On Twinkies And Bad Capitalists

The mainstream media (it is supposedly liberal, remember) spent last week overdosing on sweets without first eating dinner. We have been told, repeatedly, that burdensome union contracts led to the (allegedly) untimely death of Hostess. Throughout America, decent and hard working non-union folks shook their heads at the foolishness of those greedy bakers who refused the new contract unilaterally shoved down their throats by a bankruptcy court.

They were greedy, they were inflexible, they have paid with their jobs. And now we Americans, the hard-working non-union types at least, are denied the Ding Dongs that are rightly ours. It is a dark day America, and exactly what many were expecting when President Obama was reelected. They don’t, after all, have Twinkies in Marxist Kenya.

Sure. In other news, Donald Trump has bankrupted three firms, but is still a good businessman.

What really disgusts me about this whole sequence of news, is the willingness with which otherwise intelligent people will accept it, and the utter lack of understanding for business that business reporters display daily. For the record, yes, legacy union contracts limited the flexibility of management in addressing value chain inefficiencies at Hostess. Also, it was foolish for the Bakers Union to first limit their terms of negotiations to their own contracts, then refuse the contract imposed on them. They fell on a sword without hope their sacrifice would yield anything.

But, and this is important, Hostess did not go bankrupt (twice) because of legacy union contracts. Like General Motors and Chrysler before them, Hostess went bankrupt (twice) because of atrocious strategic management. Much like four years ago, when U.S. automakers were pressed against a hard ceiling of debt, the source of the debt was poor strategic choices and inept brand management. GM faced twice as much in bond obligations linked to capital projects then it did in union pension and medical commitments, and it suffered from a bloated and unproductive brand structure that had lost the trust of American consumers.

Hostess at least had more obligations to pension plans than liabilities, but the reason for the bankruptcies was falling revenue. It is always, by the way, about revenue. Business always succeeds or fails at the top of their income statement, where the big numbers (revenue and COGS) sit. Unlike its competitors, Hostess never accounted for changing tastes and health-consciousness in American consumers, and their revenue suffered as a result. From $3.06 billion in 2006, revenue has fallen to $2.45 billion in 2011, yielding a 2 year loss of $477 million. Union payments did not suddenly go up, revenues fell as a result of top management’s inability to execute its job. Despite this poor performance, Hostess executives gave themselves large raises after filing last Spring. Disgusting.

As a capitalist and professional manager, the behavior of top management and the incompetence of business reporters is especially insulting. The activities of these latest suspects, along with much of the garbage coming from the general direction of the Fortune 500 since the election, is both despicable and contrary to smart business practice. Capitalism is about the private ownership of the factors of production, and labor has every right to own itself. Capitalism is also about taking the responsibility for market success and failure; the wealth that comes from successful choices, and the bitter taste of financial failure.

In our society however, it is more and more about labor tasting the failure, and management gaining the wealth. The executives who run these firms into the ground are entitled to their portion of shame and ill repute; if they can’t have their livelihoods taken by these losses like labor, they should at least be denied the free pass the media seems to give them when businesses fail. No more Cupcakes for you, incompetent fat cats!

 

The Rational Middle is listening…

 

One thought on “On Twinkies And Bad Capitalists

  1. re:" The executives who run these firms into the ground………….. They are the greedy bastards who always get away with a big check after they ruin the company and then blame the workers, unions etc etc.

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