Twinkies and the Private Welfare State

A thoughtful post, reflecting a nuanced analysis almost entirely, and unsurprisingly, absent from the corporate media. - promoted by Bob_Neer

Until I was diabetic, I loved Twinkies. I don’t eat them now, and given recent the health professions attitude toward nutrition, I don’t think transfatty, cream-filled spongecake the texture of an un-upholstered couch cushion are part of a growth industry. In fact, sales have been dropping steadily in the last few years.Two thousand and eleven sales were down 11% from 2008 which were down 28% from 2004. Hostess was able to emerge from bankruptcy because of an infusion of private equity in 2009.

Nevertheless, that hasn’t stopped people from blaming union workers.

One of my friends was bemoaning the demise of Twinkies on Facebook and garnered a bunch anti-union comments. Here’s one:

It’s good to know the union has the resurces to pay all strikers $200 a week and to feed them free food on the picket line. Maybe if they took a small paycout and stopped paying the union dues, they would still have jobs.

What’s sadly typical here is the kneejerk anti-unionism. In fact, workers were presented with a choice of an 8% cut to employees’ wages, a reduction in health benefits, and a freeze in pension plan payments for more than two years. There’s plenty of typical anti-union stuff around if you want to read it, and Hostess, of course, blames the union. But the story is less than simple.

From a labor point of view, it’s hard to know how many concessions are too much. This situation is complicated by the entry of a private equity firm, the poor management of Hostess in the face of a declining market, and yes, labor. As Fortune Magazine reported in January,

But in truth there are no black hats or white knights in this tale. It’s about shades of gray, where obstinacy, miscalculation, and lousy luck connived to create corporate catastrophe. Almost none of the parties involved would speak on the record. Still, it’s clear from court documents and background interviews with a range of sources that practically nobody involved can shoot straight: The Teamsters remain stuck in a time warp, unwilling to sufficiently adapt in a competitive marketplace. The PE firm failed to turn Hostess around after taking it over. The hedgies can’t see beyond their internal rates of return. Et cetera, et cetera, et cetera.

(Since this article’s publication, The Teamsters had made substantial concessions and settled with Hostess). Hostess has been a troubled company for the last 25 or 30 years, being ”sold at least three times since the 1980s, racking up debt and shedding profitable assets along the way with each successive merger.” Much of this turbulence seems to have started when Hostess (originally called Interstate Bakery Company) was purchased by a computer leasing company. Its business failures include acquiring Drakes Cakes and the introduction of Twinkie Bites  while at the same time, failing to develop new products or market existing products in ways that might have prevented the company’s decline. Management stated that they would pay themselves $1 this year, but this offer fell on deaf ears after they having given themselves substantial raises last year.

Although most of the blame seems to be going to the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, it’s hard (for me, at least) to blame them for refusing to make concessions. The fact is, Hostess may not have been viable a year from now. The company is still in bankruptcy and Its trajectory wasn’t promising. It’s not hard to imagine the company seeking more concessions next year or using bankruptcy to get out from under its pension obligations.

What lessons can we draw from the demise of Hostess? The anti-unionists would like people to blame unions: ff the unions hadn’t been greedy, workers would still have jobs. In our world, where we put profit over products, workers always get paid too much. The best thing I’ve read comes from the true left, Jacobin magazine:

the structure of the company’s labor costs is not a completely bogus issue either. The main issue, as it often is in these cases, isn’t wages but benefits, especially for retired workers. When Hostess went into bankruptcy earlier this year, Pensions & Investments reported that seven of its eight largest unsecured creditors were union pension funds, and that the company faced $130 million per year of required contributions to these plans. And like all American companies that offer health insurance, they faced rising health care costs due to U.S.’s uniquely irrational and inefficient system of privatized health care. It’s absolutely true that these benefits were negotiated fair and square, and the workers have every right to them. But promising future benefits without worrying too much about how to pay for them is a problem for a lot of companies, and it was a way of pretending to continue the Fordist compromise of labor-peace-for-rising-wages long after it had become inoperative in reality. Continuing to fight on this terrain will always put labor on the defensive. It’s worth noting that the Teamsters’ own position already included significant concessions on pensions.

It may or may not have been possible to keep servicing all these obligations while keeping the company profitable, under more enlightened management.

The answer, according to this unabashed, socialist point of view is simple, and entirely contrary to much of American thinking: we have a privatized welfare state. The government provides health care and retirement in most advanced industrial countries. America relies on the private sector, which has been increasingly uninterested paying for the commonweal.

…workers deserve universal health care, a good pension from Social Security, and dare I say it, even a Universal Basic Income to support them while they try to find other jobs. The fact that we depend on a privatized welfare state where all these things are tied to jobs is bad for workers and bad for the country.


11 Comments . Leave a comment below.
  1. Situations like this...

    …must always force the question, how much compensation were the company executives willing to sacrafice when they were asking their workers to sacrafice. Given obesity rates in this country we might be better off without Hostess anyway.

  2. Found the answer

    Hostess triples CEO pay and significantly increased other executive salaries, so why isn’t the story: Hostess Closes Due To Greedy Management?

  3. "Help me suck at my job for longer"

    That’s the message the CEO is giving workers, and it’s amazing people buy it. When a team gets a bad coach, the smart fans call for the coach to be replaced, not for extra practices to balance out his inability to do his job.

    Why some people think that working men and women are obligated to take food off their tables to balance out corporate idiocy is beyond me. It seems that Omnipotence of the Manager is being built into capitalist dogma.

    sabutai   @   Sun 18 Nov 11:42 AM
  4. In the 1950s, the Hostess founder spoke about the common good

    He did a segment on This I Believe.

    Thinking of what people want does not start with self; it starts with the Golden Rule. It comes from the heart. Basically, a person must love others. One must feel for others, before he thinks for them. Success will often elude the man ambitious for his own gain, and choose instead to bestow its rewards upon the man who finds the answer to the question, “How can I help others in what I do?”

    It’s worth clicking through the link to read the full quotes from the Hostess founder as well as the modern news stories. One can really see just how different business is today.

  5. Hostess: 50% pay cuts

    From CNNMoney:

    Mike Hummell, a receiving clerk and a member of the Bakers’ union working in Lenexa, Kan., said he was making about $48,000 in 2005 before the company’s first trip through bankruptcy. Concessions during that reorganization cut his pay to $34,000 last year, earning $16.12 an hour. He said the latest contract demands would have cut his pay to about $25,000, with significantly higher out-of-pocket expenses for insurance.

    So, take the company with a crappy product and crappy management bankrupt, triple CEO’s pay and raise other executives’ pay, and then cut workers’ pay by 50% and then BLAME THE WORKERs when they don’t show up for work? Fuck you!

  6. Why just this morning

    the fatuous George Effing Will blamed the workers for their 327 collective bargaining rules.
    Of course, George Effing Will neglected to tell us what his contracts with numerous media outlets say.

    • re George Will

      He also predicted Romney would not only win the election but also win MN, WI, MI, and PA in addition to sweeping the actual swing states. He also helped Reagan cheat during the 1980 debates. Of course his entitlement to a salaried chair at a weekly Sunday news panel is earned in spite of his spurious denial of basic facts regarding global warming, electoral data, and the fact that his beloved Cubs will never win a world series.

  7. Translation

    The Teamsters remain stuck in a time warp, unwilling to sufficiently adapt in a competitive marketplace.

    Whenever I see this kind of thing it makes me sick. What they’re really saying is that the Teamsters had the temerity to attempt to hold on to some of their hard-fought wages and benefits.

    It’s amazing how often you hear today that the money isn’t there. Whether it’s public investment or private wages, there’s just no money. It’s nonsense. 50 years ago, in 1962, our real Gross Domestic Product was $3.1 trillion (in 2005 dollars). This year it’s 13.62 trillion (in the same 2005 dollars). That’s a 339% growth. It has nothing to do with inflation; it’s in constant dollars so it’s all growth. In that same time our population grew from 186 million to 314 million, only 68% growth.

    As a result, in constant dollars our GDP per person is 2.6 times higher today than 50 years ago. And that’s GDP, what we make here on our soil. So what they really mean is labor protections are weaker and capital is mobile, free to seek more profit or obscenely low wages elsewhere. The private equity dirtbags hold the leverage today and they’re going to use it.

    We have the money for public investment and the individual income of every American, from the poorest to the richest, to be up significantly. Instead we’ve given virtually all the gains to the top few percent. That is, in whole or in large part, due to policy choices in the political arena. It is is what I’m talking about when I talk about a new progressive economic paradigm to replace Reagan-Bush-Romney economics (maybe Romney didn’t win but he’s the poster child for the economy of this era).

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