Charting a New Course for Rural America Mark Drabenstott Vice President & Director Center for the Study of Rural America Federal Reserve Bank of Kansas City Center for the Study of Rural America, FRBKC

Three key questions for today: 1.Is the current course working? 2.What challenges must be met? 3.How to answer these challenges? Center for the Study of Rural America, FRBKC

High Growth Low Growth MSA Rural Employment Growth Overall, economic gains uneven across rural America. Calculations based on BEA, REIS data Center for the Study of Rural America, FRBKC

Income 1992 to 2002 Top 11 Counties Remaining 104 Counties 68% 32% Contribution to Statewide Income Growth percent of income growth is due to the top 10 percent of counties with the largest increases Source: BEA, REIS data Economic gains are highly uneven in most states Missouri Center for the Study of Rural America, FRBKC

Ag Policy and Rural America Farm Dependent Counties 1.The rural economy is too diverse for ag policy to be effective “rural development policy.” Center for the Study of Rural America, FRBKC Source: USDA

Ag Policy and Rural America 2.Commodity payments do not spur rural economic growth. Top 25% of Counties Dependent on Farm Payments* Center for the Study of Rural America, FRBKC * Note: Based on average.

Ag Policy and Rural America 2.Commodity payments do not spur rural economic growth. Center for the Study of Rural America, FRBKC Zero to Average (19%) Above Average (19-463%) Negative Growth Employment Growth, *Note: Dependency determined by Farm Payments as share of Personal Income, average Source: Bureau of Economic Analysis, REIS

Ag Policy and Rural America 3.The Catch 22 of Ag Policy: Commodity subsidies wed regions to commodities and thwart innovation. Center for the Study of Rural America, FRBKC 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 Change in Number of Establishments

What is rural America’s challenge in the 21 st Century? Center for the Study of Rural America, FRBKC

Globalization changing the rules of the game Globalization of markets for goods, services, capital, and currencies…Globalization of markets for goods, services, capital, and currencies… Means commodity industries under intense cost pressures…Means commodity industries under intense cost pressures… Be big or be gone. Widespread consolidation of activity…Widespread consolidation of activity… Especially in agriculture and manufacturing.Especially in agriculture and manufacturing. Center for the Study of Rural America, FRBKC

Photo courtesy of USDA Percent United States Percent Source: USDA Brazil and Argentina Share of World Soybean Production Center for the Study of Rural America, FRBKC Ag competition heating up… especially from South America.

Today’s Economic Development Challenge The vigorous pursuit of a region’s competitive edge in rapidly changing global markets. Center for the Study of Rural America, FRBKC

3 steps to regional competitiveness 1.Understanding a region’s assets… 2.Identifying its market opportunities… 3.And a great strategy that exploits one to seize the other. Center for the Study of Rural America, FRBKC

To succeed, two critical ingredients: The “ fuel ” of innovation.The “ fuel ” of innovation. The “ engines ” of entrepreneurs.The “ engines ” of entrepreneurs. Center for the Study of Rural America, FRBKC

To compete, regions have two high callings: 1. Producing more innovation “fuel.” –One part research —going beyond basic research to link research to regions. –One part innovation capacity— the willingness and skill to be “change nimble.” Center for the Study of Rural America, FRBKC

2. Creating a world-class entrepreneurial climate. –Creating the best possible seedbed in which entrepreneurs can sprout and grow. Center for the Study of Rural America, FRBKC To compete, regions have two high callings:

Both ingredients depend on 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. Center for the Study of Rural America, FRBKC

And strong partnerships.  Governance is a huge key to reinventing a region’s economy. Making decisions as a region … Instead of as independent jurisdictions. There is no right way to get there… But status quo will not get you there. Center for the Study of Rural America, FRBKC

The 3 “Points” of Partnership

How to Answer the Challenge? Center for the Study of Rural America, FRBKC

How to answer the challenge? 1. E-ship — recruiting. Center for the Study of Rural America, FRBKC

How to answer the challenge? 1.Increase E-ship — decrease recruiting. Center for the Study of Rural America, FRBKC Recruitment Retention Entrepreneurship Policy for Regional Competitiveness Recruitment Retention Entrepreneurship Current Policy Source: Dabson

How to answer the challenge? 2.Recognize and support “functional” economic regions. NW Missouri quest for “bio-pharming” Center for the Study of Rural America, FRBKC

NW Missouri Bio-Pharming Mother’s milk “immunities”—grown in rice & barley at pennies on the $.Mother’s milk “immunities”—grown in rice & barley at pennies on the $. 4,000 hectares of production.4,000 hectares of production. Horizontal partnership—university, private sector, state and local government.Horizontal partnership—university, private sector, state and local government. Center for the Study of Rural America, FRBKC

3.Re-engage Higher Education Past research focused on sectors.Past research focused on sectors. New focus on linking to regions.New focus on linking to regions. Center for the Study of Rural America, FRBKC How to answer the challenge?

Purdue University’s Innovation A new V8 engine for the Hoosier state… Discovery Park And a new overdrive transmission… Office of Engagement Center for Regional Development Center for the Study of Rural America, FRBKC

4. Realign Federal and Regional Roles. The development landscape is no longer homogeneous—every region will have its own development strategy.The development landscape is no longer homogeneous—every region will have its own development strategy. Federal officials become supporting actors—Federal officials become supporting actors— Federal policy enables, not dictates. Regional officials become lead actors –Regional officials become lead actors – The owners & crafters of region’s strategy. Center for the Study of Rural America, FRBKC

Primary Federal Roles 1.Incentives for regional partnering. 2.Investing in regional leadership capacity. 3.Funding public goods in regions. 4.Investing in basic research. 5.Creating a national policy for entrepreneurship. entrepreneurship. Center for the Study of Rural America, FRBKC

Primary State & Local Roles 1. 1.Building effective structures for regional governance Ensuring public/private partnering 3. 3.Measuring and understanding regional assets Identifying regional competitive advantage Creating an entrepreneurial development system— regional in scope and systematic in approach Identifying innovations that leverage regional assets— spatial linking of research. Center for the Study of Rural America, FRBKC

Conclusions Globalization has had two profound effects on the U.S. economy: 1.Created uneven pattern of growth across regions. 2.Created new drivers of growth: Innovation the fuel. Entrepreneurs the engines. Center for the Study of Rural America, FRBKC

Regional competitiveness is your new challenge.Regional competitiveness is your new challenge. Public-private, regionwide partnerships will be critical to answering that challenge.Public-private, regionwide partnerships will be critical to answering that challenge. Who will be catalysts in helping these regions form…and in crafting new policies for regional development? Center for the Study of Rural America, FRBKC Charting a New Course for Rural America

What will be your development agenda? In practice, recruiting remains the # 1 economic development strategy.In practice, recruiting remains the # 1 economic development strategy. However, globalization makes it expensive, and much less effective…However, globalization makes it expensive, and much less effective… Change is on the horizon. Center for the Study of Rural America, FRBKC

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