In the modern business era, corporations operate under one simple golden rule: to maximize shareholder profit. Let’s take a minute to see what that looks like at different stages of the business lifecycle. In early business stages—or with companies in developing markets with exciting products or services—most businesses are run at a loss, so shareholder value is increased by driving excitement or demand for the company itself. Like a pyramid scheme, the company only continues running if it receives outside investment to prop up the early investors and shareholders, whose shares then get more valuable. If the new money doesn’t keep coming, the pyramid collapses and you have a WeWork situation, where the late investors and employees are screwed, but the founding CEO walks with $1.7 billion. Once a business is established, the accountants take over and shareholder profit is maximized through things like market consolidation. Acquiring competitors (or sometimes even being acquired), consolidating supply chains, and exercising market dominance are tools of the trade. If a company is successful enough at this, it becomes a Boeing, and no matter how bad the product is, to include planes that fall out of the sky, consumers are forced to buy it because there is no competition and high barriers to entry mean there never again will be. When a company is on a downward trajectory, or frequently these days even while it is still successful, shareholder profit is maximized through “managed decline,” a phrase used by market purists to euphemize the stripping for parts of a company for profit. Typically, a CEO, a private equity firm, or an activist shareholder wrests control over a company and sells everything of value, cuts workforce and production, flat-lines investment, and loads up on debt held (preferably) by your own private equity fund or a friend. The company’s carcass is picked clean and the couple of fat vultures who organized the scheme fly off to find their next target. The gutting of Sears by Eddie Lampert is a cornerstone example of this. Once in a generation, however, a visionary transcends these traditional business practices. Instead of working within the life-cycle boxes, they become all at once the pyramid schemer, the monopolist, and the vulture. They don’t let private equity through their doors, they become private equitists themselves. They convert their productive companies into financial engines, running hot and fast on the fuel of past productivity. No one embodies this more than Jack Welch, the former CEO of General Electric. “Neutron” Jack, as they called him, built his reputation on the back of savvy marketing—wowing investors and hanging with celebrities— and the legacy of his predecessors’ accomplishments at America’s greatest company. According to one of his biographers, David Gelles, "[Welch's] face was on the cover of magazines all the time. He emerged as sort of this imperial executive and helped define what I think is still with us today in the form of a certain amount of CEO worship." In 1999 Fortune named him the manager of the century. Under the cloak of “efficiency,” Welch had his managers rank their employees every year and then fired the bottom-ranking ten percent of GE’s work force each year. The original “you’re fired” man, Welch fired more than 100,000 people in a series of mass layoffs and factory closures in his first few years, then off-shoring all of the work that still needed to be done. He operated the company in stark contrast from the GE of yesterday when, according to Gelles, GE was “proud of the way that they distributed their profits widely with employees, with their supply chains, and even with the government. It was a 1953 annual report by GE that I cite in the book, where they brag about how much they're paying in salaries to their workers and how much they're paying in taxes to the government.” Welch advocated mass acquisitions, including buying completely unrelated companies like NBC(!). He then financialized the company, saddling GE with debt to fund share buybacks and dividends, diving into subprime mortgages, and gutting GE’s production base to turn it into a private equity firm. The short-term gains on paper, as they always are when you are turning assets into cash, were incredible. Eventually, the pyramid collapsed. By 2018 GE, once America’s greatest company, was removed from the DOW Jones Industrial Average. In 2024, it was finally put out of its misery and broken up into three companies. Utterly destroyed. Jack Welch, on the other hand, is still lionized. When he died a legend in 2020, the former and current President eulogized him on Twitter: “There was no corporate leader like “neutron” Jack. He was my friend and supporter. We made wonderful deals together. He will never be forgotten.” And, to the detriment of us all, neither he nor his management techniques—which are still universally mimicked by wannabe management wizards—have been. For example, one of the first things Elon Musk did when he bought Twitter was ordering managers to rank their employees and then firing the bottom 10%. The DOGE’s goal for federal workforce reduction? The same arbitrary 10%. Folks, Elon Musk isn’t running America, Jack Welch is running it from his grave. And the worst thing is that he has been doing it for a while even without Elon. Just look at what we have done with our country over the last decades: Financing share buybacks and dividends through debt? Check. In the form of massive tax cuts for the wealthiest Americans and corporations, wholly funded by debt. A pyramid scheme? Check. A generation of boomer politicians getting cheap education, lower taxes, worry-free carbon energy, unfunded social security, and so many other things and then voting to lower future benefits and raise age limits, making education unaffordable, and saddling us with two forever wars without paying for them (among so many other things). Financialization of the company? Check. The financial sector percentage of U.S. national GDP is higher than it has been at any point since The Great Depression. It has doubled since 1980. Production as a percentage of GDP? It has declined inverse to the rise in financialization. America is already being run like a company—the same way that Jack Welch ran GE into the ground—and the latest DOGE moves are just the culmination of decades of managed decline of our country. (Ironically, managed decline was a phrase Paul Ryan constantly used when he was in Congress to whine about libs while doing his best to make sure America was run in the image of Welch and GE) The worst part of all of this is that while we are all supposed to be equal shareholders in America, and should theoretically benefit in the short term from the gutting of our nation, it hasn’t worked that way. The dividends and share buybacks funded by stripping our country for parts are overwhelmingly distributed to the top, as evidenced by the 2001, 2003, and 2017 tax cuts that heavily skewed toward the richest Americans (Paul Ryan helped pass all three) and, more recently, the PPP loan scam which was converted into a nearly trillion dollar cash grant to the richest Americans. Who do you think is going to benefit from the impending firing of 6,000 IRS workers? The millions of Americans desperately relying on their tax refunds who may have to wait longer now, or the “high income earners, partnerships, large corporations and promoters” that many of those employees were recently hired to investigate? In one very clear way, Jack Welch’s management model works. Short term, vulture shareholders reap a lot of wealth picking the carcass clean. Every chart printed on American income and wealth inequality proves it. Unfortunately for all of us without wings, who can’t fly off into the sunset but will always live here, running America like a business means gutting the only institution most of us will ever have a voting stake in and forever diminishing our power and quality of life. So the next time someone tells you that America should be run like a business, you can let them know what that really means. Lucas You're currently a free subscriber to Lucas’s Substack. For the full experience, upgrade your subscription.
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Saturday, February 22, 2025
America The Business
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