1. Do We Need Place-Based Policy in the New Rural Economy? Symposium PSDR 3 Les chemins du développement territorial 19, 20, 21 juin 2012 Clermont-Ferrand Mark D. Partridge Swank Chair in Rural-Urban Policy The Ohio State University 1

2. Symposium PSDR 3 Les chemins du développement territorial introduction Introduction If the world is globalizing and factors are more mobile, regional policy takes on added importance (Thisse, 2010). In a global setting, small gaps in competitiveness will lead to magnified factor movements, creating big winners and big losers. Getting it right matters more than ever! And it means regional/territorial policy is where it is at. Yet, does Place-Based policy put us on the winning side or does it divert resources from productive endeavors that hurt regional competitiveness. 2

3. Symposium PSDR 3 Les chemins du développement territorial introduction Outline A MAJOR problem is the media, politicians, and far too many academics confuse the landscape with the workings of a regions/areas economy. This view is often backward looking, confusing the economy of 1950 with today. Labor-saving technological change has long reduced the size of the rural primary sector. What has replaced the primary-sector dominated rural economy is large rural/urban regions centered around urban anchors. Despite this transformation, modern rural policy too often facilitates sectoral rent seeking. 3

4. Symposium PSDR 3 Les chemins du développement territorial introduction Outline Rather than a rural and an urban policy, we need regional policies that reflect the reality of their shared dependence. – Governance that reflects the blurring of urban and rural. This need applies even within agricultural production with factors such as local foods (Wallet and Torre, 2011). Governance that reflects each countrys relationship between the national and local statee.g., a central nation like France vs. a decentralized nation like Germany. 4

5. Symposium PSDR 3 Les chemins du développement territorial introduction Outline Rural place-based policy is important due to the disproportionate share of poor rural regions and the high expenditures on key rural sectors. Rural place-based policy as practiced today is generally inconsistent with the realities of 21 st Century rural economies in developed countries. – Though my focus is the USA, I will discuss European examples and provide lessons from North America. 5

6. Symposium PSDR 3 Les chemins du développement territorial introduction Define Policy Typology Development– People maximizing utility. – Satisfaction is V(ECON, AMENITY, QoL) – People vote with their feet to best location. – I believe economic development is necessary condition or place will turn into a nature preserve. Though economics is necessary, people trade off non-monetary QoL with income. – In the US, this has been weather or landscape. – In EU, this trade off culture or family with economy. – In China, economic conditions have dominated. – Policy should reflect the desires of the people. 6

7. Partie 1 Symposium PSDR 3 Les chemins du développement territorial People-based policies target the people by improving their social and human capitali.e., training, education, better mobility (Bolton, 1992; Winnick, 1966). Spatially neutral as World Bank (2009) called it. Sectoral policies are aimed at helping targeted sectors/firms. Often clusters fall in this rubric. Other examples are farm supports, support for high technology firms, etc. Picking winners. Place-based policies are aimed at particular places infrastructure, targeted training for that location, better governance, support of SMEs in that location. Regional and/or territorial policies. Define Policy Typology

8. Partie 1 Symposium PSDR 3 Les chemins du développement territorial Rural Myths of Sector Policy: And Whats Really Happening in 21 st Century America 1950 Myth: rural areas are only natural resource based Example using 2005 data: The Nonmetro share of personal income accounted for by earnings primary sector farmers + mining (including oil) + food procession/beverage manu +petro&coal manuf = 6.7% 1.8% in Mining + petro+coal manuf The METRO share of personal income accounted for by earnings in finance & insurance = 6.7% + real estate = 8.5% BUT IS URBAN POLICY THE SAME AS GIVING SUBSIDIES TO FINANCIAL SERVICES SECTOR? See the discussion in Wallet and Torre (2011, p.19)

9. Partie 1 Symposium PSDR 3 Les chemins du développement territorial

10. Agricultural Employment Shares in Metropolitan & Nonmetropolitan Areas Source: U.S. Bureau of Economic Analysis, Regional Economic Information System. Available at www.bea.gov, accessed October 15, 2009.www.bea.gov

17. Plains States Engines of Growth>500k Population 1990-2000 Population Growth by County

18. Percent of Local Labour Force Commuting to Winnipeg CMACCS Level Data

19. 19

20. Partie 2 Symposium PSDR 3 Les chemins du développement territorial What about neo-sectoral policies? Using environmental policy as a regional development policy is misguided. This lead to the old instrument problem of using one policy to manage 2 objectives. So called green jobs strategies may serve an environmental purpose. But they too suffer from supporting a capital-intensive sector (not jobs) and vulnerable to sectoral rent seeking. A weak economic development strategy. Related bad policies focus on export sectors and not on regional productivity. Export led growth has long been the mainstay of the rural economy (agriculture) and it has not been the road to prosperity (Kilkenny and Partridge, 2009).

21. Partie 2 Symposium PSDR 3 Les chemins du développement territorial How does this fit into multi-functionality and rural cultural heritage? Of course, a key feature of the EU CAP and rural development in the EU is supporting agri- environmental services to support a nice landscape, biodiversity, cultural heritage, and clean environment. – These seem to be worthwhile goals but are they economic development? – Depends. Needs to be weighed against the opportunity costs. Would doing another policy result in more jobs? If so, then subsidizing farmers is not rural development but a different policy (Partridge et al., 2009). – Good intentions is not the same as creating economic opportunities.

25. Partie 3 Symposium PSDR 3 Les chemins du développement territorial Implications Rural economies have fundamentally changed from a primary sector economy to one based on rural-urban interdependence. When there are spillovers, economists argue that they should be internalized. Hence, economic development policies should be done across the affected region, not in a piecemeal fashion of competing rural and urban self-interests. It should not facilitate sectoral rent seeking in the guise of rural or regional development.

26. Partie 3 Symposium PSDR 3 Les chemins du développement territorial What is good rural strategy? The 2009 World Bank Report argues for spatially neutral policies. Supporting lagging regions shifts resources from more productive core regions to less productive lagging regions (Glaeser, 1997; Glaeser and Gottlieb, 2008). Political economy concerns in which politicians claim they are creating jobs and sector rent-seeking. See Rodríguez-Pose (2010); Barca (2009); OECD (2009) for critiques of WDR. Sorting arguments against place-based policy is people with less labor market attachment self-sort to live in poor places. Hence, policy will be ineffective (Gibbons, S., H.G. Overman, and P. Pelkonen, 2010). In a U.S. context, migrants/commuters will take the new jobs.

27. Partie 3 Symposium PSDR 3 Les chemins du développement territorial What is good rural strategy? Partridge and Rickman (2006, 2008) argue that a necessary but not sufficient condition for place- based policy to be effective is relatively low labor mobility. Then intended targets for policy will receive the benefits if the policy is successful. Partridge and Rickman (2006, 2008) argue that sorting is not a major policy constraint in remote U.S. regions. Poverty is highly responsive to job growth and labor supply is less elastic in response to demand shocks. Hence, original residents gain jobs. Lower mobility rates in Europe mean place-based policy is potentially even more effective.

28. Partie 3 Symposium PSDR 3 Les chemins du développement territorial What is good rural strategy? Place-based policy can work but it has many shortcomings that need to be addressed: – Recognize rural areas are heterogeneous In the USA: amenity rich, urban adjacent, and remote rural that fits the stereotype. In EU, urban, intermediate (peri-urban), rural, with emerging amenity led growth that mimics USA. – Place tailored to reflect that certain policies may work in some places but not others– Stephens and Partridge (2011) find SME policy works in Appalachia. Amenities facilitate high human capital strategies in rural areas (McGranahan et al., 2010).

29. Partie 3 Symposium PSDR 3 Les chemins du développement territorial What is good rural strategy? – Governance reform to shift from separate farm/rural/urban policies to a regional policy. Policy goals include: Tax sharing, planning and management of the rural-urban fringe, environmental protection, infrastructure; economic development for regions. Key issue is how to get all actors to participate and believe their input is valued. Leverage local social capital and networks to promote good governance (Natcher and Olfert, 2012). If not, mainly sectoral actors will participate to seek rents.

30. Partie 3 Symposium PSDR 3 Les chemins du développement territorial What is good rural strategy? Torre and Wallet (2005) describe the difference between geographical and organized proximity, which affects governance arrangements. A goal is to bridge rural & urban communities. Related to this is how far to proceed with the growth center-growth pole approaches of Perroux, Myrdal, and Hirschman. Weigh spread and backwash effects. Partridge et al (2007) contend spread is the dominant feature in modern regional economies.

31. Partie 3 Symposium PSDR 3 Les chemins du développement territorial What is good rural strategy? To avoid sectoral rent seeking, the roles of powerful lobbies need to be considered. – Should rural policy be conducted by Ministries of Agriculture or in Ministries of Regional Development? – Treat all businesses alike and avoid picking winners.

32. Partie 3 Symposium PSDR 3 Les chemins du développement territorial What is good rural strategy? Knowledge is key to future productivity. – Smart strategies can work but need to be tailored for rural areas to focus on workforce development and medium levels of education. E.g., innovation strategies are ineffective in lagging regions because they lack capacity (Shearmur, 2010; Rodriguez-Pose and Crescenzi, 2008; Capello). A key problem is that government agencies lack capacity to understand local economies. Another problem is politicians resist policies that will not let them reward sectoral political allies or pick winners.

33. conclusion Symposium PSDR 3 Les chemins du développement territorial Conclusions Rural policy is too often a misguided mixture of policies aimed to support sectors and policies that do not recognize the reality that rural and urban areas have self-formed into geographically large regions. Place-based policy faces numerous barriers that limit its effectiveness. My thinking on the viability of place-based policy has sobered in recent years.

34. conclusion Symposium PSDR 3 Les chemins du développement territorial Conclusions Perhaps we should less of government and rely more on the talents of the residents. If govts became more effective at providing services at low costs to improve the business climate and the quality of life of their residentsthe highest profit firms will rise to the top. – This further justifies the need to get governance correct. – My research suggests great policy is ineffective if places lack capacity and governance (Lobao et al., 2012). Picking winners shifts resources from the more productive firms to politically favored firms (Glaeser and Gottlieb, 2008; Partridge and Olfert, 2011).

35. THANK YOU! Email: Partridge.27@osu.edu for slides or download from:Partridge.27@osu.edu 35

36. 36 Appendix Slides

37. 37

38. 38

39. Total carbon emissions per kWh generated by energy source 39 Note: Life cycle emissions rates includes the total aggregated emissions over the life cycle of the fuel to include extraction, production, distribution, and use. Source: Meier, 2002. http://cpsenergy.com/files/STP_Univ_Wisc_energy%20_comparison.pdf http://cpsenergy.com/files/STP_Univ_Wisc_energy%20_comparison.pdf

40. Energy production costs by energy source 40 Note: The average levelized cost is the present value of all costs including building and operating the plants. Source: US Department of Energy, 2010. http://www.eia.doe.gov/oiaf/aeo/pdf/2016levelized_costs_aeo2010.pdf http://www.eia.doe.gov/oiaf/aeo/pdf/2016levelized_costs_aeo2010.pdf

41. Estimates of the number of jobs required to produce a kWh by energy source 41 Source: Kammen, et al., 2004. http://www.unep.org/civil_society/GCSF9/pdfs/karmen-energy-jobs.pdf http://www.unep.org/civil_society/GCSF9/pdfs/karmen-energy-jobs.pdf

42. Effects of Replacing Coal with Wind Cost Effects of Replacing 25 percent of coal with wind Labor Effects of Replacing 25 percent of coal with wind 42

43. 43 Great diversity in rural America :

44. Population Growth from 1960 to 2008 44

45. 45 1990/91-2006 North American Population Growth

46. 46 WYs greater natural resource intensity did not produce faster growth