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  • November 28, 2018
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The new economic strategies that could revive rural America

Political polarisation and resentment of urban elites will continue until inequality is tackled

A rusting tractor in rural America

Rural economic policy needs a radical rethink to combat soaring inequality and further political polarisation, a new report claims.

The study, published by The Brookings Institution earlier this month, argues that the rise of “superstar cities” fuelled in part by big tech has left much of rural America struggling to make ends meet.

Co-authors Clara Hendrickson, Mark Muro and William A. Galston, offer a stern rebuke to “many economists’ and policymakers’ optimistic faith in the natural ‘catch up’ of lagging places,” instead proposing an ambitious and proactive set of policies including investing in digital skills, affordable borrowing for small-town businesses, and funding for “growth poles” — mid-sized town with the potential for economic prosperity.

Inaction, the authors conclude, “is no longer an option: the costs of spatial divergence to American economic and political life are now too great to ignore.”

Mind the gap

Before the 1980s, the rural-urban inequality gap was narrowing, but the birth of big tech “super-charged” urban economies at the expense of rural America.

Top talent was sucked into cities, wages rose dramatically for a select few, and policymakers took a backseat, believing that urban prosperity would trickle down to rural areas.

But, the authors claim, data from the US Bureau of Economic Analysis (BEA) shows conclusively that such organic redistribution hasn’t happened.

Since the 2008 financial crisis, some 72% of US employment growth has come from cities with over one million inhabitants.

In stark contrast, areas with a population of between 50,000 and 250,000 accounted for less than 6% of employment growth since 2010.

In rural or “micro” areas with fewer than 50,000 inhabitants, employment levels are often still lower than pre-recession levels.

In response, the authors call for “place-sensitive distributed development” — a combination of “people-based” and “place-based” investment.

The former is a “spatially-blind” approach to investment to encourage booming economies and thriving markets, whether or not they benefit left-behind places.

Place-based policy, on the other hand, targets specific locations to ensure more equitable regional growth.

By blending the two, the authors argue, America can return the “era of divergence” to a period of “convergence” by encouraging economic high-flyers while also making sure that success doesn’t come at the expense of nearby communities.

People and places

To reduce the urban-rural divide, Hendrickson, Muro and Galston offer five policy suggestions.

1) Invest in digital. The tech industry is here to stay. Equipping small towns and rural areas with digital skills would allow them to partake in its success, not flounder on the sidelines.

2) Improve access to capital. When the financial crisis hit, lending dried up. Non-metro areas were some of the hardest hit. Encouraging or funding affordable loan programs could allow for rural and small-town entrepreneurs to flourish.

3) Boost broadband coverage. Inadequate internet access blights the countryside. Improved access would permit greater connectivity — and a broader range of opportunities — for small-town communities.

4) Invest in “growth poles.” Not everywhere can become an economic powerhouse: investing in high potential mid-sized areas to become rural hubs for development could help to spread wealth more evenly.

5) Make America mobile. Federal government should also support people trying to move to more prosperous areas, the authors argue. That means providing financial assistance to make the move, and investing in affordable housing to accommodate the new influx of people.

According to the report, allowing rural-urban gaps to widen is no longer tenable, politically, economically or socially.

The struggles of rural America are well-documented: economic gaps have led to entrenched social issues, including substance abuse issues, rising suicide rates, and increasing mental health problems.

Without an end to the era of divergence, these social ills — and their immense human costs — will only become further entrenched. — Edward Siddons

(Picture credit: Flickr/FiacciPhoto)


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