Globalization and Rural America

Posted by Yvonne Siu on May 11th, 2007

As concern over globalization’s negative impacts on rural communities in America grows, there is now a great need to think about how to improve US competitiveness in farm and non-farm jobs, and help those who might lose from globalization adjust and find niches in the new economy. Media reports have recently focused on more effective structural adjustment policies, social safety nets, and trade adjustment assistance. But another useful component to help cushion the blow to displaced workers from globalization is a push to increase agricultural and entrepreneurial competitivenss in America.

This is the subject of a recent essay by IPC Member Robert Thompson published in the June 2007 issue of the Chicago Fed Letter titled, “Globalization and Rural America.”

Although globalization and trade have been the engine of much growth, the agricultural sector remains vulnerable, in that as incomes rise, this sector shrinks relative to the total economy, given that expenditure on food does not grow as much as spending on other goods. So as globalization progresses, poverty reduction in rural areas and agricultural communities becomes important, and has so far been addressed through out-migration of farming and by people finding non-farm jobs. However, global competition now threatens both of these farm and vital non-farm jobs.

To address this, Thompson points out that rural leaders should strengthen the comparative advantage the US does have in high-tech, capital-intensive agriculture. Success in modern farming requires sophisticated financial management, marketing skills, and a sound understanding of the science that drives the productivity of modern agriculture. There are a number of ways agricultural policy could enhance this high-tech advantage to strengthen the competitiveness of rural America. Thompson’s recommendations include:

  • Improving the quality of schools to produce a stronger local work force and making communities attractive places to live for potential employers;
  • Lowering transportation costs in rural and isolated areas by improving road infrastructure that would improve distribution networks for agriculture and manufacturing;
  • Increasing availability of broadband Internet access to lower costs of transporting data, which can help spur service and non-farm jobs in rural areas; and
  • Making investments in infrastructure and human resources to create an enabling environment for successful entrepreneurial development in rural areas.

From the article:

Globalization has exposed even isolated rural communities to an unprecedented degree of competition and has led local leaders to fear that the nonfarm employment opportunities that they have worked hard to create will be lost to lower-wage workers in low-income countries. There are many areas in which rural communities can be competitive if they make the necessary investments in infrastructure…these communities must also create an attractive business climate for potential investors.

If successful, increased competitiveness and good structural adjustment policies could help shore up national support for trade, and enable America to be a stronger champion of globalization, which has the potential for meaningful poverty-reduction through trade opportunities and growth.

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