http://journals.democraticunderground.com/JHB/3Chapter 1 of "America: What Went Wrong" is open-acccess online and can be found here:
http://www.politicalindex.com/wrong1.htm Excerpt:
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Larry Weikel and Belinda Schell know all about the future. For them, it arrived in 1990 when they paid the price for Wall Street's excesses-and Congress's failure to curb those excesses. Weikel is forty-seven years old and lives with his wife in Boyertown, Pennsylvania. Their children are grown. Schell is thirty-three and lives with her husband and three children, two teenagers and a seven-year-old, in Royersford, Pennsylvania.
Both worked at the old Diamond Glass Company plant that had been a fixture in downtown Royersford for all of this century. Until, that is, the takeover craze of the 1980s led to its closing, to the elimination of their jobs and the jobs of 500 co-workers-and to profits of tens of millions of dollars for those behind it all.
Their stories are the stories of middle-class jobholders everywhere. In interviews across America, the authors heard a constant refrain. It was a litany sounded in city after city, from Hagerstown, Maryland, to South Bend, Indiana; from Hermann, Missouri, to Martell, California. Over and over, blue-collar and white-collar workers, midlevel managers-middle class all-talked of businesses that once were, but are no more. Sometimes the business was glass-making. Sometimes it was printing. Or timber. Or shoemaking. Or meat-packing. But always the words were the same.
They talked about owners and managers who had known the employees by name, who had known their families, who had known the equipment on the floor, who had walked through the plants and offices and stopped to chat. They talked about working with-and for-people who were members of an extended corporate family. And, finally, they talked-some with a sense of bewilderment, some with sadness, some with bitterness-of the takeovers, of the new owners and the new managers who replaced the old.
Sometimes those new managers knew the workers' names, but never the people behind the names. The new managers had only a nodding acquaintance with the equipment. And they were obsessed with meeting ever rising production quotas.
Listen to Larry Weikel, who grew up in Spring City, Pennsylvania, went to Springford High School, joined the air force, spent four years in the service, returned home and, in 1966, went to work at the Diamond Glass Company, a family-owned business that dated from 1874: "Everybody knew everybody. Everybody was friendly. The supervisors were all nice. The owner would come in and talk to you. It was just a nice place to work. It was a nice family, you know ... I loved to go to work."
Belinda Schell, born in Keyser, West Virginia, the daughter of a glassmaker, remembers how difficult it was to get a job at Diamond. Everyone, it seemed, wanted to work there. "It took me about two years to get into the plant," she said. That was 1984. But already the plant was operating under the new economic rules. The company embarked on a course that thousands of other businesses had embarked on and would follow-because the rules by which the American economy operates actually encourage it.
That course went something like this: Take the company public, borrow a lot of money to expand by acquiring other glass companies, run up the price of the stock and sell it off at a nice profit. At first, the process moved slowly. The company, which had changed its name to Diamond-Bathurst Inc., following a management buyout, picked up a second glassmaking plant in Vienna, West Virginia, from a bankrupt producer in 1981. Two years later, in 1983, it went public. Then, in April 1985, Diamond-Bathurst purchased Container General Corporation, a Chattanooga, Tennessee, glass manufacturer with twelve plants. And in July 1985, the company purchased most of the assets of Thatcher Glass Company of Greenwich, Connecticut, a manufacturer with six plants that was operating under the protection of a United States bankruptcy court.
Thatcher, like so many companies in the 1980s, had gone through a leveraged buyout in which managers and investors purchased the company with mostly borrowed money. So much borrowed money that the company eventually was forced into the bankruptcy court. That same month, Diamond-Bathurst moved from the drab second-floor offices above the aging Royersford plant into a modern office complex built into a hillside in the wooded and rolling countryside in Malvern, Pennsylvania. As Frank B. Foster 3d, the company's president and chief executive officer, put it at the time: "We became in three short months one of the largest glass-container manufacturers in the United States, with projected annual sales of $550 million." To finance it all, Diamond-Bathurst borrowed big. Its debt rocketed 700 percent, going from $13 million in 1984 to $104 million in 1985.
Wall Street loved it. The stock shot up from a low of $6 a share to a high of $29. Later, it split. Sales climbed from $62 million to $408 million. Profits went from $2 million to $11 million.
The Philadelphia Inquirer in July 1985 quoted a First Boston Corporation securities analyst, Cornelius W. Thornton, as saying: "There's a whole lot of synergism in this deal. I don't think the question is can Diamond pull it off. I think they've done it." They hadn't. But Wall Street has a short attention span and many investors already had made a killing.
It soon became clear that Diamond-Bathurst would be unable to make the interest payments on its mountain of debt. The debt was made possible by a Congress that, at the time, was working on a tax bill that would eliminate the deductibility of most forms of consumer interest but retain the interest deduction for corporations.
Without that deduction, much of the corporate restructuring that took place in the 1980s, and the job loss that followed, might never have occurred, since the deals depended on the tax advantage. The use of debt to buy and dismantle companies-instead of to build them-was exploding. Congress, in hammering out the Tax Reform Act of 1986, chose to ignore that phenomenon.
In any event, Diamond-Bathurst posted a $6.2 million loss for 1986 rather than the profit that had been forecast by stockbrokers and company management. In June 1987, Moody's lowered the credit rating on Diamond Bathurst's bonds. Company executives had already closed one manufacturing plant after another-in Indianapolis; Wharton, New Jersey; Mount Vernon, Ohio; Vienna, West Virginia, and Knox, Pennsylvania-abolishing the jobs of several thousands of workers.
It was not enough. In August 1987, a heavily indebted Diamond Bathurst was acquired by a competitor, the new corporate headquarters in Malvern was closed and more than 250 salaried workers were dismissed. The buyer was Anchor Glass Container Corporation of Tampa, Florida, a descendant of a leveraged buyout.
When the new owners arrived in Royersford, Larry Weikel, by then a shift foreman; Belinda Schell, a clerk; and other workers noticed an immediate change. "It just became so competitive," Weikel said, "and things just started getting nasty and out of hand. It just seemed like they didn't care what you did to get the numbers.... They'd expect you to get on somebody about a problem that wasn't their fault to start with."
Schell said Anchor Glass sent in managers from its plants in other parts of the country, and they issued conflicting orders. Jobs were eliminated and the remaining employees were pressured to increase output. But there was no investment in more modern equipment or new technology. The final day of production came in August 1990. Weikel, Schell and the remaining 275 or so employees were out of work.
Once again, their stories were much like the stories the authors heard in scores of interviews across the country. With few exceptions, the former Anchor Glass workers have moved into jobs that pay lower wages and offer reduced health-care benefits. Weikel works part time at a marine-supply store run by his brother-in-law. His wife works in a sewing factory, earning about $6 an hour. When he lost his job, he refinanced the mortgage on the family home and has been draining their savings. Jobs that pay the $15 an hour he earned at Anchor Glass do not exist.
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Without quoting still more, let's just say that all the executives involved in these mergers, buyouts, leveraging, and other reshuffling of assets all came out winners financially, no matter how the company did under them.
Story of the last 30 years.
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