Deavers, Kenneth L.

English

Research Papers in Economics

PUBLIC POLICY ISSUES IN RURAL  DEVELOPMENT
Kenneth L. Deavers
Director
Economic Development Division, ESCS,  USDA
To my  knowledge,  no one  has  come  up with  a definition of rural
development  that  satisfies  everyone.  However,  in the  course  of  its
recent  rural  development  policy  study,  the  USDA  developed  a
description  of  rural  development  and  three  operational  objectives.
The study  suggested that rural  development  might best be described
as  the  existence  of  viable  opportunities  for  individuals  to  choose
among  a wide  range  of  lifestyles-urban  as  well  as rural.  Moreover,
those  choices  should  not be  so  costly  that they  are available only to
the very few.
To  bring  about  this  kind  of  rural  development,  programs  and
policies  need  to  be  implemented  which  meet  three  objectives:
1.  Expand  economic  opportunity  through  improved  access  to
better jobs  and  income for rural people, especially  the low-income
and  underemployed;  and  assist  in  adjustment  to  structural  eco-
nomic  change  that results  (or  is  likely  to result)  in chronic unem-
ployment.
2.  Provide  access  to  an  acceptable  level  of essential  public  facili-
ties and social services for rural people.
3. Strengthen  the  planning,  management,  and  decision  making
capacity  of  public  (and  private)  institutions  concerned  with  eco-
nomic  opportunity and quality  of life in rural America.
Recent Rural Development  Experience
Some  observers  might  describe  the  70s  as  a period  of rural  ren-
aissance.  After  decades  of net outmigration, rural areas in the United
States  are  now  experiencing  widespread  and  substantial  growth  of
population  and  expansion  of  economic  opportunity.  Since  1970
the  rate  of  population  growth  of  nonmetro  counties  has  exceeded
that  of metro counties, reflecting the fact that over two million more
people  have  moved  into  nonmetro  areas  than  have  moved  away.
Nonfarm  wage  and  salary  employment  in these areas has grown at
double  the  metro  rate.  Also  during  the  1970s,  nonmetro  median
123family  income  had  risen  to  nearly  80%  of that in  metro  areas, not
adjusting  for  any  differences  in  cost  of  living  between  such  areas,
which would be expected to narrow the gap even further.
A  number  of  other  generalizations  about  this  rural  growth  are
important:
1.  The growth is widespread,  affecting every region of the country.
Even  remote  and  completely  rural  places  are  growing,  not  just
those  adjacent to metropolitan areas.  In fact, the contrast between
current  growth  and  previous decline  is  greatest in  the  open  coun-
try  and  unincorporated  areas  of rural  America.  However,  despite
this  strong  rural  growth trend,  there  are  still  more than  500 non-
metro counties that continue to decline  in population.
2.  Three  elements  of  migration  are  involved  in  the  population
growth  of rural  areas.  First, these  areas are retaining a larger share
of  their  people,  who  in  earlier  periods  would  have  been  leaving.
Second,  there  is  a return  of people  of rural  origin  who  have lived
in  larger  cities.  Finally,  there  is  a  movement  into  rural  areas  of
people  born  in  the  cities.  On  the  whole,  the  inmigrants  are
younger,  better  educated,  higher  in  income  and  occupational
status,  and more  likely to  be  white  than  are  the  average residents
of the areas  into which they are moving.
3.  A  major  factor  affecting  outmigration  from  rural areas  is  that
people  are  not  being  displaced  from  farming  and  other  rural
extractive  industries  as they  used to  be.  Today  the  loss  of people
from  agriculture  is  just  a fraction  of what it was  in the  60s,  and
mining employment  (especially coal)  has revived.
Only  12% of the U.S. nonmetro population now live in counties
where  agriculture  can  be  considered  the  primary  industry,  and
only  9%  of  those  employed  in  nonmetro  areas  work  directly  in
agriculture.
The  current  growth  trend  is  adding to the dominance  of non-
agricultural  pursuits  in  rural  America.  For  example,  only  5%  of
employed  people  who  moved  to nonmetro  areas  between  1970
and  1975  were  working  in  agriculture  in  1975.  These inmigrants
were  primarily  engaged  in supplying professional services,  working
in wholesale  or retail  trade, or held jobs in manufacturing.
4.  Nonpecuniary  motives  were  a  major  factor  influencing  urban
to rural  migration  in  the 1970's.  While everyone needs a source of
income,  a  majority  of  the  rural  migrants  consistently  report  a
positive  attraction  to rural  areas or a negative reaction to the large
cities  as  their  major  motivation  for moving.  A substantial fraction
of  rural  inmigrants  accept  a  cut  in  money  income  in  the move.
124Key Public Policy Issues
Targeting Resources  on  Unresolved Problems-In spite  of  consi-
derable  progress now  being  made  in rural development,  a number of
serious  problems  remain.  Most  serious  of  these,  in  my  judgment,
is the  persistence  of rural  poverty.  Although nonmetro areas contain
roughly  30%  of the  U.S.  population,  they  have  nearly  41%  of the
poor.  Rural  poverty  has  an  important  regional  dimension  as  well.
In  1975,  there  were  255 nonmetro  counties  which  had  been  in  the
lowest  per  capita  income  quintile  of  all  nonmetro  counties  for 25
years; 237 of these were in the South.
Because  the  South  is  more  rural  than  other  regions,  and  has  a
much  higher  incidence  of  rural  poverty,  nearly  60%  of all  the non-
metro  poor  in  the  U.S.  reside  in  that  region.  Rural  poverty  also
falls  disproportionately  on  minorities-blacks,  Hispanics,  and Ameri-
can Indians-although  a majority of the rural poor are white.
While  poverty  causes  serious  human  problems  wherever it  occurs,
nowhere  are  these  problems  more  severe  than in rural  areas.  Because
of  inadequate  local  resources  to  support  needed  facilities  and  ser-
vices  communities  in  these  areas  chronically  underinvest  in human
resources.  Inadequate  educational  opportunity,  manpower  training,
and  health  care  are  continuing  problems.  For similar  reasons,  these
areas  are  also  short on  basic  community  facilities and amenities that
are  typically  found  in  more  prosperous  rural  areas.  Poor  housing,
lack  of  public  water  and  sewer  systems, inadequate  fire  protection,
and other such conditions  are prevalent.
Chronic  underinvestment  in human  and physical  resources  means
that  local  opportunities  for  individuals  to  escape  from  poverty  are
limited.  Therefore,  these  areas  have  historically  experienced  very
high  rates  of  outmigration.  Often  even  the  outmigrants  have  been
unable  to  separate  themselves  from  the  problems  they  left.  They
suffer in their new areas from the results of poor educational  systems.
Outmigration  has  further  complicated  the  problem  of  designing
programs  to  stimulate  development.  The  age  structure  and  other
characteristics  of the local  population  may  make  undertaking  a new
enterprise  appear to be a very risky venture.
Blacks,  particularly  those  living  in  areas  with  a  high  proportion
of  non-white  population,  are  failing  to  share  in  the  trend  toward
decentralization  of indsutry to rural  areas.  A number of studies indi-
cate  that  the  extent  to  which  jobs  are  provided  for the  local  poor
is  a  function  of the  nature  and  the  kind  of  industry  and  its  skill
requirements.
Although  state  and local development  agencies  often  concentrate
their  efforts  on  the  attraction  of  high-wage  industry,  such  enter-
prises  often  have  the  fewest  employment  effects  for  local  people.
Other  studies seem  to indicate  that industry  avoids rural places with
heavy  concentrations  of blacks, and that blacks overshare  in employ-
ment declines and undershare  in growth.
125Recent  national  discussion  of  "balanced"  growth  has  tended to
ignore  the  issue  of  poverty.  Instead,  it  has  concentrated  on  rates
of  growth  of  population,  income,  and  employment-implicity
assuming  that  programs  and  policies  should  have  as their  objective
equalizing  these  rates.  In  fact,  such  an  objective  would  simply lock-
in  the  relative  disadvantage  of  rural  areas  in  general,  and  of the
South in particular.
Designing Programs to Meet  Unique Rural Needs-Much has  been
made  of the urban  bias  in current  federal programs,  and the absence
of technologies  specifically  adapted  to providing public facilities and
services  in  rural  areas.  This  situation  results not  from  any  intention
to  disadvantage  rural  areas  and  citizens,  but  from  a  failure  to  re-
cognize  the unique  character  of rural needs. The only way I know to
address  this problem  is through  agreement  on an agenda of research,
analysis,  and  action  on  specific  cases.  This  agenda  need  not  be
complete  nor  comprehensive,  since  not  all  issues  can  be  dealt with
simultaneously.
One  problem  associated  with  identifying  the  policy  agenda  is
that  our  rural  data  system  is  inadequate  for  rural  policymaking.
For  example,  we  have  significantly  better  current  information  on
the  size  distribution  of  American  farms  (by  sales  class) than  about
the  income  distribution  of  rural  familes.  We  know  more  about  this
year's  corn  crop  than  we  do  about  last  year's  employment  and
occupational  situation  in  rural  America.  We  know  more  about the
costs  of  producing  farm  commodities  than  we  do  about  the  dif-
ferences  in  costs  of  living between  rural  and  urban  areas.  We  know
more  about  the  inventories  of  machinery  and  equipment  on  farms
than  we  do  about  availability  of  community  facilities  in  rural
America.
I  am  not  advocating  a reduction  of data that serve  policymakers
with  responsibilities  for agricultural  programs.  What I am advocating
is  equivalance  in  terms  of the  comprehensiveness  and detail  of data
available  to  serve  policies  and  programs  that meet  the needs  of the
rest of rural America.
Now  let  me  suggest  two  general  areas  in  which  we  could  being
an  analysis  of federal policies and programs,  and address questions of
appropriate  technology.  These areas are rural health care and housing.
Health
1. Rural  Participation  in  Health  Maintenance  Organizations
(HMOs) - On  Dec.  29,  1973,  a  bill  authorizing  $325  million  for
HMO  demonstration  projects  was  signed  into law.  As a partial result
of  this  legislation,  6.5  million  people  were  enrolled  in  165  HMOs
by  the  end  of 1977.  Prepaid  group  practice  HMOs  have  the potent-
ial  to  provide  services  at  lower  cost  because  of  (1)  economies  of
scale  resulting  from  the  group  practice,  and  (2)  the  incentive  to
emphasize  preventive  care  and  minimize  hospitalization.  To  date
these  HMOs  are  almost  exclusively  urban.  An  important  policy
126question  is  how the 1973 law (or its administration)  can be modified
to  encourage  testing  and  evaluation  of  the  HMO  concept  in  rural
areas.
2. Reforms  in  Funding Health  Care  Programs for Rural Resi-
dents  - Suggested  reforms  in  medicare-Medicaid  reimbursement
fall  into  three  broad  areas:  (1)  Eligibility,  (2)  geographic  variation
in  allowable  charges  per  unit  of service,  and  (3)  deterrents  because
of  coinsurance  and  deductibles.  Each  is  important  in its own right
given  the  size  of the  Medicare  ($25.4  billion  outlay  projected  for
FY  1978)  and  Medicaid  ($11.9  billion  outlay  projected  for  FY
1978).  As  prototypes  for  reimbursement  under  National  Health
Insurance,  they  take  on  added  importance.  Inequities  arise  under
Medicaid  because  eligibility  requirements  (1)  differ  among  the
various  states,  and  (2)  use  the  "single-parent  urban  poor  families"
as  the  model  for  the  program.  Families  with  both  parents present,
typical  in  rural  areas,  are excluded  in many  states.  For this  reason,
Medicaid  (and  other  free  care)  expenditure  per poor  child  in 1970
was $5 in rural  areas compared to $76 in central cities.
Inequities  under  Medicare  arise  because  Medicare  Part-B  pre-
vailing  charges  are  strikingly  lower  in  rural  than  in  urban  areas  in
many  states.  Consequently,  total  program  expenditures  are  sub-
stantially  higher  in urban  areas.  Under  both Medicare  and Medicaid,
coinsurance  and  deductibles  may  unduly  inhibit  access  to  health
care.  The  fixed  deductibles  are  a higher proportion  of the relatively
low incomes prevalent in many rural  areas.
3. Availability  of Health Personnel - The  population/physician
ratio  has  steadily  risen  in  less  populous  counties  since  1940.  For
counties  with  a  population  of less  than  10,000  in  1940,  the  ratio
was  1,548; by  1960 it  was  2,037; and by 1974 it had risen to 2,438.
This  rise  occurred  while  the  national  ratio  fell  from  828  in  1940
to 658 in 1974.  By this measure the services of physicians are becom-
ing much  less  available  in the most rural  parts  of the  United  States.
This  trend  may  have  been  accelerated  by  the  introduction  of the
Medicare  and  Medicaid  programs  which  increased  the  effective  de-
mand for physician  services in many urban areas.
This  question  takes  on  added  importance  because  of  recent
HEW decisions about the allocation  of physicians  under the National
Health  Service  Corps.  Since  its initiation  six  years  ago,  the National
Health  Service  Corps  has placed  734  physicians  across  the country,
with  94%  of  them  assigned  to  rural  communities.  Under  new  ad-
ministration  policy,  60%  of  all  corps'  physicians  will  in the future
be  assigned  to  inner-city  neighborhoods  that have  few  or no  physi-
cians.  The  effects  of this  policy  shift  on  rural communities  should
be  reviewed.  New  initiatives  may  be  required  to  supply  physicians
to already medically underserved  rural areas.
Numerous  rural  communities  may  never  be  able  to attract  physi-
cians.  Thus,  non-physician  providers  (physician  assistants,  nurse
127practitioners,  mid-wives)  may  constitute  a  viable  option.  Such
providers  are  now  functioning  in  several  states,  including  North
Carolina,  Arkansas,  and  Nevada.  In  1978,  congress  approved  legisla-
tion permitting  Medicare/Medicaid  reimbursement  to such  providers
who  were  working  under  the  indirect  supervision  of  physicians.
This  was  a  necessary,  but  not  sufficient,  step  toward  the  goal  of
supplying  this  type  of  primary  care  to medically  underserved  rural
communities.
Housing
4. Helping  the  Low-Income  Households  - Low-income  house-
holds  lack  the  repayment  ability  to  qualify  for  available  credit
assistance  even  allowing  for  interest  credit  loans  now  available
through  federal  programs.  If  extremely  low-income  households are
to  improve  the  quality  of their  housing,  other  means  of assistance
must  be  developed.  In  addition  to  long-range  efforts  to  improve
household  incomes,  increased  financial  assistance  for housing  of the
extremely low-income  households may be necessary.  Development of
subsidy  recovery  approaches  merits  consideration  as  a  means  of
minimizing  long-term  budgetary  constraints  of  the  federal  govern-
ment.
5. Availability  of Housing Credit and Its  Uses - Housing  credit
continues  to  be  less  available  in  nonmetro  than  in  metro  areas.
Limited  size  and  numbers  of  credit  insitutions  and  less  favorable
credit terms restrict nonmetro  households in obtaining needed credit.
Financing  of mobile  homes,  which  constitute  about  30%  of all  new
housing  in  nonmetro  areas,  continues  to  be  far  less  favorable  for
them  than  for  conventional  housing:  terms  are  relatively  short,
interest  rates  high,  and  down  payments  large.  Governmental  help  in
financing  mobile  homes  is  almost  nonexistent,  since  current  pro-
grams are strongly  biased against this option.
6.  Overcoming the Impact of Rising Energy Costs - Rising energy
costs  for home  heating  and  cooling  are  rapidly escalating the cost of
housing  in  rural  America.  The  most  serious  impact  of  increasing
energy  costs  is  felt by  low income  families-those least  able to meet
such  costs  without  sacrificing  other  needs.  Concerted  efforts  at
weatherizing  homes  can  reduce  the  impact  of rising  energy  prices;
long-term  development  of  low  cost  energy  systems,  and  design  of
more energy efficient rural housing is essential.
128

PUBLIC POLICY ISSUES IN RURAL DEVELOPMENT

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