Lessons from Hershey fiasco

September 1, 2011

The Philadelphia Inquirer

By Rick Bloomingdale and Stephen Herzenberg

(for longer version, prior to the Inquirer's edits for space reasons, click here)

'What the hell?" wrote an out-of-state friend after reading about the foreign students paying for the privilege of packaging Hershey products at a warehouse not far from the town bearing the company's name. It's the type of scheme that would make the owner of a Mexican maquiladora blush.

Hershey Foods, its subcontractors, or some combination of the two brought foreign students here and paid them third-world wages. This bait-and-switch scheme promised cultural exchange but delivered hard labor and, when you take away all the company charges for transportation and housing, indentured servitude.

The packaging plant episode is the latest step in a decades-long process by which Hershey has hollowed out its workforce, turning middle-class factory and warehouse jobs into positions beneath the dignity of American workers. Step by step, rationalization by rationalization, Hershey shifted production to new, single-product non-union plants (Reese's Pieces), then moved plants to Mexico, and now this - always under the banner of competitiveness.

But does the pursuit of low wages actually make the company - or the country - more competitive? Hershey is a capital-intensive, continuous-process business. It has lots of equipment, not many workers, with labor a small fraction of costs. So it gains little from low-wage strategies that tarnish its family-friendly image that helps drive sales.

Low-wage strategies also undercut productivity growth and innovation. Marginal, temporary workers rarely participate with managers in systematic efforts to boost quality and efficiency. Supplier or packaging operations, isolated from the main plant so that workers can be paid less, are also shut out of efforts to improve performance.

Nationally, the corporate pursuit of the lowest wages drives economic inequality toward levels that have set off political unrest around the globe. Countries with narrow bands of super-rich rather than a robust middle class can't muster the political will to invest adequately in the education of the many or in infrastructure and research.

Resulting gaps in educational quality and access threaten to kill the American Dream, locking children into the economic and social station of their parents, all in the name of higher returns for shareholders.

The Hershey story is a lesson about a marketplace that induces corporate behavior that is a dead end for the United States, socially and economically.

Corporations cannot resist carving up their operations to lower wages and benefits. Whether companies relocate their own U.S. plants, contract out janitorial services, hire more temporary workers, or seek out vulnerable foreign workers, the common denominator of corporate restructuring is shrinking the core of workers you have to pay decently. The flip side of this strategy is the rock-bottom purchasing power of American consumers.

If we want to save the American Dream, policies are needed to make it harder for corporations to pay wages as close to third-world levels. One way to do this is to make it easier for all workers connected to a production chain to act together. Unions that cut across multiple plants and multiple tiers in a supply chain give workers greater power to resist the excesses of corporate "restructuring."

These types of broad-based or "network" unions - some spanning entire industries - exist in many European countries. The result is robust manufacturing exports, high productivity, and less inequality. U.S. law, however, is unique among developed nations in its hostility to extending bargaining beyond even a single factory. By fragmenting unions, U.S. law makes it hard to maintain industry-wide wage and benefit standards.

Broad-based unions that span manufacturing and warehousing, or whole service industries, could resurrect the American Dream of hard work in return for a middle-class life and upward mobility. Service industries such as hospitality and retail, health care, education, child care and long-term care account for nearly half of U.S. jobs and well more than half of the low-wage ones. Bring those sectors into broad-based unions and, presto, we just converted most low-wage jobs to middle-class ones.

Broad-based unions would also make it possible for workers' spending to drive the economy forward once more. Workers could afford to buy the goods and services they make. There would be less need to use the tax system and social programs to cushion Americans from hard times.

Hershey has an opportunity to step forward and make amends - and not simply by forswearing use of foreign student workers. Hershey should voluntarily recognize its union at all of the factories and warehouses in its U.S. supply chains, including the plants of contractors and subcontractors. Then it should encourage its competitors to do the same. This would be a fitting way for the company - and the Hershey Trust - to return to its principled traditions.

(for longer version, prior to the Inquirer's edits for space reasons, click here)