Over the past three to five years, however, constructive discussion on
rural policy appears to have waned and, in the name of empowering rural
communities, politicians have effectively fragmented the rural voice and
managed dissent by arguing that rural communities know best their own
solutions.
The policy position that local communities are responsible for their
own destiny carries a number of interesting implications. It would appear
that rural policy accepts responsibility only for positive economic
outcomes such as deregulated labour markets, competitive exchange rate,
low inflation and interest rates, vibrant industries and communities that
are growing. Negative economic outcomes affecting industries, communities
and regions are not the consequence of policy. They are stand-alone
situations determined somehow within communities lacking a sense of
"community" and quality local or industry leadership.
Shifting responsibility for perverse policy outcomes back to community
level makes individual communities feel somehow to blame for their plight.
Consequently, every small community seeks to demonstrate responsibility
for its situation by chasing individual solutions such as local tourism,
retirement housing; local market days, and some promising industry.
Effectively, each community competes against its neighbor to secure its
own small portion of any available project or dollar.
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This is an 'enclave theory' of rural renewal based upon a philosophical
position.
The1999 Draft Report of the Productivity Commission tells us that the
majority of small rural communities continue to grow. Overall, rural
population is growing in absolute numbers - but the distribution is
shifting, producing such phenomena as sponge cities and coastal drift.
Population is declining in the 31 per cent of inland communities based
upon grazing, wheat and mining. These towns comprise the service centres
for major industries in inland rural Australia and herein lies the policy
problem.
Graphical analysis of the monetary value of all farm assistance
expressed as a percentage of farm gate revenue (%PSE) in OECD countries
from 1997 to 1999 reveals that all member countries except Australia and
NZ increased the %PSE. (Australia continued to reduce support from 7 per
cnet to 6 per cent while NZ remained constant at 2 per cent). This
suggests that OECD member nations considered farm revenue support a more
important policy mechanism than empowerment.
Alternative Analytical Framework
Engel's Law states that as income grows, the demand for food grows
less than proportionately. This is a Law of pervasive importance in
economic growth. - Kindleberger
Its presence can be demonstrated whether considering the behavior of an
individual, a nation or several nations, and it explains why as an economy
grows and incomes increase, demand increasingly shifts away from food with
low-income elasticities of demand e.g. grain and other staple foods.
Consequently, the relative price of food declines compared to expenditure
on manufactured goods and services. These effects of Engel's Law occur
across both domestic and internationally traded goods and services.
In the real world, Engel's Law can help explain the structural
realignment of agricultural sectors in economies as they grow over time.
An important point is that Engel's Law does not disappear at some given
level of economic maturity. It is a continuous process and mature
economies such as Europe, America and Australia continue to experience
ongoing structural realignment of agricultural sectors in their economies.
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It is important to remember that while agriculture declines relatively
in an economy, in absolute terms agricultural output continues to grow.
Engel's Law directly challenges market economics and its belief in an
international free-trade solution and establishes the case for managed
trade. The political agenda that restricts Australian trade-policy debate
to a position of either 'fortress Australia' or 'free trade' says more
about the quality of politicians and ideology than about the breadth of
economic theory.
Conventional supply -and-demand theory explains price determination
under market forces through business-cycle activity. There is an optimum
price level determined in the market when the level of supply equals the
level of demand. From the price elasticity of demand for food implied in
Engel's Law, it follows that production beyond the optimum level will see
prices decline disproportionately to the increase in output.
Considered together, Engel's Law and conventional supply-and-demand
theory mean that rural decline is a problem of structural realignment of a
rural sector in a growing mature economy. Engel's law explains why under
rising incomes food expenditure falls proportionately in overall
expenditure patterns. Structurally, this implies rural production will
decline as a proportion of overall aggregate output in a mature economy.
This is an edited version of a larger paper, available from the New Country Party website.
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