As usual, the conservative media has whipped their side into a frenzy about the Hostess company going out of business. Those evil, uncompromising labor unions have forced 18,000 people right out of a job! And the liberal media has stoked their side with the “facts” they’ve chosen to highlight. Those evil, money-grubbing executives awarded themselves millions in bonuses that forced an unprofitable company right out of the game! We seem to have these little Indignation Buttons the media is so adept at pushing.
Both sides are not doing any sort of intelligent, responsible analysis. Driving emotion is what it’s all about right now. Let’s think deeper about the few “facts” we can determine.
I read Hostess dealt with three labor unions (bakers, drivers, pencil-sharpeners, whatevers). We know labor unions were awesome in their 1920s beginnings – kept children from dying, hunched over their factory sewing machines, right? Over the years, they’ve negotiated comfortable working lives for their members with high wages, benefit packages, generous sick days, vacation, all sorts of protective rules about work conditions. That’s very nice, I think. However, when all those things have to factor into the price of goods, we’ve seen labor costs drive the price up to a point where it is not competitive in its market. (And we’ve seen the quality fall as companies struggle to find ways to reduce cost inputs by using cheaper materials.) So…the market rejects the crappy, high-priced American offering. They’re not selling the quantity projected to keep the boat afloat, the amount needed to hold this house of cards stable. I do wish there was a way that workers could be paid whatever random amount they demand…but the economy doesn’t work that way. People will only pay so much for a Twinkie, you see, and the market will demand and consume only so many Twinkies. Granted, you can tweak this a little with marketing, but not enough to compensate for inflated labor costs for very long.
The politicians see an opportunity to look like heroes, and “save” these failing companies with a Big Cash Gift from the taxpayers to further the goal of keeping American workers employed. But, they’re interfering with the free market and rewarding a Stoopid Company who makes crappy, high-priced products. The market is not going to change its stance; millions of consumers are not going to suddenly storm the grocery stores, clamoring to buy Devil Dogs and HoHos. So, we’re in the same position in one or two years. The government bailout didn’t work, and the money was wasted – money that could have been spent by the taxpayer-consumers themselves choosing the best goods and best companies who will get to survive. Instead, it propped up an unworthy company in a competitive environment for another year, after the politician’s reelection. His personal mission was accomplished.
Let’s look at that labor cost. I read one story that focused on a baker in the baker union. His dad was a baker, generations of union bakers we have here (therefore I expect to see some feelings of entitlement, that someone has taken away something the bakers had every right to expect to go on forever). They were able to raise big, happy families on their baker union wages. Which for this particular guy was $48,000 a year. (As a point of reference, I have an advanced college degree, and haven’t seen that amount at any point in the last 10 years. I know lawyers who don’t make that right now. But, then again, I’ve never had a union job, or a government job, I’m female, and I live in Oklahoma.)
Is the labor to make a Twinkie really worth $48,000? How much would you need to charge for a Twinkie in order to be profitable once you’ve factored in the union costs to make it, pack it, and transport it (remember the three different labor unions)? It’s not feasible. Unless they achieved Crazy Quantity.
So, why weren’t millions buying the Hostess product? Could it be consumers are becoming more aware that these delectable, yet toxic, chemical bombs are really not good for us? And the market IS actually making a statement? And the Hostess company ignored its market’s trends? And failed to change in an ever-changing environment? Why did those greedy executives take huge chunks of money and bail out? Because they could. And it was smart, I guess. I mean, how do you change a company that is really old and its very core identity is making toxic, chemical bombs marketed as nostalgic food? It IS their only gig, right?
We have some ideas about the marketing and management aspects of Hostess. Let’s pretend we’re MBA hotshots hired to analyze this company for a case study and to figure out a way to make it profitable. (Trust me, those executives have already done this.) The biggest piece of all is the finance – what did the debt look like? Oh. We see that Hostess has been in bankruptcy court a lot recently, been bought and sold and bought and sold…they’ve been a sinking ship for a while. Why did the workers cling to a sinking ship? Surely, they could SEE the mismanagement themselves and were completely free to take their labor elsewhere, to a better, smarter company with a future. Just how much validity is there to their claims of victimhood? I’m beginning to see a picture of a really, big Twinkie slowly submerging into a glass of milk, with little people all over it ripping chunks out of it (the management, the banks who financed the debt, the labor unions, the politicians, etc.). Everybody wants their piece of rubbery sponge cake…no one really wanted to fix the company, knowing it was unfixable. And we liberal and conservatives have lined up on the appropriate sides assigned to us.
The only thing I read that shocked me was a consumer who proclaimed, very upset at the company’s demise, “I love these things! I eat them every day! And I’m diabetic!” Well, maybe you’ll be less diabetic now. Maybe the entire country will be. And this leads us to the really tough questions.
Does the government have a valid role in rescuing companies that cannot compete on their own (whether due to mismanagement, crippling labor unions, a disinterested market, whatever) in order to keep Americans in work? If so, what happens when the government chooses what companies will be economic winners? And finally, does the government have a valid role in regulating what its citizens choose to eat, for the common good? I believe the answer is no on all accounts, because the market will speak if you let it. Smarter people will choose wisely what to eat…the others will eventually die from disease. We have to let Diabetes Guy eat Ding Dongs until he explodes. This is the way real life works. And the companies who make products the people want will survive. There is no need for a clumsy government “solution.” I know, you’re thinking I sound like a cruel-hearted Nazi…actually, I’m rooting for those displaced Twinkie-bakers to create their OWN company making healthy, responsible food that people actually want and need to buy. But the biggest point of all here is: if the government picks the companies who will win by adding directly to their profit line with a cash injection, then eventually there will only be companies who serve the interests of the government, NOT me and you. We’re handing over our ability to choose what products we want to BUY to the government.
And yeah, we ARE all paying for Diabetes Ding Dong’s stoopid behavior by subsidizing his healthcare costs. And the only way his behavior will change is when the government (you and I) are NOT subsidizing it. But, that’s another story in which I try to make a case against government intervention in that area, as well.
Who wouldn’t love a Twinkie right now, by golly!? Packed with all sorts of goodness: high fructose corn syrup (linked to cancer), bleached flour (hey, bleach is not poisonous, right?). Actually, there are 37 different ingredients in this concoction, many which are “more closely linked to rocks and petroleum than the four food groups,” according to one researcher. We’re talking about sulfuric acid, phosphoric acid, lime, ethylene. Yum. (It’s interesting that there are plenty of scientists with studies, funded by companies like Hostess, who assure us that the chemicals in a particular food are perfectly fine for us! I’d like to see a real-world study evaluating the effect of ALL the chemicals ingested every day all day long…with that sort of exposure from different products from different companies from different parts of the world, is it still perfectly fine? But, who would fund that research? Lol Uhhh, NOT Hostess who only wants their particular product cleared for takeoff.)
My point is: maybe the market is working! Or trying to work, anyway, if we will just let it.
The next thing I expect to happen is the brands themselves will be sold, for further scavenging. Some huge food conglomerate will buy the name Twinkie, and continue to produce them for the market, scooping up any remaining niche capacity. They can inflate the prices in the beginning due to the scarcity theory in economics. (I heard people were paying $10 for remaining Twinkies in the market at this time. ??) There’s still a few bucks to be made, obviously. There are already knock-off, no-name Twinkie wanna-bes on the shelf.
What about those 18,000 workers without their $48,000 salary paid them to stand and push buttons on big machines? They’ll receive government assistance, and maybe when it eventually runs out, they’ll be compelled to find another union or better yet, government job.
I want to look at that guy’s salary again, in terms of the Big Picture. What happens to the labor market when a baker makes $48,000 a year? Or a guy sweeping the factory floor for a car manufacturer? The company not only looks to China and Mexico for cheaper material inputs, but you see a weird flattening in all salaries as well. The engineer designing the new line is paid less, too (that money has to come from somewhere to pay the union guys), in exchange for his highly skilled labor (which he invested five years of his life and took on enormous student loan debt to acquire). Everybody’s making $48K, that’s good, right? Not really…why would anybody go to college, study their butt off, and incur that crazy debt when they can just be a baker and make $48K? We’re rewarding the wrong things and are forced to BECAUSE for a company, the money is an end-sum game. There is only so much, you see. So whose outrage do you respond to? The new college graduates realizing they’ve been screwed or the newly unemployed bakers realizing they’ve been screwed?
In a primitive environment, the smart and crafty are supposed to be able to breed and prosper. That’s not what’s been happening. What will Future America look like…maybe LOTS and LOTS of people standing around picketing and whining to be saved by an inept government desperately slapping at the levers and cranks of the Big Economic Machine, with NO clue about what they’re doing.
There is so much messed up in our economy right now due to government efforts “to fix it,” that I have no hope of the market righting itself to natural equilibriums in my lifetime. I’m supposed to get excited about snack cakes? I’m more worried about the Twinkies, Ding Dongs, and HoHos running the country right now.
(Actually, this is the 5-year-old great-great-great-grandson of the man who started Hostess having his FIRST-ever Twinkie this week. The Ward family hasn't had any ties to the company in several decades.)
