Union workers fight plant closings with pension investment plan

BOSTON SUNDAY GLOBE - Sunday, May 9, 1999

Heartland Fund to put money in small, mid-sized firms

By David Moberg

WASHINGTON - When Bruce Colburn was a bus driver in Milwaukee in the 1980s, he often drove through "the meanest streets filled with injured people left poor or jobless after the factories along his bus route had closed."

As president of his local union, he was also a trustee of the drivers' pension fund. Every three months, he went to a downtown bank and joined "strange" discussions about whether the fund should invest in apartments in Phoenix or a factory in Taiwan. "How hard would it be to invest in family supporting jobs in Milwaukee" he wondered.

He came up with a plan in the late '80s, but said "we could not develop a safe vehicle for the investment" Now a few unions, working with local groups that have resisted plant closings in eight cities, including Pittsburgh, Milwaukee, Chicago, Seattle, and Boston are about to launch such a vehicle, The Heartland Fund.

Inspired by the Solidarity Funds of Quebec, the Heartland Fund will pool some workers pension money to make direct investments in, or loans to, small and medium-sized businesses that have good prospects for survival, but often find it hard to get money for new technology or expansion.
While there are funds in which union trustees help choose the investments, the Heartland Fund will be unique in focusing on small and mid-sized manufacturers.

Even in these economically robust times, "there is a demonstrable shortage of capital" for such companies, said Phil Singerman, the assistant US secretary of commerce for economic development. Victims of what economists call financial market failure, they are typically too small to issue stock or sell bonds on a public market and do not fit into bank lending strategies, but they are an important and vulnerable source of jobs especially in manufacturing.

The United Steelworkers took the lead, but the Union of Needletrades, Industrial and Textile Employees (Unite), and the International Union of Electrical Workers have also pledged support for the Heartland Fund. It will start with around $50 million in assets sometime this year, organizers say.
The unions are conducting interviews to find an investment manager who shares their values. The fund, which would be directed mainly by union representatives, will favor businesses that are unionized or at least not hostile to unions, but will invest only in businesses that can produce a return comparable to other investments with a similar level of risk.

Boston-based ICA Group, which will be part of the Heartland Fund network, has organized buyouts of threatened manufacturing concerns for around two decades. Seven years ago, it helped employees buy Marland Mold, a precision mold manufacturer in Pittsfield, and has seen employment roughly triple to 100 employee-owners.

"The Northeast has a lot of aging industry, and when these factories face closing, there's a need for friendly equity,:" said ICA executive director Jim Megson. "There's venture capital for high-tech firms, but it's harder to find for traditional industries that aren't as sexy but still very solid."

American workers have between $6 trillion and $7 trillion in pension funds, including about $350 billion in funds where union trustees have a direct role in making decisions. The law requires trustees to serve the interest of the pension beneficiaries and seek competitive returns, but the funds can consider "collateral benefits," such as saving jobs or developing local economies.

Most funds have been conventional, turning over money to managers who mainly buy publicly traded stocks and bonds, as a result, union members' money has often gone into such ventures as corporate takeovers that resulted in massive job cots. Leaders like Leo Gerard, the secretary-treasurer of the Steelworkers, became outraged that "most of the capital generated by labor is being used against it."

After many years of fighting plant closings in Northern California and Seattle, Tom Croft moved to Pittsburgh to direct the Steel Valley Authority, which was established in 1988 by communities that had been devastated by steel mill closings. Its mission was to retain jobs in a 20-county area.

Although it lost most of its protracted battles to preserve the steel industry, the Authority has saved or created 7,000 jobs, often by arranging for new owners - sometimes the workers themselves - to buy threatened factories. But Croft became convinced "the weapons we were using were like fighting rockets with slingshots. We needed a way to bring all of working people's assets to bear."

Because he hailed from Canada, Gerard knew the works of the Solidarity Funds were established by the Quebec Federation of Labor in 1983. The Solidarity Funds sell shares to individual workers, who receive a substantial tax credit, and then invest in promising small and medium-sized businesses in the province.

Meanwhile, the AFL-CIO and various unions have been exploring the possibility of setting up mutual funds that would attract individuals' IRA or 401(k) retirement investments and feed into the Heartland Fund or similar ventures.

US Representative Bernard Sanders, a Vermont Independent, has proposed that union pension funds and programs like the Heartland Fund be eligible for the tax credits and loan guarantees that President Clinton proposed in January to encourage investment in inner cities and rural areas.

Unions have long criticized US financial markets for having a short-term, speculative bent that is bad for union workers and bad for the overall economy in the long term.

In frustration, union pension-fund managers increasingly are "going from being financial stewards to being financial organizers," said UNITE vice president Noel Beasley, one of the Heartland Fund organizers.

It is about time, argued Ohio Employee Ownership Center director John Logue. "We could have kept those plants in Milwaukee," he told a recent conference of union pension-fund strategists in Washington, "if we'd had this discussion 20 years ago."