How to improve Appalachia? Create more local entrepreneurs

Thomas F. Miller thinks he knows how to make Eastern Kentucky’s economy more vibrant, diverse and sustainable: create more entrepreneurs. How could that be done? Well, he has some ideas about that, too.

Miller, 67, has been thinking about these issues since 1971, when he left a Big Eight accounting firm to move to Eastern Kentucky and work for what is now Kentucky Highlands Investment Corp.

From 1973 to 1981, Miller was president of Kentucky Highlands, one of the most successful initiatives to come out of President Lyndon B. Johnson’s “war on poverty.” Miller later worked in economic and community development in San Francisco, his native Tennessee and for the Ford Foundation in New York and Africa.

130717TomMiller0010Miller recently sent me a report that summarizes his four decades of thinking about Eastern Kentucky’s economic challenges. We met last week in Berea, where he has lived since retirement, to talk more about it.

“I can’t let go of the big conclusions I’ve come to about the development challenges around here,” Miller said.

Eastern Kentucky’s economy has been dominated for more than a century by extractive industries — coal, timber, oil and gas. Production costs were kept low and most profits went elsewhere.

Those dominant industries and geographic isolation limited diversification and civic engagement. Eastern Kentucky’s economy became almost solely dependent on the boom-and-bust coal industry — and government transfer payments.

Efforts to bring industry from elsewhere into Appalachia has had limited success for a variety of reasons, and most of those jobs have paid low wages. Many of Appalachia’s talented and ambitious entrepreneurs have left for better opportunities elsewhere.

You can’t just throw money at the problems, Miller said. That’s why the billions of public and private dollars that have gone to Appalachia in the past half-century haven’t solved the problems. More important than having capital, he said, is having people who know how to successfully put capital to work.

Kentucky Highlands and other similar organizations in Central Appalachia have done some good work in this area. But they simply haven’t been big enough to make the impact that is needed, he said.

Miller proposes creating an Eastern Kentucky Venture Fund, led by a half dozen or so senior Kentucky business people with exceptional talents. They would need to raise at least $250 million in public and private equity and debt to create and nurture entrepreneurs and to invest in new businesses, often through existing organizations such as Kentucky Highlands.

And an important focus would need to be creating businesses that bring new money into the region by producing products sold elsewhere.

“While government has a role to play, this kind of development strategy can’t be led by government,” Miller said. “Government is about trying to please a lot of constituencies. Private investment is about saying ‘no’ 99 percent of the time.”

Because this kind of fund would be more about regional development than quick profits, it would be hard to attract most private equity. But, with the right kind of leadership and vision, Miller thinks, a number of big foundations would be willing to invest. So would regional corporations and utilities that stand to benefit from an improving Eastern Kentucky economy.

“We must make the most of the entrepreneurs we have, bring more of them into the region and grow them at home,” Miller said in his report.

The best Eastern Kentucky entrepreneurs are likely to be homegrown ones — people who have a passion for the region and don’t want to live anywhere else, he said.

This effort would require culture change in a region where work has often meant working for someone else. And it would require extensive training in economics, entrepreneurship and business skills, from elementary school through college, both in the classroom and through extracurricular activities such as Junior Achievement.

“You would try to do everything you can do to increase people’s ability to think like entrepreneurs and, more importantly, give them opportunities to practice,” Miller said.

“There are no silver bullets,” he said. “It’s probably a 50-year strategy, at best, and the first 10 years aren’t going to be pretty. But we know that this investment strategy works in Eastern Kentucky, that betting on the people here is the thing to do.”