Bloomberg News

GE’s Rice Sees Activist Governments as Free Markets Fail

March 23, 2012

General Electric Co. (GE) Vice Chairman John Rice said he expects governments worldwide to become more activist and increase regulation because they fear discontent from populations who believe free markets have failed them.

The world’s most highly valued manufacturer after Apple Inc. (AAPL), and ninth-biggest company by market value, will have to tailor its activities to match the needs of governments who fear popular discontent over inequality, Rice, head of GE’s global operations outside the U.S., said in Melbourne today.

“I don’t think people see free markets fixing their problems fast enough,” he said. “I don’t know of too many places where you see pure, unfettered capitalism any more, and I’m not sure there will be” such places in future.

GE, founded in the late 19th century by Thomas Edison, is one of the U.S.’s oldest major companies and the only current member of the Dow Jones Industrial Average (INDU) which was included in the original 1896 index. The “shareholder value” doctrine of former Chief Executive Officer Jack Welch, which argued that managers should be judged according to shareholder returns, has defined the behavior of corporate boards since the 1980s.

Meeting that objective would in future require being more alert to the demands of governments, Rice said, particularly as they seek to build more infrastructure and spend money on health care to improve the quality of life of their populations.

‘Too Hard’

“Are all the regulations well advised? No they’re not. Are they all going to have a net positive effect? No they’re not, because it’s too hard for legislators to do that,” he said. Still, “when we think about the world we accept that and we have to make sure that we’re aligned with government priorities.”

Fairfield, Connecticut-based GE operates in 120 countries and is the world’s biggest maker of diesel locomotives and airplane engines, as well as a major manufacturer of wind turbines, medical devices and industrial compressors.

The company is betting on continued growth in emerging markets to offset an expected slowdown in developed countries. Revenue from its energy infrastructure unit, its second-biggest by sales, rose 16 percent to $43.7 billion last year compared with a 1.5 percent decline at the larger GE Capital consumer finance division.

“We have entered a new economic era. The emerging economies grow, while the developed world slows,” Chief Executive Officer Jeffrey R. Immelt wrote Feb. 24 in an investor letter attached to the company’s annual report. “Material prices are moving higher. There is broad-based social unrest. And, it could remain this way for a long time.”

Record Orders

GE’s global orders for industrial products rose to a record $200 billion, the company said Jan. 20, when it released earnings for the December quarter. Net income in the period fell 18 percent to $3.73 billion.

GE shares fell 1.1 percent to close at $19.85 in New York trading yesterday, trimming their gain this year to 11 percent. The benchmark S&P 500 index has also climbed 11 percent in 2012.

In Australia, GE expects to double its business in the four years ending 2014 because of demand for equipment to support Chinese and Indian purchases of coal, iron ore and natural gas, with sales expected to rise by as much as 30 percent this year alone.

The country is now GE’s third-largest market by sales and is only behind the U.S. and China, Rice said. Across Australia, about A$232 billion ($241 billion) of mining and energy projects are under construction or in advanced planning stages, according to the government.

Infrastructure Projects

GE Capital, the company’s largest division which has historically been strongly weighted toward providing finance for consumers and mid-sized businesses, will increasingly aim to bring together government export credit agencies and outside investors to support major infrastructure projects in emerging economies, Rice said.

“One of the challenges that we’ll face in the future is connecting capital to infrastructure projects,” he said. GE’s own contribution to such projects will be a “very small” proportion of its own financial services business whose assets have shrunk since the 2008 financial crisis, Rice said.

To contact the reporter on this story: David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net


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