Private Initiatives for Rural Development: Ideological Cop Out or Engine for Progress

This report identifies a research and policy agenda that can contribute to rural development and antipoverty initiatives during the 1990s. It integrates a discussion of private initiatives for rural development into a broader discussion of the issues. Two theories of underdevelopment and poverty, one motivational and the other structural, serve as a basis for defining quite different research and policy agendas. To provide some closure of these divergent approaches, it is argued herein that economists must more rigorously examine the philosophical and political economic foundations of their theories. One reason this is needed is that recent contributions to the theory of public choice rehabilitate the classical economic argument for minimal state action. An effective and efficient rural development policy, moreover, must analyze the distribution system that delivers goods and services to rural communities. There is evidence that noncompetitive distribution channels distort prices in some rural communities and transfer wealth from them. In addition, many rural communities are at the end of distribution channels. Therefore, even in competitively structured channels, the relatively high costs of delivered goods and services for productive activity and consumption retard economic development and standards of living. Changes in the structure of rural households and the employment shift out of agriculture limit the ability of rural families to offset these higher costs via traditional household production activities. Cooperatives of many types-agricultural, rural electric and telephone, wholesale grocery, and consumer cooperatives-have been a major component in market-oriented public policies to promote effective distribution of goods and services to rural America. More recent institutional innovations that enhance private initiatives are public venture capital funds and nonprofit agencies. Research on rural distribution channels and the appropriate mix of private and public initiatives should be a major component of any new rural development policy.