HOMESTEAD: Olson reply and thanks to Dubb comments on fair exchange paper

[Deborah Groban Olson <dgo@esoplaw.com>]

>Date: Thu, 05 May 2005 12:17:39 -0400
>To: Steve Dubb <sgdubb@yahoo.com>
>From: Deborah Groban Olson <dgo@esoplaw.com>
>Subject: Re: Thank you very much for your thoughtful iniitial 
>comments/thoughts on fair exchange paper
>
>Dear Steve:
>
>         Thank you very much for taking the time to give the Fair Exchange 
> article such a thorough review. Your suggestions are very helpful. I 
> would appreciate some references to get me going in the right direction 
> on social indicators.
>
>         My concern with Crocus is more fundamental. I think, from my EO 
> experience, that the LSIF structure may be seriously flawed, because it 
> is so skewed toward labor. In my early union EO buyouts, I thought labor 
> could not get too much power. I got them a lot of power, and saw the 
> problem. Too much power in the hands of one stakeholder leads to the 
> kinds of mistakes Crocus made. I have heard similar criticisms of the FTQ 
> Fund. I have heard that its projects are propped up by the government of 
> Quebec. I have not investigated. But all my experience leads me to the 
> conclusion that you need creative tension on a board dealing with money, 
> business and community in order to keep the board firmly planted in reality.
>
>         Do you have any other info on the LSIFs?
>
>Many thanks,
>Deb
>At 10:20 AM 5/5/2005, you wrote:
>>Deb,
>>
>>I reviewed the draft document you sent out on the COG list.  I won't say 
>>that I read it cover to cover thoroughly, but here are some initial 
>>thoughts on it.
>>
>>First of all, I should start by saying that I am really impressed by the 
>>work and that it is an important contribution to the field.  I also 
>>learned a lot about the airline stabilization fund and the current 
>>troubles of the Crocus fund in Manitoba, in particular.
>>
>>Anyhow, here are some initial thoughts on how to refine/revise:
>>
>>1)  Section 2 (Historical Precedents) should probably be limited to the 
>>first two examples: the Homestead Act and the Tennessee Valley 
>>Authority.  I would use these two cases to draw out the core principles 
>>of the "fair exchange" framework. This will then allow you to focus more 
>>on how these principles have been applied in more contemporary efforts.
>>
>>2)  The contemporary efforts (Conrail, Lockheed, Chrysler, Airlines, 
>>Alaska/Alberta/labor funds) should be analyzed separately -- and I would 
>>argue, organized thematically. In particular, I would organize three 
>>separate chapters that bring out three key themes (which don't appear in 
>>the text until pages 92-93):
>>         a)  Fair exchange principles in acquisition (cash infusion)
>>         b)  Fair exchange principles in distribution (cash distribution)
>>         c)  Fair exchange principles in governance
>>
>>Using a thematic chapter approach would likely involve refering to your 
>>cases multiple times, but this is OK.  I think the purely chronological 
>>approach you are using tends to bury the key points you want to make -- a 
>>thematic chapter appraoch will help bring these out more and more 
>>carefully identify key issues.
>>
>>3)  The S&L Failure Case is an interesting counter-example, but the 
>>section needs work.
>>
>>Organizational speaking, it would make sense for it to be a stand-alone 
>>chapter with a title of something like: "The Price of Failing to Use Fair 
>>Exchange Principles."
>>
>>But the S&L case is a complicated one.  Government helped create the 
>>problem through regulation -- namely, interest rate ceilings that drove 
>>deposits out and left S&Ls under-capitalized.  The "solution," of course, 
>>proved far worse than the disease -- government essentially hoped that 
>>S&Ls could close the capital gap through gambling, which, not 
>>surprisingly, didn't work (and then there was corruption on top of that).
>>
>>But it's not quite clear to me what the "fair exchange" alternative would 
>>have been.  As you point out, more rapid intervention (say in the early 
>>1980s) would have reduced government losses many-fold.  But had the 
>>government shut down the thrifts in a timely manner, other than saving 
>>money, how would this involve "fair exchange" principles? (I can surmise 
>>an answer, but you really don't spell it out).
>>
>>In other words, the S&L Case seems like an argument for sound government 
>>regulation, but not necessarily for government investment in equity as a 
>>way of stablizing business (fair exchange). The argument needs to be made 
>>clearer here.
>>
>>One idea:  It might help to compare the S&L bail-out with the similar 
>>(but far less disastrous) FDIC bail-out of the banking industry 
>>(Continental Illinois, etc.).  What did FDIC regulators do right that the 
>>S&L regulators did wrong?  Anyhow, that might be one approach to making 
>>the argument clearer here.
>>
>>4)  Crocus Case:  I think it is good to mention the current travails, but 
>>maybe this section can be cut back some.  Do you really want to emphasize 
>>a failure case that employs "fair exchange" principles? You're kind of 
>>arguing against yourself here and I'm not sure why. For sure, you don't 
>>want to "cover up" the very public problems of the Crocus fund -- but a 
>>little more balance would be helpful here.
>>
>>5)  Social Indicators:  I think you need to talk more about social 
>>indicators, which do exist. You're right ... they are not as advanced as 
>>economic indicators ... but job creation figures (albeit disputed 
>>numbers) and other social indicators do exist -- it should be possible to 
>>get a sense to which the claims made by the Labor Solidarity Funds or the 
>>Alberta Fund regarding social returns are true and/or compensate for 
>>lower economic returns.  Calvert, the Social Investment Forum (Co-op 
>>America), Aspen, Coastal Enterprise, Self-Help, and various folks in 
>>Canada all have data about this issue.
>>
>>6)  Alberta:  It is important to note that Alberta is the most 
>>conservative province in Canada (It is often referred to as "the Texas of 
>>Canada").  It is actually very surprising, for me at least, to read that 
>>they adopted socialist-sounding principles in operating their fund.
>>
>>7)  One other thing about social returns:  It should be noted that, in 
>>the United States, the argument has always been made that you can "have 
>>your cake and eat it too."  In other words, the Calvert folks and others 
>>will tell you that you can have the same economic returns while ALSO 
>>having social returns. Your research seems to contradict this. If there 
>>are examples (and I think there are, for instance, with 
>>economically-targeted investments of state pension funds) of the 
>>successful pursuit of social returns alongside high econnomic returns, 
>>you should highlight these.  Tessa Hebb might be a good person to contact 
>here.
>>
>>8) Graphs:  You need some of these.  One graph that is crying out load to 
>>be created is a graph showing the percent of venture capital provided by 
>>LSIFs in Canada -- the percentage is astonishingly high -- and a simple 
>>graph would emphasize this point.
>>
>>9) Community Benefit Agreements:  I think these are highly important to 
>>your "fair exchange" theme and probably merit their own chapter. If you 
>>haven't already done so, you should check out Wayne State's Labor Studies 
>>Center site, which has chapters on labor-community coalition efforts in 
>>this direction in a number of U.S. cities.
>>
>>10)  FEESOP, FEEB, FECT:  Help!  Please get rid of these acronyms. I 
>>would keep FEITPA (the legislation title), but having too many unfamiliar 
>>acronyms makes your draft legislation almost unreadable.
>>
>>Instead of FEESOP, I would say: Fair Exchange ESOP (hereafter, referred 
>>to as "The ESOP").
>>Instead of FEEB, I would say: Fair Exchange Equity Board (hereafter, 
>>referred to as "The Board").
>>Instead of FECT, I would say: Fair Exchange Community Trust (hereafter, 
>>referred to as "The Trust").
>>
>>The acronyms can be created by others at a later date (Don't worry, if 
>>you're successful, in Washington the acronyms WILL be created at a later 
>>date, whether you want them or not :-).
>>
>>I won't do the same thing with the state legislation ... but you get the 
>>idea:  keep new acronyms to an absolute minimum to avoid reader confusion.
>>
>>11)  Implementation ideas (Currently this is your section 6):  I would 
>>focus more on state-level pilots, rather than federal-level pilots 
>>because -- at least in the short-run -- that's where the best 
>>opportunities exist.  In fact, "Fair Exchange" sounds like the kind of 
>>idea that Jennifer Granholm might run with ... so you might put a little 
>>more energy into discussion of how experimentation could start at the 
>>state level (the Ohio Employee Ownership Center, for instance, is a good 
>>example of this kind of state initiative), which might then propel 
>>federal efforts.
>>
>>12)  One more organizational idea:  I would combine chapters 5 and 6 -- I 
>>think they are similar enough (issues to resolve, potential allies to 
>>work through those issues) that they could be handled in one chapter.
>>
>>OK.  Hope these comments are of some help. I don't know if you are going 
>>to be in Baltimore for the Good Jobs First conference, but if you are and 
>>would like to meet during the conference to discuss these comments, I 
>>will be there and would be happy to do so.
>>
>>Good luck with revising and with your own confernce in October!
>>
>>Best,
>>
>>Steve
>>
>>P.S. I did not do a thorough proofing of the document, but I did discover 
>>a few minor errata:
>>
>>Page 10:  I am pretty sure that "$12 billion" and $2.8 billion" should be 
>>"$12 million and "$2.8 million".
>>
>>Page 11, first line after "A. Question Considered":  change "will, of 
>>necessity, will" to "will, of necessity".
>>
>>Page 25, second paragraph, line 6:  Change "similarly period" to "similar 
>>period"
>>
>>Page 74, last line before "E. Canadian Labor Sponsored Investment Funds":
>>Change, "which is real if a hard to measure" to "which is real, although 
>>hard to measure"
>>
>>Page 105, third paragraph, first line.  Change "crated" to "created"  --sd
>>
>>
>>
>>--
>>Steve Dubb
>>The Democracy Collaborative
>>University of Maryland
>>http://www.democracycollaborative.org
>>(301) 237-2135


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