Last week, following comments from Sen. Bernie Sanders (D-VT) on how corporate greed is destroying the moral fabric of America — in which he singled out General Electric, a company that is known for employing the best accountants money can buy to avoid paying taxes — GE CEO Jeffrey R. Immelt wrote an impulsive editorial for the Washington Post defending his company’s honor and lambasting the senator, who has been on a winning streak for the past three weeks.
“GE has been in business for 124 years, and we’ve never been a big hit with socialists. We create wealth and jobs, instead of just calling for them in speeches. We take risks, invest, innovate and produce in ways that today sustain 125,000 U.S. jobs...It’s easy to make hollow campaign promises and take cheap shots in speeches and during editorial board sessions, but U.S. companies have to deliver for their employees, customers and shareholders every day.”
Immelt, who earned a sweet $37.25 million in 2014, is obviously not a huge fan of the whole political revolution thing. On taxes, he writes that GE pays “billions,” and that the tax system “isn’t designed for today’s economy.” While this may be true, he neglects to mention that GE itself has spent hundreds of millions of dollars over the years on lobbying, particularly for tax legislation that benefited the company and allowed them to pay no federal taxes for various years, according to a Citizens for Tax Justice report. Immelt may be opposed to socialism, but certainly not socialism for the rich.
While Immelt may not appreciate being singled out by an increasingly popular presidential candidate, General Electric is, when it comes down to it, a pretty ideal example of what has happened to the American economy over the past forty years, and why we are now facing enormous levels of wealth and income inequality. GE, under the leadership of CEO Jack Welch (1981-2001), helped usher in the modern era of shareholder capitalism, and rode the financialization wave during the final decades of the 20th century, illustrated by the tremendous success of GE Capital, its financial services unit (which it has greatly reduced over the past year in order to lose its too-big-to-fail “systemically important financial institution” status, which required financial supervision by the Federal Reserve).
Throughout the '80s and '90s, as financial services became a bigger part of the GE’s business model, the financial sector become a larger part of America’s overall economy. In 1950, for example, financial services contributed about 2.8 percent to America’s GDP; by 2006, in the midst of the housing bubble, that number had risen to 8.3 percent. As a percentage of all business profits in America, financial sector profits went from under 10 percent in 1950 to a peak of nearly 40 percent in the early 2000s, while manufacturing profits steadily declined from nearly 60 percent in 1950 to about 20 percent in 2012. During this same period, the financial sector’s share of domestic employment remained steady, at under five percent, while manufacturing’s share of employment fell from 30 percent in the early '50s to under 10 percent by 2010.
Meanwhile, deindustrialization wiped out millions of semi-skilled jobs that had once provided a way into the middle class for working Americans. Manufacturing cities across the country were devastated, and as real wages stagnated for American workers, corporate profits skyrocketed, (At GE, its workforce had been cut by more than a quarter five years into Welch’s reign, and by the time he retired in 2001, its earnings had increased tenfold.) The neoliberal politics that came along in this era also gave employers more freedom to crack down on worker movements. President Ronald Reagan’s stand against the Air Traffic Control union was a symbolic gesture that, as former Fed Chairman Alan Greenspan remarked, “gave weight to the legal right of private employers, previously not fully exercised, to use their own discretion to both hire and discharge workers.”
The solution to stagnating wages for average workers was debt, which financial companies like GE Capital, big banks, and savings and loan associations (particularly after the 1982 S&L deregulation) were eager to provide. “Financialization and low wages are like precarious work and food banks: they go together,” writes the British journalist Paul Mason in his thought-provoking book, "Postcapitalism: A Guide to Our Future." About low wages and growing consumer debt during the neoliberal era, Mason writes:
“The fiction at the heart of neoliberalism is that everybody can enjoy the consumer lifestyle without wages rising. You can borrow, but you can never go bust: if you borrow to buy a home, its value will always rise... Widespread access to the finance system suited everybody: liberal politicians in the USA could point to the growing number of poor, black and Hispanic families with mortgages; bankers and finance companies got rich from selling loans to people who could not afford them... But financialization created inherent problems; problems that triggered the crisis, but were not resolved by it... At some point, the expansion of financial profit through providing loans to stressed consumers will break, and snap back.”
As the financial sector expanded during this period, the attitude within corporate boardrooms changed as well, and maximizing “shareholder value” became the sole objective of corporate executives (who were increasingly rewarded with stock options for performance). In a 2014 piece for the Washington Monthly, Michael Konczal compares the philosophy of two GE leaders from different periods, as described by business professor Gerald Davis in his book "Management By The Markets."
The attitude of Owen Young, who was GE Chairman between 1922 and 1939 (and returned in 1942-45), went something like this: “[S]tockholders are confined to a maximum return equivalent to a risk premium. The remaining profit stays in the enterprise, is paid out in higher wages, or is passed on to the customer.” The aforementioned Jack Welch, on the other hand, considered “the shareholder as king—the residual claimant, entitled to the [whole] pot of earnings.”
This single-minded philosophy has been enormously destructive for everyone who isn’t a shareholder, whether they be wage earners, customers, the environment, communities, etc. In this form of management, economic gains go solely to the shareholders — many of whom are only short-term investors — rather than being distributed among all stakeholders, particularly employees, as was common throughout the 20th century. For shareholders and executives, workers are expendable and people are little more than potential consumers (or debtors).
Of course, whether this philosophy has undermined the moral fabric of America is subjective; but one doesn’t have to be a socialist to recognize that it leads to the kind of greed and fraudulent behavior that helped cause the 2008-09 financial crisis. And considering the popularity of Sanders, he is hardly the only one who finds America’s neoliberal economy to be grossly immoral and in need of major adjustments.