Hostess went off long before its Twinkies
By Christopher Caldwell
The company Hostess was descended from a big US bakery of the 19th century. The brand Hostess was stamped on the most typically American foods of the 20th. There was nothing like Hostess products elsewhere in the world – and the world had reason to be grateful. Spongy, airy, loaded with vegetable shortening, high-fructose corn syrup and various polysyllabic lab-concocted preservatives, they included Twinkies, which you could eat six months after you bought them, and Wonder Bread, a slice of which could be rolled in a schoolboy’s palms into a soggy, throwable sphere the size of a grape. When ITT sold Continental Baking (as Hostess was then called) to Ralston Purina, the dog food company, in 1984, it would not have been improper to speak of synergies. In January, Hostess sought bankruptcy protection. On Wednesday a federal judge gave the company permission to liquidate its assets. Gourmets will not mourn the loss.
But workers will. For the dark age of US cuisine was a golden age of good jobs. Hostess, 80 per cent unionised, was a throwback. It was also $1bn in debt. Hostess had asked its 18,500 workers to take steep wage cuts and sought to extricate itself from responsibilities to pay into pension funds until 2015. Executives warned the company would die otherwise. They were not bluffing. The company blamed one of its bakers’ unions for having “launched a campaign to cripple the company’s operations”. Those workers accused the company’s investors of “vulture capitalism”. An argument is about to begin on whether the bakers or the bankers were right.
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CHRISTOPHER CALDWELL
If there was mismanagement, it was well-meaning mismanagement. Far from being stripped by union-bashers, Hostess was an experiment in union promotion. As Fortune magazine has pointed out, the private equity company Ripplewood Holdings, its top shareholder after 2009, sought out union-friendly companies to strengthen. Ripplewood was close to Richard Gephardt, former House minority leader, and other Democrats.
In October, when the bankruptcy court got an accounting of Hostess’s debts, it opined that there “truly is no alternative transaction available” besides the company’s final offer. The Teamsters union counselled its members that the deal was rotten, but warned that “the likely consequence of rejecting it outright means the loss of your jobs”. Its members voted narrowly to accept it. The other big Hostess union, the Bakery, Confectionery, Tobacco Workers and Grain Millers International, counselled its members that “Hostess’s reorganisation can’t succeed ... the company will eventually be forced to liquidate anyway.” Members rejected the deal by nine to one.
This does not mean it would be right to contrast “reasonable” Teamsters with “behind the times” Bakers. For one thing, the Bakers were making less money than the Teamsters. For another, trade unionists get faced with unromantic choices when push comes to shove. Unionism militarises the workforce to conquer as much pay as possible. The generals of the Bakers’ union decided that it was not worth jeopardising the wage structure of the whole army to rescue the platoon trapped at Fort Hostess.
Hostess’s biggest liabilities, though, were its union-negotiated pensions. These fit poorly with the logic of both global competition and taxpayer-funded social security. And Hostess’s pensions were more illogical than most. Many were multi-employer pension plans (MEPPs), which pool the resources of employers within a given industry to create funds for given trades. The upside was that workers could move freely from company to company, while remaining vested in their pensions. This incentivised the bidding up of salaries. The downside was that MEPPs assumed total stability in the industry. A new company would mean a pension windfall. A bankrupt company would mean a shortfall. Master-fillers-of-spongecake sought to enjoy medieval stability while profiting from information age dynamism. In this they are not so different from their bosses. But a company can run out of money more easily than a union can run out of labour.
Hostess would eventually have wound up in a desperate pass no matter what its labour arrangements. Now that you can get a chocolate eclair that a Parisian connoisseur would find passable in almost any medium-sized US city, now that celebrities from Michelle Obama to the stars of the National Football League are advertising that the trans fats that traditionally went into Hostess foods will kill you, and now that the prices of flour, sugar and corn have risen even as disposable income has fallen, where are worker benefits and chief executive salaries to come from? Companies, unlike Twinkies, reach a point where you can tell that they’re stale.
The writer is a senior editor at The Weekly Standard
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