Rural Wealth Creation

John L. Pender, Bruce A. Weber, Thomas G. Johnson, J. Matthew Fannin

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781135121969
• Edition: 1
• Topic: Business
• Subtopic: Entrepreneurship
• Index: Business

This book investigates the role of wealth in achieving sustainable rural economic development. The authors define wealth as all assets net of liabilities that can contribute to well-being, and they provide examples of many forms of capital – physical, financial, human, natural, social, and others. They propose a conceptual framework for rural wealth creation that considers how multiple forms of wealth provide opportunities for rural development, and how development strategies affect the dynamics of wealth. They also provide a new accounting framework for measuring wealth stocks and flows. These conceptual frameworks are employed in case study chapters on measuring rural wealth and on rural wealth creation strategies.

Rural Wealth Creation makes numerous contributions to research on sustainable rural development. Important distinctions are drawn to help guide wealth measurement, such as the difference between the wealth located within a region and the wealth owned by residents of a region, and privately owned versus publicly owned wealth. Case study chapters illustrate these distinctions and demonstrate how different forms of wealth can be measured. Several key hypotheses are proposed about the process of rural wealth creation, and these are investigated by case study chapters assessing common rural development strategies, such as promoting rural energy industries and amenity-based development. Based on these case studies, a typology of rural wealth creation strategies is proposed and an approach to mapping the potential of such strategies in different contexts is demonstrated.

This book will be relevant to students, researchers, and policy makers looking at rural community development, sustainable economic development, and wealth measurement.

Part I

Conceptual foundations

1 Rural wealth creation

Introduction and overview

John L. Pender, Thomas G. Johnson, Bruce A. Weber, and J. Matthew Fannin¹

In August, 1992, Hurricane Andrew hit south Florida and inflicted tremendous damage, including twenty-six deaths and more than $26 billion in total property losses – making it the most expensive natural disaster in United States history at that time (Baade et al. 2007). Despite the large negative impact on local lives and physical wealth, economic activity was only temporarily reduced, and within one month after the storm taxable sales revenue in Miami was more than 5 percent higher than its usual level, and above normal spending continued for eighteen months after the storm. Although far from universal, such post-disaster economic “booms” have occurred in many cases, due to reconstruction-related expenditures largely financed by external insurance claim payments and Federal disaster funds (Burrus et al. 2002).

This example illustrates the importance of distinguishing between flows of economic activity, such as sales, income or employment, and changes in wealth, if one is concerned about the well-being of people. Although a disaster may generate economic activity, possibly even increasing employment and income for some time, few would argue that this means that the residents of the affected region or the nation as a whole are better off as a result. Apart from the people who died or otherwise suffered physical or emotional losses, many people lost a substantial amount of wealth. To understand how people’s well-being was affected, one therefore needs to understand how their wealth was affected, in addition to impacts on economic activity.

The importance of understanding wealth and changes in wealth is fairly well understood when it comes to assessing the impacts of natural disasters. However, the importance of wealth for well-being is not always adequately recognized in other areas of public concern and policy debate. For example, during the recent recession and its aftermath, many policy makers have understandably put a high priority on the near-term employment and income impacts of any policy or program under consideration; such as how many jobs have been created or saved by the American Recovery and Reinvestment Act (ARRA). The longer-term benefits of ARRA and many other policies will depend on their effectiveness in creating new wealth – whether improvements in physical infrastructure, human capital, or other forms of wealth – and the economic and social returns that will accrue to those investments. Yet little attention has been paid so far to the impacts of that policy (and most other policies) on wealth.

Wealth, as we define and use the term in this book, includes all types of assets (net of liabilities) that can contribute to the well-being of people. This includes not only financial assets such as money, stocks, and bonds, and physical assets such as infrastructure, buildings, and equipment. It also includes natural capital such as renewable and non-renewable natural resources and natural amenities; human capital embodied in the education, skills, and health of people; social capital inherent in social networks and norms; and other intangible assets.² Although some forms of intangible capital have long been recognized as important contributors to economic performance and well-being – e.g., human capital – the idea that wealth includes much more than tangible assets has gained stature in recent years due to efforts by prominent scholars such as Nobel laureate Kenneth Arrow and his colleagues (Arrow et al. 2004, 2012) and development organizations such as the World Bank (World Bank 2006, 2011) and the United Nations (UNU-IHDP and UNEP 2012) to define and measure broader conceptions of wealth and savings.

It has been argued that intangible wealth is like the concept of “dark matter” used by astrophysicists to explain cosmological phenomena.³ Intangible wealth plays a similar role in understanding economic phenomena: although not easily observed, it may play a dominant role in determining differences in economic performance. For example, the World Bank (2006) has estimated that intangible capital accounts for most of the differences in wealth and consumption among nations. Arrow et al. (2012) estimated that human capital accounts for more than 90 percent of the comprehensive wealth of several countries, including the US, China, Brazil, India, and Venezuela.

Investing in multiple forms of wealth is necessary if economic development efforts are to be sustainable. For example, a nation or region may increase income in the near term by depleting its natural resources, but this growth will not be sustainable unless some of the proceeds are invested in other forms of reproducible capital yielding a sufficiently high return (Hartwick 1977). Even without depletion of natural capital, economic growth theory has shown that economic growth eventually stagnates as a result of diminishing returns to produced capital (Solow 1956), unless investments are made in a broader set of types of capital, such as human capital and knowledge (Barro and Sala-i-Martin 1995).

Wealth matters not only for the economic performance of nations, but also for economic, social, and environmental outcomes within nations. For example, people with low wealth may get trapped in poverty because of their inability to cope with risks or to invest in high-return activities (Carter and Barrett 2006). Unfortunately, many social policies in the US have ignored the importance of wealth, instead subsidizing the income or consumption of the poor, and in some cases inhibiting their ability to accumulate wealth (Sherraden 1991). Without income support, poor people would undoubtedly be worse off, but wealth accumulation remains critical to achieving long-term reductions in poverty.

The distribution of wealth is a critical determinant of the distribution of poverty and well-being within the United States and other nations. The measured tangible wealth (net worth of physical and financial assets) of households in the United States is even more unequally distributed than income. In 2007, the top quintile of households owned 85 percent of total household tangible net worth, while the top quintile of income recipients in 2006 received 61 percent of total income (Wolff 2010, p. 44). Among countries for which household net worth distribution data are available, the United States has among the most unequal net worth distributions. For example, the Luxembourg Wealth Study, which has compiled wealth distribution data for several industrialized countries, found that the share of household net worth owned by the top 1 percent, 5 percent, and 10 percent of households was greater in the United States than in the six other countries studied (Canada, Finland, Germany, Italy, Sweden, and the United Kingdom) (Sierminska et al. 2006).⁴ In a larger study of international household wealth distribution, Davies et al. (2009) estimated that the US had among the most unequal distributions of household net worth among twenty countries, although the top 10 percent of families held a somewhat larger share of household net worth in Denmark and Switzerland than in the United States.

Little is known about the distribution of other forms of wealth besides household wealth (such as public wealth) or of less tangible forms of wealth, which also influence the distribution of poverty and well-being. Very little is known about the distribution of wealth in subnational regions, such as the distribution of wealth in rural vs. urban areas. The available evidence on wealth in rural areas of the United States is limited mainly to data on the marketable net worth (physical and financial assets) of farm operator households (Wye City Group 2012), with little evidence yet on non-farm rural households or on other types of rural wealth.

Rural development policy makers, funders, and practitioners in the United States have begun to focus on rural wealth creation as the key to achieving lasting rural prosperity. Secretary of Agriculture Thomas Vilsack has argued that the US Department of Agriculture (USDA) “must help rural communities create wealth so they are self-sustaining, repopulating and thriving economically”.⁵ The Appalachian Regional Commission has embraced an “asset-based development” approach, emphasizing investment strategies that build upon the cultural, natural, physical, and leadership assets of Appalachian communities. In 2008, the Ford Foundation launched a program to promote wealth creation in poor rural communities in rural Appalachia, the South, and the Rio Grande Valley, and asks grantees to measure impacts of projects on seven forms of wealth.

Despite the increased attention being paid to wealth and wealth creation by scholars, international development organizations, and rural development policy makers and practitioners, solid empirical research on this topic is still quite limited. There are large and growing literatures on some types of assets and their relationship to economic development, such as human, natural, and social capital. However, there has been much less research investigating the interactions and dynamics of investments in these different types of assets, and how these concepts can be measured. This book seeks to begin to address these knowledge gaps, focusing on rural wealth creation in the United States.

Objectives and intended audience

This book seeks to synthesize and contribute to knowledge about the concept of rural wealth creation, how rural wealth can be measured, and strategies for creating and maintaining rural wealth that contribute to lasting and broadly shared rural prosperity. The empirical focus is on approaches to create and measure rural wealth in the United States. This is not to assert that wealth creation is important only in rural areas and only in the United States. Rather, this focus grows out of the research experience and emphasis of the editors and authors of this book, and reflects the need to keep our task manageable.

There are many researchers, practitioners, and others working on community and economic development issues in other countries and in urban environments of the United States for whom the concepts and empirical methods presented in this book are likely to be useful, even if the empirical contexts in which they work are different. Conversely, we draw upon concepts, frameworks, and methods that have been developed and applied in many other contexts.⁶ For example, the conceptual framework for rural wealth creation presented by Pender and Ratner in Chapter 2 draws heavily upon the Sustainable Livelihoods Framework (Carney 1998) developed by the Department for International Development of the United Kingdom (and other frameworks proposed in the literature), which has been applied in many developing country contexts.

Although our focus on rural wealth creation in the United States is primarily for practical reasons, this context is a useful focus in its own right. Rural areas generally face different opportunities and constraints to achieving sustained prosperity than urban areas, largely due to different wealth endowments. For example, natural resources and amenities usually play a greater role in economic development strategies in rural areas, whether as the basis for agriculture, forestry, or mining activities, or as a key factor attracting residents and tourists. By contrast, many forms of physical and human capital are often more scarce in rural areas, due to their low population density, distance from population centers, and the fixed costs of acquiring and maintaining such assets. Rural wealth creation opportunities in more developed countries such as the United States are likely to differ from those in developing countries, where rural communities tend to be much more dependent upon agriculture for economic subsistence and opportunities for amenity-based rural development are likely to be more limited.

Despite these general patterns, rural areas of the United States are highly diverse, with large variations in the extent of their dependence on agriculture or other natural-resource-based industries, access to infrastructure and services, demographic characteristics, social and political relationships, poverty, and other characteristics. Thus, although lessons about wealth creation opportunities in the rural United States may not be directly applicable in other countries or in urban contexts, the rural United States provides a valuable “laboratory” within which the challenges and opportunities of creating and measuring wealth in diverse contexts can be investigated. Furthermore, several of the chapters of the book investigate differences in wealth or wealth creation strategies between urban and rural areas, broadening the set of contexts addressed in the book.

This book is intended to be a foundation for further research on wealth and wealth creation, rather than a distillation of key messages and best practices learned from a completed program of research. Hence, two of the main objectives are to demonstrate a framework and approach to conducting useful research on this topic, and to identify critical knowledge gaps and priorities for future research. Implications for rural development policy and practice are drawn when these are well supported by the available theory and evidence, but drawing such implications is not the primary objective of this book.

The primary audience for this book is expected to be applied researchers and students of sustainable rural economic development, community development, regional science, and rural sociology. Although the focus is on rural areas of the United States, researchers working on such issues in more urban contexts or in other cou...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of figures
• List of tables
• Notes on contributors
• Acknowledgments
• PART I Conceptual foundations
• PART II Measuring rural wealth
• PART III Strategies for rural wealth creation
• PART IV Synthesis and conclusions
• Index