THE BLOG
11/20/2012 11:32 am ET Updated Jan 20, 2013

Apex Predators Eat Hostess Twinkies

"Parasites," we are told, "parasites" have consumed their hostess -- to be exact, Hostess Brands, the company that chose bankruptcy last Friday over dealing with its union. And who are these dangerous parasites? The workers who labored hard and long, in the face of steadily declining wages and benefits. See Robert Tracinski, "The Parasite That Kills Its Hostess," Real Clear Markets, November 19, 2012.

Tracinski is merely parroting the company line in his blame-the-victim column. He has allies, of course, in the right-wing commentariat. Take Rush Limbaugh. He may be a tired-out brand name that has long outlived its shelf life, but he was on the air Friday seeing a dark conspiracy in all of this: "The Democrats are taking the long view here, they're playing the long game. The long game is wiping out the Republican Party, not saving 18,000 measly jobs."

Haven't we had enough of the class hatred? Isn't it time to stop with the takers versus the makers? This right-wing fantasy tale of rapacious unions swamping an honest, struggling corporation is as tiresome as it is untrue.

Let's consider some history. Labor, in Hostess' case, is not making extravagant demands on the company. It is not insisting on a shorter work week, or a larger benefits package, or some huge increase in pay or perquisites. No. Indeed, this is the very opposite of the truth.

The Twinkie was invented in 1930 by a local bakery manager named James Dewar. He was responsible for baking the cups used for strawberry shortcakes, and he realized that if he injected banana cream filling into the cups he would have a year-round, not just a seasonal concoction. (See Nathan Aaseng, Business Builders in Sweets and Treats (2005), p. 80).

Dewar soon sold his product to Continental Bakeries which was already building a product line that included items like Wonder Bread. By the 1950s, these products, known under the label Hostess Brands, were poised to take off. Twinkies enjoyed particularly strong success. Thanks to their rich, delicious taste, creative advertising (Continental Bakeries sponsored the children's program "Howdy Doody"), and a plan that sought to grow the business, not exploit it for the short-advantage of some corporate overlords, Twinkies became an American success story.

It was Wall Street and its apex predators who consumed Twinkies, who devoured this iconic American brand, and who now wish to blame the very people responsible for its success -- its diligent and creative workforce -- for malfeasance that starts at the top.

In 1968, Continental Bakeries was acquired by ITT. ITT in the 1960s and 1970s was the poster-child for out-of-control corporate criminality, from bribery in Latin America to corrupt contributions to Richard Nixon. (See Lawrence M. Salinger, ed., Encyclopedia of White-Collar and Corporate Crimes (2005), vol. I, pp. 453-454). By 1984, with business losses looming, ITT sold Continental Bakeries to Ralston Purina. And thus Hostess Brands' odyssey continued, as it "was passed from one big company to another." (See "Half a Loaf: At Giant Baker, Freshness Project Takes Sour Turn," Wall Street Journal, September 23, 2004). In 1995, it was finally acquired by Interstate Bakeries.

By 2004, Interstate was in trouble. Mismanagement, not changing dietary habits, caused much of the company's difficulties. One business writer notes that Interstate's response to declining sales was precisely the wrong step to take: to save on costs, management "reduce[d] the amount of filling in the Twinkies [and] discontinued advertising." (James B. Shein, Reversing the Slide: A Strategic Guide to Turnarounds and Corporate Renewal, 2011, p. xxxii).

And when, predictably, lamentably, that solution failed to work, Interstate Bakeries entered bankruptcy and Hostess Brands fell into the maw of the hedge funds. And the hedgies did what they do best. They took advantage of bankruptcy not to discharge debt, but to load up on it. By 2009, when Hostess Brands emerged from bankruptcy, Dean Baker reports that "it exited with nearly $670 million in debt, almost 50 percent more than the $450 million it owed when it went into bankruptcy." (Dean Baker, "No Cupcake: Workers Turn Down Bad Deal From Hostess," Center For Economic and Policy Research, November 16, 2012).

The labor force who built the success of this formerly great company was devastated by the onerous conditions that it was forced to assume. Twenty percent of employees were laid off, the Company stopped making contributions to the employee pension fund, wages and salaries were reduced.

What did the workers get for these sacrifices? Their new corporate overlord, Ripplewood Holdings, continued to take on debt (the Company now is over one billion dollars in debt). Management paid itself ever more extravagant bonuses (according to Dean Baker, the CEO now makes $2.25 million and "other top executives got raises of 35 to 80 percent"). The Company then reentered bankruptcy earlier this year despite annual sales of over $2.5 billion.

As a condition of keeping the company afloat, management issued an ultimatum to the unions: we want more wage give-backs, we want deeper cuts to benefits, and we might, maybe, let you keep your jobs. (Another little noticed point is that even before making these demands, management announced additional plant closures and layoffs would part of any reorganization so even agreeing with management demands was no guarantee of employment).

The union had no choice but to strike. Its patience has been taxed past the breaking point. It has had its fill of empty promises and false dawns. The union has been asked to give and give, cut and cut, all the while management lards up on executive compensation and corporate debt. What the management team has now learned is that people who have lost everything will fight back. As the old refrain has it, "Freedom's just another word for nothing left to lose."

By the beginning of this week, management's real game is becoming clearer. The goal is not to rehabilitate the company and restore its proud brand. No, we learn rather that management wishes to sell off the brand to other private-equity interests. The game is really all about out-sourcing while blaming unions for the company's woes.

It seems just barely possible that management might not be able to pull this one off. The U.S. Trustee in Bankruptcy has made a motion before the court to investigate executive compensation. Federal bankruptcy court has also ordered the union and Hostess to enter mediation. (See 'Hostess, Union Agree to Mediate, Likely Helping Twinkie-Maker Avoid Shutdown,' Huffington Post, November 19, 2012).

The election just concluded was a rejection of corporate rapaciousness in favor of a more robust understanding of the common good. I hope the union is successful in attaining justice. I metaphorically stand with them, boldly, proudly, arm-in-arm, singing those famous words, "Solidarity Forever!"