Adjusting to a New Reality: U.S. Business and the Future of Globalization

The Chairman and Chief Executive Officer of General Electric (GE) Jeffrey R. Immelt joins CFR’s Edward Alden to discuss the future of globalization and U.S. trade policy. Immelt discusses his insights gained over fifteen years in serving as the CEO of GE into globalization, trade, and business competitiveness.

KEYNOTE SPEAKER

Jeffrey R. Immelt, Chairman and Chief Executive Officer, General Electric Company
PRESIDER

Edward Alden, Bernard L. Schwartz Senior Fellow, Council on Foreign Relations

This symposium, presented by the Maurice R. Greenberg Center for Geoeconomic Studies, is made possible through the generous support of the Bernard and Irene Schwartz Foundation.

ALDEN: Hello, everybody. I want to welcome you to this final session of our CFR symposium on the Future of U.S. Trade Policy. I think those of you who have managed to be here since the opening will agree it’s been a very rewarding day so far, a lot of lively conversation and, not surprisingly, contentious conversation, given the state of this issue.

So I’m delighted to be here for the final session to welcome Jeff Immelt, the chief executive of General Electric to the Council on Foreign Relations. Jeff has worked at GE since 1982 in several of the company’s major divisions and has been chief executive since 2001. And he’s been very active in public life as well—actually, where I’ve paid the most attention to him—including his work chairing the President’s Council on Jobs and Competitiveness, which we all appreciate your service. His fully bio is your material.

So I should just note at the outset that I’m slightly compromised as a moderator for this session. Many years ago my father, when he was a young engineer, worked at the GE research lab in Schenectady, New York, where I was born. He worked there for six or seven years, and then escaped to a job in academia. And I grew up with the story that, you know, working at GE was pretty onerous. You know, it was a tough corporate job, and he was really glad to get out to academia.

And then years later I had lunch with John Castellani, who at the time was the president of the Business Roundtable. Turns out John was at GE research lab at exactly the same time my dad was. And he said: Oh, you know, it’s the most idyllic job I ever had. (Laughter.) This lovely facility. The lawn running down on the river. As long as you did you research, you know, you could pretty much do what you want. So it shows that, like everything else in life, it all depends on your perspective. (Laughter.) So, welcome. It feels like a family kind of coming around for me.

So I want to start by asking you to follow up on the widely noticed convocation speech you gave at Stern School a few months ago, in which you warned that protectionist pressures were rising around the world, and at GE you had and would respond by pursuing localization strategies, manufacturing closer to its final markets to protect its interests. Tell us a bit more about the concerns that led to that speech, the kind of reaction you have had.

IMMELT: No, so thanks. And thanks, we always appreciate the thinking from the CFR. So it’s great to be with you today.

So maybe just one conceptual point. I owned GE in 1982. We were 80 percent inside the United States when I joined the company. I became CEO in 2001. We were 70 percent inside the United States. And in 2016, we’ll be 70 percent outside the United States. So 185 countries. We’re the second-biggest exporter. We’re a $20 billion exporter. So globalization in one generation is something that I’ve been with.

So I would say this notion towards protectionism didn’t just happen in this election with one candidate or another. I’ve seen it over the last decade-plus in how you do business in China, localization requirements in Brazil, more protectionism in Europe. So it’s not new. And one of the most difficult things when you’re running anything, but particularly a public company, is when does the world you were trained to believe in cease to become the world you see? And when that happens, what do you do about it?

So actually, this world where organizations like the WTO, trade deals, things like that were being frayed, we could see a decade ago. And in 2010, we basically made a decision to broadly localize the company. We sent a vice chairman to Hong Kong. We basically broadly decentralized decision making. We really set up the ability to facilitize around the world, to make—so we’re still a big exporter, but we set up the footprint that could do that, mainly because we could see localization requirements, more protectionism, we wanted—we thought localization was a competitive advantage. And that’s the framework that we’ve built today.

So the notion of the Stern speech was to say—was to try to be provocative in the world, to say, hey look, maybe these things aren’t—it’s too idyllic. Maybe there is a new reality. And here’s a path forward. The path forward is more local, more ingrained, and the ability to be flexible as people change around the world. It was meant to be provocative, but also to recast—I just think we’ve been able to harden our own perimeter, if you will, to be able to survive, almost no matter where the politics go.

ALDEN: Is that—is that more costly for you as a company, or are technologies changing in a way—you know, we all hear about 3-D printing—are technologies changing in a way that make localization strategies more viable than they maybe would have been 10 years ago?

IMMELT: It’s a great question. You know, so I would say a new factor for us today, regardless of where we are, has 500 people, right? It’s not 2,000. It’s not 10,000. It’s 500, because we can achieve the scale we need—you know, because ours are largely materials based, right? So you know, again, what your dad would have remembered is GE Appliance Park. You know, huge 20,000-person facilities. Those are a thing of the past. So we have quite a flexible supply chain.

You know, our markets—I was just in ASEAN region last week. You know, we’re $1 billion in Thailand. We’re $1 billion in Malaysia. We’re $1 billion in Singapore. We’re $2 billion in Indonesia. We’re $6 billion in the region. You know, even 10 years ago we would never have though that these regions were of the size and scope as they are today. So we’ve become, I would say, more substantive in the regions we’re in. We can play the advantage of a conglomerate because we can make and sell things in different ways, and we’re much more flexible.

ALDEN: Do you see competitors following suit? I mean, one of the—one of the data points that we mentioned today is the, you know, new figures out of the World Trade Organization that show trade growing much more slowly than economies worldwide. And this is not brand new. Kind of going back to 2010 we’ve seen, you know, after a curve that goes like that for many years it’s kind of like that now, a big slowing.

IMMELT: I don’t—I don’t see a lot of—you know, because it takes—it takes—it’s a strategy that favors a multi-business company. And it’s a strategy that favors a big company, right? So, you know, look, Boeing’s a great company. We love Boeing. Boeing’s our big customer, things like that. But they are largely an—you know, they’re largely here in the U.S. and exports, you know? What happens in Ex-Im, what happens in TPP, things like that, they have a different context with Boeing—they’re a great company—than they do at GE, just given where our footprint has become.

So it is hard to follow. You know, look, our global revenue, even in the world we live in today, continues to grow between 5 and 10 percent. I would say up until you had a raw materials crater a year or two ago, they were growing 10 to 15 percent. So just being on the ground gives you that access to markets that are harder to compare. I was saying earlier, you know, when I go see the president of Nigeria, we have an entirely Nigerian leadership team. So, or when you go see Modi—if I go see Modi, I have an entirely Indian leadership team. So if you’re going to see a prime minister or president of a country, and you say you want to grow in their country and you want to invest in their country, and you bring all Americans they know you’re lying, right? When you bring a local team they say, OK, you’ve done one of the most important parts. You’ve invested in the capability.

And I just think, Ted—I just think we’re in a—we’re just—you know, I’ve been doing this for almost 35 years. We’re just in a different day. It’s hard to get your brain wrapped around how much change is really going on—is really going on out there. And I would say, by and large, most people don’t really understand what a big factor China really is, what a big, disruptive factor China really is. It’s hard—look, if all you did every day is read The New York Times, The Wall Street Journal, watch CNBC, you know nothing about China. You can’t read one balanced contextual article if you’re largely an American today. You have to go there and see it and feel it. And that’s had a big disruptive impact on how all these flows work.

ALDEN: Well, let’s talk about that a little more. I want to turn a bit to the politics. We know that trade—as something we’ve been discussing today—trade is more contentious in the United States than I think anytime we’ve seen in our lifetime. You look at the debate on Monday night, the first 15 minutes about trade, never seen that before. I’ve never seen trade play so prominently.

So how do you explain that? I mean, do we—should we blame China and Mexico, like some candidates are doing? Or what is going on that explains this?

IMMELT: So I would say the first thing is I just think—let’s make broader points on competitiveness. I think business has a role to play because I don’t think as a community we invest enough in productivity and that we do enough in terms of job training, worker training, retraining. And so I think there maybe has been too much of a free hand. And business deserves some of the blame for the way our fellow citizens feel about what globalization has meant.

On the other hand, as you’ve mentioned, I chaired President Obama’s Council on Jobs and Competitiveness. We basically made recommendations in four buckets—invest more in infrastructure, invest more in training and education, simplify regulations, and focus on small business. We’ve done none of those—zero. So as a government, as a country, we’ve done none of the things that help create high-value jobs—zero. And business I don’t think has been always sensitive enough and accountable enough to understand that jobs matter. And so you say why do people feel the way they feel? Because the ambiance of what’s been created doesn’t feel right to them.

Now, 5 percent of the world’s population, 25 percent of the world’s economy in the U.S. We have much—you know, we have disproportionate risk/reward if we pull back on globalization—way disproportionate. This is absolutely the worst thing we could do. And if you’re a GE factory worker who’s exporting $20 billion, you have a lot to lose in terms of these trade deals or how you think about trade contextually. So it’s a complicated story. It’s hard to tell it simply. I think there’s blame to go around on jobs and competitiveness. I think—you know, my one message, I think—not to be too wonky—but, you know, a lot of people have jobs. They’re low paying jobs. Our productivity growth is zero. If you have a productivity growth of zero you’re going to create low-paying jobs.

When productivity was 3 or 4 percent again, you may not have a net huge increase of jobs, but they’re going to be higher paying jobs. So it’s just arithmetic. So when we—if our—if the—you know, the thing we want to fill is higher paying jobs without better productivity, without access to global markets you’re not going to be able to do it. So my main message is it’s a complicated story. There’s blame to go around on all sides. And now it’s just a combination of factors that it’s going to take to rebuild how we connect the U.S. with the rest of the world.

ALDEN: In the previous session, my colleague Heidi was talking to Congressman Sandy Levin about a similar thing. And I think Levin would acknowledge that there have been mistakes made here in the United States in terms of competitiveness, in terms of worker retraining. But he also argues that the trade rules maybe haven’t done what they should have done. You look at the experience with China. You know, have the trade rules been written in a way that—

IMMELT: We have 40 percent market share of health care in China. And we have 75 percent market share of jet engines. We have a 30 percent market share of gas turbines. You know, I travel the world, right? I’m a retail guy. So in other words, I don’t go, you know, to Davos or big events like that. I work the streets. I work retail. And I’ll go to India and people will say, well, Jeff, you know, we can’t break into government hospitals. Our market share is zero. But we’ve got a 30 percent share of private hospitals. And I say, well, how many people do we have calling government hospitals? They say, none. And I said, well, then how do you expect to get market share if you don’t try?

So I think sometimes we don’t try, right? Sometimes it’s easier to demonize somebody than it is to try. Straight fact: There’s no one factory in GE that’s not more competitive than its counterpart in China—not one. And we don’t win all the time, but we can compete with anybody in the world. And we’re beneficiaries of a great system here in the U.S. and things like that. So I just think we demonize those things we don’t know. Are the Chinese perfect? No. Do they play hard? Yes. But I just don’t think we know enough. We don’t try hard enough. We don’t play hard enough.

And I don’t see how as a—you know, I’m not a foreign policy expert—I don’t see—I don’t see how the two biggest economies in the world don’t have a bilateral relationship in the 21^st century. I think it’s unthinkable. I think the leaders of these two countries need to meet three or four times a year, because it’s just—it’s just the way the world—you know, China exists. It’s going to continue to exist. It’s going to continue to complete. You know, they have a strategy. Let’s understand it as an insider, not as an outsider.

ALDEN: It is at surprisingly low levels. And the regular meetings with the Chinese are all kind of, you know, mid-level officials who are—(inaudible)—not at the leadership level.

IMMELT: I just don’t think it’s—I think it’s—I think it’s one of the places where we’re employing an old playbook and need a—not to—again, this is hard. And it’s not a perfect relationship. But it deserves to be a more well-understood, bilateral relationship than what we have today.

ALDEN: I was pleased to know that one thing you and I have in common, neither of us has been to Davos, so. (Laughter.)

IMMELT: I’m not against it. I’m just saying when you’re on the street—

ALDEN: We’ll try to get you an invitation. (Laughter.)

IMMELT: When you’re on the streets, you get a different perspective than when you’re not, right?

ALDEN: So, sticking with politics for the moment, I think—you know, in the United States we often imagine that what’s been going on in the last year or so is a rather entertaining reality show. It’s endless fodder for cable television. You travel the world a lot. Does all of the election rhetoric that we’ve been hearing, does that have an effect outside our borders? What do you hear when you’re traveling?

IMMELT: Oh, sure. Look, I mean, we do much better when the U.S. is respected and revered. Don’t get me wrong, it’s not that depend on the trade deals or things like that. We should be able to do a lot on our own. But we do much better when the U.S. does better. And I love my country. And I’m proud to be—I run a global company, but I always call GE a U.S. company that has to win around the world. I never say we’re a global company. I always say we’re a U.S. company. Don’t be mistaken.

We don’t have the same stature nearly any place in the world that we had when I started this job 15 years ago. It’s a complicated world. But we just don’t. I just got back from Asia. You know, I think they’re going to feel broadly disconnected if we don’t pass TPP. And the pitch I would make in public and private on TPP is—you asked if I think it’s going to drive growth. I do. Do I believe in globalization? I do. But the presidency needs these trade deals. The country needs these trade deals.

We’ve asked President Obama—you know, basically everybody in the world cares about security and growth. We’ve asked President Obama to basically fight with one hand tied behind his back. I mean, we can talk security, we can talk military. I’m not really qualified to do that. But we’re in a situation where whoever the president becomes on November 9^th, they no longer can talk economics with anybody in the world, because we can’t talk trade. We can’t talk trade. So you basically are—you’re taking one of our weapons, and that’s bad for this country.

It’s really—what loses on November 9^th, on both sides, is the presidency. It’s not GE. You know, in other words, I’m for free trade and I should speak up about it. And I do. But we’ve cast this as a gift to multinationals to do these trade deals, when really what it is, is it strengthens our company to be able to fight and win—or, our country to be able to fight and win around the world, speaking the same language that every other country around the world speaks. Every other country around the world speaks security and growth.

And if we can’t speak growth, if we can’t speak economic intersection, the role of the president outside the United States becomes broadly diminished. And that’s what we’re going to have. And the fact that both of them are anti this deal is just is going to weaken—whoever becomes president on November 9^th is going to be weaker because of it.

ALDEN: Are we better off as long as the issue remains out there? I mean, there’s, you know, the question of if it doesn’t get passed in the lame duck, maybe in the new administration. Are we better off if there’s still a possibility, because even that sort of dragging it out—

IMMELT: Sure. No, I mean, this is one of the—I mean, people in this room are smarter about it than I am. And try myself—to watch myself and the words I use. (Laughs.) We can’t give up on this town. As much as it—(laughter)—as much as—no, in other words—in other words it’s easy for me and GE to go back and say, hey, guys, let’s just pull out of town. There’s nothing that happens. We’re a broadly divided country. And why waste time on—but I think that then lets the cynics win. And I would keep it out there, just hoping that you find a different—a different path.

Now, look, I also understand the opponents point of view. I understand that this hasn’t worked great for everybody. I understand that some factories have closed, or things like that. But I try to find myself and say, OK, what’s the natural—if, let’s say, Mr. Trump became president of the United States and we—and we implemented the Trump doctrine. You know, you weren’t thinking of that as a scenario, but let’s just say what’s the natural conclusion? It’s that you basically make and sell everything in the same country. So we bring back all the Nike speakers and all the Apple iPhones. And we take all the jet engines that we currently export from here and we do those in Europe or China or someplace else. So we’re all self-contained in our own region.

(Laughs.) I don’t know how that works, you know? We might as well start putting our goods in, like, wooden galleys and ship them across the ocean and things like that. It’s such a step backwards. So I don’t know where the natural conclusion goes. And it’s not like the rest of the world is kind of saying, oh, boy, we’re going to do whatever he says, because he makes so much sense, you know? (Laughter.) They’re saying, hey, look, we better make—we better make other plans. So you basically have the rest of the world that’s out there saying we better make other plans because this looks crazy to us.

ALDEN: But what—you know, it leads to the question of what then should business be doing? You know, you’re talking about a scenario here whose possibility is certainly not zero. It may not be 50. It might be 25. But it’s a genuine risk. And if I look back over my history of covering trade and trade politics in Washington, you really have the sense that the voice of business has diminished substantially. And it’s never been clear to me whether that’s because business’ interests are more diverse now, they’re more global, whether they’re scared of getting engaged, whether they think it’ll be a waste of time because respect for business in the country has fallen. How should business be engaged productively on these issues?

IMMELT: You know, again, because I would always look in the mirror and say we deserve—well, whatever the feeling is, we deserve our share of the responsibility for it. So I put that as a—we’re not a perfect company. But I think, Ted, where I’ve had to rethink is, like, what’s the strength of GE in the context of how we think about government relations and things like that, and I think the strength of our company is really there’s a 130,000 workers in the U.S. times eight, if you include our suppliers and everybody that’s in the GE ecosystem.

So, basically, we have a million constituents in the GE family that are in 435 congressional districts in the country. It turns out where we are today that is massively more powerful than a hundred CEOs meeting in the Business Roundtable here in Washington. Not to denigrate that at all, right?

That probably has a role. But that role was strong in the ’50s and ’60s and ’70s—isn’t that strong today. What the strength is is multiply our million constituents with another million constituents from another company. That’s the—that’s the voice that is not heard today. And I’ve never watched a political campaign talking about manufacturing jobs in the U.S. from people that have no idea what they do. Wouldn’t know a factory person if they saw them—20 of them in front of them and have no idea how to create the jobs.

So I think it’s—in this—if the problem we’re trying to solve is a $30 per hour manufacturing job, let’s back off that and articulate all the things that you have to do to create that job and see whether Secretary Clinton does that or whether Mr. Trump does it. My view is neither one of them articulates the path that creates those jobs today.

But that voice can’t come from here. It’s got to come from Cincinnati, Ohio, Grand Rapids, Michigan, Greenville, South Carolina—the places where we have factories—in Niskayuna, New York—the places where we have factories and research centers. That’s what we haven’t tapped into. We haven’t done a good enough job speaking our message from the factory floor versus from the CEO’s office. Not that I’m—you know, not that I’m saying I’m not responsible but I’m saying our voice—the quality of our voice needs to change. That’s what we’re trying to do.

ALDEN: Is that something GE is trying to do?

IMMELT: Yes.

ALDEN: This was one of the recommendations that Bob Zoellick on the last panel. He said more companies need to be doing this, need to be talking to their workers, need to be getting them engaged. So you’re actually doing that?

IMMELT: That is—so I don’t talk about lobbying. I talk about advocacy.

ALDEN: OK.

IMMELT: I talk about grassroots advocacy. I talk about the GE family, the investments that we have to make to do that, all of our suppliers, all of our partners, all of our employees. That’s the power that we haven’t harnessed and, believe me, their voice isn’t being captured at all in this campaign—at all. That—they are—they are the ones that actually aren’t being captured.

ALDEN: So there’s one last topic I want to tackle and then we’ll—and then we’ll open it up. I’m sure there are going to be a lot of questions. You mentioned the competitiveness dimension, and I was quite struck reading the final report of the president’s competitiveness—Jobs and Competitiveness Council. You were—you were quite honest in your summary there, saying something to the effect of it can’t be said that this country is taking jobs and competitiveness seriously.

If we were, we would be farther along. Why is that? Why—so many—so many of the discussions we have on trade including in this institution are about the rules of trade but there seems to be a lot less focus on how you succeed once the rules are written. Why is there not more of a national focus on competitive success?

IMMELT: I think this is one—and, again, I don’t think it’s necessarily—you know, when I look at the discussion that I’ve had with you on infrastructure, training, regulatory reform, small business, I look at that at every country in the world—Germany, China. You know, nobody’s doing necessarily a great job about it—job of it and we just don’t hold people accountable to do—you know, I look at something like infrastructure.

Now, I’m a—I’m a center-right so I’m a lifelong Republican center-right. This is one the Republicans have all wrong, you know. We have—we have almost $15 billion of government bonds earning a negative interest rate. We have trillions of dollars of liquidity and we have a huge need. And then, you know, just—I always tell the story I was doing a deal with Aliko Dangote in Nigeria a couple years ago. He’s in Lagos. I had to fly home. We weren’t able to conclude. I said, call me over the weekend. He says, OK, I’ll call you. So I said, don’t call me so I don’t get cell coverage where I live—I live in Connecticut. (Laughter.) Call my—call my landline, right?

So the infrastructure investment is one that keeps giving. It creates jobs. It creates competitiveness. It’s a proven fact, right, yet it’s viewed as a—as a fat cat gift or some other thing and therefore we don’t address it, right? And so I think that’s—on the area of competitiveness there’s a micro: what does each company do. That’s up to me. And then there’s a macro: what does the country do. And that’s a problem, right?

That’s maybe more on this town in terms of creating the conditions where the right kind of jobs get created and the right kind of growth gets created. And, really, unemployment’s low, but the percentage of Americans working is as low as it’s ever been. Our long-tail liability is huge.

There was an article—I read an article last night in The Economist on pensions. If you want to just pass out—(laughter)—you know, because you kind of sit there, you get halfway through the article and said, God, I hope I’m dead by the time this stuff happens. (Laughter.) I feel sorry for my kids because this is unsolvable.

So 0 percent interest rates, which has been our strategy for more or less the last eight years with no what I would call competitiveness reform at all, that’s not a winner and we have to understand that that’s—and, you know, we can do our slice. You know, you should hold me accountable to make sure GE factories are competitive and things like that. That’s my job. But our no interest rate, regulate more, no reform at all on taxes or immigration or anything, that’s a loser over time.

ALDEN: Let me—just one last one on this because I think it’s a very good illustration—the Export-Import Bank. I mean, what happened with the Export-Import Bank, how do you explain it, and what are the consequences?

IMMELT: I cannot explain it.

ALDEN: Yeah.

IMMELT: You know, there’s—I’m a business person—you win some, you lose some, you know. We’re not always right. We’re not always going to win every debate. But every now and then you run into a debate that actually—you don’t see how there can be a strong other argument to it. This is one of them and I find myself completely—it taught me something, though. It taught me that—

ALDEN: So just can I—can I just give—because there may be people who didn’t—(inaudible).

IMMELT: Yeah. Sure, sure.

ALDEN: But, you know, the U.S. Export-Import Bank was unable to do any new loans for, what, a period of about six months, because it wasn’t reauthorized by the Congress. And even—

IMMELT: Since last June.

ALDEN: —and even today because it doesn’t have a quorum on the board—

IMMELT: You have one senator—so you have one senator basically standing—

ALDEN: —you’re really restricted.

IMMELT: —standing in the line of it. It’s quite ideological but I quite don’t get it. There’s 62 export banks around the world. It makes money. It helps small business as well as big business. There doesn’t seem to be a compelling argument against but it’s been shut down since last June. Now, in our case, you know, we move work around. So we can source gas turbines from the Middle East, from Europe, so that takes jobs out of South Carolina and New York State and moves them to Europe. So I always say—Ted, I argued vociferously against it not because it was going to hurt GE but because it wasn’t.

You know, it gave me, in some ways, the best platform to argue from because I wasn’t really—I can solve the problem for us. I can’t solve it for every other company in the world, and it taught me that just logic and discussion wasn’t working anymore. It really is sad that, you know, the—again, the old playbook that we run of kind of like let’s use logic and discussion, it failed here because we didn’t pass a certain narrow interest group that turned out to be extremely (positive ?).

Now, it passed in the Senate by 70 to 30. It passed in the House. They did a—they kind of overrode the committee chairman, which hasn’t happened since 1992, right, and now it’s still hung up because one senator won’t let it pass and this senator is costing jobs in five other states in the country. So don’t give up on this town. (Laughter.) Don’t ever give up. OK.

ALDEN: On that note, I will—I will open it up, and I’ll ask that you avoid either logic or discussion in your questions. (Laughter.) We’ll start right up here, please. And please identify yourself.

Q: Thank you very much. Kellie Meiman with McLarty Associates.

Everyone thinks of GE as a manufacturing company but if your ads are to be believed you’re now a digital industrial. Is talking better and more about tech and services a way that we can help to change the conversation in the United States on trade?

IMMELT: So, again, it’s a great question. I go back to this discussion on productivity. So, basically, productivity in the U.S. averaged 4 percent a year from 1980 to 2010. Now it’s zero. One of the things we’re convinced is going to unlock productivity is really this combination of physics and analytics. We think it’s a job creator. We think it’s also one of those—another tool that makes wage arbitrage and things like that more obsolete because it just makes workers so much more productive.

In our case, we didn’t—we didn’t kind of go to bed one night and say we have to become a software company the next day. If you want to be a great aviation company in the future, you have to be really good at data and analytics. You know, if you fly from D.C. to Chicago, that flight’s going to take a terabyte of data that you can structure to improve emissions performance, fuel performance, how you land, how people get served. So this is going to happen. We want to be on the leading edge.

But think about it. You know, one of the things everybody in this town, everybody in this room, has to worry about is we’ve got to boost U.S. productivity again. We’ve got to be thinking about 2 or 3 percent productivity. This is a tool that’s going to help us get there.

ALDEN: Question.

Q: Yes, sir. Thanks so much. Will Mauldin with The Wall Street Journal.

I read your speech from the NYU Stern School, and I’ve spoken with some of your colleagues about what it means, you know, to localize in different countries. I was wondering if you had any examples that popped up. You mentioned, you know, having managerial staff in these countries that’s Nigerian in Nigeria or Indian in India. But I assume it must be a little bit more than that. I was wondering if you had an example—

IMMELT: Yeah. I mean, again, I think—

Q: —of how things have changed, what it was before 2010 or `11 and what you would do now in these places.

IMMELT: Yeah. I give you maybe two examples. You know, one is we want to do locomotives in South Africa, and we compete against China Inc., right? So we’re up against the Chinese government and the Chinese state-owned enterprise, and we’re trying to sell locomotives. So we’re—we start out behind.

What we do is we do a joint venture with Transnet, who’s this locomotive company in South Africa. We ship in a knockdown kit from Erie, Pennsylvania. We assemble that with a partner in South Africa. And because we’re creating local jobs, because we’re partnering with a local company, we get 50 percent market share against China South Rail, with the Chinese government giving them money for rail lines and things like that. So that’s an example of localization.

Another one is we’ve basically now designed all of our health-care products for ASEAN, India, Africa, and India because it’s a price point. It’s a product style, that if you were just trying to sell them from Europe or the U.S., you would miss out on all this growth that is at the low-end value products. That’s an example of localization. So—

Q: So governments are demanding local jobs—(off mic).

IMMELT: No, I think—and the Indian example is all about the market. It’s all about, you know, if you want to tap into this incredibly fast-growth market for monitoring ultrasound, the only way you’re going to do that is being part of the local market. You’re never going to get that with a pure export strategy. So one is that. The other one is the localization strategy to be part of a country in order to participate in the marketplace. And then there’s probably 15 other examples of how you do it.

ALDEN: And on the locomotive example, can you take contracts like that from the Chinese, even though they’re probably going to come with a better financing package?

IMMELT: I think there’s a—the value of American capitalism is still extremely high. It’s amazing how much people around the world like us and want to do business with us. Why? Because we train, because we partner, because we integrate between U.S. factories and local factories. We create win-win. And that is a powerful force.

ALDEN: Yeah.

Other questions? Nelson, yeah. Nelson.

Q: Hi. I’m Nelson Cunningham with McLarty Associates.

You talked about how we’ve had this old playbook here in Washington to talk about trade. And the playbook for a long time has been Democrats said, well, we have to think about the workers who are being left behind; we need training and retraining. And many Republicans have said, no, the market will take care of that; we shouldn’t do those programs.

I look at the current debate and I see a silver lining, which is I hear many Republicans now talking about those workers. They’re following Donald Trump’s lead. They’re like, yeah, we actually—those people might be our constituents too; we have to start thinking about how we take care of those.

In your conversations with politicians here, do they say the same thing to you in private that we’re now hearing publicly? And do you see perhaps a way to change this old stale debate on trade where both sides actually start thinking creatively about workers and communities?

IMMELT: It’s a great question. I don’t know the answer. I think the way you phrase it is actually what I agree with, which is, OK, maybe NAFTA didn’t work as it was. What’s a better form? You know, should there be a pooling in terms of retraining? Should we think about how to do that? I think that’s a far better answer than just—I think what’s happened now is people just go to their corners, right. So unions—if you’re a Democrat, you’ve got a strong union, and you’re just—you’re sent to your corner. You’re not able to have a discussion on how do you make it better.

And, you know, when I would talk to a Democrat about TPP, I’d say, look, our union guys are going to have fewer jobs if you take away the ability to do trade. We have union people as well, right. So you’re helping some, but you’re hurting a lot more as you do it.

But I think the way you cast this, let’s not—it doesn’t have to be the way all trades are done. Let’s make it better. And that’s probably one of the pieces. I think there has to be—we have to do a better job of bringing workers from point A to point B as you go through it.

ALDEN: Just a follow-on on that. You know, we hear a lot of talk about a skill shortage, that there—as you know, there’s fairly low labor-force participation, even though the unemployment rate is a lot better. You would think that there would be, you know, a rather large—a lot of companies have trouble finding the people they—what’s GE’s experience?

IMMELT: You know, we don’t—

ALDEN: Do you have an easy time finding the folks you need?

IMMELT: Yeah, because, again, we pay a lot. And we—you know, we—I was in Asheville, North Carolina a month or so ago. We have a big aviation factory there. We’re hiring 50 or 60 people because we’re expanding the plant. You know, they’ll go maybe two years. They’ll work four times a day and then go four hours to a community college. So they’re learning—

ALDEN: Are you paying for that?

IMMELT: Yeah.

ALDEN: You’re paying for the community—

IMMELT: Yeah. So they’re learning how to program computers and things like that. So when you’re doing that stuff, you don’t have any trouble. And, by the way, it’s kind of a self-directed team. So there’s, like, one manager of the factory. But other than that, these are empowered teams. So they hire each other in some ways.

So I do believe there’s a skill shortage, because I hear a lot from our suppliers and things like that. There’s a real need. But, you know, we kind of look at that as something both we can do for ourselves and we can offer to others.

ALDEN: Do you have a retention problem? Because I’ve often thought one of the reasons—

IMMELT: Oh, gosh, no.

ALDEN: —more companies don’t do that is, well, we’re going to pay all this money to train them in community college, and then they’re going to leave two years later for a competitor.

IMMELT: You know, again, if you’re—if you’ve got—you know, again, I think this is really neat. You know, in other words, I think we—you know, I’ve had to do difficult decisions on factories and things like that. So I don’t want to cast it that I’m perfect or we’re perfect. But I love—I’m proud of our factory team. I think they’re incredibly productive.

And, you know, the sad thing is that when you leave a GE factory or any, let’s say, multinational or export factory, the fall in wages is not 5 percent or 10 percent. It’s 50 percent, right. And so that’s what you’re seeing here. You don’t—you know, you don’t go from 30 bucks an hour typically to 29 (dollars). Or you don’t leave that job to go to 32 (dollars). You go from 30 (dollars) to 15 (dollars).

And that’s part of the angst you see of the middle-class angst is there was no natural bridge in terms of as workers have gotten—you know, and you don’t believe this, but we actually are proud of these people. We actually do think about things like this, right. We like our workers.

ALDEN: Other questions? Let’s go way in the back there.

Q: Hi, Jeff. Adam Blum. I’m an investor in Austin, Texas.

If you look at the Dow Jones index 50 years ago to today, it’s probably like three or four overlapping members. And I’d love to hear your thoughts on sort of keeping up with the Googles, Facebooks, and Amazons. You guys just did a big retool, selling off the entertainment and finance assets. What were the signals you guys saw as a board to catalyze that change? And how do you think, going forward, to stay relevant in this changing world? Thanks.

IMMELT: So, I mean, I think the—we’ve always been a company willing to kind of disrupt ourselves or think about different portfolio moves. Over the past 50 years we wanted to get more technical, more industrial. You know, there wasn’t, like, one or two things you could do.

I think, in the case of media, it was our belief that you needed to have more of a core competency than we did. It’s perfectly good business, but we didn’t really add a lot of value in terms of the footprint of the company, in terms of media. And in the case of financial services, we still are about $80 billion. We finance our own assets. But I think if you looked at kind of the regulatory structure in the U.S., you couldn’t generate decent returns. So we picked a great time to kind of reposition. We got good value for the assets, and now we can redeploy it.

I think just—there’s two attributes I think are extremely important. One is curiosity. I think we have very much of a learning company, very externally focused, somewhat paranoid, but always willing to kind of learn and things like that. And I think we have a very resilient culture. You know, we can take a punch. We’re not afraid to go places that we haven’t been before. And I think this combination of curiosity and resiliency are two core competencies that have allowed the company to endure a long time, you know.

I’d just to back to what Ted and I were talking about. You know, in 15 years, we’ve massively globalized the company. That’s hard. You know, the reason why a lot of people don’t do it is because it’s really hard And that’s made us—I think it’s made us—globalization in our case, culturally, has made us much more resilient than we ever were before because we’ve learned to kind of sing for our dinner in Germany and Indonesia and Brazil and all these places. And that’s made us better.

ALDEN: Other questions? Yes, Paula here, and then we’ll go here.

Q: Thank you. Paula Stern, The Stern Group, Incorporated.

I was thinking about in your reflection about what the business community needs to do, given the tenor of our debate in our nation with regard to trade, globalization. And you said The Business Roundtable, it has its role, but somehow the workers tell a more important story. What happens when you have, in Congress, regardless of what the presidential outcome will be, an increasing number of members of Congress from the Tea Party portion of the Republican Party who really don’t believe in government doing much? We’ve had discussions about investment, necessary investment in infrastructure, where we’re just losing out on those opportunities. How do you convince the—and I do think it’s a role of the business community, but maybe it’s a different way in which you do it—the freedom party, the Tea Party? Because whoever’s in the White House has going to have to deal with this Congress, who does not believe there should be a—there should be a shrinking role for the government, and yet we have this retraining, R&D needs, infrastructure investment needs, et cetera.

IMMELT: OK, my real answer is I don’t know. (Laughs, laughter.) Maybe I can try to reflect.

Look, I mean, I’m a—I’m a—personally, you know, again, I’m center-right. I’m a lifelong Republican. And I also think that there are some things that the government does it shouldn’t be doing. So the nature of my answer isn’t to say that the government’s gone into a lot of places—I think—I think our citizens have every right to be a little bit skeptical sometimes about our government. That’s just philosophy.

Now, it doesn’t mean that we can do nothing, you know? In other words, I think we’re in a mode now where basically, other than going on Fox or MSNBC or CNN, I don’t know what you really do all day, you know? You know, in other words, things aren’t getting passed. We’re now to another CR that’s not going to go forward, right, or is stuck. And so I think in some ways there has to be something that works and something we can work on.

Now, I look and say the problem with the company—or the problem with the country is that we’ve gotten used to low interest rates. That helps the consumer, but new CAPEX is zero, right? So we’re limping along as a—as an economy. So it seems to me like tax reform might be a good idea, because it might be one of those things that unlocks a new version of what capital expenditure—that, to me, is worth working on.

Now, what do we do? I think it used to be that we would just hire a bunch of tax lobbyists here, get in the BRT, and go see whoever we could. And, you know, Engler’s a good guy, he’s a friend of mine. Doug Oberhelman is a great guy. But I don’t think that works. I think what you have to do is you got to—you got to align your million-person army, you got to associate that with 20 other million-person armies, other companies, and we got to go to every district, and make sure that there’s both knowledge and consequence of people in terms of what happens. I think that’s the only way forward. You can’t do that on six issues. You can do that maybe on one or two. So, you know, I’m just giving you a point of view.

Now, I then started to say I look at the country today; our government is too big in the U.S. So I’d be—I’d be less than honest if I didn’t say I agree with some of the—(laughs)—you know, some of the principles. But it can’t stand for nothing. You know, there’s a difference between having a smaller government that’s effective than having a government that doesn’t work, and I think we need to decide which is which.

ALDEN: It may draw the same answer, but a slightly different way to ask the question. One of the things I’m struck by is that, you know, for all of our talk about exposure to the global economy, the United States still, compared to most other countries, is a reasonably self-sufficient economy, and our trade-to-GDP ratio is around 30 percent.

IMMELT: And it’s on a lot of bases doing better, yeah.

ALDEN: Yeah. But I think part of the effect of that is that there are lots of parts of the economy that actually don’t deal with what you’re dealing with. They’re not in globally competitive industries. They’re small companies. They’re dealing domestically. I think that in a lot of this country there is actually not an understanding of how important the globally competitive industries are for our overall economic health. Is there a better way to make that case, to kind of—

IMMELT: Oh, sure. Sure, sure.

ALDEN: —connect that actually what matters for GE matters for small businesses in Connecticut and elsewhere?

IMMELT: Again, we have to start in our towns because it’s a linear connection, right? And then we got to get 15, 20, 30 other companies that are as articulate and willing to advocate for it, because it’s—everybody in Ohio should understand how important it is to be a part of this enterprise. Because we have a lot of jobs in Ohio; they’re all export—100 percent, right? So that story has to be told against a backdrop where trade is one of the biggest issues in Ohio, right?

So I think we have a responsibility to tell our story better than we have so far. But it’s hard to tell it here. We have to go vertical, not horizontal. That’s my point.

ALDEN: Other questions? Yeah, I think I had Doug next.

Q: Hi. Doug Rediker, International Capital Strategies and Brookings.

An open-ended question; answer it as you wish. The recent ruling in the European Commission that affected Ireland and Apple, and the entire issue of global tax and repatriation, given that you mentioned 185 countries and your localized operations, what your perspective not just on the specifics of Apple/Ireland, but just this broad complexity of American companies doing business around the world and the jurisdictional issues around tax. And, you know, specific to Apple—

IMMELT: Again, I think we—I think there’s maybe two stories on that.

You know, one is I think we all believe that we need global tax reform and we need it now. A territorial system that allows people to move their cash around, you know, it ought to have a lower rate, take away loopholes, do repatriation. I just think we have kind of an old and convoluted system that just needs reform. And I come back to, if you—if you look at the economy and say one of the problems has been lack of capital expenditures, and maybe tax reform helps it, this would be one thing that I would hope that Speaker Ryan or whoever the president is takes forward into the new Congress.

You know, beyond that, look, I mean, I think it’s hard if you’re a global company and basically you have—you know, if you go—if you’re my age and we go back in time, go back to the ’80s, the European Union wanted companies to invest in Ireland and Spain. These were the—these were the underlings, if you will, of the European Community. Everybody wanted you to invest there to bring them up to the same standards as the rest of Europe, Brussels in the front. And now, 20 years later, to have somebody just say, OK, I’ve changed my mind, this doesn’t work anymore, that’s a whole ‘nother set of problem—(laughs)—that go beyond—go beyond tax reform. You know, I think that’s—what that says is there’s no European Union anymore; that basically everybody is on their own. And that’s difficult.

ALDEN: I think I had Miles next.

Q: Yes. We’re talking about trade agreements, but in fact, most trade agreements today are about lots of things other than trade, and one of them’s investment. I want to ask you a two-part question about investment.

One issue that’s become really toxic for the anti-TPP and anti-trade agreement movement is ISDS, investor-state dispute settlement. For a global company, how important is ISDS in reality?

And, second part, in general, our investment provisions—for example, the Bilateral Investment Treaty we’re negotiating with China, if that were agreed and implemented, would that be important for GE? You’re doing very well in China. How much better would you do?

IMMELT: I think on the—I think on the investment side, correct me if I’m wrong—(audio break)—with us. You know, I don’t think we view it as overly onerous, and probably consistent with what we believe in. So, in our case, I don’t think it’s a showstopper, right?

Q: Is it important to you?

IMMELT: Yeah, kind of. I would say it’s—(laughter)—you know, in other words, I don’t think it’s a top three, but I think it’s a part of the overall process. It makes our life, long term, easier for sure, no doubt about it.

And then the second part of your question was?

Q: (Off mic.)

IMMELT: Oh, yeah. I think that’s—I think that’s hugely important. I actually think it helps. I think it helps in every dimension you can imagine. You know, in other words, there’s just not enough bilateral skin in the game between China and the United States. And I think, again, it’s not like we’re going to agree on even most things, but I absolutely believe that that is, I hope, a priority of whatever the next administration is.

You know, look, the notion of TPP, it’s great. I hope we do it. But the notion that that singularly is going to box China in or things like that, I don’t agree with that. I don’t think that’s real world. You know, these guys are shrewd. They move quickly. And they have their own strategy that they’re going to execute, with or without us. But there’s more—there’s more we both have to gain by working together than we have by leaving things the way they are today.

Think about global warming, right. Europe matters. The rest of the world matters. But two countries in global warming matter by far the most—by far the most—and that’s China and the U.S. And if we decided to really address—you know, move some product on global warming, believe me, the rest of the world is going to follow that.

ALDEN: Tom.

Q: Thank you for a great set of remarks.

What I wanted to ask you about—

ALDEN: Just identify yourself.

Q: I’m sorry. Tom Bollyky. I’m here at the Council.

I wanted to ask you, to make sure I understood this idea of localization, is this a byproduct of protectionism that U.S. trade policy should fight, so around localization requirements for IP or other things that are requiring GE to move employment abroad, or is this a reality of multinational business and we should be talking more about competitiveness and ways of drawing this investment here instead of other countries?

IMMELT: Look, I think the fact is, if you put yourself in my shoes, right—put yourself in my shoes. To a certain extent, I don’t need to think about the answer to your question. You know, in other words, my job is to deal with the reality I see. And I personally think that localization actually, with or without local content requirements, makes you more competitive.

And if you looked at the world the way I have to look at the world, you basically are always saying, OK, how do I be most competitive around the world and make the right capital-allocation decisions to get there, with or without perfection in global standards and systems?

So I think it will be proven over time to be a massive competitive advantage to be more local, regardless of how we got there. You know, if you go to Brazil, if you do business with Petrobras in Brazil, there’s a 70 percent localization requirement. Did we like it in the beginning? No. But because of that, we have higher market share in jet engines. We have higher market share in health care. We have higher market share in gas turbines. So it’s an on-the-ground, I think, competitive advantage for GE.

ALDEN: We have time for maybe two or three more questions at the most. There are a few more out there. I think I had Jessica.

Q: Thanks. Jessica Mathews from the Carnegie Endowment.

I wanted to follow up on global warming. There is a really palpable movement in the business community in the last six months on a carbon tax, and specifically on carbon tax versus more regulation that follows the Clean Power Plan into every industrial sector.

But while these—while the companies, some of them are willing to say it either theoretically or quietly, they won’t say it publicly or push for it. And the result—and, you know, I think the votes with the business community’s support, the votes are actually there in the Senate.

And I just wondered, you know, in the context of your comments about Washington and about CEO influence in Washington, whether you have thoughts about what could break this logjam, because it’s a really—it’s a critical moment for this. And, you know, the possibility of a tradeoff, of suspending the Clean Power Plan for enough time to see whether a tax would do more than regulation, is a really attractive thing. But the missing link is the business community being willing to fight for it.

IMMELT: I think that’s one—you know, again, remember, today I come as a friend. (Laughs.) So I don’t mean to be disrespectful on your—(inaudible)—things like that. I’m really here as a friend today, so just offer a view.

Personally, I tend to agree with you, you know. In other words, we’re in a variety of different technologies. I think things like a carbon tax send the market a signal. I think we, in many ways, have the worst of all worlds today, because there’s no rules. It’s kind of a Roman vote, you know. We’re going to pass this. EPA is going to pass this. Minnesota is going to pass that. Florida is going to do something else.

So I would much prefer—but, guys, look, I think we have to put all policies on an array of hard to easy. And we need to start with something that’s important and easy, and it ain’t that, you know. This is a—this is not something that’s—and I’ve been there in 2008 as a member of the U.S. Climate Action Partnership. And it got pushed through the House, very unpopular, and it was Senate Democrats that turned their back on it. So I was there.

So I think—I think we need something that’s important and straightforward as a first step. And then, if we succeed on that, pick something that’s next. But—

Q: That’s important and easy?

IMMELT: Again, I say number one, important—

Q: But what—I mean—

IMMELT: Again, this is not easy. But again, I would say what road leads to problems that we can solve that are really going to be the ability to maybe go from a 2 percent GDP growth, which doesn’t solve any of our long-term problems, to a 3 or 4 percent GDP growth? It’s to get capital investment back in the country.

And so I would bet—not that it’s easy, but it’s important—I would say we should all cross our fingers and go to work on tax reform. And then there’s a whole series of geopolitical things that I’m not qualified; you know, our relations with the rest of the world and things like that. So I won’t.

But I just say, you know, the problem we should all be trying to solve—higher-wage jobs. Productivity leads to higher-wage jobs. Two percent GDP growth—if you look at our long-tail liabilities that we have in this country, we’ll solve none of them. And zero percent interest rates have given us 2 percent non-sustainable tax reform, even though I’m one of the guilty ones that actually would think it would be easier for all of us if we had a carbon tax. And we believe as a company in global warming and have tried to invest around it.

ALDEN: I think that is a good point to stop on. It gives us something that’s forward-looking and potentially optimistic.

IMMELT: Great.

ALDEN: I would like to thank Jeff Immelt and all of the speakers we had today. I think it was an incredibly rich conversation. I was thinking I should try to summarize the takeaways, but I’ve got to go away and think about it for two or three days. And I’ll try to figure out what the takeaways are. I do think we really are at a turning point in many ways in terms of our consideration of trade and investment issues, the impact of globalization, and what we do as a country going forward. And I hope the discussion today has pushed all these things in a positive direction.

So thank you very much.

IMMELT: Thank you very much.

ALDEN: Thanks, everybody. (Applause.)

(END)