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What Saved Hostess And Twinkies: Automation And Firing 95% Of The Union Workforce (Read More…)

Tim Worstall JUL 6, 2016

Unions fight for the working man and act as a counterbalance to the power of the capitalists. And there’s no reason why someone should not be able to avail themselves of such union protections–the right of association is as important a freedom as the right to free speech is. However, it’s also true that unions, just like any other form of human organization, can become stultified. They can become the problem rather than the solution to anything.

That was the case at Hostess, the producers of Twinkies. They went bust, twice, as a result of heinously bad union arrangements:

“Where the company just five years ago had 8,000 employees — 75 percent of whom were represented by unions — the company now says in filings that it has a “streamlined employee base” of roughly 1,170 workers. That workforce is the shadow of a once-vast empire, which shortly before its troubles totaled 22,000 workers across more than 40 bakeries.”

It wasn’t just one union that was part of the problem:

“Tuesday’s announcement is the latest chapter in the snack maker’s tumultuous century-old history. Hostess says it traces its beginnings to 1919, and it grew by absorbing competitors. In the process, it ended up with 372 separate bargaining contracts for workers, 5,500 delivery routes and a vast production system.”

The most recent investors who bought it out of bankruptcy did not in fact buy “the company.” They bought just some of the assets. This meant they could dump that entire union-based labor negotiation system:

“By buying the Hostess assets out of bankruptcy, Apollo and Metropoulos took them on free of employee benefits and other labor obligations that had weighed down the company.”

They then rationalized the production system. This is pretty much the same as stating that they automated it–or at least used different technology which amounts to the same thing. And yes, we should consider a method of organizing things to be a technology.

They went from local bakeries and delivery routes to a much more concentrated production system and delivery into warehouses. The cakes would then be delivered to retail outlets by the logistics system which delivered other products. This was aided by product changes to extend the shelf life–meaning there was extra time to use the warehousing system.

“Apollo and Metropoulos rode to the rescue the following year, paying about $410 million for the brand. The new management has slashed jobs and transportation costs and boosted distribution since taking over.”

Slashing jobs is what has been important. As we must keep reminding ourselves, jobs are a cost of doing something, not a benefit. And we need to recall this when we talk about the minimum wage. We will be raising the cost to people of getting things done. Businesses will either therefore do less or they will employ fewer people to do them. In this case, Hostess decided to change the technology to rely less upon human labor.

It is a good thing that Hostess and Twinkies survived (and vaguely interesting that they will float upon the stock market again), but the important point of the story is the decimation of the labor force.

Employing people is a cost. And when that cost rises, fewer people are going to be employed.

 

Posted by Admin on 07/06 at 08:24 AM
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