Glass House

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Brian Alexander. Glass House: The 1% Economy and the Shattering of the All-American Town. New York: St. Martin’s Press, 2017.

Ask any American why so many manufacturing plants have been closing across the United States, and the answer you will probably get is that they moved to Mexico, or their products couldn’t compete with Chinese imports. Brian Alexander doesn’t deny the role of globalization and foreign competition in the decline of a Midwestern manufacturing town, but he has a different story to tell. It’s a story that is more about the workings of the domestic economy in an era of extreme inequality. Playing a prominent role in this story are private equity firms that buy and sell companies for short-term gain, finding ways to profit even at the expense of the acquired companies themselves and the communities where they are located.

An “all-American town”

The setting for Alexander’s story is Lancaster, Ohio, a manufacturing town that flourished in the decades after World War II. In 1947 it was celebrated by Forbes magazine as the “epitome and apogee of the American free enterprise system” (in Alexander’s words). Its largest employer was the Anchor Hocking glass company, formed by the 1937 merger of Hocking Glass and Anchor Cap and Closure. It was one of the biggest American companies to be located in a small town. “By the late 1960s, it was the world’s leading manufacturer of glass tableware, the second-largest maker of glass containers–beer bottles, baby food jars, coffee jars, liquor bottles–and employed more than five thousand people in Lancaster, a town of about twenty-nine thousand back then.” This was the era when a young man could graduate from high school, join the union, and make good enough money to support a family at a middle-class standard of living. Production and consumption worked together in a virtuous cycle: The workers, who in the 1940s included many returning GIs, “were marrying, setting up house, and having babies. And they needed glass: glass dishes glass tumblers, glass cookware, glass jars.”

Managers and laborers didn’t always see eye to eye, but they lived in the same town, grew up attending the same public schools, made friends across class lines, and shared some civic pride. Wives, who were less likely to be employed, devoted themselves to civic causes for the betterment of the community.  While emphasizing Lancaster’s general harmony and community spirit, Alexander does not overlook the flaws. The small minority of African Americans in town “were treated as barely tolerated guests” and confined to the lowest jobs.

Perils of private equity

By the 1980s, Anchor Hocking was facing some new economic challenges. Aluminum cans and plastic bottles were replacing a lot of glassware. Large discount retailers like Walmart were pushing suppliers to lower prices. Global commerce was increasing, and America’s strong dollar was making imports relatively cheap and exports relatively expensive. Nevertheless, few analysts were ready to give up on the company. Because glassware is breakable and often heavy, it isn’t the easiest product to import. Anchor Hocking also had the advantage of experience and versatility. “No other company made glass using as many different processes, or had as many different products sold to retailers, the food service industry, candlemakers, florists, winemakers, and distillers.”

Anchor Hocking remained profitable, but its declining revenues made it a target for takeover bids. Other companies, especially private equity firms, saw an opportunity to buy Anchor Hocking at a reasonable price, make some changes to boost profitability, and then sell it for a quick gain. In theory, such a takeover could be a win-win for everybody–the firm that makes the acquisition, the investors or lenders who finance it, and the employees of the company acquired. The trouble is that the acquiring firm can arrange things so that it can get more out than it puts in, even if the acquired company continues to do poorly. In fact, the acquiring firm’s quest for short-term profits can actually impede long-term growth and help it do poorly.

Private equity firms have a number of techniques for maximizing gains for themselves while imposing risks and costs on others. They acquire businesses by borrowing other people’s money, but structure the deal so that the debt is carried by the company acquired. Much of that company’s revenue then has to go to debt payments rather than to investments in future performance. New owners looking for quick profits may relentlessly cut costs by cutting wages, skimping on maintenance and training, or underfunding retirement plans. Product quality, worker morale and customer loyalty may suffer.  They may sell off assets and then have the company lease them back, producing a short-term gain at the expense of a longer-term cost. Private equity firms can also charge acquired companies high fees for advising them on what to do. Even if the acquired company has to declare bankruptcy–and Anchor Hocking did it twice–the private equity firm will have taken out more than it put in, leaving any losses to be borne by workers, retirees or other investors.

No wonder that the critics of private equity firms have viewed them as “chain-saw cowboys who slashed employment, cut investment, and shut down marketing and research–all in order to goose the bottom line just long enough to foist a shiny, but hollowed-out and highly indebted, company onto new buyers and then count their money on the helicopter flight from Manhattan to their summer houses in the Hamptons.”

Signs of social decay

By the time a series of new owners had bought and sold Anchor Hocking, the company was a shadow of its former self, with many of its operations shut down or sold off and most of its workers gone. Along with the decline of other manufacturing firms in Lancaster, the impact on the town was devastating. The poverty rate of families with children under five rose to 38 percent, while the percentage of mothers who married the fathers of their babies declined. Department stores that had served the middle class disappeared, and “retailers to the impoverished” like tattoo parlors, dollar stores, pawn shops and payday loan offices proliferated. Loans  for people with shaky finances became more available, but at subprime, exorbitant interest rates that kept people deeply indebted.

More subtle but equally important was the impact on local culture. What Alexander calls “a subculture of immediate, if temporary pleasure” spread at the expense of the traditional culture of work, responsibility and aspirations for the future. Robbed of so many opportunities to produce something of value, more people focused on consuming things, especially pain-killing drugs. The fact that dealing drugs was more lucrative than most of the jobs available to people of limited education fed the supply along with the demand.

As the tax base eroded, and as confidence in government and the future declined, the town spent less on things like schools and good roads. And yet it scraped up money to provide tax breaks for the companies that promised to come in and save local businesses. The top executives of those companies didn’t live in Lancaster and had little stake in the town and its residents. What was left of the local leadership was “incompetent, or just overmatched,” which reinforced the lack of confidence in government. Those residents who did have good jobs were often people who commuted to Columbus and had little time for participation in local affairs.

As for the town’s future, Alexander has this to say:

Lancaster, as a place, would survive; it was too big to dry up like a Texas crossroads bypassed by the interstate. Maybe it would sell scones and coffee to visitors and one day complete a transformation, already well under way, into a Columbus bedroom community with organic delis and rehabilitated loft apartments in the old Essex Wire building. Or maybe it would slide into deeper dysfunction. For sure it could never go back….

Continued

 

 

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