Gutting Communities

I read a story carried by MSN this yesterday. It was on the dwindling fate of Lancaster, Ohio. The full story is told in a book entitled Glass House, written by Brian Alexander. The MSN article was written by CBS News reporter Aimee Picchi. You can read both the article and the book on your own time, but for now here’s a summary.

Anchor-Hocking is a glass maker and a once proud manufacturer. Lancaster was one of those hometowns that had a dynamic economy, strong population, good schools, pretty downtown and a community vibe that echoed ‘small town America’. It was a place you were proud to call hometown. Roots were good, deep and healthy.

But things began to go wrong in the 1980’s when Carl Icahn made a play to buy Anchor-Hocking. A buyer-seller game was played during this attempt and Icahn was paid to go away. His reward was a one time payment of $3 million. Instead of this being the end of the story, Wall Street took notice of the action and Newell Brands stepped in later and bought Anchor-Hocking outright. They sucked the profits out of the company and weakened it. Cerberus Capital Management then entered the picture and bought up the assets. From there it was all downhill.

How it works is simple: take a healthy balanced company and sell its products at cut rate prices in large lots; beat the hell out of production and keep the product flowing without reinvestment in the company’s production facilities. Freeze wages and hiring and squeeze as much profit out of the operations as possible.

This weakens the company’s ability to move forward, grow and prosper. Rounds of cost cutting take a toll on both personnel of the company and its community participation and financial contributions to that community. Once healthy and vibrant, community relations lessen and sour. The local tax base is damaged along with employment security. Then wage agreements and benefit plans are trimmed. Worker security is pummeled. Moods shift to defense and staying out of the poor house.

A capital management firm from Wall Street enters the picture and buys the company. Locals think they are saving the firm for a better day in the future. What they have really done is buy a gutted firm and continue the process. Benefit plans and their values are sucked dry. They are not replaced. Benefits disappear. Plant closings are announced and new investment in the firm disappears entirely.

In the 1980’s hourly plant wages averaged $21; now they are $12. No retirement plans and very slim healthcare plans. The middle class of Anchor-Hocking in Lancaster has been surgically removed. Now it belongs to the poor and part-time.

Curbs have crumbled, so too schools. Unemployment has soared. Property values have plummeted. Drug use among the bored and disenchanted youth has grown exponentially and moved to the adult populations as well. The town is down and out. And its people trapped with nowhere to go.

The importance of this story is this: a corporation is more than its products and corporate culture. It is the lifeblood of many communities. It certainly is the lifeblood of families dedicated to working for the corporation and supporting its successful operation. It is attitude in addition to work. And that makes the company successful. People and attitude.

Wall Street views it differently. Milton Friedman, a conservative economist from the University of Chicago in the 1980’s, championed money as the value center of all economic theory. He preached that corporations’ sole purpose was to make money out of assets and initiative. The money flowing from that enterprise was the value of it in whole and ought to be managed accordingly. He did not place a value on the company’s people or their lives in family or community. Those were collateral elements not central to the formula of success in economics.

At the time my economic education labeled Friedman’s theories as nonsense and dangerous. It would take many years for the truth of that viewpoint to become evident.

With investment in the company gone – bare bones maintenance of function only – so too disappeared investment in its people and its surrounding community. These are the hearts and souls of corporate life. The bean counters don’t notice such; but real people do.

And this, folks, is why economics matter. It is also why corporations are not real citizens under the law although the Supreme Court seems to think so.

Take the people out of economics and economics becomes a husk of misspent potential. It will fall of its own weight. In Lancaster, Ohio such is the case. And for Anchor-Hocking. And for all of its people.

How very sad is this tale. We can do better. We have to do better.

Follow trump if you will but this is his tale as well. He does not value people and community; only wealth matters. Better if that wealth belongs to him.

But the communities throughout the land? What of them? Well, it seems that has been left to you and I to watch over and manage in spite of the Friedmans and Trumps of the world.

Where oh where are the Fords, Rockefellers and Roosevelts when we need them?

April 5, 2017