I have noticed more articles being written about the difference in living conditions in America’s urban and rural areas. Some articles, such as this one about the flight of many rural banks focus on the deteriorating economic situations in many rural areas. Others, like this one from the WSJ and this one from Bloomberg discuss how Dollar General has turned these relatively abandoned areas into their target demographic.
The current problem with America’s rural areas is that we have urban areas serving rural areas, but rural areas are giving very little back to the urban areas. In the past, rural areas provided raw materials, agriculture, and manufacturing that urban areas relied upon. Urban areas largely offered trade and finance activities. As such, money flowed both into and out of rural areas, keeping a fairly even balance. Recently, however, this balance has fallen way out of whack.
In the past, most companies which extracted value from rural areas - raw material extractors, farmers, and some manufacturing - were locally owned and operated. This meant that value could be extracted from rural areas, sold to other areas for a profit, and have that profit return to the area from which the original value was extracted, thus creating a net gain. Now most of these industries are large corporations with local branches. This may seem a subtle difference at first glance, but in reality it makes a huge difference. The difference being that the largest portion of profits go to the corporations shareholders and executives rather than the areas from which they are initially extracting value. Those shareholders and executives are not rural Americans, and thus rural Americans are no longer seeing much of the profits that result from their labor and raw materials.
Now these largely impoverished rural Americans still need to support their daily lives. They need to buy food, clothes, etc. But they place a premium on low costs. At first local groceries were supporting these needs, but lately new corporations have emerged to suck this last remaining value from rural Americans. Wal-Mart, Dollar General, Kroger, Food Lion, CVS, Walgreens, etc. have taken pages from the raw material and agriculture industries’ playbooks and through scale have cut costs in a way that local grocers and pharmacies can no longer compete. More recently McDonalds, Subway, and other fast food chains are moving in to cut out local restaurants.
Rural America is trapped in a vicious cycle. The short-term benefits of lower prices is concealing the long-term consequences of sending all of one’s profits to corporations. As these Americans clamor for lower prices to stretch their dollar, they are ironically shrinking their dollar of tomorrow by sending their money to non-local corporate shareholders and executives.
Whereas before, urban and rural America had a trade balance, today there is a very noticeable trade imbalance. Money is leaving rural America, and there is no clear path for how to bring it back.