“The consequences for human welfare involved in questions of economic development are simply staggering: Once one starts to think about them, it becomes hard to think about anything else...”

— Robert Lucas, Nobel Prize-winning economist

In keeping with the economist’s sentiment, Gov. Steve Beshear and state Economic Development Secretary Larry Hayes recently went to Japan and China to attract foreign investment to Kentucky.

But many in the state remain unconvinced that foreign investment is the key to prosperity in Kentucky, arguing that locally spurred growth represents the most promising path forward. Whether it focuses on recruiting foreign factories or lifting communities up by their small-business bootstraps, the growth strategy chosen for Kentucky has special meaning here in the eastern counties. What would Eastern Kentucky be like if it had a booming economy rather than a stagnating one? What improvements would it see in literacy? Environmental conservation? Health? In such a historically poor region of the country, the answers to such questions quickly become hard not to think about.

For a long time in Kentucky, there have been two major schools of thought about economic development: Those who think recruiting large-scale, out-of-state industry is the key, and those who favor strategies focused on small businesses and entrepreneurs. Recently, though, both sides have expressed desire to reach a middle ground, directing state effort and money at bringing in new industry, but also incubating smaller companies that are already in the state.

The first and older school has long pointed to the Toyota plant in Georgetown, which spawned dozens of supplier plants and made Kentucky a leading auto-making state.

“Since the Georgetown project was successful, people can now always say ‘Well, we got Toyota,’ and pretty soon, that’s the only game in town,” says Justin Maxson of the Berea-based Mountain Association for Economic Development, a leader of the second and newer school.

The problem with this type of focus on industrial recruiting, Maxson and others say, is that it favors those areas of Kentucky with flat land to the near-exclusion of Appalachia.

“Let’s face it, we aren’t ever getting a Toyota plant in Owsley County, Kentucky,” says Peter Hille, director of the Brushy Fork Institute at Berea College, which trains community developers. “What we need is not a ‘silver bullet’ like a Toyota plant, but instead a bunch of silver BBs.”

For years, state economic-development officials in both Democratic and Republican administrations largely ignored the complaints of MACED and its allies. But under Beshear, the state seems more sympathetic and is doing more to help and recruit small businesses.

“There is a new small business tax credit for exactly this purpose,” notes Business Development Commissioner Jim Navolio. “For every new employee you add, you get an additional $5,000 tax credit.”

Navolio has worked in the Economic Development Cabinet off and on for about 30 years, and is a creature of the old school. But he sees value in the new.

“Those guys at MACED are smart guys,” Navolio says, “and successful local development efforts are those that don’t sit around and wait for Frankfort to give them deals. We want to promote that kind of growth.”

But does this career recruiter of heavy industry really believe the strategy will work? “Every governor since Isaac Shelby has probably campaigned on a platform centered around small business,” he half-jokes, referring to Kentucky’s first governor and the political appeal of such a platform. But he says Beshear and his administration are serious about shifting at least some of their economic-development focus.

Beshear says that should help Appalachian Kentucky. “There are tax credits now that really should encourage and help those in Eastern Kentucky who want to stay and develop their own businesses,” he said in an interview.

The governor acknowledged that the region’s low education rates—and the high number of adults who are disabled or otherwise not in the workforce—, are real obstacles to attracting investment that produces jobs. But he said that doesn’t disqualify the region from state help.

“Eastern Kentucky’s circumstances do make it more difficult, but we have to continue to weigh the pluses and the minuses like we do for any region of the state,” Beshear said, adding that his administration is “in the process of identifying funding that we can use to hire a person to work with me and the economic development cabinet to market Eastern Kentucky’s strengths to attract more business to Eastern Kentucky.”

Kentucky Highlands Investment Corp., a venture-capital firm that started as a War on Poverty organization, and makes loans to businesses interested in providing jobs in 22 southeastern Kentucky counties from its office in London, is happy to see a broadening of focus.

“I’m not opposed for recruiting big businesses. I think it’s fantastic,” says Jerry Rickett, president of Kentucky Highlands, which brought a large chicken-processing plant to Clinton County as part of the federal empowerment zone program.

“But if I were the economic development commissioner, I would really focus on getting the 5,000 micro-businesses [those with fewer than five employees] in the state to hire just one more person,” Rickett says. “That’s quite a lot of jobs when you think about it.”

In counties farther east, where coal remains a major industry, Beshear says “Coal is the centerpiece” of the state’s economic-development strategy. He adds, “We also want to move in the areas of renewable energy.”

State lawmakers share this focus on new and developing energy industries as Eastern Kentucky’s way forward, with the help of researchers at the University of Kentucky.

“The vision was to have Kentucky as the place to go to for all of your energy research,” says House Floor Leader Rocky Adkins of Sandy Hook. “UK is doing some of the most advanced fossil-fuel and biomass research in the world.”

Asked why high-tech companies would locate in a mountainous, comparatively undereducated part of the state, Adkins replies, “Because that’s where these minerals are. Instead of putting minerals on a barge, let’s put these facilities in Eastern Kentucky and create jobs. Ashland’s success shows the power of locating processing facilities near the resources.”

The coal industry and its allies are counting on development of “clean coal” technology, which can reduce or eliminate emissions of greenhouse gases and pollutants. But the technology for capturing and storing carbon dioxide has not been proven on a commercial scale, and even if it were to be, not all see value in it.

“Clean coal is a joke,” UK historian and Appalachian scholar Ron Eller says, “and it has never shown any signs of working.” Eller says state spending on alternative carbon technologies is siphoning valuable funds away from more productive uses.

“The governor just allocated 24 million dollars for clean coal research at the University of Kentucky,” Eller notes. “Imagine the impact of spending that $24 million on entrepreneurship. It’s really a cruel, cruel irony, when you think about it. Clean coal is certainly not the silver bullet.”

A reporter’s observations

Four months ago, this series set out to shine light on Eastern Kentucky’s economic problems and efforts being made to solve them. We have interviewed coal-industry experts, academics, legislators, a former governor, a sitting governor, a lieutenant governor, educators, economists, financiers, bureaucrats of all stripes, teacher-union bosses and the occasional community organizer.

We have tried to highlight the widespread and often bitter disagreement over the role of Frankfort, the role of tourism and the role of coal in Kentucky’s future-but so too have we tried to point out areas of mutual interest and common ground.

In that vein, it should be here noted that in four months of interviews, not a single person failed to tell this reporter how much Kentucky’s economic future depends on better schools and better schooling. Indeed, if the leaders of this state are to be believed, education is the form of economic development that Kentucky needs most.

As University of Louisville economist Paul Coomes puts it, “Saying you need to invest in education is like saying you need to eat food. You can get away with not doing it for a little while, but eventually, you’ll die.”

John James Snidow, a graduate of Paul Blazer High School in Ashland and Harvard College, with a degree in economics, was a summer researcher for the Institute for Rural Journalism and Community Issues, based at the University of Kentucky. Reach him at Snidow@gmail.com. This concludes a series of articles about economic development in Appalachian Kentucky, distributed by the Institute. Reach Institute Director Al Cross at al.cross@uky.edu.