Tags: tastykake | bailout | aker

Company Too Reliant on Govt Candy

Wednesday, 06 Apr 2011 12:18 PM

By Chris Freind

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The publicly-traded Tastykake Corporation, baker of cakes and pies beloved by many nationwide, may soon see its products made by another company, if produced at all.

No matter how you bake it, the outlook for the financially-ailing company isn’t peachy. Tastykake sees its stock trading at a 28-year low, has delayed payments to creditors (including the state), and has yet to file its (now overdue) annual report to the Securities and Exchange Commission.

It may also have to shut down its new baking facility, despite that venture being subsidized by taxpayers to the tune of $32 million, where the company enjoys tax abatements through 2018.

Sure, there are the company-line reasons for the demise: increased ingredient costs, a large customer filed for bankruptcy, and the factory not meeting anticipated savings.

All true, but also possibly symptoms of a greater illness: a chief executive’s vision more rooted in government solutions than the free market.

Despite the sugarcoating that Tastykake was on the right track, embattled CEO Charles Pizzi has presided over the once-vaunted company’s precipitous decline. Can some problems be blamed on the recession? Sure, but welcome to the club. There’s not another CEO who isn’t facing similar issues.

A recent article in the Philadelphia Inquirer discussed Tastykake’s dire situation, centering on Pizzi’s “relationships” with government officials being the cornerstone of his leadership.

“Tasty's troubles — and Pizzi's — are a test of Philadelphia's industrial policy: The long campaign by city and business leaders to use taxpayer subsidies and personal connections to rebuild a shrunken industrial base,” business columnist Joe DiStefano wrote. And therein lies the problem.

Too many government officials and business leaders thought they were entitled to taxpayer money whenever a financial need arose, from pet projects to shipyard bailouts to yes, a new bakery. But now it’s time to pay the piper.

That practice has led municipalities, states, the nation — and pension funds — to the brink of collapse, as billions have been squandered on projects having nothing to do with the core functions of government. It didn’t matter that many of these initiatives were so risky that the private sector wouldn’t touch them, because there is “no risk” when taxpayer dollars are involved.


It’s a no-lose proposition: People pay ever-increasing taxes, re-filling government coffers, and the money supply for outlandish “investments” continues unabated.

That is, until the economy tanks and the house of cards crashes down. As a result, there is not enough money left for basic government services, such as education, infrastructure and pension payments, let alone bailouts and loans to private companies. (Unless, of course, you are Gov. Tom Corbett, who threw a bone to the unions by bailing out the Aker Shipyard in Philadelphia to build ships with NO buyers.)

Being politically-connected is smart corporate policy, but not when that becomes the centerpiece of business strategy.

In this case, mirrored throughout the nation, taxpayers staved off a company closing its doors, when the free market may have dictated otherwise. The risk isn’t taking taxpayer money, but thinking a company can operate profitably because of it.

“Like Aker, the new Tasty bakery is competitive, once you get past the debt,” the article stated, attributed to a prominent businessman and a former colleague of Pizzi's.

What does that mean? Subsidize ships no one will buy for a shipyard that can't make it on its own? Bail out Tastykake so it can keep the doors open just a bit longer, even though it can't make the grade?

It’s classic bury-your-head-in-the-sand 101.

Millions of Americans wouldn’t have foreclosed if only they didn’t have that pesky thing called a mortgage. America would be competitive if it didn’t owe $14 trillion. And, yes, Butler could have been NCAA Champion if it hadn’t missed 80 percent of its shots.

In the real world, these things exist. What separates innovative leaders from the also-rans is what they do with the challenges they face. Government cannot and should not be the answer to private sector challenges.

Politicians and business leaders who have grown accustomed to raiding the people’s Treasury have now been slammed with the harsh reality that the free ride is over. Companies and governments that adapt, becoming more efficient with less, will survive and prosper. Those that can’t will fade away, as they should.

Perhaps if Tasty’s leadership had concentrated more on free market solutions and less on feeding at the public trough, it would have weathered the storm and its profits would be icing on the cake.

Instead, Tastykake will soon be cooked, another inevitable casualty of corporate reliance on big government.

Twinkies, anyone?

Chris Freind is an independent columnist and television commentator who operates his own news bureau (www.FreindlyFireZone.com). He can be reached at CF@FreindlyFireZone.com













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