Working on a book about his 40 years in management put Jack Welch in a reflective mood–an uncharacteristic state for this tough-minded CEO. As he himself puts it, “I was never a person who looked back.” Taking advantage of his weakened condition, FORTUNE’s Rik Kirkland and Geoffrey Colvin tracked Welch down at his summer home in Nantucket and found him eager to talk about a wide range of issues.

What has been the biggest change in business during your time as CEO?

By far, speed. How fast you can adapt your goals is the main measure of what kind of company you’ve got. So you’ve got to be getting people to relish change. You’ve got to talk about change every second of the day.

Isn’t there a destabilizing element in this? We have some companies that are giving their CEOs just eight, ten, 15 months

This is stupid. Stupid. The board and the CEO have got to be partners. If you’ve got a second-guessing board, you’ve got yourself a problem from day one.

You’ve been through several economic cycles. How do you characterize where we are now?

I’m surprised the unemployment level is not higher. I’m surprised at the way housing has held up. But the breadth of the dropoff in sales for industrial and technology companies is worse than it was in the early ’80s. To get out of this, we need to see confidence come back. I think the stock market plays a bigger role today than it ever played in previous recoveries.

What do you make of the antiglobalization movement?

In good times people don’t like companies or armies. You love armies in World War II. You love companies in recessions. This whole environmental movement, for example, has clearly gained its momentum from the lack of trust of corporations and a lack of trust of government. So everybody can sort of salve their conscience by backing these “good people” who are doing something “healthy.” I think it comes out of a lack of confidence in institutions. At the same time I’d argue that no one who sees globalization done by good companies firsthand can ever be against it.

Over the next ten years what will be the big story for CEOs?

I think that China and its impact on developed economies–and how developed economies and their politicians react to it–is going to be a huge story. We’ll be wrestling with many of the same issues that we had in the late ’70s and early ’80s with the Japanese, and imported cars and televisions. Now it’ll be computer peripheral equipment and all that stuff. Just think of the impact Taiwan has had on the U.S. Now multiply that by 1,000, or whatever the number is.

Everyone talks about China as a market. I see it equally important, and maybe more important, as a competitor. The scale of China is best shown by a strategic boo-boo I made. We figured lighting would be a good business for us there–high technology, capital-intensive, and you’re up against only four big global competitors–so we bought a couple of local companies. What happens? Every mayor in every town in China decides to build a lighting factory. Now there are 2,000 lighting competitors in China. Not ten or 20 but 2,000 guys with lighting brands. When they go after something, it’s overwhelming.

Last month, the EPA ended 26 years of debate and ordered GE to dredge PCBs out of the Hudson River. Were you surprised by that decision?

I think it was an outgrowth of the public relations beating the Bush Administration took for pulling out of the Kyoto Treaty and of [New York Governor] George Pataki’s desire to get maybe three extra people–which he won’t get–to back his reelection. This is based on political science, not science.

Any regrets about postponing your retirement to try to pull off the Honeywell merger, given that it ultimately fell through?

When the chance to do this deal came along last October, I had two choices–take a swing or not. It was a no-brainer. Why would the last act of my corporate life be to play it safe?

What’s next for Jack Welch?

I hope to work with half a dozen CEOs in a quiet, back-of-the-room fashion, doing the things I like to do. Teach their middle managers. I hope I’ll be able to help succession processes. I hope I’ll be able to get involved in interviewing for key slots. I hope I’ll come up with processes to raise the intellectual content of the companies. I mean, at GE, every idea started as a little seed. It was the people who worked there who sprayed the fertilizer on it. I hope to be able to do that. I still love the game.

You say in the book that GE will have to change more over the next 20 years than it did in the past 20. What will GE look like when you’re celebrating Jeff Immelt’s retirement in 2021?

The portfolio will look different. I don’t know how exactly. But he’s got the courage and the brains to figure out where to go. And he’s got a board–I think this is critical–he’s got a board that knows that what I did wraps yesterday’s fish.