Thoughts on Rural Economic Development

This week Prime Minister Justin Trudeau released the mandate letter for the new Minister of Rural Economic Development. Small towns and rural areas have, on average, been hit hard by a couple of large economic forces, but well-designed policy can create economic opportunities for these areas.

Force 1: Clustering

When it comes to location, every industry has push factors that will cause companies to cluster together and pull factors that will cause companies to spread apart geographically (of course, there are some industries, such as natural resources, that simply are where they are). Industries that require a large pool of skilled talent, such as investment banking, app programming, etc. will tend to cluster in a few large geographic areas. Other industries that require large parcels of land, such as farming, will tend to spread out. Manufacturing’s push factors (need to be close to suppliers and major transportation infrastructure) and pull factors (need for relatively inexpensive land) lead to plants creating an archipelago along major highways. Finally, other industries such as retail, teaching and the like tend to be proportional to an area’s population.

Long story short is that, in development countries, job growth is occurring in industries that tend to agglomerate (that is, ones dominated by push factors), causing job growth in large cities and job stagnation (or outright decline) elsewhere.

Force 2: Dual-Income Families

In an era of dual-income families, households will locate to places where both spouses can seek employment. In the past, a highschool gym teacher could choose to live almost anywhere. Now, if that gym teacher is married to an app developer, it may be difficult to live in a place which is not proximate to a large economic centre. This “power couple” situation is boosting housing demand in big cities (or places closes to them) and a drag on demand elsewhere.

At a high level, there’s two things policy makers can do about it:

Decrease the distance between rural areas and big cities

Of course, this isn’t possible in terms of distance, but what ultimately matters is time. Let me introduce you to Marchetti’s constant:

Marchetti’s constant is the average time spent by a person for commuting each day, which is approximately one hour. ..

Marchetti posits that although forms of urban planning and transport may change, and although some live in villages and others in cities, people gradually adjust their lives to their conditions (including location of their homes relative to their workplace) such that the average travel time stays approximately constant. Ever since Neolithic times, people have kept the average time spent per day for travel the same, even though the distance may increase due to the advancements in the means of transportation.

The one hour figure is door-to-door, combined for both ends of a commute. Note that the 30 minutes each way represents an average, so we can think of a city’s economic reach as being anywhere that is 45–60 minutes away from a door-to-door one way commute. (Here’s some data for Canada that is illustrative of this).

Smart investments in infrastructure and transit can extend the economic reach of our cities further into rural areas, giving residents in those places the ability to work locally or work in the larger economic centre.

Eliminate the bottlenecks to growth in non-clustering industries

My primary project at SPI is on agriculture and agri-food, as I see huge potential for growth in the sector, creating growth in these regions and for Canada as a whole. The most important thing government can do is ensure that they do no harm: are there policies that are harming these sectors that need to be reformed or abolished. Any new policies should be put through a rural/remote lens, to ensure they are optimally designed for these regions.

Beyond “do no harm”, governments need to determine bottlenecks to growth and design smart policies to address these. A big one in agriculture is lack of access to broadband, which makes the use of precision ag technology difficult; I was heartened to see this included in the mandate letter. Tax, labour skills, immigration, trade policy can all be of considerable use.

Best of luck to the new Minister! It’ll be a challenging portfolio to be sure, but one with a great deal of potential.