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RURAL ECONOMIC DEVELOPMENT Remarks by Hugh D. Galusha, Jr. President Federal Reserve Bank of M inneapolis at the W es te rn States V eter ina ry Conference Las Vegas, Ja nuary 26, Nevada 1968 RURAL ECONOMIC DEVELOPMENT Hugh D. Galusha, Jr. When Don Shaffner invited me a year ago to speak to you, readily. He is a friend of many y e a r s ’ standing, mine had been a valued client. I accepted and in a former career of And a year is a long time. The topic, too, is an ap pea li n g one to a Federal Reserve banker coming from a six-state district that includes among the most rural states counted in a population d ist rib uti on sense in the United States. I must admit to some uneasiness wh en the program arrived and I read some of the seminar titles, v e r y few of whic h I understood even remotely. I was comforted, d e n t ’s message w h ich referred to the three R's restoration. though, -- rest, by the p r e s i relaxation, and For those of you who would prefer a topic more immediately consistent w ith the res toration part of your p rogram as he defined it, you may utilize the next twenty-five m inutes as part of your rest and relaxation, and catch up on your sleep -- which, afte r being in Las Vegas for a week, you proba bly need desperately. Instead of talking about isolated scene subject, --a I would like to talk about urban balance. This concept S. The rel ati ons hip of city is the essence of the new concept of r u r a l - is an ap pealing one in its imp lication that no segment of this country can be considered alone. replete w ith examples of programs without it as part of the total U. scene composed of city and country. and country economic de velopment single rural economic development as if it were an Our h i st ory is launched at social and ec onomic problems regard to the impact these programs are bound to have on other sectors. In solving one economic problem, a host of new ones fr eq uen tly created for the next generation; -- often worse -- are leading one w r it e r to the e x asp e r a te d comment that what we really need is a m o ra t o ri u m on solutions. There are ecological an artificial relationships in social and economic environments, and change injected into these environments can be as catastrophic to the balance of a society, as in a biologic sense an artificial be to the balance of nature. change can Just as in the biologic community there inevitably follows a period of readjustment of the species until a new e qu ili bri um is reached, so there follows a period of tension, and often plain human misery, changed economic and social A case can be made, until new points of balance are found in the environments. for example, that the ghetto is in substantial me asure the result of attacks on agricultural colleges and U. dislocation, S. agricultural problems. The land grant policies may have succeeded too well increasing the eff ici enc y and p roductivity of U. S. agriculture, in for one of the by-products has been the obs olescence of a large part of our rural population, who once found employment on farms n o w - t o o - s m a l 1 units, -- either their own or on someone else's. O ut -mig ra tio n from the rural areas into the cities has been an i n dividual response for many. eith er for the individual Unfort un ate ly this has not always been a solution or for society. ad equ ate for the last century, are Local governmental structures, showing a d istr ess ing tenden cy to come apart at the seams faced with the pressures of continuous population expansion. Pr ojected social into even the near term future, services are horren dou s to contemplate the city a hospitable the costs of providing adequate -- truly, place to live is a staggering one. 2. the task of making The o u t -m i g rat ion has hardly been a solution for the rural either. The loss of a po pulation base in the countryside around the small town has dislocated the fragile balance between the social supplied the larger area and its own economic vitality; differ ent pressures perhaps, but the same reasons, like their urban counterparts, ad equate community services the town so in response to these rural communities, are having their own problems providing services to their populations. It requires no straining of reason to observe that while the economic a d justment process we are going through may be solving some problems, also c reating other, and severity. it is dire ones in a geometric p rogression both of numbers Out of the public soul-searching these problems have prompted has emerged the rur al-urban balance concept as an element of public policy. This solution in simplified terms calls for the stemming of the migr at ion flow, if not the actual reversal of that flow, from the rural areas cities through the ab sor p t io n of the labor pool by the d ec e n tral iza ti on of industry. effect of into the in rural areas brought about This would, it is argued, have the 1) relieving the population pressures of cities and giving them time to alleviate their current problems, stimulus to the rural areas. and 2) providing an economic A final and central premise of this concept is that both public and private policy investment d ecisions so as to achieve a ru ral-urban balance. In recent times, there are in slow fashion, acted to de centralize the population. What This last point should be guided is new and d i f f e r e n t . some indications that natural economic forces have, industry and to a m i no r extent disperse the rural-urban balance concept suggests is that this shift toward d e c en t ra liz at ion should be activel y sought or even accelerated. 3. The " b a l a n c e 11, then, implies an evening out, throughout the entire nation, of the burdens and benefits of the growing urbanized society. The achievement of this balance has been gaining acceptance as a legitimate goal of national policy. In the last six months, several high level meetin gs have been held to deve lop some of the implications of such a goal. T hey have been truly ecumenical efforts of ag ric ulture and business leaders, wi t h the presence and leadership of Secretaries Freeman, T r owbridge to indicate the total concern of the federal When described in the wa y that I have r e alistically we place, learn that the concept it must be handled with care. is o b vio usl y not a cure-all In the first for many of the current in either the maj or cities or the rural areas. expe cte d to be much more Secondly, the concept of r u r a l - but whe n we look at it problems problems. government. just done, urban balance is one that can generate enthusiasm; Wirtz and Nor can it be than a long-run solution to a limited number of and more important, the sense of the rural-urban balance involves us in a new adventure with w h ich our country has had little e x perience; -- both capital that is, and human. w a rnin g the purposeful red istribution of resources When we start putting valves I started wi th has a special There are many balance. significance. limitations on how far we can push the idea of achieving G rowt h reflects in major part, advantages, relationships. resources, markets, In short, good, be o per ative sound economic forces: intra- and in ter -industry the many things necessary for econom ic e ffic ien cy were operat ive in the development of our cities, the ecological The rapid growth of the m aj or metro pol ita n centers did not happen by accident. locational in economic pipelines, in the future. 4. and they will continue to Econom ist s use the phrase, "neutral p r o je c t i o n s 1 freely translated, 1; this m eans that based upon present trends and conditions, momentum, left u n d i s t u r b e d , will the future. later. I have em phasized The neutral social and economic produce a reasonably predictable pattern in M left undisturbed", and I will return to it projections for the Ninth Federal Reserve District cate a growth in u r bani zat ion from 52.8% in 1960 to 59.9% in 1975. indi Contrasted w it h an urban concen tr ati on in 1960 of 70%, and a projected 80% in 1975 for the nation, this doesn't seem high; but included in the Ninth District are two states that are not yet 50% urban a whole country, in 1917. My point urban areas will areas for a complex va l i d it y --a point reached for the nation as is that w he th e r or not it is desirable for our continue to grow at the expense of the rural list of reasons, some of whi ch have had economic -- and this g rowth projection and its pattern can only be altered sign ifi can tly by changing in some way the factors causing it in the first place. Stopping, or even reversing in some measure, the flow from country to city is h ard ly an a n s we r in itself to the social and economic problems of the city s l u m - d w e l l e r . M any of these people have moved to the city because they were unable to cope w i t h the technological obviously, on an as-is basis, urban society where skill change in agriculture; they cannot easily fit into an industrial is at an increasing premium. M any of the t e chno log ic all y dis placed who remain in the rural areas are not better off, have and less visibility. in some cases their prospects are worse, It's hard to stage a riot in Lame Deer, Mon tan a that will attract much attention. for they No, h olding people on their farms, without 5. regard to the economic v iab i l i ty of these farms, farm" has enormous appeal exploration, is no solution. The in a country grap pl ing w it h geo-politics, space and other issues of like compl ex ity and unpleasantness, joining the words "family" and "farm" is a deceit. "family but A farm in our economic system of restrained capi tal ism properly should be thought of as a food fa ctory which, like any other industrial to remain solvent but to capital. To adjust our agricultural programs level on the farm would require affect the gains has to make mone y not only (a term as tricky to define as the "family farm"), attract human and financial poverty plant, to hold these people above the programs whic h would n ece ssarily in effici en cie s that we have seen in agriculture. I doubt very m uch that the A m er i c an urban society would accept a program of such a nature. One of the neutral balance projections of promise going for the rural-urban policy is the emergence of the economic potential interm edi ate -s ize cities, v el op men t is alre ad y set. for to a large degree, the pattern of such d e We know that ma ny industries or firms are not ec o n om i c al ly tied to specific locations, cation w i t h in broad geog rap hi c regions. relocate of some of our if they are given sufficient but are fairly flexible as to l o They can and would de cen tralize or incentive. On the other side of the coin, we also k n o w that there are m any more communities than potential firms capable of decentralizing. We are also fairly certain that a kind of di s e c on o m y of scale exists among cities. The largest cities have e ssentially reached the point of increasing per unit costs, and the costs associa ted with additional then, population exceed what the c i t i e s 1 resources can bear. is the ap pro priate But what, size community to become a critical economic mass, to paraphrase a term of my physicist friends, w ithout n ec e ssar ily adding to the critical social mess of our largest cities? Stated differently, at what level does economic g rowth become s e l f -generating without bec omi ng a social cancer? There is no easy answer, ec onomic studies of city services. that the m i nimu m efficient mental units, al tho ugh we can get some idea from the For example, size high school, is one that graduates at g r aduating class w hich wou ld least one of our maj or local g o v e r n 100 students per year - - a require a population of about Other studies indicate that the efficient as health, James Conant estimated 10,000 people. provision of public services such police and fire protection requires community populations of at least 50,000 and probably up to 100,000 persons. Unless mo dif ied in some way, the maj or beneficiaries of a policy of r u ral-urban balance proba bl y would be the intermediate m e t r o p o l it a n areas. smaller These are the communities that have the basic size qualities necessary to achieve industrial growth. Midwest come to mind as examples. Dakota; Great Falls and Billings Washington; size cities and Many cities in the Upper There are Fargo and Bismarc k in North in Montana; just to m e n ti o n a few. And Duluth, Minnesota; Spokane, let me hasten to add that I am not r eferring to the city limits but to met ro p ol i t an areas probably better defined in terms of reasonable com muting distan ces Out of this development, we may expect ne ce ss a r i ly in the sense of new cities, of existing communities, rather than political boundaries. to see new met rop ol i ta n areas, but not in the sense of conglome rat ion s or what are probably inappr opr iat ely called, "strip cities". This means, of course, that the problems facing ma ny of the smaller towns are not going to go away without assistance. ready feel in terms of economic The pressures they a l stagnation and diffi cul tie s 7 in providing the n ec ess ary services for those who remain will continue to exist. pr ojections are hard ly reassuring for these communities. share in the economic growth rate of the U. The neutral If they are to S. as a whole, something new has to be added to alter the neutral projections. What we are really talking about in implementing a better r u r a l - urban balance is the creation of a way to alte r the traditional a ll ocation of productive resources. It would involve the shifting of labor and capital to locations other than those to w hic h they would now move or develop. specifically, we are calling for the m ovement of capital More to the labor resource. Unfortunately, we k n ow v e r y little about the economic effect of such a r e distribution; hidden, but one thing is certain to any m ovement of resources. resident participated supplies. For example, in the agricultural severely racked our rural areas, food -- there is a cost, much of w h i c h is To be sure, until recently the urban resource adjustment that has so pri marily through ample and relatively cheap farm programs raised taxes to a modest extent. The full cost of the farm adjustment process, however, is still to be extracted, and part of that imagined. So w he n we em bark on a new progra m designed to reallocate resources, we must be prepared tab is desc en din g on the city in forms never to pay the cost. know in q uantitative terms. What are the costs? We can get some ideas, I don't think we however. For instance, each time an individual moves from the rural areas to the city, the cost of public costs vary services ass oci ate d wi th him is also transferred. by community, and p r esum abl y they are than in the larger city. lower in the intermediate We can also assume that they are size cities than in the small These rural community, 8 size community lower in intermediate althoug h the case is not quite so clear. On the other hand, we do not know the precise nature of the impact of increased ind ust ria liz at ion and population on the fixed plant schools, hospitals, utilities - -- in terms of scale. Obvi ous ly we need to evaluate the overall effect on the nation's economy. For instance, it would be of no long-run benefit to reallocate resources in such a way as to shut off or impede national through national growth that we are able to achieve in economic welfare. Stated differently, growth, for it is regional growth and gains achievement of rural-urban balance must not come at the expense of economic eff ici enc y and production. E s p e c ia l l y in relation to world markets. The strength of our ec onomy still lies in its ability to provide goods to our domestic e conomy at the lowest possible prices, as well as remaining competitive the a l l oc a t io n of resources involves mu ch more p roblems of our cities and countryside. r a mif ica tio ns that Perhaps in world markets. Thus, than a solution to the One must consider the broader it would have on the m any sectors of our economy. this sounds less than en thusiastic see m uc h in the rural-urban balance concept. trying to say is that -- that I really d o n ’t This is not true. there are really no simple What I am solutions to the problems we face today, and we can no longer afford to leap wi thout a long look at where we might land. The r ural-urban balance concept as a national m o di f i ca t i on s policy implies some in the ec onomic processes of both private and public sectors of the e c o nom y if economic growth is to be spread around. of " b a l a n c e 11, just as the achievement of other national as "full employment", "reasonable price The achievement policy goals such levels" and "economic growth", will require consciou sl y dir ect ed public-private effort to encourage decisions 9. co nsistent with the objective. b e comi ng aware of the social planning. Major U. of the game The private sector on a national costs and benefits involved level is in corporate S. corporations are becoming very mu ch aware of the name -- Survival. A failure to become involved in the social planning process is to surrender the political, economic and social value our co unt ry -- a system in delicate balance system of right now. Quite obviou sly the same considerations must e nter decisions to invest public moneys. neutral It is impossible to think that spending by government in economic terms, spending, and that the sheer size of direct government along with o ther governmental influence on investment decisions, has no effect on the a lloc ati on of resources. can or should act To believe that the government in such a ma nner as not to interfere with the structure of the e c on o m y is simply h iding from the realities of life. that the government does actions is loom large in our economy, Ac cepting the fact it follows that public should be c onsidered with respect to their impact on the various regions of the nation. Again, of this fact at the federal spending activities. may I add quickly, that there is recognition level, and actions are being taken to coordinate General acceptance by Congress of the rural-urban balance concept will assure g reater coo rdination and become an integral of the governmental I have because said d e ci s io n-m aki ng process. little about the specific tools of economic growth there are no new ones necessary. Education, programs have been used as instruments of national V o c a t i o n a l -technical -- mostl y tax incentives, and credit policy for years. educ ati on programs to train or retrain unskilled people; tax incentive programs on the federal level to shift part of the cost of bu ilding plants in areas outside the normal part 10 investment parameters -- areas like the ghettos in the individual belongs; largest cities or untried companies to society as a whole, where sector by guaranties or participations; a p pl i c ati ons being considered on a national increment role for those out w h er e the action ec onomic growth, their part. levels, First on the local of your intentions. in w hi ch growth can occur. is an absolute ne cessity and the best way There are other tools, b roadly defined, I suspect, locator the seriousness like an inventory of the that can be used only by the people who are t h e r e ; the others require national effort, partly by the nature of the tools, because there is a vac uum most places at the state anc It need not be, but it is there, in glossing over the fact. get the feeling we have two communities An area must want list of tools is a political aw areness and I k no w of to indicate to yourselves and the plant levels. is an essential and the people in it must be w illing to pay, and play, Mo de r ni z a t i o n of local government and partly, there inevitably must be. a desire to create a local environment community, these are some of the level. But wh ate ve r h appens at these exalted served the social -- from credit programs designed to equalize credit ava ila bil ity through the private regional rural areas and no useful purpose is In looking about the Ninth District, recreated the city-states of ancient Greece. I To get to submerge their individual objectives for the greater good of a state or a region is not much eas ier than it was for Athens and Sparta, even if you have a taste for hemlock. The strength of the rural-urban concept we citizens of the United ap art hei d make no more States is its rejection of the view live in compartments. sense than racial apartheid. 11. Economic and political Rural A mer ica and urban America, for all their differe nce s -- m any of w hic h are w or t h preserving, incide nt all y -- have m an y things in common, T h e y do interact, constructively. and these linkages must be understood and used It is w it h this in mind r u ral-urban balance as a national first of w h ic h is survival. I can become enthused about objective 12. in planning econimic growth.