Posted on Saturday, November 17th, 2012 | In Market Commentary
When a company peddling sugar-infused cream rolls to the most obese population on the planet goes broke, you know market conditions have broken down.
Yesterday, Hostess Brands Inc., the company responsible for such delightful dietary abominations as Twinkies, Ding Dongs, Devil Dogs, Ring Dings, Suzy Q’s and, of course, Drake’s Coffee Cakes, filed a motion for bankruptcy.
Too bad. It seems Colorado and Washington states just couldn’t legalize marijuana fast enough to bolster demand lines for the financially-addled junk food outfit.
The Hostess announcement might have caused a wave of relief for clogged arteries and strained, double-wide diner stools around the country, but it also means 18,000 now-former workers added to the nation’s growing un- and under-employed lists. The move will also involve the closure of 33 bakeries, 565 distribution centers, approximately 5,500 delivery routes and 570 bakery outlet stores throughout the United States.
In a cruel, though not-unusual, twist of fate, many of those 18,000 workers were involved in the very strikes that ultimately crippled the company.
The Ho Ho’s purveyors closed up shop after a weeklong standoff with the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM). Yes, such a thing actually exists. A statement released by the company read:
The Board of Directors authorized the wind down of Hostess Brands to preserve and maximize the value of the estate after one of the Company’s largest unions, the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM), initiated a nationwide strike that crippled the Company’s ability to produce and deliver products at multiple facilities.
“We simply do not have the financial resources to survive an ongoing national strike,” warned Gregory F. Rayburn, chief executive officer, on Wednesday. “Therefore, if sufficient employees do not return to work by 5 p.m., EST, on Thursday to restore normal operations, we will be forced to immediately move to liquidate the entire company, which will result in the loss of nearly 18,000 jobs.”
Not good enough, retorted the unionists.
“Hostess Brands is making a mockery of the labor relations system that has been in place for nearly 100 years,” union president, Frank Hurt, said in a statement earlier this week. “Our members are not just striking for themselves, but for all unionized workers across North America who are covered by collective bargaining agreements.”
When workers didn’t return to man the mixers, Hostess shuttered shop…causing a flurry of #HostessShrugged hashtags to light up the Twittersphere.
BCTGM, which represents more than 80,000 industry workers, argued that the company’s policies would send its members back to workplace standards of the 1950s…back when people earned a 1950s wage and benefits package for performing a 1950s job…like quality control management on the Zingers and Sno Balls production line.
So just how hard done by were the browbeaten proletariats manning the Twinkie timers?
The mean hourly wage for the designation of “bakeries and tortilla manufacturers” was $12.57 in 2011, according to the Bureau of Labor Statistics. Workers manning the Hostess picket lines this week were earning roughly 35% more than the national average.
“The union’s demands had plagued Hostess for years, forcing — through the legalized monopolization of labor supply — wages that the market wouldn’t bear,” writes Bob Confer in a column for The New American. “The striking line workers were paid healthy salaries, $16 to $18 per hour. In a low-profit, low-selling-price business such as baked goods, those wages aren’t sustainable, especially considering that baking and distribution involve a lot of manpower.”
“Hostess was looking for wage concessions of only eight percent,” continued Confer. “Even after the cuts, Hostess still would have been paying their workers handsomely, 24 percent more than the industry norm. Mind you, this one-year cut would have been followed by guaranteed wage increases of three percent in each of the three years that followed, capped off by one percent in the fourth year. So, the pain would have been only temporary and cancelled out in just three years.”
Apparently, BCTGM had confused the relationship between employer and employee. It is a privilege to work for a company, not a right. Pension plans, medical coverage and other bells and whistles are not something automatically owing to each and every person capable of holding up a sign demanding such things. To the extent that these modern day luxuries are offered at all, they are offered at the behest of the company’s owners and/or management.
There will, no doubt, be complaints about the “greedy capitalists” who took advantage of the poor, helpless worker class. And, to be sure, insiders did award themselves some rather hefty raises when it became obvious the company had no viable economic future. (The CEO was gifted a somewhat tasteless 300% raise after the company filed its first bankruptcy suit earlier this year.)
But if the capitalists are so greedy, so profiteering, why stay and toil for them? If workers are unhappy, if they feel themselves poorly treated, they are free to leave and seek other employment at any time. They are also free to “down spatulas” and to collectively bargain…just as they are free to strike themselves out of a job.
The truth is that, without “greedy capitalists,” unions of the world wouldn’t ever have a Hostess to kill. So, our congratulations go to the aptly-named, Mr. Hurt. Now you and your comrades-in-arms can feast on 100% of the Cup Cakes that Hostess will never make.
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Best-selling investment author Bill Bonner is the founder and president of Agora Publishing. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also the author of the free daily e-mail The Daily Reckoning. Written in a wry, witty and often irreverent manner, The Daily Reckoning has offered its over 500,000 readers insights and advice not offered by today's mainstream media. The DR looks at the economic world-at-large and offers its major players - investors, politicians, economists and the average consumer - some much-needed constructive criticism.