The day after the 2016 presidential election, thousands of Americans took to the streets in cities across the country to express their indignation. Standing outside Trump Tower in Midtown Manhattan, protestors chanted “Not our President!” and “New York hates Trump!” But far away from the cities, many Americans were celebrating. Reflecting on Donald Trump’s victory, a truck driver from western Pennsylvania declared, “All the rurals are happy.” When asked why voters in Vigo county, Indiana (population 107,516) went for Trump, one long-time resident explained, “These are real people here, these are not New York City, Chicago, Los Angeles.”
Without a doubt, the 2016 election revealed a dramatic gap between two Americas—one based in large, diverse, thriving metropolitan regions; the other found in more homogeneous small towns and rural areas struggling under the weight of economic stagnation and social decline.
Two years later, the urban-rural divide has only deepened. In this most recent midterm election, rural America became redder, metro America became bluer, and suburban America emerged as the new political battleground. While Democrats failed to pick up a single rural district, Republicans lost their last urban district with Republican incumbent Dan Donovan losing his seat in New York’s Staten Island district.
While Trump’s rhetoric and policies have exacerbated the regional divide in American politics, it is a divide that predates the Trump era and has its roots in the changing geography of economic growth. That divide has now grown in size and importance to the point that it is now a core fact of American life that demands a systematic, concerted national response.
From Convergence to Divergence
As recently as 1980, the wage gap between regions was shrinking while growth in rural areas and small towns led the country from recession to recovery in the 1990s. While the 20th century economy largely facilitated regional convergence as market forces closed employment, wage, and investment gaps between America’s communities, growth in today’s economy has produced stark regional disparities.
If the half century after the New Deal was one of regional convergence, future historians may well regard the current era as a time of divergence abetted by the dynamics of trade and technology.
The expansion of global trade—with its attendant import penetration and offshoring—decimated the industrial base of many of America’s mid-size cities and small towns and the regional supply chains that once connected the nation’s biggest, most prosperous metropolitan areas and non-metropolitan areas. While the rise of the information economy has boosted the returns to urban skills, it has diminished the importance of the resources and manual labor that non-metropolitan areas provided during the heyday of the manufacturing economy. And for that matter, high-tech manufacturers that still depend on supply chains to produce physical goods—and might once have sourced from the American “heartland”—have instead moved production and assembly functions overseas.
At the same time, technology exacerbated an even more pervasive (and polarizing) set of dynamics—those that scholars call “skill-biased technical change” and “agglomeration.”
In the case of skill-biased technical change, the initial spread of digital technology expanded the economic benefits awarded to highly educated and digitally savvy individuals while reducing those conferred on individuals without such skills. As a result, the places most plugged into the digital economy attracted highly skilled workers by offering the greatest economic return to their skillsets.
As to the agglomeration dynamic, this is the age-old tendency of economic actors to cluster together to partake in the benefits of proximity. In this regard, the concentration of highly skilled, often technical workers in certain locations triggers further concentration as the presence of well-educated workers spawns new business establishments, which in turn attracts more talented workers. A feedback effect between a highly skilled workforce on the one hand and companies operating at the economic frontier on the other, has led to rising productivity in agglomeration hubs and substantial wage increases for the highly skilled workers clustered there.
While cost differentials between regions historically worked to attract workers and firms to less expansive places in need of economic revitalization, today workers and firms in the tech economy are drawn to expensive and already prosperous places. The concentration of highly skilled workers and frontier firms in the agglomeration economy is self-perpetuating: Human capital and economic activity flows to just a few “superstar” cities at the expense of the rest of the nation’s regions. Amazon’s recent decision to split its second headquarter between Long Island City in Queens, New York and Crystal City, Virginia just outside Washington, D.C. offers a clear illustration of what urbanist Richard Florida calls “winner-take-all urbanism.”
The effects are clear: Cities like San Francisco, Boston, and New York with populations over 1 million have accounted for over 72 percent of the nation’s employment growth since the financial crisis, while many small towns and rural areas have yet to return to their pre-recession employment levels.
Meanwhile, public policy has done little to manage the effect these economic changes have had on mid-sized cities and rural communities. Indeed, taken as a whole, the policies of recent decades have almost certainly exacerbated regional inequality. The deregulation of transportation and finance along with the failure to update and enforce antitrust policies has worked against less densely populated areas while the introduction of ill-conceived zoning regulations in large cities have driven up housing costs, discouraging the movement of lower-skilled workers to rapidly growing areas. At the same time, no urgent digital skills or serious technology-oriented regional growth strategy has emerged to support tech employment and start-ups in places outside coastal tech hubs. Our failure to craft effective, place-sensitive policies has allowed growth and opportunity to concentrate in fewer and fewer places while leaving others behind.
Neoliberal Neglect and the Political Consequences
The divergent outcomes of the modern economy challenge the neoliberal assumptions that for years have guided our understanding of regional development.
Historically, the overall trend of wage convergence has fed a belief that regions, just like individuals, are upwardly mobile—that the places lagging today may outperform prosperous regions tomorrow. Consequently, economists’ and policymakers’ optimistic faith in a level playing field across regional economies limited the demand for place-based policies that seek to ensure economic growth is geographically balanced. While for years the facts stood on the side of economy theory as regions converged economically and lagging places caught up to more prosperous communities, today’s troubling regional divergence warrants revising the spatially-blind policymaking approach embraced in the United States.
Such a revision should reject the false assumption that adopting place-sensitive policies will necessarily come at the expense of economic efficiency. Economists have long argued that interventions to promote a more even distribution of economic activity might reduce the nation’s efficiency by reducing the capacity of the nation’s most successful local agglomerations to drive national productivity. To a degree, concentration dynamics are a good thing for the economy, and agglomeration has been associated with efficiency gains and aggregate welfare at the national level. But this fact has led to a misguided “agglomeration bias” in policymaking which deems any intervention to reduce inequalities between regions as nationally inefficient. As economic geographer Ron Martin writes, “the new spatial economics leads too readily to the view that spatial agglomeration is the only or main game in town, and that is almost everywhere a nationally efficient, market-driven equilibrium outcome.”
In fact, there is evidence that our failure to think spatially has actually diminished aggregate economic output. The Organization for Economic Co-operation and Development argues that because lagging regions are not operating at their “production possibility frontier,” they constitute “unrealised growth potential.” Meanwhile, recent research from the Economic Innovation Group finds that “had distressed communities merely stagnated, the U.S. economy would have added one-third more jobs over the past 15 years than it actually did.” Such conclusions suggest that our failure to address the under-performance of lagging regions is working to depress national growth.
But the consequences of regional divergence are more than economic. Spatial divergence has helped spawn troubling political trends as well. As regions have pulled apart economically, they have also pulled apart politically.
The failure of both major political parties to respond to the voters most affected by economic change paved the way for a populist insurgency as voters in communities left behind by economic transformation embraced Donald Trump’s bid for the presidency.
While non-economic, cultural factors such as racial resentment and xenophobia may help account for the support Trump enjoyed among many Americans, regional inequality also played a role in his success. The economic divide fueling political discontent may not be between the poorest and richest members of society, but between prosperous and lagging regions. As economic geographer Andrés Rodríguez-Pose argues, “Populism took hold not among the poorest of the poor, but in a combination of poor regions and areas that had suffered long periods of decline . . . The challenge to the [political] system has come from a neglected source of inequality: territorial and not interpersonal.”
In this way, the populist politics produced by economic change, and the polarization that results, constitute an externality few economists anticipated but can no longer afford to ignore.
The Policy Imperative
Economic underutilization and the turn to a populist politics in the United States offer a rationale for serious federal action. Absent intervention, the disparities between places will only intensify to the detriment of our economy and democracy.
What kinds of efforts might begin to push back against divergence after years of neoliberal neglect? For too long economists and policymakers have espoused a false choice between spatially-blind policies that maximize efficiency and place-based policies that maximize equity. We believe it is possible to achieve both outcomes with a policy framework that respects the dynamism and efficiency of the agglomeration economy but seeks to extend it to more places.
We outline several proposals in this vein in our report “Countering the Geography of Discontent: Strategies for Left-Behind Places.” In order to renew local vitality—and, with it, convergence—it is essential to strengthen local communities’ access to the assets and conditions needed to cultivate the kind of economic activity that can lift up left-behind areas. This includes ensuring that places possess a skilled workforce prepared for the kinds of employment opportunities the digital economy has created, that these people have access to capital to start and grow businesses, and that they have access to reliable communication technologies.
Beyond helping places secure the basic assets and conditions needed to enable convergence, it will be essential to develop strategies for instigating new growth in the places left behind and creating opportunities for the people living there. While it may be inefficient to “save” every left-behind small city or rural community in the United States, place-sensitive policies can target a few promising mid-size communities adjacent to other lagging towns and rural areas. Coordinated federal investment has the potential to promote more growth and hope across whole swaths of the country as ancillary business opportunities proliferate and small-town and rural residents begin to commute to the adjacent new growth centers. At the same time, restoring more geographic mobility to the labor market would help more people catch up to growth. The federal government should provide financial support for individuals who want to make long-distance moves to places that promise greater economic opportunity. Meanwhile, states and localities could encourage commuting to adjacent areas by offering a commuting subsidy that would support individuals who want to stay in their communities to live but not necessarily to work.
And there may well be a growing political appetite for such policies.
The turn away from cross-regional coalition building in recent years, as Republicans have solidified their support in more rural parts of the country and Democrats have done the same in more urban areas, has proven politically toxic.
A political strategy that focuses on mobilizing the geographic base has also proven to be a political liability for Democrats electorally disadvantaged by an electoral map that favors less densely populated, rural parts of the country. While Democrats have largely campaigned on stemming rising inequality between individuals and economic classes, the party could benefit from paying greater attention to the spatial dimension of economic inequality. While Democratic voters may be reluctant to support policies that benefit rural Americans given urban resentment toward these communities, residents of superstar cities may soon find themselves advocating for more geographically balanced economic growth. Amazon’s recent decision to split its headquarters between Long Island City in Queens, New York and Crystal City, Virginia, just outside Washington, D.C. will exacerbate the problems of traffic congestion and expensive housing that already plague these regions. Regional inequality, many are learning, exacerbates the inequality within superstar cities.
Republicans, unlike Democrats, have successfully tapped into the discontent fueled by increasing spatial divergence but have showed little interest in reckoning with the disruptive market forces that heighten such discontent. Even populists who at present benefit politically by harvesting rural anger should be aware that it will turn against them, too, if their performance does not measure up to their promises.
While implementing place-sensitive policies would be an undeniably heavy lift in today’s divided Congress, the failure of the two major political parties to capture a geographically diverse set of voters in recent years—let alone crafting an agenda that will knit regional economies together again—has exacerbated political polarization and challenged confidence in our democratic system.
Reflecting on her failed presidential bid, Hillary Clinton remarked, “I won the places that represent two-thirds of America’s gross domestic product. So I won the places that are optimistic, diverse, dynamic, moving forward.” While Clinton was not wrong to say she won the economy (the counties she won accounted for 64 percent of aggregate GDP in 2015), the comment reflects the disturbing political ramifications of regional divergence: the places that are left behind by economic change feel left behind by the political system too. The implication that inclusion in the new and changing economy is a prerequisite for democratic representation only works to embolden discontent and stoke populist resentment.
In an era of regional divergence, political campaigns will be tempted to limit their appeal to particular places, relying on the energy of their geographic base. But political expediency should not come before good governance. We cannot allow the divide between winners and losers of economic change become a permanent feature of American politics. Tackling this divide has the added benefit of boosting aggregate growth by tapping into the economic potential mid-size cities and rural areas currently underutilized. But even if there wasn’t an economic rationale for crafting place-sensitive policies to mitigate spatial divergence, ensuring more Americans can prosper across regions in a changing economy is an obligation democratic governments have to their citizens.