Economic and Community Development in Kentucky

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Jul 30, 2013 - of recent efforts to capitalize on high- tech innovation. .... economic- development programs, the KCED, and often educational institutions and.

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Economic and Community Development in Kentucky Jeremy L. Hall and Michael W. Hail

The most enduring policy concern in Kentucky politics is economic development. Governors, state legislators, senators, congressmen, mayors, and county judge-executives all give special attention to job creation and business growth. As Congressman Harold “Hal” Rogers, a Republican representing the Fifth District of Kentucky, often states with determination, his goal is that “no young person should have to leave home” to find employment and make his future.1 The district Congressman Rogers represents has several counties that are among the most economically distressed in the nation, and his aspiration for the young people of the communities across his district echoes the sentiments of local, state, and federal leaders across the political spectrum. Congressman Rogers often works in a bipartisan effort with local legislators like Representative Rocky Adkins, as well as with Democrat Governor Beshear. When economic development is most successful, it is an intergovernmental policy-making exercise. Creating sustainable employment opportunities and business growth is the central strategic imperative of Kentucky politicians. Economic development is a systematic intergovernmental and intersectoral effort to influence job creation and income positively in a defined geographic region. Economic development is conceptually distinct from economic growth in that it concentrates on altering the mix of goods and ser vices produced in an economy rather than simply the quantity of such goods and ser vices. 2 In policy making, “economicdevelopment policy” refers to public policy “actions that are intended to affect growth in the economy, either through development (a structural change in production) or growth (an increase in output based on existing production).”3 Innovation and entrepreneurship are thus central to promoting economic development. This conceptual distinction is often lost in the field of economic-development practice, where administrators and politicians compete with their neighbors to generate any positive gains in employment, income, or tax revenue over the status quo.

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States have long engaged in efforts to stimulate economic activity within their boundaries, but these efforts were expanded and institutionalized in earnest during the “smokestack-chasing” period beginning in the 1970s. A plethora of local government institutions sprung up to lure industry away from the industrial North to Sun Belt states where labor costs were comparatively lower, unions were less common, and the cost of doing business was lower across the board. Local governments compete for jobs and industry within states just as states compete with each other in what is commonly viewed as a zero-sum game that creates winners and losers with each firm location or relocation. Globalization has resulted in a similar shift of manufacturing—particularly heavy manufacturing—from first-world nations to the third world that has left low-skill, low-wage states with employment gaps and little opportunity for generative growth. Globalization’s intensification of competitive efforts has led states to abate taxes and provide additional incentives for prospective employers. As Harold Wolman notes, states and their elected leaders feel pressured to “do something” to stimulate the economy or to frame policies and programs in terms of economic-development potential.4 There have been many critics of these efforts over time, and many studies have examined the effectiveness of industrial recruitment efforts and have found that they cost more than their resulting benefits. States can be classified according to their predominant economic-development strategies. Traditional states continue to concentrate on recruitment, while more progressive states have expanded into non-zero-sum efforts that focus on development from within, such as entrepreneurship, tourism, or science and technology development. Kentucky’s approach to economic development has been predominantly traditional in spite of recent efforts to capitalize on high-tech innovation. This stems in large part from the nature of Kentucky’s economy. One of the enduring questions of economic development is whether public-sector intervention is capable of stimulating economic activity where it is otherwise lacking and sufficient to do so. The answer depends largely on circumstances surrounding the problem and the investment. An absence of private-sector investment and activity likely indicates economic inefficiencies that public-sector investment will not help overcome. For example, labor costs may be too high or workforce skills too low relative to other locations. Likewise, transportation costs of raw products or finished merchandise may be prohibitive. Still, government investment is capable of stimulating activity, sometimes successfully. Government may help remove barriers or obstacles to development. It may mediate collaboration or assist with exports. In some cases government may simply advocate the advantages of a particular location to footloose firms seeking a place to locate.

History of Kentucky’s Economy

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Kentucky was settled as a result of westward expansion beginning in the late 1700s that eventually led to separation from Virginia and statehood in 1792. Kentucky was considered the “happy hunting ground” by numerous Native American tribes that depended on it for food and fur.5 These abundant natural resources also made the

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state attractive to settlers, and the rolling hills of the bluegrass region made it attractive for agricultural development. Limestone soil made the state suitable for horses, which have become one of its most internationally recognized industries. Limestone spring water was also an essential contributor to the state’s bourbon industry. The climate in Kentucky and portions of a dozen surrounding states make it one of the few places in the world where burley tobacco can be cured naturally. Consequently, small farms were pervasive across the landscape, where a self-reliant people etched out a subsistence living, producing only agricultural products for export. One of the areas of need for the developing United States was infrastructure for roads, bridges, and canals. One of Kentucky’s senior statesmen, Henry Clay, was the author of the Whig political program to address this need, called the “American Plan.”6 This plan called for federal government investment in infrastructure to facilitate commerce and economic growth. Clay and the Whigs led a vigorous battle throughout the early nineteenth century and eventually achieved a policy consensus and constitutional basis for establishing this policy authority. The eastern coalfields in the Appalachian mountain range provided the cheap energy source to support industrial development—initially through steam but eventually through generation of electricity. Even today, electricity rates in Kentucky are among the lowest in the nation. The combination of a strong work ethic, cheap power, and available labor made Kentucky appealing as a site for large manufacturing companies. Ford Motor Company opened its truck plant in Louisville in 1955, for example.7 Over time the income that could be obtained from off-farm employment became attractive and led many to supplement their agricultural income with outside employment. In many cases manufacturing employment enabled landownership where agricultural commodity prices were no longer sufficient to sustain themselves and thereby preserved Kentucky’s small-farm model. With the advances in manufacturing, a supportive business ser vices structure emerged to provide legal, accounting, banking, food, medical, and other necessary ser vices. With further development in transportation infrastructure, telecommunications, and information technology after the emergence of microcomputers and later the Internet, ser vice industries expanded to the point that they have now displaced manufacturing as the state’s principal economic-growth industrial sector.

Structure of Economic Development in Kentucky A number of actors—formal and informal, governmental and nongovernmental—play a role in carry ing out economic development in Kentucky. These actors and their varied roles and responsibilities are introduced below. Key State-level Actors The governor is the chief economic developer in the state. Because gubernatorial campaigns often hinge on jobs and the economy, governors have a vested interest (reelection) in stimulating economic growth within the state or luring it from elsewhere.

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The governor ultimately acts as a figurehead for development efforts, however, and leaves administration to the Cabinet for Economic Development. As a figurehead, the governor is useful in communicating state government support to firms considering the commonwealth as a home. The Kentucky Cabinet for Economic Development (KCED) manages the day-today operation of development efforts in the state. Firms interested in the state will likely look to the KCED as the first stop for information on state incentives and programs. The KCED has formal authority to issue tax incentives and other benefits necessary to compete for business on the open market. The KCED works closely with local governments and their development authorities to organize packages that reflect the intergovernmental nature of governance today. Firms potentially receive abatements and other incentives from local governments, regional-development-district economic-development programs, the KCED, and often educational institutions and other entities, such as the Center for Rural Development. The Department of Local Government (DLG; formerly the Governor’s Office for Local Development) is the administrative arm through which government efforts are coordinated across the commonwealth. This office is attuned to economic-development needs on a regional basis. The DLG is the agency to which the area development districts (ADDs) report and therefore the one through which all regional and intergovernmental efforts are coordinated. Transportation, utilities, such as water and sewers, and economic-development tasks, such as regional industrial parks, are vetted through ADDs, and resources are combined to overcome externalities of individual government action. These regional governments have been demonstrated to enhance local government capacity in leveraging federal funds.8 In par ticular, the DLG and its administrative ADDs reflect the rural nature of the commonwealth and seek to improve the economy against great adversity in those places where infrastructure is lacking. The coordinated efforts of this agency allow rural areas to compete more effectively with their urban counterparts. At the regional level the ADDs employ professional economic-development staff who work to coordinate projects, recruit industry, and respond to industry needs through infrastructure and people-based programs and activities. We turn to a closer examination of the ADDs in the following section. The Kentucky Council on Postsecondary Education (CPE) is the coordinating body for higher education in the commonwealth. It is the entity to which all of the state’s colleges and universities report, from which they receive their budgetary authority, and through which all education policy at the state level is established. Under the CPE are the state’s flagship university (the University of Kentucky), its urban research university (the University of Louisville), and six regional universities (Morehead State University, Northern Kentucky University, Eastern Kentucky University, Western Kentucky University, Murray State University, and Kentucky State University). The Kentucky Community and Technical College System oversees thirteen community and technical colleges across the state. Each of these institutions plays a central role in economic development and growth derived largely from differences in their missions. The University of Kentucky and the University of Louisville are large research universities that focus on basic research. As such, they produce scientists and engineers with terminal

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degrees in their respective fields; these graduates become the engines of innovation through the development of new products and processes through research and development. These universities have recently begun to capitalize on this dimension of their efforts through technology-commercialization programs, such as the Advanced Science and Technology Commercialization Center and the Coldstream Research Farm at the University of Kentucky. These institutions are a source of expertise for businesses of all types, and faculty members consult widely with such firms. Additionally, these institutions tend to be more selective, offering the best and brightest high-school graduates opportunities for education across the full spectrum of academic disciplines. Regional universities, because of their size, location, and mission, serve more of a general education function. They offer primarily four-year degrees and only a handful of graduate degree programs. Because of their size, economy of scale means that the variety of disciplines available for study is also narrower in these schools. Nonetheless, each has a particular specialty that permits it to contribute to economic development. Faculty members in these schools are also experts in their own right and are called on to solve problems for business and industry. They coordinate job-skills training for new employers. Each has a distinctive focus for which it is known across the state. For example, Morehead State University has a program of distinction in regional analysis and public policy. Kentucky State University has a specialty in the field of aquaculture and marine biology. These universities do much more than offer four-year degrees through their outreach and service orientation. The system of community and technical colleges offers basic higher education to overcome geographic obstacles faced by students in many areas. The central component of their mission in economic development, however, is the applied nature of their training programs. Students graduate with the ability to work as nurses, machinists, or aircraft mechanics or in other skilled trades that are in high demand and that offer desirable salaries in Kentucky and beyond. The Kentucky Cabinet for Travel and Tourism reflects the increasing specialization that is taking place in the economic-development field. This agency concentrates on the existence (rather than the use) value of natural resources. It promotes Kentucky’s natural beauty, its history, and its unique industry to tourists. By bringing in external dollars, Kentucky businesses benefit. Moreover, keeping travel dollars from Kentucky residents in the state also helps Kentucky businesses relative to those in other states. Hotels, restaurants, attractions, and theme parks benefit from the activities of this agency. Examples of projects undertaken by this agency include the Kentucky Bourbon Trail, which highlights one of Kentucky’s most notable industries. A recent effort through the KCED with significant tourism implications is the Kentucky Creation museum and theme park, which features a full-size model of Noah’s ark. This plays to Kentucky’s traditional religious values and offers a specialized niche tourism attraction to the Bible Belt’s many Christians. The logo/slogan for the agency touches on another of Kentucky’s most familiar resources—horses. The stylized horse and “unbridled spirit” slogan market the state to the world. It should be clear that Kentucky’s uniqueness plays a significant role in its economy; the traditional aspects of the economy provide gravity, however, making it easy to imagine the state’s traditional aspects while overlooking its more innovative and high-tech characteristics.

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Regional Actors (Quasi-Nongovernmental Organizations)

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Regional area development districts (ADDs) are the conduit between the state and local government entities that translate policy into plans and programs to resolve problems that transcend city and county boundaries. These quasi-nongovernmental organizations operate under the auspice of the DLG but also are incorporated as 501(c)3 nonprofit organizations. This status gives them tremendous flexibility to affect economic-development efforts in the regions they serve.9 Their boards are composed of local elected officials—mayors and county judge-executives—who are thus ultimately responsive to their stakeholders. The Center for Rural Development was incorporated in 1996 in Somerset, Kentucky. Like the ADDs, it was originally conceived as an extension of state government through partnership with the University of Kentucky, and it was provided with state funding matched by substantial federal support from Congressman Harold Rogers to establish the partnership. Today the Center operates independently as a 501(c)3 organization serving the counties of southern and eastern Kentucky. Its mission is to support the residents of the region—to provide them with opportunities for a brighter future. However, the Center’s programs operate largely though partnerships and in cooperation with local governments and existing educational organizations. As a regionwide entity, the center provides training, planning, and event-coordination services, as well as telecommunications networking, such as videoconference capabilities, that serve to overcome barriers to industrial recruitment and training for potential employees.10 The Center was the brainchild of Congressman Rogers, who ultimately ascended to the powerful position of chair of the U.S. House of Representatives Appropriations Committee in 2011. As a nonprofit organization, the Center has worked to realize the vision of Congressman Rogers while organizing local government leaders in an emerging intergovernmental success story. The Center’s political founding embodies its philosophy that local elected officials are best equipped to recognize problems and coordinate the development of solutions. This approach has made the Center effective at sustaining intergovernmental partnership as it delivers innovative programs like CenterNet that have been national models for rural development. The Center’s board of directors consists of appointees from each of the forty-two counties served. Management is provided by a smaller executive committee of the board and an executive director. The center was viewed as a one-stop economic development shop to address the variety of barriers impoverished eastern Kentucky was facing on a daily basis. Not only does it serve a variety of functions within this broad mission, but its facility also operates as an umbrella for organizational predecessors with narrowly focused functional responsibilities. These are the Southern Kentucky Economic Development Corporation (SKED), the Southern Kentucky Agricultural Development Association, and the Southern and Eastern Kentucky Tourism Development Association. These organizations, affectionately known within the Center as “the critters,” each address problems and offer programs in their narrow functional areas. For example, SKED operates a number of small-business loan programs. Collectively these organizations offer sub-

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stantial organizational capacity to confront challenges and coordinate programs to affect development in the commonwealth’s Appalachian region. Other similar organizations also address economic development in a more tangential manner but through the same structure and umbrella. East Kentucky PRIDE (Public Responsibility in a Desirable Environment) offers numerous environmental programs—many through the schools—to help make the region a nicer place to live. Operation UNITE (Unlawful Narcotics Investigations, Treatment and Education) is a drug-abatement program that targets many of the region’s more substantial social problems. These organizations target the region’s quality of life and its image, which ultimately bear on its attractiveness for development. Local Actors One hundred twenty county governments in Kentucky cover the totality of the state’s geography and therefore collectively serve all of the state’s residents. Counties are the administrative arms of the state, collecting taxes and delivering uniform ser vices, such as vehicle licensing. One of their more complicated roles is competition for precious economic-development activity. Many counties address economic-development issues directly through the fiscal court. Others with greater capacity and more regular activity have chosen to institutionalize their economic-development activities through a formal department with a director and sometimes staff. Cities, like counties, are engaged in economic-development competition. Whereas counties serve all residents and are geographically determined, cities serve concentrated pockets of residents and are determined by organization of these populations into governments to provide municipal ser vices. Cities are also engaged in competition, but the extent of their involvement is largely a function of city size. Many small cities execute economic development through council action, and the mayor carries out the council’s will. Larger cities may establish economic-development departments, and the largest cities may divide the economic-development function into its constituent components, such as tourism, industrial recruitment, and community development (which focuses more on housing and quality-of-life issues). As extensions of the state, counties and cities are often restricted in what they are allowed under state law to do. Cities and counties that have not attained sufficient economies of scale to implement independent economic-development departments often choose to coordinate their efforts by forming an independent (quasi-autonomous nongovernmental) nonprofit corporation to carry out recruitment and other development efforts. Even cities and counties with sufficient scale often opt for this administrative structure to overcome the restrictions placed on local governments by state law. Such organizations are able to operate with greater flexibility in developing, funding, and implementing projects. These cities and counties often utilize the occupational tax to provide resources for economic development. Both cities and counties can establish occupational taxing districts, cooperatively or independently. The most successful economic development results for local government are through intergovernmental cooperation.

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Nonprofit Actors Nonprofit organizations play an important role in economic development in Kentucky. Often these entities focus on quality-of-life issues, such as addressing poverty through education and other programs. The Mountain Association for Community Economic Development in Berea has offered assistance to the people of Appalachian Kentucky for decades. Forward in the Fifth was a regional program envisioned by Congressman Hal Rogers early in his tenure in the U.S. House of Representatives to stimulate educational improvement in low-performing school districts. The Kentucky Appalachian Commission and Leadership East Kentucky have provided regional leadership in eastern Kentucky, just as Western Kentucky Corporation has for western Kentucky and the Northern Kentucky Regional Partnership has for Covington and northern Kentucky communities. The organizational framework within which economic development takes place is dictated by structure, but the nature of the problem has resulted in much greater coordination among these various entities through partnerships that seek to affect the regional and state economy in meaningful ways. Although competition is stiff, firms looking at potential sites generally have specific areas in mind within the state, and if they do not, the Kentucky Cabinet for Economic Development offers assistance in identifying sites that meet their criteria. As a result, competition among local governments is usually against local governments in other states. Thus the collective effort becomes one that exhibits strong patterns of coordination originating at the state level. The capability for successful policy making in a government organization is commonly called government capacity.11 The major factors in assessing capacity are human resources, fiscal resources, and the means to orga nize these resources effectively. In Kentucky limitations in all three areas of capacity have made competitiveness challenging for economic-development policy makers.12 Relevant parties are invited to participate and offer ser vices and incentives that prospective firms might value.13 To an increasing extent, economic-development efforts have taken a from-within focus that emphasizes entrepreneurship. These programs are noncompetitive because new development is not a zero-sum game but a pieenlarging endeavor. Once firms are established, they may draw on these extensive state resources to start operation or expand. Incentives for homegrown employment have not been emphasized but are important nonetheless.

Politics and Economic Development

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Politicians are motivated to act to improve the local economy because it is visible and highly salient to voters.14 In bad economic times they feel pressure to bring jobs. In good economic times they feel pressure to bring more jobs than their counterparts in other communities. In both cases they will be judged according to their performance at the next election cycle in two to four years. Problematic aspects of this pressure are the limited influence government is able to exert on firms’ location decisions and the lengthy time frame within which such decisions can be implemented. Consequently,

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elected officials often opt to pursue tangible projects, such as roads and speculative buildings, rather than intangible programs, such as education and training. Moreover, physical capital is not mobile, whereas people are, so people-based investments are less appealing. According to Green and Yanarella’s critical assessment of the results of the Toyota industrial recruitment, the trade-offs provided what the Kentucky Chamber of Commerce and business leaders consider the most significant statewide initiative.15 Manufacturing jobs remain an important component of Kentucky’s economy, and Kentucky has a workforce that makes manufacturing a long-term need in economic-development policy making. But those critical of smokestack chasing aspire for Kentucky to have a diversified economic-development approach that moves away from traditional industrial recruitment. The political reality remains clear: Kentucky politicians, whether Republican or Democratic, have a bipartisan commitment to sustained industrial business growth and job creation.

Current Economic-Development Policy Kentucky’s economic-development policy can be readily assessed through a glance at the KCED’s website.16 Providing information about the host of available programs to stimulate development in the state is the site’s primary purpose. The programs are broken down conceptually into the traditional program, site selection and expansion, and more entrepreneurial strategies that include small-business support and technology and innovation.

Measuring Kentucky’s Progress Kentucky is characterized by an average-sized traditional economy. Kentucky’s economy is the twenty-seventh largest in the United States, with 2008 gross domestic product of $156 billion (up from $112 billion in 2000, or a growth rate of 4.3 percent per annum).17 Manufacturing led the state’s economy with 18.4 percent of economic output in 2008, while public-sector employment ranked second, contributing 15.7 percent of economic output; health care contributed 8.3 percent.18 Economic activity in the state is heavily clustered in urban areas. “The three most urbanized regional economies—Louisville, Northern Kentucky, and Lexington—account for 55 percent of the state’s population, 60 percent of the jobs, and 65 percent of the payrolls.”19 The 2011 Kentucky unemployment rate was 9.5 percent, compared to 8.9 percent nationally, but the state rate improved to 8.2 percent in 2012 compared to 8.1 percent nationally.20 As figure 17.1 reveals, Kentucky average unemployment typically exceeds the national average, though recent data suggests that Kentucky may be recovering at an above average pace relative to its state peers. We have already noted that Kentucky has a traditional economy based on agriculture and manufacturing. It is helpful to break down these sectors further to paint a clearer picture of the types of products the state produces. We begin with the primary economy. Kentucky leads the nation in coal production, although limestone, natural

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Kentucky

U.S.

unemployment rate

10 8 6 4

0

Jan-2001 Apr-2001 Jul-2001 Oct-2001 Jan-2002 Apr-2002 Jul20-02 Oct-2002 Jan-2003 Apr-2003 Jul-2003 Oct-2003 Jan-2004 Apr-2004 Jul-2004 Oct-2004 Jan-2005 Apr-2005 Jul-2005 Oct-2005 Jan-2006 Apr-2006 Jul-2006 Oct-2006 Jan-2007 Apr-2007 Jul-2007 Oct-2007 Jan-2008 Apr-2008 Jul-2008 Oct-2008 Jan-2009 Apr-2009 Jul-2009 Oct-2009 Jan-2010 Apr-2010 Jul-2010 Oct-2010 Jan-2011

2

Figure 17.1. Kentucky and U.S. Unemployment Rate Trends, 2001–2011. Source: U.S. Bureau of Labor Statistics.

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gas, and petroleum are also extracted there.21 Kentucky’s agricultural economy is currently dominated by livestock (66 percent of agricultural revenues, primarily thoroughbred horses and beef cattle), with crops such as tobacco, soybeans, and corn making up the balance.22 Many of these products are central to the state’s image in the world—it has long been the thoroughbred horse capital of the world, the largest burley-tobaccoproducing state, and the largest bourbon-producing state. The state’s leading vegetable is the tomato, and apples lead fruit sales. In manufacturing, the dominant sector of the economy, transportation equipment leads the way; Ford, GM, and Toyota have major assembly facilities in the state. Chemicals and machinery manufacture are second and third, respectively.23 In the ser vice area, business and personal ser vices dominate, followed by wholesale and retail trade, with government ser vices ranking third.24 Table 17.1 displays, by aggregate industry codes, the number of firms, the number of employees, and the amount of revenue in sales in each industrial category. It is also interesting to reflect on those industries where Kentucky has a comparative advantage in sales nationally. Table 17.2 displays industries in which the state ranked first nationally. A number of Kentucky-grown industries are household names around the world: Humana, Lexmark, Papa John’s, KFC, Ashland, and Louisville Slugger.25 There has been increasing interest in ranking and assessment across the spectrum of public policy, and economic development has been no exception. A variety of public and private organizations, some issue focused and some general, calculate the rankings. Nonetheless, there “are two common types of ranking systems: one looks at typological definitions (the substance of the policies) and the other looks at relative performance (the outcomes of the policies).”26 The U.S. Chamber of Commerce ranked Kentucky in the top ten in 2011 because of favorable regulation and tax policies. In

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Table 17.1. Industrial Composition of Kentucky’s Economy 2007 NAICS code and industry description

Number of establishments

21 Mining, quarrying, and oil and gas extraction

628

22 Utilities

329

Sales ($ thousands) 7,557,387 n/a

Payroll ($ thousands)

Employees

1,157,708

21,192

578,081

8,282

23 Construction

8,615

16,492,910

31,131,470

83,154

31–33 Manufacturing

4,165

119,105,421

10,773,228

247,096

42 Wholesale trade

4,485

94,546,249

3,408,949

70,882

44–45 Retail trade

16,404

50,405,925

4,502,186

214,782

48–49 Transportation and warehousing

3,176

11,790,557

3,516,709

78,936

51 Information

1,594

n/a

1,252,145

33,996

n/a

52 Finance and insurance

6,594

3,076,132

66,825

53 Real estate and rental and leasing

3,898

3,894,326

593,447

20,146

54 Professional, scientific, and technical ser vices

8,114

7,917,131

2,852,056

61,994

676

615,812

1,989,269

25,180

56 Administrative and support and waste management and remediation serrvices

3,900

5,312,255

20,033,303

96,386

61 Educational ser vices

553

250,352

83,858

4,445

10,600

22,151,809

8,395,085

235,282

71 Arts, entertainment, and recreation

1,341

1,205,333

368,118

18,556

72 Accommodation and food ser vices

7,309

6,300,866

1,787,430

151,551

81 Other ser vices (except public administration)

6,150

3,751,120

1,009,328

40,956

55 Management of companies and enterprises

62 Health care and social assistance

Source: 2007 Economic Census.

ranking Kentucky eighth, it comments, “Kentucky’s lowest cost of living in the nation helps move it into this year’s top 10. In order to further streamline business interactions with state government, the state recently passed legislation that will lead to the creation of a business ‘One-Stop’ web site. The online interface will simplify business filings and cut down on the need for business owners to complete multiple forms.”27

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Table 17.2. Industries in Which Kentucky Ranks First NAICS code

Description

Total sales/receipts ($ thousands)

Sales/receipts per capita ($)

42494

Tobacco and tobacco product merchant wholesalers

6,162,962

1,507.21

3313

Alumina and aluminum production and processing

3,503,731

856.87

492

Couriers and messengers

2,817,326

689.01

4921

Couriers

2,792,585

682.95

42432

Men’s and boys’ clothing and furnishings merchant wholesalers

1,582,338

386.98

3255

Paint, coating, and adhesive manufacturing

1,286,064

314.52

32551

Paint and coating manufacturing

790,697

193.37

332999

All other miscellaneous fabricated metal product manufacturing

637,522

155.91

32552

Adhesive manufacturing

495,367

121.15

3326

Springs and wire product manufacturing

462,471

113.10

311911

Roasted nuts and peanut butter manufacturing

458,190

112.05

332611

Spring (heavy garage) manufacturing

256,065

62.62

32192

Wood container and pallet manufacturing

222,182

54.34

213113

Support activities for coal mining

165,998

40.60

Source: 2002 Economic Census.

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The state compares favorably with its counterparts in competition for new industry activity. In 2008 Kentucky ranked ninth among the states in Site Selection magazine’s Governor’s Cup ranking—the highest ranking it had ever achieved since the ranking’s inception.28 The ranking is for new and expanding industry projects that exceed $1 million in capital investment, create 50 or more jobs, or add 20,000 square feet of floor space. Kentucky’s ranking was based on 280 location or expansion announcements that created 11,536 new jobs and capital investment of $1.7 billion.29 This is not surprising, given that the state was ranked seventh nationally for business climate in 2006—an improvement from ninth place the preceding year.30 The Kentucky Long Term Policy Research Center developed an index of state quality of life to assess Kentucky’s progress and progress relative to peer states. The State of the Commonwealth Index ranked Kentucky forty-sixth in 1990, but that rank improved to fortieth by 2001.31 Where Kentucky’s performance in the new economy is concerned, the rankings reveal limited advancement of an otherwise traditional economy. Kentucky ranked thirty-ninth out of the fifty states in a composite score of innovation capacity in 2000.32 Innovation capacity has been demonstrated to stimulate economic development.33 The character of innovation capacity is subject to change over time. Kentucky has

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been classified as having an emphasis on human capacity for innovation in the early 1980s and transitioning to an emphasis on state and local financial capacity for innovation from the late 1980s to the present.34 Other indexes of new economy performance reveal similar placement for the commonwealth. Kentucky ranges in rank from thirtyninth to forty-sixth in indexes generated by the Progressive Policy Institute, the Corporation for Enterprise Development, and the Milken Institute for the same year.35 Why does the state fare poorly in such high-tech indicators? Investment in science and research and development lag considerably behind national averages for most indicators.36 In fact, research and development expenditures as a share of gross domestic product are about one-third of the U.S. average.37

Kentucky’s Economic Development Future The recent recession has affected Kentucky, as it has the nation. Kentucky has not been as negatively affected as some states, but it remains in the middle range of states in most assessments of economic impact from the recession. The energy sector in Kentucky has been among the hardest hit, with coal and gas facing regulatory constraints from the federal government that have resulted in significant job losses and business contraction. Kentucky’s orientation toward traditional industrial recruitment and its favorable manufacturing-production factors have made it competitive in some business sectors as the economic downturn has resulted in business realignments domestically. Cooperation among Kentucky universities, and particularly between the University of Kentucky and the University of Louisville, is a hopeful signs of the new economy initiatives yielding new partnerships for twenty-first-century economic growth. Twentyfirst century economic development will require knowledge-based resources, and Kentucky’s commitment to higher education will be critical to Kentucky’s economic competitiveness. Regional cooperation in northern Kentucky also points to hopeful signs of regional intergovernmental cooperation that can align resources efficiently and make collective policy that attracts business and industry without fundamentally changing the units or structures of government. The traditional approach of Kentucky economic development has yielded sustained success in many economic sectors, and new economy approaches featuring high-tech strategies and innovative partnerships have been demonstrating emerging effectiveness, even in challenging economic times. The political consensus Kentucky government leaders have demonstrated for bipartisan intergovernmental policy making has been important for Kentucky’s competitiveness in the past and is an important tradition to maintain for future industrial recruitment and for sustainable economic development.

Notes 1. Center for Rural Development Leadership, accessed May 31, 2013, http://www .Centertech.com /leadership. 2. Jeremy L. Hall, “Understanding State Economic Development Policy in the New Economy: A Theoretical Foundation and Empirical Examination of State Innovation in the U.S.,” Public Administration Review 67, no. 4 (July/August 2007): 630– 46.

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3. Michael Hail and Jeremy L. Hall, “Economic Development,” in Federalism in America: An Encyclopedia, ed. Joseph Marbach, Ellis Katz, and Troy Smith (Westport, Conn.: Greenwood Press, 2006), 1:163– 66, 163. 4. Harold Wolman with David Spitzley, “The Politics of Local Economic Development,” Economic Development Quarterly 10, no. 2 (1996): 115– 50, 132. 5. E. Polk Johnson. Kentucky and Kentuckians: The Leaders and Representative Men in Commerce, Industry and Modern Activities (Chicago and New York: The Lewis Publishing Company, 1912.), 3. Also conceptually discussed in Thomas D. Clark, A History of Kentucky (Ashland, Ky.: J. Stuart Foundation, 1988). 6. Michael W. Hail, “The Whig Party,” in Encyclopedia of American Parties and Elections, ed. Larry J. Sabato and Howard R. Ernst (New York: Facts on File, 2006), 493– 94. 7. Ford Motor Company, “Plant Information,” accessed April 12, 2011, http://media.ford .com /article_display.cfm?article_id=28696. 8. Jeremy L. Hall, “Assessing Local Capacity for Federal Grant-Getting,” American Review of Public Administration 38, no. 4 (2008): 463–79; Jeremy L. Hall, “The Forgotten Regional Organizations: Creating Capacity for Economic Development,” Public Administration Review 68, no. 1 (2008): 110–25; Jeremy L. Hall, “The Distribution of Federal Economic Development Grant Funds: A Consideration of Need and the Rural/Urban Divide,” Economic Development Quarterly 24, no. 4 (2010): 311–24; Jeremy L. Hall, “Giving and Taking Away: Exploring Federal Grants’ Differential Burden on Metropolitan and Non-metropolitan Regions,” Publius: The Journal of Federalism 40, no. 2 (2010): 257–74. 9. Jeremy L. Hall, “Moderating Local Capacity: Exploring the E.O. 12372’s Intergovernmental Review Effects on Federal Grant Awards,” Policy Studies Journal 36, no. 4 (November 2008): 593– 613. 10. Center for Rural Development, accessed April 12, 2011, http://www.Centertech.com. 11. Hall, “Assessing Local Capacity for Federal Grant-Getting,” 463–79; Hall, “Forgotten Regional Organizations,” 110–25. 12. Michael W. Hail, “Federalism and Government Reform: Assessing Government Performance and Economic Development Policy in Kentucky,” Cities (Kentucky League of Cities) Winter 2004, 20–21. 13. Jeremy L. Hall, Grant Management: Funding Public and Nonprofit Programs (Sudbury, Mass.: Jones and Bartlett, 2010). 14. Wolman and Spitzley, “Politics of Local Economic Development,” 115– 50, 132. 15. Ernest J. Yanarella and William C. Green, eds., The Politics of Industrial Recruitment: Japanese Automobile Investment and Economic Development in the American States (Westport, Conn.: Greenwood Press, 1990). 16. Kentucky Cabinet for Economic Development, http://www.thinkkentucky.com. 17. Econpost, “Kentucky Economic Development, GDP Size and Rank,” accessed April 13, 2011, http://econpost.com /kentuckyeconomy/kentucky-gdp-size-rank. 18. Ibid. 19. Paul Coomes, Improving Earnings per Job: The New Economic Development Challenge in Kentucky (Lexington, Ky.: Center for Business and Economic Research, 2002), accessed April 13, 2011, http://cber.uky.edu /Downloads/coomes02.htm. 20. Kentucky Labor Market Information, accessed May 31, 2013, http://www.kylmi.ky.gov /gsipub/index.asp?docid=476. 21. Netstate, “Kentucky Economy,” accessed April 13, 2011, http://www.netstate.com /economy/ky_economy.htm. 22. Ibid.

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23. Ibid. 24. Ibid. 25. Kentucky Economic Development Guide, “Governor Steve Beshear Welcomes You to Kentucky’s Wonders,” 2011, accessed April 13, 2011, http://kentuckyeconomicdevelopment .com /node/547. 26. Hail and Hall, “Economic Development,” 163– 66, 165. 27. U.S. Chamber of Commerce, “Enterprising States: Recovery and Renewal for the 21st Century,” 2011, accessed May 31, 2013, http://www.uschamber.com /sites/default /files/reports /ES2011-full-doc-web.pdf. 28. Cabinet for Economic Development, “Kentucky Ranks 9th Nationally for Number of New and Expanding Industry Projects in 2008,” 2009, accessed April 13, 2011, http://www .thinkkentucky.com /newsarchive/ArchivePage.aspx?x=03092009_SiteSelection.html. 29. Ibid. 30. Cabinet for Economic Development, “Kentucky’s Business Climate Ranked 7th in the Nation by Site Selection Magazine,” 2006, accessed April 13, 2011, http://www.thinkkentucky .com /cednews/nov2006/enews_nov06 _bizclimate.htm. 31. Amy L. Watts, “New Index Measures Well-Being and Ranks Kentucky,” Foresight 11, no. 1 (2004), accessed April 13, 2011, http://www.kltprc.net /foresight /Chpt_75.htm. 32. Hall, “Understanding State Economic Development Policy in the New Economy,” 630– 46. 33. Jeremy L. Hall, “Developing Historical Fifty-State Indices of Innovation Capacity and Commercialization Capacity,” Economic Development Quarterly 20, no. 2 (May 2007): 107–23. 34. Jeremy L. Hall, “Measurement with Meaning: Evaluating Trends and Differences in Innovation Capacity among the States,” Economic Development Quarterly 23, no. 1 (2009): 3–12. 35. Jeremy L. Hall, “Comparing Indices of State Performance in the Knowledge-Based Economy,” Applied Research in Economic Development 6, no. 1 (2009): 3–13; Hall, “Distribution of Federal Economic Development Grant Funds,” 311–24. 36. Alliance for Science and Technology Research in America (ASTRA), “Kentucky R&D 2011,” accessed April 13, 2011, http://www.usinnovation.org /state/pdf_cvd /KentuckyR&D2011 .pdf. 37. Ibid.

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