We've been writing here for some time about General Electric's new emphasis on the government. Now the company's chief executive, Jeffrey Immelt, has made the approach explicit in a really remarkable speech delivered yesterday at West Point. The Financial Times has a news article; here is the text in pdf. Here's one key section, echoing the Obama administration's "change" theme: "we should welcome the government as a catalyst for leadership and change. I believe in the endless possibilities of individual choice and private initiative. But this isn't the first time that business and government have had to work together for national ends. We should work together again today, setting goals for productivity, job creation and exports. There's a long history in this country of government spending that prepares the way for new industries that thrive for generations. Think of the Department of Defense, and all the commercial innovations that came out of military investments – from computing to transportation to healthcare. Through a real public-private partnership, we can dramatically improve America's competitiveness. Today, people in this country want to see business and government work together." The talk of business-government "partnership" is reminscent of the comment by PepsiCo chief executive Indra Nooyi that got Nassim Nicholas Talib and Niall Ferguson all riled up at that New York Public Library-Aspen Institute event last month.
Mr. Immelt goes on in the speech to cite both Ronald Reagan and the communist government of China as examples to be emulated. "There is no 'one style of leadership' that you should emulate. But great leaders always match vision with execution. And leadership in general must welcome both purpose and process. Let me give you studies in contrast. One of my heroes was President Reagan. President Reagan was very charismatic. He could give speeches all day long and you would never be bored. At the same time, he was responsible for an aggressive reform agenda that forever changed our country. On the other side is the Chinese government. Talk about boring! But they are executing their eleventh 'five year plan.' They do exactly what they say they will do. They will likely be the biggest economy in the world someday. Man,
these guys are good! "
Mr. Immelt proceeds in the speech to condemn a style of business leadership that he says came to prevail, with unfortunate consequences. "Tough-mindedness, a good trait – was replaced by meanness and greed – both terrible traits. Rewards became perverted. The richest people made the most mistakes with the least accountability. In too many situations, leaders divided us instead of bringing us together. As a result, the bottom 25% of the American population is poorer than they were 25 years ago. That is just wrong."
Mr. Immelt doesn't explain how "greed" is different from rational self-interestedness or the profit motive, both of which are pretty central to capitalism. Nor does he cite a source for his claim about the bottom 25% of the population being poorer than 25 years ago. I find that claim questionable on at least three fronts. First, the U.S. Census current population survey tracks thresholds for the bottom 20% of the population. The most recent year on record is 2008; if your household made $20,712 or less in 2008, you were in the bottom 20% of households. In inflation-adjusted 2008 dollars, the cutoff for the bottom 20% in 1983, 25 years earlier, was $18,386. By this measure, the bottom 20% are actually doing about 12% better than 25 years ago. If you look at the mean household income within the bottom quintile, it's increased to $11,656 from $10,382 in 1983, again an increase of about 12%. This "income" measure, I'm pretty sure, doesn't include non-cash subsidies like public housing, Medicaid, or food stamps. The second level on which the claim is questionable is that with the same amount of money, that bottom 25% can afford more advanced goods and services than they could 25 years ago; things like color television, powerful home computers, microwave ovens, cellular phones. The third level on which the claim is questionable is that the bottom 25% 25 years ago and now are two different groups. Some of those in the bottom 25% may be young people just starting out in the workforce, or immigrants recently arrived here, or elderly persons retired from the workforce. People move in and out of income quintiles all the time, and to really get a sense of how people are doing, you need to look at individuals or households longitudinally, and even over two or three generations. Someone may have been poor 25 years ago and poor now but in the intervening period they may have won the lottery, built a big house, put their kids through college and medical school, and lost another fortune gambling in Las Vegas. Is this just "wrong," as Mr. Immelt insists? Or is it just the natural working of an economy in which individuals have the freedom to make choices?