What Would Thomas Edison Say About GE’s Expulsion From The Dow?

In 1896, Dow Jones created an Industrial Average of the equity values of twelve corporations that dominated the American stock market. Thomas Edison’s company General Electric was one of those twelve firms.

The other eleven corporations are long gone from the Industrial Average. Some continue to operate as smaller entities. Others merged into larger firms. And others dissolved or were broken up by court order.

Only General Electric remained in the Industrial Average until, last week, S&P Dow Jones Indices decided to expel it. Apparently, GE can no longer be characterized as a dominant American corporation.

So what would Edison, the American entrepreneurial icon who founded GE, say about this downgrade? Ironically, he’d probably wonder how his firm managed to remain in the Industrial Average until now.

That’s because GE was founded by Edison by 1890 to serve as a holding company for a variety of his electricity-related business interests. A hodgepodge of lamps, motors, and other items were tossed together under the General Electric brand name.

Had Edison been alive today, he likely would’ve explained that he always expected his application product businesses to wax and wane over time. He’d then return to his New Jersey laboratory and roll up his sleeves, determined to invent the next generation of applications.

Edison understood that the capitalist process of destruction and innovation would ensure that no application product would be popular forever. He undoubtedly realized that, just as his electric lamps and motors replaced predecessor products that ran on kerosene and steam, his own inventions would eventually yield to more efficient and effective products.

In other words, Edison would’ve likely put aside the existing application products of General Electric, and would’ve turned his attention to the solar panels and wind turbines of the future. And, while doing so, he would’ve relished the opportunity to build a better company than today’s GE.

Connecticut: Winning By Losing

Just four years ago, the Houston Astros of Major League Baseball was the worst team in the sport. But last week, the ‘Stros won the World Series. How did the organization progress from worst to first in merely four years?

By its own admission, the team won by losing. 2013 was the final year of a three year period when the organization leveraged its abysmal situation to clean house and reinvent itself. That clearance process set the stage for its subsequent success.

The State of Connecticut may be facing a similar opportunity today. Since 2016, two of the fifty largest business corporations in the nation moved their corporate headquarters out of state, with GE shifting to Boston and Aetna to New York City. And Alexion Pharmaceuticals, a firm that had received state funds to establish a New Haven headquarters, announced that it would follow Aetna to Boston.

Nevertheless, based on recent news about these corporations, Connecticut may not have been badly damaged by their departures after all. GE is now reacting to severe financial problems by implementing an immense operational retrenchment. Aetna is negotiating a potential merger into CVS, a much larger corporate entity. And Alexion is reported to have arranged its relocation to divert investor attention from a myriad of legal problems.

Meanwhile, earlier this year, Governor Malloy had been locked in battle with the Republicans and with his fellow Democrats in the Legislature over the state budget. Connecticut had been the only state in the nation to proceed into October without a fiscal blueprint.

But just last week, Republican and Democratic legislators finally resolved the situation by shutting out the Governor and working together to craft a budget. In other words, they simply placed the Governor’s proposals to the side, worked with each other, and passed legislation with a super-majority vote that was impervious to a gubernatorial veto.

So how far has Connecticut progressed this year? Not nearly as far as the Houston Astros have progressed since 2013, of course. No one in the Nutmeg State is declaring victory over its challenges just yet.

Nevertheless, just a few months ago, three ostensibly successful business corporations were preparing to depart the state, and the Governor was locked in a budget stalemate with the State legislators. And today? It appears that Connecticut’s economy may win by “losing” a trio of unstable employers, and its Legislature may likewise win by “losing” a stalemating gubernatorial negotiator.

So how long may the residents of Connecticut need to wait until they can truly celebrate? They may wish to take heart and recall that the Houston Astros merely needed four years to progress from cellar-dwelling losers to championship winners.

So perhaps, for Nutmeggers, 2021 may be a glorious year.

Connecticut’s Red Flag

Three weeks ago, Connecticut Governor Dan Malloy acknowledged that Aetna would likely move its headquarters out of his state. The 43rd largest company in the United States would thus follow GE, the 13th largest firm, which left last year.

GE’s corporate headquarters had resided in the Constitution State for more than forty years before moving to Boston. And Aetna has been a Connecticut native since its ancestral founding as a fire insurance firm in 1819. It is reportedly focusing on New York City.

What was Malloy’s response to the news of Aetna’s likely departure? In essence, he waved a red flag, saying:

While we have not been notified by the company of their intention to change their footprint in Connecticut … some amount of change is coming, and … it will likely include a change in their headquarter designation …

… this has more to do with their desire to have executive leadership operate in a larger, more vibrant urban center than Connecticut can currently offer.

We all know that employers – especially large employers – are attracted to city centers. We know that now, more than ever, we are in competition across all industries – not just with Massachusetts or New York state, but more specifically with Boston and New York City …

Let’s be clear: Hartford is not ever going to be New York or Boston.

But is the Governor correct? Are small cities like Hartford relatively unattractive to large corporations? Let’s consider the facts.

In reality, half of the cities that are home to the ten largest American firms are even smaller than Hartford. Walmart, the largest company in America, is based in Bentonville AR. Third ranked Apple resides in Cupertino CA. And UnitedHealth, CVS Health, and Ford are also in the Top Ten. They are based in Minnetonka MN, Woonsocket RI, and Dearborn MI, respectively.

What about the eleventh through the twentieth largest firms in the United States? Five of them are also based in cities that are smaller than Hartford. They are Amerisource in Chesterbrook PA, Cardinal Health in Dublin OH, Costco in Issaquah WA, Walgreens in Deerfield MI, and Chevron in San Ramon CA.

So when Governor Malloy claims that large employers are naturally attracted to metropolises like Boston and New York, places that offer larger urban centers than Hartford, he fails to describe half of the cities that host America’s Top Twenty companies.

That uncomfortable fact raises an equally uncomfortable question. If the ninth largest firm in the nation can be comfortable in little Woonsocket, Rhode Island, why can’t the 43rd largest firm be comfortable in Hartford?

To be sure, there may be all sorts of reasons why Connecticut is no longer attractive to large employers. And some of those reasons may fall outside of the Governor’s control or influence.

But the claim that small cities are naturally non-competitive with larger ones in the market for corporate headquarters? That’s simply not supported by the facts, and one can only wonder why the Governor of the nation’s fifth wealthiest state is waving a red flag and accepting the departure of Aetna’s headquarters with such a statement.