What A Stimulus Plan Should Be: Opinion of Jack Welch

Some of you might not know his name, but Jack Welch was the most successful president that General Electric has ever had.

Welch premised his take on how to do business from an even less well-known man outside of business circles, the man responible for creating the modern concepts and practices of business management, Peter Drucker.

When he took over GE as its CEO, Welch consulted with Peter Drucker whose advice he followed assiduously. Drucker took his inspiration from the idea that treating workers well created more productivity.

Jack Welch retired a few years ago, but I found this opinion piece and analysis of what a stimulus package should be in Business Week's site.

Business Week is the most pragmatic magazine I have ever read and they can be quite balanced when it comes to policy as well. Example: during the 2000 elections, Business Week editorialized that Gore's spending plans were too big and Bush's tax cuts were too deep.

Surprised that they would take such a position? I am not. That is exactly why I have the low opinion of both parties, and the lack of knowledge driving their hubris is only matched by capacity to blame the other side completely for situations that each side shares real responsibiliy for creating.

Not a popular position if you crave to be an approved member of a group instead of an advocate of the truth.

" For a Fast-Acting Stimulus Plan... …Washington needs to face three facts—about banks, pork, and revenge

By Jack and Suzy Welch

Is the economy beyond saving?—Srini Mahadan, Richmond, Va.

We don't blame you for asking. To say times feel tough doesn't cover it. They feel unprecedented, even for the one of us who managed through the recessions of 1973-75, '80-'82, and '90-'91. In each of those downturns, on any given February day, even as the ­economy sputtered, you could still predict your April sales to within a couple of percentage points. Today it's as if a blanket of fog has dropped over commerce; visibility is near zero. No wonder managers are in a frenzy of institutional preservation, doing ­everything to unload costs.

But is the economy beyond saving? Of course not. Too many smart, dedicated people are on the case. The real unknowns are how soon a recovery can start and how fast it will take hold once it does. And that lag time, we believe, hinges on policymakers facing up to three contentious but inexorable facts.

• First: Focusing on the details of the stimulus package before fixing the banking system is backwards.

Healthy banks are to economies as healthy hearts are to people: They keep them alive with the "lifeblood" of credit. Right now, however, the patient is in cardiac arrest—and policymakers are talking about how much to spend on his next pair of shoes.

TARP and other early initiatives appear to have stabilized the markets, but more needs to be done, as unpalatable as that may sound to bailout-weary Main Street. Housing prices continue to fall, and the government lacks an aggressive program to get foreclosures under control. It also needs to get toxic assets off banks' still-contaminated books. In 1989, Resolution Trust Corp.'s "good bank, bad bank" approach worked well, but the recent Citigroup (C) rescue suggests that government asset guarantees are also a potential option.

Our purpose, though, is not to dwell in the details. It's to make the point that policymakers will be wasting their political capital fighting over the stimulus if they don't invest their energies in saving the financial system first.

• Second: The stimulus package is turning into a big, opaque mess with questionable job-creation impact.

The stimulus package flew through the House last week, but that doesn't mean people trust it or think it's the best set of ideas our government can offer. Count us among those hoping that the Senate debate will move the bill toward transparency and good sense.

But that will only happen, we believe, if policymakers start treating the stimulus in terms of three distinct "buckets" of proposals. The first should contain all the plans intended to spur employment, with each expenditure linked to projections of how many jobs, and of what kind, will result. The second bucket should contain all the proposals designed to help those hurt by the economic collapse. And the third should contain all the measures that are in the stimulus plan because…well, because they're pork and partisan payback.

That third bucket is unfortunate, of course, but it's part of politics. It would be naive to deny its existence. But it would be worse still for policymakers to keep discussing the stimulus as if it was just one big mass of initiatives. The package will restore much-needed confidence and ultimately be more effective if its debate concerns what really matters, creating jobs and providing support to those who've lost them.

• Third and finally: Revenge may be tempting, but it's a losing strategy.

The list of people who could have prevented or mitigated this crisis is long, and news of the billions paid in bonuses to Merrill Lynch bankers has only exacerbated feelings that someone has to pay for capitalism-run-amok.

But policymakers need to accept that we are all investors now—we, meaning taxpayers—in the companies being helped by the government. Within limits, we must let these companies do what it takes to thrive in the global marketplace, even including, yes, paying for performance and courting customers with sales events. If we don't, we will all soon be investors—in carcasses.

We don't mean to minimize the challenge ahead; your question correctly suggests its magnitude. But guided by a shared understanding of the banking system's priority status, the real contents of the stimulus package, and the self-destructive cost of revenge, together we'll find a way out.

Jack and Suzy Welch look forward to your questions. You can e-mail them and view their new website at www.welchway.com For their podcast, go to www.businessweek.com/search/podcasting.htm."