Twinkies were back in stores Monday, which could also mark the unofficial end to post-mortems on why their former maker, Hostess Brands, went bust last year. Twinkies were back in stores Monday, which could also mark the unofficial end to
Twinkies were back in stores Monday, which could also mark the unofficial end to post-mortems on why their former maker, Hostess Brands, went bust last year.
The unions blamed incompetent management. Management blamed inflexible unions.
Twinkie lovers didn’t care. They were just glad to munch on their sponge cakes.
Before everybody moves on, though, there’s a little lesson here about government mission creep.
According to the Labor Department, Hostess was done in by overseas competition, its 18,000 workers displaced by foreign imports. That ruling allowed laid-off bakers and drivers to get expanded federal benefits under a decades-old program known as Trade Adjustment Assistance.
TAA awards training, income support, relocation allowances and other benefits to workers whose jobs have been shifted out of the country or eliminated by foreign competition. Democrats in Congress have insisted on the program as a quid pro quo for their support of free trade deals. It’s a little more than a $1 billion program.
Is the competition for Twinkies, Ho Hos and Wonder Bread made by low-cost labor in China? No.
The U.S. bakery industry has relatively little foreign competition. Some imports come from Canada, where sugar prices are lower because U.S. subsidies protect American sugar growers. Some imports come from Mexico and Europe. They’re a modest share of bakery sales.
The Hostess workers qualified for TAA nevertheless, because practically any busted company that fights through the thicket of red tape in this program can get the benefits. The law requires a showing that foreign competition “contributed importantly” to job losses. As the TAA officer who signed off on this case once told The Wall Street Journal, “virtually anybody can qualify.”
The real problems at Hostess were no mystery. The company struggled for years before its bankruptcy. Its executives failed to invest in its brands. Despite the legendary status of the Twinkie, the Hostess product line failed to keep up with consumer tastes.
The company’s pension and medical costs were higher than its domestic competitors. Union rules made its operating structure unwieldy. When a restructuring expert hired to save the company from liquidation failed to reach a contract agreement with Hostess’ second-largest union, it was bye-bye Twinkies. In bankruptcy, it sold off its assets to various buyers.
As a result, Hostess Brands now has a far less costly operating structure. Production has been consolidated. Some of its previous workers were hired back at lower pay rates, under common-sense work rules. Hostess, for instance, now can deliver to warehouses that supply retailers instead of only delivering directly to stores. That will dramatically expand the availability of its products and save labor costs.
The good news: The products still will be produced in the United States. Funny how none of the companies that picked up chunks of Hostess in its bankruptcy seemed terribly concerned about competition from bakeries abroad. Whatever the Labor Department says, the Hostess brands are well-positioned to grow again.
Thousands of former Hostess workers have gone through the pain and uncertainty that hits all workers who lose their jobs. But the injection of Trade Adjustment Assistance here was a stretch. Just one small reason why federal debt has sprinted past $16.8 trillion.
