Rural places are culturally and ethnically diverse and face different challenges from urban places

Michael J. Hicks, PHD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University. His column appears in Indiana newspapers.

A background to the coming election will be the growing rural-urban divide in America, and how it affects political prospects on the coming decades. Some of the handwringing will be overwrought, but there are a few critical points to consider in the years ahead. Let me try to address some of the issues that will certainly influence economic policy towards city and rural communities in the decades ahead. I begin by dispelling some myths.

Rural places are culturally and ethnically very diverse. They differ profoundly in types of economic activity, the ethnic origin and religion of inhabitants, and the political tendencies of voters. West Texas ranches are vastly different from Vermont farms or inland California almond farms, which differ greatly from Nebraska row crops, Florida orange groves or Washington vineyards. Looking beyond agriculture, we see that manufacturing, mining and tourism mean the industry structure of rural places are also very different. These places are populated by different people, from different places, and are as diverse and full of cultural variation and wonder as any great city.

Rural places in the U.S. differ as fully as Peoria does from New York City, Washington, D.C. from El Paso or Savannah from Pittsburgh. Drawing big political conclusions about the rural and urban divide based on such diversity of culture is risky. However, there are significant differences between rural and urban places that tend to influence public policy. The first is population growth.

Over the last century, America’s rural counties haven’t really grown. We have roughly the same number of rural residents as we did in Teddy Roosevelt’s administration, but urban America is more than five times larger. Four out of five Americans live in urban counties as designated by the Office of Management and Budget. To be fair, many of the urban counties have plenty of row crops in them, and rural counties have many small cities. Also, much of the growth in urban places came in formerly rural counties, as has always been the case. Still, urban counties differ in other meaningful ways that are likely to influence future policy. The second big issue is taxes and spending.

Rural places are large beneficiaries of federal dollars. By some estimates, per capita spending by the federal government is twice as high in rural than urban places. Most of this goes into agriculture subsidies, so rural communities probably don’t perceive the spending. Most may not actually benefit from it. Still, that is a legitimate critique offered by urban taxpayers, who foot most of the bill. Rural residents ought to be more conscious that these large subsidies provide few benefits for their community, while alienating urban taxpayers.

There’s no national study, but here in Indiana, rural places are also big beneficiaries of state tax dollars. This is per a 2011 study jointly authored by Ball State and the Indiana Fiscal Policy Institute. In that study, we estimated that rural places get more than $560 more per resident in taxes than they pay, while urban places get almost $160 less per resident than they pay. It is a plain fact that state and federal taxpayers subsidize rural places at the expense of cities and suburbs. What is not so clear is whether or not this spending makes a meaningful difference in the lives of rural people. I suspect it does not. This is almost certainly true in every other state.

Just looking at Indiana, we also see that rural places tax themselves less than urban places. Per capita taxes in Indiana’s rural counties are almost 10 percent lower than in urban counties. I suspect this is true across the nation, and is a significant economic and political problem for rural America.

It’s a hard thing to ask citizens of prosperous and growing places, in need of infrastructure and services, to subsidize a static or declining region. We are an affluent nation and can bear it now, but the unwillingness of rural places to invest in themselves hardly commends more subsidies from urban taxpayers. I believe a reckoning is coming, and it will force rural places to think more intelligently about tax and spending priorities. That begins by admitting that large regional transfers have to have some sort of broader benefit, and that rural taxpayers will have to bear a greater share of that burden.

There are other differences between rural and urban places that influence spending priorities. Urban places are richer, and, when you control for industrial differences, more productive. Here in Indiana, urban counties have per capita income that is 10 percent higher than in rural counties. That helps balance the higher taxes and lower spending that urban places receive, but the most startling differences lie in educational attainment.

Urban counties have more than a 50 percent higher share of adults with a bachelor’s degree than do rural counties. Part of this is clearly attributable to household sorting. The income benefits of education are higher in urban places. In short, that is why cities exist in the first place, as clustering places for skilled workers.

A full 76 percent of the differences in income between rural and urban places are explained by differences in educational attainment. By itself, this is strong evidence that rural areas are unlikely to grow without capturing a larger share of educated adults. And this fact ties together the challenges for population growth, taxes and spending and education for rural places.

The most likely way outsized spending on rural places will benefit the nation as a whole is if the result is more resilient and prosperous communities. For the most part, that goal will be elusive for rural communities that do not find some clear linkages to a nearby city. It will also be nearly impossible for rural places to prosper if they don’t shrink the education gap with urban places. This is a backdrop to the current election that will be with us for decades.