Rural Development in Rural Development in the United Statesthe United States

William A. Galston & Karen J BaehlerWilliam A. Galston & Karen J Baehler

Presentation by:

Kenneth Cook

Part 1 Background & Framework

1. Rural America in the 1990s: Trends and Choices

2. Development: A Conceptual Framework

3. Development: An Economic Process

4. Development: A Political Strategy

Trends and Choices

“Rural Renaissance of the 1970s turned into the rural bust of the 1980s”

Trends and Choices

Employment Growth: 1979-1987

Metro= 18% Rural= 8%

Unemployment Rates: 1979-1987

Rural 1-2.5% greater than metro

Trends and Choices

Income: (Ratio of rural to metro per capita)

End of 1970s= 77% 1987= 73%

Wages: (Adjusted for inflation) 1979-1987Metro= -2% ($450) Rural= -8% ($1700)

Trends and Choices

Earnings Penalty: Ratio of metro to rural earnings

8th Grade College

1974 1.08 1.14

1986 1.18 1.40

Trends and Choices

Poverty:

1979-1982= 18% (rural)

Late 1980s= nearly 50% higher than metro

1995= 51% (rural); 37% (urban)

Rates for the working poor also increased

Trends and Choices

Population:1970s- Rural growth rate exceeded metro rate by

40%

1980s- Rural growth rate fell to less than half the metro rate

Half of all rural counties lost population during this period

Trends and Choices

Location, Location, Location– Employment in rural counties adjacent to

metro areas grew at more than twice the rate of nonadjacent counties

– When a metro area performed poorly, the rural areas near them tended to perform poorly

Trends and Choices

Structure of the rural economy:– Resembles the national Economy– Services- half of all nonmetro Employment– Manufacturing- less than 1/5– Agriculture- less than 1/10– Rural job generation is half of metros

Trends and Choices

The National/Global Context U.S. Rural Society & Economy is exposed

to powerful national and international forces

Three major developments to consider1. Primary Products Economy2. Production and Employment3. Investments in Innovation & People

Trends and Choices

Primary Products Economy Detached from industrial economy

– Classic business cycle theory

Other countries increased materials output Materials are less important for production Raw material per unit of economic output

– Annual decline- 1.25% (compounded)

Trends and Choices

Production and Employment U.S. Agriculture

– Increase in output with shrinking # of producers

U.S. Manufacturing (past 15 years)– Production has risen by half– Decline in employment

Trends and Choices

Production and Employment Ratio of Blue Collar Workers

– 1920s 1 in 3– 1950s 1 in 4– Today 1 in 6– By 2010 1 in 10

Decline in number of workers will continue to coincide with large increases in output and exports

Trends and Choices

Investments in Innovation & People 1980s- U.S. Fell behind in investment

– 1989 Japanese investment in plants and equipment per worker was 3 x that of U.S.

Reasons for Shortfall– Historic lows for personal savings– Soaring federal budget deficit– Total national savings –6.1% (1970-1980)– High Real interest Rates

Trends and Choices

Rural America has entered a new era in which innovation may not guarantee success, but status quo policies will ensure failure.

Trends and Choices

Rural Comparative Advantage Early U.S. history

– Place-Specific (Land, timber, and minerals)

1960s and 1970s– Cheap land, low-cost labor, relaxed regulations

1980s– Amenity values

Trends and Choices

The new downside Limits on opportunities for development

– Lower population size and density– Larger distances between people– Erosion of original advantage

Trends and Choices

Emery Castle

“The economic welfare of the more sparsely populated areas in linked with, and dependent upon, economic activity in the more densely populated areas… It is not a coincidence that the most prosperous rural areas have close economic links with other parts of the world and large urban centers.”

Trends and Choices

Jane Jacob’s Thesis Linkages between metro areas and remote

communities

If linkages are not created the outlook for remote communities without natural amenities is bleak

Trends and Choices

Three ways to get things done

1. Politics

2. Market

3. Civil Society

Market and civil society can only exist if the sphere of politics is not overbearing

Trends and Choices

Current Plight of Rural America Market forces did not promote rural

development in the 1980s Rural civil society was not able to address

the problems that it was confronted by Federal government did little to improve

the long-term outlook of rural America

Trends and Choices

Problems caused by population mobility Decrease in rural population causes

decreasing representation in legislative bodies

Weakening internal forces pushing for change– Exit and Voice

A Conceptual Framework

“Development alters the status quo; it will therefore be opposed by those who are satisfied with, or benefit directly from, the current state of affairs, or who believe that any alteration is likely to be a detriment.”

A Conceptual Framework

Social Goals1. Single-valued

2. Dominant-valued

3. Multi-valued

Development has gone through each of these phases since the postwar development period

Development is a multidimensional phenomenon

A Conceptual Framework

Development: Specific Features Economic Growth

– Development is not equated with increasing incomes, however, it is not imaginable without income growth

A Conceptual Framework

Poverty- Part of the problem Wolfgang Sachs

– Global poverty discovered after WWII– The Western economic concept of poverty

“was used to define whole peoples, not according to what they are and want to be, but according to what they lack and what thea are expected to become.”

A Conceptual Framework

In place of the gross concept of poverty Frugality Destitution Scarcity

Capacity to achieve fades away

New desires of high society spiral to infinity

A Conceptual Framework

Equity

Growth strategies that unfairly impact on the least advantaged members of the community cannot be justified and should not be implemented.

A Conceptual Framework

Unfair Impact Principles No-Harm Maximin Equalization

A Conceptual Framework

Integrated rural poverty Clusters of disadvantage- 5 features

1. Poor

2. Physically week

3. Isolated

4. Vulnerable

5. Powerless

A Conceptual Framework

Diversity

– Limited occupational choices are stifling

– More diversity = ability to respond to decline

A Conceptual Framework

Criteria to Successful Development1. Social Continuity

2. Long-Range Self-Sufficiency

3. Sustainability

4. Political Responsiveness

An Economic Process

Sources of National Wealth Work Force Innovation and Entrepreneurship Comparative Advantage Time Horizons

An Economic Process

Theories of Rural Economic Change Income Equalization Model Unbalanced Growth Models Export Base Model Product Cycle Model Location Models

An Economic Process

Income Equalization Model Capital and labor or mobile and move to areas of

highest return Workers migrate from low-wage to high-wage

regions Capital flows in the opposite direction Leads to convergence of incomes among regions Usefulness of this model has decreased

An Economic Process

Unbalanced Growth Models Initial advantages cause a polarization of

capital, income, and opportunity Core growth creates expanded demand for

goods and services produced at the periphery

This model has been less than successful

An Economic Process

Export Base Model Capacity to export enables a city to earn an

increasing volume of diverse imports Replacement are then devised for these

imports

An Economic Process

Product Cycle Model Three Stages

– Innovation– Growth– Standardization

Used to explain rural economies of the 1960s and 1970s

Routine development is more likely to by located in other countries with even lower costs than Rural America

An Economic Process

Location Models Regard transportation as the most

important factor Can be helpful in cases were their

underlying assumptions are valid

An Economic Process

Location Models Determinants of location have shifted

– Cost of transporting heavy and bulky goods are diminishing compared to speedy flexible transportation and communications

– Access to markets - Access to raw materials– Amenities are increasing important– Increasing degree of dependence

A Political Strategy

Action Versus Inaction What is to be done to improve rural America?

– Nothing– Justify programs by the national interest– Justify on other grounds

Community mobilization and visionary public entrepreneurship may emerge as keys to rural development

A Political Strategy

Overcoming Economic Obstacles Capital Human Resources Infrastructure Diversification