Lessons from Hershey Fiasco

The Lessons of the Hershey Packaging Plant:

How to Build a Moral Economy That Honors American Values and Works Economically

Rick Bloomingdale and Stephen Herzenberg[1]

“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.

Even to this friend, a national expert on American corporations, the Hershey story had a “can you believe this” flavor? Here in the heart of Central Pennsylvania, a mix of bucolic small towns and professionals tied to medical facilities and state government, a U.S. multinational collaborates in a company-town scheme that would look make a 1900 coal baron or modern owner of a Mexican “maquiladora” assembly plant 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 Hershey Exel packaging plant episode is simply the latest step in a decades-long process by which Hershey has hollowed out its work force, 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? Hersey 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 while tarnishing its family-friendly image, the wholesome Hershey “brand” 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 towards 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. Ironically, in the case of Hershey, the shareholder is a trust to benefit a school for underprivileged children.

The lesson of the Hershey story is not about one bad company. It is about a marketplace that currently induces corporate behavior that is a dead end for the United States, socially and economically.

Corporations like Hershey, regardless of the risk to their reputation, 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, real policies are needed to make it harder for corporations to pay wages as close as possible to Third World levels.

One powerful way to do this is to make it easier for all workers connected to a production chain—such as Hershey’s—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--actually 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 or maintaining bargaining beyond even a single factory. By fragmenting unions, U.S. law makes it hard to maintain industry-wide wage and benefit standards. It gives free play to behavior such as Hershey’s, which undercuts the American social fabric and hurts our economic dynamism.

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-wages jobs to middle-class ones.

By blocking low-wage strategies, broad-based unions would also create a platform for performance improvement to flourish through worker-manager cooperation. Companies collaborating with unions could refocus on lifting the skills and capitalizing on the heightened commitment of workers.

Here’s another particularly salient benefit at a time when flagging investment, consumption, and government spending threaten to turn overall growth negative again. By strengthening the American middle class, broad-based unions would 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.

The Hershey company has an opportunity to step forward here and make amends—and not simply by forswearing use of foreign student workers at one packaging plant.

Hershey should voluntarily recognize its union at all of the factories and warehouses in the company’s U.S. supply chains, including the plants of contractors and subcontractors. Then Hershey should encourage its competitors to do the same.

This would be a fitting way for the Hershey Company—and the Hershey Trust—to return to its principled traditions. The future of the low-income children that are the Hershey Trust’s mission and purpose is grim indeed if the current level of economic and social inequality in America locks in for generations.

On the other hand, if the company recognizes the full implications of its own actions—and its own blind spots—it can with one powerful moral action change the future of the country. What would company founder Milton Hershey do?

[1] Rick Bloomingdale is the President of the Pennsylvania AFL-CIO and Stephen Herzenberg is an economist and the director of the Keystone Research Center.