-14 votes

Vulture Capitalism — Not Unions — Killed Twinkies

Hedge funds took profits and piled on millions in debt at Hostess. They created this bankruptcy, not unions

By Jake Blumgart | Salon.com

As Hostess moved to end its operations last week — a bankruptcy judge asked the company Monday to try mediation with its unions; those talks are scheduled to begin today — commentators were eager to blame the rigidity of unions.

But the story is far more complicated than that — and in some ways, the exact opposite of the tale pushed by those on the right. It’s the story of two bankruptcies, hundreds of millions of givebacks from Hostess unions and hundreds of millions of debt piled onto the company by venture capitalists. It’s a story of management that boosted its own salaries, while failing to make agreed payments into workers’ pension funds. And it’s a story of changing tastes and diets.

To begin with, when was the last time you ate a Twinkie or chose spongy Wonder Bread over an artisanal or organic load? The company simply hasn’t been able to adequately compete due to a stodgy, moribund management that did not act to diversify a product base that hasn’t changed with the times (unless you count 100-calorie Twinkies packs). As the New York Times reported way back on Sept. 23, 2004, “People are still eating Hostess Twinkies and Wonder Bread, but the problem for Interstate Bakeries is that they are eating less of them.”

Read more: http://www.salon.com/2012/11/20/vulture_capitalism_not_union...

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They made the best Cinnamon Struesal cakes ever

melt in your mouth heaven

...But on a corporate level, their problems probably started happening when grocers began to add bakeries to their stores. Competition wore them out. It's really that simple.

3 things killed Hostess

First, people started eating better (organics, bakery foods, or stopped eating those kinds of things all together).

Second, bad management. They had 6 different presidents (or CEO) in 8 years, and they couldn't get themselves out of debt, either by getting rid of their unions or by other means.

Third, the unions expected the same pay or more, same benefits or more, in an economy getting worse.

This is all just my opinion anyways, I could be off on one or all of these. :)

and nothing to do with union rules

like not allowing the same truck loader to load a truck with twinkies and bread. Oh no, you need a loader for each type of product on the truck. The SAME truck.

no, rules like that have nothing to do with it.

Cyril's picture

These are called union optimization rules.

These are called union optimization rules.

But nevermind the business of course.

"Cyril" pronounced "see real". I code stuff.

http://Laissez-Faire.Me/Liberty

"To study and not think is a waste. To think and not study is dangerous." -- Confucius

What's the difference between venture and vulture capitalism?

What am I missing here?

Tu ne cede malis sed contra audentior ito

Cyril's picture

LOL. The noun qualifier ? ;)

LOL. The noun qualifier ? ;)

"Cyril" pronounced "see real". I code stuff.

http://Laissez-Faire.Me/Liberty

"To study and not think is a waste. To think and not study is dangerous." -- Confucius

Haha that sounds about right.

I guess it's easier to make up scary sounding names for things we don't understand than it is to actually learn about what's going on.

Tu ne cede malis sed contra audentior ito

Twinkie died because it was killing people.

When your product is so full of crap and has absolutely NO healthful quailities or benefits, eventually you kill yourself.

People are getting more savvy about nutrition and that business model simply doesn't work anymore.

Even schools are not allowing them in anymore.

It's not about the workers, the unions or even the management - it's a flawed product which killed their business.

The free market is speaking and no amount of papering over it will change anything. Only a different business model (creating a more desireable product) can save them.

"We have allowed our nation to be over-taxed, over-regulated, and overrun by bureaucrats. The founders would be ashamed of us for what we are putting up with."
-Ron Paul

Here is what killed Twinkie. Yikes!

Twinkie: Enriched wheat flour, sugar, corn syrup, niacin, water, high fructose corn syrup, vegetable and/or animal shortening – containing one or more of partially hydrogenated soybean, cottonseed and canola oil, and beef fat, dextrose, whole eggs, modified corn starch, cellulose gum, whey, leavenings (sodium acid pyrophosphate, baking soda, monocalcium phosphate), salt, cornstarch, corn flour, corn syrup, solids, mono and diglycerides, soy lecithin, polysorbate 60, dextrin, calcium caseinate, sodium stearoyl lactylate, wheat gluten, calcium sulphate, natural and artificial flavors, caramel color, yellow No. 5, red #40.[10]

I Have Millions of these things

in my end of the world bunker! I'm going to sell them and make a killing. And you thought Gold was a smart investment!...

Why is no one pointing out

That maybe it's their nasty products that lead to their downfall

Can anyone give a reason

Why it has not been suggested that workers step in to buy the company. Wasnt this what happened with GM?

deacon's picture

before delphi spun off

the members of the union tried to buy it
the higher ups in the union put a stop to it
went so far as to make sure that didn't happen
this is a fact,i saw first hand,as i worked for
gm,then delphi after is spun off,delphi with the help
of romney moved all the tools and the machines to mexico
deacon

If we deny truth before your very eyes,then the rest of what we have to say,is of little consequence

deacon's picture

where's the twinkies?

after a little discussion,we have decided
we cold make a lot more money,through the use of no unions
and cheap labor,to move our factories to mexico
we will keep this one open long enough to train the new hires
this factory should be phased out within the month
this move will save us medical,higher pay and benefits
as they will get none of this
deacon

If we deny truth before your very eyes,then the rest of what we have to say,is of little consequence

Nice attempt..

to spin the story of another failed union work force driving it's "hostess" into the ground!

When Fascism goes to sleep, it checks under the bed for Ron Paul!

tasmlab's picture

Would anyone care

Would anyone care about this company going under if it were, say, a port-a-potty leasing company or a commercial insurer that did policies for cabbage transportation? A regional dry-cleaner? A termite mitigation company?

Put this story on an emotional piece of junk food that most sensible people don't eat much anymore and all of sudden people have these grand insights into economics and morality and fairness etc.

(not picking on DP'ers, more just ranting on what I'm seeing around the web and with family and such)

Currently consuming: Gatto: "Underground history of education..", FDR; Wii U; NEP Football

Great point

Because everyone knows what twinkles are, everyone is all of a sudden an authority on how businesses should be run, how unions should behave and as such they want the government to institute THEIR solution to "save" the company.

The free market voted on Hostess-they lost -respect the vote!

Please subscribe to smaulgld.com

Being for management doesn't make one for capitalism

Just as being for unions doesn't make you a socialist.
In a free market unions exist.
In a controlled economy unions get special protections from government
In a controlled economy companies get subsidies, bailouts, special favorable regulation

In a free market companies compete for consumers and labor. The skill of management is judged by how well they manage their expenses (employee and other costs) vs the revenue they make from the sale of their products or services.

If they fail that's how the market works and other competitors will fill the void. If there is a demand for twinkles and they can be produced for a profit, a new entity will certainly make an effort to renew that business but will also certainly operate it differently. Maybe they will have more or fewer or larger or smaller bakeries, maybe they pay management more or less, maybe they pay workers more or less, may be they have more or fewer workers. Who knows? The market will determine what if any, a new twinkles company will look like.

The point is we don't know how to best run a Twinkies business. Unions may be at fault for the shut down of Hostess or maybe management made a series of missteps including overpaying themselves.

It's appropriate to study the hostess case for business reasons to learn why a company like hostess failed. I am certain many investment groups and entrepreneurs are doing it right now.

I don't think however it's appropriate to have courts second guess the management decisions or for their to be some type of policy to protect workers against mismanagement.

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Unions are Monopolies on Labor

"Just as being for unions doesn't make you a socialist."

Yes it does, or rather it makes for Central Planning (aka Socialism, Marxism, State Capitalism, Serfdom). Unions are Monopolies (Monopolies are Centrally Planned) over a labor market.

"In a free market unions exist."

No they don't. Free Markets (aka Capitalism in its original meaning/context) abhor monopolies. Unions are Monopoles on a labor market. They limit Competition which is necessary in a Free market.

Not to be a stickler, but Unions are nothing less than a Trust, Monopoly, or Cartel if you prefer over a Labor Market. Monopolizing Capital, Resources, and/or Labor creates a centrally planned (unfree) market.

So what about

Freedom of association?

If people have a desire to form unions they can, just dont expect any special treatment from anyone. Anything can exist within a free market, because people are free to choose.

As long as force is not imposed upon any individual and their rights infrigned, then where is the problem?

Do not get me wrong, at the current time, I hate unions, I am in Australian and this country is dominated by unions, and most of them are very militant and communistic, mainly because of our indoctrined population who have been lead to believe that socialism and communism are good ideas, and the current lack of understanding, of Liberty.

The thing is, in a free market, people are free to associate with who they choose, arnt they?

Association and Coercion are two different things

Just as Monopolies on Capital & Resources limit competition, Monopolies on Labor limit competition as well. A Free Market, in its purest sense is absent of, or can easily be, Monopolies.

The problem with Unions is not Free Association, it is the Coercion (wage fixing, benefit fixing, strikes, etc). As long as businesses are not forced to use a particular labor force at arbitrary rates, then there is no problem.

I'm curious as to the purpose of a Union if not to racketeer in a mild form or not.

"In a free market unions exist."

How? They are based on violence and coercion. How does that fit in the free market?

You are both right - unions if they are given

Government protection and are mandatory or exist under the threat of violence are not part of a free market.
The voluntary joining together of workers, however, to bargain collectively is part of a free market

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WRONG or RIGHT?

You use theoretical possibility instead of actual reality.

For example. Yes, under free-market capitalism, communists can chip in, buy land and do communal farm. (Such farms still exist today under mixed economy in some countries.) Under free-market capitallism, however, they cannot grow beyond a small religious or blood-related group.

Same with trade unions - under free-market capitalism, the employer will be free to tune up salary structure to reward real productivity. Thus, workers would compete to earn as much as they can instead of talking about fraternity of equal pay. There is NO "class interest" among workers or capitalists.

Sadly, our movement is weak...

SAG is a union like you describe

Unions aren't (in concept) about equal pay but preventing undercutting. I believe unions can be a good thing in a truly free market; guilds might be the better word though.

True.

Unions could exist in the free market..............marriage unions!

Confusion

has spread even into DP pages.

I would suggest to take Ludwig von Mises books as pre-requisit reading for anyone who wants to share wisdom from Salon tabloid.

People have through to do as

People have through to do as they wish with their company. No one forced th people to work at those plants. I think this is a great example of what unions do.

______
"When the people fear their government, there is tyranny; when the government fears the people, there is liberty."

I think the real question is

I think the real question is why are managers looking for short term profits? Why are they not incentivized to fixed the company and turn it into a source of revenue? Maybe the company was unfixable with too much bad management and/or union baggage. But once taxes and regulation are so costly, fixing a company is hardly worth it. And I can't help think zero interest rates have no part. As low interest rate encourage speculation not long term planning. Manufacturing and family owned businesses are gone because they are not profitable in this country. Let businesses keep their money and there will be far more of them and they won't have to operate on wire thin margins.

FYI - this company would

FYI - this company would probably work as employee owned.

Might get back to its kids oriented commercials too:

Zingers with Peanuts/snoopy commercial
http://www.youtube.com/watch?v=T_CJ06_3q4U

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