Road Trips, Online Shopping, and Monetary Tug of War
A quick exploration of injections and leakages in rural economies
Follow the money
Growing up, I remember my mom and sisters driving to Green Bay and Appleton—the nearest cities—at the end of every summer for school shopping. We had a Mall in Marquette, but the options were limited so the drive was essential. By no means were they alone. This was the custom of many: the yearly retreat to a larger shopping district with more options.
We live in a far different world today. And yet, strikingly similar. Options are still important. Variety is still sought. Those haven’t changed. But the means of acquiring those goods has. The principle behind the drive my mom and sisters took is simple to understand: when options are limited within an area, look outside that area. Before the age of internet shopping, this meant looking to larger cities. Why? Because the options seemed to increase with the size of the city. While driving isn’t necessary now, the desire to look for options outside is still extant. The ease and convenience to seek and find those options are far greater today than they once were, especially for rural communities. They are literally at our fingertips. I’m not saying that those trips to the “larger cities” for shopping don’t happen anymore, but they do not necessarily happen because it’s the only way of having options. In today’s world, it may be for the sake of getting out of town for the weekend or just spending time together.
Leaving out the philosophic side of the argument, of whether or not this reality is “good” or “bad,” “right” or “wrong,” and instead focusing on the economic impact of what scenarios like this represent, we can better understand the fragility and potential of rural economies. By better understanding the economies of small towns scattered about vast landscapes, we can better appreciate their importance and the role they play in the larger economy.
The above example was not given to argue against larger cities or for small towns to have the same options at their disposal. I think we all know it is not possible or even feasible for small towns to offer the same variety and options that larger cities offer. Though, if ever there was a time that the citizens of large cities and small towns have access to the same things—maybe not in their physical location, but at their disposal via the internet—it is now. The main point of the example above is to explore certain aspects of an economy that promote stability and longevity, and those that cause instability and decline. The first aspect we’re going to look at is indicative of the behavior described above: the flow of money into and out of an economy. These are called injections and leakages.
Injections and leakages: and introduction
I realize economic talk can be a little boring to some, but before we can address a problem we need to know what is causing it. I’m gonna do everything I can to keep it as straight forward and not boring as possible. Okay, here we go. There is no self-sustaining modern economy where money does not leave or enter. We all rely on those outside the area we live for our survival to some extent. Money that leaves the area is called a leakage, and money that enters from outside is called an injection.
In the diagram above, Community “A” and “B” can represent anything from two neighboring cities to two countries. The idea is not to get caught up on the labels, but focus on what the labels stand for: groups of people spending their money in a defined geographic region.
Food, fuel, and material are all examples of elements that make up our elaborate global economy. While it’s easy to lose sight of individual economies when we focus on the larger economy, and vice versa, it’s important to remember that they are indeed connected. The smaller economies are all integral parts of the larger. And the flow of money into and out of these economies stands for far more than just a surplus or deficit, growth or contraction. This flow can determine the survival of a community and its economy. These two features are extremely important to the stability and sustainability for any area or economy, but they are tantamount for rural economies because of their somewhat delicate nature due to their lack of diversity and excess financial resources.
Equilibrium: the giving and taking
In both urban and rural settings, a large portion of the money circulating in the economy begins as a paycheck. That money either circulates within the local economy or leaves the area via online purchases, credit cards, vacations, etc. A leakage for one economy is an injection for another. Holding everything else constant, the flow of money within and between economies is a zero sum scenario. What this means is that if one area shows a deficit then another will show a surplus. This is the nature of the game. If you are still having a hard time visualizing this, let's use people instead of money. People move into and out of communities all the time. Those moving in would represent injections, and those moving out would represent leakages. Those people moving are both an injection and leakage, but to different communities. The size of the individual communities will grow or shrink, but the total number of people between the communities will stays the same.
When an economy is showing a surplus there is an opportunity for growth, i.e. business expansion, community development, etc. Conversely, an economy with a deficit can be at risk of contraction. This contraction can take the shape of businesses closing, profit margins reducing, wages decreasing, populations declining, property values falling, and communities entering life-support mode. It should be noted that both of these scenarios are possibilities, not certainties. Having a surplus does not necessarily mean growth is occurring anymore than having a deficit means things are contracting. These are just glimpses of the state of an economy at a given time, i.e. the short-term.
We often get caught up in the short-term when determining how we are doing and what our prospects are. It’s easy to do, but not necessarily the best way to determine current or future economic health. Things change. This is why looking and thinking long-term is so important to stability. And while the well-known English economist John Maynard Keynes said, “in the long run we are all dead,” that doesn’t mean looking to and preparing for the future is not wise or important.
All economies are equal, but some are more equal than others
The conundrum we find ourselves in should begin to be taking form. Financial resources are needed to promote growth. Growth promotes/incentivizes diversity. Diversity leads to stability. Stability tends toward sustainability. Without the financial resources, though, a community is in competition with outside forces with which it is greatly outmatched. The give and take between these economies becomes strictly giving for the one economy, until there is no more to give. Some look at this scenario and say that the failing economy isn’t fit and is incapable of being competitive. A very simplistic and myopic way of viewing it. In many cases these communities struggle to compete because the obstacles they face are too great for it to overcome given the current environment. Who is to say it couldn’t compete and even thrive had it the required resources?
An economy that relies too heavily on outside injections will be potentially volatile. Think of a tourist economy. Good years can be great for the area, but a bad year can take a heavy toll on that economy. If a bad year is followed by another the situation can get even worse. On the flip side, an economy that relies too heavily on the outside will lead to a year after year deficit. Without the much-needed flow of money through the local economy—something called the velocity of money, which we’re gonna dive into another time—this economy will most likely experience contraction. These scenarios are especially prominent in rural areas because of the inherent lack of diversity and limited financial resources typically found within their economies. In larger, more diverse, economies a deficit has less of an impact than a deficit on rural economies.
Earlier in this entry I used the word fragility when describing rural economies. I admit, it’s not the most flattering term, but it was not meant to be derogatory. A coral reef is far more fragile than a vigorous river, but the importance of that reef cannot be denied. A small cottage could be more fragile than a castle, but that cottage is still a home to a family and serves a very important purpose. It’s very consequential to not confuse how large or small, robust or delicate, something is with how important it is. Rural economies, though not large, are extremely important to those living in them and to the overall scheme of the larger economy.
What, then, do we do to address the problem we see? How do rural economies—and therefore rural communities—survive when leakages are greater than injections, financial resources are drying up, basic necessities are dwindling, and human capital is leaving? How do we put an end to this downward cycle? The solution can be seen within the problem itself. If it was strictly an issue of people not wanting to live in rural areas we could dismiss this problem as one of preference. But that is not the case.
The choice of where we live is often made for us, and not made by us. At the heart of the issue is the question: what is preventing these areas from reaching their economic potential? It is not that resources, finances, and people are leaving, but why they are leaving. This is something relatively easy to pinpoint.
Looking at the “big” picture requires us to look at the “small”
Last week, Michael talked about the gap in public service infrastructure that rural communities face. This infrastructure is critical to building a modern economy that can attract entrepreneurs, retain the talent in the workforce, and provide a quality life for their citizens. This infrastructure acts as a foundation with which communities can begin to diversify and slowly expand. Without it, these communities are in a hole in which climbing out of is extremely difficult, perhaps impossible. With it, they can be active participants in a global economy while also living in a vibrant local economy.
Yes, this is but one aspect of what makes an economy, and there is so much more to consider. I think we can see, though, that at the core of any thriving economy is the well being and happiness of those who make it up. There is no doubt one could argue the causality of these elements. And I do not deny that you could artificially create an economy around a sector or business, only to have a community, investments, and infrastructure follow. It’s been done. But that happening is contrary to the more organic formation and development of economies.
This isn’t a hypothetical situation. At this very moment we have existing communities and economies in need of this infrastructure. People live and work in these communities right now. Kids go to the schools. When one of them gets sick or injured, they need a doctor. When schools are closed because of a pandemic, they need working, reliable internet so they can continue their education. So, if the nearest healthcare facility closes because it is becoming too costly to operate, or they cannot attract the required talent to work there, remember this is not necessarily because of poor management or anything the community did wrong.
We all have basic expectations. The quality of life we live is a major one. If our communities do not or cannot provide for our basic expectations or needs, like adequate healthcare or connectivity, we are often forced to look elsewhere. When enough people move due to a lack of opportunities or resources, businesses close, school enrollment falls, and a slew of other dominos fall. This results in an exacerbated financial strain. There is no magic equation to determine whether an economy will thrive or flounder, but there are certain factors which greatly improve the odds of success. Modern and reliable public service infrastructure is one of those factors. It is absolutely necessary for rural communities and economies to have a chance at competing and surviving.
In the following entries we are going to be exploring many more factors which play a role in economic success for rural communities. Throughout this exploration our hope is that it will become apparent that it is not charity to push for rural investment. It is not a hand out that rural communities seek. Far from it. It is an opportunity, an opportunity that would not just benefit their communities but also the vast majority of society.