The Limits of Industrial Recruitment

The challenge of overreliance on industrial recruitment as an economic development strategy came clear in an article in today’s Lexington Herald-Leader.

The story, “A year later, no businesses in Martin Co. Business Center,” describes Martin County, KY’s attempt to recruit high-tech companies and private businesses by building an office facility in downtown Inez. The county spent $6 million in coal severance tax money for the building, but has attracted no companies. The state is now moving its local Health and Family Services office into the facility, and the Board of Education will soon operate on one floor.

This story is all too common throughout the region. Based on the success of a few communities, industrial recruitment has long been the most popular strategy for economic development. But those places that have successfully recruited high-quality branch plants (and successfully kept them) are most often located near interstate highways and contain a more skilled workforce. Places in Central Appalachia like Martin County, one of the poorest counties in the United States, have had little success with the approach.

A strategy based on recruitment and industrial site development is driven in part by the political opportunity of opening a new building, and has also been enabled by Kentucky’s rules around use of coal severance tax dollars. Since 1992, a portion of coal severance tax dollars go to Local Government Economic Development Fund (LGEDF) accounts for each coal-producing or coal-impacted county to use for economic diversification.

But those dollars are restricted by statute primarily to industrial development projects, and can’t be used for a wider range of community and economic development strategies (the legislature has suspended those rules in recent years to allow LGEDF monies to go to specific projects legislators identify). A series of multi-county industrial parks were built in the late 1990s, but many of the buildings sit empty.

The story begs the question: what will work in places like Martin County? There is no one answer. But what places in Central Appalachia clearly lack is greater investment in the foundation of economic development—education, quality of life amenities, social and human services, and basic infrastructure like broadband—as well as support for entrepreneurial and local business development strategies that are increasingly the foundation for local prosperity.

Jason Bailey

About Jason Bailey

Jason Bailey is Director of the Kentucky Center for Economic Policy and serves as Research and Policy Director of the Mountain Association for Community Economic Development.