Do We Need Place-Based Policy in the New Rural Economy? Symposium PSDR 3 Les chemins du développement territorial 19, 20, 21 juin 2012 Clermont-Ferrand.

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Do We Need Place-Based Policy in the New Rural Economy?

Symposium PSDR 3Les chemins du développement territorial

19, 20, 21 juin 2012Clermont-Ferrand

Mark D. PartridgeSwank Chair in Rural-Urban PolicyThe Ohio State University

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Introduction

• If the world is globalizing and factors are more mobile, regional policy takes on added importance (Thisse, 2010).

• In a global setting, small gaps in competitiveness will lead to magnified factor movements, creating big winners and big losers. Getting it right matters more than ever! And it means regional/territorial policy is where it is at.

• Yet, does “Place-Based” policy put us on the winning side or does it divert resources from productive endeavors that hurt regional competitiveness.

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Outline• A MAJOR problem is the media, politicians, and

far too many academics confuse the landscape with the workings of a region’s/area’s economy. This view is often backward looking, confusing the economy of 1950 with today.• Labor-saving technological change has long reduced

the size of the rural primary sector.• What has replaced the primary-sector dominated

rural economy is large rural/urban regions centered around urban anchors.

• Despite this transformation, “modern” rural policy too often facilitates sectoral rent seeking.

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Outline

• Rather than a “rural” and an “urban” policy, we need regional policies that reflect the reality of their shared dependence.– Governance that reflects the blurring of urban and

rural. This need applies even within agricultural production with factors such as local foods (Wallet and Torre, 2011).

• Governance that reflects each country’s relationship between the national and local state—e.g., a central nation like France vs. a decentralized nation like Germany.


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Outline

• Rural place-based policy is important due to the disproportionate share of poor rural regions and the high expenditures on key rural sectors.

• Rural place-based policy as practiced today is generally inconsistent with the realities of 21st Century rural economies in developed countries.

– Though my focus is the USA, I will discuss European examples and provide lessons from North America.

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Define Policy Typology

• Development– People maximizing utility. – Satisfaction is V(ECON, AMENITY, QoL)– People vote with their feet to best location.– I believe economic development is necessary

condition or place will turn into a nature preserve.• Though economics is necessary, people trade

off non-monetary QoL with income.– In the US, this has been weather or landscape.– In EU, this trade off culture or family with economy.– In China, economic conditions have dominated.– Policy should reflect the desires of the people. 6

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•People-based policies target the people by improving their social and human capital—i.e., training, education, better mobility (Bolton, 1992; Winnick, 1966). Spatially neutral as World Bank (2009) called it.•Sectoral policies are aimed at helping targeted sectors/firms. Often clusters fall in this rubric. Other examples are farm supports, support for high technology firms, etc. Picking winners.•Place-based policies are aimed at particular places—infrastructure, targeted training for that location, better governance, support of SMEs in that location.

•Regional and/or territorial policies.

Define Policy Typology

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Rural Myths of Sector Policy: And What’s Really Happening in 21st Century America

1950 Myth: rural areas are only natural resource based• Example using 2005 data:• The Nonmetro share of personal income accounted for by

earnings primary sector farmers + mining (including oil) + food procession/beverage manu +petro&coal manuf = 6.7%

• 1.8% in Mining + petro+coal manuf • The METRO share of personal income accounted for by

earnings in finance & insurance = 6.7% + real estate = 8.5% • BUT IS URBAN POLICY THE SAME AS GIVING SUBSIDIES TO

FINANCIAL SERVICES SECTOR?• See the discussion in Wallet and Torre (2011, p.19)

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Agricultural Employment Shares in Metropolitan & Nonmetropolitan Areas

Source: U.S. Bureau of Economic Analysis, Regional Economic Information System. Available at www.bea.gov, accessed October 15, 2009.

http://www.bea.gov/

US Farm Employment as a Percentage of Total Employment

0

2

4

6

8

10

12

Total Metro Nonmetro

%

2002 1981Farm employment comprises of farm wage and salary employment and farm proprietors employment

US Share of Agricultural Inputs Employment as a Percentage of Total Employment

0

0.2

0.4

0.6

0.8

1

1.2

1.4


%

2002 1981Agricultural inputs comprises of agricultural chemicals, farm machinery and equipment, farm supply and machinery wholesale trade, and commodity contract brokers

US Agricultural Processing and Marketing Employment as a Percent of Total Employment

0

1

2

3

4

5

6

7


%

2002 1981

Agricultural processing and marketing comprises of meat products, dairy products, canned, frozen and preserved fruits and vegetables, grain mill products, bakery products, sugar and confectionery products, fats and oils products, beverages, miscellaneous food preperation and kindred products, tobacco products, apparel and textiles, leather products and footwear, packaging, farm-related raw materials and wholesale trade, and warehousing

Plains States Engines of Growth>500k Population

1990-2000 Population Growth by County

Percent of Local Labour Force Commuting to Winnipeg CMA—CCS Level Data

19

19661969

19721975

19781981

19841987

19901993

19961999

20022005

200802468

101214161820

Agricultural Employment Shares -- FTE

Austria France Italy Netherlands Norway

Perc

ent

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What about neo-sectoral policies?•Using environmental policy as a regional development policy is misguided. This lead to the old “instrument problem” of using one policy to manage 2 objectives.•So called “green jobs” strategies may serve an environmental purpose.•But they too suffer from supporting a capital-intensive sector (not jobs) and vulnerable to sectoral rent seeking. A weak economic development strategy.

•Related “bad” policies focus on export sectors and not on regional productivity. Export led growth has long been the mainstay of the rural economy (agriculture) and it has not been the road to prosperity (Kilkenny and Partridge, 2009).

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How does this fit into multi-functionality and rural cultural heritage?

• Of course, a key feature of the EU CAP and rural development in the EU is supporting agri-environmental services to support a nice landscape, biodiversity, cultural heritage, and clean environment.– These seem to be worthwhile goals but are they economic

development?– Depends. Needs to be weighed against the opportunity

costs. Would doing another policy result in more jobs? If so, then subsidizing farmers is not rural development but a different policy (Partridge et al., 2009).

– Good intentions is not the same as creating economic opportunities.

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Symposium PSDR 3Les chemins du développement territorialImplications

• Rural economies have fundamentally changed from a primary sector economy to one based on rural-urban interdependence.

• When there are spillovers, economists argue that they should be internalized. Hence, economic development policies should be done across the affected region, not in a piecemeal fashion of competing rural and urban self-interests.

• It should not facilitate sectoral rent seeking in the guise of rural or regional development.

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What is good rural strategy?• The 2009 World Bank Report argues for spatially neutral

policies. Supporting lagging regions shifts resources from more productive core regions to less productive lagging regions (Glaeser, 1997; Glaeser and Gottlieb, 2008). • Political economy concerns in which politicians claim they are

creating jobs and sector rent-seeking.• See Rodríguez-Pose (2010); Barca (2009); OECD (2009) for

critiques of WDR. • Sorting arguments against place-based policy is people

with less labor market attachment self-sort to live in poor places. Hence, policy will be ineffective (Gibbons, S., H.G. Overman, and P. Pelkonen, 2010). • In a U.S. context, migrants/commuters will take the new jobs.

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What is good rural strategy?• Partridge and Rickman (2006, 2008) argue that a

necessary but not sufficient condition for place-based policy to be effective is relatively low labor mobility. Then intended targets for policy will receive the benefits if the policy is successful. • Partridge and Rickman (2006, 2008) argue that sorting

is not a major policy constraint in remote U.S. regions. Poverty is highly responsive to job growth and labor supply is less elastic in response to demand shocks. Hence, original residents gain jobs.

• Lower mobility rates in Europe mean place-based policy is potentially even more effective.

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What is good rural strategy?• Place-based policy can work but it has many

shortcomings that need to be addressed:– Recognize rural areas are heterogeneous

• In the USA: amenity rich, urban adjacent, and remote rural that fits the stereotype.

• In EU, urban, intermediate (peri-urban), rural, with emerging amenity led growth that mimics USA.

– Place tailored to reflect that certain policies may work in some places but not others– • Stephens and Partridge (2011) find SME policy works in

Appalachia. • Amenities facilitate high human capital strategies in

rural areas (McGranahan et al., 2010).

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What is good rural strategy?–Governance reform to shift from separate

farm/rural/urban policies to a regional policy.• Policy goals include: Tax sharing, planning and

management of the rural-urban fringe, environmental protection, infrastructure; economic development for regions.

• Key issue is how to get all actors to participate and believe their input is valued. Leverage local social capital and networks to promote good governance (Natcher and Olfert, 2012). If not, mainly sectoral actors will participate to seek rents.

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What is good rural strategy?• Torre and Wallet (2005) describe the difference

between geographical and organized proximity, which affects governance arrangements.• A goal is to bridge rural & urban communities.

• Related to this is how far to proceed with the growth center-growth pole approaches of Perroux, Myrdal, and Hirschman.

• Weigh spread and backwash effects. • Partridge et al (2007) contend spread is the dominant

feature in modern regional economies.

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What is good rural strategy?

• To avoid sectoral rent seeking, the roles of powerful lobbies need to be considered.–Should rural policy be conducted by

Ministries of Agriculture or in Ministries of Regional Development?

–Treat all businesses alike and avoid “picking winners.”

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What is good rural strategy?• Knowledge is key to future productivity.

– Smart strategies can work but need to be tailored for rural areas to focus on workforce development and medium levels of education.• E.g., innovation strategies are ineffective in lagging regions

because they lack capacity (Shearmur, 2010; Rodriguez-Pose and Crescenzi, 2008; Capello).

• A key problem is that government agencies lack capacity to understand local economies.

• Another problem is politicians resist policies that will not let them reward sectoral political allies or pick winners.

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Les chemins du développement territorial

Conclusions• Rural policy is too often a misguided mixture of

policies aimed to support sectors and policies that do not recognize the reality that rural and urban areas have self-formed into geographically large regions.

• Place-based policy faces numerous barriers that limit its effectiveness. My thinking on the viability of place-based policy has sobered in recent years.

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Conclusions• Perhaps we should less of government and rely more on

the talents of the residents. If gov’ts became more effective at providing services at low costs to improve the business climate and the quality of life of their residents—the highest profit firms will rise to the top.– This further justifies the need to get governance correct. – My research suggests great policy is ineffective if places lack

capacity and governance (Lobao et al., 2012).• Picking winners shifts resources from the more

productive firms to politically favored firms (Glaeser and Gottlieb, 2008; Partridge and Olfert, 2011).

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slides or download from:

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Appendix Slides

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1881 1891 1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001

Year

Percentage of Canadian Urban, Rural Farm and Rural Nonfarm Population 1881-2001

Rural Non-Farm Rural Farm Rural Urban

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% Employ. in Rural & Small Town Ontario, 2004

% Other Primary

% Agriculture

%Manufacturing

0

2

4

6

8

10

12

14

16

18

20

% T

ota

l E

mp

loym

en

t

Source: Statistics Canada. 2004 Industries classified by NAICS codes.

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Total carbon emissions per kWh generated by energy source

0

0.5

1

1.5

2

2.5

2.082

1.244

0.0340.03600000000000

03 0.092 0.0280.07800000000000

020.03000000000000

02

Life Cycle Emission Rates (lbs CO2/kWh)

Note: Life cycle emissions rates includes the total aggregated emissions over the life cycle of the fuel to include extraction, production, distribution, and use.

Source: Meier, 2002. http://cpsenergy.com/files/STP_Univ_Wisc_energy%20_comparison.pdf

http://cpsenergy.com/files/STP_Univ_Wisc_energy%20_comparison.pdf

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Energy production costs by energy source

Coal Natural Gas Nuclear Hydroelectric Biomass Wind Solar Geothermal0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

10.04 8.31 11.90 11.99 11.1014.93

39.61

11.57

2016 U.S. Average Levelized Cost (2008 cents/kWh)

Note: The average levelized cost is the present value of all costs including building and operating the plants. Source: US Department of Energy, 2010. http://www.eia.doe.gov/oiaf/aeo/pdf/2016levelized_costs_aeo2010.pdf

http://www.eia.doe.gov/oiaf/aeo/pdf/2016levelized_costs_aeo2010.pdf

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Estimates of the number of jobs required to produce a kWh by energy source

Coal Natural Gas Biomass Low

Biomass High

Wind Low Wind High Solar Low Solar High0.00E+00

2.00E-07

4.00E-07

6.00E-07

8.00E-07

1.00E-06

1.20E-06

1.40E-06

1.15E-07 1.08E-07 8.90E-08

3.24E-07

8.11E-08

3.18E-07

8.46E-07

1.21E-06

Average Facility Employment (Jobs/kWh)

Source: Kammen, et al., 2004. http://www.unep.org/civil_society/GCSF9/pdfs/karmen-energy-jobs.pdf

http://www.unep.org/civil_society/GCSF9/pdfs/karmen-energy-jobs.pdf

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Effects of Replacing Coal with Wind

• Cost Effects of Replacing 25 percent of coal with wind

• Labor Effects of Replacing 25 percent of coal with wind

2009 Total kWH 2009 Total Coal

kWH Changes in Total Emissions (lbs)

Total Annual Cost (Millions)

Total Cost Per Household (dollars/year)

US 3,951,117,000,000 1,764,486,000,000 -906,063,561,000 $21,571 $191.93 MI 101,642,000,000 67,822,000,000 -34,826,597,000 $829 $215.66

OH 135,949,000,000 113,824,000,000 -58,448,624,000 $1,391 $308.78

Total Coal Jobs

Based on Total kWh Employment Change (low)

Employment Change (high)

Employment Change Share (low)

Employment Change Share (high)

US 203,440 -15,107 89,634 -0.012% 0.068% MI 7,820 -581 3,445 -0.015% 0.089%

OH 13,124 -975 5,782 -0.019% 0.114%

4343

Great diversity in rural America:

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Population Growth from 1960 to 2008

0 160 320 480 64080

Miles

Population Growth from 1960 to 2008(%)

133.9 - 811.595.6 - 129.552.9 - 88.036.8 - 43.426.2 - 35.8-22.5 - 22.3 Map Created on November 16, 2009

Mean=89.1

Median=43.4

454545

1990/91-2006 North American Population Growth

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Wyoming: Alberta on Steroids!

14.43%

3%

7.13%

39.6%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

WY 1981 mining share

WY 1981-2004 population growth

AB 1981 mining share

AB 1981-2004 population growth

WY’s greater natural resource intensity did not produce faster growth

Do We Need Place-Based Policy in the New Rural Economy? Symposium PSDR 3 Les chemins du développement territorial 19, 20, 21 juin 2012 Clermont-Ferrand.

Documents

dveloppement territorial

policy typology slide

ruralurban policy

regional policy

rural placebased policy

county slide

modern rural policy

symposium psdr