Population Woes

The lastest news on West Virginia's cities is not encouraging. The 2005 Census Bureau estimates have only 14 cities and towns in West Virginia having a population over 10,000 and only two of those cities, Morgantown and Martinsburg, have had an increase in their populations since 2000. It can be argued that the only real organic growth came in Morgantown, as Martinsburg continues to grow primarily as a bedroom community for the D.C. metro area. The success of Morgantown in its growth (and for someone who went to school there for seven years in the 1990's, the very notion of Morgantown booming is shocking) can be attributed to the university (of course) and the input of some visionary business leaders. In Morgantown, there is true growth in high tech and bio-tech jobs, as evidenced with the news yesterday that a company was setting up shop in Mo-town to scan and categorize the lumber industry in West Virginia for a possible world-wide market platform.

But for the rest of the state, the drumbeat of shrinking municipal populations is growing louder. Even if there is not a overall drop in population, the fact that the cities are losing people, at a time when nationally more people are returning to urban environments, is a possible deathknell to the economic comeback for the state. Leave aside the issue of losing federal funds because the cities' population has dropped below 50,000 (Huntington appears to be headed for that outcome, and Charleston is not far behind). A region's vitality, its economic power, comes from the strength of its cities. Cities for thousands of years have been the catalysts for human economic, cultural, and educational growth. If West Virginia loses its ability to foster and grow its cities, then it doesn't matter how many subdivisions and Applebee's are built in Putnam and Berkeley counties.

The solution? The cities have to sell themselves to their own citizens, and those that live around them. The cities are getting caught in the deadly cycle of people leaving, which means that the cities lose that tax base, then they have to raise taxes to maintain services, which drives more people out of that city. The cities must market themselves, and make themselves more attractive to its existing citizens and prospective dwellers alike. New schools, new businesses, lower property taxes. They can and must be used to bring in more population. Because if the drain from the cities continues, the likelihood of West Virginia's economic renaissance will be greatly diminished.

Seismic Shifts

The temporary spikes in gas prices after Katrina have turned out to be not so temporary. We now face the same high prices for the long-haul, which is going to effect not only West Virginia but the entire country's way of life. Except for some isolated pockets in our older major cities, like New York, Boston, and Chicago, all of us depend on the automobile for transportation to work, transportation to get foods and other necessities, and transportation to get to medical services. I think my life is fairly typical. I am lucky in that I only live about five miles away from my office, but of course I drive my car there. Our children's school are about the same distance away in a different direction, and so my wife drives our sons there. The nation is truly addicted to automobiles. There is a grocery store a little over a mile away, but how does one carry home groceries for five? So we drive to the store. Target, Lowe's, Petsmart, the mall, all are in one general location about six miles away. We have to drive there. The situation is bleaker in West Virginia, as a lot of people must drive 30 minutes or more to get to work or school or go to Wal-Mart or the nearest supermarket.

There are temporary solutions that will prevent the economy from griding to a halt. Some of the workforce around the nation that commute into places like Washington, D.C., Altanta, and Los Angelos could, with the help of computers and high-speed internet, work out of virtual offices from their homes. Likewise, although they were mocked into oblivion during the internet bubble, services such as online grocery delivery companies could be expanded to cover about every commodity we need, from light fixtures to cat food. But are we doomed to become a country of hermits, constantly hooked up to our computers for every single aspect of our existence, like the tales of some cyper-punk novel?

The real solution is to become less dependent on the combustion-engine automobile. One way to achieve this is to push development of alternative sources of generating motion in vehicles, whether it is hybrid engines, pure electric engines, hydrogen engines or some other type of renewable fuel source. Another solution is to change the basic way we live. We need cars because we have to get around. As I showed above, if we didn't have our cars, I don't get to work easily, we don't get groceries, our children can't get to school. Of course there are alternatives to the car. I could cycle to work. Our children could go a school that is a lot closer to us, but not as well-performing. Food could be bought in bulk to last longer. But is that our only choice, to make our life less appealing and less enjoyable, and deny opportunities to ourselves and our children? And for a lot of people, there is no choice. Work, stores and schools are still thirty, forty miles away, and while our lives are constantly stretched to multiple sites and places, then the automobile will continue to dominate our lives. And while we are still filling those cars and trucks up with gasoline, our lives are still vunerable to price shocks from storms, shortages, terrorism, and geo-politics. We must figure out how to reorganize our lives so that we are not dependent on the automobile, and West Virginia can and should be on the cutting edge of this reorganization.

Sago's Aftershocks

The tragedy in Upshur County, combined with the other mine-related deaths suffered during January, show that while the economic fortunes of the state must take priority, the safety and health considerations of the workers of West Virginia cannot be forgotten. But enforcing federal and state safety regulations does not and should not mean that the economic progress will be halted. The history of employer-employee relations in West Virginia have always been played in the light of a zero-sum game. Either the employer or the employee has to win, and in winning, the other side has to lose. However, in order for West Virginia's outlook to improve, both sides must come to the realization that they need one another. The employers need the employees to make or sell their products, sell or manage their services, dig their coal or cut their lumber. This historic change needs to take place, and it can only happen if the politicians, the labor movement, the corporate and business leaders, and the employees and citizens of West Virginia themselves work together. A fantasy perhaps, but all worthwhile goals start out that way.

Investment in the Mountains

"Capital is king." This phrase has probably been repeated hundreds of thousands of times in the business schools, banks, and investment firms around the country over the course of the years. But if capital is king, then West Virginia is one of the least-visited areas of the realm. Historically, most of the wealth created in the state has left, to benefit another city, another state, another region. The state's economic goal has to be to keep as much capital as possible within the state's borders, and therefore there has be to opportunities to invest that capital.

Of course the state's banks and credit unions should maintain a premier status in investing in West Virginia. But it should be remembered that most of the larger banks in the state are no longer headquartered there. Therefore, although it is in the best interest of a bank like BB&T to invest in the state, BB&T is in a number of other states, and it has to invest its money where it is most likely to be profitable. Furthermore, it is widely known that venture capitalists have been at the forefront of the creation of new inventions, corporations, and economies.

Thankfully, there are venture capitalists in the state that are focused on economic and business growth in West Virginia. Unfortunately, the list of such investors is short, and the amount of money that is available for investment seems to be limited. A review of the website of West Virginia Venture Connection, a forum for connecting entrepreneur and growth businesses with venture capitalists, only shows three firms that are based in West Virginia. And two of the firms, INNOVA ( the commercialization group of the West Virginia High Technology Consortium) and West Virginia Jobs Investment Trust, are related to the state government. That in itself is not a bad thing, as the government is filling in an important need that the private sector is not fulfilling, and the venture capitalist's traditional sole focus on return on investment can be tempered by a realization that economic growth can take time. Two other private venture capitalist firms have West Virginia roots or ties: Mountaineer Capital, which is located in Charleston, and Walker Ventures, which has a branch office in Shepardstown.

And that is it. For the numerous companies that have received either seed money or other funding, these firms and the other out-of-state venture capitalists doing business in West Virginia are enough. But in a state where the largest employer is Wal-Mart, more needs to be done to grow the pool of venture capitalists to help grow not only new and better companies, but also the employment opportunities for the state's residents. How to grow that pool would seem to be a chicken and egg situation, as capital is needed for the investments to grow the economy, but the economy needs to get better to create the necessary capital. But the solution seems to be in the works, as people in state government, financial services, the legal community, and business are forming groups such as the West Virginia Entrepreneurs Forum and West Virginia Venture Connection, where ideas and opportunities can not only be discussed but can be grabbed.

Katrina's Waves

In the wake of the misery caused by Hurricane Katrina, there have been untold stories of the death and destruction caused by the wind, storm surges and flooding. New Orleans is resembling the scenes from "Mad Max" rather than a major U.S. city. Gut-turning stories of lost love-ones and sheer desperation bombard us from CNN, MSNBC and the networks. That region of the country, one that I have never been to, will probably not be the same for years. But what will be the impact on West Virginia, and most importantly, what can be learned from this terrible storm?

We can see on the news that the immediate impact will be that our gasoline will be more expensive and more scarce. Here in North Carolina, there have been calls from the governor to conserve gas, as the two major pipelines that account for 90% of the gasoline are down, because they start in the Gulf area. It appears from the news that prices are even higher in West Virginia, and there could be shortages in the supplies for some counties' police, public transportation and emergency vehicles. But unless there is another disaster somewhere in the world's oil production system, the supply situation will probably resolve itself fairly quickly. The real lesson is that the vulnerability of this country's energy needs, especially in the area of transportation. Our nation's love affair with automobiles, and the resulting addiction to oil, has caused this current crisis. What does mean for West Virginia specifically? It means that the state has to gain control over its energy sources, namely coal and natural gas. Until the time when we have a reliable, renewable, non-polluting and cheap source of energy for our electricity and our transportation, our energy sources inside our nation's borders will be vital. And if West Virginia wants to improve its economy, those sources that rest beneath the mountains need to be in the hands of companies based in the Mountain State. We can no longer be merely a supplier of the raw materials, being satisfied that our people have jobs. There must be ownership and control over the state's natural energy resources; otherwise the environment and the economy will continue to suffer from out-of-state decision makers. The aftermath of Katrina has shown us the future. Does West Virginia have the will to act on the vision, or will the waves of economic suffocation continue to wash over the state?

Changes

Looking at the Charleston Gazette online today, the first two stories illuminate what I feel are some of the main issues facing West Virginia's economy. The first story involves the sale of Mountaineer Gas to an Oklahoma company. The second story reported that the state has the third-highest adult obesity rate in the nation and is first in the percentage of adults with diabetes. Although the focus of the Gazette story on Mountaineer Gas was the increase on monthly gas prices, and the obesity story dealt primarily with the impact on health and the government's attempt to combat the problem, the angle that should be noted is the negative impact on West Virginia's ability to reverse its economic trends. The new study on obesity supports the previous post's position on the tie-in to a population's healthy lifestyles and its economic prowess. As stated in the article by Shelly Hearne, the executive director of Trust for America's Health, a nonprofit, nonpartisan health organization in Washington, D.C., "As the state struggles more and more with an obesity epidemic, it's going to cost people in their quality of lives and in their pocketbooks". Although Ms. Hearne was no doubt speaking of the increased medical costs stemming from obesity and diabetes, the economic impact goes beyond that direct cause-and-effect. The ability of the state to attract companies to the state is shadowed by the impression (and a certain degree the truth) that the state's workforce is fat and unhealthy. Why would a company wish to come or stay in West Virginia when it knows that it will be facing higher medical insurance costs and higher missed productivity? The state has not only a moral and medical obligation to get the obesity rate down, but also a clear-cut financial and economic incentive also.

The sale of Mountaineer Gas is not only troubling as the obesity study, it is also expected. It is part of the disturbing trend of the assets of the state being sold to out-of-state interests. Of course, it must be remembered that Mountaineer Gas's current owner, Allegheny Power, is based in Pennsylvania, and that the sale to IGS Utilities and ArcLight Capital Partners (who also recently signed a deal with Arch Coal to take over a number of mines in the state) reportedly will create some new jobs, which is always good news. But the sad fact remains that the profits from this utility, a state-allowed monopoly that gains its earnings from the people of West Virginia, will be leaving the state. That means that not only the profits, but that money's purchasing power and investment potential is also going to benefit some other state, some other region. What does it say that ArcLight Capital Partners, a private investment firm based in Boston and New York, has been involved in the purchase of West Virginia's energy assets and there has been no in-state involvement? It is not that ArcLight is pursuing some nefarious course of action; the firm is doing what it should be doing, looking for great investment opportunities. But why is there not a West Virginia version of ArcLight out there, purchasing these assets that will not doubt have great returns, especially in the current energy situation? No doubt there was some involvement from different in-state players, from legal counsel to perhaps banking advice and loans. But the bottom line is that the ownership of Mountaineer Gas, like too many other aspects of West Virginia's economy, is not in the state, and therefore the state will continue to suffer because of this fact.

How, then, can West Virginia's economic path be changed? I think that there are three different avenues of change that be pursued in the short-term that would have a positive impact. First, investment in in-state companies and start-ups needs to be increased. Second, ownership in West Virginia's economic assets, particularity its energy and natural resources, should be sought by in-state firms and individuals. Third, the efforts to obtain foreign investment and entice foreign companies to open facilities in the state should be intensified. Two of these avenues are already being addressed to a certain degree, but increased efforts are needed to reverse the tide.

Turnaround

What are the chances of West Virginia turning around its economic fortunes? If history is a basis, not good. After all, "King Coal" has always been the 800 pound gorilla in the economy, and the general economy has been tied to coal's booms and busts. At the current moment, coal is in the middle of one of its boom cycles, as pointed out in a recent article in the Charleston Daily Mail by George Hohmann. Profits are at record highs for some of the coal companies, including Peabody Energy and Massey Energy. Whether these profits will have a lasting impact on West Virginia is a subject for another time. But if the Internet bust of 2000 taught us anything, it is that the business cycle is always there and what is currently up will come down to one degree or another.

But I believe that West Virginia is not bound to its history, if certain steps are taken. These ideas are not radical, and the best news is that there are recent successful templates that can be followed. The models not states, but two countries that could not be more different except for their recent economic turnarounds: China and Ireland.

A recent commentary in the New York Times pointed out that the reasons behind the economic powerhouse that China (meaning the People's Republic of China) is becoming can be broken down into 4 separate areas:

Good education
Learning good work habits
saving and investing prudently
living healthy lives

What can be learned from this and applied in West Virginia? The people of the Mountain State already, for the great majority, have great work habits. It is always listed as a strength when any national or international company opens a plant or facility in the state. The stereotype of a lazy hillbilly sucking up government checks simply does not apply for the vast majority of the workforce.

As far as saving and investing prudently, it is my belief that West Virginians have always been conservative with their money, maybe a little too much. Until recently (in the last decade or so) you would have been hard pressed to find someone who knew what a venture capitalist was, let alone find one in the state. As an example, my great-grandmother, who grew up in Ritchie County and was a hundred and two when she passed away, had taken out a U.S. savings bond when I was born. Needless to say, the idea was getting a stock or some non-governmental bond probably never entered her head, and her attitude to savings was indicative of most people in the state the greatest part of the 20th century. The issue regarding savings is that there has historically never been mountains of extra capital within the state, held by the general population, to invest. However, the banking industry has always been relatively staple, mirroring the non-risk taking attitude to money of the state's citizens.

The remaining two points put forward in the Times definitely are areas that West Virginia need to work on. Numerous studies have shown that West Virginians have one of the least healthy lifestyles in the U.S. My thoughts on it is that due to the relatively low income, eating habits are focused on the cheapest food, which in our backwards national food pricing system is loaded with the most fats, carbs and preservatives. Also, when one is working hard, physically-demanding jobs, the likelihood of running down to the local gym or going for a quick three-mile run is very low. My hope is that with an improvement in the state's economy, the natural beauty of the land will draw more local participation in such activities such as hiking, walking, biking, and canoeing.

The final area of note is in education. At this point, it would be a cliche to say that education holds the key to the state's economic future. It is a shock to no one that the highest paying jobs in the information age demand levels of education that most West Virginians do not have. The high-school dropout rate is high, the percentage of young adults attending college is low, and the public teachers still have one of the lowest pay rates in the country. Money has been poured into the problems, but the general picture is still rather bleak. But the choice made by the Emerald Isle when faced with similar conditions gives West Virginia a road map to follow. An Op-Ed by Thomas Friedman in the N.Y. Times discussed the choices made by Ireland back in the Eighties. Like West Virginia, Ireland was facing an aging population as its young left for Great Britain, Europe and the U.S. to find jobs. Ireland decided at that point to tackle the problem by making its workforce attractive to foreign investment. But besides the built-in advantages of location on the edge of Europe and its common language with the U.S., Ireland was not at the time a prime location for international companies. However, it made itself attractive by educating its children to the greatest degree possible. Ireland figured correctly that a highly educated workforce would be highly appealing to high-tech companies looking to expand in Europe. It increased money to its secondary schools. It made a college education free to all. With this workforce being made available to the world, it is no mistake that Dell and Microsoft, among many others, have set up operations. Ireland is now the "Celtic Tiger", hearkening to the Asian Tigers of South Korea, Taiwan and Hong Kong of the 80's and 90's.

Why can't West Virginia become the "Mountain Tiger"? Money will always been seen as the excuse, but if there is ever an investment to be made, it should be in the area of education. Increase teacher salaries. Although tuition at the state schools is already low, make it totally free to every West Virginia child. Float whatever bond the state can to fund it all. Making West Virginia's workforce not only competitive but better than other states and indeed countries must be the goal.

But this is a long-term goal, and one that would be better served if the economy of the state improves so that the burden on paying for its educational dreams is somewhat lessened. Therefore, the short-term improvement is key, and will be the topic of the next entries.