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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.