charting a new course for rural america

Charting a New Course for Charting a New Course for Rural AmericaRural America

Mark DrabenstottMark Drabenstott

Vice President & DirectorVice President & DirectorCenter for the Study of Rural Center for the Study of Rural

AmericaAmericaFederal Reserve Bank of Federal Reserve Bank of

Kansas CityKansas Citywww.kansascityfed.orgwww.kansascityfed.org

Center for the Study of Rural America, FRBKC

Three key questions for Three key questions for today:today:

1.1. Is the Is the currentcurrent course working? course working?

2.2. What challenges must be met? What challenges must be met?

3.3. How to answer these challenges? How to answer these challenges?


High Growth

Low Growth

MSA

Rural Employment Growth1992-2002

Overall, economic gains Overall, economic gains uneven across rural uneven across rural

America. America.

Calculations based on BEA, REIS dataCenter for the Study of Rural America, FRBKC

Income 1992 to 2002

Top 11Counties

Remaining 104 Counties

68%

32%

Contribution to Statewide Income Growth 1992-02

68 percent of income growth is 68 percent of income growth is due to the top 10 percent of due to the top 10 percent of

counties with the largest counties with the largest increasesincreases

Source: BEA, REIS data

Economic gains are highly uneven in Economic gains are highly uneven in most statesmost states

Missouri


Ag Policy and Rural Ag Policy and Rural AmericaAmerica

Farm Dependent CountiesFarm Dependent Counties1.1. The rural economy is too diverse for ag policy to be effective The rural economy is too diverse for ag policy to be effective

“rural development policy.”“rural development policy.”

1950195019991999

Center for the Study of Rural America, FRBKCSource: USDA


2.2. Commodity payments do not spur rural economic Commodity payments do not spur rural economic growth.growth.

Top 25% of Counties Dependent on Farm Payments*Top 25% of Counties Dependent on Farm Payments*

Center for the Study of Rural America, FRBKC* Note: Based on 2000-2002 average.


2.2. Commodity payments do not spur rural economic Commodity payments do not spur rural economic growth.growth.


Zero to Average (19%)

Above Average (19-463%)

Negative Growth

Employment Growth, 1992-2002

*Note: Dependency determined by Farm Payments as share of Personal Income, 2000-2002 averageSource: Bureau of Economic Analysis, REIS


3.3. The Catch 22 of Ag Policy:The Catch 22 of Ag Policy:Commodity subsidies wed regions to commodities and thwart Commodity subsidies wed regions to commodities and thwart innovation.innovation.


Bottom 25% (-242 to 1)

50-75% (1-27)

Top 25% of counties (92 to 1790 est.)

25-50% (27 to 92)

Metro counties

Source: County Business Patterns 1990-2002

Change in Number of Establishments

What is rural What is rural

America’s challenge in America’s challenge in

the 21the 21stst Century? Century?


Globalization changing the rules Globalization changing the rules of the gameof the game

• Globalization of markets for goods, services, capital, Globalization of markets for goods, services, capital, and currencies…and currencies…

• Means commodity industries under intense cost Means commodity industries under intense cost pressures…pressures…

Be big or be gone.Be big or be gone.

• Widespread consolidation of activity…Widespread consolidation of activity…

• Especially in agriculture and manufacturing.Especially in agriculture and manufacturing.


Photo courtesy of USDA

25

30

35

40

45

50

55

1987 1989 1991 1993 1995 1997 1999 2001 2003

25

30

35

40

45

50

55

Percent

United States

Percent

Source: USDA

Brazil and Argentina

Share of World Soybean ProductionShare of World Soybean Production


Ag competition heating Ag competition heating up…up…

especially from South especially from South America.America.

Today’s Economic Today’s Economic Development ChallengeDevelopment Challenge

The vigorous pursuit of The vigorous pursuit of

a region’s competitive a region’s competitive

edge in rapidly edge in rapidly

changing global changing global

markets.markets.Center for the Study of Rural America, FRBKC

3 steps to regional 3 steps to regional competitiveness competitiveness

1.1. Understanding a region’s assets…Understanding a region’s assets…

2.2. Identifying its market opportunities…Identifying its market opportunities…

3.3. And a great strategy that exploits one to And a great strategy that exploits one to seize the other.seize the other.


To succeed, To succeed, two critical ingredients:two critical ingredients:

• The “ The “ fuel fuel ” of innovation.” of innovation.

• The “ The “ engines engines ” of entrepreneurs.” of entrepreneurs.


To compete, To compete, regions have two high regions have two high

callings:callings:1. Producing more innovation “fuel.”1. Producing more innovation “fuel.”

– One part One part researchresearch—going beyond basic —going beyond basic research to link research to regions. research to link research to regions.

– One part One part innovation capacityinnovation capacity——the the willingness and skill to be “change willingness and skill to be “change nimble.”nimble.”


2. Creating a world-class entrepreneurial 2. Creating a world-class entrepreneurial climate.climate.

– Creating the best possible seedbed in Creating the best possible seedbed in which entrepreneurs can sprout and grow.which entrepreneurs can sprout and grow.


To compete, To compete, regions have two high regions have two high

callings:callings:

Both ingredients depend on Both ingredients depend on skilled human capital…skilled human capital…

• To lead development efforts…To lead development efforts…

• To develop new technologies…To develop new technologies…

• To launch new companies…To launch new companies…

• To staff those companies.To staff those companies.


And strong partnerships. And strong partnerships.

GovernanceGovernance is a huge key to reinventing a is a huge key to reinventing a

region’s economy.region’s economy.

Making decisions as a Making decisions as a regionregion……

Instead of as independent jurisdictions.Instead of as independent jurisdictions.

There is no right way to get there…There is no right way to get there…

But status quo will not get you But status quo will not get you there.there.


The 3 “Points” of The 3 “Points” of PartnershipPartnership

How to Answer the How to Answer the

Challenge?Challenge?


How to answer the How to answer the challenge?challenge?

1.1. E-ship — E-ship — recruiting.recruiting.


How to answer the challenge?How to answer the challenge?

1.1. Increase E-ship — decrease recruiting.Increase E-ship — decrease recruiting.


RecruitmentRecruitment

RetentionRetention

EntrepreneurshipEntrepreneurship

Policy for Regional Competitiveness

RecruitmentRecruitment

RetentionRetention

EntrepreneurshipEntrepreneurship

Current Policy

Source: Dabson


2.2. Recognize and support “functional” Recognize and support “functional” economic regions. economic regions.

NW Missouri quest for “bio-pharming”NW Missouri quest for “bio-pharming”


NW Missouri Bio-PharmingNW Missouri Bio-Pharming

• Mother’s milk “immunities”—grown in rice & barley Mother’s milk “immunities”—grown in rice & barley at pennies on the $.at pennies on the $.

• 4,000 hectares of production.4,000 hectares of production.

• Horizontal partnership—university, private sector, Horizontal partnership—university, private sector, state and local government.state and local government.


3.3. Re-engage Higher EducationRe-engage Higher Education

• Past research focused on Past research focused on sectorssectors..

• New focus on linking to New focus on linking to regionsregions..



Purdue University’s Purdue University’s InnovationInnovation

A new V8 engine for the Hoosier state…A new V8 engine for the Hoosier state…

Discovery ParkDiscovery Park

And a new overdrive transmission…And a new overdrive transmission…

Office of EngagementOffice of Engagement

Center for Regional Center for Regional DevelopmentDevelopment


4. Realign Federal and 4. Realign Federal and Regional Roles. Regional Roles.

• The development landscape is no longer homogeneous—The development landscape is no longer homogeneous—

every region will have its every region will have its ownown development strategy. development strategy.

• FederalFederal officials become supporting actors— officials become supporting actors—

Federal policy enables, not Federal policy enables, not dictates.dictates.

• RegionalRegional officials become lead actors – officials become lead actors –

The owners & crafters of The owners & crafters of region’s region’s strategy. strategy.


Primary Federal RolesPrimary Federal Roles

1.1. Incentives for regional partnering.Incentives for regional partnering.

2.2. Investing in regional leadership capacity.Investing in regional leadership capacity.

3.3. Funding public goods in regions.Funding public goods in regions.

4.4. Investing in basic research.Investing in basic research.

5.5. Creating a national policy forCreating a national policy for

entrepreneurship.entrepreneurship.


Primary State & Local Primary State & Local RolesRoles

1. Building effective structures for regional governance.

2. Ensuring public/private partnering

3. Measuring and understanding regional assets.

4. Identifying regional competitive advantage.

5. Creating an entrepreneurial development system—regional in scope and systematic in approach.

6. Identifying innovations that leverage regional assets—

spatial linking of research.


ConclusionsConclusions

Globalization has had two profound effects Globalization has had two profound effects on the U.S. economy:on the U.S. economy:

1.1. Created uneven pattern of growth across Created uneven pattern of growth across regions.regions.

2.2. Created new drivers of growth:Created new drivers of growth:

• Innovation the fuel.

• Entrepreneurs the engines.


• Regional competitiveness is your new challenge. Regional competitiveness is your new challenge.

• Public-private, regionwide partnerships will be Public-private, regionwide partnerships will be critical to answering that challenge. critical to answering that challenge.

Who will be catalysts in helping these Who will be catalysts in helping these regions form…and in crafting new regions form…and in crafting new policies for regional development? policies for regional development?


Charting a New Course for Rural Charting a New Course for Rural AmericaAmerica

What will be your What will be your development development

agenda?agenda?

• In practice, recruiting remains the # 1 In practice, recruiting remains the # 1 economic development strategy.economic development strategy.

• However, globalization makes it However, globalization makes it expensive, and expensive, and muchmuch less effective… less effective…

Change is on the Change is on the horizon.horizon.


For further reading…

www.kansascityfed.org

charting a new course for rural america

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