Can Small Places Compete? - Wednesday Wrapup Feb. 10, 2021

Why rural places understand interconnectedness; we need better tech to target spending programs; and some new industry research

1. Can Small Places Compete?

My most memorable lesson in global economics came in an unlikely place - the most rural county in Ireland.

I’d stopped over on a European work trip to visit the Leitrim/Sligo border my grandmother had left seven decades before. Word got around the town of 1,300 that some American was asking questions at the three local pubs. Dermot, a half-retired farmer who had briefly been a neighbor to my grandparents in New York City, offered to show me around the overgrown gravel paths that snaked past abandoned stone cottages in some ancient logic even Google Maps couldn’t quite crack.

Leaning against a rusted out ’80s model Datsun outside a cowshed-turned-mechanic’s shop, Dermot pointed across the road. A tall man shouted obscenities, his face turning red and sweaty strands of white hair flopping from under his flat cap as he tried to direct three dozen or so sheep through a field gate.

“Sure,” Dermot said. “It’s Ramadan.”

It took me a while to piece that together, but it made perfect sense. Thirty or so years of Middle Eastern migration to major European cities had now led to a spike in the demand for lamb for Ramadan ceremonies which made a busy May for the local sheep farmers. That new market had created the peculiar awareness of Muslim religious calendars here in the very Catholic, very isolated valleys of northwestern Ireland.

Small places have always been more aware of international interdependence than larger ones. An island of 6 million will have to seek export markets to survive. That’s one reason public opinion toward the European Union is much more favorable in Ireland (pop. 4.9 million) compared to the UK (pop. 67 million). Still, thanks to mechanization, agricultural exports can’t always support a growing community. Leitrim, an extreme example of rural depopulation, has shed 80% of its population since the Famine of the late 1840s, declining each decade from a peak of 155,000 to 25,000 in 1996. Today, after a drop in emigration, an increase in immigration from Eastern Europe, as well as a resurgence in tourism around its lakes, about 32,000 people call the county home.

There’s nothing quite comparable to the demographic shock of famine and outmigration in the recent history of the United States. But it’s worth considering that more than half of US counties (1,661 or 53%), most of them rural, have lost population since 2010. As in Leitrim, some areas with natural amenities like lakes and mountains have attracted retirees, and immigration from Mexico and Central America has kept some agricultural towns from going under. But the long-term trend remains the same. The last time a majority of Americans lived in rural or small-town areas was 1940.

Nowhere is this pattern clearer than in West Virginia. Emily Badger’s article this week in the New York Times dives into the state’s economic history. The state’s coal mines quite literally powered the American economy in the 20th century, but much of the wealth generated there has concentrated in out-of-state companies who owned the mineral rights. More broadly, redevelopment and revitalization in the state has been hard to come by. As one developer notes, “scale” works against rural places. Denser populations help businesses attract more customers, a cycle that builds on itself.

But there are benefits to the more direct and personal connections that come with a smaller-scale economy as well. While West Virginia ranks close to the bottom of a lot of economic and health metrics, the vaccination roll-out in the state has been one of the best in the country. Some experts have attributed that to the network of small-town pharmacies with deep connections to their customers. That type of connection is worth preserving.

Economists and policymakers are paying more attention to the economic future of rural places these days. In the US, the 2016 election revealed that long festering divides in economic outlook had hardened political divides. The early parts of the COVID-19 pandemic seemed to reveal vulnerabilities in the high-density urban environments where high-tech talent had been flocking since the 1990s. And though the epicenter of the virus has shifted with time to rural areas as well, the rise of remote work will increase interest in small-town living for at least a subset of newly mobile young professionals.

All of this adds a social imperative, along with the economic evidence I wrote about last week, for regions to focus on attracting talent rather than just new businesses. If talent can choose where to live, why not choose a rural area? The challenge then becomes, how do we make sure this new professional workforce is additive, and not extractive, for the rural areas to which they move?

Importing wealth will create jobs in service industries, which will certainly help unemployed workers there, but resort-style “zoom towns,” while preferable to the environmental degradation of strip mining, may do little to lift basic industries within these rural areas. While families with large land holdings do well through subdividing land and renting buildings, long-term dynamism is a more difficult puzzle.

With a split Senate, and centrist Democrat Joe Manchin of West Virginia holding the tie-breaking vote, West Virginians are hopeful that their state will get more attention from Washington in the next two years. If this clout focuses on infrastructure repair and renewal, the state will be better for it. An expanding definition of infrastructure to include broadband as well as roads and tunnels, could help rural areas adjust to an increasingly digital economy.

Economists tend to be pessimistic about the prospects of small places. But the fact is, we’ve always relied on small places to feed us and power our lifestyles. While firms can leave some places behind, governments and societies cannot afford to. Making rural areas better places for people to live is a worthy policy goal.

2. Better Tech for Better Targeting

The CARES Act, expanded unemployment insurance, and all of the other COVID relief efforts of 2020 were uniquely universal. The need for speed in getting money to laid off workers and others who were struggling outweighed the extra money spent on stimulus checks to mid-to-high-wage workers securely in work-from-home jobs.

With a new $1.9 trillion stimulus package on the way, and other spending programs like student loan forgiveness catching the attention of lawmakers, there’s a renewed focus on making sure the beneficiaries of those programs are those who truly need the money. With unemployment now hovering around 6%, comparable to summer 2015 levels, and a clear “K-shaped” recovery accelerating inequality, the case for universal payments is less pressing.

At the same time, outdated data systems can leave some needy people off of the radar, which makes targeting less effective. This is truer in some states than in others. Ultimately, there’s a trade-off between too tightly targeting programs, which could lead to people who qualify not getting the aid they need, and too loosely or universally targeting programs, which will mean people who don’t really need the aid will get it. Historically, the US has taken the more targeted approach, but universal proposals, particularly pushes for Universal Basic Income, are gathering strength. The pros and cons of such proposals can be debated.

Often overlooked in the targeting vs. universal debate are the technological challenges that make targeting difficult. Older data systems prone to bugginess and human error can have ripple effects across all types of functions. State unemployment systems that were still using COBOL, a 50-year-old programming language, buckled under the weight of a sudden influx of claims last spring.

If we want truly targeted spending programs, we need the technology to truly target.

3. EXTRAS

• My Charlotte Region readers will be interested in the latest quarterly Growth Report from the Charlotte Regional Business Alliance. My team released last Wednesday at the Alliance’s Investor Quarterly Meeting. Overall good news for the Charlotte Region, with Q4 2020 representing the second quarter of recovery. A strong financial services sector has supported some other sectors like Construction and Professional Services. Still, hospitality and leisure has suffered and is likely to continue to lag until vaccinations reach a tipping point.

• Other research includes a brief look at the aviation sector and the impact of regional airports on the local economy. Hint: It’s a big number.