TOS Blog: Daily Commentary from an Objectivist Perspective

Tuesday, November 20, 2012

Rights-Violating Union Laws Threaten to Kill Hostess

Posted by Ari Armstrong at 7:30 am ET

The news reads like the pages of Atlas Shrugged: The Bakery, Confectionery, Tobacco Workers and Grain Millers union forced Hostess Brands Inc.—makers of such products as Twinkies and Wonder Bread—into liquidation, and a judge has ordered the company and the union back to talks.

Hostess announced November 16 (prior to the latest court ruling):

[Hostess] is winding down operations and has filed a motion with the U.S. Bankruptcy Court seeking permission to close its business and sell its assets, including its iconic brands and facilities. Bakery operations have been suspended at all plants. . . .

The Board of Directors authorized the wind down of Hostess Brands to preserve and maximize the value of the estate after one of the Company’s largest unions, the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM), initiated a nationwide strike that crippled the Company’s ability to produce and deliver products at multiple facilities. . . .

The BCTGM in September rejected a last, best and final offer from Hostess Brands designed to lower costs so that the Company could attract new financing and emerge from Chapter 11. Hostess Brands then received Court authority on Oct. 3 to unilaterally impose changes to the BCTGM’s collective bargaining agreements.

Hostess Brands is unprofitable under its current cost structure, much of which is determined by union wages and pension costs.

People have a moral right to form unions and other types of groups—just as employers have a moral right to negotiate or not negotiate with unions and to hire or not hire union employees. Unfortunately these moral rights are not recognized by U.S. law, which has for decades violated the rights of employers by granting coercive powers to unions—often forcing businesses to “negotiate” with unions and concede to their demands—resulting in higher unemployment, higher prices for consumers, and unsustainable production costs that have driven many companies out of business or overseas.

It is time for Americans to recognize the immoral, rights-violating, business-destroying, job-killing nature of coercive, government-backed unions. And it is time to repeal the laws that grant unions the power of the gun.

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Image: Wikimedia Commons

Posted in: Unions

Comments are welcome so long as they are civil.
  • paul jackson

    You must be forgetting about Enron, Lehman Brothers, Bernie Madoff, Worldcom, Conseco, etc.Unions had a lot to do with them going under…….Oh wait, it was greed and illegal activity. There is plenty of blame on the other side.

  • Bruce Crichton

    Nice bit of off-topic drivel.

    As it is, those you mention were guilty of fraud.

    So what if non-union people were greedy for the unearned? Objectivism condemns greed for the unearned outright.

    You also convenient ignore that this article is not about unions as such but about government backing for unions to demand loot.

  • http://www.maymidnight.com/ Brendan Moore

    Looks like poor management on the company’s part is the real cause for its insolvency. http://www.deathandtaxesmag.com/191242/hostess-execs-give-each-other-300-raises-before-declaring-bankruptcy-blaming-unions/

    Maybe this is just an example of the market doing what it does best, and cleaning out bad investments? Even if the unions hadn’t struck and didn’t have government backing, it looks like Hostess might still have been in trouble.

  • Jake

    No offense, but there’s not much substance to this article. Sure, there are coercive union laws, and sure, Hostess is going out of business over union troubles (and also because of antiquated factories), but you haven’t established any link between coercive laws and this case.

    Which specific coercive laws were applied in this case, to give Hostess’ unions what edge?

  • Anonymous

    It’s govt.-backed union rules and costs that hold the business hostage. That’s all that is needed.

  • Anonymous

    There is no evidence of that. Costs were driven up substantially by the union rules.

  • Anonymous

    Re-read: “U.S. law… has for decades violated the rights of employers by granting coercive powers to unions….”

  • Anonymous

    This:

    As South Carolina prepares for Boeing’s arrival, the National Labor Relations
    Board’s acting general counsel has other plans for the company. Upon the request
    of the International Association of Machinists and Aerospace Workers union, the
    general counsel filed a complaint against Boeing asserting that Boeing’s
    decision to open the plant in South Carolina violates the National Labor
    Relations Act. The general counsel, who under the NLRA acts as a prosecutor,
    will try to convince the five member NLRB that Boeing’s decision violates the
    amorphous prohibitions against interfering with, restraining, or coercing
    employees in participating in their union activities (i.e. striking) and
    discriminating “in regard to hire or tenure of employment or any term or
    condition of employment to encourage or discourage membership in any labor
    organization.”

  • Anonymous

    Costs were also driven up by Hostess buying all sorts of competitors and accumulating debt that they had no way of paying off. This behavior was self-destructive, which is why they went bankrupt several years ago and employees agreed to pay out of their pensions to save the company.

    Several years and several large CEO exit payments later, Hostess is back in the same situation, not because of the union, which played ball with them up until this point, but because management, in spite of Hostess’s popular and iconic brands, continued their failing business practices.

    When ClearChannel goes bankrupt next year after its employees refuse to take yet another haircut, should the employees be blamed for ClearChannel’s accumulation of 16 billion worth of debt from buying failing businesses?

    When several years from now the same thing happens to Kmart-Sears-Autozone, will we blame unions too? This modern “Bain Capital” way of doing business where you just buy various unrelated companies and begin the now impossible task of making them “efficient” has got to go.

    Now, companies certainly should have the moral right to negotiate with unions or not, but there are more important things influencing these economic issues today than forced negotiation. Focusing only on this point, while evading the larger picture is an act of ideological rationalism. It is to push one’s agenda without a care for the full context of the problem. It is a knee-jerk reaction from those whose romanticized view of “business” causes them to conflate that concept with “a business”. Hardly an “Objective Standard”.

  • Anonymous

    First, companies do not take on debt for the purpose of failing; and unions are certainly not the only ones who lose when they fail.

    Second, the Bain’s of the world perform a great service to the economy. They take struggling companies and attempt to make them healthy – and succeed most of the time. Do you really think those companies are better off failing earlier without the attempt to revive them?

  • Anonymous

    It doesn’t matter what their purpose is. It matters what the result is based on their method. Still, it may well be that those who are doing the investing (in particular cases) expect failure/not care in the long term, knowing that will have moved on to other things by then. As pragmatists, what will it matter to them? It is possible to make money while destroying a business, ask the mob, it’s just that, as you know, one eventually run out of entities to loot. Looting with concent, albeit, but it’s still looting in the sense that there’s no intent to actually produce anything.

    Do I think those companies are better off failing earlier without the attempt to revive them?

    Let me put it this way, a person who is braindead but on life support is still “alive” by definition. But what does it accomplish?

    Reviving a business takes more than integration with a larger entity that has deeper pockets. What that accomplishes is letting the bleeding go on longer and longer, a la ClearChannel. These businesses don’t need a breathing machine, they need a new set of lungs, or the courage to flip the switch. Without ideas, without thought, there is no real value to be had, it’s dead alive.

    A new set of lungs means identifying and eliminating the practices that caused the problems and applying new business practices and strategies instead.

    We can’t forget however, that the toxicity of state intereference is not just in the hoops businesses have to jump through, it’s in how those conditions poison the business culture and lower the sights of most investors and creators.

  • Anonymous

    Of course it matters what the purpose is. You are inappropriately judging the business, and begin with the wrong assumption re venture capitalists. They intend to revive the companies they take over, regardless of state – or union – interference.

  • Anonymous