The Hostess collapse has attracted an extraordinary quantity of news coverage. Free-market apologists have blamed the union for the bankruptcy because workers struck the company rather than accept a second massive round of concessions (following on $110 million in givebacks in 2009). Unions in turn blame the two hedge funds who hold Hostess’ debt, and who quickly decided that they could get a better return for their investors by liquidating and selling off the company’s assets and brands than by negotiating further with the workforce.

Workers everywhere are being asked to tighten their belts, with the situation at Hostess illustrative. Kansas receiving clerk Mike Hummell laid out how the company’s demands affected him in concrete terms. Not only would he lose his pension and pay more for lower quality health insurance, but his salary was to be cut in half. Hummell, who earned a family-supporting $48,000 per year in 2005 – would see his hourly wage fall to $11.26 per hour, around $25,000 per year.

That’s below the poverty line for a family with a stay-at-home mom raising three children.

The company was indeed facing severe economic distress, due declining sales of established products. Although it’s hard to see how the Hummell shares responsibility for management’s failure to create new products that appealed to changing tastes – and it didn’t foster trust when the company asking for concessions from its bakers managed to find a $2 million raise for its CEO – I don’t blame the company or even the hedge funds entirely for the catastrophe.  They were acting according the market incentives in operation today. The CEO got the salary he was able to extract from the firm. If the hedge fund managers had chosen to forego higher returns out of a desire to do right by the Hostess workforce, they wouldn’t be hedge fund managers for long. Their investors hadn’t signed up for a charitable endeavor.

But all this is a reminder that while free markets are generally very good at generating economic efficiency and growth, without careful social regulation they cannot be relied on to produce outcomes that are right or just. Our economy is larger and wealthier overall than it was a decade ago. Yet a decade ago it offered Hummell and his co-workers a job at a family-supporting wage, and now it doesn’t. That can’t be good for stable families, and it can’t be good for America, really.

 

 Clayton Sinyai is a trade union activist and the author of Schools of Democracy: A Political History of the American Labor Movement (Cornell, 2006). He is a member of the Catholic Labor Network, the American affiliate of the World Movement of Christian Workers. He can be reached at clayton@catholiclabor.org.