“Simply put, rural America is different from the rest of the country,” Henderson told his fellow university and Extension agricultural economists attending the 2003 Southern Region Outlook Conference in Atlanta.
While the economic recovery is generally slow and steady in much of the nation, recovery of the rural economy is a mixed bag, says Henderson. Rural America went into this recession a lot sooner than metro areas, and because of that, job growth has turned positive in rural areas before it has in metro areas. On the other hand, rural manufacturing factories have taken a beating.
“In this jobless recovery, rural communities are actually enjoying some job gains,” he says. “After falling more sharply during the recession, rural jobs have rebounded a bit faster that metro job gains, posting positive job growth at the beginning of 2003. The leading pace of rural job gains was also prevalent in the 1991 jobless recovery.”
While rural job gains have been paced by stronger activity in service-producing firms, rural manufacturers face the brunt of the recession, with available jobs in the goods-producing sector falling by 7 percent in the last year.
This highlights the challenges rural America faces in a global economy, Henderson says. “Building competitive advantages on low-cost land and labor will not work in a global economy where foreign countries have cheaper land and labor.”
“Rural America is becoming a service-based economy, and that industry is making gains while the goods producing industry is falling. This declining agriculture and factory base means rural America needs a new economic engine that will be built on new technological innovations,” he says. “If rural America is going to compete, it is going to have to develop a new, competitive advantage.”
In 2002, almost 45 percent of rural factory mass layoffs were due to plant closures, far more than in metro areas. “These jobs are not coming back. And agriculture, the other cornerstone of our economy, is also suffering. The two industries have one thing in common; they compete with the world for low-cost land and low-cost labor. With globalization, can we compete on these two things anymore?”
The answer to Henderson’s question may be no. Production costs are increasingly cheaper in foreign countries. In addition, less than 10 percent of rural counties in the United States depend on farming for more than 20 percent of their earnings, and only a handful of those counties are in the South.
Henderson sees value-added, or product-based agriculture, as the key to future growth in the U.S. agricultural industry.
“U.S. agricultural exports have not recovered from the Asian financial crisis, but the impact has fallen primarily on bulk commodity production. Value-added exports continue to rise,” he says. “If U.S. agriculture is going to compete in a global economy, competitiveness may rest on using technology to produce value-added agricultural products. Technology is the answer, as it always has been.”
For example, some corn growers are turning their commodity into bio-based plastics, while other producers are growing pharmaceutical crops. “Farmers are growing plastic in corn fields, and they’re making clothes, upholstery and diapers from rural America’s corn crop,” he says.
“And for every $1 it takes to produce a man-made drug in the lab, it takes only 14 cents to produce that same pharmaceutical using farm products.”
On a broader scale Henderson says the nation’s economic recovery, while slow and steady, doesn’t necessarily equate to job recovery.
Overall, economic activity is rising, spending is firming among individuals, businesses and governments, but the labor markets remain weak, which is why we don’t feel like we are in a recovery, Henderson says.
Despite economic growth, unemployment is still rising, and much of the nation is in a jobless recovery. Unemployment levels are low by historical standards and recessions, but they are still rising and are still quite high.
The reason for this phenomenon, Henderson says, is a surge in productivity since the recession began. “We are producing more with less, which was also the case following the 1991 recession,” he says. “This recovery has been driven primarily by strong growth in the U.S. productivity, which surged in 2002 to support stronger economic activity. While productivity gains have edged back a bit, they clearly remain well above the strong gains posted at the end of the 1990s expansion.”
One major difference between the two recessions, he says, is the economic recovery is weaker this time around. “Because the recent recession really wasn’t that severe, the recovery hasn’t been that strong. We’re growing, we’re just not growing as fast as we were prior to the recession.”
“Consumer spending held the country together during the recession. Now, corporate profits need to rise enough to spur business investments in physical assets and structures,” he says. “We’re beginning to see businesses that are finally confident enough in a recovery to spend some of their money.”