Twinkies and the Private Welfare State

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.

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