With a population of nearly 10,000, Cody is one of Wyoming’s larger communities. The country depends on seasonal income from tourism to support its economy. (Don and Melinda Crawford | UCG | Universal Images Group via Getty Images)
Imagine living the American Dream. You probably have more opportunities than your parents. Through hard work, smart choices, and maybe a little luck along the way, you’ll have financial stability and a lot of freedom to choose your next steps in life.
Chances are also good that you live in or near a vibrant community with a robust local economy.
We tend to focus on the individual aspects of the American Dream, but we also value our communities: our downtowns, little leagues, good schools, safe public spaces and local traditions. Individuals and families tend to look for the places that offer these things along with jobs nearby. And when communities start to lose this quality of life, residents notice. Younger people often migrate.
But why do places that were once lively sometimes lose this quality?
This is a question we’ve been considering as economists studying the constraints on better economic growth, most recently with the state of Wyoming. We discovered that there is an often overlooked factor that is shared in many different places, and understanding it is critical to helping such communities recover.
Why communities fall into cycles of decline
Whether a community thrives or falls into economic decline depends largely on its ability to generate “marketable income.”
Marketable income is jargon for money generated from stuff a local economy sells outside its borders. These could be the crops that people grow, the products that factories manufacture, the services that companies sell, or the minerals that are extracted from the ground. This income is then distributed within the local economy in the form of demand for other jobs, such as cashiers, hairdressers and handymen. Tradeable income is essential for importing all goods and services that are not produced locally.
Without tradable income, the rest of the local economy will struggle to survive. You can think of tradable income as the oxygen circulating through the body of the local economy.
Rural economies almost uniformly have fewer and less diversified sources of tradable income than urban economies. They can rely on the same main source of marketable income that caused the community to settle in the first place.
These economies are far more vulnerable to existential economic and environmental shocks and downward spirals of community decline than urban economies, which have built more diversified tradable income sources over time.
For example, regional economies built on the extraction and sale of natural resources may experience booms and busts based on resource prices or government policies. The sudden closure of a mine can wipe a community off the map within a few years. This is despite the fact that most jobs in the community were not directly created by the mine. The deeper and often overlooked problem is that the tradable income was tied to the mine.
This process is nothing new. It’s why the West has many ghost towns, and why many once-strong manufacturing towns have been transformed into the Rust Belt. In small communities, a regional school or even a Walmart can have the same effect if it closes, as these may be the only sources of outside money.
The loss of a crucial source of marketable income, if not replaced, deprives the local economy of the oxygen it needs to survive. Without new sources of tradable income, downtown stores are closing because there isn’t enough demand from businesses, unemployment is rising, local tax revenues are collapsing and people are leaving.
Federal funding has a design flaw
State and federal policies have never been particularly effective at facilitating local economic transitions from old sources of tradable income to new ones, or even softening the blow.
Today, it is not difficult to see how climate change – as well as efforts to combat it by closing fossil fuel extraction and power plants – could deliver new and painful shocks to local economies, just as automation and globalization have done.
The Biden administration’s recent effort to build infrastructure and jump-start strategic industries—including through the Infrastructure Investment and Jobs Act, the Inflation Reduction Act, and the CHIPS and Science Act—was driven in part by a desire to to provide economic opportunities to parts of America that were increasingly left behind.
Recognizing that different places have different needs, these federal efforts have tended to channel resources to communities through discretionary grants rather than formula funding. In other words, the system placed the responsibility on community leaders to identify funding opportunities and to compete for that funding through proposed projects that meet predefined criteria, rather than distributing resources based on population or some other formula.
However, a major problem is that most rural areas do not have the bandwidth and local government staff to navigate this system.
City clerks and part-time local officials are often responsible for many public jobs and don’t have the time or resources to navigate the byzantine federal financing systems. They don’t have the time to absorb the flood of webinars, newsletters and online tools that federal agencies have created to spread the word about opportunities, let alone mobilize successful grant applications for complicated programs with short application windows.
Not surprisingly, federal funds initially tend to flow to larger municipalities with greater resources.
Wyoming, a largely rural state, is an example of this. The state receives fewer federal discretionary grants per capita than most other states, and those grants reach relatively few communities. Our team at Harvard Kennedy School’s Growth Lab has been working with officials and residents there to find solutions.
Many people in Wyoming believe the grant criteria have deliberately disadvantaged the deeply conservative state. There are some eligibility criteria for programs that fuel this narrative, such as subsidies targeted at coal communities that better match the demographics and income levels of Appalachia than those of Wyoming. Likewise, the lack of state Medicaid expansion reduces federal funding flows.
However, the main reason is much simpler and more mundane. Small and stressed communities from Wyoming to Vermont, across the political spectrum, face the same systemic obstacles in navigating the system.
The government can do better – here’s where to start
Efforts have increased statewide, including in Wyoming, to help local leaders identify and obtain federal grants, especially through the creation of workforce and resource centers that local leaders can call on to help navigate the federal system. But we believe that a fundamentally better system is possible.
Instead of federal entities setting up highly specific grant programs, inviting communities to apply and compete, and centrally selecting the winners, they could flip the script when it comes to rural communities in regions facing commodity shocks income.
Federal entities could instead work with each other and with local leaders, starting with the place-specific needs of regional economies, and develop customized projects accordingly. Rather than exploring centrally designed programs, federal agencies could do more to strengthen and support locally defined transformation efforts.
This was the spirit of the U.S. Economic Development Administration’s Recompete Pilot Program, which last year awarded six major grants from among many, many locally driven proposals from economically distressed areas. A similar shift in approach was a key finding of the federal government’s Interagency Working Group on Coal and Power Plant Communities and Economic Revitalization, whose recent progress report, looking back on three years of work, highlights a greater need to work with, rather than imposing on, local leaders and coalitions.
Developing new avenues for marketable income will rarely be easy or quick, but this is a better place to start.
This article is republished from The Conversation under a Creative Commons license. Read the original article.