A road map for rural America’s comeback

Small cities can be revitalized by investing in second-tier research universities

Rural America is losing population, as young people move to the cities. Small towns are still home to tens of millions of people, but they skew older and lower-income than the thriving metros. Some of the critical industries that had supported these areas, such as coal mining, are in decline, while others, like agriculture, are increasingly automated. Many of the manufacturers that supported small factory towns have either moved overseas or turned to robots.

Meanwhile, big cities are booming as knowledge industries like software, biotechnology, finance and business services become increasingly central to the U.S. economy. Companies in these industries tend to cluster together rather than spread out, and that favors larger population centers. San Francisco, New York, Seattle and a handful of other lucky metropolises are so overwhelmed that housing costs have skyrocketed, leading to bitter political battles over gentrification, displacement and residential construction. The stark difference between bustling cities and languishing countryside may be contributing to widening social and political divisions.

The twin dysfunctions of overcrowded superstar cities and dying small towns have led many intellectuals and scholars to brainstorm ways to revive the rural U.S. But some economists argue that the task is effectively hopeless. For example, Paul Krugman recently wrote: “Reviving declining regions is really hard…Southern Italy remains backward after generations of effort. Despite vast sums spent on reconstruction, the former East Germany is still depressed three decades after the fall of the Berlin Wall.”

Mr. Krugman may be too pessimistic here. The American South was an economic backwater for almost a century after the Civil War, but a series of big government infrastructure programs, combined with the invention of air conditioning and some opportunistic development policies on the part of southern state governments, managed to revive the region. The rural U.S. also benefited greatly from government-backed infrastructure projects like electrification. So there are some encouraging precedents to go along with the failures.

Also, despite population loss and aging, living in a smaller city doesn’t always make you poorer. Because housing and other living costs are so much lower, smaller cities often have cost-adjusted average salaries that are more attractive than the superstar metros.

But Mr. Krugman is right that the odds are against rural and small-town areas. As his own theories suggest, the rise and decline of cities and towns are often governed by vast economic, geographic and technological shifts that local policies can only do so much to affect. The automation of manufacturing and agriculture and the shift to knowledge and service industries are not trends that the government can or should even try to reverse with the stroke of a pen.

Still, some strategies for rural revival might make a big difference. There are ways to make clustering effects work in favor of lagging regions, rather than against them.

Big cities aren’t the only places to benefit from knowledge industries — college towns also thrive in the new economy. Small cities like Ann Arbor, Mich., and College Station, Texas, are healthy and growing. Even small towns like Pikeville, Ky., home to the modest University of Pikeville, are doing well. Economists have found that cities where the U.S. government began setting aside land grants for public universities in the 19th century tend to be richer and more productive in the modern day. In a review of local economic policies, economists David Neumark and Helen Simpson cite several papers showing real positive effects of government efforts to create universitycentered clusters.

Some of the benefit comes from government money that gets routed to college towns via state subsidies and federal research grants, then spent locally. Some comes from the tuition fees of outof-state and international students. But economists Jaison Abel and Richard Deitz have found that the biggest impact probably comes from university research. By attracting smart people to the region and drawing in private investment, research universities harness the forces of knowledge-industry clustering to increase the wealth of an entire region.

There’s a good chance that these forces can be harnessed to revive parts of the rural U.S. By increasing research funding for second-tier universities in depressed areas, and by making it easier for high-paying foreign students to attend rural schools, the government can create a scattering of small thriving places throughout declining regions. As their small towns wane, older rural Americans will be enticed to move — not to a distant, forbidding metropolis, but to the modest suburbs of a nearby college town. There they can continue to enjoy access to their regional culture and maintain ties with friends and family, while enjoying better shopping opportunities and top-quality medical care at university hospitals. The destiny of the U.S. heartland may be to go from farming and manufacturing towns of 5,000 people to college towns of 50,000.

This university-centric development policy won’t bring back the glory days of agriculture and manufacturing. Nor will it breathe life into every dying small town. But it could save declining regions, and take some population pressure off of big cities that are already full to bursting. It’s worth a shot.