn things around. “He simply saved the plant,” Sampen said. But doing so was extremely painful. The department discontinued eighty different product lines, mostly low-volume items that carried inordinately high overhead. Lawrence invested in new technology, but the enhancements “meant that we needed less people catching errors at the end of the line,” he said. Most of all, Lawrence reduced costs by cutting the number of salaried workers from about 400 to less than 200, beginning with a big round of layoffs just a few weeks after he arrived—an action that workers in Bloomington called “Bloody Thursday.”
Deciding who would get to keep their jobs and who wouldn’t was not for everyone. Frustrated at the pace of change, Lawrence replaced his operations manager, Bob Montgomery, with a less squeamish executive. “Bob Montgomery was as nice a person as you’ll ever find,” Lawrence said, “but didn’t have the heart to do the job that had to be done.” Doing the job required looking at things differently than during the pre-Welch era. Before, length of service with the company was often the determining factor as to whether someone would be laid off. But Lawrence made clear that “ability… counted for more,” said Marilyn Rebmann, who handled employee relations in Bloomington.
To help gauge people’s abilities, managers in Bloomington were given a matrix to assess those who reported to them. This grid took into account someone’s record of service, but also relative performance, essential skills, and overall contribution to the company. Each employee would then get a total score, making it easy at a glance to see how one stacked up against the other.
Ranking people this way was right in step with Welch’s ethic of “differentiation”: the idea that the only way for a company to constantly improve was to prune its least effective employees. Even in Ralph Cordiner’s day, GE had rated workers and didn’t cosset underachievers. But “Jack turbocharged the process,” said Bill Conaty, who worked for Welch as his senior vice president of human resources. “The word ‘complacency’ was blown out of the GE vocabulary by Jack Welch. We absolutely employed angst in the system, but a healthy angst. I never thought I could put my feet up on my desk and say, ‘I’ve given you thirty-nine and a half good years.’” Later in his tenure, Welch would introduce the “vitality curve”—a bell-shaped distribution by which GE supervisors sorted those who worked for them into three camps: the top 20 percent, the “vital 70” percent in the middle, and the bottom 10 percent.
Welch regarded the majority who fell into the middle as “the heart of the company,” and thought they should receive increases in pay and some stock awards to recognize their contributions—all while their managers sought to help them get even better at their jobs and vault into the top part of the curve. Those who were already at the top of the heap, the “A players,” were to be showered with higher salaries, loads of stock options, and promotions. “Losing an A is a sin,” Welch said. “Love ’em, hug ’em, kiss ’em, don’t lose them” to another company.
The 10 percent who were graded lowest and unable to improve quickly were to be let go, a regular purging of the weakest from the herd. “Some people think it’s cruel or brutal to remove the bottom 10 percent of our people,” said Welch. “It isn’t. It’s just the opposite. What I think is brutal… is keeping people around who aren’t going to grow and prosper. There’s no cruelty like waiting and telling people late in their careers that they don’t belong—just when their job options are limited and they’re putting their children through college or paying off big mortgages. The characterization of a vitality curve as cruel stems from false logic and is an outgrowth of a culture that practices false kindness.”
Despite Welch’s reasoning, and the adoption of similar “forced-ranking” frameworks by a slew of large corporations that followed his lead, many considered the vitality curve to be horribly flawed. Peter Drucker, who thought that Welch was a brilliant strategist, disapproved of this method. Many derisively called it “rank and yank”—another name that Welch detested. Some worried that its Darwinian nature could lead employees to try to sabotage one another. Others said it was too formulaic: after a few years of driving out the genuinely poor performers, the bottom 10 percent would then be made up of good workers who were making a positive contribution; with no fat left, the only choice was to cut into muscle and bone. Rather than do so, some supervisors tried to cheat the system. Still others said that the model was ripe for abuse by managers who were racist, sexist, or ageist. Ranking people, one against another, gave the process a patina of objectivity; putting a hard number to something, or to someone, tends to do that. But the scores given to employees at GE were utterly subjective. Often it boiled down to the opinion of a single manager as to who should stay and who should go.
In 1982, HR targeted Wilbur Hany to be laid off, but his supervisor fought it, and the lot fell on one of his coworkers instead. It seemed like a wise decision. The next year, the company applauded Hany for being a top contributor to the department’s cost-cutting program. And Hany’s performance review that year praised him for his intelligence and knack for innovating. In early 1984, the following was added to Hany’s file: “Wilbur responds favorably to the demands of his job. Readily recognizes cost improvement opportunities, takes necessary steps to implement same. Is responsive to new assignments. Has assisted in implementation of purchasing system. His performance trend is favorable.”
That is, until it wasn’t. Just a few months later, in April, the forty-eight-year-old Hany was handed a “lack of work” notice and told he was being fired. “I wasn’t overly impressed with Mr. Hany as an employee,” Sampen said. “I didn’t feel that he performed at the level that was really up to our expectations.” All of the laudatory evaluations that Hany had received apparently meant nothing. Said Hany: “I was just dumbfounded.” His immediate supervisor again tried to fight for him, arguing that Hany should be kept on and someone else laid off. But this time, it was no use. In what amounted to a high-stakes game of musical chairs, Hany was out—though not before he was asked to train a younger man, a computer whiz named Mike Meronek, to take over much of his material-purchasing job. Like others who’d received a “lack of work” notice at the plant, Hany was offered a different position if he wanted to stay, but it would have meant a 27 percent cut in pay and a lousy work schedule. He declined to accept.
On his final day in Bloomington, Hany wished his colleagues in purchasing good luck and told them good-bye. It was “one of the saddest days I ever had in my life,” he said.
As unforgiving as Welch’s GE could be for some, others, like Michael Watson, appreciated the way that the company gave them a chance to push themselves and learn new and exciting things.
Watson was born in 1959 in New York, and raised by his grandparents in New Brunswick, New Jersey. They had been laborers in the South before they couldn’t work anymore and were left to collect government disability checks. Watson’s grandmother knew that college would be his way out. “She didn’t want me to end up in the kind of jobs that they had to do,” Watson said, “because in those kinds of jobs you work until your body just breaks down and you can’t do them anymore.” He was an outstanding student and got a scholarship to Yale, where in 1981 he earned a degree in economics.
After graduation, Watson went to work at IBM, which clung to the old social contract that Welch disparaged. Even though the country was in a deep recession, IBM seemed impervious to the tough times. Revenue was growing and profits were strong. Watson was among the 135,000 new people that the company hired between 1980 and 1985. “You didn’t get the sense that IBM was going to be threatened in any fundamental way,” Watson said. But there was also something else that made those working for Big Blue, as the company was called, feel untouchable: the steadfast assurance that if the business did flounder, everybody would be protected. “You got told stories about how even during the Depression, they didn’t lay off employees—that if you performed well, you basically had a job for life,” said Watson, who entered a corporate training program and over the next four and half years sold computer systems and PCs from Florida. “It felt like one of the safest places in the world.”
Since the early 1900s, IBM had seen its no-layoffs policy as an extension of what it held out to be its “most important” core value: “respect for the individual.” “As businessmen, we think in terms of profits, but people continue to rank first,” the company’s CEO, Thomas Watson Jr. (no relation to Michael), wrote in 1963. In the 1980s, IBM made a point of highlighting the way it would retrain and reassign employees, rather than send them packing: “Jobs may come and go. But people shouldn’t.” It was quite a contrast to what was happening at GE, where Jack Welch was asked by some of his own workers about the IBM campaign. “At a time when I was being routinely assaulted with the Neutron tag,” he admitted, “those ads really pissed me off.”
Michael Watson did well at IBM, winning the company’s coveted Golden Circle Award as a top salesman. But he also felt stuck. Since college, Watson had been interested in human resources, and after several years he was ready to make the jump from sales. Yet HR was already overstaffed, and with such little turnover at IBM, Watson didn’t see a way to break in. The downside of job security was stunted mobility. “If I kept waiting, I didn’t know how long it was going to be,” Watson said. “That kind of a job may have taken me five or ten years to get at IBM.”
And so he started looking around for a different opportunity, and in 1986 accepted an HR job at GE Capital in Stamford, Connecticut. Before long, he was charged with setting up a college-recruiting program—exactly the work he wanted to be doing—and managing training efforts for the whole unit. “This was my dream,” Watson said. He was then sent to Canton, Ohio, to build an HR function from scratch at a GE Capital collection center with hundreds of employees. Watson was still only in his twenties. “GE,” he said, “was willing to take bets on people.” For his exemplary work, Watson was awarded a spot in GE Capital’s Pinnacle Club and sent on a ten-day, first-class, all-expenses-paid trip to Japan and Thailand—an example of the fantastic perks that Welch’s A players enjoyed, even while the Cs were being fired.
For all of Watson’s success, however, GE never left him with the illusion that he’d be at the company forever. This was no IBM. One day, Frank Doyle, a senior vice president at GE, addressed more than a hundred HR staffers, including Watson. Doyle’s message was unvarnished—and Watson would never forget it. “Over time, as a society, we’re going to be moving away from the things that tie people to a company for thirty years,” Doyle told the group. “At GE we’re going to have to make a system where we guarantee you’ll have a very good experience, where we’ll make you more valuable whatever you go and do. If I were all of you, I’d do good work, work hard, and always have a copy of your resume ready.” A hush fell over the room.
Notably, GE didn’t see this as something unique to the company. The entire labor market was changing, and GE was merely reacting to a fluid situation. “What I’m advocating,” Doyle told lawmakers in 1987, “is the basic premise that people will change jobs, upgrade skills, and switch industries, not once but several times in their careers.” GE, he said, was striving be a place where employees were “ready to go and eager to stay.”
Watson fit this mold perfectly. He eagerly remained at GE Capital for seven years before getting an itch to move into an HR role in a different part of the company. “It was time to get some different experiences,” he said. His plan was to slide over to one of GE’s manufacturing businesses, but then the cable company Time Warner started to court him. Ultimately, Watson felt that being exposed to a whole new industry would teach him the most, and so in 1993 he left GE. In 1999, after three good years at Time Warner as a corporate human-resources manager (a period in which he also picked up a master’s degree in organizational behavior) and a stint back at IBM, Watson made another move—this time to the nonprofit sector. For the next thirteen years, he would serve as the top HR executive for Girl Scouts of the USA. Later, he would become the senior vice president of talent and culture at the National 4-H Council.
His experience was exactly as Welch and Doyle had said it should be: GE didn’t guarantee him lifetime employment, but it did give him lifetime employability—or at least Watson would always credit the company for doing so. “I’ll be an advocate for working at GE as long as I live,” he said. “I never felt this sense of risk because of what I was getting in terms of skills and confidence. I felt I could always find a job. I have a set of skills that can never be taken away by anybody.”
Others, like Wilbur Hany, were left with a very different impression. After he was fired from GE, he found work as a sales representative for a company called Sueske Brass and Copper. But it paid 20 percent less than he’d made at General Electric—$24,000 compared with $30,000. The job didn’t last long anyway; Hany was out of work again after about eight months, when Sueske restructured. He then applied for jobs at more than a dozen employers: International Tape Electronics, Furnace Electric, Bendix Corporation, Danville Metal Stamping, and more. But he didn’t catch on anywhere. After a while, he took to doing yard work and other odd jobs under the name Hany Janitorial Service. He was just trying to get by. “I never thought it would come to this,” he said. At GE, there was “no doubt I was a company man. I built a house within two miles of the job so I could be closer to it. Now I got house payments and no job.” Finally, Hany became a window-installer at Diamond Star Motors, a joint venture between Chrysler and Mitsubishi, where he earned about $11.50 an hour.
In the meantime, he became one of fifteen people from the Bloomington plant to sue GE, alleging that the company had engaged in a pattern of age discrimination. In 1989, after a lengthy jury trial in federal court in Springfield, Illinois, Hany and his coplaintiffs won. A second jury subsequently found that Hany had been individually discriminated against on account of his age. The judge ordered GE to reinstate Hany to his old position at a salary of about $37,000 a year. The court also directed GE to pay him more than $117,000 in lost earnings and benefits. The company appealed, and Hany settled for an undisclosed sum. The other former GE workers also settled.
As it happened, though, nobody was immune to GE’s axe, regardless of how old they were. Mike Meronek, then age thirty-three, whom Hany had trained to buy materials for the factory, was supposed to be something of a miracle worker in Bloomington. He had an engineering degree from the University of Illinois, Jack Welch’s alma mater, and had been in a special management-studies program. His boss, David Vanover, viewed him as a “top technical talent”—a guy who had the capacity to modernize the plant’s purchasing group. “His job was to go in there and be a change agent,” Vanover said, “to do things differently to help this business survive.” But in about a year, he was gone, too. “As soon as we got to the point of recognizing that his value wasn’t as great as what we had hoped it would be… we ended up giving him a ‘lack of work’” notice, Vanover said. “Away he went.”
Perhaps no group of people experienced the two faces of GE—one part meritocracy, one part meat grinder—as intensely as the company’s unionized workers.
By the late 1980s, only about 35 percent of GE’s hourly employees were members of organized labor, down from 50 percent twenty years before. The drop reflected, in large part, the manner in which Welch had retooled the company: on balance, GE was now making most of its money through nonunionized businesses—services, high-tech, and finance—as it turned away from many of the blue-collar lines that had long been its lifeblood. Across the rest of corporate America, much the same thing was happening, as the US economy continued its transition to a postindustrial age.
The difference was that, at many companies, executives continued to manage through the same command-and-control systems that they had always relied upon. Welch wanted everyone—including, and even especially, those on the shop floor—to have real input as to how GE could perform better. This desire went way beyond anything that Ralph Cordiner had envisioned in the 1950s, when he characterized corporate decentralization as “a philosophy of freedom” and called upon GE’s managers to lead “by persuasion rather than command.” For all of Cordiner’s good intentions, GE had remained mostly a top-down culture. Welch was dead set on flipping it.
Among his more senior people, he fostered an open dialogue by giving a face-lift to GE’s Crotonville management-training facility, which had fallen into disrepair during the seventies. Critics did not understand how Welch could spend tens of millions of dollars to spruce up an education center when he was laying off tens of thousands of people. They began calling Crotonville “Jack’s Cathedral.” But Welch thought it was vital to make Crotonville a world-class destination—a place that would attract the company’s best and brightest to think through some of GE’s biggest challenges. The intent was for them to walk in with a vexing problem and walk out with a bold plan of action, often by mixing it up with Welch himself. “Thanks to Welch, GE’s ‘people factory’ at Crotonville has no rival,” said Warren Bennis, the leadership scholar. Welch, he added, personally enjoyed spending “a lot of time there, standing in the auditorium—he called it the ‘pit’—with his sleeves rolled up, encouraging tough questions, barring no holds, loving the percussive to-and-fro he thrives on.”
Lower down the ranks, Welch wanted the same to-and-fro. “The idea was nothing more than trying to recreate Crotonville in a thousand different places,” he said. In the late 1980s, with this in mind, GE launched a process that it called “Work-Out,” a series of town-meeting-style gatherings in which employees were empowered to make suggestions directly to higher-ups—who were then required to make instant, real-time decisions on every proposal. Once a plan was approved, it was to be executed right away, with no interference from the bureaucracy. “The people closest to the work knew more about it than their supervisors did, so we wanted to hear their ideas,” Welch said. “We wanted people at the bottom of the hierarchy to talk to people at the top.” Within five years, more than 200,000 GE employees had participated in Work-Out, resulting in all sorts of solutions for reducing waste and improving productivity.
For Welch, Work-Out had another plus as well: it made at least some union members and their leaders feel like they were finally being heard. During a Work-Out meeting at the Lynn plant, for example, an hourly employee scratched out on a brown paper bag the design for a new protective shield for grinding machines. What he proposed was so smart and cost-effective, Lynn’s rank-and-file were able to keep the work in-house rather than watch it be contracted to an outside vendor. Before Work-Out, “we had the feeling they were trying to phase us out,” said Vic Slepoy, a Lynn electrician. “Now at least we have an avenue to make a pitch for our jobs.”
Welch won favor with the union in other ways, too. His predecessors as CEO wouldn’t dare sit down with their counterparts from labor. To do so would have indicated that GE put them on an equal plane. But Welch was different. He got a kick out of inviting top union officials to dinner a couple of times a year, capping the evening with cognacs back at his New York office. “Our relations were good,” Welch said. “We knew their kids.” When Welch heard that the wife of a negotiator for the International Union of Electrical Workers, Bob Santamoor, had gotten cancer, he made sure that she was treated at the best hospital around—Sloan Kettering. “Somehow it got taken care of,” Santamoor said. “I was surprised as hell.”
It wasn’t that Welch had any love for organized labor. Like those who ran GE before him, he felt that the union was a needless obstacle between management and the frontline workforce—and he told the IUE as much. “I wanted to get rid of them,” Welch said. He paid close attention to each labor contract and pressed GE’s lead negotiator, Dennis Rocheleau, to drive a hard bargain. “Are you here to tell me that you’re going to let those fucking guys run all over us again?” Welch would ask him. Through the 1980s, many of the threats that the union feared most—robots replacing workers, certain tasks being outsourced to cheaper vendors, jobs getting sent to Mexico and other foreign countries—were becoming more and more common. As one GE executive said, any plant that wasn’t sufficiently profitable was expected to “automate, emigrate, or evaporate.”
Yet Welch would contend that the close connections he made with the union’s leaders had the desired effect: through his entire twenty-year run as CEO, the IUE never struck nationally. How much this serenity could be attributed to Welch’s charm is debatable. Beginning in the 1980s, as unions lost most of their power, the number of walkouts by organized labor plunged across the country. The strike was no longer a viable weapon. Still, Welch’s personal ties with the IUE surely didn’t hurt. “I considered him a friend, even though he was ready to put all the jobs on a boat to China,” Santamoor said, adding that with Welch, you at least always knew where you stood. “Jack’s a straight-shooter. If he tells you it’s going to rain, you grab an umbrella.”
Under Welch it poured. The IUE resigned itself to obtaining relatively meager wage gains through the eighties—less than 3.5 percent a year. Other big unions settled for the same or even less, as the contracts reached in 1988 across all of industry contained pay increases averaging less than 2 percent annually. Two decades earlier, with inflation running at about the same rate, the yearly wage bump was nearly 6 percent. For the IUE and others, the dramatic downsizing of corporate America had forced them to fight less for compensation and more for job security. But that fight didn’t go very well, either, as the percentage of unionized workers continued to go down, down, down—both at GE and at most other employers. In 1980, more than 20 percent of private-sector workers in the United States were still members of organized labor; eight years later, fewer than 13 percent were. For many, bitterness set in. At the IUE, “union meetings were angry affairs,” the journalist Thomas O’Boyle, who is perhaps Welch’s harshest detractor, has written. “Workers denounced their leadership for not being more militant, for not standing up to the company, even though there was little if anything the union could do but capitulate.”
In January 1988, Los Angeles Times writer Harry Bernstein published a piece that compared Lem Boulware’s infamous take-it-or-leave-it construct in labor negotiations with what he termed “Welchism”—a “system of drastically eliminating union jobs without openly fighting with unions.” Should Welch establish “a pattern for other corporate executives faced with domestic and international competition,” Bernstein said, “it may make Boulwarism look like a picnic for the labor movement.… Boulware at his worst never managed to weaken GE unions” as much as Welch had. When Boulware, then in his nineties, saw the article, he couldn’t hide his delight. “I judge… that I can move over and let you take the hot seat I have enjoyed for forty years as the tough guy of General Electric,” he told Welch. “Congratulations and thanks!”
If Welch’s workers didn’t always come out ahead, one group seemed to: GE’s stockholders. Welch had taken a profitable company and made it far more profitable in an ever more challenging world, with earnings rising steadily from $1.5 billion dollars in 1980—Reg Jones’s last year as CEO—to more than $4 billion by 1990. The market genuflected. And by the midnineties, Welch would find himself on the cover of Fortune, hailed for having “unlocked the secrets of creating shareholder value.” At GE, the magazine said, some $52 billion in investor wealth had been produced during Welch’s time as CEO. Next to him on the cover was one other corporate chief, who was credited for conjuring even more in shareholder riches—$59 billion. That was Coca-Cola’s Roberto Goizueta.