Jeff Immelt and the American dream

CNN’s Fareed Zakaria did a show on Sunday featuring GE CEO and Obama adviser Jeff Immelt, focused on reversing American economic decline and "Restoring the American Dream." The existence of this show was itself a surprise. Zakaria has long been one of globalization’s most ardent cheerleaders, arguing that free trade is always and everywhere a win-win proposition and that even as globalization enriches China and other developing countries it is also only further enriching the United States and the rest of the developed world.

Indeed, just a couple of months ago he opened his new book — The Post American World 2.0 — (which is a revision of the original The Post American World) with the words: "This is not a book about American decline." So the implicit admission in today’s TV shows of American decline and of a need to restore the American Dream is a big step forward. It would have been nice if Zakaria had listened to earlier warnings about the erosion of U.S. competitiveness, but better late than never.

What I found most interesting, however, was the comments of Jeff Immelt who in addition to being the Chairman and CEO of GE is also the Chairman of President Obama’s Commission on Jobs and Competitiveness. In this position he serves as the chief outside economic adviser to the president. I should explain that I found his comments particularly interesting in the context of my recent columns on GE’s avionics joint venture with China’s state owned AVIC and Immelt’s plans to transfer critical avionics technology and production from the U.S. to China.

Readers may recall that I argued that this production and these jobs should never go to China because the United States is the most competitive place to do them. I emphasized that the only reason they are going to China is because the Chinese government has made transfer of the technology and production a condition of access to the Chinese aircraft and avionics market. Readers may further recall that in a comment on my blog, GE executive Gary Sheffer denied this and called my comments misleading while maintaining that the deal is just a natural combination of AVIC’s avionic hardware virtuosity with GE’s outstanding software and avionics technology capabilities.

In responding to Zakaria’s questions , Immelt said some really important things. First, he emphasized that for supplying the U.S. market, U.S. based production can be competitive with imports from low labor cost countries like China in the vast majority of industries. This is so, he explained, because U.S. labor is far more productive than that of China and other developing countries and because the hidden costs of far flung supply chains and intellectual property theft can be enormous. He further talked about the desirability of making things where you sell them and of the great potential for on-shoring — bringing production of goods sold in the United States back to the United States. This is all correct and very important because it is contrary to conventional economic wisdom.

Immelt further emphasized the role the U.S. government has played throughout its history in making American industry the world leader. He noted that the Internet originated as a government project, that the National Institute of Health has been a primary driver of U.S. leadership in bio-tech and health care industries, and that U.S. leadership in many areas has been the result of government/industry cooperation. He sounded like he was speaking in favor of industrial policy. Again – so right.

Then Zakaria asked him how we should be dealing with China. Amazingly, Immelt said the Chinese have a different system and a different strategy. He said he gets the Chinese five-year plans and makes sure his people read them because the Chinese government is driving the Chinese economy and really means what it says in the five year plans. And so to be successful in China, GE and other companies have to be aware of the five year plans and have to develop their strategies and make their deals accordingly. So right again.

But here’s where it gets a bit difficult. You can’t read those five year plans without understanding that China is fully committed to developing its own indigenous aircraft and avionics industries and that it intends to insist on transfer of foreign technology and production as a condition of granting foreign firms access to its markets. Indeed, this issue has gotten a great deal of attention from the American Chamber of Commerce in Shanghai which has issued a report on it and raised it with the U.S. government. Clearly Immelt is fully aware of the situation which is what leads him so say (rightly) that China has a different system. 

In view of this, it is not clear to me why Sheffer is trying to deny what Immelt obviously knows and is saying to Zakaria. Of course, technically, maybe Sheffer didn’t get a direct order from someone in China to transfer technology as a condition for market access. But it is clear that Immelt and GE have studied the game carefully  (what else would you expect from one of the world’s leading companies) and know how it must be played. By denying this, Sheffer is only undercutting his own and GE’s credibility. How can anybody believe that GE’s deal with AVIC is just the result of good old capitalist market forces. If you do, I have a bridge in Brooklyn I’d like to show to you. But clearly, Immelt doesn’t believe it for a minute. Neither should Sheffer.

Finally, however, Zakaria was left with what I call the Immelt problem. Fareed asked him what the U.S. should do to deal with the China and recovery of the American Dream problems. Here, Immelt hedged again. He called for changes in the tax system, for federal matching of foreign investment incentives, and for much more collaboration between business and government. This is all good stuff and I want to give Immelt high marks for it. But he failed to call for any action to counter the mercantilism, currency manipulation, and conditional market access of China and other countries that pursue the export led growth strategy.

I understand why he doesn’t do that. As head of GE, he faces retaliation against GE if he does call for such measures. And that is why he should stop being the head of GE. There is an inherent conflict between his role as head of GE and his role as a key economic adviser to the President. He should resolve that conflict be letting someone else run GE.

Again, I say, that getting America back on track, recovering the American dream is infinitely more important and would be infinitely more rewarding than achieving  higher dividends and bonuses for GE. Come on Jeff. Be a mensch.