Can Immelt Serve Both Obama and GE?

Posted on Harvard Business Review: January 24, 2011 4:34 PM

President Obama's appointment last week of GE Chairman Jeff Immelt as chairman of his board of outside economic advisers poses an interesting and fundamentally important question: Can the CEO of an American global company chair a panel that gives more than conventional bromides as advice to the President?

Let's take a very fresh recent example involving GE. As China's President Hu Jintao was preparing to arrive in Washington last week, GE announced the conclusion of an agreement to do a joint venture with China's state owned company Avic to produce in China the avionics for China's new C919 commercial jet liner. The deal will result in transfer of most, if not all, of GE's advanced avionics technology to the joint venture with the strong possibility that it will also find its way to Avic and/or others in China outside the joint venture as other technologies have been doing in similar cases in other industries.

Of course, it's easy to understand why GE might want to do this deal. China is going to be a big market for aircraft, engines, and avionics, and this deal puts GE in position to be a strong if not dominant player in these areas for at least a while and perhaps for a long time, depending on China's intentions and abilities to develop its own GE. If I were Immelt, I'd find it hard not to do the deal even though its conditions are at odds with China's WTO commitments and with my own sense of free trade and comparative advantage.

But that's the point. I'm not Immelt or the chairman of a big global company. I can freely say that this avionics deal with China is not necessarily good for America even if it's good for GE. But can Immelt say that? Okay, maybe he can whisper it to the President in a hallway as they walk through the White House. But can he say that in a committee meeting that will be reported to the press? Keep in mind that the Chinese will be watching his statements, and there aren't likely to be more deals like the avionics deal if he says the wrong thing. That's because China's is not really a free market economy. Much of the economy is subject to government guidance and ownership as Google and others have discovered.

So while I admire Immelt as an executive and also because he has had the honesty courage to say that America cannot prosper without a strong manufacturing base, I wonder if he will be able to give the President the kind of disinterested advice he desperately needs.

I'm frankly troubled by what I have seen so far. In The Washington Post last week, Immelt called for more American innovation and more free-trade agreements as the way to make America more competitive. Okay, sure. And maybe we should have more apple pie and motherhood as well. We've been having more free-trade deals and more innovation for a long time, and it should be clear by now that while they may be necessary conditions, they are definitely not sufficient conditions to make America competitive.

The best thing would be for Immelt to step down from the GE job and devote himself full-time and full-heartedly to giving the President nothing but the best uninfluenced and unbiased advice.

Clyde Prestowitz is founder and president of the Economic Strategy Institute in Washington, D.C., and led many U.S. trade and investment negotiations with Japan, China, Latin America, and Europe in the Reagan Administration. His most recent book is The Betrayal of American Prosperity.

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