On October 24, 2008, Columbia Business School presented Mr. Immelt with the 2008 Botwinick Prize in Business Ethics. This interview includes, among other remarks, some highlights from Mr. Immelt's address on that occasion.
Editor: Why do you feel that GE can make a significant contribution to economic recovery?
Immelt: We are a strong company that contributes in major ways to the U.S. and world economies. We have more than 300,000 employees. Those are good jobs all over the world and in the United States. We're one of the top five hiring companies in the U.S. We are one of five AAA-rated companies in the world.
I get great personal satisfaction from leading a strong, vibrant company with a great motivated team, striving for safety and protection of the future. GE is part of the global economy. Because the current economic problems do not affect only us, our problems are multiplied many times because the markets for U.S. products dry up when there is a global recession.
Editor: President Obama has indicated that any stimulus should advance important national goals. What do you feel are the most important issues facing this country and the world?
Immelt: The three issues that I would like to see get the most attention are energy, healthcare, and education. I travel the world extensively. I've been to more than a hundred countries in my GE career and there are four pillars of every competitive society that I see. It's education, it's healthcare, it's energy, and it's financial systems that promote growth. The greatest emphasis is currently being placed on the financial system - and rightly so. But, achieving constructive change in the future will also require a renewed focus on technology and innovation. These can really make a difference in energy, healthcare and education.
Editor: Do you see a greater need for more of our intellectual resources to be shifted to technology and innovation in the future with less of those resources focused on finance?
Immelt: From about 1980 until about 2007 financial service earnings went from 10 percent of the S&P 500 to about 45 percent of the S&P 500. This was part of a central premise that big, developed world economies, like those of the U.S., the U.K. and Japan, didn't need to be industrial powers; they could be service economies. And you know what? Maybe that's just wrong. Maybe what we're learning today is that that just didn't work. It just wasn't sustainable. Maybe it's just not right that somebody in New York City can make $20 million a year bundling mortgage loans and a PhD in Schenectady, New York, makes 250,000 bucks a year. Twenty million dollars on one side, $250,000 on another. And maybe that's just going to change.
The lesson the financial crisis may be teaching is that big developed economies like the U.K., Japan, and the United States may not be able to be these big service economies and therefore may have to go back (or have to go forward) to being technology-, industrial-, production-, manufacturing-based economies. The amount we've spent in the U.S., U.K. and Western Europe (Japan's better) on industrial R&D as a percentage of sales has dropped every year for the last 25 years. That has to change.
These economies are going to have to invest more in research and development. They're going to have to be more technically based. The service economies will still be strong, but it may be that the path we were on as an economy just wasn't sustainable and has to be replaced with a rededication to innovation, technology and productivity. And, in so doing, we will get through this crisis to a more sustainable, more protected, more valuable place than where we went into it.
Editor: Do you see a greater role for government?
Immelt: The first thing we're going to get is more regulation. Business needs to work with government to make sure that that regulation is forward looking and led by domain experts who are also accountable.Think about financial services. If we ended up after this crisis with fewer regulators but more powerful, maybe one single regulator that was filled with real industry experts, real domain experts, that were accountable for performance, this could be a catalyst for positive change. Regulation doesn't have to be a negative. If we think the only place we're going to get more regulation is in financial services, we're nuts. We are in the midst of a dramatic change, not just in the U.S. but globally, which will lead to more regulation in healthcare, in energy, and in many other areas. So, as a CEO, I'd say to business leaders that one of our most important jobs in the next months is to make sure we have a regulatory structure that is industry-focused, led by domain experts that are accountable for positive change. This is the most constructive thing that can happen - and business needs to be a part of it.
Editor: How can we assure a clean energy future?
Immelt: This is an extremely solvable problem. Most of the technology is on the shelf today.A pitiful amount has been spent on energy technology over the past 25 or 30 years. Even if the price of oil is considered low today at around $45 a barrel, maybe a third what it was two months ago, it's still much higher than it was over the previous 25 years. So the need to create a clean energy future is both a social imperative as well as an economic windfall for the people that figure out how to do it, and in my mind should be job one of the next administration because it's so highly solvable. It requires investment in renewable technology; it requires rejuvenation of core technologies like cleaner coal and nuclear power. It requires a build-out of the national grid. It requires the evolution of new technologies like battery, wind and solar. But I would say in the next 10 or 20 years countries like the United States and much of the developed world can really develop an energy infrastructure that is diverse, that is protected, that is economical, and can create lots of jobs while we're at it. So the first thing I would say in our new society, in our innovative society, has to be an incredible focus on energy because it's so solvable.
In October, GE announced that amidst global economic turbulence, revenues from its range of energy efficient and environmentally advantageous products and services will surge 21 percent to $17 billion in 2008, while GE's annual investment in cleaner research and development will pass $1.4 billion.
There is a green lining among the current economic storm clouds and GE customers and investors are benefiting. Cleaner innovation and technology resonate in the marketplace, while we slash our own energy and water costs and emissions, further strengthening GE's competitive position and the advantage GE offers to its customers. GE will help build tomorrow's smart energy grid, help drive electric vehicles out of the labs and onto the world's roadways, and work to build advanced, cleaner energy production in the U.S., India, China, and the Middle East at a mammoth scale. Nobody else can do this like GE can.
Editor: What about healthcare?
Immelt: Healthcare is not easy because it's not as easily solved - but we have to work on it anyhow. The dynamics of healthcare in this country, the bow wave of baby boomers, the sheer weight of what's coming through the system means that healthcare is going to be an important part of our GDP into the future, maybe as much as 15% or 20% of the U.S. GDP into the future. And lower cost healthcare can be made available by the application of information technology, by innovation in areas that we call early health, which is predicting disease, treating it more effectively, treating it sooner. And it's also about access, about making sure that people around the world from the developing nations to less advantaged areas of the United States have access to low-cost healthcare. And as we do those things, as we work on the technical innovation in those areas, we create jobs, we lower social costs and we build a more powerful society.
GE Healthcare is a $17 billion unit of General Electric Company. Worldwide, GE Healthcare employs more than 46,000 people committed to serving healthcare professionals and their patients in more than 100 countries.
GE Healthcare provides transformational medical technologies and services as well as professional consulting services that are shaping a new age of patient care. Our broad range of products, service and expertise in medical imaging and information technologies, medical diagnostics, patient monitoring systems, performance improvement, drug discovery, and biopharmaceutical manufacturing technologies is helping clinicians around the world re-imagine new ways to better diagnose, inform, monitor and treat cancer, heart disease, neurological diseases and other conditions earlier.
Editor: Where do we find talented individuals who are sufficiently well educated and innovative to find the right answers to the energy and healthcare challenges we face?
Immelt: Education, whether it's management education in the case of GE or whether it's companies working together with communities to build a better backbone of competitive students in areas like math and science, this is a social and economic imperative. The United States ranks number 25 in math, number 24 in science on a global basis. This is the core of the competitive world that we've got to continue to drive.
Editor: You have outlined aggressive policies for U.S. recovery, but, can the U.S. recover without being connected to the rest of the world?
Immelt: We cannot come out of the ashes here without progress in globalization. People are really afraid, not just in the U.S. but around the world, and when people are afraid they want to create barriers to trade. It's just a natural outgrowth of where we are today. And it would be a real crime, if we allowed the current economic distraction, the current economic volatility to make us move backwards in globalization. I think one of the things we've seen, at least in the financial markets, is how interrelated the global markets really are and how important they are. But the other thing I would say, particularly for the developed world in which we sit today, is that we are never going to be able to reframe this economy away from being purely a services industry or financial service economy unless we can take our products and sell them around the world. It is the only future for the U.S. It is the only future for Europe.
There's a dangerous tendency to resort to protectionism when things get tough. In 1929, American tariffs turned a domestic financial crisis into a global economic crisis that inflicted damage for years to come. And although we've learned a lot from that mistake over 80 years, you wouldn't know it today. If you put globalization to a vote in America, Europe - pretty much anywhere - the general public would probably vote it down.
Business and government leaders must reset the debate, re-establishing why interdependent economies and healthy competition are good for the world. At GE, we believe six principles should underpin this debate:
(1) A strong international trade system is fundamental. Such a system, overseen by the World Trade Organization (WTO), is vital to the global economy and to the employees of all companies operating globally.
(2) Continued economic liberalization enhances growth. Particularly at a time of global economic duress, market liberalization can play a role in stimulating growth, saving jobs and enhancing living standards. Comprehensive multilateral, regional and bilateral trade agreements have been critical to spurring such liberalization in the past and should continue to be pursued actively.
(3) Protectionism must be resisted. Trade and investment barriers deter foreign participation in domestic markets, add cost to what consumers buy, hamper innovation, limit growth, and ultimately reduce living standards at home and abroad.
(4) Global trade must be fair. All participants in the global economy must live by international trade rules: property rights (including intellectual property) should be protected; markets should be transparent; baseline international labor and environmental standards should be honored; technical standards should not be used to bar access; governments should refrain from trade-distorting subsidies; and WTO dispute-resolution decisions should be respected,
(5) Governments must pursue domestic policies that allow their citizens to thrive in the global economy. The solution to global competition is improved competitiveness, not isolation. Governments should strengthen the health and education of their citizens and build necessary trade-related infrastructure.
(6) Each of us must contribute. Developed and developing countries, governments and industry, shareholders and employees -we all share a responsibility to make meaningful contributions to protect and strengthen the international trading system.
So part of our vision has to be of a U.S. that reconnects with the world from a trade standpoint, from an economic standpoint, from a political standpoint because I think it's the only way we can reframe this economy that we care about.