Charting a New Course for Rural America

1. 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 www.kansascityfed.org Center for the Study of Rural America, FRBKC

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

3. Overall, economic gains uneven across rural America. Rural Employment Growth 1992-2002 MSA High Growth Low Growth Calculations based on BEA, REIS data Center for the Study of Rural America, FRBKC

4. Economic gains are highly uneven in most states Contribution to Statewide Income Growth 1992-02 68% 32% Top 11 Counties Remaining 104 Counties Income 1992 to 2002 Missouri 68 percent of income growth is due to the top 10 percent of counties with the largest increases Center for the Study of Rural America, FRBKC Source: BEA, REIS data

5. 1999 1950 Ag Policy and Rural AmericaFarm Dependent Counties • The rural economy is too diverse for ag policy to be effective “rural development policy.” Source: USDA Center for the Study of Rural America, FRBKC

6. Ag Policy and Rural America • Commodity payments do not spur rural economic growth. Top 25% of Counties Dependent on Farm Payments* * Note: Based on 2000-2002 average. Center for the Study of Rural America, FRBKC

7. Ag Policy and Rural America • Commodity payments do not spur rural economic growth. Employment Growth, 1992-2002 Negative Growth Zero to Average (19%) Above Average (19-463%) *Note: Dependency determined by Farm Payments as share of Personal Income, 2000-2002 average Source: Bureau of Economic Analysis, REIS Center for the Study of Rural America, FRBKC

8. Ag Policy and Rural America • The Catch 22 of Ag Policy: Commodity subsidies wed regions to commodities and thwart innovation. Change in Number of Establishments Top 25% of counties (92 to 1790 est.) 25-50% (27 to 92) 50-75% (1-27) Bottom 25% (-242 to 1) Metro counties Source: County Business Patterns 1990-2002 Center for the Study of Rural America, FRBKC

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

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

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

12. 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

13. 3 steps to regional competitiveness • Understanding a region’s assets… • Identifying its market opportunities… • And a great strategy that exploits one to seize the other. Center for the Study of Rural America, FRBKC

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

15. 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

16. To compete, regions have two high callings: 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

17. Both ingredients depend on skilled human capital… • To lead development efforts… • To develop new technologies… • To launch new companies… • To staff those companies. Center for the Study of Rural America, FRBKC

18. 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

19. The 3 “Points” of Partnership

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

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

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

23. 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

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

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

26. 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

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

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

29. Primary State & Local Roles • Building effective structures for regional governance. • Ensuring public/private partnering • 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

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

31. Charting a New Course for Rural America • Regional competitiveness is your new 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

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

33. For further reading… www.kansascityfed.org