It isn’t that often that a bit of finance news — the composition of a stock-market index, for instance — strikes one as having enormous cultural importance. There are, however, bits of news that can immediately be seen as vastly significant. They are symbols, in fact, of the passage of an era; indications that the books and movies of that era are now historical artefacts instead of contemporary work.
This week, we received one bit of such news. It appears that Dow Jones has dropped the storied conglomerate General Electric — which has had a very disappointing few years and in fact decades — from its “industrial average” index, the world's most widely watched. Adding to GE's humiliation, it will apparently be replaced by the big-box pharmacist Walgreens. GE was a cultural phenomenon; Walgreens was merely where you bought the pen and paper that you needed to write admiringly about GE.
Now, naturally, on one level you have to see this as a reflection of what has actually happened to the United States economy. GE was one of the original “industrials” in the “industrial average”, and now it has been shoved out. (When will Dow Jones stop calling it the “industrial average”? When the last factory in the Rust Belt finally shuts its doors?) If you are an economist, you would say it is a reminder of the dynamism that keeps US growth robust and ensures it stays the most prosperous country in the world. If you’re a Donald Trump or Bernie Sanders voter you might instead say that it is a reminder of the devastation inflicted on American manufacturing by decades of trade. The country has been turned into a giant retail outlet, and so it's not surprising that a convenience-store chain will replace a company that dates its origin to the moment that Thomas Edison, in his laboratory, discovered what happens when you run electricity through a metal wire.
By the time the first such book about him, Control Your Destiny, was published in the early 1990s, Mr Welch had run GE for a decade. He had, apparently, hammered the giant conglomerate into shape and, ironically, supervised its shift away from appliances to finance and health services. But the true and lasting influence of GE was not to be anything it built in those sectors; it was to be a million books about the ‘GE Way’ that shaped the thinking of a generation of young people, in management and beyond.
Mr Welch’s methods were appealingly brutal, straightforwardly macho. Profitability didn’t matter as much as being the leader in your segment; the bottom 10 per cent of employees should be fired, regardless of performance; other centres of power should be reduced to slavish loyalty to the corner office; the top dog should be paid as much as possible. Since he had increased GE’s market value by an order of magnitude, these principles were obviously correct. We live in a corporate world designed along those lines; the comfortable, all-encompassing corporate values of the 1950s and 1960s were destroyed in the 1980s, and those hagiographies and self-serving memoirs were among the weapons that did so.
So what should we think of those books and what they taught us now? Would GE have done better by focusing narrowly on retaining what made money for its shareholders, not on market dominance? Mr Welch bought financial services and a television network, but then GE had to sell both. Does a focus on firing the “bottom 10 per cent” reward short-term thinking? Do huge CEO salaries cause the public to lose sympathy with companies they once thought of as their champions?
Perhaps, from today, we should start reading that entire genre of buccaneer CEO books as historical documents and not guides to how we must work with others. The economy has changed. Conglomerates can't infuriate citizens; they need to focus on survival and adaptation, not “being number one”. (A lesson there, perhaps, for the new macho role models of capitalism, the tech demi-gods.)
We should have been suspicious of all those books in the first place. After all, in the 1990s there was a third ubiquitous face on those bookstalls, besides Lee Iacocca’s and Jack Welch’s. And that face was Donald Trump’s.