January 24, 2008    Volume 15, No. 2

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Reflections On General Electric's Global Strategy



BY NELSON HOFFMAN
nhoffman1@dc.rr.com

The lead line in the Nov. 30, 2007, Manufacturing & Technology News article about General Electric CEO Jeffrey Immelt -- "A downturn in the U.S. economy shouldn't hurt General Electric" -- raises questions about the destruction of the United States economy and the dark side of globalization. It suggests that the decades-old concept of what is good for the country's leading companies is good for the nation is dead. The mutually beneficial relationship between companies and the American society is gone.

If one accepts the notion that the sole criteria for success of a corporation is to increase shareholder value, then all of the perspectives presented by Mr. Immelt are consistent. But over the past decade, an increasing number of Americans are contesting this premise and believe that a co-equal objective of corporations is to return benefits to the nation that makes their existence possible. Of all the issues raised by Mr. Immelt's remarks, his failure to recognize a responsibility to the nation and its citizens is the most disturbing.

Mr. Immelt says the U.S. economy is still important, "but not like it was five, 10, or 15 years ago." In the global context, he is correct. But the U.S. economy is the economy in which I live, work and save. It is the economy I hope to pass to my children in healthy condition. Mr. Immelt implies that the welfare of GE is more important than the welfare of the nation.

Mr. Immelt's predecessor's goal was to make GE the highest valued corporation in the world. The strategy required GE to sell off divisions that were experiencing aggressive price competition and move into high-margin businesses. GE has thus morphed from one of the world's great manufacturing companies into a hybrid banking, entertainment, leasing and specialty high-margin products company. It moved out of television, automation and engineered plastics, where I once worked. It is remarkable how Asian companies have successfully moved into those product categories and achieved unprecedented growth.

The second conclusion from the article is that GE and all other companies are penalized by Wall Street if they elect to compete in fast growing, highly price-competitive product sectors. The strategies adopted by many multinational corporations to manufacture abroad, pay low wages and accept subsidies from foreign governments are the consequence of this system, which, along with illegal immigration, keeps a constant, powerful pressure on the wages and salaries of every U.S. worker from Ph.D. to field laborer. It also makes every CEO subject to the allure of foreign nations providing them with capital. Most significantly, these companies are led to abandon the enduring cost advantage of high-volume production.

The statistics say the financial sector is now equal in size to the manufacturing sector. It is hard to believe that the manipulation of money has replaced the creation of old-fashioned profits through hard work and investment in plants and equipment. In previous decades, high consumption combined with high-volume production provided a perfect match for the world's exemplary democracy -- a match that distributed the benefits of industry to all "stakeholders." False trade and economic theories of recent times have destroyed that balance. I would ask Mr. Immelt if that same balance -- the same wealth distribution -- exists today.

It is incontrovertible that no U.S. corporation can compete against Asian governments whose basic purpose is to create industries and jobs in their nations. It is beyond rational thought that a country with wages and salaries that are two orders of magnitude higher can compete.

It is incongruous for a leader of a major American company to work with a totalitarian regime that has an organized industrial strategy aimed at achieving industrial dominance over that company's home nation, which has no industrial plan whatsoever. Where is the State Department in this equation? Who rules the stage? The Commerce Department is the lackey, while it negotiates with nations that have well organized industrial policies, such as Japan, Korea and China.

Why are Mr. Immelt and the Walton family, the owners of Wal-Mart, involved in foreign negotiations that are detrimental to the interests of America and Americans? The nation rises in anger when Jesse Jackson negotiates with the Palestinians. Why does it not do so when unelected corporate leaders negotiate with foreign nations for parochial interests at the expense of American workers? Mr. Immelt is doing a great job working the system. In going to China, he is filling a void created by our inept trade representatives.

When it comes to national strategy, I have observed the 30-year, continuous success of Japan's Ministry of International Trade and Industry. Mr. Immelt says we have learned all that we can from the Japanese, but he is mistaken. Japan holds $1.1 trillion of our national debt. I think we have a helluva lot more to learn!

After 25 years of intense involvement in globalization I have concluded that if the United States continues to offer 100 percent open markets to all comers, then the wages and salaries in America must be lowered to those of Asia. When the labor content of a semiconductor was significant, it was understandable to put foundries in Asia. Intel's acceptance of a $1-billion subsidy to locate a new foundry in China clearly illustrates the new competitive landscape: other nations are willing to buy industries and companies pirated from the United States. The result: The benefits offered by companies to their American workers in the form of health care costs and retirement are being dumped.

Past efforts to improve the competitiveness of the United States have been, at best, a partial success, bordering on failure. The notion that the government and our corporate entities are enemies is sad. Their lack of cooperation, compared to the intimate relationships that exist between the private and public sectors of export-based nations, is one of the principle causes of America's $15-trillion debt "hole."

Mr. Immelt mentions that there is a "backlash" to globalization. "Backlash" is a sound bite intended to demean the 30 million Americans who have lost their livelihood -- to speak nothing of the towns, cities and counties devastated to rust belt status. This is a very legitimate constituency. Its voice has as much right in the marketplace as his. These millions of Americans haven't bought into the theory of "creative destruction" that underpins the globalists' philosophy. They don't accept "Create in China / Destroy in the United States."

Let us also discard other empty sound bites like, "The nation that governs least governs best," and replace it with, "A nation that governs best wins." Or "it is not the job of government to pick winners and losers." Rather, the lack of a coordinated industrial policy has made for many losers and a few winners. Without an industrial policy, economic development has been dumped on state governments that are ill-equipped to compete on a global stage.

When Jack Welch decided GE couldn't be competitive in TV sets; when the president of Ampex decided it didn't want to make VCRs; and when IBM ceded laptops to Lenovo, we created the self-fulfilling prophesy: that the United States would not make things electronic -- the hardware of the information age. That decision is typical of the decisions that underlie the ever-growing trade deficit.

Having abandoned these lucrative fields the United States MUST get back into the ball game and return to the common sense notion that a nation must make what it consumes. Hopefully, our country will realize this before economic disaster -- that we must initiate an era of re-industrialization centered on the creation of a new generation of energy efficient, environmentally compatible products. If not, then the United States will continue its slide into the status of a Third World country; a colony of the Asian powers.

-- Nelson Hoffman is the retired chairman of Brice Manufacturing Co.; chairman of "Summit 1992 -- Making it in America"; author of "Virtue and Values for the Twenty First Century -- Renewing America's Character and Spirit" and a board member of the recently created Coalition for a Prosperous America. He can be reached at nhoffman1@dc.rr.com.



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