Traditional economic development organizations use existing mechanisms to create jobs and business by trying to bring together entrepreneurs, public sector funds, capital investment and banks. Tom Croft, SVA Executive Director, found the traditional approach much too slow. "For real progress, we need control of investment capital," Croft said in a recent interview. "The pace of development is glacial. It takes forever. We've been fighting the right battles with the wrong artillery. Having access to the right levers isn't enough. We need to create a new lever."

The new lever Croft seeks is access to a small segment of the vast pension reserves, retirement money from millions of American workers, that currently are invested according to the standards of the market. These standards are most often short-term profit and overseas investment, both with a high negative impact upon workers' interests. The 1996 Industrial Heartland Forum sponsored by the Steelworkers, other labor groups, and the SVA and chaired by Leo Gerard, International Secretary-Treasurer of the USWA, dramatically demonstrated the need and ability of the capital system to expand investment in domestic manufacturing. Keynote speaker Richard Trumka, former president of the United Mineworkers of America, now Secretary-Treasurer of the AFL-CIO, in his remarks at the forum, strongly reinforced the idea that pension funds should be used to support workers’ needs rather than corporate desires for profit.

Croft and the SVA moved immediately into action by applying to several foundations to foster efforts to create labor-sponsored investment funds in major American cities. They sought and received grants from a number of national foundations, including the Ford and Mott Foundations. This funding will enable SVA to offer legal, technical and marketing assistance to venture capital coalitions in six U.S. and two Canadian cities. The cities targeted are Pittsburgh, Cleveland, Baltimore, Boston, Seattle and Milwaukee in the U.S. and Toronto (through the Ontario First Fund) and Manitoba (through the Crocus Fund) in Canada.

Federal support is also available. The U.S. Treasury Department, through the Community Development Finance Initiative, is encouraging community-based venture capital development and equity funds throughout the nation. As Croft says, "We are not the only ones to realize that the answer to massive disinvestment is a new source of funding for reinvestment. The Clinton Administration is very supportive of bottom-up development efforts. This is the time to make it work."

The SVA has already established a solid track record in assisting business and labor in Western Pennsylvania. The Early Warning System established in twenty counties of Western Pennsylvania to work with troubled businesses has saved over 6500 jobs in the last five years. This accomplishment becomes even more impressive in view of the fact that, according to Croft, "Mergers and acquisitions have hit their highest dollar volume level ever reaching $650 billion. This is accompanied by massive downsizing and unparalleled lay-offs. American workers suffered 3.4 million lay-offs in 1995 alone. What has fueled this corporate action is that fully half the money for these mergers comes from workers pension funds."

While the SVA model is uniquely American, much of the inspiration comes from North of the border. Croft notes that in the province of Quebec, where separatist politics has led to high levels of disinvestment by the English-speaking financial community, regional credit unions have captured the lion’s' share of deposits and are investing them in their own strong manufacturing base. Similarly, the labor-sponsored Quebec Solidarity Fund is the largest source of investment capital in Canada.

Churchill Capital has raised a $188 million private capital partnership. Churchill ESOP Capital Partners provides sub-ordinated debt, preferred stock or minority equity, and control equity investments in amounts ranging from $5 million to $25 million to management and employee-owned companies. Churchill has targeted middle-market ($15+ million in sales) manufacturing, fabrication, distribution and service businesses for growth, acquisitions, liquidity and recapitalization. Churchill finances partial ESOPs, 100% ESOPs, and manage-ment buyouts. Among its eight transactions to date are three 100% employee-owned firms.

There is hope on the horizon for buyouts. The principals of Keilin & Co., the investment banking firm which has done a number of large ESOP transactions including United Airlines and Algoma Steel, is currently raising the Crossroads Special Situations Fund, L.P., to invest in distressed middle market companies. Crossroads is seeking commitments for $100 million. General Electric Capital has already committed $10 million, and the fund is expected to be raised by the end of the year. Employee participation will be an important component of Crossroad’s transactions. In addition, the fund screens for positive employee relations and a company commitment to developing employee skills — "high road" characteristics that more funds should imitate. Besides doing initial ESOP transactions, Crossroads’ prospectus cites sale of Crossroads’ stock to the employees as a possible exit strategy for the fund.