Publication: CHARLESTON DAILY MAIL
Published: 11/12/2004
Byline: GEORGE HOHMANN
BUSINESS EDITOR
DAILY MAIL

A Massachusetts Institute of Technology consultant hired to identify West Virginia's best bets for future development trumpets the energy sector but omits tourism - an area long heralded by state leaders as a key to the Mountain State's economic salvation.

In addition to energy, Richard Lester also identified biometrics; chemicals, plastics and polymers; and forestry, wood and paper products as possible target sectors for the state.

But tourism - touted by state officials as a nearly $5 billion industry - was dismissed by Lester, the director of MIT's Industrial Performance Center.

While the hospitality and tourism cluster is important in employment terms, the average wage is far below the wages paid in mining, chemical manufacturing, construction, metal manufacturing and utilities, Lester said.

The Council for Community and Economic Development hired Lester to study the outlook for innovation-driven economic growth in West Virginia. The council is the public-private organization that sets state economic development policy. Lester's study cost $50,083, said Council Chairman Ralph Bean.

The state development office went from a shotgun approach to business recruitment to a targeted approach about 10 years ago, but it has added numerous targets in recent years.

Lester said in his report that the state must get back to focusing on a few specialized industries. Also, West Virginia "must shift more of its economy away from the grinding competition over costs, where victories are typically short-lived and frequently damaging to societal well-being," to growth based on innovation, he said.

The state is too small for its firms to excel in a broad range of industries, he said. The state's firms will specialize in a few fields "and public resources must be mobilized in support of those activities if the state is to succeed in growing and-or attracting internationally competitive firms," he said.

"The future areas of economic specialization are uncertain, but the state cannot afford to wait for them to become clear before committing itself," he said. "West Virginia must in effect place strategic bets on a few areas of economic activity. . ."

Although this strategy involves risk, "there are also risks of not acting," he said.

There are two broad directions of innovation-driven growth - building on the existing industrial base and creating new industries, Lester said.

"Both are necessary," he said. "A dynamic economy cannot be sustained solely by improving on existing industrial practices and processes. The capacity to introduce new products and develop new markets is also essential.

"Equally, however, West Virginia cannot afford to turn its back on its existing industrial base," he said. "Many of the industries of today will also be the industries of the future."

To produce his short list of promising industry sectors for innovation-led growth in West Virginia, Lester compiled a list of the state's largest industries, measured by employment; a list of the state's highest-paying industries; and a list of industries concentrated in West Virginia.

The five industries that are simultaneously ranked in the top 30 by employment and by average annual pay and that are concentrated in West Virginia are mining; chemical manufacturing; heavy and civil engineering construction; primary metal manufacturing; and utilities.

When Lester matched these "big five" industries to a list of the 20 West Virginia industries that were leading job creators in 2002, it revealed "a worrisome problem," he said. "Most of the industries on the list of leading job creators are not creating well-paying jobs."

For example, the hospitality and tourism cluster is important in employment terms, but the average wage is far below the wages paid in the "big five" industries, he said.

Lester developed a set of industry clusters suited to the structure of the West Virginia economy and identified six so-called superclusters: energy; hospitality and tourism; metal manufacturing; forestry and wood and paper products; chemicals and plastics; and heavy construction.

These six superclusters account for about one in five of all jobs in West Virginia, he said.

"The significance of the energy cluster to the West Virginia economy is striking," Lester said.

The continued importance to West Virginia's economy of energy and manufacturing makes it important to assess the viability of diversifying or upgrading the industries within these sectors, he said.

In addition, West Virginia has made a significant commitment to the growth of biometrics and that sector should be examined further, he said.

Lester recommended that West Virginia establish a process to identify the needs for developing an internationally competitive innovation capability in specific industries.

"The first round of this process should focus on three or four clusters," he said. "Possible candidates include: energy; biometrics; chemicals, plastics and polymers; and forestry, wood and paper products."

Working groups should be convened for each cluster and each group should be charged with developing an action agenda for creating a competitive cluster in the state within a 10-year time frame, Lester said. The groups should be required to report back in six to nine months, he said.

Ralph Bean, chairman of the council that hired Lester, said he hopes Lester can have a working session with the council and the Vision Shared implementation team "to see if we can come to some agreement on priorities and get Lester's thoughts on how we proceed."

Vision Shared is the council's economic development strategy.

"Since we (the council) have retained him to advise us on this particular project, we certainly want to have his input as we implement it," Bean said.

When asked about the omission of tourism from Lester's list, Bean said, "I think we want to take a thorough look at everything. There may be industries we want to take a look at that are not on his short list.

"I do think that the regional approach makes a lot of sense," Bean said. "Hopefully, there will be industries in every region of the state that we can focus on."

David Satterfield, executive director of the West Virginia Development Office, said, "I think the clusters are awfully good. I think he's right on target.

"I think where Professor Lester is right on the money is, we can indeed identify clusters and look at what the historic clusters have been," Satterfield said. "But if we don't use innovation and access to markets and the momentum all of that can bring, we will truly have failed because the key to the clusters is developing them to an even greater degree than they are today."

Lester's report will be sent to Gov.-elect Joe Manchin, Bean said. "We want to brief him on everything we're doing, including this particular project," he said.

The I-79 Development Council, which Bean also heads, is already working on a strategy to develop the biometrics industry in north-central West Virginia. "That's where the most action is right now," Bean said.

Lester's report, "Preparing for Innovation-Led Growth in West Virginia: Options and Choices," will soon be posted on the council's Web site at www.wvcouncil.org, Bean said.

Contact writer George Hohmann at business@dailymail.com or 348-4836.