\n <\/path>\n <\/svg><\/div>\n<\/section><\/div>\nFew people born since the 1980s have heard of Jack Welch. But they do know Trump, the Boeing 737 Max disasters and a US economic landscape that has led to populism and rising inequality. <\/p>\n
“When people look around and say ‘why is the system like this? Why are things unfair?’ there’s actually a guy who made it happen. There was a guy who set a precedent for the economy today, and that guy was Jack Welch, “says David Gelles, a reporter for The New York Times and author of a new book called” The Man Who Broke Capitalism “.<\/p>\n
Welch took over as CEO of General Electric in 1981 when it had 400,000 workers and was a reliable, innovative household name making lightbulbs but also more sophisticated equipment such as jet engines and power systems. <\/p>\n
Coined “Neutron Jack” after the neutron bomb, which purportedly kills people while leaving buildings intact, Welch was a mascot for an age of deregulation and cheap thrills, which quickly unravelled in the <\/p>\n
\n recession
\n
\n <\/span> of the late 200s. <\/p>\nUnder his two-decade tenure GE expanded to be worth hundreds of billions of dollars and was the most valuable company in the world at one point. But, Gelles argues, he did so while rupturing the fabric of America, leaving not just GE but the US worse than when he found it. <\/p>\n
A ‘Vitality Curve’ of fired workers<\/strong><\/h2>\nWelch was obsessed with growth and spent about $ 130 billion on nearly 1,000 acquisitions during his time running GE, although many of them failed. Under Welch the company’s financial services division, GE Capital, became enormous but it later needed a $ 139 billion bailout from the US government following the 2008 financial crisis, as well as a $ 3 billion rescue investment by Warren Buffett, Gelles says.<\/p>\n
Welch also pioneered the “stack ranking system,” in which the bottom-performing 10% of employees were laid off each year, a practice he called the “Vitality Curve.” Companies such as Goldman Sachs still use that approach to keep staff “motivated”. <\/p>\n
Welch slashed GE’s workforce by 112,000 people between 1980 and 1985 as well as outsourcing and offshoring jobs to cheaper markets such as Mexico. <\/p>\n
“What Welch did was fire people when things were going well,” Gelles tells Insider. “And that was a rupture – the behavior of firing people to turn a bigger profit.”<\/p>\n
It was not economics that drove Welch’s labor practices, says Andrew Mawson, co-founding director of Advanced Workplace Associates: “Firing 10% of under-achievers each year seems to me to be a poor way of overcoming an underperforming performance management system.” <\/p>\n
Others say that beyond harming morale and productivity, focusing solely on labor costs is inefficient. Simon Geale of supply chain consultancy Proxima tells Insider: “Some business leaders like it because the salary line is easy to measure and quick to action, but the reality of job cuts is that they address a proportionately low expenditure when compared to supplier costs in most industries. ” <\/p>\n