Bacon's Rebellion

As a follow-up to my pessimistic report on the economic future of Southside and Southwest Virginia, I thought it worthwhile to add a codicil on the University of Appalachia College of Pharmacy, located in Buchanan County, which appears to be a very productive deployment of the region’s scarce community development resources.

According to Frank Kilgore, an occasional contributor to the Bacon’s Rebellion e-zine, 67 students graduated with pharmacy degrees this May. Two months after graduation, 97 percent of them had found employment — 79 percent of whom had taken jobs in Appalachia serving rural populations in Virginia, West Virginia, Kentucky, Tennessee and West Virginia.

The pharmacy college contributes to regional economic development in two ways: (1) it provides a supply of pharmacists willing to practice their profession in central Appalachia, a region that is otherwise under-served by pharmacists, and (2) it keeps the economic activity of providing the educational services in the region. Were it not for the college, would-be pharmacists would have to earn their degrees in Richmond, Chapel Hill or wherever, exporting hefty sums on tuition, room and board to those communities.

This strikes me as a highly productive use of local resources, generating a high return on investment both socially and financially. The College of Pharmacy could well serve as a template for other professional schools that fill the void in professions which many poor and isolated communities find themselves unable to fill. (For the record, I am less sanguine about the law school in Grundy. Locals insist the region needs more lawyers. I’m dubious.)

Some truths are just too hard for politicians to speak: There are some things that constituents refuse to hear. That’s why we have blogs.

One of those truths here in Virginia is that Southside and Southwest Virginia are experiencing an irreversible decline that cannot be halted as long as current economic trends and development policies hold. This is not a reflection upon the earnestness, work ethic or moral worthiness of the people of those regions. It’s just the way it is.

I developed that theme in two recent blog posts, which I’ve knitted together in a single piece, “No Salvaging the Mill Towns“.) If you haven’t read the blog posts yet, skip them and read the column. If you have read the blog posts, you might revisit the column anyway: It states the case more lucidly.

The occasion for these observations is a report by a blue-ribbon panel that has surveyed the handicraft of the Virginia Tobacco Indemnification and Community Revitalization Commission after 10 years and $400 million parceled out over 900 projects smeared across the region. The panel recommends adopting an “investor” approach to disseminating funds rather than a grants approach, in which funds are doled out to every town, city and county throughout the region. Likewise, the study group recommended making fewer micro grants under $100,000 and concentrating on projects that offer potential to transform the two regions.

As Heinz Guderian, the theoretician behind the Wehrmacht’s WWII blitzkrieg tactics, famously said (in German, of course), “Kick ’em, don’t splatter ’em.” In other words, if you want to achieve a breakthrough, concentrate your resources.

Fortunately, community leaders in Southwest Virginia are getting the picture. One reader has sent me a widely circulated letter written by Barnie Day, a Patrick County community banker, board member of the Tobacco Commission and former General Assembly delegate (and former Bacon’s Rebellion columnist) who, by speaking the hard truth, no doubt has transformed himself into political paraiah.

“We have fertilized and watered the seeds of our own failure,” Day wrote, “with how we have chosen to structure and govern ourselves, with how we have chosen to allocate — in basically a ‘might is right’ fashion — the spoils of this endeavor. … Not only has [this approach] pitted region against region and local government against local government, but in many cases it has fostered spending for spending’s sake — spending without impact — spending sometimes based on little more than availability of funding.”

As Day admits, he argued for and — “God forbid” — actually received funding for a “covered bridge festival.” The Tobacco Commission has lavished hundreds of millions of dollars on sewer lines, shell buildings, community centers, institutes, partnerships and initiatives of all sorts. “But what nags at me is this question: “Will any of them make a 100-year difference?”

In my column, I argue that the problem runs even deeper. The dispersed, low-density settlement patterns of Southside and Southwest Virginia — small towns, tens of thousands of homestead scattered along country roads — are not sustainable (a) in an age of energy scarcity that drives up the cost of gasoline and (b) in a Knowledge Economy in which the “clustering force” rewards companies for locating near large pools of skilled labor.

If there’s any hope for the region, it’s in conducting economic-development triage and concentrating resources into a handful of urban areas — Danville, Bristol, perhaps Martinsville — that are large enough to compete for human capital. Such a policy would be political suicidal for any community leader to advocate. But the hell of it is, the strategy of spreading around the tobacco booty to placate local politicos is doomed to failure. Southside and SW Virginia get only one chance at this: They have to do it right.

As noted in the previous post, the Tobacco Indemnification and Community Revitalization Commission has spent more than $400 million over the past decade — and has the capacity to spend $60 million annually for many years to come — in promoting economic development in the tobacco-growing regions of Southside and Southwest Virginia.

The original hope of those who set up the fund was to find a way to “transform” the economy of Virginia’s poorest regions, to pole vault the hamlets and mill towns into the Knowledge Economy Ireland style. Towards that end, the Commission has invested heavily in making high-speed Internet access more accessible and on a slew of educational initiatives. But the Commission also has spread around a lot of money on local, patronage-like projects as well as incentives to entice traditional manufacturing investment. A decade later, the region has diversified its economic base to some degree, but still remains highly dependent upon light manufacturing and resource extraction.

It is politically suicidal for the leaders of Southside and Southwest Virginia to ask the question that must be asked, so I will ask it: Are the economies of Southside and Southwest Virginia even salvageable? Has the the Commission squandered hundreds of millions of dollars keeping the region hooked on its old economic model? Would it make any difference even if the Commission changed its strategic emphasis, as a recent report suggests, to education?

Here’s the problem: The United States’ competitive advantage in the global economy resides in knowledge-intensive industries that leverage productivity and innovation. To compete, businesses need employees with high levels of skills and education. To recruit a workforce, successful businesses must locate in proximity to large labor pools — i.e., large metropolitan areas. (The only partial exception to this rule is that some corporations are willing to locate near university towns that provide access to unique knowledge sets.)

Not only are businesses biased towards locating in large metro areas, but many cutting-edge businesses locate in particular metropolitan areas where they can join industry clusters in which highly industry-specific industry knowledge can be shared.

Not only do Virginia mill towns — like all mill towns across the United States — lack the size to create knowledge-intensive labor pools… Not only do they lack the business clusters that support industry-specific innovation, for the most part they lack the amenities required to recruit, retain and remunerate highly educated employees. As Richard Florida observes, the creative class is heading where the wealth-generating opportunities are — and they’re not in tiny mill towns.

The Tobacco commission simply has not come to grips with this problem. But even if it did, even if the commission followed the advice of its blue ribbon study panel and invested more heavily in education, it wouldn’t make much difference. The vast majority of newly educated residents of Southside and Southwest simply would emigrate to metro regions where they could utilize their skills and make more money.

I would add one additional perspective that the Tobacco Commission has steadfastly refused to consider: the critical importance of human settlement patterns. Virginia’s mill towns support a highly dispersed population — living in small towns, strung along country roads, in remote cul de sacs — that entail long commutes to manufacturing facilities located in industrial parks with highway access. That pattern was affordable when energy was cheap. But that low-density pattern is crippling to local living standards in an era of expensive energy. To my knowledge, the commission has given no thought whatsoever to encouraging more compact, less dispersed settlement forms.

Furthermore, the low-density pattern of 50-acre farmettes, a few head of cattle and a small patch of tobacco, which factory workers supplemented their wages with farm income, has no allure to the creative class. (Urban refugees who dabble in farming seem inclined toward horses and vineyards.) To have any prayer of attracting/retaining an educated population, the Commission must pay more attention to creating the kinds of communities where educated people want to live.

Politically, the Tobacco commissioners can never throw up their hands and say, “We give up. All is lost.” But they should heed the advice of their blue ribbon commission to stop frittering resources on tiny patronage projects that support a few jobs temporarily but fail to achieve lasting transformation. The regions’ only hope is to concentrate resources in creating economically viable magnets within the region. It is possible — not likely, but possible — that cities and towns like Danville, Martinsville and Bristol/Abingdon have sufficient size with sufficiently large labor pools of skilled, educated labor that they could be attractive to businesses seeking respite from the high costs and dysfunctional human settlement patterns of the large metro regions.

The strategy of supporting “urban” economic activity (primarily manufacturing) in dispersed, low-density human settlement patterns across thousands of square miles becomes less and less viable with every increase in the price of gasoline and the steady migration of the creative class to large metropolitan areas. Until the Tobacco commission abandons that delusion, its cause is futile, and its leaders peddle false hope to the people they serve.

Nearly a decade has passed since the passage of the Master Settlement Agreement which divvied up more than $200 billion in cigarette company proceeds between the 50 states. Virginia chose to dedicate more than half of its share — some $770 million so far — to the tobacco-growing regions of Southside and Southwest Virginia whose inhabitants were most hurt economically by the decline of the tobacco cultivation.

A big chunk of those funds were paid directly to owners of tobacco allotments, but $432 million has been funneled into development and revitalization projects for the economically lagging regions. The commission still has a $1 billion endowment capable of passing out $60 million a year or more, more or less forever. A decade later, the questions arise: Has the money been well spent and how can the funds be better spent in the future?

John Reid Blackwell raises that question in the Times-Dispatch today, drawing heavily upon a report recently issued by a blue ribbon panel tasked with reviewing the “structure and operations” of the Tobacco Indemnification and Community Revitalization Commission, the group that has dispensed the tobacco allotment funds. The commission has spent millions following the conventional economic development play book: upgrading the region’s telecommunications infrastructure, attracting and retaining manufacturing jobs, building educational capacity and supporting entrepreneurial initiatives.

Viewed within the narrow parameters assigned to it, the panel made some sound observations and recommendations.

Given the existing state of the Southside and Southwest economies, it is fair to ask whether the expenditure of over $400 million by the TICR since the year 2000 on “regional transformation” projects has had the desired transformative effect on the regions. …

Despite this spending, population in the region continues to decline, wage rates still lag behind the rest of the state, there is persistent high unemployment and poor educational attainment is still endemic.

The panel suggests, among other things, tweaking administration of its tobacco-funded endowment, routinely updating the commission’s strategic plan and streamlining the governing organization. Some some proposals go deeper and may well encounter some resistance.

The panel recommends adopting an “investor” approach to disseminating funds rather than a grants approach, in which funds are parceled out to every town, city and county throughout the region as commissioners respond to “grass roots initiatives.” A foundation/endowment approach would view its spending plans as “investments” that continue to pay off well into the future. Along the same lines, it should fund fewer micro grants under $100,000 and more investments that offer the potential to “transform” the region. The panel also calls for collecting data and measuring outcomes.

Finally, and most importantly, the panel recommends investing more strategically in education. “The [panel] believes that education from preschool to high school and beyond high school is the future of Southside and Southwest Virginia. No miles of highways constructed, no tens of thousands of feet of water or sewer lines laid, nor any number of industrial park buildings erected can change this.”

Good recommendations all. The report provides excellent advice for ensuring that the tobacco endowment money is better spent. But the panel did not ask the really big question, which was outside the scope of its study mandate: Are the Southside and Southwest Virginia economies even salvageable in the Knowledge Economy. Is the Tobacco Commission fighting an unwinnable battle? Is the Tobacco Commission, in effect, spending hundreds of millions of dollars rearranging the deck chairs on the Titanic? I’ll tackle that issue in the next post.