Jeffrey Immelt De-emphasizes “Traders,” Rediscovers “Builders”
Here’s the title of the article: G.E. Goes With What It Knows: Making Stuff by Steve Lohr (New York Times). The title really does say it all. And the fact that Jeffrey Immelt is understanding this, and acting on it, is significant.
Here’s the issue: should our best and our brightest make stuff, of should they move money around? Richard Florida, in his terrific book The Great Reset, summarized the problem this way:
Here’s the issue: “traders” (making money by trading things) vs. “builders” (real assets in the real economy).
The role of finance changed from being, in the words of William Black, a “servant” of the economy to a “predator.” Instead of supporting the real wealth producing parts of the economy, (the finance sector) has become a parasite on them.
…builders need to take their preeminent position back from the traders for the economy of the future to flourish.
(I blogged about this here).
(Fred R. Conrad/The New York Times) Jeffrey Immelt, C.E.O. since 2000, has pared down General Electric to rely less on financial wizardry in its lending unit and more on physical products from the manufacturing divisions.
Now it sounds like Mr. Immelt gets this, and says that our entire country needs to get this also. Here are some paragraphs from the article about Mr. Immelt and G.E.:
Perhaps no company outside of the banking sector was hit as hard by the financial crisis as G.E., certainly none that seemed healthy before the economic tailspin. Its big finance arm, GE Capital, long a cash machine that bolstered the mother ship’s bottom line, became an albatross, threatening to pull down the entire enterprise. G.E. cut its dividend for the first time since the Great Depression, lost its triple-A credit rating and hastily arranged a $3 billion investment from the billionaire Warren E. Buffett.
Having skirted disaster, G.E. is recovering gradually these days. Its finance unit is on the mend, with the size of its debts and troubled loans trending downward. Mind you, middling recoveries are a relative matter at G.E. After all, the company remains a colossus on track to deliver profits of more than $10 billion on sales of about $150 billion this year. But investors are used to getting more from G.E., which earned $22 billion on revenue of $173 billion in 2007.
So G.E. has revamped its strategy in the wake of the financial crisis. Its heritage of industrial innovation reaches back to Thomas Edison and the incandescent light bulb, and with that legacy in mind, G.E. is going back to basics. The company, Mr. Immelt insists, must rely more on making physical products and less on financial engineering — a path that, he insists, is also necessary for the American economy as a whole.
Mr. Immelt candidly admits that G.E. was seduced by GE Capital’s financial promise — the lure of rapid-fire money-making unencumbered by the long-range planning, costs and headaches that go into producing heavy-duty material goods. Other industrial corporations were enthralled with finance, of course, but none as much as G.E., which became the nation’s largest nonbank financial company.
So, after Jack Welch championed G.E.’s journey into finance, Mr. Immelt is calling for G.E. to get back to focusing on “making stuff” — “a path that, he insists, is also necessary for the American economy as a whole.”
Yes it is! We need far more “builders,” and can probably do quite nicely with far fewer “traders.” We really do need to “rely more on making physical products and less on financial engineering.”
