January 2015

Rural Economic Development, Leakage and Entrepreneurs


Christopher Madrid


For a variety of reasons, rural communities face much greater challenges when it comes to economic development, as evidenced by key economic indicators. For example, urban employment now exceeds prerecession peaks, while rural America has yet to catch up to 2007 levels. And while it may appear that unemployment rates have improved in rural areas, a closer look reveals that a significant decline in labor participation explains this trend, more so than an increase in actual employment. As concerning, for the first time in our nation’s history, total rural population has begun to decline over the past several years. We continue to lose our best and brightest to the opportunities afforded by urban communities.


As a matter of course, policy makers often tend to look outside of our rural areas for solutions. Somehow, federal and state governments have been delegated the primary responsibility of addressing rural economic issues; indeed, they have instituted a variety of programs that work to confirm such relationships. Moreover, many members of our communities expect government to produce relatively instantaneous results—ironically, as confidence in government’s ability to execute as a whole resides at an all-time low. Yet, year-to-year, we continue to double down on an approach that has consistently failed to get us to where we would like to be, to where we need to be, if we are to provide our children the same opportunities we experienced.


While Río Arriba County enjoys a unique history of living culture second to none, from a development perspective it bears severe structural challenges. Two counties and two pueblos carve up the central city of Española, making comprehensive planning for infrastructure and development extremely difficult. Meanwhile, our three sovereign nations, along with federal and state agencies, take more than 75 percent of our countywide land mass out of play for purposes of private-sector development. As a consequence, the short supply of commercial space exacts a premium price, generating cost structures that take many otherwise positive business opportunities out of play and result in insufficient options to meet local demand. Unfortunately, this in turn causes our citizens to look outside of their local community for the goods and services they desire; in economic jargon, this is called leakage.


Due to a significant deficiency of satisfactory retail options in Río Arriba County and the Española Valley, local consumers obtain nearly a third of their annual retail purchases outside of our community. The analysis indicates that our retail deficiency results in the loss of upwards of $171 million in economic activity, $13 million in gross receipts taxes and 850 jobs due to retail leakage alone. Otherwise stated, our challenged rural communities subsidize more affluent urban areas with our purchasing power.


Retail leakage should represent a strategic economic focus and a priority for our region to address; a 25 percent improvement in retail sales would result in over 200 diversified local jobs. Importantly, retailers appreciate the unmet demand, high traffic counts and success of existing retail establishments. The main challenge remains the cost of commercial real estate, complexity of commercial development and shortage of optimal locations.


In the end, unless we want to experiment with government-run businesses, only the private business sector can create such economic wealth and growth. As profit-centered organizations, they will seek the path of least cost and resistance. Given the added challenges of conducting business in rural areas, we must somehow work smarter and more cohesively in encouraging their investment in our communities. Government’s optimal role should be to effectively support local business activity and/or get out of their way, short of reasonable regulatory requirements.


Public buildings tend to be named after public officials, but the dollars that pay for government ultimately arise from taxes on the economic activity created by our entrepreneurs and business communities who commit significant resources and take on great risk for our eventual benefit. In the end, the future of rural America resides in the hands of entrepreneurs, along with government’s ability to finally realize it is not the answer and, all too often, it serves as the impediment.


The simple strategy to turn around the plight of rural America first begins with prioritizing, supporting and celebrating our existing local entrepreneurs and businesses owners.




Christopher Madrid is Río Arriba County’s director of Economic Development. clmadrid@rio-arriba.org




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