The long crisis of General Electric

The long crisis of General Electric
The long crisis of General Electric

Larry Culp, the CEO of General Electric (GE), announced on Tuesday that the largest and most famous American conglomerate, which produces dozens of very different products, from engines for airplanes to medical machinery in hospitals, will split into three smaller companies, each of which will still hold a value of tens of billions of dollars. The decision to spin off the company came after twenty years of crisis, in which GE underwent a long and painful downsizing: in 2000 it was the most valuable company in the world, while today it is not even among the top hundred.

The company will split into three sections: Larry Culp will remain at the head of the sector that produces aircraft engines, which will also keep the name of General Electric. In 2023 it will break away from the main company GE Healthcare, which produces healthcare machinery, while in 2024 a third sector dedicated to energy will break away.

The division of General Electric also entails the end of one of the most symbolic and influential companies of American capitalism: founded in 1892, GE was one of the most important manufacturing companies in the world throughout the course of the twentieth century, and played a major role in development of the US economy. It was born from the merger of the Edison General Electric Company, the company of the American inventor Thomas Edison, with another company that dealt with electricity, and among its first patents it had the incandescent light bulb (which was not invented by Edison, but which Edison helped popularize and make it commercially fruitful).

(AP Photo/John Minchillo, File)

Over the decades, GE has expanded into dozens of industries – from locomotive to appliance manufacturing to oil and gas, nuclear power plant construction, chemicals, finance and information technology. During the Second World War it was one of the most important industrial suppliers to the United States Army; subsequently, after the war, it produced household appliances that ended up in the homes of tens of millions of American families.

GE has also produced some of the most influential managers and entrepreneurs of the twentieth century, including Jack Welch, who was named the company’s CEO in 1981 and became the symbol of American capitalism for over twenty years.

Welch took office a few months after Ronald Reagan’s appointment as president of the United States, and became a major proponent of the “neoliberal” theories advocated by the then president. Focusing solely on growth, Welch increased GE’s revenue fivefold, and turned it into a gigantic industrial conglomerate capable of withstanding competition from large Japanese industrial groups (at the time, the main threat to American industry was Japan. a bit like China is today).

Welch created a corporate culture within GE that the New York Times he called ‘Darwinian’, in which internal competition was encouraged and which succeeded in attracting many of the most ambitious managers and executives of the time.

Welch was also defined as the father of the movement known as “shareholder value”, that is the doctrine that the only duty of a company is towards its shareholders and investors (the “shareholders”, in fact) – and not towards of the company, nor of its employees. According to the “shareholder value” doctrine, a company’s efforts must focus solely on growth and maximizing return for investors. In this sense, any other concern (employee well-being, impact on society) is secondary, and in any case must be evaluated in terms of growth.

For these theories and for his enormous success, Welch was named by the magazine in 1999 Fortune as “the manager of the century”, even if he himself later repudiated the doctrine of “shareholder value”.

Jack Welch nel 2001 (Chris Hondros/Newsmakers)

Welch also developed a huge financial business within GE, which at the turn of the century began to engage in investments and other financial activities, including lending money, effectively becoming one of the largest banks in the United States. But when the financial market crashed in 2008, GE was one of the hardest hit companies: it was forced to seek state aid and never really recovered. The various CEOs who have succeeded one another since Welch have attempted various recovery plans, but all have had little or no success.

Eventually, the company resigned itself to a gradual downsizing. Over the past two decades, GE has gradually eliminated various low-performing businesses: it has sold its locomotive manufacturing sector, its home appliance business, its hydrocarbon operations, and its entire financial services business. The employees, which were over 300,000 in 2014, now number 160,000.

One of the worst humiliations came in 2018, when GE was banned from the Dow Jones stock market, which contains the 30 most important companies in the American market. GE had been one of the original 12 members of the Dow Jones, and had been a member since 1896.

For some years now, GE has remained with three large businesses, the main ones, each of which remains quite solid and productive: the production of airplane engines, that of sanitary machinery and that of energy (which includes the production of turbines for the wind turbines). By 2024, these businesses will become three separate companies.

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