In The Man Who Broke Capitalism, David Gelles uses Welch-era General Electric to illustrate the consequences of severing corporate freedom from institutional discipline: short-term dynamism fueled by financial engineering ultimately hollowed out productive capacity, labor competence, and innovation. This trajectory stands in sharp contrast to German ordoliberalism, which holds that markets remain genuinely free and innovative only when the state actively enforces a competitive order—disciplining finance, constraining monopoly power, embedding firms in stable labor institutions, and protecting long investment horizons. In an ordoliberal counterfactual, GE would have been steered away from shareholder primacy, conglomerate sprawl, and shadow banking toward engineering depth, skill formation, and export competitiveness. China’s industrial rise, though far more statist, converges on the same core insight: capital and firms must be institutionally directed toward long-term productive rivalry rather than short-term extraction.
Seen through this lens, the China–U.S. technology rivalry is not fundamentally a contest between “state” and “market,” but between coherent institutional orders and permissive ones. China’s willingness to sustain decade-long investments in semiconductors, green energy, and advanced manufacturing—while curbing monopolies and systemic financial risk—has generated durable technological capacity. The United States, by contrast, continues to tolerate financialized corporate giants, fragile labor regimes, and crisis-driven intervention, echoing the Welch-era pattern of freedom without order. The strategic question, therefore, is whether the U.S. can reconstruct institutions that discipline private power and align competition with long-term innovation, or whether it will persist in mistaking market freedom for the absence of rules.
From Industrial Champion to Financialized Model: Jack Welch and the Remaking of American Corporate Capitalism
When Jack Welch assumed the leadership of General Electric in 1981, GE stood as a globally respected industrial powerhouse, grounded in engineering excellence, manufacturing depth, and long-term investment. Despite its profitability and technological stature, Welch judged the company primarily by its stock price and concluded that GE was underperforming. He therefore redefined the corporation’s core purpose as the delivery of steady, above-average returns to shareholders, embracing the emerging doctrine of shareholder value maximization. This shift marked a decisive departure from the postwar corporate model, which had treated large firms as institutions balancing profit, reinvestment, employment stability, and national industrial leadership.
Welch reconceptualized GE not as an integrated industrial enterprise, but as a portfolio of assets to be continuously evaluated, bought, sold, or dismantled in service of financial performance. Businesses that failed to meet stringent earnings targets were divested or closed, regardless of their technological or strategic importance. In doing so, Welch replaced a long-term industrial logic with a market-driven logic of constant restructuring, privileging short-term financial metrics over cumulative productive capability.
To sustain relentless earnings growth, Welch implemented aggressive cost-cutting strategies centered on downsizing, outsourcing, and offshoring. Factories were shuttered, unionized jobs were eliminated or relocated abroad, and internal competencies were displaced by external contractors. Rather than reinvesting in U.S. manufacturing or deepening research and development, management focused on labor arbitrage and margin improvement. Practices such as “rank and yank” institutionalized insecurity within the workforce, undermining trust and eroding the firm’s commitment to skill formation and long-term innovation.
The most consequential transformation, however, was the rise of GE Capital. Originally designed to support industrial sales, it evolved into a vast, lightly regulated financial arm that generated the majority of GE’s profits. Financial engineering—leveraging balance sheets, smoothing earnings, exploiting accounting flexibility, and expanding into speculative lending—proved more reliable for meeting quarterly targets than producing superior industrial goods. As dividends and share buybacks absorbed increasing shares of corporate cash, investment in productive capacity and research steadily declined, leaving GE’s industrial core dangerously hollowed out.
Welch’s legacy extended far beyond GE itself. Through the firm’s prestige, its executive training programs, and Welch’s own celebrity, his methods became a template for corporate America. Stock price appreciation replaced productive excellence as the primary measure of success, layoffs were recast as evidence of managerial discipline, and executives were rewarded for financial outcomes largely detached from social or industrial consequences. This model—often termed “Welchism”—accelerated financialization, deepened deindustrialization, widened inequality, and left many U.S. corporations more profitable in appearance but more fragile in substance. GE’s eventual unraveling exposed the long-term costs of this transformation, even as its logic continues to shape American corporate governance and conceptions of economic leadership.
Reorienting Profit: From Financial Engineering to Productive Power
A useful way to assess alternative profit strategies is to imagine General Electric operating within a German ordoliberal institutional framework. In such a setting, profit would not be pursued through financial manipulation or short-term balance-sheet optimization, but through sustained improvements in productive capacity. Institutional discipline would structurally limit practices such as stock buybacks, earnings smoothing, and financial arbitrage, redirecting corporate strategy toward innovation, engineering depth, and long-term competitiveness in global markets.
Under ordoliberal rules, GE’s expansion into banking-like activities would have faced strict regulatory and competitive constraints. A financial arm like GE Capital would be tightly circumscribed, preventing it from eclipsing the firm’s industrial core. Capital allocation would instead be guided toward manufacturing capability, workforce skill formation, and export-oriented industrial performance, reinforcing a profit model rooted in production rather than speculation.
This counterfactual stands in sharp contrast to Welch-era GE, which operated within permissive U.S. institutions that tolerated—and often rewarded—financialization. Jack Welch exploited regulatory gaps and shareholder-centric governance to transform GE into a conglomerate increasingly dependent on financial engineering. Short-term shareholder returns became substitutes for long-term productive investment, leaving apparent profitability disconnected from underlying industrial strength.
The implications extend beyond GE to the contemporary China–U.S. technology competition. The United States continues to tolerate highly financialized technology firms whose market valuations far exceed their contribution to durable productive capacity. Capital is routinely directed toward stock appreciation, mergers, and rent extraction rather than toward the accumulation of technological capability and industrial resilience.
China, by contrast, channels capital toward physical and technological production, even at the cost of short-term inefficiency. In semiconductors, state-guided investment in firms such as SMIC and YMTC prioritizes learning-by-doing, capacity buildup, and ecosystem development over immediate profitability. The broader lesson, consistent with ordoliberal insights, is that sustained competitiveness depends on disciplining capital toward production rather than speculation. Profit, in this framework, emerges not from financial engineering, but from the cumulative strengthening of productive power.
From Disposable Labor to Productive Capital: Institutions, Work, and Technological Power
A revealing contrast emerges when labor is treated not as a variable cost but as an institutional asset embedded within a firm’s long-term productive strategy. In a counterfactual ordoliberal setting, General Electric would have operated under political and legal constraints that sharply limited mass layoffs as a routine management tool. Co-determination and strong labor institutions would have compelled management to internalize the long-term costs of workforce disruption, aligning corporate strategy with employment stability and cumulative skill development.
Within such a framework, productivity gains would be pursued primarily through skill formation, apprenticeships, and incremental improvements in processes and engineering capability rather than through blunt cost-cutting. Workers would be understood as repositories of firm-specific knowledge and industrial memory, making labor continuity a prerequisite for sustained innovation. Employment stability would thus reinforce, rather than impede, competitive performance.
This vision stands in stark contrast to Welch-era GE, where layoffs were deliberately deployed to boost margins and signal managerial discipline to financial markets. Lifetime employment norms were dismantled, and human capital was treated as expendable rather than cumulative. The result was a weakening of organizational learning and a gradual erosion of the firm’s engineering depth, even as short-term financial metrics improved.
The same tension is visible in the contemporary China–U.S. technology competition. In the United States, rapid layoffs in technology and manufacturing sectors are routinely justified as efficiency-enhancing, yet they undermine organizational learning, disrupt innovation cycles, and hollow out industrial ecosystems. Labor flexibility, in this context, often translates into strategic fragility.
China, by contrast, is more willing to tolerate short-term inefficiency to preserve labor continuity in sectors deemed strategically vital. In electric vehicle and battery manufacturing, firms such as CATL and BYD retain large engineering and production teams through downturns, enabling rapid scaling when demand rebounds. The ordoliberal insight illuminated by this contrast is that stable labor institutions are not constraints on technological freedom, but its foundation: innovation flourishes when labor is treated as a durable asset rather than a disposable input.
Ordering Competition: Restraining Monopoly Power to Preserve Innovation
A central insight of ordoliberal thought is that competition does not arise spontaneously but must be actively maintained against the tendency of private actors to replace markets with private planning. In a counterfactual ordoliberal environment, General Electric’s expansion would have been constrained by aggressive antitrust enforcement designed to prevent excessive concentration. Conglomerate sprawl would be institutionally discouraged, and mergers and acquisitions would be permitted only where they demonstrably enhanced competitive pressure rather than entrenched dominance. Market positions deemed “too big to challenge” would be treated as failures of order, not as evidence of efficiency.
Such an institutional framework would have limited GE’s ability to subordinate entire sectors through scale and financial power. The purpose of competition policy would not be to punish success, but to preserve open rivalry as the engine of innovation. By constraining size and market control, ordoliberalism seeks to ensure that firms remain disciplined by competitors rather than insulated by political or financial leverage.
This logic stands in sharp contrast to Welch-era GE. Under Jack Welch, GE expanded aggressively through acquisitions, consolidating market power while presenting concentration as a source of efficiency and shareholder value. During this period, the U.S. state largely retreated from its role in maintaining competitive order, allowing private conglomerates to plan markets internally in ways that blunted rivalry and weakened long-term innovation.
The consequences of this permissive approach are increasingly visible in the contemporary U.S. technology sector, where monopolized or oligopolized markets are associated with slowing innovation and rising barriers to entry. Dominant firms exercise control over ecosystems, standards, and data in ways that resemble private economic planning rather than competitive markets.
China presents a paradoxical but instructive contrast. While it tolerates the existence of very large firms, it intervenes forcefully when private dominance threatens state authority or the pace of innovation. Regulatory crackdowns on platform companies such as Alibaba and Tencent, though illiberal in form, echo the ordoliberal insistence that markets require active order maintenance. The broader lesson is that without credible competition policy, market power hardens into private governance, undermining the very dynamism that competition is meant to produce.
Time Horizon and Institutionalized Long-Termism: Protecting Innovation from Short-Term Pressures
A critical determinant of corporate and technological success is the institutionalization of a long-term perspective. In a counterfactual ordoliberal framework, General Electric would have subordinated the pressure for predictable quarterly earnings to extended investment cycles. Corporate priorities would emphasize research and development, process engineering, and quality leadership, recognizing that durable innovation cannot be compressed into a three-month reporting period. Failures to innovate would be exposed by competitive pressures rather than masked through accounting techniques or financial engineering.
This approach stands in sharp contrast to Welch-era GE, where quarterly financial performance became the overriding metric of success. Under Jack Welch, predictable earnings and stock price targets were prioritized above technological progress, hollowing out the company’s innovation pipeline. Investment in R&D, capacity expansion, and engineering talent was consistently sacrificed to meet short-term market expectations, leaving the firm financially strong but industrially weakened.
The contrast between institutionalized long-termism and financialized short-termism has clear implications in the contemporary China–U.S. technology competition. China’s strategic advantage lies in its willingness and institutional capacity to sustain decade-long bets in capital-intensive industries. Firms and state-backed consortia maintain investments in sectors such as semiconductors, renewable energy, and advanced manufacturing, even when profitability is delayed, ensuring that technological and productive capacity accumulates over time.
For example, China’s investments in green technologies—including solar panels and wind turbines—entail years of initial losses to capture dominant positions in global markets. The ordoliberal parallel is evident: genuine entrepreneurial freedom and competitive dynamism require institutional safeguards that protect long-term investments from the relentless pressures of quarterly performance. Without such institutions, firms may appear financially successful while systematically undermining the innovation and productive capabilities necessary for sustained competitiveness.
The State as Rule-Setter, Not Corporate Manager: Enabling Markets Through Institutions
A defining principle of ordoliberal thought is that the state’s role is to establish the rules of economic engagement rather than to manage individual firms. In a counterfactual ordoliberal setting, General Electric would not have been run by the government, but the state would have clearly defined the institutional boundaries within which management operated. These rules would include the enforcement of competition law, financial discipline, labor protections, and monetary stability. Within this framework, managerial discretion would remain significant, but it would be exercised under predictable constraints that align private incentives with the public interest.
This approach sharply contrasts with Welch-era GE. Jack Welch exploited a U.S. institutional environment in which the state largely withdrew from actively maintaining competitive order. In the absence of robust regulatory oversight, private corporate power effectively substituted for public rules. Market competition was hollowed out, labor protections were weakened, and financial innovation often escaped meaningful oversight, creating conditions in which managerial decisions could maximize short-term shareholder value at the expense of long-term industrial health.
The implications extend to the contemporary China–U.S. technology competition. China operates far beyond the ordoliberal model in terms of state coordination, yet it shares the core belief that markets do not self-discipline. By contrast, the U.S. alternates between laissez-faire policies and crisis-driven interventions, lacking a coherent institutional framework to guide competition and investment. This incoherence undermines long-term industrial strategy and leaves technological leadership vulnerable to both financialized short-termism and foreign competition.
China’s industrial policy illustrates the ordoliberal insight that predictable rules matter more than ideological purity. In areas such as artificial intelligence, clear national priorities guide capital allocation, while firms remain in competition with each other for state support. This combination of strategic direction and regulated rivalry preserves incentives for innovation while preventing the consolidation of private power that can distort markets. The broader lesson is that a state does not need to manage firms directly to foster dynamic, resilient markets; it only needs to act as an impartial rule-setter, enforcing order that channels private activity toward long-term productive outcomes.
Corporate Purpose: Embeddedness versus Shareholder Primacy in Industrial Strategy
A central tension in modern capitalism lies between treating firms as socially embedded institutions and treating them primarily as instruments of shareholder value. In a counterfactual ordoliberal framework, General Electric would have been understood as a socially integrated enterprise whose legitimacy depended on contributing to competitive order, technological progress, and social stability. Corporate purpose would extend beyond short-term financial returns to encompass the firm’s role in sustaining industrial capacity, workforce development, and national economic resilience.
This vision sharply contrasts with Welch-era GE, where shareholder primacy was elevated to a moral imperative. Under Jack Welch, corporate decisions were judged almost exclusively by their impact on stock price, often at the expense of long-term industrial strength, employee welfare, and community engagement. GE’s embeddedness in its home country’s economic and social fabric was systematically weakened, and the pursuit of short-term valuation replaced broader notions of legitimacy and responsibility.
The contrast is mirrored in the contemporary China–U.S. technology competition. Chinese firms, while sometimes coerced by state mandates, operate within national development goals that embed them in broader strategic priorities. This embeddedness enables coordination across R&D, production, and supply chains, fostering scale, resilience, and sustained technological progress. By contrast, U.S. firms often lack comparable institutional integration, leaving them highly flexible but strategically fragmented and prone to financialized short-termism.
A case in point is China’s consumer drone industry. Companies such as DJI integrated research, manufacturing, and domestic supply chains to achieve global dominance. Their success illustrates the ordoliberal insight that firms anchored in stable, socially and economically embedded institutions are more capable of sustaining long-term innovation than financialized entities divorced from productive contexts. The broader lesson is that corporate purpose, when oriented toward embeddedness rather than purely shareholder returns, strengthens both industrial performance and strategic resilience.
Systemic Risk and “Too Big to Fail”: Institutionalizing Financial Discipline
A core ordoliberal principle is that systemic risk is not an acceptable byproduct of market activity but a violation of the competitive order that must be prevented. In a counterfactual ordoliberal setting, financial operations akin to GE Capital’s shadow-banking empire would have been curtailed early through regulation and oversight. Leverage, opaque accounting, and speculative expansion would have been constrained to protect the integrity of markets, ensuring that private profits did not generate public losses.
This approach contrasts sharply with Welch-era GE, where financial excesses accumulated unchecked. GE Capital grew into a vast, lightly regulated financial conglomerate whose profits were privatized while losses were ultimately socialized. The U.S. state largely tolerated risk until crises made intervention unavoidable, creating moral hazard and undermining public trust in markets. Financial success was rewarded, but systemic instability went unaddressed until it threatened the broader economy.
The contrast is instructive in the contemporary China–U.S. technological and financial landscape. China frequently intervenes preemptively to contain systemic risk, even at the cost of short-term growth. By acting early, the state preserves financial and industrial stability, preventing localized risks from cascading into economy-wide crises. This proactive approach reflects the ordoliberal insight that markets require rules and discipline to remain viable over the long term.
A clear example is China’s fintech sector, where the state acted decisively to prevent Ant Group from creating potential systemic financial instability. While China’s interventions are more coercive than ordoliberal prescriptions, the underlying logic aligns: freedom of enterprise collapses when disorder becomes systemic. The broader lesson is that without institutions capable of preventing “too big to fail” scenarios, financial innovation can destabilize the very markets it depends upon, undermining both economic resilience and public trust.
Summary & Implications
Welch-era General Electric exemplifies the dangers of freedom without order: short-term financial dynamism came at the expense of long-term industrial capacity, labor development, and innovation. By contrast, ordoliberal thought emphasizes that genuine market freedom requires robust institutional discipline, aligning competition, stability, and technological advancement. China’s system, while far more statist than ordoliberalism, converges on the same core insight: markets must be guided by institutions that channel capital, labor, and firms toward durable productive and technological outcomes rather than transient financial extraction.
In the context of the China–U.S. technology competition, the decisive question is not a binary choice between “more state” or “more market,” but whether institutional frameworks can enforce long-term productive rivalry. The future of innovation—and of economic resilience—depends on the ability to structure markets so that private initiative serves enduring industrial and technological goals rather than ephemeral financial gains.
References
- The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America―and How to Undo His Legacy. David Gelles. 2022