Engaging the Great Lakes-Midwest Economic Downturn

ClevelandGreat Lakes/Regional Economic RevitalizationSummit April 17, 2008

Quick Note on SVA and Economic History

SVA and the SEWN Network

WORKING TOGETHER TO SAVE JOBS

WHAT IS THE STRATEGIC EARLY WARNING NETWORK?

The Steel Valley Authority is a unique development agency founded in 1986 to retain and revitalize the region’s economic base and preserve jobs.

In 1993, the State of Pennsylvania charged the Steel Valley Authority with developing a Strategic Early Warning Network to help save area companies and jobs. Since then, the Steel Valley Authority has helped scores of companies and saved thousands of jobs.

Our Strategic Early Warning Network provides a wide variety of professional and consulting services at no charge. We work with all interested parties: workers, management and owners.

Our only objective is to save jobs in Pennsylvania.

Experience shows us that a company’s problems are easier to address before they reach the crisis stage. It is also easier and less costly to save an existing local company than to create a new business or attract one from outside the region.

With 48 hours of your call, the Steel Valley Authority’s staff will contact your company’s management, owners or employees to set up site visits and plant tours. We will assess the situation and help to define your company’s critical problems. Then, working with all parties concerned, we’ll inventory all available resources and help develop solutions.

Formation of the SVA

Long-term aim: To rebuild the manufacturing and infrastructure bases of the Tri-State region, and provide a voice in the economy for working people. The result of deindustrialization in Pittsburgh and the Mon Valley? Six towns bankrupt. So, we fought to save jobs.

As co-founder Tom Michlovic said: “The SVA is like the Rodney Dangerfield of economic development—it gets no respect”.

Have a Latté* with the SVA (*Layoff Aversion Training/Technical Expertise)

What’s Happening to our Jobs and Communities?

Manufacturing Jobs Hit Hard 2001-2005

U.S. Manufacturing Employment, January 1991-March 2005*

14.0

14.5

15.0

15.5

16.0

16.5

17.0

17.5

18.0

Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Millio

ns o

f Jo

bs

* Data Seasonally AdjustedSource: U.S. Bureau of Labor Statistics

What’s the Big Picture?

                                                  

What's New

Big Picture?

The Great Lakes states lost 1.5 million manufacturing jobs from ‘98-’5 due to the recession and chronic trade imbalances. Since then, the Big Three announced ½ million new layoffs, mostly in this region. It is now hitting tier 2/3 suppliers.

And, there is a melt-down in the housing market, due to asset bubbles and sub-prime loans. Result? Falling prices, downturn in construction and spending, tightening credit. March saw a 58% jump in foreclosures (almost 1/4 million per month).

What’s behind these events? Normal business cycles? Wall Street? Bad federal policy?

Big Picture?

Yes, but there’s more. During this period, a fleet of mega-private equity and hedge fund began buying out long-established corporations. Then, in too many cases, they began “stripping and flipping” these firms. Too often, the result was job losses, the loss of labor collectivity and undesirable social and community effects.

And blue-chip banks and hedge funds began betting hundreds of billions on insolvent mortgage-backed securities and exotic investment vehicles that re-packaged sub-prime loans. These bets were “tranched” and re-sold so many times that financial experts don’t understand the depth of the financial crisis.

Big Picture?

Working families have endured one speculative bubble after another. Their retirement systems have been exposed to excessive systemic risk due to short-term investment strategies, as the Conference Board warned. ]A major wave of de-leveraging is under way and has further to go, according to DismalScientist. Now, we’re seeing runs on these same blue-chip banks and many of the “the New Masters of the Universe”—as the mega-firms are called--have imploded or faced liquidity events, losing $1 trillion, including retirement assets (among them, Bear Sterns, Northern Rock, Amaranth, Société Générale, AQR, Zwirn, Sowood, Cheyne, Carlyle Group).

Big Picture?This overall process is called the “financialization” of the economy—short-term investment in hot money and asset churning and property liquidation, instead of investing long-term in the real economy-- and is condemned by International Labor. The European Labor movement has led the fight to re-regulate financial markets and remove tax incentives.

Many union and state public pension funds, unfortunately, made investments in these complex, fast-moving, hot-money arenas. Thus, our own savings and assets have been plowed into investments that caused systemic financial risk.

Our capital stewards--the trustees of trillions of dollars in funds that are meant to care for working people-- need to consider the long-term interests of their beneficiaries, which also include the interests of their communities.

And where are the feds?

In times of economic stress, the federal government is supposed to step up to help people. But as the Administration and Congress bails-out Bear Sterns and banks and other corporate interests, what is it saying to Americans de-frauded into bad mortgage deals? Lost your house? Relax….

When the Administration and Congress passed the stimulus bill and did not help the unemployed or re-authorize TRA, and the White House just cut $250 million from training, and continues to gut social programs for war, what does it say to dislocated, unemployed Americans? Lost your job? Lost your car? Relax…

Relax. Take a Walk.

.

Relax. Take the train.

.

Relax. You can retire to Hooverville.

.

Policy Approaches for Intervening in the Economy

Why Manufacturing Still Matters

Productivity leader, 2/3 of all R&D investment, primary source: innovation, leading purchaser of new technology, financial and technical services, and an economic ladder for young people and people of color.

But a large part of New England’s manufacturing base has all but disappeared.

The manufacturing base of the Great Lakes of the U.S. and Canada is our last frontier. If we want the green jobs of the future, we need to retain the base and build the “Next Generation of Manufacturing”.

There is a Role for State Government to Play…

Advocacy for fair trade policies Transitional help for dislocated and trade affected

workers that provides livable benefits Early warning and layoff aversion to save jobs For firms, transformation to globally competitive

enterprises Government procurement: clean transit and energy Government leadership in renewable energy

portfolio and strategies supporting domestic growth New investment initiatives, including jobs programs Pension ETI investments in green buildings/jobs,

instead of short-term collateral damage investments.

In PA, Governor Rendell Worked with Stakeholders to Create… The PA. Manufacturing Ombudsman Fair trade office in D.C. for small firms Expanded retention partnerships (SVA’s

SEWN) New industry partnerships, and “Top-line” marketing as part of MEPs Large increase in incumbent worker training Increased access to business loans Renewable energy “manufacturing”

strategies and “green-wave” program

…and PA is Creating Energy Jobs from Manufacturing Base.From “Getting Serious About GoodJobs” in The American ProspectMagazine (on job opportunities in theenvironmental field):

“Pennsylvania can attract high-tech (windmill factories) because it hasn’t written off the manufacturing sector. Building the ‘Next Generation’ of manufacturing required the Commonwealth to fully reassess which manufacturers would be suppliers to, and customers for, these new technologies”.

Without a manufacturing infrastructure and skilled workers, we can’t build the industries of the future, such as Gamasa Wind.

The Nuts and Bolts of Saving/Growing Good Jobs

What is Early Warning?

Early Warning Monitoring:

Utilizing industry, financial and labor

market systems and people networks

to monitor and predict plant closures

in order to implement response and

prevention strategies.

What Is the Strategic Early Warning Network?In 1993, the State of Pennsylvania charged the Steel Valley Authority (SVA) with developing a Strategic Early Warning Network (SEWN) to help save area companies and jobs.

As of 2008, SVA has helped 6-700 firms and saved or created over 14,000 jobs.

SEWN provides professional and consulting services. We work with workers, management, and owners.

The Strategic Early Warning Network

Why SEWN?A company’s problems are easier to address before they reach the crisis stage. It is also easier and less costly to save an existing local firm than to create a new business or attract one from outside.

Within 48 hours of a call, SEWN Staff contact company managers, owners and labor reps to visit the firm. We assess the situation, define critical problems.

Then working with all parties, we’ll inventory all resources and help develop solutions.

The SEWN Network

Early Warning Sources:Data and People Networks

Primary Sources UC claim filing notice Loan delinquencies Bankruptcies WARN notifications Direct Referrals

– Unions, workers– L&I, DCED, GAT– Managers, Owners– Local Dev. Groups– Elected leaders– Vendors, Suppliers

Secondary Sources Dun and Bradstreet Public media Business surveys Business workshops Industry cluster groups Industry sector trend reports Company annual reports Industry “bellwether

indicators”

Response and Layoff Aversion

Core Retention Steps:

Financial Restructuring Company Buyouts Business Continuity Operations and Cost Management Labor-Management Cooperation

SEWN Geo Coverage…Companies by County

To Deal with Auto Downturn, PA. turned to the SVA

The SVA was tasked to coordinate an Auto Suppliers Response Project

in PA. Decreasing sales, consolidating supply chains, and foreigncompetition are long term trends that are impacting the big three automakers as well as their supply chains. With almost 23,000 workersin the sector, Governor Rendell sent a letter to 510 firms potentiallyimpacted by the downturn. The Project offered these services:

market and product development production and process assistance assistance with equipment/facilities immediate business retention/turnaround assistance incumbent worker training participation in an industry partnerships rapid response and trade-related assistance for workers

The SVA Led the Project for the Administration•

• Commonwealth of PENNSYLVANIA• Office of the Governor

• Harrisburg

•

• As a Pennsylvania manufacturer participating in the automotive supply chain, you are already well aware of the tremendous restructuring the U.S. automotive manufacturing sector continues to experience….

• To help our Pennsylvania manufactures adapt to these structural changes, I have organized a specific outreach initiative to focus state resources on our motor vehicle parts industry, which is quickly becoming an at-risk market for many of our manufacturers.

•• Edward G. Rendell• Governor•

PA. Auto Response:ResultsThe Auto Project achieved a 25% response rate and

catalogued the auto related responses/referrals in a customized On-Line Client Data Base. Here are the results:

• Gov. Letter Mailings: 510 companies• Follow-up phone calls: 385 companies• Auto-related firms referred to Project Team resources:

35 companies• Auto-related firms receiving one or more direct visitations

and consultation services: 38 companies• Non-auto but referred to state resources: 25 companies

PA. Auto Response:Results

Issues identified as primary:

• Operational improvement (ISO, Six Sigma, Lean, Continuous Improvement, etc)

• New product development

• Marketing

• Incumbent worker training

• Energy conservation

• Increasingly, loss of sales revenues

PA. Auto Response:ResultsThere is no “one size fits all” approach. Some existing state

and federal providers appear, at times, to have limited tools to address such comprehensive issues as:

• Assessing core competence and its application to product diversification

• New product and business development• Proactive sales and marketing strategies; selling

competitive advantages• Cash or working capital management; developing

accurate product costing• Financial restructuring (new capital infusion;

conventional loan or private equity)• Business turnaround (or strategy to spin off of pieces of

the business)

PA. Auto Response:Results

• Outright sale or ESOP (to managers and/or employees) sale of the business

• Succession and leadership planning issues (ownership and, importantly, key employees)

• Retaining and attracting employees (training, wages, benefits, work environment)

• Organic business growth &/or growth by acquisition

• Improvement of the cost platform / productivity improvements

• Export potential of company abilities

The Nuts and Bolts of Creating Jobs thru Workers’ Capital

Source: U.S. Bureau of Labor

There’s a Role for State and Union Pension Funds

Pension funds represent over $10 trillion in U.S. and $800 billion in Canadian capital markets. They help drive national markets and local economies. Ideally, they are invested long-term.

Economically-targeted investments (ETIs) can help fill capital gaps, build a stakeholder voice in companies and real estate projects, rebuild the infrastructure and and re-position a region’s jobs foundations for new industries and growth.

Pension ETIs…

Prudent ETIs can yield competitive rates of return but also “collateral benefits”:

Increasing the availability of affordable and workforce housing;

Investing in small/medium enterprises (SMEs); Revitalizing inner cities and rural economies; Supporting non-traditional industries such as

renewable energy and green building.

Heartland: Background

In 1995, SVA and the Steelworkers launched the Heartland Working Group to find ways to use the power of labor union pension plans to help retain and create good jobs, provide sustainable investments for the long-run and revitalize industrial communities.

In addition to two international conferences and several regional roundtables, the Network commissioned Workers’ Capital: The Power of Labor’s Pensions, published by Cornell Press in 2001.

“Working Capital”

Working Capital received widespread notice in U.S. and Canadian press and media.

Coming Soon:“Responsible Capital”

“A Field Guide to Responsible Capital”

Heartland’s new book, A Field Guide to Responsible Capital, will shine a light on a baker’s dozen of responsible private equity, venture capital, and real estate funds that are capitalizing on a new vision of the economy, one that respects working people and prioritizes long-term, sustainable investments.  

“A Field Guide to Responsible Capital”Responsible investors are investing in:• Affordable and workforce housing, commercial

development and hospitals and facilities construction;

• Green buildings--both new and retro-fit construction, and transit-oriented development;

• Advanced manufacturing, transportation and distribution, medical and high tech industries;

• Renewable energy, efficient vehicles and fuels, and other clean-tech industries;

• Urban revitalization, brown-field redevelopment, urban infill, and land conservation.

Investing in the Future of the Great Lakes

Capital stewards, union leaders and public policy leaders could create a worker-friendly, sustainable marketplace in the Great Lakes region, crossing borders and partnering with states and provinces. We can deploy worker’s capital in innovative strategies that:

• Pools investments across borders, investing in climate change, efficient transportation, and clean tech funds (building the most advanced wind-power and solar technologies).

• Links green building projects--affordable housing and safe workplaces- -to green supply chains, to grow the capacity of regional industries.

• Focuses investment in infrastructure bond funds to rebuild our cities.

Why we’re here: Creating and Saving Good Jobs

SVA1112 South Braddock Ave.Suite 300Swissvale, PA 15218(412) 342-0534 - Phone(412) 342-0538 – Fax1-866-782-8832 – Toll Freewww.steelvalley.org

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