Reversing Rural America’s Economic Decline: The Case for a National Balanced Growth Strategy

Fundamental structural changes in technology, markets, and organizations are redrawing our nation’s economic map and leaving many rural areas behind. Yet our de-facto federal rural policy — providing massive subsidies to a shrinking number of farmers — does little to help develop competitive rural economies or boost opportunity for rural residents.

By Robert D. Atkinson

http://www.ppionline.org/ndol/print.cfm?contentid=252381

There is a growing recognition, not just in developing nations but in developed ones as well, that agricultural subsidies in rich nations are condemning many agriculturally based developing nations — including many Islamic Middle Eastern nations — to a state of poverty and underdevelopment. The Organisation for Economic Co-operation and Development (OECD) estimates world farm subsidies to be about $300 billion to $320 billion per year. Some of this funding benefits research or rural development, but much of it simply serves to keep efficiently produced goods out of poorer countries which cannot afford subsidies. The European Union’s $2.3 billion olive oil program, for example, keeps millions of efficient olive growers in Tunisia, Lebanon, and Morocco out of American supermarkets. American cotton subsidies, meanwhile, undercut even poorer West African producers who, in the 1990s, were happily selling their produce to textile mills in Pakistan and India. Japan’s $30 billion farm program is nearly twice as big as U.S. farm subsidies, and this in turn is dwarfed by the $60 billion Common Agricultural Policy in the EU, which subsidizes everything from beef and wheat, to kumquats and tangerines, to cucumbers and silkworm cocoons.

There is mounting international pressure to reduce these subsidies. Moreover, there are sound domestic reasons and broad public support for moving away from the old subsidy regime, as it does little to help rural economies or the vast majority of rural residents. Therefore, we propose a dramatic change in the subsidy system based on a two-track process: First, the United States should press for serious negotiations with other developed nations and the World Trade Organization to mutually agree to phase down farm subsidies. Second, here at home we should gradually shift agricultural subsidies toward a 15-year effort to help rural America develop a new competitive economic base and to help the nation as a whole develop a better balance between its metropolitan and rural economies. The savings from reduced crop subsidies should be reinvested in a new Rural Prosperity Corporation that co-invests with states to boost the long-term competitive position of targeted rural economies. It is critical, however, that both these tracks occur together, for we do not propose unilaterally disarming when it comes to farm subsidies.

Astute politicians recognize the need for reform. Former Clinton administration Agriculture Secretary Dan Glickman states, "Farm programs became all too frequently a mere money scramble by a limited number of commodity producers, many of them quite wealthy. We believe New Democrats need to develop, and can develop, a new approach."

In fact, smart New Economy-based rural policies can help progressives become recognized as the supporters of rural progress, forcing conservatives to be defenders of rural nostalgia and narrow business protectionism. For example, Sen. Hillary Rodham Clinton’s (D-N.Y.) 2000 senatorial campaign succeeded in part because of her commitment to bring New Economy growth to lagging regions in upstate New York, including rural areas. Gov. Mark Warner (D-Va.) campaigned on a platform of ensuring rural Virginia would not be left behind in the transition to the New Economy, and promised to help rural areas develop new competitive advantages beyond agriculture and natural resources.

The federal government has had a long and important role in helping shape geographic patterns of economic activity and settlement, from the Homestead Act, to the New Deal efforts to bring vast swaths of the South and West into the modern economy, to the efforts by John Kennedy to revitalize Appalachia. The time is ripe for a similar effort today. However, to craft an effective rural development policy that meets 21st century challenges, Congress and the administration need to keep in mind four key principles:

Principle 1: Shift from subsidies to economic investment.

Providing subsidies to farmers, rural residents generally, or rural localities does little to help build competitive rural economies. Federal policy should help rural areas build the infrastructure, skills, business clusters, and quality of life needed to succeed in the New Economy.

Principle 2: Target places with growth potential.

Some places have significant competitive disadvantages: harsh climate; few natural, physical, or cultural amenities; remote location; extremely small size; and/or poor-quality government services. It is unrealistic to expect all of these places to thrive. As a result, policies should target investments in rural places that have the potential to become self-sustaining growth centers and employ residents from a larger surrounding area.

Principle 3: Change the playing field so more firms choose rural locations.

Helping communities is important, but it is also important to help create overall economic conditions that make it more likely for economic activity to thrive in rural areas. Examples include support for widespread deployment of broadband or funding for research that increases the demand for products and services likely to be produced in rural areas (e.g., wind power or agricultural biotechnology).

Principle 4: Enlist states as full partners.

States spend close to $50 billion per year on economic development, yet little of it is focused on boosting rural economies. No strategy will succeed unless it leverages and engages the states to spur New Economy development in rural economies.

To bring rural development into the information age, the federal government should take three simple but critical steps:

* Contingent on successful international negotiations to multilaterally phase down farm subsidies, gradually convert agricultural subsidies over 10 years, eliminate existing rural development programs in multiple agencies, and transfer the savings to a quasi-public Rural Prosperity Corporation.

* Empower the Rural Prosperity Corporation to jointly fund with states New Economy development strategies focused on rural growth centers and fund research and development focused on technologies likely to boost production in rural areas.

* Where possible, decentralize government facilities and employment away from high-cost metropolitan areas to rural growth centers.

Download the full text of this report. http://www.ppionline.org/documents/rural_economy_0204.pdf