It might be hard for some to believe, but the truth of the matter is that the same food deserts that are regularly reported about in America's inner cities face small towns in America where food is grown.
The same lack of retail choice that faces the poor sections of America's inner cities faces America's small towns.
The same factory flight that has left America's inner cities hollowed out has hollowed out the small towns of America that managed to survive as the work force needed for agricultural production steadily declined, because a factory had operated in that town. When a factory closes in most small towns of America, you might as well fold up the streets.
The rise of Walmart has left most of rural America with essentially only one choice for retail goods and in many communities they are the only choice for groceries, or the only affordable choice for groceries.
In my hometown, the death of the Borders chain of bookstores ended the profitable Border's store in the local mall's existence. The death of Borders was the beginning of the decline of the local mall. The bookstore was a regular draw for people who wanted to browse, and in the few years since the store closed the local mall has saw a significant decline in traffic and sales. The occupancy rate has declined. I suspect the bookstore was one of the better sources of traffic for other stores because it was the only bookstore in a county of about 120,000 people.
For me, the bookstore was the only draw which brought me to the mall. I was always a voracious reader, and buyer of books, and I visited the bookstore almost daily during my lunch hour. Amazon is the only option left for me now. The nearest bookstore to my hometown is more than an hour and a half drive down the Interstate away from me, but Amazon does not offer the discoverability that a bookstore with shelves full of books offered.
I mention this, because I have been part of a several thousand member Facebook group seeking to draw a bookstore to our local community since shortly after Borders left the mall. In the year after the Borders closed I was very jealous when I visited my mother's small hometown in central Illinois and discovered that her hometown of less than 2000 people had a used bookstore. That store too has since closed. Amazon has made the book business almost impossible for retailers.
For me, this is a problem, not because Amazon is doing anything wrong, but because there are societal benefits that certain kinds of public establishments provide beyond their value as a retailer. Bookstores are great places to meet people. Bookstores are great places to kill a few hours while expanding your thinking by merely browsing the titles the store offers. Bookstores are just great places in general. Every now and again these kinds of benefits are more significant than the retail value of a business, and as a society we aren't doing a very good job of rewarding businesses for providing these benefits.
This diary is the second, or possibly third in a series focused on rural America and economic development in rural America. I believe the ideas I will be exploring herein are equally valuable for economic development in America's inner cities, but I will be focusing on rural America as I know it best. You may want to read the prior diary to better understand what informs my thoughts.
You can check these things out here:
http://www.dailykos.com/...
I might get back to bookstores later, because they are important to me, but what is more important is the decline and hollowing out of America's small towns that has occurred because American manufacturing has been destroyed.
The destruction of American manufacturing started during the Reagan Administration as the corporate raiders and the leveraged buyout broke up companies, and consolidated factories under fewer banners. NAFTA, the WTO, and the granting of most favored nation trading status to China accelerated the decline of American manufacturing during the 1990s because well paid American workers had almost no way to compete without tariff protection when faced with competition from underpaid workers in developing nations. Bush policies which did nothing to prevent product dumping under WTO rules by the Chinese further accelerated the flight of American manufacturing. Only the policies of President Obama to enforce WTO rules against product dumping have done anything to cause a minor bump in manufacturing jobs. About 750,000 more Americans are working in factories since President Obama assumed office because he has enforced WTO rules. The Chinese government through currency manipulation has continued to undermine American manufacturers' competitiveness, but energy costs here which have been significantly lower than the rest of the world have actually made America relatively competitive as a manufacturer, recently.
Manufacturing is important because economists estimate that every dollar spent employing American laborers in manufacturing is spent about eight times before it has fully cycled through the economy. Manufacturing jobs CREATE other jobs by creating demand. Manufacturing is where economies create value. Without manufacturing, every other area of the economy is in decline. Without manufacturing, the middle class disappears.
The first step in restoring the economies of America's small towns and inner cities is rethinking our trade policies. NAFTA has allegedly increased America's exports to both Canada and Mexico, but left us with a trade goods deficit which represents almost 30% of our overall trade deficit. NAFTA has been beneficial for both Mexico and Canada. It has actually hurt America's farms, which definitely is bad for small town America. It might realistically be impossible to undue this trade agreement, but renegotiating the agreement is not impossible, and blowing it up is certainly a threat worth considering to force better terms. Canada already has strong worker protections and environmental regulations which means competition with Canada is very fair, but Mexico certainly needs improvement for competition from Mexico to be fair to American workers and American manufacturing.
Since Most Favored Nation trading status was granted to China in 1995, our exports to China have grown from about $8 billion a year to around $120 billion a year. The problem is that imports from China have been around $420 billion a year, leaving us with a $300 billion trade goods deficit with China. The bigger problem is that China refuses to open themselves to numerous American manufactured goods and has regularly stolen intellectual property, and the Chinese government likely regularly commits or endorses corporate espionage against American businesses. Continuing the lopsided trade deal we have with China, or worse yet expanding this lopsided deal with the Trans-Pacific-Partnership is the worst thing we could ever do for American manufacturing.
Those are the obvious things that we should be doing. Below are the not so obvious things we can and should be doing to promote economic growth in our poorest communities.
As I said, the county I live in, has about 120,000 people, and the county's GDP is about $1 billion per year. That means that the per capita GDP of the county is about $8300 a year. Ironically because the county has a very strong presence of government jobs it is doing fairly well economically and has been one of the counties in the country with a growing population and a growing economy, even during the recession. It never suffered a real decline in real estate prices, but it is hardly a strong economy with a more than 7% official unemployment rate, and the rural counties which surround it have higher unemployment rates. For some perspective, the total property value of the county my mother grew up in in Illinois is only about $113 million and only about 6,000 people reside in the county, I have been unable to find a GDP for the county, but to give it some perspective, only one of the townships that make up my home county has property valued at over $400 million, and there are 22 townships in the county.
It is a safe bet that most rural counties in America have a GDP value that is not out of line with my home county, and most probably have weak property values similar to the Illinois county my mother is from, but people who live in those counties probably have wages and salaries which exceed the GDP value they are contributing to the overall economy. Government spending in these counties funded by larger communities sustains them, and the money workers bring into those counties by commuting to areas with better jobs assure this, and I know that from personal experience. My uncle in Illinois is a retiree from Caterpillar where he worked in Peoria, and plenty of my neighbors earn nearly $100 thousand per year as prison guards here in upstate New York.
When you realize that the per capita GDP of the United States is more than $53,000, the weak GDP plaguing small town America shows an almost criminal underutilization of the productive capacity waiting to be employed in these forgotten areas of America. It is obvious that unfettered "free market" capitalism and its proponents on Wall Street are mismanaging the economic affairs of the nation. I'm a realist, I know that the Congress works for Wall Street, that is part of the problem. When Main Street ruled our political orthodoxy America functioned better.
Another important note on messaging for the Democratic Party:
America was founded as the world's first country state. It was deliberately planned that way because so many city states had failed before it. Up until 1976, Main Street was in charge of America, then the Supreme Court shifted power to the moneyed interests in the cities with Buckley v. Valeo
It is part of the reason that Albany and not New York City is the capital of New York. It is the part of reason that Harrisburg is the capital of Pennsylvania, and Springfield the capital of Illinois, rather than Philadelphia or Chicago. It is the reason the small states were given greater power than their populations warranted in the Senate.
The problem is that the city slickers with deep pockets have bought the media and told small town America what they want to hear, while doing exactly the opposite. These economic imperialists have used their money to pull a fast one on the country bumpkins who they consider fools. Every time you vote for one of the politicians they have purchased they laugh, because they know that they are winning.
What they fear is an ordinary man or woman standing up, and saying NO! What they fear is the man or woman from small town America with a backbone made strong by that hard work standing up and saying, I ain't buying your bullshit. What you are selling ain't gonna help the guys at the diner have a better life. It isn't going to assure that their kids don't need to move away to make a living when they grow up. It isn't going to help keep close knit families close. We've heard this plan before, and every time our taxes go up, and yours go down, our jobs go away, and your bank accounts get bigger. It isn't supposed to work this way, and we aren't going to let it work this way anymore.
Sorry I got off on a rant there, but I just came back to writing this after starting it late last night and I think a little bit of inspiration for about how to speak country could be helpful to the replacements for the Yes men currently populating Congress from both parties who need to get in the game. Teddy Roosevelt said it. The guy in the ring is the one who matters. The biggest problem has been the wrong people are in the ring. 99% of the people who step up to the plate to be our leaders in Washington have no business being there, and money has kept them there, but the device and system that allows you to read this message has made money LESS relevant than at any time in our nation's history.
In the near future I might write a diary explaining how I would go about running a campaign for Congress for less than the minimum FEC reporting requirements, and the incremental fundraising amounts I would use to give a grassroots campaign a real shot at winning, for under $100k because I think the lack of strong candidates is a problem, but that again is another story.
So messaging and attitude is important for beginning to restore sanity to American government, and without the right kind of responsive government, America's small towns and inner cities will never benefit from economic growth.
How do we start to grow America's small town economies?
The Redevelop America's Poorest Communities Act
That is just a first blush for a name of the first set of policies which I think could benefit America's inner cities and small town's which have been left behind in the economy which has developed since the 1980s.
Tax Policy
The first step in this change in policy would involve a change in tax policy. A new corporate tax to fund the economic development, which IS COMPLETELY AVOIDABLE.
For all publicly traded US companies, I propose imposing a corporate level unrealized capital gain tax. To determine when the tax would be imposed, and what the basis of the tax should be, I would determine the base price of the stock on January 1st of any given year, and I would determine the average daily stock price of each company by averaging the market high with the market low daily. I would then average those average daily prices for the year, and determine the average unrealized capital gain in the stock.
I would then impose a 5% five percent corporate level unrealized capital gains tax. I would reduce the capital gains tax rate imposed upon any shareholder who held their shares for more than one imposition of the tax by up to 5%, depending upon what their basis was at the time of purchase, and what the corporate basis was at the start of the year; however, I would make the tax avoidable by any corporation upon whom the tax would be imposed by an investment made into new or existing facilities in communities which meet the guidelines for the act. Companies could reduce the tax rate to zero by making capital investments equal to or exceeding the amount of the tax into facilities in designated communities. They could also avoid the tax by investing in designated community investment bonds which will be explained below.
What would this tax pay for? The costs of a new federal community development agency designed to supplement the small business administration with assisting in the creation of new businesses in economically disadvantaged geographic regions of the United States and administering the logistics of the new community development program.
How would this community development program work?
It would start by breaking down the per capita GDP of each county, and the GDP of smaller cities and neighborhoods in larger cities within each state. It would then compare all regions of the state versus the per capita GDP of the State. Advantages would be given for each state's community development funds to the most economically disadvantaged regions of the state.
Each state would be required by this new act with a carrot of federal funds, to sell tax free community development bonds, which can first be purchased by publicly traded corporations seeking to avoid the new tax, and then to the general public. These low interest bonds would be used to finance new businesses meeting a set of rules in the economically disadvantaged communities.
How would funding be allocated? Each state would divide the funds into pools with the highest percentage of funds allocated to development projects in the poorest communities in the state on a per capital basis. Funds would be allocated to each community in an investment amount equal to the dollar amount their per capita GDP falls below the state's per capita GDP, until all funds for the year are allocated.
How would business projects get funded with this program?
The new federal community development agencies operating in each county would assist businesses with creating business plans to be evaluated for funding, and each community would provide a website for community input about the allocation of investment dollars from the funds. These websites would post the business plans, and provide a method for registered voters in the community to vote on the allocation of funds to businesses seeking funding in the community.
Under the rules of the program, each state receiving federal funds would be required to sell enough bonds to provide funding for the bottom ten percent of communities in the state.
The funding available to businesses under this program would favor co-operative employee ownership or member-owned co-operatives similar to credit unions. The member owned co-operative model would help ensure businesses like small town bookstores which provide value to the community beyond just the retail value of a store are valued by their communities, and would be favorable for many smaller service based businesses. Employee co-operatives would be helpful with development of manufacturing businesses, and companies with scalability. I know in that in the small rural county next door to my own, a software development company servicing a specific niche industry has rapidly grown from a handful of employees to more than 60 employees in just a couple of years, and has outgrown its office facilities twice.
Member owned co-operative businesses would distribute profits and losses evenly to the members, and would likely need some changes to federal and state securities laws to make them a viable method of ownership.
To my way of thinking member-owned co-operatives have the potential to create significant economic growth in many communities around the country, the problem is that the current securities laws are not written to favor them, and there is presently almost no mechanism to fund the creation of these businesses.
The tax mechanism this plan would create would have a two-fold benefit to the country. First unrealized capital gains which often remain untaxed forever would begin returning some of the benefits those businesses have received to the community. Second, by designating the prior year's poorest communities for investment projects, corporate America would be incentivized to invest in the poorest communities, and by creating a new category of State and Municipal bonds to provide funding for new businesses in the poorest communities, we would begin to grow the economy from the bottom up.
Equally important, by favoring co-operative ownership, we would begin to close the wealth gap by making employees of businesses owners, and by making members of the community the owners and investors in the businesses they frequent. I haven't fully figured out how membership models would work, in terms of use of services by non-members and/or premium fees chargeable to non-members, but those are the kind of details that could be worked out later.
This idea isn't particularly radical, but it is an idea that is certainly not being discussed by the current candidates for office.
Some other ideas to consider will be proposed in future diaries, but this one proposal would be a good start for reviving America's small towns and inner cities which have been left behind by recent economic development.
Of course the businesses receiving funding would pay back the bond issuers with interest.