Hostess Twinkies Teach Unions Economics

The venerable Hostess Brands company, maker of Twinkies, Ho-Hos, Wonder Bread, and other baked delights, is shutting its doors, bankrupt.

The actions of the unions involved with the company offer some important lessons that all workers and citizens would do well to brand on their brains if America is to avoid economic and moral collapse under the kind of socialism now sweeping Europe.

DEATH BY UNION

Hostess has faced financial problems in the past. In 2009 it emerged from reorganization under Chapter 7 bankruptcy. But by early 2012 it again entered Chapter 7 and sought wage and benefit concessions from unions representing its workers. It didn’t have enough money to continue operating otherwise. Recently the largest union involved, the Teamsters, agreed. The smaller Bakery, Confectionary, Tobacco Workers and Grain Millers International Union did not and went out on strike.

The owners said that if the bakers did not go back to work by November 15, the company would shut its doors for good. The bakers stayed away and the next day they and over 18,000 Hostess workers, including the Teamsters and others who worked to save the company, found themselves unemployed.

TO WORK OR NOT

One might ask whether the owners could have simply fired the striking bakers and brought in non-union replacements. Would this have violated contracts or federal laws? Would the Teamsters have gone along with this?

Or one might observe that it was the right of the bakers to tell the company brass “Screw you” and to go find work elsewhere. But it will be interesting to see if the union leaders gave the now out-of-work rank-and-file bakers misleading advice: “Don’t worry guys. The owners will back down!”

It will also be comforting for Twinkies fans to note that the Hostess brand will probably be bought by some other party in the bankruptcy sale, and in the future their favorite snack foods will again grace the shelves of their local convenience stores, no doubt produced by non-union bakers. Good move, Bakery Workers Union!

WHAT WORKS

Workers are right to want the highest profits possible in the form of wages and benefits for their investment of labor. But like the Democratic politicians who they overwhelmingly support, they often ignore economic reality. They think that as long as they have political power to demand this or that benefit, someone will produce the wealth to pay for those benefits “somehow.”

Public sector unions, unfortunately, can pressure political friends to keep them in cushy jobs at taxpayer expense. Private sector unions have a tougher time doing this and that is why they have been in decline over the past four decades.

But the Feds recently used taxpayer dollars to bail out auto manufacturers and, thus, unionized auto workers whose high wages and benefits could not meet the market test. Perhaps other private unions are hoping for more of the same. Will there be Twinkie bailouts in the future?

Workers must understand that it is high productivity that allows them to trade their labor—driving a truck, baking bread—for houses, automobiles, food, clothing, smart phones and all the other things that make ours such a prosperous society. Such productivity comes when investors put money into enterprises that produce goods and services that these investors judge will make them more profit than if they put their bucks to other uses. Like workers, it is right that investors seek the highest profits!  And entrepreneurs are always experimenting to discover how they can produce or invent goods and services for a cost that will allow them to sell to customers and make a profit.  Labor is always an element—and sometimes the costliest element—in the production process.

Investors and entrepreneurs often find that producing certain goods and services is a money-losing proposition, and the high cost of labor is often the cause. “Gee, the Chinese can make umbrellas for $1 while it costs us $30. Let’s make something else!”

Whenever government steps in to help this or that enterprise or union, productivity suffers. We end up producing $30 umbrellas—or Chevy Volts! In the end the value of goods and services produced will decline and workers’ efforts will buy less. See the bankrupt countries of Europe for examples.

Workers must understand that market demand and economic productivity will have a lot to do with what wages they can secure or whether they have a paying job at all. Hostess bakers wanted the best deal they could get, but they ended up making Twinkies the $30 umbrella, so now they have neither wages nor jobs.


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