Impact of 1980s Economic Changes

Sep 5, 2024

Lecture Notes: Modern American Working Life and Economic Changes Since 1980

Key Historical Shifts

  • 1980 as a Turning Point:
    • Rise of CEO pay, income inequality, wage stagnation, and union weakening.
    • Culprits include Ronald Reagan, outsourcing, globalization, and specific economic thinkers.

Influential Figures

  • Milton Friedman:
    • Economist from the University of Chicago.
    • Advocated for shareholder primacy, viewing corporate welfare as socialism.
    • His theories are now prevalent in modern boardrooms.
  • Jack Welch:
    • CEO of General Electric from 1981.
    • Implemented Friedman's theories aggressively, reshaping GE and influencing wider corporate practices.

Historical Context

  • Pre-1980 Corporate Culture:
    • Post-WWII era characterized by job security, rising wages, and companies investing in employees and R&D.
    • Notable companies like IBM and GE maintained high employee welfare.
    • Corporate culture encouraged supporting a strong middle class.

Changes Under Jack Welch

  • Strategies Implemented at GE:
    1. Layoffs: Reduced workforce significantly soon after becoming CEO.
    2. Outsourcing and Offshoring: Moved jobs to non-unionized and cheaper locations.
    3. Mergers and Acquisitions: Expanded GE's finance division, creating a conglomerate.
    4. Stock Buybacks: Utilized profits for buying back shares, boosting stock prices.
  • Outcomes:
    • Short-term stock price gains at the expense of long-term stability.
    • Led to GE's eventual decline post-Welch era.

Broader Impacts

  • Influence on Other Companies:
    • Welch’s proteges spread similar philosophies across various major corporations.
    • Contributed to widespread adoption of shareholder supremacy in corporate America.

Modern Implications

  • Economic Consequences:
    • Stagnant wages, high layoffs, and increased stock buybacks reflect Welch and Friedman's enduring impact.
    • Stock buybacks controversial; debated among economic experts.
  • Cultural Shift:
    • Shift from a focus on employee welfare to prioritizing shareholder returns.

Nuance and Discussion

  • Complexity of Economic History:
    • Historical factors and economic theories should be examined in detail for a nuanced understanding.
    • Encouraged to explore further readings and sources for in-depth analysis.