TCS Daily

Invisible Hand vs. Visible Handout

By Radley Balko - September 16, 2002 12:00 AM

"Most of the harm in the world is done by good people, and not by accident, lapse or omission . . . Innumerable speculative thinkers, inventors and organizers, have contributed to the comfort, health and happiness of their fellow men - because that was not their intention."

--Isabel Paterson, The God of the Machine

Two retired CEOs. One beloved by the media. One loathed by them. Each employed decidedly different management styles in running his respective company. Malden Mills' Aaron Feuerstein was the civic hero, a generous man, friend of labor, who continued to pay his workers after the plant burned down. In contrast, General Electric's Jack Welch was the epitome of the greedy Wall Street executive. He laid off thousands in the 1980's. He downsized and streamlined.

Today, Aaron Feuerstein's company is on the verge of collapse. Jack Welch's is a corporate beheamoth. And in fact, it is Jack Welch's company that is about to save the jobs of Aaron Feuerstein's. Yet it's Aaron Feurestein who is still the media darling, and it's Welch who's still the pariah.

First, some background.

In December of 1995, the Lawrence, Massachusetts-based company Malden Mills saw three of its factories burn to the ground. Malden Mills' revenue and stature soared the last twenty years due largely to its development of a synthetic material marketed under the brand name Polartec. The warm, lightweight fleece material won devotees across the country, and is today used in jogging and ski apparel, hunting apparel, and just recently by U.S. special forces in Afghanistan.

When the factory burned, Malden Mills CEO Aaron Feuerstein made a vow. He'd rebuild. And he'd do it while keeping all of the firm's 3,000 employees on payroll.

So over the next six months, Aaron Feuerstein continued to pay 3,000 workers their paycheck s at a cost of some $25 million, even as his company struggled to ascend from its ashes. The plant was also rebuilt - on borrowed money -- and it was bigger, more environmentally conscious, and more worker-friendly than before.

Feuerstein became a cultural hero. He was the subject of a fawning 60 Minutes profile (watch footage here). He sat next to Hillary Clinton while President Clinton honored him in a State of the Union Address. He was awarded 12 honorary degrees, and spoke at commencement addresses across the country. He was lauded as a luminous prototype of what corporate American ought to be.

And what of Jack Welch? Welch is today worth close to a billion dollars. He's seen as the typical CEO in an age when "typical CEO" conjures thoughts of sweetheart loans and shady stock dumps. Welch was just obliged to defend himself in a Wall Street Journal editorial after a nasty and public divorce revealed him to still be receiving extravagant benefits even though he's retired, America is at war, and the economy is sputtering.

So at first glance, the question seems absurd: Who is the better humanitarian, Jack Welch or Aaron Feuerstein?

I'd submit that it's Jack Welch.

Aaron Feuerstein had to borrow money to finish rebuilding Malden Mills - in part because he insisted on continuing to pay his workers, despite that there were no jobs for them to report to. Malden Mills eventually got swept up in the recession, and soon could no longer pay its creditors. In November of last year, the company declared bankruptcy.

Aaron Feuerstein's good heart nearly cost the economy the 3,000 jobs Malden Mills employs. Sure, it's swell that 3,000 families could continue to pay rent, to buy clothes, and to put gas in the car. But was it really the most honorable of Feuerstein's options, as his enthusiasts insist?

Those 3,000 paychecks Feuerstein paid for six months were temporary, and wrought nothing for his investment. Eventually, Feuerstein ran out of money, and those jobs were nearly lost. Might it have been better to lay off those workers, assuring the company's reconstruction, then rehire, later, for jobs grounded in a sturdier foundation?

Malden Mills reemerged from bankruptcy last week. The company will be saved, thanks to federal, state, and local subsidies, a contract with the U.S. military, and the generosity of its creditors. The company is today run by a management team installed by those creditors.

Aaron Feuerstein will not have a management role in the new Malden Mills. At best, a spokesman said, he can hope for a "symbolic" position.

Editorial boards and pundits have scolded Malden Mills' creditors for that decision, insisting that Aaron Feuerstein is exactly the kind of person the business world needs, given the shenanigans of Enron, IMClone, GlobalCrossing, and, well, Jack Welch.

In a typically sneering editorial last month, the St. Louis Post-Dispatch wrote:

Malden's creditors, led by the GE Captial Corp., don't want [Feuerstein] to be in charge any more. GE Capital does business slightly differently from the way Aaron Feuerstein does business. GE Capital was a sleepy little outfit that financed refrigerators until the late 1980's, when John F. Welch turned into a financial giant . . ."Neutron Jack" Welch, who laid off 100,000 people in the early 1980's, was one of those slash-and-burn CEOs who became a hero to Wall Street by ruthlessly focusing on the bottom line."

Ah, but GE Capital did go from "sleepy little outfit" to multinational mega-corporation. And today, GE employs those 100,000 positions Jack Welch laid off in the early 1980's several times over. Not only that, but it is GE Capital that will likely preserve the 3,000 jobs that Aaron Feuerstein's benevolence nearly pilfered away.

So who's done more good for more people, Jack Welch or Aaron Feuerstein?

Even in a good economy, capitalists are seen as little more than wealth seekers, go-getters, and empire builders. In a bad economy they're exploitative and ravenous -- ruthless, cold-hearted profiteers. Rarely are corporations and the people who run them seen as humanitarians.

But that's exactly what they are. Because the creation of wealth and the innovation and technological advancement that comes with it - even when motivated by greed - is the clearest and most effective way to better the human condition.

Aaron Feuerstein gave away $25 million of wealth. His charity did little more than help a few thousand people maintain their present standard of living. It didn't create new jobs. It did nothing to better the condition of anyone other than Aaron Feuerstein and the people who got his money.

Jack Welch - driven by profit - laid off 100,000 people 20 years ago. But he's since built enough wealth for GE to employ several times that many people - including, now, the 3,000 who work for Malden Mills. GE today produces not only refrigerators, but energy, electricity, and entertainment. Not only has Jack Welch done more than Aaron Feuerstein for humanity, he's actually done more for the employees of Malden Mills.

So who then is the better humanitarian: Aaron Feuerstein, the philanthropist? Or Jack Welch, the capitalist?

I'll take Jack Welch, benefits and all.



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