Sometimes we look back a decade or so and reconsider our word choice. For instance, I used to call General Electric — with its heavy lobbying, its intimate ties to the White House, all its bets on green energy, on embryonic stem cells, on Obamacare, on industrial policy — the “for-profit arm of the Obama administration.”
Those words were ill-chosen. Specifically, in describing GE, it was a mistake to use the word “profit.”
No company has spent as much on U.S. lobbying since 2000 as General Electric. And no component of the Dow Jones Industrial Average has performed worse since 2000 than General Electric.
The company’s stock is tanking. Its profit margins range from sclerotic to negative. Its recent big bets on Europe and green energy are proving to be duds. GE has already sold off its appliance business and is trying to find a buyer for its light bulb business.
That’s not enough, according to some major investors, one of whom has called for a full breakup of GE.
It’s a sad state for a company that has represented industrial strength for more than a century. It’s also a telling epigraph for Obamanomics.
GE CEO Jeff Immelt kicked off the start of former President Barack Obama's administration with a letter prophesying a golden era of American industrial planning, ushered in by the bailouts and a new president who promised a “remaking” of America.
In a letter praising the Federal Reserve, the Federal Deposit Insurance Corporation, the Treasury, “and global governments,” plus “stimulus programs being implemented around the world [that] will provide trillions in new investments,” Immelt foresaw that the “global economy, and capitalism, will be 'reset' in several important ways.” Specifically, “In a reset economy, the government will be a regulator; and also an industry policy champion, a financier, and a key partner.”
The letter bragged, “We have gained access to government funding programs that put us on equal footing with banks,” and described GE as “ a natural partner” with federal agencies, “as the role of government increases in the current crisis.” GE is “a particularly desirable partner for governments,” Immelt assured shareholders.
Whenever the Obama administration introduced a major policy initiative, GE was there hopping on board, looking to be the government’s partner.
When Obama created a “Jobs Council,” his jobs czar was Immelt.
When Obama in Spring 2009 announced big money for “Building a new system of high-speed rail in America,” GE hopped on board the train. “We are ready to partner with the federal government and Amtrak to make high-speed rail a reality,” GE declared at an event in May 2009. GE’s top rail lobbyist was Linda Daschle, wife of Obama mentor and former Senate Democratic Leader Tom Daschle of South Dakota.
In July 2009, Obama opened the spigots of federal funding for research on embryonic stem cells. That same week, GE had announced that GE Healthcare and embryonic stem-cell giant Geron "have entered into a global exclusive license and alliance agreement to develop and commercialize cellular assay products derived from human embryonic stem cells (hESCs) for use in drug discovery, development and toxicity screening."
Two months later, Obama announced a concession to Russia: He would scrap U.S. plans to build a missile shield in Eastern Europe. Reuters reported, "Shortly after the pullback on the shield programme was announced, Russia's government said Prime Minister Vladimir Putin would meet several U.S. executives on Friday from firms including General Electric.”
Obama had campaigned on outlawing the incandescent light bulb, and he implemented regulations that effectively did that (under a law signed by former President George W. Bush). GE had lobbied for that law, supported Obama’s implementation of it, and expected to profit by forcing consumers to buy high-tech, higher-margin bulbs.
GE lobbied for and was expected to profit from Obama’s green-energy subsidies and regulations, which would enrich the conglomerate's many renewable products, including wind turbines. Obama was a tireless champion of export subsidies, of which GE was a top recipient.
Heck, in 2013, GE actually became officially “Too Big to Fail,” designated by the Financial Stability Oversight Council as TBTF. “Material financial distress at GECC could pose a threat to U.S. financial stability,” FSOC determined.
And yet, here we are. GE opened at $29.37 a share on Election Day, when the Dow was at 18,332.43. On Tuesday Jan. 23, GE closed at $16.30 (down about 45 percent), whereas the Dow closed at 26,210.81, up about 42 percent. The new CEO, John Flannery, has said he’s open to a breakup.
There are countless explanations for GE’s collapse, but here’s one: GE spent a decade chasing the shiniest new winner picked by government, instead of looking for lasting value as dictated by the market. Government can provide billions in stimulus and maybe even some regulatory protection from your competition, but it can’t create wealth or provide lasting value.
For all the hopeful talk of a post-bailout reset of capitalism in favor of the politically connected, it turns out that basic economics trumped Obamanomics after all.