Consider the Doughnut Man

The ‘doughnut man’ owns a small pastry shop in Madison, Wis. His doughnuts are popular among college students. Last year, fans ranked his bakery best in the city.

The doughnut man rhapsodizes at length about doughnuts, despite the long hours and trials of running a small business. Providing benefits— including health insurance—for his handful of employees is a major cost and challenge. He does what he can. He’s one of the hardest-working and most entrepreneurial people I know.

The doughnut man exemplifies two major economic trends redefining America’s great middle class:

1. The importance and growth of small businesses, and
2. The decline of manufacturing jobs that allowed workers to purchase a piece of the American dream.

Credit unions were chartered to serve people of “modest means,” and the bulk of the membership today is middle-class—from the low end to the high end.

Before he made doughnuts, the doughnut man was a long-term, skilled mechanic at the local Oscar Mayer food-processing plant. He had a good compensation package and planned to retire from Oscar Mayer. Then in 1981, General Foods bought Oscar Mayer, and then Phillip Morris bought General Foods and Kraft. Today, it’s all part of Kraft General Foods Inc.

More on the doughnut man in a minute, but these large corporate mergers and acquisitions began occurring with greater frequency in the 1980s. Corporate management of once-locally controlled companies grew increasingly distant with less emotional stake in employees and communities. The rise of globalization meant corporations, to remain competitive, had to increase shareholder value by driving down costs, particularly labor costs.

Traditional pensions began disappearing. Employees picked up a greater share of health costs. Wages stagnated or declined, even as productivity soared. Jobs were outsourced. White-collar workers lost jobs as often as blue-collar workers. Low-pay service jobs replaced better-pay manufacturing jobs. The social compact between worker, business, and government began to fray and tear.

Now back to the doughnut man. Oscar Mayer didn’t experience wrenching labor strife like the Austin, Minn., Hormel plant in the mid ’80s (the National Guard had to shepherd replacement workers to and from work during a strike).

But Oscar Mayer did shift its focus to reducing labor costs. Work slowdowns and deliberate sabotage of machinery were common. The doughnut man found himself working much longer hours repairing damage done by co-workers while the company wanted to pay him less. So he left.

Established long before the 
recent recession devastated the psychological and financial underpinnings of millions of workers and their families, the doughnut man’s story showcases how permanent changes in our economy already were eroding the foundation of America’s political stability—a financially secure and relatively prosperous middle class. Highly charged and partisan political debates over health care and national debt are due in large measure to the economic fears and angst of middle-class Americans.

Elizabeth Warren, Harvard law professor and chair of the Congressional Oversight Panel for the bank bailout, has written for years about the financial challenges facing the middle class. Recently, she warned that America’s middle class is on the verge of collapsing—“a middle class no longer synonymous with old notions of solid security, but living one paycheck to the next and one bad diagnosis or pink slip away from financial collapse.”

She’s talking about your members. No easy solutions lend themselves to such macro problems, but credit unions need to be aware of and concerned about these trends—whether in the context of the movement’s historical social mission or as issues that will have a serious impact on the bottom line.

The doughnut man found his personal solution—abandoning the no longer guaranteed security of working for a major manufacturer to open his own business. It’s a classic American success tale. But there’s not much room for millions more doughnut shops…or nail salons or restaurants.

MARK CONDON is senior vice president, business and consumer publishing, for the Credit Union National Association. Contact him at 608-231-4078 or at mcondon@cuna.com.