DOCUMENT RESUME

ED 449 942 RC 022 805

AUTHOR Johnson, Thomas G. TITLE The Rural in a New Century. PUB DATE 2000-10-00 NOTE 19p., in: Beyond Agriculture: New Policies for Rural America; see RC 022 804. AVAILABLE FROM Full text at Web site: http://www.kc.frb.org/PUBLICAT/beyond/beyondmain.htm. PUB TYPE Opinion Papers (120) Speeches/Meeting Papers (150) EDRS MF01/PC01 Plus Postage. DESCRIPTORS Agribusiness; ; *Futures (of Society); Geographic Isolation; Government Role; Internet; *Public Policy; *Quality of Life; Rural Areas; *Rural Development; *Rural ; *Social Change; Sociocultural Patterns IDENTIFIERS Electronic Commerce; *Globalization; Telecommunications Infrastructure

ABSTRACT Technological change, globalization, and localization have changed rural . They have increased labor , reducing the importance of labor costs in location decisions; decreased the importance of distance; increased the importance of economies of scale; and increased the role of local conditions and choices in determining community prosperity. With farm income representing less than 2 percent of total income nationwide, rural communities are less dependent on farming. Increased industrialization of agriculture has weakened the ties between farms and their communities, with many nonfarm rural residents concerned about environmental effects,tax limitations, and the impact of in-migration to fill low- jobs. However, the growing spatial concentration of industrial agriculture is increasing the dependency of more isolated rural areas on particular firms. "Connected" rural areas are growing and diversifying due to in-migration of relatively affluent, educated people seeking the rural life style. Such communities face serious land-use issues as they become more suburban. On the other hand, isolated rural communities have stable or declining populations. Telecommunications infrastructure is inadequate and costly, yet businesses and schools are becoming increasingly dependent on the Internet. Tax bases are declining, leaving school districts and community services with inadequate financing. These factors suggest that agricultural policy cannot continue to serve as rural policy. With current policies, the divergence between connected and isolated rural communities will continue. Anew, nonagricultural rural policy could take advantage of decreasing demand for proximate labor, decreasing costs of distance, and increasing demand for space and the rural lifestyle and help rural communities contribute to the national economy. (Includes discussion transcript.) (TD)

Reproductions supplied by EDRS are the best that can be made from the original document. The Rural Economy ina New Century U.S. DEPARTMENT OF EDUCATION Office of Educational Research and Improvement EDUCAT ESOURGE-S4NFORMATION----- CENTER (ERIC) his document has been reproduced as received from the person or organization originating it. Minor changes have been made to improve reproduction quality.

Thomas G. Johnson o Points of view or opinions stated in this document do not necessarily represent official OERI position or policy.

This paper discusses the economicstatus of of their product cycle. Rural communities depended rural America (and many otherparts of the on the income and generated by farms, world) at the millennium. It focuseson the farm policy, and farm families. Average farmsize was current status of rural areas and the incipient forces increasing while farm numberswere declining. that will change life in ruralareas through the early Excess labor from farm families joined the localor 21" century. It also explores the changing role of urban labor markets. Manufacturing firms located rural America within the larger U.S.economy. in least-cost locations (increasingly in the southern and western Sunbelt regions). The labor force fol- What is meant by rural and urban? Throughout lowed jobs, which in turn followed inexpensive this paper I will refer to comparisons betweenmet- inputs, markets, and business climate. ropolitan and nonmetropolitan counties and their equivalents. Metro (or urban) places havea core city As the traditional rural industries becamemore with at least 50,000 residents andan area popula- capital intensive, rural employment bases shrank tion of at least 100,000 residents in themost recent and populations declined. Butat least rural com- census. Nonmetro (rural) counties are all other munities could count on the linkages between their counties. It is important to point out that thiscen- agricultural, mining, and manufacturingsectors and sus-based definition of nonmetro includessome their financial, trade, and servicesectors. New eco- distinctly rural areas that happento fall in the nomic activities, when they occurred, had significant shadow of cities. It also means thatmany nonmetro and predictable multiplier effectson the rest of the residents live in small cities. local economy. Economic development strategies for rural areas, while often of limitedsuccess, were sim- At the dawn of the 21" century rural America plesupport agriculture, forestry, and mining and faces unprecedented change. But forat least the last attract manufacturing. These basic economic half century many rural communities have beenon engines would then generate multiplier effects in the a demographic and economic roller coaster. service sectors. They would alsogenerate the tax base needed to run local government. The economic for- Since at least 1950 the status and role of rural tunes of individual rural communities, though .not America within the larger economywere somewhat particularly good, were closer to that of theaverage clearer (at least in retrospect) than they have been in community than they have been since. the last quarter century. In general, urbanareas pro- duced products in the earlystages of the product Local government itself was relatively simple cycle, while rural areas generatedraw materials, food collect taxes and provide a rather staticarray of pub- and energy, and in some regions, provided low-cost lic services. The more aggressive localgovernments labor for the production of goods in themature stage were actively involved in industrial attraction.

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Then new forces began to influence ruralareas. The following map, prepared by USDA-ERS, In the 1970s the population turnaroundmeant shows the dispersed nature of rural growth. Notice growth- for -many -rural areas- for -the first time in that almost all the declining countiesare in the many decades. The outflow of rural youth and the plains region from North Dakota to Texas. most employable members of the labor force declined but, more importantly, a significantnum- ber of people were choosing to migrateto rural THE CHANGING RURAL ECONOMY areaschoosing a rural lifestyle. Obviously, one cannot understand the changes The return to population decline in the 1980s occurring in rural communities without under- seemed to mark the end of the populationturn- standing the changes, mostly global, occurring in around. In retrospect it now seemsmore likely that the broader economy. Several forces have combined the 1980s were just a short setback ina fundamental and are leading to significant changes in rural life in change in settlement patterns in the U.S. Somany the U.S. and throughout the world. These forces fundamental forces affecting rural areasderegula- include changing technology, globalization, and tion, the dismantling of community safety netpro- localization. grams, the globalization of economic relationships, and technologyhad changed such that the economies of rural areas were altered forever. There Technological change was also a fundamental transformation in the sectoral structure of rural areas. The basic economic rules Technological change is so ubiquitous that it were different than when the short-lived population heads most lists of change. Technological change is turnaround began. Some communities used the nothing new to economies dependenton agricul- experiences and resources gained during the 1970s to ture, mining, forestry, or manufacturing. No sector free themselves from the downward economic spiral. has been affected more fundamentally by techno- Other communities fell back into decline. logical change than agriculture.

In the final decade of the 20th century, population From the rural community's perspective, techno- growth returned to many rural communities in logical change affects more than just employment America. Yet the mixed experience of ruralcommu- patterns. In production, the most significant eco- nities in the 1980s remains. Despite the fact that nomic forces are the rising importance of information, growth is occurring in rural communities inevery communication, robotics, artificial intelligence, region of the U.S., many rural communitiescon- genetic engineering, and other embodiments of tinue to lose population. One-quarter of all rural technology. In addition to the direct effects of tech- communities continue to decline, and three-quar- nology on employment, it has led to increaseduse ters of all nonmetro growth occurred in just one- of services (particularly information-relatedserv- third of nonmetro counties (USDA-ERS). Almost ices) and reduced use of goods (particularlyraw all the declining counties are in the plains region materials) in the productionprocesses of other man- from North Dakota to Texas. Ruralareas are increas- ufacturers. ingly attractive to new residents butnot in all regions. Most growth is in areas adjacent to the larger The productivity of labor in most goods produc- cities while peripheral areas continue to decline. ing industries has risen dramaticallyapproxi- mately fourfold, or 300 percent in the last 40years. The productivity of labor in services,on the other The Rural Economy in a New Century 9

Figure 1 N ON-M ETRO-P OPULATI A NGE7-1-9 9 0-7,9 8

ye/ 111 No growth or decline El Modest growth (less than 8.4 percent) El Above average growth (8.4 percent or more) 0 Metro counties Prepared by the Economic Research Service, USDA Source: Bureau of the Census hand, has increased considerably lessabout 25 have positive effects on income, job security, etc., percent. These increases have been accomplished by even while it reduces employment. combining increasingly greater amounts of capital with each unit of labor. Since the demands for many As a consequence of technological change, goods goods have risen only modestly, the growth of production and employment have become decou- employment in these industries has been relatively pled. Production has increased while employment meager. Some of this new capital has been intro- has decreased. Intersectoral linkages have replaced duced to take advantage of the emerging technolo- intrasectoral linkages. In addition, the product cycle gies discussed above, while other capital has been has been broken, at least from the perspective of substituted for high-cost labor. It is important to domestic rural economies. Rural areas are losing note that as this trend progresses, the cost of labor some of their comparative advantage in standard- becomes less and less important in location and ized goods (commodity) producing industries that investment decisions because it makes up a declin- use labor extensively. ing portion of total costs. This process, then, can

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Technological change also affects the relationship very different from the displaced labor. In addition, that people share with each other, with their com- the so-called "Wal-Mart effect," in which inde- munities, and with their governments. People are pendent, locally owned retail businesses and service more mobile, more flexible in their choices of establishments are replaced by large, often interna- employment and residence, and have greater access tional, chain stores, is changing the ownership of to information. Information and communication physical capital as well. technology (ICT), especially, has changed the nature of distance. Distance has been made less important These new owners of rural physical capital are fre- by technology but that same technology has quently very affluent, and usually not residents of increased the importance of being connected and the community in which their investments are connected to the right places. As Malecki points out, made. They tend to spend their income outside the community and lead to lower employment and For people in local places, it is important perhaps income multipliers in the community (Bernat). The crucial to have links to the global networks of large income tends to be distributed more unevenly firms where information, commerce, and decisions are centered. Links to global networks no longer (Bernat) and be more variable in these communities. require proximity, but they do require having links and using them to obtain and exchange information. The "links" are those of individuals' personal net- Globalization works and the business networks of highly compet- itive firms with their suppliers, customers, and other The "globalization" of the economy is so fre- sources of knowledge. The cost of being uncon- nected or remote is a higher cost of operation, usu- quently cited as an important economic force that ally in the form of a time penalty. it has become cliché. Increased trade and global competition among firms are usually the assumed The linkage between productive activity and dis- consequence of this globalization. Of greater sig- tribution of income has changed. The substitution nificance to communities, however, is the move- of capital for labor affects the functional distribu- ment of information, technology, capital, and tion of income by shifting returns from the owners people. In addition to the competition in markets of to the owners of physical capital. for goods and services, then, is the heightened com- Between 1959 and 1999 and salaries declined petition among communities around the world for as a percent of personal income from 66 percent to jobs, residents, and finances. 57 percent. At the same time dividends, rent, and interest increased from 13 percent to 19 percent of As Malecki and others have pointed out, global- personal income (Chart 1). ization and technological change, especially the changes in information and communication tech- In the case of agriculture this capitalization has nology (ICT), are closely related forces. ICT has resulted in larger farms, shrinking farm population, allowed firms to decentralize in a spatial sense while and declining labor income. However, these centralizing in an information sense. Firms in many changes are not nearly as dramatic as those occur- industries, especially producer and consumer ser- ring in some mining, forestry, and manufacturing vices, have distributed activities worldwide and dependent communities. Unlike agriculture, where overcome distance with ICT. the owners of the physical capital are much like the owners of the human capital and labor that they are In the retailing sector, Wal-Mart uses a leased displacing, the owners of physical capital in mining, satellite transponder to link its 1,700 stores to its forestry, and related manufacturing industries are Bentonville, Arkansas, headquarters and 14 distri-

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For people in local places, it is important perhaps _Ch2rti crucial to have links to the global networks of large firms-where-information, commerce and decisions WAGES AND SALARIES are centered. Links to global networks no longer VERSUS DIVIDENDS, RENT require proximity, but they do require having links AND INTEREST AS and using them to obtain and exchange information. PROPORTIONS OF PERSONAL The "links" are those of individuals' personal net- works and the business networks of highly compet- INCOME, U.S. 1959-99 itive firms with their suppliers, customers, and other sources of knowledge. The cost of being uncon- nected or remote is a higher cost of operation, usu- ally in the form of a time penalty. 0.7 w... Globalization has lefr many rural communities 0.6 unsure of their best strategies. Very different spatial

0.5 features attract employers than in the past. Tradi- 8 .5 Wages and salaries tional industrialization incentive programs are very 0.4 risky and, when successful, attract employers of a type that can as easily be lured away again by another 0.3 community with an attractive incentive offer. 0 Dividends, rent, and interest 02 I."

...... I 01 Localization

0 Localization is the growing role of local condi- 1959-99 tions and local choices to determine the prosperity of a community. The reasons for the growing pri- Source: BEA macy of local circumstances include technological change, changing social and political attitudes, increasing returns to scale in many industries and, bution centers, in order to track every item sold at ironically, the globalization that has opened com- each checkout and to play the same background petition with the world. Reich, in The Work of music in each store (Malecki). Nations, describes how global competition means that we as a nation are no longer in the same boat. Firms also use ICT to link with each other in order The prosperity of our community depends on to coordinate and to achieve logistical advantages. whether we are competing with the rest of the world I am told that Gateway Computers has extended the as routine producers, or whether our economy is concept to the point that UPS now essentially based on the work of symbolic analysts. Rural com- assembles computer systems in their warehouses. munities then depend on how well their economic Gateway directs components from its various base sector fares. sources directly to UPS, which packages and deliv- ers systems to Gateway's customers. As we saw above, in the discussion of globaliza- tion, there is a growing freedom of all industries, but Distance has been made less important by tech- most strikingly of services, to behave like footloose nology but that technology has increased the impor- industries and to decentralize different functions tance of being connected and connected to the right spatially. The declining role of goods, especially raw places. As Malecki points out, materials, in production, and the practice of what

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has provided both traditionally factor-oriented and tion density. Low density increases the cost of infra- oriemedindustries with a wider array of structure, reduces the size and complexity of the potential locations. Many factor-oriented manufac- labor market, and reduces the size of markets. In a turing industries choose to transport their raw world of significant economies of scale in many sec- materials to areas where there they are closer to their tors, low population density is a decided disadvan- markets, where amenities are higher, or where fac- tage. In addition, low density means that rural areas tors other than raw products are lower cost. On the will always be last to receive the benefits of techno- other hand, the growing role of information logical change. exchanges, ICT, and computers, allows many ser- vices and otherwise market-oriented industries to An oft -cited disadvantage is distance from popu- locate at a distance from their markets. Newspapers lation centers. But as Krugman (1999) and others need no longer be local. National newspapers have shown, transportation costs related to distance exploit economies of size without compromising can be a centrifugal force. Ironically, technology is quality. Satellite and fiber optics technologies allow tending to erode the decentralizing effects of trans- instantaneous audio, video, and information trans- portation costs. An obvious example of this is the missions over long distances. This allows financial, centralizing effects of e-commerce. insurance, real estate, educational, business man- agement, accounting, legal, and many other services to centralize some functions and decentralize oth- Industrial structure ers but, in general, free them from locating strictly according to the location of their clients. Indeed, The structure of all industries and the relation- many of these services can be, and are being, pro- ships between firms are changing everywhere. In vided in international markets just as goods have rural areas a fundamental restructuring is under always been. Retailing will become increasingly way. The emergence of industrialized agriculture, footloose as consumer acceptance of mail order and farmer alliances, new generation coops, and other e-commerce rises. New service industries, yet elements of supply chains, is precipitated by unimagined, will undoubtedly arise to take advan- changes in technology, growing globalization, and tage of the new technologies. the existence of economies of size. The supply chain revolution in agriculture is having a wrenching Overall, we observe an emerging economy in which effect on rural communities as well (Drabenstott). the definitions of economic base, services, public and For one thing, the spatial concentration of agricul- private enterprise, competition, and even sectors tural products and firms is growing. This affects the themselves have become blurred. We see an economy stability of these emerging "commodity communi- in which trusted linkageslinkages between produc- ties" and increases their dependency on particular tion growth and employment growth, between base firms (Drabenstott). and nonbase industries, between activity and place have been severed. We see an economy in which link- ages have become more numerous but more CHANGING DEMOGRAPHICS decentralized, and where distance becomes a resource rather than a cost or constraint. Migration to rural communities

Rural areas face potential disadvantages when As pointed out in the introduction, many rural compared to the localization forces of urban areas. communities, especially those in the mountain and Perhaps the greatest disadvantage is lower popula- in East Coast states, are experiencing significant

7 The Rural Economy in a New Century 13

inflows of new residents. This internal migration roundings of the metropolitan fringe. This is a con- consists-primarily-of older-adults_who_are, or who tinuation and acceleration of urban sprawl into the expect to be retired, and of telecommuters or busi- suburbs and rural areas. ness people no longer tied to particular locations. An important dimension of this internal migration In many places, small jurisdictions lack the plan- is the rising demand for amenities. McGranahan ning resources and the physical infrastructure to identified six climatic and topographic rural ameni- respond to this kind of growth. Growth then exac- ties. The amenities were used to generate an index erbates existing fiscal constraints for local govern- (Figure 2). Using statistical methods McGranahan ments and, in some cases, contributes to problems found that the index explains at least one-quarter of with water quality and other key natural resources. the variance in rural growth rates.

This resurgence of some rural communities obvi- Aging of the population ously brings new investment and income to selected communities. Migrants often bring entrepreneurial As the baby-boom generation begins to turn 50, talents, experience, market knowledge, and capital and as life expectancy continues to rise, the overall to their new communities. Return migrants (natives population is becoming older. The elderly, espe- to the community who had left to pursue employ- cially the baby boomers, tend to be quite mobile and ment opportunities) combine these characteristics as we have seen are increasingly choosing non- with an understanding of their new communities. metropolitan communities as their retirement des- tination. Since the poorer elderly may not migrate But population increases in smaller, rural commu- as readily as the wealthier, declining communities nities not accustomed to new residents can also lead may experience rising poverty and increased to economic and social conflict between the "from- demands for social services. Growing rural com- heres" and the "come-heres." In addition, inmigra- munities will face increased demands for other pub- tion puts significant new demands on private and lic services and amenities. As residents in rural public services and can lead to rapid increases in communities age, more people will receive direct for housing and other real property. and indirect income from federal transfer payments (pensions, Medicare, etc.). The rural areas of the Great Plains continue to lose population. But even here there are exceptions in small cities and in recreational and tourism areas NEW GOVERNANCE that lack the amenities and locational characteris- tics that support a population increase. Devolution

Throughout the world, communities are faced Settlement patterns with the prospect of making more decisions of greater import than ever before. For rural commu- In addition to the more macro phenomenon of nities, this is often a tall order given their small staffs growing rural populations, communities are being and resources and their limited experience with changed by a trend toward more dispersed settle- many of the new areas of responsibility. Each area ment patterns. Increasingly, people are interested in of responsibility creates its own problems. In the fleeing the congestion and high cost of suburban life area of economic development, communities, often for the quieter, safer, and more affordable sur- neighboring communities, find themselves pitted

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Figure 2 RURAL AMENITY INDEX SCORESBY COUNTY

IPA

it 8

Source: McGranahan 1999

against each other in the competition for migrating public services are delivered. The European Union employers. has adopted a policy called the Civic Society in which the democratic process is being broadened. The term, devolution, has become a commonly The concept of Civic Society goes beyond formal used term to describe the changing relationship government to that of informal governance. between central and local governments. In recent years the Scots, Welsh, and Irish have all opted for their own legislative assembliesa concept referred Reinventing government to as devolution by the British government. In Europe, the concept of subsidiarity means that All levels of government, in many parts of the responsibility for public issues is assumed to be the world, are transforming in the face of changing role of the lowest possible level of government. In technology, economics, and global realities. Market the U.S. devolution refers to the process of shifting oriented, entrepreneurial, competitive and results- policy responsibility from the federal government orientedthese are some of the descriptors that to state and local governments. Osborne and Gaebler use to describe the effective government of the future in their book on rein- New governance is a larger trend than just devo- venting government. Reinvented governments are lution, however. It includes a fundamental rethink- balancing their budgets and overhauling taxes. They ing of how policy decisions are made and how are financing themselves with user fees and other

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market mechanisms. They are privatizing, out- is, a key objective is to assure some minimal level of sourcing,' and form ingstratggic alliances with other access to telecommunications infrastructure to res- governments and with the private sector.2 They are idents of all placesgreat and small. Addressing becoming performance-based. demand-side issues is of equal or greater impor- tance. Europe, through its Information Society pol- Performance-based government is designed to icy, focuses more on the demand side by developing target limited public resources for maximum in the ultimate users of ICT the capacity and desire impact, to provide incentives for government units to use information technologies. to improve the delivery of public services, and to hold government more accountable to specific measurable objectives. This trend is seen in a vari- RURAL AMERICA: IRONIES AND PARADOXES ety of policy contexts. At the community level, states such as Oregon and Minnesota have initiated Farms are more dependent on the development of key performance indicators and rural communities than specific short- and long-term quantitative targets rural communities are on farms for each of these measures, identified through a grass-roots process at the local level. Performance Nationwide, farm income represents less than 2 against these targets will, in part, determine local percent of total income. Most studies of the contri- government assistance from state funds. bution of farming to state and local economies find that even including farm input suppliers, agricul- This trend places even more importance on the tural -added processing, distribution of food capacity of rural communities to manage informa- and fiber, and the multiplier effects of income tion and develop strategies to interact with that earned in all of these activities, agriculture con- information in ways that help them achieve measur- tributes less than 20 percent to the gross domestic able improvements in the delivery of public services. product of their state. Much of this contribution by agriculture actually occurs in urban, not rural, com- munities. Decentralization of decision making Even the most farming-dependent communities The most fundamental aspect of new governance depend on agriculture for a fraction of their income. is the tendency toward greater decentralization in the Figure 3 is a map of the 556 USDA-defined farm- decision-making process itself. Throughout the ing-dependent counties in 1989. Farming depend- world, community residents are demanding more ent counties are defined as those where at least 20 direct influence over the decisions affecting their percent of total labor and proprietor income comes communities. Information technology and commu- from farming. Given strong growth in nonfarm nication infrastructure tend to support this decen- income and very weak growth in farm income over tralization process by reducing the transaction costs the last decade, this number is likely to be smaller involved in becoming informed. They also facilitate today. Even with the multiplier effects of farm the process of achieving agreement by reducing the income, the contribution of farming to all but a few transaction costs involved in communication. communities is likely to be considerably less than 50 percent. Thus far, U.S. policies with regard to information and communication technology (ICT) in rural On the other hand, in 1997 the average census communities have focused on the supply side. That farm family had net earnings of just under $6,000

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Eigures3 NONMETRO FARMING DEPENDENT COUNTIES; 1-989*

Farming Metro

*Counties with 20 percent or more labor and proprietors' income from farming, 1987-89 annualized average Source: Rural Economy Division, Economic Research Service, USDA, using data from the Bureau of Economic Analysis from all farming activities (down from almost opportunities, good education, etc. Farm families $8,000 the year before). In the same year the aver- also depend on their communities to provide off- age farm family earned over $46,000 from off -farm farm employment for the operator and for family sources for a total of over $52,000. Thus, the aver- members. Because of the physical tie of farm fami- age farm family depended on off -farm jobs, divi- lies to the location of their farms, farm families are dends, interest, and transfers for over 88 percent of particularly sensitive to the location of these non- its income. On average 54 percent of this income farm jobsthey cannot relocate to improve their came from off -farm jobs in their communities. access to employment opportunities without also givinguptheir farms. Overall, it is quite clear that farms are more dependent on their communities than communities are dependent on farms. Farms and farm families depend on their communities to provide them with public and private services, roads and marketing

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Nonfarm rural residents are often in conflict Agricultural policy is not rural policy with farms and agricultural policy It the economies of rural communities are not In general, rural communities benefit when their particularly dependent on farms, is it possible that local agriculture sectors prosper. Most nonfarm res- agricultural policy can serve as our rural policy? Fed- idents have an interest in the health of the agricul- eral expenditures on agriculture (approximately $10 tural sector. However, structural changes in billion in 1999) are important stimulants to rural agriculture seem to be eroding some of these com- economies. The stabilizing and reassuring effects of mon interests. Increased industrialization of agricul- agricultural policy are also possible. But other fed- ture seems to be weakening the ties between farms eral agencies, notably the Department of Trans- and their communities. Allen et al. found that con- portation, Department of Education, Social cerns with industrial agriculture and meat packing Security, Health and Human Services, Housing and plants were greater among rural residents who lived Urban Development, Small Business Administra- in smaller towns or who lived closer to these farms tion (SBA), and Department of Commerce (EDA) and plants than those more distant from the farms contribute significantly to rural economies as well. and plants. Other anecdotal evidence indicates USDA estimates that almost $6 billion of DOT growing feelings of mistrust, more serious land-use expenditures and $6.6 billion of HUD expenditures conflicts, and increasing environmental conflicts benefit rural areas directly. Social Security, between farm and nonfarm rural residents. Rural Medicare, and Medicaid are huge sources of income residents don't seem to think of the new larger farms in many rural communities. Furthermore, many of as community residents. Furthermore, in many these expenditures tend to have indirect impacts on states and communities agriculture has effectively quality of life in rural areas and the well-being of a limited its exposure to local property taxes, further broad array of rural residents. reducing the interest that nonfarm residents have in the sector. Small businesses in large places What concerns do nonfarm rural residents have and large businesses in small places about agricultural policy? Rural residents, other than farm families and those closely tied to the farm The increasing economic returns believed to exist economy, seem to have many of the same concerns in so many industries lead to a potential paradox. with agricultural policy as the general publicfood The imperative of scale is leading to larger and larger safety, food prices, environmental issues, and fed- firms and more complex agglomerations of busi- eral fiscal effects of farm policy. Ironically, rural res- nesses. In urban areas small to medium firms can idents have additional interests that may mean that cluster to capture the benefits of agglomeration they have more conflicts with farms than do urban economiessavings due to proximity to a diverse residents. For example, rural residents have con- labor force, specialized producer services, and high- cerns about local environmental effectsodors, quality public services. In rural areas, economies of threats to water quality, noise, and truck traffic. In scale are more likely to be achieved internally to addition, rural residents are often concerned about firms. Firms must become, and increasingly are tax limitations and the impact of inmigration to fill becoming, larger and larger. In agriculture the emer- low-wage agricultural value-added jobs. gence of supply chains is evidence of this trend. In other sectors the location of large wholesale facili- ties, assembly plants, waste facilities, and prisons are examples of large, self-contained enterprises. The

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consequences of this trend are that rural areas will mercial air service, health service, and high-quality increasingly depend on the fortunes (and whims) of public education. one or a few firms. A majority of the farms within the labor-sheds and retail areas of connected rural communities will WHERE ARE WE HEADED? be relatively small, many operated by part-time and hobby farmers. Some farms will produce high-val- It is one thing to chronicle the current situation ued products targeted at local niche marketshor- and speculate on the underlying trends. It is quite ticultural crops, U-pick farms, etc. Industrial another matter to predict where these trends are tak- agriculture will have largely exited these communi- ing us. However, in this section I assume that major ties in search of lower land costs and fewer land-use policies remain unchanged and that current trends conflicts. Land values will be too high, and the continue for another generation. Under these con- transactions costs of developing a viable business in ditions how will rural America look in the next these areas have become prohibitive for low-valued, decade or so? high-volume production.

First, the economic conditions of rural America Connected rural communities will face what they will continue to divergethe range between the have come to consider serious land-use issues. In least and most successful will continue to widen. many cases the rural character of the local towns has Overall, population and income growth rates in been displaced by more suburban characteristics. rural America will equal or exceed those in urban Traffic will overwhelm the local roads, much of the America. Metropolitan statistical areas will expand rural "farmscape" will have been replaced by large- in each of the decennial censuses incorporating lot residential development, campus-style industrial some of the highest income and rapidly growing and commercial development, and strip malls. nonmetropolitan counties, officially leaving the remaining rural areas poorer and slower growing. In short, the connected rural community will become less and less rural and more and more suburban. While there will be many types of experiences in rural America, two extremes will stand outthe growing, connected rural community, and the iso- The isolated rural community lated rural community. Isolated rural communities will generally exist at considerable distance from urban centers. These The connected rural community communities will be those that have survived a period of significant rural consolidationi.e., the Connected rural communities will have high lev- decline of some and stabilization of others. Most of els of natural and man-made amenities. Because of these communities will be in the Upper Plains and higher than average income, education, and popu- western regions, although pockets of isolation will lation growth, each new generation of telecommu- exist in all regions. Population will be stable or nication infrastructure will be provided at an early declining. Income levels will be significantly lower stage, encouraging private investment and growth. and income growth will lag behind the national Most of these communities will have good corn- average. These communities will have telecommu- nication infrastructure but it will typically be at least

13 The Rural Economy in a New Century 19

one generation behind that of urban and growing CONCLUSIONS rural areas, and it will be more expensive. Nowhere will the digital divide be more striking than in the Rural America is at a crossroads. During the 20th isolated rural community. century, technology eroded the employment base of most rural communities, depressed incomes, and Farms will be large and technologically cutting- made outmigration the only recourse for millions. edge. These regions will be the home to a majority of In the 21st century technology may reverse that bias the largest Confined Animal Feeding Operations and instead favor rural communities and rural resi- (CAFOs). Some states and some counties will have dents. Rural communities face a number of hurdles found legislative or regulatory means of limiting before these forces will work to their advantage industrial agriculture. (In most cases, the economies rather than disadvantage. in these states and counties will be struggling even more than in those that admit industrial agriculture). The fortunes of rural communities are diverging. Some are continuing to face traditional economic Residents have few local entertainment and retail hardships and decline. Others are trying to cope alternatives. Those that can afford to be connected with rapid growth in jobs and population, depend on the Internet for entertainment, shopping, conflicts, growing demand for public services. With investing, and education. Farms and manufacturers a continuation of current policies, there is little rea- are almost totally dependent on the Internet for mar- son to expect this process of divergence to ease. keting, sales, and purchases of inputs. On the other hand, economic and technological Local public services, especially education, will be trends are reducing the cost of distance and increas- minimal. Both the property and retail sales tax bases ing the value of space. Technology is reducing the will have dropped significantly since the turn of the need for labor, especially proximate labor. Demand century, leaving many rural counties and school dis- for the kind of life-style available in rural commu- tricts without adequate financing. nities is growing. There are reasons to be cautiously optimistic. There are certainly reasons to explore the These communities will rival inner cities as the potential for business growth, and to search for new primary destination of international immigrants. engines of rural growth. With new, effective rural These immigrants will largely work at close to min- policy, rural communities can contribute much imum wages for value-added agriculture processing more to the vitality of the national economy. or other manufacturing firms.

14 20 Thomas G. Johnson

ENDNOTES

Outsourcing refers -to-the-practice of going-outside-the-firm---2Strategic_allianrec refer to_the_practice_of_co,Kenturing and for services that were traditionally provided internally. contracting vertically with suppliers and clients, and horizon- tally with competitors.

REFERENCES

Allen, John C., Rebecca Filkins, Sam Cordes, and Eric J. Jarecki. cry of Agricultural Engineering Annual International Meet- 1998. Nebraska's Changing Agriculture: Perceptions about the ing, Orlando, Fla., July 15. Swine Industry. Lincoln: University of Nebraska-Lincoln, Institute of Agriculture and Natural Resources, available Malecki, Edward J.1996. "Telecommunications Technology and ontheInternetathttp://www.ianr. un e du/ rural/ American Rural Development in the 21" Century," paper pre- 98porkpaper.pdf. pared for TVA Rural Studies, July.

Bernat, G. Andrew Jr. 1985. "Income Distribution in Virginia: McGranahan, David J. 1999. "Natural Amenities Drive Rural The Effect of Intersectoral Linkages on the Short-Run Size Population Change," Agricultural Economic Report Number Distribution of Income in Small Regions," unpublished Ph.D. 781, U.S. Department of Agriculture, September. dissertation, Department of , Virginia Polytechnic Institute and State University. Osborne, David, and Ted Gaebler. 1992. Reinventing Govern- ment: How the Entrepreneurial Spirit Is Transforming the Pub- Drabenstott, Mark. 1999. "Rural America in a New Century," lic Sector. Reading, Mass.: Addison-Wesley Publishing Co. Federal Reserve Bank of Kansas City, Center for the Study of Rural America, The Main Street , October. Parker, E.B., H.E. Hudson, D.A. Dillman, and A.D. Roscoe. 1989. Rural America in the Information Age: Telecommunica- European Union. 1997. "Cohesion and the Information Society tions Policy for Rural Development. Lanham, Md.: University Communication from the Commission to the European Par- Press of America. liament, the Council, the Committee of the Regions and the Economic and Social Committee," (COM (97) 7/3). U.S. Department of Agriculture, Economic Research Service. 1999. Rural Conditions and Trends, vol. 9, no. 2, available on Johnson, Thomas G., and James K. Scott. 1998. "The Status of the Internet at http://www. ers. us da gov/ epubs/p clfl rc at/ Rural America," paper presented at the 1998 American Soci- rcat92.

15 The Rural Economy inaNew Century: Discussion

Moderator: Alan Barkema

Mr. Barkema: Tom, thank you very much for or it can drag this nation down. And, I think that's those thoughtful insights. Ladies and gentlemen, just one of the more obvious examples. we've now come to an important part of this morn- ing's programthat is, your opportunity for a dia- Not only that, though. Rural America is the cus- logue and probing questions for Tom. As we begin todian of a great deal of our heritage, our cultural, that process, I want to introduce to you two more and historical resources. It is the part of this country of my Center colleagues: Kendall McDaniel and that most of our urban population gains a great deal Brian Staihr. Both Kendall and Brian are carrying of value and utility from just knowing that it is there portable microphones, and they would be delighted and having it available to drive through and to expe- to bring a microphone to you so that you can ask rience. We are not and should not be a nation of rural your questions. As you ask your question, I would versus urban. We should be a nation of people who ask that you first state your name and affiliation. share in each others' prosperities and problems.

So, ladies and gentlemen, who has the first ques- Bill McQuillan, City National Bank, Greeley, tion for Tom this *morning? Yes ma'am. Nebraska: I'm glad that this presentation is being put together and I welcome your thoughts. I was hop- Flo Raitano, Executive Director Colorado Rural ing that you would be a little more optimistic in your Development Council: My question for you is, a cou- presentation. There's a lot of us that think, I believe, ple of weeks ago I had the distinct pleasure of serv- that a lot of the urban centers take rural America for ing on a panel in front of a number of economics granted. Your comments were well taken. students at Colorado State University. One young student came up to me at the conclusion of the I tend to believe that there are opportunities here remarks and said to me, "So, tell me why rural mat- and I think the presentation, I hope, gets into it, and ters. Wealth is generated in cities." What's a I think it revolves around information technology. response to that student? I think it is our first opportunity in many, many years to have these opportunities. I was wondering Mr. Johnson: Well, a number of possible ifyou can comment on how you believe this broader responses to that. Obviously, if you look at the map, spectrum of bandwidth can be delivered to rural a large majority of our area is represented under the America. In my community, I've created a note, influence of rural communities and rural people. unfortunately it's probably at least two years behind, Not only that, but a large proportion of our popu- in trying to create the speed and the bandwidth that lation. Rural America can either be a strong con- we need to get our businesses brought up to speed tributor to the growth and prosperity of this nation, to be able to survive. It just isn't there now, and

16 22 Moderator: Alan Barkema

nobody wants to come there to increase the speed opportunity. We have the information communi- right now. Could you comment on that? cation technology that can erase the disadvantages of isolation if we find ways to put those in place. We Mr. Johnson: I'm afraid I am quite pessimistic can put those pieces of the puzzle together if we about many of those things. It isn't a matter of choose. Today, I don't think we have anywhere close whether rural America will have access to informa- to the kinds of policies necessary to make that hap- tion technology, because it will. But, so long as we pen, though. need to generate enough volume early in the process to make new generations of information technol- Don Macke, Rural Policy Research Institute: What ogy viable and economically feasible, they will kind of lessons might we derive from the European always occur in the cities along the interstate corri- Union as we try to move rural policy in the United dors before they make their way into rural America. States outside of the shadow of rural policy? We are here in Kansas City, the home of Sprint PCS. We have very good PCS service. But, you have to Mr. Johnson: The European situation is very stay in the cities or on the interstates. Once you get interesting. I would never suggest that we emulate off there, the digital service no longer exists. It will Europe. The American experience will be and must be there some day, but it will be two generations be different. But, there are some lessons that we can late, or a generation late. There's not an incentive to learn from Europe. For one, Europeans have a level make private sector investments in places that will of appreciation and reverence for rural areas and for always be two years or one generation behind in heritage and for some of the cultural aspects that we technology. have in our rural areas, at a level that they are will- ing to pay for itto find ways to preserve those The solution has to be some kind of nonmarket things that they consider valuable. Of course, or partnership between the public and private sec- they've always had a history of being more con- tors to see that at least parts of rural America can cerned with place and space than we have in this enjoy an infrastructure and the benefits of that country. We have a very frontier mentality and infrastructure at the same time as do the urban areas. always have. We don't have room for a frontier men- tality anymore. Those are the kinds of lessons that Betsey Kuhn, Economic Research Service: Tom, I would learn. I would learn some of the ways that you ended on kind of a tantalizing note, saying with they have found to protect the space and place effective policies we could see a rural renaissance. I resources in their case, in an American way. wanted to just ask you follow up a little bit on some of your ideas for effective policies. Fritz Ruf, Wisconsin Housing Authority: Are you suggesting that our investment in infrastructure be Mr. Johnson: That's the role of our subsequent in wire rather than in asphalt and sewer and water? speakers. But I will say why I think that it is possi- ble. There's a growing demand, as I said, for the very Mr. Johnson: No. For one thing, I think there is amenities and qualities of life that exist or poten- probably a wireless solution to the rural connected- tially exist in much of rural America. The pieces of ness issue. But, I don't think that was the meaning the puzzle are not there. If we can put more of the of your question. I think you are asking, "Should pieces together, there are many reasons to be opti- we be investing in information technology as mistic. People want to stay in rural communities. opposed to traditional infrastructure?" The people who grew up there, many of them do want to stay in rural communities, if given the

17 BEST COPY AVAILABLE The Rural Economy in a New Century: Discussion 23

I think we do need to reevaluate our investment to us and transporting the things that we produce priorities. I think that you cannot rely strictly on to our markets. So, if we lower those costs, it has to information connectedness, however. People need make someone better off. to be physically connected with the rest of the coun- try. That means some roads; it means airports. Mr. Barkema: And this will be our last question. I think airports will not become less important in an information age, but probably more important Richard Lloyd, The Countryside Agency (UK): because people will then choose to be at a distance First, an observation. The problems that you're from their colleagues and their business associates wrestling with are almost identical to the ones that so that they then absolutely need a fast way to get we are beginning to wrestle with on the other side face-to-face. I recently read something that of the Atlantic, admittedly on a smaller scale. That's impressed me. Information technology is a good an observation. I think it's going to be very inter- way to communicate in very standard, typical kinds esting to hear your thought processes on how you're of transactions. But, atypicalthe introductory going to deal with it over the next day or so. The kinds of transactions between peoplealmost nec- second is a comment about the European perspec- essarily have to be face-to-face. So, we also have to tive on all of this, and I share the analysis. I would think about the physical connectedness. just like to say that I think our long-term goal over the next ten years is to move from the common agri- Stan O'Brien, Cessna Aircraft Co.: If we can effec- cultural policy which we've got, which is rather a tively and economically move people and product millstone rather than an asset in many ways, and in and out of rural communities, what would that turn that common agricultural policy into a com- do for the stabilization of those rural communities? mon rural policy to begin to tackle the wide variety of problems in rural areas which we're beginning to Mr. Johnson: The issue of transportation is an hear about this morning. The amazing thing is the interesting one. It is sometimes said that you build virtually identical issues that you're grappling with a highway to a rural area to make it easier for peo- on this side of the Atlantic to the ones that we're try- ple to leave. And, it turns out that there is some eco- ing to grapple with. nomic basis for that. As long as there are a lot of industries subject to increasing returns or My organization, incidentally, we've been operat- economies of size, transportation costs actually dis- ing about a year now We bring together the gov- burse activity, make it difficult for everything to be ernment agency that dealt with conservation issues located all in one place. So, it's possible that if you with the government agency which dealt with rural make it too easy to move goods and services that you development and rural communities. And, we try would dry up our current distribution system and to tackle the environmental, the social community, make it centralized so that people bought every- and economics. Sustainable developmentwhat is thing, got on the Internet, bought their goods and it, what does it mean, and how can we implement services on the Internet, and it was delivered to it? And, I think that's a very useful bringing together them, rather than going to a local store. But, if we of bits of public administration. permit that as a possibility, then I think the lower the transportation cost will translate directly into Mr. Barkema: Thank you for the comment. Tom? increased quality of life in sparsely populated areas. Mr. Johnson: I agree with you. It is amazing how A lot of our cost of living in sparsely populated so many of the trends, and thus, the issues are global areas is in transporting the things that we consume and not just a Midwest problem or a U.S. problem.

18 24 Moderator: Alan Barkema

They are global. They play themselves out in dif- produce for the rest of the nation, and they produce ferent ways sometimes, and they certainly play it free. And as a result, they underproduce it. They themselves out in different contexts...the agricul- don't have the appropriate incentives to produce it tural policy that you mentioned, for instance. I'd at the right places at the right time. It will be in every- like to point out that American farmers and, I know, one's interest to have policies that create the incen- Canadian farmers, are quite skeptical about the sup- tives for rural people and farmers to produce the port for "rural" as opposed to "agriculture." They right commodities at the right place at the right time. suspect very strongly that it is just support for agri- culture in disguise. Mr. Barkema: Ladies and gentlemen, it is with that international perspective that we will conclude this On the other hand, I think the concept to the opening segment of our first session this morning. extent that it could be implemented in Europe, and Thank you very much for your participation and similar ideas implemented here, makes a lot of sense. your very useful dialogue with Tom. And Tom, thank The agriculture sector in the rural economy in gen- you once again. We are now going to adjourn briefly eral produces many, many things besides food and for a coffee break. We do have a rigorous schedule fiber. And, it goes back to the incentive question. this morning and do need to stay on time. We will They produce many, many things. Most of it, they reconvene promptly at 10:30 a.m. We are recessed.

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