Alternative Models of Social Investment


Labour-Sponsored Funds:
Examining the Evidence

Prepared by the CAW Research Department
February 1999

8. Alternative Models of Social Investment

In its critiques of the LSF subsidies, the CAW has consistently stressed its agreement with the general principle that public monies should be allocated to stimulate and support real investment in job-creating enterprises (both in the private sector and through public or non-profit institutions). By critiquing the LSF subsidies, we are clearly not arguing that investment decisions should be left to the "free market." In fact, our primary concern with the LSF model is precisely that it needlessly and wastefully channels public monies through private, self-interested middlemen (the initial investors, the fund managers, and the recipient companies).

Other models are available for how a system of genuine social investment might be created and managed. In particular, the CAW supports the call of the CLC, the OFL, the Alternative Federal Budget, and other progressive bodies for a social or public investment bank. This bank would be funded with initial contributions—collected by government either through its general tax system, or through a special tax levied on the assets of private financial institutions. Subsequent financing could be generated by obtaining matching investments from private financial sources, and other methods of leveraging. The bank would be publicly managed and accountable, and would support job-creation projects (both private and non-profit) on the basis of clear and binding criteria governing job targets, social impact, labour practices, environmental consequences, and other factors. Note that this type of social investment system is aimed at taxing and regulating the actions of private investors. LSFs, on the other hand, are rooted in the subsidization of private investors.

"It is nothing less than a gross illusion to give the individual partner (the employee) the opportunity to dispose as he sees fit over ‘his’ or ‘her’ share. It is of doubtful value to the individual, and obviously harmful in the long run not only to the employees as a group but to the whole community."

- Rudolph Meidner, founder of the Swedish wage-earner funds, on the problems of individual investment accounts. Employee Investment Funds: An Approach to Collective Capital Formation (London: George Allen & Unwin,1978), p. 46.

Funds similar to this one have actually been set up in several jurisdictions. For example, the Saskatchewan government supports a public venture capital corporation that (to some extent) reflects these principles. The Ontario government also maintains two investment funds—one aimed at high-technology endeavours, and one aimed solely at small business—that will be less costly and more effective than the indirect and complex administrative apparatus of the LSFs. Quebec has a development finance agency, Investissement Quebec, which works cooperatively with the Quebec public pension fund. The British Columbia government has sponsored so-called Focus Funds to spark investment in high-technology sectors. These are likely to be more efficient and effective means of channeling public support for real investment projects.

It is even possible for unions and other non-profit constituencies to establish their own investment funds which reflect collective and social principles, rather than accepting the structure of private, self-interested investment decisions. Several unions in British Columbia, for example, established an investment company—Greystone Properties Ltd.—which reflects the principles of social investment far better than the LSFs. This company channels capital from union-trusteed pension funds into the construction of social and low-cost housing, with the condition that all projects must be constructed with union labour. Both the socially beneficial nature of the work financed by Greystone, and the strength of the fund’s pro-union performance requirements, provide a sharp contrast to the "hands-off" approach of the LSF industry.

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