Immelt: “We’re Not Trying that Hard … to Compete”

October 24, 2011

http://blogs.reuters.com/chrystia-freeland/2011/10/20/immelt-on-america-going-all-in/

The above-linked op-ed piece has been running on Reuters for a couple of days now, in which Chrystia Freeland recounts a breakfast with featured speaker Jeffrey Immelt, CEO of General Electric and the head of the president’s “Council on Jobs and Competitiveness.”  The name of this council alone says it all about what Obama thinks about our huge trade deficit.  It seems we should all blame ourselves for not trying hard.

“We are not trying that hard,” Immelt said. “We haven’t really tried as hard as we can to compete, educate and sell our products around the world and I think we can do better.

“The world just plays harder than we play,” he said. “Whether it is on exports or whether it is on foreign direct investment, the rest of the world plays for keeps. And we just don’t have a similar philosophy.”

He goes on but, before we get to that, I thought it might be interesting to explore just how well Mr. Immelt has done with competing and creating jobs at G.E., where he took over as CEO in September, 2001.  Since that time:

  • GE’s stock price has plunged by 60%.
  • Global employment at GE has fallen from 310,000 to about 287,000 today.
  • U.S. employment at GE has fallen from 158,000 to about 133,000 today.  In other words, all of the reduction in employment at GE has occurred in the U.S.   Employment has actually risen by about 2,000 in the rest of the world.
  • GE’s revenue has risen from about $126 billion per year to about $150 billion per year.  However, adjusted for inflation, this actually represents a decline of about 3.3% in revenue. 

Apparently, investors don’t have much confidence in GE  under Immelt’s leadership.  So why should Obama or any American have any confidence in his ability to lead the creation of jobs?  There’s nothing in his record that suggests he’s qualified for either role. 

With that said, let’s take a closer look at some of the other things he had to say at that breakfast.

“Chancellor Merkel flies from Berlin to Beijing, there’s 25 German C.E.O.’s that get off the plane right behind her. And they connect the dots. They play hard, they play to win, they play for exports,” Immelt said. “We’re not all-in the same way that the Germans are all-in.”

And how many American executives have gotten off the plane in Beijing, Mr. Immelt?  Hundreds.  All of them play hard and play to win for their companies.  The end result has been an historic shift of wealth and jobs to China.  Are you saying that the result will be different if they accompany American officials?  Are you saying they will then eagerly work against their own interests in an effort to bring those jobs back home?  Of course Germany has a trade surplus with China.  Germany is twice as densely populated, consumes far less, and is even more dependent on exports for survival than China is. 

But then Immelt goes on to refute his own argument:

“Our competitiveness in this country today is the greatest it’s been in 25 years,” he said. “I have never seen our competitiveness as solid versus India and China as I do today.”

Wait a minute!  In one sentence he says that we need to try harder, and then he says we’ve never been more competitive!  It begs the question:  if we’ve never been more competitive and we’re losing badly, is it possible that it’s not about competing?  Don’t we need to start looking elsewhere for answers? 

The U.S. is the most productive, most competitive nation on earth – far more competitive than China.  Consider this:  with a work force of approximately 150 million, the U.S. generates a gross domestic product of approximately $15 trillion – or about $100,000 worth of goods and services per worker.  China’s GDP is about $6 trillion, generated by a work force of about 600 million.   So Chinese workers generate only about $10,000 worth of goods and services each. 

That means that American workers are ten times as productive as Chinese workers.  Ten times!  And yet we have to “try harder?”  We have to be “more competitive?”  This kind of illogical gibberish isn’t unique to Immelt.  It’s spouted by virtually every economist on earth. 

The problem isn’t competitiveness, but a lack of understanding of what may be the most fundamental and profound relationship in economics – the inverse relationship between population density and per capita consumption.  The next quote by Immelt illustrates that lack of understanding:

“There are going to be one billion consumers joining the middle class in Asia. I think for us to reduce unemployment, exports are going to be a key way to do it,” Immelt said. “It’s this country’s only destiny just because most of the consumers are some place other than here.”

See?  He, like all business leaders, political leaders and economists, thinks that every person can be an American-style consumer, regardless of their circumstances.  They’re all absolutely ignorant of the role that high population density has in eroding per capita consumption and, with it, employment, making high unemployment and poverty an inherent characteristic of their economies.  Only if some nations like America are foolish enough to come to their rescue by ceding the manufacturing sector of their economies to them do they have any hope of rising from their poverty.  Nations like China, Germany and Japan are not export powerhouses because they are “more competitive” and “try harder.”  Rather, it’s because they consume so little that they’re utterly dependent on exports, and utterly dependent on America to consume their exports to have any kind of viable economy at all.   They can never consume enough to consume their own productive capacity, much less to begin consuming American exports. 

Before I end, there’s one more “Immelt-ism” that can’t be allowed to pass without comment:

“Look, when I was a young guy, when I first started with G.E., Jack Welch sent us all to Japan because in those days Japan was gonna crush us,” he said. “And we learned a lot about Japan when we were there. But over the subsequent 30 years, the Japanese companies all fell behind. And the reason why they fell behind is because they didn’t globalize. They didn’t have to go out and sing for their dinner in every corner of the world. That’s not the case with G.E. It’s not the case with other American multinationals.”

Hey, Immelt, here’s a news flash for you:  Japan is still kicking our ass in trade!  Have you not noticed that they still have a trade surplus with us that, on a per capita basis, dwarfs China’s?  You think that Japan doesn’t “sing for their supper in every corner of the world?”  Where have you gone in the world where you don’t see Japanese cars all over the roads? 

I can’t help but wonder if Immelt has ever pondered the fact that GE’s revenue would be higher if high tariffs on foreign-made engines meant that every plane in the U.S. was powered by a GE engine and every kitchen in the U.S. was equipped with GE appliances.  Nah.  Better to let that bone drop in favor of that big, juicy one he sees reflected in the waters of his imagined, bottomless pool of Chinese consumers.


Obama Hears a Hu, Jeffrey Promotes Exports-R-Us, and Other Childish Things

January 24, 2011

http://www.reuters.com/article/idUSN1922698320110120

http://www.reuters.com/article/idUSTRE70K17W20110121

I’ve been side-lined for a while dealing with some issues, so there’s lots to catch up on.

I think the title of this post pretty well summarizes the major stories of the past week or so.  The names in the news evoke images of childish things like a Dr. Seuss book and the iconic giraffe representing Toys-R-Us.  (OK, so the spellings are different.)  The policies on display with the visit by Chinese premier Hu Jintao and Obama’s naming of GE CEO Jeffrey Immelt as the head of his new “jobs and competitiveness” council are no less simplistic. 

 These fairy tales about the big push to boost exports and competitiveness are designed to create the illusion of doing something to help the economy.  After all, perception is reality.  Reality is not.  As long as the electorate perceives that something is being done, what do results really matter?  These approaches have been tried by every administration for the past three decades, all with the same result – failure.  This time will be no different.

Let’s begin with Hu’s visit.  (See the first link above.)  Much was made of the $45 billion export deal that Obama struck with Hu during his visit – most of that deal consisting of a Chinese commitment to buy 200 Boeing planes in the next couple of years.  First of all, does anyone believe that these aren’t planes that the Chinese had planned to buy anyway?  Did Obama convince Hu to buy planes China didn’t really need?  Perhaps Hu figured he might find some use for them somewhere over there. 

Prior to this deal, if China went to Boeing to place an order for planes, do you think that Boeing would have turned them away saying, “sorry, but you first need to make a public show of striking a trade deal with the administration?”  Of course not.  If British Airways needs to order ten planes, does Britain first have to strike a trade deal with Obama?  Don’t be ridiculous.  They simply go to Boeing and place an order.  If these 200 planes were something that wasn’t already on Boeing’s horizon, there would have been a big jump in the price of Boeing stock.  There wasn’t.  It’s been basically flat since Hu’s visit.

If anything, the number of planes involved is probably a disappointment.  After all, how long will it be before a nation capable of building its own stealth fighters begins cranking out their own civilian planes, likely putting Boeing out of business sometime in the not-so-distant future?  It’s not as though China lacks the techology, labor force or money to start up their own airplane manufacturer. 

And what other concessions did Obama extract from the Chinese premier?  To quote the article:

China agreed to “delink its innovation policies from its government procurement preferences,” and also repeated a promise not to discriminate against foreign goods or services based on where their intellectual property content is developed or maintained, the White House said in a fact sheet.

Wow, there’s a real iron-clad guarantee for you!  Anyone care to place a bet on how soon we’ll see concrete results from that concession? 

Trade talks like these are the root of our economic problems, not the solution.  The problem is that, while the best interests of China are at the top of the Chinese premier’s list of priorities, that’s not the case with Obama, just as it has not been the case for any of his modern-day predecessors.  The best interests of the American people are well down on the list of priorities, somewhere below world peace, providing leadership for the free world, and the principles of free trade and fair play, just to name a few.  Take care of these, American leaders believe, and the interests of the American people will be served.  Foreign leaders like Hu Jintao, on the other hand, take a much more direct approach.  Give us your market, your jobs and your money. 

Then there’s the story about Jeffrey Immelt, CEO of GE, being named to head up the president’s new “council on jobs and competitiveness.”  I like the title of this article:  “Obama names GE’s Immelt to lead fresh push on jobs.”  This distinguishes it from the previous, stale pushes.  In fact, that’s why this “council” is new – to avoid labeling Immelt’s predecessor a failure.  Immelt has done a good job of talking about American manufacturing in recent years.  (See G.E. CEO Immelt’s Comments a Glimpse into Economic Policy? and then forgive me for unjustified enthusiasm.)  But his record as a “Chief Executive Outsourcer” tells a different story. 

Regardless, Immelt has been tasked with boosting America’s global competitiveness.  Uh oh.  You probably know what that means.  Increasing competitiveness means boosting productivity.  That means only one of two things:  cutting workers or boosting output while maintaining the same workforce.  The latter approach will only happen if demand picks up.  Until it does, it’ll be the first approach that prevails.  It has for years … for decades. 

No doubt, it involves other approaches as well, most notably reductions in business taxes, accelerated depreciation for capital spending and lower capital gains taxes.  And probably some job retraining programs.  The end result is that corporate profits are going to do very well the next few years.  And, to be fair, that will provide at least some small boost to the economy as rising stock prices catalyze optimism and borrowing.

Ultimately, though, this approach is doomed to failure, just as every such attempt before it failed.  The problem is that our loss of manufacturing is not about competitiveness.  It never was.  The U.S. was always the most productive nation on earth by far.  If it’s a matter of competitiveness, then how does one explain the fact that the U.S. has a large trade deficit in manufactured goods with a nation like France, perhaps the least competitive and productive nation in the developed world – where workers enjoy a 35-hour work week, vacations, pensions and other benefits that American workers can only dream of? 

I suppose that there is some good news in all of this.  If nothing else, for the first time in decades, it has dawned on an administration that manufacturing is crucial to the health of our economy.  For decades the attitude had been “good riddance, who needs it?”  Manufacturing is so “yesterday.”  We don’t need the smoke stacks and polluted rivers.  Let someone else do the dirty work.  We’ll build a new economy, an economy built on service jobs, on dot-com ventures, on building McMansions we can’t afford and, finally, on smoking and eating ourselves nearly to death and then paying others to make us well again.

Obama’s epiphany came when he challenged his economic team early in his administration with “why can’t we be like Germany?”  “Why can’t we be a major net exporter of manufactured products?”  Had I been in the room, he’d have gotten his answer.  It’s because Germany has us, a gigantic trade patsy lacking the common sense to protect its market from parasitic, overpopulated nations utterly dependent on manufacturing for export to sustain their bloated labor forces.  Do you see another United States out there?  What nation, besides us, has such a huge appetite for manufactured products while lacking the domestic labor force to produce them?  There is none. 

So now, at least, Obama appreciates manufacturing.  Let’s hope another fifty years doesn’t pass before some future administration finally concludes that we can’t export our way out of our trade deficit mess and maybe – just maybe – we need to look at putting a lid on imports.


G.E. CEO Immelt’s Comments a Glimpse into Economic Policy?

June 29, 2009

http://www.reuters.com/article/businessNews/idUSTRE55P4ZT20090626

General Electric CEO Jeffrey Immelt was in Detroit on Friday to announce the opening of a new G.E. facility intended to boost G.E.’s U.S.-based manufacturing and software development.  In prepared remarks, Immelt said that a rebirth of manufacturing was critical to the U.S. economic recovery and called for a doubling of manufacturing employment in the U.S.:

General Electric Co Chief Executive Jeff Immelt said on Friday the United States needs to refocus its economy on manufacturing and exporting if it wishes to recover from a brutal recession.The world’s largest economy can no longer count on consumer spending to drive demand, nor can it rely on Wall Street financial wizardry if it wants its population to continue to enjoy a high standard of living, the head of the largest U.S. conglomerate said.

“We should clear away any arrogance, false assumptions, or a sense that things will be ‘OK’ just because we are America,” Immelt told the Detroit Economic Club. “Our competitive edge has slipped away and this has hit the middle class hard.”

The U.S. should work to have manufacturing represent about 20 percent of employment, more than double its current level, he said.

Immelt then followed with an unusual “mea culpa” for G.E.’s role, and indeed the role of corporate America in general, in ruining the manufacturing sector of our economy.

“In some areas, we have outsourced too much,” Immelt said, according to a copy of his prepared remarks. “We plan to ‘insource’ capabilities like aviation component manufacturing and software development.”

The United States needs to reduce its reliance on financial services to drive economic growth, Immelt warned.

“While some of America’s competitors were throttling up on manufacturing and R&D, we de-emphasized technology,” he said. “Our economy tilted instead toward the quicker profits of financial services.”

This story may have received little coverage beyond Southeast Michigan, but it’s significant because elements of his comments seem to emanate from somewhere well beyond Immelt’s pay grade.  His call for manufacturing employment in the U.S. to more than double to 20% of the U.S. work force (as of May, it’s approximately 12 million, or about 9% of non-farm employment of more than 132 million) may be a glimpse into economic policy discussions that the Obama economic team has had with major U.S. corporate executives.  As CEO of a company that’s a significant beneficiary of contracts with the U.S. government, it’s unlikely that Immelt would delve so deeply and specifically into U.S. economic policy on his own and risk the ire of the administration without knowing that his comments are in alignment with current administration thinking. 

So I believe this is a signal of a major shift in U.S. economic thinking and policy.  Regardless of whether you’re Democrat or Republican, or how you feel about the Obama administration, you have to recognize that this is a departure not just from the economics of the previous Bush administration but from administrations, Democrat and Republican, dating back several decades – thinking that the loss of manufacturing was no big deal and that it could simply be made up with gains in high tech, financial services, services in general, or whatever was in vogue at the time.   

That’s the good news.  But, if you read the full article (link included above), you’ll see that Immelt blames the decline in manufacturing on a loss in our competitive edge.  That may also reflect the thinking of the Obama administration.  If so, while there is some truth to such a statement, it implies that we can simply “compete” our way back to being dominant in manufacturing.  That would also be consistent with his administration’s statements disavowing the use of protectionist measures in correcting trade imbalances.  Such an approach is doomed to failure because it fails to recognize the role of population density disparities in driving trade imbalances and manufacturing job losses.  Obama may see the need to eliminate the trade deficit and restore the manufacturing sector of our economy but, without real action on trade policy, including protectionist measures such as tariffs applied to imports from badly overpopulated nations, it’ll never happen.  The question is, how long is Obama willing to stick with a failed policy based on faulty economics?

Immelt’s comments and the creation of 1100 jobs in Michigan is welcome news, but they amount to nothing more than a single breath of fresh air into the face of a hurricane of economic headwinds.  We need real action on trade policy by the administration, not just talk.