Can The Urban-Rural Economic Divide Be Reversed?

In the aftermath of Joe Biden’s election, there’s lots of attention to the urban-rural divide in America’s votes.  But the gap isn’t just political—its economic.  Places that supported Trump produce much less economic output than urban areas, and the trend is getting worse.  And conventional rural subsidies far too often go to a few wealthy farmers and ranchers, so Biden will have to try something new and innovative if he hopes to help rural economies. 

The urban-rural economic gap is real and growing.  More jobs, patents, innovation, and wealth are created in metropolitan economies every year, and the gap shows no signs of stopping.

Economists have thought a lot about why cities drive economic growth.  They emphasize interlocking factors that, when working together, create a virtuous spiral of economic growth.  Size helps create specialization and division of labor, which fosters innovation and job growth, attracting an educated and diverse workforce.  That in turn fosters more innovation and growth, which has been enough in recent years to offset higher housing prices in urban areas, at least for the top earners.

It is striking—and somewhat of a puzzle—as to why economic and population gains are so highly concentrated, even among metropolitan areas.  Economist Mark Perry found that in 2018, “the top six largest US metro areas (NY, LA, Chicago, Dallas, DC, and San Francisco)” accounted for 24.7% of total U.S. output, and “those six metro areas combined as a separate country would have been the third-largest national economy in the world.”  

But the economic benefits of cities also come with costs—crowding, crime, inadequate schools, pollution. The balancing of these positive and negative urban effects (“externalities” in economist lingo) has been called the “fundamental tradeoff” of urban economics.  

Cities grew initially in part due to natural advantages—New York and San Francisco are two of the great natural harbors in the world.  But economists think urban advantages now are driven by forces generated and reinforced over time by concentrations of skills and so-called “thick” labor markets.  Cities also have access to capital, legal and other necessary support services, and favorable government policies.

And they have richer lives for residents and visitors—arts, higher education, diverse cuisines.   Given the continuing urbanization of the global economy, and economic concentration in a relatively few locations, the empirical evidence suggests that the positive externalities outweigh the negatives, and cities will keep growing.

But what about Covid-19?  Conservative analyst James Howard Kunstler says the pandemic means “the age of the mega-city is over.”  But most urban analysts (I’m one of them) agree with Richard Florida when he says “cities have suffered and survived far worse.”  Florida believes that when the pandemic is brought under control, “the roster of the world’s leading cities” will be unchanged.  There will probably be some reshuffling of office work to home-based work, but the odds are it will be far less than many people think.

Cities still face many problems, including concentrated inequality and racial divisions in their metropolitan areas.  But if their economic advantages keep growing, as seems likely, what does that portend for rural areas?

First, we need to realize that despite images of farms on the national news, only “5.5 percent of rural and small town jobs” are in agriculture, mining, and similar sectors.  The largest rural employment sector?  Education, health and social services—21.9 percent of rural jobs, virtually the same as the national share of 21.5 percent.  And growing rural areas often are the ones closest to metropolitan areas, while more isolated areas continue to decline.

Second, in spite of the image of independent small farmers, rural areas (particularly the wealthiest residents) get a lot of government subsidy.  In 2020, federal subsidies are projected to “make up more than a third of farm income,” with agriculture receiving “repeated bailouts even as COVID-19 stimulus for millions of other Americans stalls in Congress.”  And a significant amount of those farm subsidies go to “very large farms,” not small family farms.

Rural subsidies also go to ranchers.  The federal Bureau of Land Management (BLM) charges ranchers grazing rates far below market value to use federal property.  Some estimates find “ranchers on BLM land have 94 percent of their grazing costs covered by taxpayers.”

These subsidy policies are outmoded, concentrating on wealthy producers that aren’t adding to economic diversity.  And rural economies will have to diversify to prosper.  There’s no growth future for most rural residents in agriculture and extractive industries.

Analysts have proposed regional tech growth centers in less populated parts of the country, to increase the number of technology jobs outside of a few large metropolitan centers.  Others call for “distributed development” targeting inclusive strategies focusing on as many people as possible rather than just subsidizing a few narrow industries.  And scholar-advocate Stuart Rosenfeld sees the smaller scale of rural areas facilitating social capital and leadership, citing twenty-four promising rural strategies across a variety of geographies and industries. 

All of this is made much tougher by the now-seemingly entrenched urban-rural political split.   In rural counties, Biden got less than 30 percent of the vote, while in cities over 5000 people per square mile, he got close to 70 percent.  The Brookings Institution found that’s the same percentage of economic output—70 percent—produced by Biden’s winning counties.  By contrast, Trump-supporting counties only account for 29 percent of the US economy.

Rural Democrats report a very challenging atmosphere when trying to campaign.  A frustrated Democratic sixth-generation activist in rural Wisconsin says “the national Democratic Party has not offered rural voters a clear vision that speaks to their lived experiences.”  Culture war issues feature prominently in political campaigns, obscuring the larger economic trends shaping urban and rural economies.

Those economic trends are likely to continue.  In 2109, Nobel economics laureate Paul Krugman sadly concluded that the economy of “rural America…is being undermined by powerful economic forces that nobody knows how to stop.”  And simply shoveling more subsidies to a few wealthy farmers won’t turn rural economies around.  But the political tensions generated by these underlying economic forces favoring cities aren’t going away. So for both equity and political reasons, Biden will have to try something new and innovative.