The Bluegrass and Beyond

I wrote Sunday about last week’s Shakertown Roundtable, which featured former Federal Reserve Chairman Paul Volcker and included more than 50 of Kentucky’s most influential leaders in business, government, academia and philanthropy.

Given the complexity of the topic — economic crisis and recovery — and the caliber of the panel and participants, there was a lot to discuss and think about.

Here are a few additional notes from last Thursday afternoon’s conference in one of Kentucky’s most scenic settings, Shaker Village at Pleasant Hill:

■ One executive I found insightful was Paul Varga, president and CEO of the Louisville-based liquor giant Brown-Forman Corp. In stressful times like these, he joked, “You’ll all understand why I’m happy to be in the business I’m in.”

Varga said he understood some executives’ worries about a backlash of too much taxation and regulation after a period many people think had too little. Liquor has always been an easy mark for higher taxes, he said, adding that “our industry once had the ultimate government intervention: Prohibition.”

He noted that much of the economic crisis was caused by what people did with other people’s money and an abandonment of traditionally sound business practices. Varga said future prosperity will require companies to not just achieve revenue growth, but create value.

Brown Forman — and the entire bourbon industry — has remained relatively healthy by not taking on too much debt and by searching out new markets overseas and developing spinoffs such as the Bourbon Trail initiative around distillery tourism.

■ In response to a question, Volcker said ideology and economics don’t mix well. That’s because unpredictable human behavior can have a big effect on the economy.

“It’s not a rational activity,” he said of economics, adding that this crisis showed that free markets with little regulation can lead to greed, manipulation and disaster.

■ Louisville Mayor Jerry Abramson, who is running for lieutenant governor on Gov. Steve Beshear’s re-election ticket, reminded executives who criticized government spending on the social safety net that many average Americans are hurting.

“We have real families and real children who are going through some real difficulties,” Abramson said. The nation needs to take care of them, he said, not only because it’s the right thing to do but because they are the workers who will be needed to build the future.

■ Centre College President John Roush said most aging baby boomers won’t be able to enjoy the leisurely retirement they expected because our old economy and lifestyle expectations weren’t sustainable.

“We’re not going to get to go fishing every day,” said Roush, 59, who said he likes to fish.

But Roush said he is encouraged that today’s college students have different expectations. “They have a sense of possibility and optimism,” he said.

■ University of Kentucky President Lee Todd said America needs to renew its focus on research and development, advanced manufacturing and high-quality education. Kentucky students need more math and science — and more confidence in their abilities.

With the right education and training, Kentucky students can compete with anyone, said Todd, himself the product of a small town in Hopkins County. As an example, he mentioned UK students’ strong showing last week in the international solar house design competition in Washington, D.C.

Kentucky students need to start their own businesses, not just expect to work for someone else. And the state needs to emphasize entrepreneurship and business development, not just attracting employers from elsewhere.

“Kentucky people who start companies will stay in Kentucky,” Todd said. “We’ve got to create our own jobs.”

Kentucky Educational Television videotaped the Shakertown Roundtable and will show an edited version on Nov. 23 at 8 p.m. and at other times.

Paul Volcker, who was chairman of the Federal Reserve under presidents Jimmy Carter and Ronald Reagan and is a top adviser to President Barack Obama, has earned a reputation as one of the rarest of creatures: a straight-talking economist.

Volcker was true to form Thursday, when he came to Kentucky to speak at the Shakertown Roundtable, a gathering of about 60 of the state’s most influential leaders in business, government, education and philanthropy.

The 82-year-old economist was blunt in his assessment of what caused this economic crisis and what’s needed to fix it. And he brought things back into focus when some executives tried to point fingers, shift blame and complain about recovery strategies.

“We spent, as a nation, more than we were producing,” Volcker said. Mix that with a real-estate bubble, reckless financial manipulation and too little government oversight, and it was a recipe for disaster.

“We were leveraging the economy … and then it all unraveled,” he said, adding that the recovery will be a “considerable slog” that could take years.

Volcker has advised Obama to restore legal restrictions, enacted after the Great Depression but repealed in the 1990s, that separated investment and commercial banking and prevented banks from becoming “too big to fail.”

The Obama administration has balked at Volcker’s suggestions amid industry opposition. But Volcker warned that without such reforms the nation could face a repeat of its current crisis in a few years.

After Volcker’s remarks, the 11 other panelists gave their views on the economy and the proper relationship between business and government. They included Gov. Steve Beshear, Louisville Mayor Jerry Abramson, the presidents of the universities of Kentucky and Louisville and several business leaders.

David Grissom, president of Mayfair Capital in Louisville, said he was depressed at the quality of national leadership. He complained about the huge amounts of money government is using to try to rescue the economy.

Julie Janson, president of Duke Energy in Kentucky and Ohio, lamented new government regulations on energy and utilities.

Churchill Downs Chief Executive Robert Evans warned this was a bad time to raise taxes and increase government regulation of business.

U of L President Jim Ramsey cited sobering statistics about Kentucky’s economic “blood bath,” such as the decline in manufacturing jobs in the past decade from 310,000 to 200,000 and the fact that Kentucky spends $9,000 a year on each public school student, $6,000 on each college student — and $19,000 on each prison inmate.

As each panelist took his or her turn, things turned gloomier. Then the last panelist, the governor, spoke.

Beshear said he thinks Kentucky is in better shape economically than many states and, with smart strategy and investment, the state could position itself to take advantage of future economic opportunities, such as advanced manufacturing.

“Until I heard from the governor, I was in a state of desperation,” Volcker deadpanned, adding that he agrees with Beshear’s optimism.

But, Volcker said, Kentucky and the nation must see the economic crisis as a “wake-up call” and make some fundamental changes.

Volcker also agreed with comments by UK President Lee Todd, who emphasized the need for more rigorous math and science education and more technology research that can be commercialized to create jobs.

Todd criticized the recent emphasis on the service economy: “We can’t create wealth by serving hamburgers to each other.”

In the best line of the day, Volcker said Americans need to shift away from “financial engineering” and focus once again on civil, mechanical and electrical engineering.

We need to regain our leadership in technology development and manufacturing, he said, rather than churning out so many business school graduates who are focused on making big, quick and easy profits by manipulating money.

If there’s one thing this year’s Shakertown Roundtable made clear, it is this: Economic recovery will require us to figure out how to prosper in a new and different global economy, rather than simply trying to get back what we have lost.

Centre College President John Roush, commenting from the audience, perhaps said it best: “I think we are going back to a place of well-being. But it’s a different place.”

Here’s a piece of my interview with bourbon industry legends Elmer T. Lee, Jimmy Russell and Parker Beam that I didn’t have room for in today’s column:

Considering their combined 150-plus years of experience in bourbon distilling and tasting, I wanted to know how they judged one bourbon to be better than another.

They said individual taste plays a big role, so the question of whether one bourbon is better than another is often subjective. Russell said it’s like how some people prefer Coca-Cola and others like Pepsi. “If they all tasted the same, we’d just need one (distillery),” he said.

Beam said his tastes were shaped by the tastes of his father, who was Heaven Hill’s master distiller before him. “But Elmer and Jimmy are going to have a little different palate than what I’ve got,” he said.

All three agreed that one of the most important characteristics of a fine bourbon is a good “finish.”

“It just kind of lingers on the palate and gets better the longer it lays there,” Beam said. “I like that.”

“What he’s telling you,” Russell said, “is that it’s so good he wants another one.”

FRANKFORT—These guys don’t look like rock stars at first glance.

Or second glance. Or third.

Yet, they travel the world making public appearances, posing for photographs and signing autographs, usually on bottles of Kentucky’s best bourbon, some of which have their picture on the label.

This is officially Bourbon Heritage Month in Kentucky. The 18th annual Bourbon Festival is Sept. 15-20 in Bardstown. The eight-distillery Kentucky Bourbon Trail is expecting a record number of tourists.

So I figured this was a good time to sit down with three of bourbon’s elder statesmen: Elmer T. Lee, 90, former plant manager at Buffalo Trace; and master distillers Jimmy Russell, 74, who has been at Wild Turkey in Lawrenceburg for 55 years, and Parker Beam, 67, who is celebrating 50 years at Heaven Hill in Bardstown.

Bourbon sales have been growing steadily for 25 years, especially in international markets such as Japan, Australia and Europe. Distillery production is up 50 percent since 1999.

Much of the credit is given to Lee, who introduced Blanton’s Single Barrel in 1984, launching the premium bourbon market that has been the industry’s growth engine. Single barrel and small batch recipes have transformed bourbon’s image from a commodity into a craft product, like fine wine.

You also can’t discount the marketing genius of Bill Samuels at Maker’s Mark in Loretto, who taught a conservative industry how to be folksy and hip at the same time.

More than 95 percent of all bourbon is made in Kentucky, creating a $3 billion industry with 3,200 direct jobs. Although some distilleries are now owned by international conglomerates, they’re almost all run and staffed by Kentuckians with old bourbon family trees.

Russell and Beam are third-generation distillers, and their sons are distillers, too. Beam’s grandfather, for whom he was named, was master distiller at the operation owned by his grandfather’s brother, Jim Beam.

I visited with Russell, Beam and Lee around a table at Stony Point, the hilltop home where Col. Albert Blanton once commanded the 110-acre distillery now called Buffalo Trace. These three friends and rivals have known each other for decades. They can, and often do, give each other a hard time—and finish each other’s sentences.

The first thing I wanted to know was how these experts drink their bourbon.

Russell sips his “neat”— or straight—from a brandy snifter so he can enjoy the aroma. In summertime, he might drink it over ice, or chill the bottle in the refrigerator. Beam also is a straight-bourbon man, although he sometimes chases it with a little water. Lee prefers his bourbon mixed with 7Up or Sprite.

Russell, whose personal brand is Russell’s Reserve, and Beam, who developed Evan Williams Single Barrel, have a drink most days, but not every day. Lee is a daily drinker, but, like the others, in moderation.

“I don’t try to drink it all every night,” Lee said. “Just one good highball.”

Does Lee, the namesake of Elmer T. Lee Single Barrel, give bourbon any credit for his living to be 90? “I give it a whole lot of credit,” he said. “It ain’t hurt a damn thing.”

Beam jumps in: “Booker Noe, my cousin (and former master distiller at Jim Beam in Clermont) always said, there’s too much living proof bourbon won’t hurt you. Look at all us old-timers.”

Decades of practice have taught these men what good bourbon tastes like, but they have a hard time describing it — and sometimes chuckle when others try. They talked of hearing bourbon aficionados wax poetically about hints of caramel, vanilla and spice — and even tree leaves, leather and tobacco.

“I’ve always said when you’ve got some of those kind of tastes in your bourbon, you’ve probably got problems,” Beam said with a laugh.

Lee then had to tell one on Russell. One time, at a tasting in Missouri, someone began equating a particular bourbon’s taste to exotic fruits and vegetables. Russell leaned over to another distiller and whispered: “I don’t know about y’all, but we don’t put any of that crap in our bourbon.”

These three seem to enjoy being international bourbon ambassadors almost as much as being distillers. They have a lot of funny stories, such as the time Lee called down to the front desk of a hotel in Japan to ask for a bucket of ice. The bellman delivered a bucket of rice.

Lee, Beam and Russell were born and raised within a few miles of the distilleries where they have spent their lives, and their most common travel stories involve how people sometimes react to their folksy charm.

“One time, at a tasting in California, I introduced myself and after I poured the product this guy kept kind of staring at me,” Beam said. “Then he pointed his finger and said, ‘You’re a real person! … I thought you were just some fictitious character they had come up with in marketing.”

Beam, Russell and Lee are real, all right. But they’re characters, too.

Click on each thumbnail to see complete photo:

There’s no zealot like a convert, and when it comes to believing in Kentucky’s potential, there’s none like Pearse Lyons.

The energetic Irishman, who moved to Lexington three decades ago and built his Alltech nutrition supplement company into a global giant, has a few thoughts about how the future could shine brighter on his new Kentucky home.

Lyons shared some of those thoughts Thursday with the Lexington Forum, telling the monthly gathering of business folks that the keys are education, innovation and building on Kentucky’s existing strengths and resources.

Lyons hopes to showcase many of those resources next fall, when his company sponsors the 2010 Alltech FEI World Equestrian Games at the Kentucky Horse Park.

But he’s getting a head start in Britain this month at the Alltech FEI European Jumping and Dressage Championships, Aug. 25-30.

More than 60,000 spectators and 150 competitors from 32 nations are expected to attend the games at Windsor Castle. One thing they’ll find, a short walk from the arena, is a Kentucky oasis.

The Alltech Kentucky Village, a tented area inside a white-plank fence, will give visitors a literal taste of Kentucky: burgoo, hot Browns, Maker’s Mark bourbon, Dippin’ Dots ice cream and, of course, Alltech’s Kentucky Ale and Bourbon Barrel Ale.

Everett McCorvey from the University of Kentucky’s Opera Theatre program will direct a vocal ensemble. There also will be displays promoting Kentucky tourism and products.

Muhammad Ali and Pearse Lyons announced creation of the Alltech Muhammad Ali Center Global Education and Charitable Fund in Lexington in May. Alltech Photo

Lyons is taking Muhammad Ali to Windsor, thanks to the Alltech-Muhammad Ali Center Global Education and Charitable Fund. After that, Lyons and Ali head to Dublin for a fund-raising dinner and a visit to the Irish town one of Ali’s great-grandfathers left for America in the mid-1800s.

Lyons said he gets dizzy sometimes thinking about how an Irish lad of modest means could grow up to earn a Ph.D. and create a company with annual revenues of $500 million and a 35 percent profit margin — much less hobnob with people such as Ali and Queen Elizabeth II.

It all came down to education, entrepreneurship and taking advantage of opportunities. The same formula can work for Kentucky, too, he told the Lexington Forum.

Lyons noted that Kentucky and Ireland have many similarities. They’re both beautiful, mainly rural places with about 4 million people, rich heritage and a history of seeing their smart young people leave for opportunities elsewhere.

Ireland reversed its fortunes by focusing on education and innovation, and Kentucky can do the same.

This time of economic transition is when Kentucky should look for new opportunities and new ways of doing things, Lyons said.

For example, Kentucky should neither ignore its rich coal reserves, nor expect to continue mining and burning coal the old way, given environmental concerns and climate change. Instead, he said, Kentucky should be at the forefront of figuring out how to make coal more valuable “within the new rules and regulations.”

One way to do that is by focusing on carbon-capture research. Lyons thinks one solution could be algae — the fast-growing slime that produces two-thirds of the world’s oxygen by soaking up carbon dioxide.

Another opportunity is aquaculture, because Kentucky has enormous reserves of fresh water, much of it underground.

“Fish is an incredible opportunity for Kentucky,” he said. “Where the poultry industry is today, the fish industry will be tomorrow.”

Algae and aquaculture are two of many things Alltech researchers are working on.

“The possibilities for innovation are enormous,” Lyons said. But innovation requires education.

Lyons said Kentucky universities must develop programs that will retain the state’s own students and attract those from elsewhere. And he challenged Kentucky businesses to invest in education.

He said Alltech donates laboratories to schools and pays graduate students to earn Ph.D.s, do research for the company and stay in Kentucky after graduation.

While looking for new opportunities, Kentucky should continue developing signature industries such as bourbon and horses that already have infrastructure and international reputations. For example, one thing that led Alltech to develop its popular Bourbon Barrel Ale was Kentucky’s ready supply of used bourbon barrels.

Along with more focus on education, Lyons said, Kentucky needs leaders.

“The leader’s job is to bring uncertainty out and certainty in,” he said. “That’s what our state needs. Because in 20 years’ time the whole world is going to change. Which way? I’m not sure. But it’s going to change. And please God it will change, because therein lies our opportunity.”

Bill Samuels’ speech to the Bluegrass Hospitality Association was a lot like the Maker’s Mark bourbon his company produces: smooth with a distinct flavor — and a kick.

Samuels talked Wednesday about how Kentucky has a monopoly on making premium bourbon. How it is a growing industry, which has doubled production since 1999. How it directly employs 3,200 people, has made $100 million in capital investment and creates $3 billion in gross state product.

Then he talked about how bourbon is creating a spinoff tourism and hospitality industry with huge growth potential that could rival Scotland’s whisky trail and California’s wine country.

Samuels unveiled a new logo and souvenir passport for the Kentucky Bourbon Trail, a 10-year-old marketing effort that he said has brought millions of tourists to the eight participating distilleries.

Then he delivered the kick.

Samuels blasted state officials, accusing them of trying to kill the bourbon industry with excessive taxes and unfair sales restrictions. And he signaled that the industry will be fighting back.

“We’re not looking for subsidies from our commonwealth,” Samuels said. “But we’re sure as hell not looking to be thrown under the bus.”

The bourbon industry is smarting over the General Assembly’s eleventh-hour move earlier this year to balance the state budget by adding the 6 percent sales tax to alcohol.

On Kentucky Derby weekend, a group of industry players ran full-page newspaper ads in Lexington and Louisville demanding that the governor and legislature reconsider.

“Kentuckians already pay the second-highest taxes on beverage alcohol in the U.S. We say enough is enough,” the ad said. “If you see the governor or one of our legislators during the Derby Season, let them know what you think of their unfair tax policies because it’s time to restore common sense to the Commonwealth.”

The Kentucky Distillers’ Association is working on developing a legislative strategy, President Eric Gregory said. He said the industry wants to make sure it has “a seat at the table” when lawmakers discuss much-needed tax reform.

“There are now seven different taxes on bourbon,” Gregory said. “That’s insane.”

Why is liquor so heavily taxed? Because it’s an easy political mark, especially in a state where many Christian denominations consider drinking a sin. Forty-nine of Kentucky’s 120 counties ban alcohol sales, and an additional 41 counties restrict them. A big reason for that is church folks and their legislators.

“I travel all over the world, and the only place I have ever heard the signature product, the signature industry, referred to as sin is in Kentucky,” Samuels said.

“If the majority of our elected officials believe that what we’re producing is sin, we need to confront it. And if they win, we need to shut all this stuff down, because we wouldn’t want to embarrass them. I would contend that’s an issue that needs to be dealt with. We’ve got to call their hand on it. We’re going to force that issue.”

Last year, Rep. Steve Riggs, a Louisville Democrat, suggested that only “wet” counties should receive the benefits of future alcohol taxes. In a General Assembly dominated by legislators from those mostly rural “dry” counties, the idea went nowhere.

Samuels suggested legislation removing all local-option restrictions and forcing counties that want to ban alcohol sales to vote “dry” again. And, he said, those that did should not get any alcohol tax revenues.

“It was estimated that to do that would have raised twice as much money as adding the tax, which took our product, of this signature industry, to the second-highest in the country,” he said.

State tax receipts on distilled spirits dropped by more than half last month as the new tax took effect. But it’s too early to know if that was because of the tax, the overall economy, or simply because people stocked up before the new tax went into effect.

Samuels had two points to make to the tourism people. One was that the bourbon industry is a major, growing contributor to Kentucky’s economy. The second was that bourbon-related tourism and hospitality has huge growth potential.

“This is the cheapest economic investment that the state could make,” he said of lowering taxes on the bourbon industry. “In my judgment, (bourbon-related tourism) has every bit the potential for being for Central Kentucky what Napa and Sonoma are for California. But if the industry itself is not viable, it has no chance.”