How Did We Get Here? Part 2: The Economy

As our population shifted from rural to urban, so did our economic profile. Two main shifts were at play. First, the national economy overall shifted from production to services. Second, as tax rates dropped, the wealthy became wealthier much faster than the rest of us. Whether we like it or not, both of these trends contributed to where we are now.

The Service Economy

Consider the change from production to services. A production economy requires a large investment in fixed assets: land, buildings, and equipment. It’s stationary, which means it is tied to the land. This is obviously the case for farming and mining. But even manufacturing plants are difficult to relocate. A production economy tends to favor a geographically fixed population and availability of land, which fits the profile of rural America.

A service economy, on the other hand, tends to require fewer assets. Yes, there are cars, vans, and trucks– all mobile by definition. There may be certain pieces of large equipment. But in general a service business can be relocated much more easily than a factory, farm, or mine. And service businesses require less money to start. What they need most is a ready market of customers, making them ideally suited to an urban environment. Service jobs have tended to grow faster and be more lucrative in urban areas than in rural places where there are fewer customers to service.

Globalization has also affected job distribution. Yes, it has flooded our markets with cheaper goods, which is good. Unless you’re competing with them for a living. The same asset-heavy businesses most often found in rural areas– manufacturing, farming, and mining– now have to compete with goods produced with far cheaper labor overseas. A typical worker in a Mexican maquiladora plant makes 80 cents an hour. A typical worker in a clothing factory in Sri Lanka makes $2 per day. Workers in some other countries make even less.

This trend has helped drive the shift toward a service economy, which provides for needs that cannot be filled from a distance. But for rural workers, globalization has meant falling incomes. Manufacturing has moved overseas, and locally-owned stores are replaced by Wal-Mart, Staples, and Home Depot. Those who once worked for themselves and employed others now work for minimum wage at the local chain store.

Wealth Concentration

At the same time, wealth has migrated upward to the wealthiest Americans. As the graph below shows, the share of income among the poorest Americans has dropped by about 10%. But the most dramatic change is that the share of income taken home by the wealthiest families has almost doubled, while the share belonging to the middle class has fallen by a third.

Incomes overall are gradually rising, so this hasn’t made as much difference in service industries. But in rural areas, where wealth is measured in assets, this has created a concentration not just of money but of land as well. The resulting power imbalance has had far-reaching effects. Farm subsidies, supposedly intended to help the average American farmer, flow overwhelmingly into the pockets of a handful of giant agricultural corporations. This gives them an unfair advantage over the family farm.

Not surprisingly, the number of small farms has shrunk, often absorbed by these corporate farmers. This shift away from farming represents a massive change in rural economics. In 1953, nearly half of all rural Americans lived on farms. By 2003, that had fallen to 5%.

This shift away from small farms has left an employment vacuum, and led to a search for new sources of jobs. Three major sources have been casinos, prisons, and the military. According to a report by the Population Reference Bureau (PRB), “There are now casinos in 140 nonmetro counties in 23 states… ”  The report also documents the rise in prison construction in rural areas. And, they report, rural people are 30% more likely to serve in the military than urban dwellers.

What it means

These economic shifts have had significant impacts on rural Americans. Poverty rates are higher in rural areas, although nearly half of those who are poor work. Disability rates are also higher. PRB reports,

Poverty hangs on in 444 nonmetro counties at levels higher than 20 percent. That means… that a fifth or more of the population lives in economic distress.

There is significant poverty across all ethnic groups. But the largest ethnic group among America’s poor is one we hear little about: non-Hispanic whites, who comprise 44% of America’s poor. It’s easy to overlook the magnitude of white poverty. As a percentage of ethnic group, only 10% of whites are poor compared with 25% of blacks, 24% of Native Americans, and 23% of Hispanics. But whites as a whole are a much larger group. That 10% translates to 19 million people!

It is easy to see how these economic shift begins to impact political views. Less corporate regulation (especially “morality” regulation), a justice system focused on incarceration rather than rehabilitation, and a well-funded military are not just planks in a platform for those living in rural America. They are the difference between employment and unemployment, between surviving and not surviving.