Maclean’s Interview: Jeffrey Immelt

Jeffrey Immelt is the chairman and CEO of General Electric, one of the world’s largest corporations, and a member of U.S. President Barack Obama’s Economic Recovery Advisory Board. Since the financial crisis he’s been an outspoken critic of corporate excess and failed leadership. But he has also faced criticism of his own from GE investors who’ve seen shares fall 60 per cent since he took over in 2001. Immelt spoke to Maclean’s during a visit to Vancouver for the Winter Olympics.

Q: In a speech at the West Point military academy in December, you said we’ve come through an era when business went from tough-mindedness, which is a good trait, to meanness and greed. What did you mean by that?
A: Over a period of time, not enough effort has been put forward to investing in the capability and long-term growth of the productive middle class of the United States. Less money has been invested in research and development and manufacturing, with more of a transition to financial services. When a country from 1980 to 2010 goes from being an export powerhouse to an unbelievably consumption-driven net importer, that’s not a good trend.

Q: Can it be reversed?
A: It’s going to take lots of spending on R & D, and a real dedication to making our workforce more productive again. Seven per cent of U.S. GDP is exports. In Germany, it’s 35 per cent. Germany’s not a low-cost country. Germany is not Mexico. And there’s no reason why the U.S. can’t have some kind of destiny that’s like that.

Q: How much of this shift do you ascribe to greed? You’ve said the richest people made the most mistakes, but faced the least accountability.
A: There are lots of people that own hedge funds that have their own private capital at risk who should make a lot of money. But when a Ph.D. chemical engineer earns $200,000 a year, and a mortgage broker pre-crisis earned $5 million a year, that’s screwed up. That’s completely disproportionate to where the future of any economy is going to rest.

Q: In the dark days of early last year, there was a lot of talk about the need for reform, a belief that change was under way. You described it as a “fundamental shift in capitalism.” That seems to have faded. So was the economic crisis a reset, or just a pause?
A: When you look at capital markets and financial services especially, there needs to be regulation and reform. There needs to be things put in place so people can trust the system. On the other side, the financial service industry is a vibrant, important industry. So there’s a way to have financial reform on one side, without completely trashing bankers and lending. When I travel the world, there’s not one good economy that doesn’t have a vibrant banking industry.

Q: A lot of people point to Canada as a regulatory model. What do you think of that?
A: What’s clear is the rules were stricter, more transparent, and more conservative, and in the end that turned out to be really smart. What’s more contradictory is the fact that there are five big banks in Canada. So we [in the U.S.] in theory want to see splintering of banks but here, having five core banks actually added stability to the system. I do think there’s something to be said for having these large, healthy, well-run banks.

Q: What role should the government be playing in business?
A: Government should be a catalyst for change. In energy, a momentary signal on the price of oil doesn’t necessarily create the genesis for a 40-year investment. That’s where government comes in. In the U.S., there’s probably 15 or 20 per cent of the [energy] capacity that’s old coal plants that have to retire by 2020, but nobody knows what to do with it. Only the government can help influence [change] by having a price for carbon and technical incentives.

Q: A lot of people are very scared by talk like that.
A: Let me differentiate. Government has always been involved in energy in the U.S. Government is half of the market in health care. Always has been. So this notion that the government doesn’t already exist in the U.S. economy is just crazy. What people object to is volatility. If it looks like there’s going to be a new change every week, nobody can invest. In the end, the market is the best force, but in some places like energy, the government is going to play a role.

Q: If this recovery is to be led in part by government, doesn’t that mean government spending money it doesn’t have, which means borrowing even more from China?
A: Look, companies have the capacity to invest without government money. Government money in some ways is the least important part. What’s more important, if I build a nuclear power plant today, what will be the price of carbon in 2040? If there’s no certainty around what the rules of the game are going to be in the future, why would I invest today? The government doesn’t have to spend money, just create clarity and certainty around the investment environment.

Q: In your role as a member of Obama’s Economic Recovery Advisory Board, what’s been your main message of late?
A: It’s all about jobs. If that is the goal, then you say, what are the things that are going to create jobs? And in the world I live in, that’s competitiveness and exports.

Q: What opportunities does GE see in Canada?
A: We see massive opportunities for wind, gas, biofuels, maybe nuclear. We have a great energy business in Canada, one that will grow in the future.

Q: Many Canadian companies are worried about the rise in protectionism in the U.S. Canada has been excluded from some Buy America provisions, but what concerns do you have about this populist backlash against global trade?
A: The company, and me personally, we’re globalists. We believe in free trade, fair trade, open borders. We’re not supporters of Buy American provisions and things like that. The reality is, today, every country is protectionist in some way. The notion that business has to explain is when we close our borders, people are going to close their borders to us. There’s lots of back pressure against globalization today, and we just have to communicate how divisive that can be.

Q: How do you do that?
A: With 10 per cent unemployment, it’s hard.

Q: It seemed that way even at five per cent.
A: An export job in the U.S. creates eight jobs in the supply chain. The average wage paid in an export product is 30 to 40 per cent higher.

Q: Still, a lot of people see globalization and see jobs being outsourced. GE’s outsourced lots of jobs over the years. How do you make the case to people who’ve seen their jobs go overseas?
A: We are an exporter from the U.S., so in the end, we’ve had to do restructuring. Over my career there have been times we’ve moved jobs, or moved production to Mexico or China. But in the end, our company has kept investing in R & D. The most important thing we do is invest in technology. If we have high-tech products, that’s what creates exports, and ultimately that’s how we create wealth. So look, every multinational gets accused of moving jobs, but I would say we’ve added jobs back in the places we’ve been.

Q: You’ve talked about America’s need to rebuild its manufacturing sector. How?
A: Energy should be a part of it, health care should be a part, high-tech products, nanotechnology, material science. If we want to be an exporter it’s going to be about technology. But we’re falling behind as a country. We’re falling behind in the clean energy revolution. There are 52 nuclear power plants under construction today globally, zero in the U.S. Solar is growing faster outside the U.S. Those are high-tech energy products. That has to be what the destiny of the country is. Aircraft engines—80 per cent of what we make goes outside the United States. That’s a lot of jobs in the U.S. that are benefiting from Saudi Arabia, France, Japan and other countries.

Q: This seems to all come down to reducing the reliance of the American economy on the consumer.
A: Look, I don’t root against the U.S. consumer. But the notion that consumers can spend more than they make—the crisis proved that’s bad practice. Consumers have to save more now. Already that’s taking care of itself. The savings rate is already up to five or six per cent. But that’s going to dampen the recovery. There are only so many ways you can grow. Either you want to have the government spending more money, which it can’t because it doesn’t have money anymore, or you have to drive business investment. And the thing that’s going to drive business investment is exports. In the end it’s arithmetic. A country like the United States can only have one destiny if it wants to preserve wealth, and that’s to be a high-tech exporter. The U.S. consumer has been the engine of growth since World War II. That’s probably not going to be true anymore.

Q: Do you ever worry that the phenomenal rebound in the stock markets and the V-shaped recovery means some of the urgency of the crisis has waned and made it harder to make changes?
A: I don’t think so. Unemployment is high. Personally, I think we’re in a new normal.

Q: People use that term all the time—what does it mean to you?
A: There’s going to be more volatility, slower growth, more intersection between business and government, emerging market leadership, financial reform and regulation. Those are the things we try to get our people focused on. If you imagine that every day is going to feel just like today, you’re going to wake up tomorrow with a smile on your face because you accept it. If you go to bed each night and say, “Dear God, please help me wake up in 2005, or 1997,” you’re never going to be happy.

Q: Last year you said that America had lost its confidence. Has it come back?
A: I actually think that America’s image in the world has dramatically improved. Inside the country we need to be able to take on some of these tough challenges like health care. Those have to be things we work together on, not divisively. We have to address education, wealth disparity, things like that. We need to raise our standards for ourselves, to invest more in R & D and solve some of these big social programs, and do a better job in bringing everyone with us.

Q: Do you see yourself as having a particular role in that, given your unique position as CEO of such an important company?
A: I’ve worked for GE for 28 years. 99.9999 per cent of everything I do ought to be about GE and I should keep my mouth shut about everything else. But there are times when we also have to be citizens of the world, and places where the company and I can help—we should do that. If we’re a long-term player, if we know how to make money in a country and for a country, and we’re committed to people around the world, we’ll be welcome in every economic cycle in every corner of the world.