Olivia: Jackson, if I say "General Electric," what's the first thing that pops into your head? Jackson: A lightbulb, my grandma's refrigerator, and the vague sense that it used to be a big deal. Like, the corporate equivalent of a dinosaur fossil—impressive, but definitely extinct. Olivia: That's perfect. Because today we're digging up that fossil. We're diving into William D. Cohan's epic book, Power Failure: The Rise and Fall of General Electric. Jackson: Epic is the right word. It's a doorstopper, right? Widely acclaimed, but I heard it's dense. Olivia: It is, but Cohan is a master financial journalist, and he got incredible access, including a fascinating, very candid interview with Jack Welch just before he died. The book really punctures the mythology around this American icon. Jackson: A mythology that starts with one of the most famous names in history, I assume? Thomas Edison. Olivia: That's what everyone thinks. And that's the first myth we need to bust. The book argues the real architect of GE, the man who built the empire, wasn't the famous inventor at all.

Jackson: Wait, hold on. Are you telling me Edison didn't found General Electric? That feels like finding out that Colonel Sanders was just a guy who liked chicken. Olivia: It's more complicated than that, but essentially, yes. Edison was the genius inventor, no doubt. He created the incandescent lamp, the phonograph, the whole system of electricity distribution from his Pearl Street station in Manhattan. His company was Edison General Electric. But the book makes it clear he was an inventor first, a businessman a distant second. He famously said he couldn't waste his time on "electric-lighting matters, for they are old." He wanted to move on to the next invention. Jackson: So he had the world-changing idea but got bored with the follow-through. I can relate to that. Who was the other guy then? Olivia: A man you've likely never heard of: Charles Albert Coffin. And his story is fascinating. He wasn't an engineer or an inventor. He was a shoe salesman from Lynn, Massachusetts. Jackson: A shoe salesman? How does a shoe salesman end up building one of the biggest industrial companies in the world? Olivia: With pure, unadulterated business genius. In the late 1800s, Coffin was running a successful shoe company. But he saw the future was in electricity. He invested in a small, struggling company called American Electric, run by two inventors, Thomson and Houston. Coffin took over, renamed it Thomson-Houston, and moved it to Lynn. He didn't just sell their products; he created the market for them. Jackson: What do you mean he created the market? Olivia: In the 1880s, towns didn't have electrical grids. So Coffin’s company would go into a town and help set up the local power plant. But many of these small utility companies were constantly running out of money. This is where Coffin’s brilliance comes in. He pioneered a strategy called vendor financing. Jackson: Okay, you have to break that down for me. Vendor financing? Olivia: It's simple but revolutionary. When a local power company couldn't pay for Thomson-Houston's generators, Coffin would say, "No problem. Pay us in stock and bonds from your utility." So, Thomson-Houston wasn't just a manufacturer; it became a holding company, owning pieces of electric companies all over the country. It was an incredibly aggressive growth strategy. Jackson: Whoa. So instead of just getting cash, they were getting a piece of the entire electrical grid as it was being built. That's a power move. Olivia: Exactly. Meanwhile, Edison’s company was more traditional. It was bigger, had more capital from guys like J.P. Morgan, but it was less profitable and less efficient than Coffin's operation. By 1891, Thomson-Houston was making more profit on less revenue than Edison General Electric. Jackson: So the shoe salesman was outmaneuvering the genius inventor backed by Wall Street. Olivia: Precisely. And eventually, the financial pressures of competing got to be too much. J.P. Morgan and the other bankers forced a merger between Edison's company and Coffin's Thomson-Houston. The new company, formed in 1892, was called General Electric. Jackson: And let me guess, Edison was thrilled. Olivia: He was furious. He felt he was losing control of his creation. He famously said, "if you make the coalition, my usefulness as an inventor is gone." But the deal went through, and the person named president of the new General Electric wasn't the world-famous Thomas Edison. It was the shoe salesman, Charles Coffin. Jackson: That is incredible. So right from its birth, GE had this split personality. On one hand, the Edison legacy of world-changing innovation. On the other, the Coffin legacy of ruthless, financially-driven business strategy. Olivia: You've nailed it. And that dual DNA, that tension between making great things and making great numbers, is the thread that runs through GE's entire 130-year history. It set the stage for everything that came after, especially for the man who would take that Coffin-style aggression and turn it into a global religion.

Jackson: And that man has to be Jack Welch. Even I know that name. "Manager of the Century," right? Olivia: The one and only. But the book paints a much more complicated picture. Before Welch, GE had a culture of what some called "superficial congeniality." It was a good, stable place to work. But in the 1950s, under a CEO named Ralph Cordiner, the company was massively decentralized. This put immense pressure on division managers to hit their numbers. Jackson: And when people are under pressure... Olivia: They sometimes cheat. GE got hit with a massive price-fixing scandal in its heavy equipment division. Executives were literally meeting in secret, using code names, and colluding with competitors like Westinghouse to fix prices. One veteran even told the author, "Sure, collusion was illegal, but it wasn’t unethical." It was just what you did to survive. Jackson: That's a wild justification. So this pressure-cooker culture existed even before Welch? Olivia: It did, but Welch perfected it. He took over as CEO in 1981 and immediately declared war on mediocrity. He famously instituted the "rank and yank" system. Every year, managers had to rank their employees, and the bottom 10% were fired. Jackson: Every single year? That's brutal. No wonder they called him "Neutron Jack"—he got rid of the people but left the buildings standing. Olivia: It was ruthless. But it was part of his mantra: be number one or number two in every business you're in, or fix, sell, or close it. He sold off hundreds of businesses, including GE's historic air-conditioning and housewares divisions. But he also invested heavily in areas where GE could dominate. Jackson: And this is where the story gets really interesting, right? With GE Capital. Olivia: This was Welch's masterstroke. GE Credit, as it was then known, was started during the Great Depression to help people finance their GE refrigerator purchases. It was a sleepy, utilitarian part of the company. Welch saw it differently. He saw a financial powerhouse in disguise. Jackson: How so? What was the secret? Olivia: GE had a AAA credit rating, the best in the world. That meant it could borrow money at incredibly low interest rates. Welch realized GE Capital could borrow billions cheaply and then lend it out at much higher rates to finance everything from commercial real estate to leveraged buyouts. It was basically an unregulated bank operating inside an industrial company. Jackson: So it's like having a credit card with a 1% interest rate and then using it to give out personal loans at 15%. Olivia: A perfect analogy. And it became a money-printing machine. By the end of Welch's tenure, GE Capital was responsible for over half of GE's total profits. It was the engine that drove GE's stock price into the stratosphere and made Welch a corporate god. Wall Street loved him because GE never missed its quarterly earnings estimates. Never. Jackson: That sounds... suspicious. How does a company that makes everything from jet engines to lightbulbs hit its numbers so perfectly every single quarter? Olivia: That's the dark side of the paradox. The book strongly suggests that GE Capital became a tool for "earnings management." If the industrial businesses had a bad quarter, GE Capital could sell off some assets—a fleet of jets, a real estate portfolio—to generate a gain and plug the hole. It gave GE this incredible, almost magical ability to smooth its earnings and always deliver what Wall Street wanted to see. Jackson: So the "Manager of the Century" was also the master of financial engineering. The company was famous for its Six Sigma quality initiatives, aiming for near-perfect products, but its most important product was a perfect earnings-per-share number. Olivia: Exactly. Welch built an empire. He made GE the most valuable company in the world. But he built it on the edge of chaos, with a culture of intense pressure and a reliance on a financial black box that few people, even inside GE, truly understood. And that set up a massive problem for whoever came next.

Jackson: Which brings us back to that incredible opening scene in the book. Welch, on a golf course in Nantucket, admitting to the author, "I fucked up." He's talking about his successor, right? Olivia: He is. He's talking about Jeff Immelt. The process of choosing a successor was this epic, multi-year corporate drama. Welch hated the way his own succession was handled, so he designed a new process. He identified three finalists: Bob Nardelli, Jim McNerney, and Jeff Immelt. Jackson: A corporate bake-off. Olivia: A very high-stakes one. He told all three of them upfront: "One of you will get the job. The other two will have to leave GE." For years, they ran their respective divisions, knowing they were in a horse race for the top job. The board would meet with them, they'd play golf together, they were constantly being evaluated. Jackson: That sounds unbelievably stressful. Why would the other two have to leave? Olivia: Welch believed the company couldn't have a disappointed runner-up hanging around. It would create factions and undermine the new CEO. It was part of his all-or-nothing philosophy. Jackson: So why did he choose Immelt? What did he see in him? Olivia: The book suggests Welch saw a bit of himself in Immelt—a great salesman, charismatic, optimistic. Nardelli was seen as a brilliant operator but perhaps too rough around theedges. McNerney was the polished, safe choice. Immelt seemed like the one who could carry the torch. Welch famously told the board, "I love all my children, but I love Jeff a little bit more." Jackson: And yet, years later, he's full of regret. What went wrong? Olivia: Immelt inherited a company that was, in many ways, a mirage. Its stock price was based on the magic of GE Capital and the belief in Jack Welch. But then two things happened: 9/11, which hit GE's aviation and insurance businesses hard, and the 2008 financial crisis. Jackson: Ah. And the unregulated bank inside the company was suddenly very, very vulnerable. Olivia: Catastrophically so. GE Capital was so over-leveraged and exposed that it nearly brought the entire company down. The U.S. government had to step in with a massive bailout. The magic was gone. The black box was opened, and what was inside was terrifying. Immelt spent his entire tenure trying to dismantle the empire Welch had built, selling off GE Capital piece by piece, trying to return GE to its industrial roots. Jackson: But it was too late. The stock price collapsed, the dividend was cut, and the icon crumbled. Olivia: It did. And Welch, watching from the sidelines, blamed Immelt for mismanaging the company and destroying his legacy. He couldn't, or wouldn't, see that the seeds of the destruction were planted during his own celebrated reign. The obsession with hitting the numbers, the reliance on financial alchemy, the culture of "success theater" where bad news was buried—Immelt didn't create those problems; he inherited them. Jackson: Wow. So Welch's regret wasn't just about picking the wrong guy. It was maybe a subconscious regret about the very system he created. Olivia: That's the tragic heart of the book. Welch built a system that was so dependent on his own personality and on a booming, pre-crisis economy that it was almost impossible for anyone else to manage. He built a throne so complex and precarious that any successor was destined to fall.

Jackson: It's an incredible story. So when you step back from all the personalities and the deals, what's the big takeaway from Power Failure? Who, or what, really lost GE? Olivia: I think Cohan's book suggests it's not about one person. It's a profoundly American cautionary tale. It’s about what happens when a company, and by extension a culture, starts to value the appearance of success more than the substance of it. Jackson: You mean valuing the stock price more than the quality of the jet engine. Olivia: Exactly. It’s about the cult of the celebrity CEO, where one person is given almost god-like status, and the board of directors becomes a collection of fans rather than a check on power. It’s about the danger of financialization, when an industrial giant forgets how to make things and instead learns how to make money from money. Jackson: It feels like GE's story is a mirror for the broader American economy over the last 40 years. Olivia: It absolutely is. The rise of shareholder value as the only metric that matters, the hollowing out of the industrial core in favor of financial services, the belief that you can manage earnings and engineer your way to perpetual growth. GE's fall wasn't a sudden event; the book shows it was the slow, inevitable unraveling of a flawed corporate mythology. Jackson: That's a heavy thought. It leaves you wondering: how many other 'great' companies today are running on a similar mythology, just waiting for their own moment of truth? Olivia: A very unsettling question. And we'd love to hear what you think. Is the GE story a one-off, a relic of a bygone era? Or is it a warning sign for today's corporate giants? Let us know your thoughts on our socials. We're always curious to hear your take. Jackson: Definitely. This was a fascinating, and frankly, a sobering look at an American icon. Olivia: This is Aibrary, signing off.