Joel Bowman

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.

Newman on Seinfeld with a Drake's Coffee Cake

Sorry Newman…“No Cake For You!”

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.

Ouchie!

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.

Double ouchie!

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.

Joel Bowman
for The Daily Reckoning

Joel Bowman

Joel Bowman is a contributor to The Daily Reckoning. After completing his degree in media communications and journalism in his home country of Australia, Joel moved to Baltimore to join the Agora Financial team. His keen interest in travel and macroeconomics first took him to New York where he regularly reported from Wall Street, and he now writes from and lives all over the world.

  • Erik

    I’m no pro-unions left, but this blog has gone increasingly Randian in recent days. It’s moving towards a dark and disturbing place. This is the post that finally pushed me over the edge to unsubscribe. It used to be filled with a lot of thoughtful analysis, but now the Randian agenda pushing is dominating too strongly… not worth my time. Thanks for all the enlightening posts, though, back in the old days!

  • Moderaterepublicanwithnoparty

    There is no mention in this article about the raises given to upper management in the last year. One example is the CEO going from $750,000 to $2.5 Million plus bonus (not performance based) while asking the workers to AGAIN take cuts (this is the second bankruptcy). Bad management ran this company into the ground. Sacrmento Bee had a great article about how none of the management had a history of work in the industry and how they have basically run the company into the ground. Everytime I read an article here it is based on almost all one sided propaganda and fantacy. And we wonder why we lost the election? The bankruptcy has been in the works for almost a year prior to the strike. Try posting some real journalism and take the time to get all the facts, some may not back your position, but they might just give you a shred of creditablility.

  • Moderaterepublicanwithnoparty

    valid point

  • PeterPan

    I agree. I grew tired of the whole Agora schlepp some time ago. Waste of time and money.

  • Slim

    Heres a great idea, let Hostess hire illegal immigrants so the company can save 5 dollars an hour on labor and everyone else can pay for the education, healthcare and schools of their families. I know it has not occurred to the author, but an 8% hit on 16 bucks an hour is devastating. Next week they can sign up for unemployment, food stamps, medicaid and rent vouchers and give themselves a raise. No wonder this country is in the shape it is in.

  • rod

    You are 100 percent correct!

  • http://twitter.com/stanchaz stan chaz

    It’s a little more than a fart joke. It’s 18000 people getting fired…a gift for Christmas.

    Romney’s gone, but vulture capitalism lives on. Hostess Brands, the company that makes Twinkies, Ding Dongs and other desserts, filed for court permission to go out of business —blaming a worker strike for the shutdown.
The Wall Street hedge fund managers who run the company have squeezed every cent out of Hostess for eight years. And they’ve put their friends with no experience in the baking industry in high-level management positions 
What’s happening here is a classic Bain Capital-style assault—blame the little guy to cover the greedy corporate policies that are gutting the middle class.
It’s not just happening to the workers who make the great products Americans love. What’s happening at Hostess is happening to workers all over this country. It’s wrong. And it has to stop.
Crony capitalism and poor management drove Hostess into the ground, not the workers who are now paying the price. In this struggling economy, the greedy corporate executives are willing to let 18,000 people lose their jobs—just so they can pad their pockets.
Hostess’ executives are now blaming workers who’ve offered their company multiple concessions and want it to succeed. This is what’s wrecking our country.
Workers have borne the brunt of bad decision-making by executives who didn’t know anything about the baking business. And they’re the ones getting fired?
These brave workers need to know we stand with them—and we’ll stand with everyone who will take a stand against the corporate race-to-the-bottom.
Hostess workers are being scapegoated because they are standing up to corporate greed.
Hostess’ executives are now blaming workers for poor decisions they made that drove Hostess into the ground.What’s happening here is a classic Wall Street tactic—blame the little guy so that they can cover their greedy corporate policies that are gutting the middle class. Sign this pledge to stand with Hostess workers and against the tide of corporate greed wrecking our economy. http://act.aflcio.org/c/18/p/dia/action3/common/public/?action_KEY=5109

  • bubba

    The weakest writer on the daily reckoning’s roster, no doubt. “Working for a company is a privilege”? According to who? Mao? uncle Ho? Your view of the story seems rather one-sided. Perhaps that is why your analysis is so shallow, but then again, maybe you really are as partisan as your article suggests.

    It’s too late in the game for this sort of thing Mr Bowman, you are falling behind the times. The house is on fire and burning down fast. Should we really be arguing whether it was the unions’ or the “greedy capitalists'” fault?

    The whole world is waking up to the fact we have been bankrupt for a long time, that the money is not real, that such a system must inherently collapse, and that this collapse is now upon us [kind of a theme around this site, ironically]. The unstable conditions brought about by our phoney money and big brother government are what ultimately brings things to the ground.

  • forgotten_man

    Well actually he did , taken from the article you are commenting on…

    “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.)”

  • forgotten_man

    When I read this I thought I was reading an archive piece from the 1970 and 80s!

    It may not be a “privilege” to work for a company but it certainly isn’t a right…unless of course the full title of the nation formerly known as the United States of America now has the word “Socialist” just after the word United now,

    If someone goes for a job then there is a negotiation and , if employment happens, an agreement between the two parties. If either side doesn’t like it later either one can walk. I have , several times.

    The union seems to have managed to get an unskilled worker on a wage similar to my wife, who is a nurse which is a whole lot more of a job than watching twinkies pass by.

    So they have done pretty well then.

    Trouble with political appointees in financially critical positions (for that IS what union reps. are.) is that they seem to think that if it works once, twice , many times it will always work.

    As we have also seen from national government(s) they seem to be surprised when it finally stalls out and crashes.

    On the other hand the “greedy capitalists” (complete I’m sure with top hats and suits.) are realists and businessmen in the main and will anticipate and arrange to mitigate and get around obstacles. That’s what they do. That’s why we are not living in caves.

    If any of them felt they were being underpaid they could have taken their skills elsewhere.

    If they couldn’t get a better paid job elsewhere then that would imply that they were probably getting the best they could at that time.

    To then chop away on the branch you are sitting on probably was bad advice from the (still being paid.) union rep.

  • Kevin O’Neill

    Why should tax-payer’s subsidize corporations? If a company keeps cutting wages eventually workers end up qualifying for public assistance. The wage is no longer a living wage. This is the race to the bottom that is all too often the result. Executives and private equity partners get richer and the working poor have to work two jobs or file for assistance.

    Hostess’ union bakers had already given back 100’s of millions in concessions thru the first round of bankruptcy. They’d seen their pension money ‘borrowed’ – i.e., stolen. They’d seen the workforce slashed from 38,000 to 18,000. They’d seen nearly two dozen plants shut down with more to come (but the company wouldn’t tell them which ones).

    As one union baker put it: “It will be hard to replace the job I had, but it will be easy to replace the job they were trying to give me.

  • Kevin O’Neill

    The data I’ve seen shows RNs making an average of $65k/year and LPNs making $45k/year. The top paying union baker wage at Hostess was $34k and the company’s contract offer would have reduced that to $23k by 2017.

  • forgotten_man

    Medical staff in the US are paid a fair bit more than the UK where my wife is a nurse where she gets around an equivalent of $37k basic. There are some specialist nurses who get to $65k and even beyond but they are few.

    I am led to believe that the cost of living…excluding medical…is quite a bit lower there than in the UK.

    So $34k for essentially unskilled is pretty damn good.

  • Kevin O’Neill

    Yes, and how much do those English nurses pay for healthcare?

    A family in the U.S. will have a difficult time buying a decent health insurance plan for less than $10k/year and that’s with high deductibles and co-pays.

  • forgotten_man

    Directly almost nothing. But then that was the whole idea of the NHS. Indirectly we pay quite a bit of tax.

    On that $37k gross she pays around $9k tax and the employer will pay a further $3k so the “take home” is about $28k…but the total tax paid on the wages bill is 40% on anything after the tax free threshold which is currently around $11k.
    we have a sales tax (VAT) of 20% on everything except food books and childrens’ clothing.

    we have a local “poll tax” of around $1900/y but can be a lot higher, based on property values.

    And “Gas” at around $9 gallon.. admittedly our gallons are a bit bigger , 4.45 litres if you go French.

    Consumer goods are quite a bit cheaper there , it has been common practice for many years for people here to go to New York for a week , buy all the Christmas presents and fly back and the airfare is paid for by the saving in prices.

  • http://www.facebook.com/june.larsen.129 June MacGregor Larsen

    Back in the 1980’s I was working for a large wallpaper manufacturer, as Secratary to the CEO. One day the replacement I was training and I were in the break room. At the other end of the room sat the shop Union Rep. and the Head of the State Union. We overheard the shop Rep. say to his “boss”; ” I don’t care how long the strike will be ; I’m getting paid whether those suckers do or not!!” I have had a different view of Unions ever since!!!

    When Unions were first started, there was a dire need for someone to negotiate between workers and management. Most of the Union Leaders then were morally decent men who really cared for their Union members – and much good was done – back then!!!

    The Thugs that run the Unions these days will stop at nothing; as long as they have the final say!!! Companies do what they can to stay in business — not to close them!!!
    RE Hostess: et al: Because the Union wouldn’t compromise for a lower rate – TEMPORARILY – [and as I understand it would have been a temporary lowering of wages, with the promise of management of gradually higher salaries in the next four years], how many families will now go hungry or be out on the streets when/if there is no work!!!

    Don’t blame Employers for the Government’s greed and regulations!!

    Hostess will not be the first nor will it be the last company to close their doors due to the overburdening of government’s excessive rules and regulations!!!
    Some of you need to see the film “Atlas Shrugged II” !!

  • waffenss

    So, it looks like Hostess will be sold and some financial pages are saying that a Mexican Company may step up to the plate(so to speak). Move operations to Mexico, stuff the twinkie with dope, wow, what a concept.

  • ajp4to

    Talk about a hollow argument! Its against the law to hire illegals… but if it wasn’t, at least there would be 18,000 people employed not collecting benefits.

  • ajp4to

    Those unethical, dishonest, corruptible, immoral management people! If only they could be replaced the workers would not be out of a job.

    If only the business was run by the union. The union could pay the employees everything they wanted. Hopefully the union will now buy out the business, and show how a company should be run. Without highly paid executives to worry about the company with prosper!
    After all, everyone knows what “ethical, good, honest, incorruptible, morel people” union leaders are.

  • ajp4to

    Maybe they all should be RNs? Why be a baker or a RN, when you can earn more being a doctor?

  • http://www.facebook.com/david.horace.5 David Horace

    “The bankruptcy has been in the works for almost a year prior to the strike.”
    Yeah, that’s a good time to go out on strike. Geez.

  • http://www.facebook.com/david.horace.5 David Horace

    “The bankruptcy has been in the works for almost a year prior to the strike.”
    Yeah, that’s a good time to go out on strike. Geez.

  • http://www.facebook.com/david.horace.5 David Horace

    Have a Twinkie. You’ll feel better.

  • http://www.facebook.com/david.horace.5 David Horace

    Have a Twinkie. You’ll feel better.

  • http://www.facebook.com/david.horace.5 David Horace

    The only people who make money in a bankruptcy are the lawyers. It’s not some magic fairyland where everyone except the workers gets rich.
    Take a guess what used bakery equipment goes for. About 5 cents on the dollar. And in this environment, there is no hope for unloading or leasing the buildings, real estate, and trucks. Ths tax-loss carry forwards are likely the most valuable asset.

  • http://www.facebook.com/david.horace.5 David Horace

    Now they have the privilege of saying that they really showed the company a thing or two.

  • http://www.facebook.com/joseph.weber.31 Joseph Weber

    Kevin, do you know how much it actually costs to produce a drug and complete the FDA mandated testing? $873,000.00. This ensures that only the largest government granted monopolies can complete this, eliminating small to medium size companies from competing, and monopolizing the market further, completely the opposite of what would actually occur in the market process. Not to mention that drugs for rarer conditions will not be produced because it simply is not feasible with these monsterous costs associated with attempting to run a drug through the FDA process.
    It is humorous the medicine costs are directly increased 85-100% due to the FDA, who also delays medications to the tune of estimations ranging to a 1,000,00 people dying as a result, a year, of this wait, and “liberals” blame the same government created and monopolized HMOs and insurance companies, who were given a government granted monopoly, not the market…and yet it’s the markets fault, right?

    A market oriented and run regulatory body would be far far superior because they actually have a stake in their own accuracy, would actually be legally liable, and have to maintain their own reputation to survive.
    THAT is why YOU and I cannot afford healthcare in the U.S. and why is functioning directly the opposite of what common sense, demand and supply, would dictate that it would.

  • http://www.facebook.com/joseph.weber.31 Joseph Weber

    Kevin, for instance a study was done recently in which they analyzed the average cost of a $23,000.00 car, when all of the taxes, fees, etc are added in, involving all of the companies contributing parts, inlcuding hidden taxes, the actual cost of the car including profit and pay for employees is $12,000.00! The rest is ALL hidden taxes!
    Wo exactly do these taxes actually hurt? The companies or the workers who recieve far less wages, benefits, and jobs ultimately as a result of these taxes, and the middle and lower class people who have to pay literally $11,000.00 in taxes for this car! How many clothes, food, furniture, healthcare items, etc could they afford without these absurd taxes being forced upon them?
    And at the end of the day, after the taxes have crippled their economic ability to live what are they handed by the same government politicans who claim to be fghting for the working man by taxing these companies when they are actually taxing the workers and consumer? What do they recieve? A food stamp, unemployment checks, welfare checks.

  • Jeremy

    Dude, your math sucks horribly. The average wage was listed as $16-$18/hr. If we use $17/hr, the yearly wage would be 35360/yr. If they took the 8% cut, they would only make 32531 the first year. The next year they would have been guaranteed a 3% raise to 33507. Year 2 would have had another guaranteed 3% raise to 34512. Year 3 would have had another guaranteed raise to 35547, putting them right back where they started. If we use your numbers, 34K -8% would be 31K. How in the h3ll did you get 34K – 8% equals 23K? Also, where I live, RNs make on average 50K, and LPNs make about 38K. Bakers make the same 35K in this article. The average wage of all workers is about 24K. So Bakers make almost 33% more than the average Joe.

  • Jeremy

    Yeah, so 18500 people have no income to spite a CEO who made $2.5 million he didn’t deserve. I think if that was the REAL fight, then they fought it completely wrong. I would rather have taken a small cut and had an income, then took to the media to expose the CEO. But hey, you have an income, so you can see it anyway you want, huh?

  • Former routesales for hostess

    I worked for hostess for 20 plus years and am amazed about how people are so misinformed abour its history problems and reason for its demise.But it does prove the fact that what you read on the internet should be viewed with caution.

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