Engaging the Great LakesMidwest Economic Downturn

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Engaging the Great Lakes-Midwest Economic
Downturn
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Cleveland Great Lakes/Regional Economic
Revitalization Summit April 17, 2008
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Quick Note on SVA and Economic History

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SVA and the SEWN Network
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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
  developmentit gets no respect.

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Have a Latté with the SVA (Layoff Aversion
Training/Technical Expertise)
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Whats Happening to our Jobs and Communities?
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Manufacturing Jobs Hit Hard 2001-2005
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Whats the Big Picture?

                                                
   What's New
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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).
Whats behind these events? Normal business
cycles? Wall Street? Bad federal policy?
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Big Picture?
Yes, but theres 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 dont understand the depth of
the financial crisis.
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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, were
seeing runs on these same blue-chip banks and
many of the the New Masters of the Universeas
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).
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Big Picture?
This overall process is called the
financialization of the economyshort-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.

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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
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Relax. Take a Walk.
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Relax. Take the train.
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Relax. You can retire to Hooverville.
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Policy Approaches for Intervening in the Economy
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Why Manufacturing Still Matters

• Productivity leader, 2/3 of
• all RD 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 Englands 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.

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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.

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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 (SVAs 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

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and PA is Creating Energy Jobs from
Manufacturing Base.

• From Getting Serious About Good
• Jobs in The American Prospect
• Magazine (on job opportunities in the
• environmental field)
• Pennsylvania can attract high-tech (windmill
  factories) because it hasnt 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 cant build the industries of
  the future, such as Gamasa Wind.

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The Nuts and Bolts of Saving/Growing Good Jobs
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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.

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The Strategic Early Warning Network
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.
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The SEWN Network
Why SEWN? A companys 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, well
inventory all resources and help develop
solutions.
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Early Warning SourcesData and People Networks

• Primary Sources
• UC claim filing notice
• Loan delinquencies
• Bankruptcies
• WARN notifications
• Direct Referrals
• Unions, workers
• LI, 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

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Response and Layoff Aversion

• Core Retention Steps
• Financial Restructuring
• Company Buyouts
• Business Continuity
• Operations and Cost Management
• Labor-Management Cooperation

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SEWN Geo CoverageCompanies by County
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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 foreign
• competition are long term trends that are
  impacting the big three auto
• makers as well as their supply chains. With
  almost 23,000 workers
• in the sector, Governor Rendell sent a letter to
  510 firms potentially
• impacted 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

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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

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PA. Auto ResponseResults

• The 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

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PA. Auto ResponseResults

• 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

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PA. Auto ResponseResults

• There 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)

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PA. Auto ResponseResults

• 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

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The Nuts and Bolts of Creating Jobs thru Workers
Capital
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Theres 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 regions
  jobs foundations for new industries and growth.

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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.

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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
  Labors Pensions, published by Cornell Press in
  2001.

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Working Capital

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

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Coming Soon Responsible Capital

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A Field Guide to Responsible Capital

• Heartlands new book, A Field Guide to
  Responsible Capital, will shine a light on a
  bakers 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.  

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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.

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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 workers
  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.

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Why were here Creating and Saving Good Jobs

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ContactInformation
SVA 1112 South Braddock Ave. Suite 300 Swissvale,
PA 15218 [phone] - Phone [phone]
Fax [phone] Toll Free www.steelvalley.org