The Bluegrass and Beyond

I’ve always found it ironic that Kentucky was considered more innovative and successful in the early 1800s, when it was on the edge of the American frontier, than during the past century, when it was at the geographic center of a booming nation.

Maybe success isn’t so much about where you are physically as where you are mentally.

The Kentucky Long-Term Policy Research Center’s annual conference in Louisville on Thursday looked at the usual problems that vex this state: health, education and economic development.

But much of the discussion focused on new ways of thinking about and tackling those problems.

Doug Henton, a Versailles-born author and consultant who heads a California company called Collaborative Economics, said Kentucky’s economic future could be much different than its past.

Natural resources, such as rivers and mineral wealth, will be less important in the future. What will be much more important is how human resources are developed.

Globalization of the economy is changing the importance of place and the strategies that states must use to create economic success.

Economic development strategies that focus on tax breaks, cheap labor and low-cost energy will no longer work. That’s because industries that depend on those things have either moved work offshore or eventually will.

What will be important is “quality of life” — creating a place where the best and brightest people want to live and the most innovative companies want to set up shop.

That makes a clean environment important, as well as smart land use and growth strategies, good urban planning and good transportation systems.

The most successful businesses now tend to be small- and medium-size companies that embrace change and are good at networking. Because collaboration is important, companies tend to cluster in areas where ideas can feed off one another.

Local and state governments are often either too little or too big to effectively address issues that will be important in the future, such as growth strategies and transportation, Henton said.

Breaking down old political barriers and promoting regional collaboration will become essential.

Northern Kentucky has had some success with regional cooperation, as has the Louisville area since metro consolidation. Central Kentucky? Not so much.

From his work around the country, Henton said, he has observed that the most successful regional initiatives are bottom-up and collaborative. They are ones in which leaders from government, business, universities, non-profits and citizen groups work together across traditional political boundaries.

“Focus on people and relationships, and not organizations and structures,” Henton said. “It’s about group creativity and regional stewardship, and the regions around the country where this happens seem to have more vibrant economies.”

The basic foundation for any region’s success in the future will be a well-educated population that is able to seize economic opportunities.

“We need well-rounded people who are creative as well as having the basic skills,” he said.

Kentuckians must become more comfortable with change, and more innovative in how they deal with it. One good example is in the way Kentuckians approach energy and the environment.

Peter Meyer, an environmental expert and University of Louisville professor, said climate change is real, and further worldwide restrictions on the burning of coal are inevitable, whether we like it or not.

But while Kentucky faces many challenges, it also has some opportunities.

Kentucky state government is doing good work in improving energy efficiency, especially with the construction of new public schools. The state’s first “net zero” energy use school building will open in Bowling Green next fall.

But state government could be doing more to promote those projects as examples, he said.

Rather than pledging $300 million in state funds for a coal-liquefaction demonstration project, Kentucky officials should put that money toward conservation efforts.

Home electricity consumption is 24 percent above the national average, which means we have a lot of opportunities to do better.

But it will involve a mental shift from Kentucky’s devotion to coal — and to doing things the way they’ve always been done.

“We need to become risk-takers in this environment,” Meyer said.

It looks as if Detroit may get its bailout after all.

If a reluctant Congress approves, the Big Three automakers could get $15 billion in short-term loans, following in the footsteps of banks and brokerages that are receiving $700 billion in public assistance.

Like many taxpayers, I’m angry at having to come to the rescue of greedy and incompetent corporate executives, but they seem to have us over a barrel.

Without the Wall Street bailout, the credit squeeze might have cost even more Kentuckians their jobs and savings and left the state with an even bigger budget deficit. A Detroit meltdown could wash away thousands more Kentucky jobs, from the Corvette plant in Bowling Green to the Ford plants in Louisville and dozens of parts suppliers across the state.

How did we get into this mess? Corporate greed and incompetence, for sure, as well as some irresponsible consumers. But I keep thinking that we could have avoided this crisis if government had been doing its job for the past eight years — if not the past quarter-century.

While we’re fixing the economy, it would be useful to have some sober discussions about the proper relationship between business and government. For decades, some politicians and big-money special interests have reduced that discussion to simplistic sound-bites: Business good. Big business better. Government bad. Government regulation very bad.

Government doesn’t create wealth, business does. Capitalism is the world’s best economic system because of human creativity, entrepreneurial spirit, enlightened self-interest and the nimbleness of business people to respond to the market’s needs.

But for capitalism to succeed over the long haul, it needs a fair and healthy marketplace where government sets some boundaries and enforces rules. Business people are the first to say that their job is to make a profit for their owners, not watch out for society’s best interests. That’s government’s job.

The Wall Street meltdown can be traced to greed and abuse made possible by deregulation and lack of government oversight. And if government had pushed harder for tough fuel economy standards — or helped fund innovation the way Japan has done with its automakers — the Big Three and the rest of us would be in a lot better shape now.

Honestly, I’m almost as concerned about government “oversight” of the auto industry as I am about government’s apparent lack of oversight of the financial services industry, which is getting nearly 50 times more money with few strings attached.

Government isn’t suited to running a business; it’s too bureaucratic and political. Of course, some would say the same about big corporations, especially public corporations more focused on short-term gain than long-term sustainability. Anyone who has ever worked for a big corporation knows why the comic strip Dilbert is so popular.

Some government regulation is essential; otherwise, our air and water would look like China’s and investors would have even less confidence in the safety of our financial system than they do now. But examples of overregulation are easy to find. Just ask any health care professional who deals with the well-meaning but nightmarish federal privacy law known as HIPAA.

As the nation feels its way toward a new relationship between government and business, a good subject to consider is health care.

Unlike in most industrialized nations, our health care system is left largely in private hands. Health care costs have traditionally been borne by business, although, as those costs have risen dramatically, companies have shifted more of them to workers.

The United States spends 16.5 percent of gross domestic product on health care — much more than any other nation — and that figure rises every year. Yet we have an inefficient system where an estimated 47 million people are uninsured and many families are just one serious illness away from financial ruin.

Why should businesses bear that burden? If government took more responsibility for managing health care with private providers, many people think both quality and coverage could be improved. Freed from those benefits burdens, companies could be more competitive globally. Plus, think of the entrepreneurial potential that could be unleashed if so many workers weren’t tied to jobs they hate by fear of losing health care benefits.

Of course, any attempt at change will be vigorously opposed by the health care industrial complex, which profits from the current system’s inefficiency. It will raise fears about “socialized medicine,” even though public-private systems such as Medicare, while hardly perfect, have worked well for decades.

Like many Americans, I’m uncomfortable with government trying to manage big business. But if government would use this opportunity to learn how to do a better job of governing, we might be spared more corporate bailouts in the future.

Well, the economists finally made it official this week: We’re in a recession. And, guess what? They said it began a year ago.

If you’re like the three-fourths of Americans who consider themselves to be “middle class,” this probably didn’t come as a surprise. Many people feel as if they’ve been losing economic ground for years. That’s because many of them have been.

America has been a generally prosperous nation since World War II, achieving the highest overall standard of living in the planet’s history. The reasons are many, including advances in technology and global economic trends that have made goods cheap and available. Americans have been innovative, entrepreneurial and they have worked hard. At times, the nation has made significant public investments in physical infrastructure, such as highways, and social infrastructure, such as schools.

But the pain being felt in this recession has brought new attention to a trend economists have been watching for years: The rich really are getting richer, the poor really are getting poorer and the middle class has been shrinking steadily since the late 1970s.

It’s a reality that government policy-makers and business leaders must deal with as they try to pull us out of this mess. The issue could be especially important for Kentuckians, who lag their fellow Americans in just about every measure of economic well-being.

At the Kentucky Long Term Policy Research Center’s annual conference Nov. 20 in Covington, there was an interesting panel discussion about the shrinking middle class and what it means for Kentucky. The news, as you might expect, wasn’t good.

“I see, basically, that middle class dissolving,” said Ron Crouch, a sociologist who has headed the Kentucky State Data Center at the Universtiy of Louisville since 1988. “The issue is it probably takes two incomes to make it in today’s society.”

Middle class is hard to define, but a basic measure is income. A year ago, a study by the nonpartisan Congressional Budget Office reported big disparities in the growth of after-tax household income between 1979 and 2005, as measured in 2005 dollars.

The study found that the poorest 20 percent of American households saw their annual income rise by an average of $900 over that quarter-century. The second-poorest 20 percent, by $4,800. The middle 20 percent, by $8,700.

Things were much different on the high end. The upper-middle 20 percent of households saw annual income increase by $16,000. And the richest fifth, by $76,500. Among the wealthiest 1 percent of households, average annual after-tax income rose by $745,100, from $326,400 to $1,071,500.

Panelist Terry Brooks, executive director of Kentucky Youth Advocates, said Kentucky ranks sixth-highest nationally in the disparity between its richest and poorest citizens and 13th in the disparity between middle- and upper-income people.

Most people define middle class more broadly than just income; it’s more about a feeling of security, Brooks said. Do I feel secure in my job, my home, my health, my retirement and my assets’ ability to weather a setback?

For example, if every member of a family doesn’t have health insurance, “you’re just one bad illness away from risk,” Brooks said.

That could help explain why the Pew Research Center and the Gallup organization reported this year that 25 percent of Americans felt they hadn’t moved forward economically in the past five years, and 31 percent felt they had fallen back. It was the worst result in a half-century of polling on that question. Attitudes are important, because confident consumers spend more, and consumer spending is two-thirds of all economic activity.

Being middle class is an idea Americans hold dear, which is why many people think of themselves as middle class when, in reality, they are either wealthy or poor. It’s especially true for baby boomers, who grew up in the 1950s and 1960s, when most Americans really were middle class.

Paul Krugman, the New York Times columnist and Princeton University professor who recently won the Nobel Prize for economics, has written that, far from being the norm, a majority middle-class America was a relatively brief condition that existed between the 1930s and about 1980.

Over the next few months, we’ll hear politicians and ideological warriors debate how to fix the economy and what role government should play in that. My guess is we’ll hear less than in the recent past about making government smaller, privatizing Social Security and cutting taxes for the rich. After all, some of the pillars of capitalism are lining up for billions in taxpayer bailouts.

The huge post-World War II American middle class was created, in part, though public investment such as the GI Bill, better public schools, affordable home mortgages, good highways, Social Security and Medicare.

Growing the middle class and returning the economy to health again will require more public investment. And it will mean creating smart policies to address demographic trends such as an aging population and inequities among growing minority populations.

A strong middle class is central to America’s self-image, but the way to keeping it strong is hotly debated. Crouch breaks it down into two basic philosophies, which he describes as the John Wayne view and the Little House on the Prairie view. One symbolizes rugged individualism; the other, the idea of “take care of yourself, take care of your family, but also watch out for your neighbor.”

“We’ve got to get off this idea that John Wayne is who we are in America,” Crouch said. “Basically, we’re a country which was built on people helping each other. This society cannot afford to have winners and losers. We’ve got to make everyone a winner.”

Kentucky’s potential for success in a global economy might not be obvious to people who have lived here all of their lives.

Pearse Lyons, an Irishman who heads the animal nutrition company Alltech, says he sees it. And he is convinced it can be achieved if Kentucky invests in education, focuses on scientific innovation and markets its brand.

Lyons is barnstorming the state this week to deliver that message in a series of public lectures. He began Monday in Glasgow, then drove to Murray and Owensboro. He plans to make six more speeches around the state Tuesday and Wednesday.

Dr. Pearse Lyons

Lyons, who started Alltech in Jessamine County 28 years ago, said Kentucky has some of the same advantages that helped launch Ireland’s economy in the 1980s. Both places have about 4 million residents, and their governments and universities are small enough to be accessible.

Lyons thinks Kentucky needs more public-private partnerships to invest in education and innovation. He hopes other companies will join Alltech in funding Margin of Excellence scholarships at the universities of Kentucky and Louisville to attract and retain the bright minds who will create tomorrow’s technology.

Earning a Ph.D. degree often requires a student to study for five years while living on a $20,000 annual university stipend. After graduation, first jobs don’t pay much.

“Who in their right mind would do that?” Lyons asked during a telephone interview on the road between Glasgow and Murray. “Why does Ph.D. have to stand for Poor, Hungry and Driven?”

The Margin of Excellence scholarship provides a $40,000 annual stipend on top of the university money for up to five years, plus an additional $10,000 for published research and another $10,000 if the student stays in Kentucky for three years after graduation.

“We’ve stepped up and done the first one,” which went to UK animal nutrition student Anne Koontz, Lyons said. “We’ve got a couple of people to step up and do the second and third. What we need is like-minded business people and businesses to step up and say, ‘Let’s create the single best Ph.D. program in the world.’”

Lyons, whose company operates in 113 countries, said such scholarships could be an inexpensive way for companies to do critical research. “You couldn’t hire a technician for $40,000 a year,” he said. “And here you’re going to get the brightest and the smartest focusing on your problem. It’s a no-brainer.”

Technology could allow Kentucky to keep building on traditional strengths, such as agriculture and energy. For example, the horse industry could fund a Ph.D. student interested in figuring out how to capture methane from manure. Coal companies could fund students to study ways to create clean-coal technology by capturing carbon dioxide.

Despite the economic slump, Lyons thinks this is a good time for companies to invest in the future. For example, he said, Alltech has secured government grants to help build a bio-refinery in Springfield that will create energy from renewable cellulose, such as corn cobs, switch grass and kudzu.

“Let’s focus on the problems of Kentucky,” he said. “Let’s focus on making those problems opportunities.”

Good marketing is vital, he said, for a state as well as a company. Lyons thinks Alltech’s sponsorship of the 2010 FEI World Equestrian Games will be good for marketing his company — and Kentucky. “It’s an incredible opportunity to show Kentucky to the world,” he said.

In some ways, Kentucky has a better image abroad than it does in the United States, thanks to such exports as Thoroughbred horses, bourbon whiskey, bluegrass music and what Lyons calls the “super brands” of Kentucky Fried Chicken and Muhammad Ali.

Good marketing sometimes just means taking advantage of small opportunities. Last Friday night, Lyons was back in Dublin for a black-tie dinner to receive the Foundation Day Medal from his alma mater, University College Dublin. But he didn’t go home alone.

That same evening, Alltech sponsored a recital at the Royal Irish Academy of Music by Everett McCorvey and Tedrin Blair Lindsay of UK Opera Theater, along with four UK students who have won the school’s Alltech-sponsored vocal competition.

After the recital, McCorvey said, he secretly arranged to hurry over to Lyons’ event so he could close the dinner by performing a special arrangement of My Old Kentucky Home with University College’s Choral Scholars.

After the performance, Lyons said, “There wasn’t a dry eye in the house.”

And it exposed 600 influential people in Ireland to a brand: Kentucky.

IF YOU GO
Lyons’ lectures