Rural America at the Crossroads:

Networking for the Future

April 1991

OTA-TCT-471

NTIS order #PB91-198135
Recommended Citation:

U.S. Congress, Office of Technology Assessment, Rural America at the Crossroads:

Networking for the Future, OTA-TCT-471 (Washington, DC: U.S. Government Printing

Office, April 1991).

For. sale by the Superintendent of Documents

U.S. Government Printing Office, Washington, DC 20402-9325

(order form can be found in the back of this report)
Foreword

Rural America is at the proverbial crossroads. Many rural communities show signs that

raise concern for their future: loss of economic vitality, a relative decline in income, high

unemployment, low workforce participation, and an exodus of talent. Advances in

communication and information technologies, however, hold promise for rural America, by

reducing the barriers of distance and space that have disadvantaged rural areas. Rural

businesses can now link to other businesses or access major markets, even in other countries,

just as readily as those in urban areas, while still enjoying the many distinctive benefits of rural

living.

This study explores the role that communication technologies can play in securing rural

America’s future. It develops several policy strategies and options to encourage such

development. The study was requested by the Joint Economic Committee of Congress and

Senators Charles E. Grassley and Orrin G. Hatch.

OTA gratefully acknowledges the contribution of the advisory panel, workshop

participants, contractors, reviewers, and many others who provided information, advice, and

assistance. However, OTA bears sole responsibility for the contents of this report.

- Directo r
Rural America at the Crossroads: Networking for the Future

Advisory Panel

George Connick, Chairman

President, University of Maine at Augusta

George Calhoun

Senior Vice President

International Mobile Machines Corp.

Lloyd Callihan

School Bus Driver and Volunteer Ambulance

Driver and Fireman

Wapato, WA

Don Dillman

Director

Social and Economic Sciences Research Center

Washington State University, Pullman

Wilbur Hawkins

Executive Director

Lower Mississippi Delta Commission

Ronald Lehr

Former Commissioner

Colorado Public Utilities Commission

Karen Merrick

Former Mayor

Gutenberg, Iowa

Edwin Parker

President

Parker Telecommunications

Joseph Pelton

Director

Graduate Telecommunications Program

Engineering Center

University of Colorado, Boulder

Everett Rogers

Professor of Communications

Annenberg School of Communications

University of Southern California

William Schaphorst

General Attorney

U.S. West Communications

Gail Schwartz

Commissioner

State of New York Public Services Commission

Sharon Strover

Assistant Professor

Department of Radio, TV, and Film

University of Texas at Austin

Margaret Trevathan

Former Director

Calloway County Library, Kentucky

Luther Tweeten

Professor of Economics

Department of Agricultural Economics and

Rural Sociology

Ohio State University

Keith N. Ware

Manager

Emery County Telephone Co.

NOTE: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the advisory panel members

The panel does not, however, necessarily approve, disapprove, or endorse this report. OTA assumes full responsibility for the

report and the accuracy of its contents.
Rural America at the Crossroads: Networking for the Future

OTA Project Staff

John Andelin, Assistant Director, OTA

Science, Information, and Natural Resources Division

James W. Curlin, Telecommunication and Computing Technologies Program Manager

Linda Garcia, Project Director

Sherry Emery, Analyst

Fred Wood, Senior Associate

Mark Young, Research Analyst

Ritchie Chin, Contractor

Administrative Staff

Liz Emanuel, Office Administrator

Karolyn St. Clair, Secretary

JoAnne Price, Secretary
Contractors

Sanford Berg

Professor

Public Utilities Research Center

University of Florida, Gainesville

Ted K. Bradshaw

Associate Research Sociologist

Institute of Government Affairs

University of California, Berkeley

George M. Calhoun

Senior Vice President

International Mobile Machines Corp.

Philadelphia, PA

Joseph F. Coates

Consultant

J.F. Coates, Inc.

Washington, DC

Larry Darby

Consultant

Darby Associates

Washington, DC

Bruce L. Egan

Affiliated Research Fellow

Center for Telecommunications and

Information Studies

Columbia University

Don Hadwiger

Professor of Political Science

Iowa State University

Dale Hatfield

President

Hatfield Associates, Inc.

Boulder, CO

Heather Hudson

Director

Telecommunications Management

and Policy Program

McLaren College of Business

University of San Francisco

Abbe Mowshowitz

Consultant

Technology Impact Research Inc.

Joseph Pelton

Director

Graduate Telecommunications Program

Engineering Center

University of Colorado, Boulder

Thomas Michael Power

Consulting Economist

Economics Department

University of Montana

Louis E. Swanson

Associate Professor of Sociology

University of Kentucky

Frederick Williams

Center for Research on Communication Technology

and Society

College of Communication

University of Texas at Austin

Paul Yarbrough

Director

Rural Communication Research Program

Cornell University

w“
Contents

Chapter 1. Summary and Policy Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 2. The Challenge for Rural America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 3. Rural America and the Changing Communication Infrastructure . . . . . . . . . . . . . . . .

Chapter 4. Rural Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 5. Regulation and Rural Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 6. The Role of the Federal Government: Orchestrating Cooperation and Change . . .

Appendix. Field Journal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

List of Contributors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

rage

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Chapter 1

Summary and Policy Conclusions
Contents

Page

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Request for the Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

What Are the Stakes? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .,

The Stakes for Rural America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The National Stakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Key Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Diversity of Rural Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

New Ways of Thinking About Communications in Rural Areas. . . . . . . . . . . . . . . . . . . . . . . . . . . .

Wider Technological Choice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Need for Greater Technological Expertise .....,. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Enhanced Technology Requirements, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Joining Technology Policy to Economic Development Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Role of Telecommunications Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Orchestrating Change: The Role of the Federal Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Criteria forsaking Policy Choices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A Vision, Together With Entrepreneurial Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A Multidimensional, Integrated Notion of economic Development . . . . . . . . . . . . . . . . . . . . . . . . .

Minimum Cost and the Effective Use of Existing Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Flexibility ToDeal With the Variety of Situations and Settings To Be Found in

Rural America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .

Flexible and Creative Thinking With Respect to Rural Network. Architectures . . . . . . . . . . . . . . .

Policies That Incorporate a Technology Transfer and Educational Component . . . . . . . . . . . . . . .

Reconciliation of Telecommunication Regulatory Policies and Economic Development

Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cooperation Among All Key Players . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Economic Viability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Allowance for Choice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Public Policies To Meet Development Criteria ...,..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Providing Vision and National Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Ways To Achieve Flexibility and Encourage Creativity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Taking Advantage of Existing Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Reconciling Economic Development and Regulatory Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Creating Incentives for Cooperation ‘, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Boxes

Box Page

l-A. Telecommunications for Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

l-B. LANs, WANs, and MANs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

l-C. Electronic Data Interexchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

l-D. Technology and Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

l-E. Technology and Culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

l-F. Big Sky Telegraph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Figures

Figure Page

l-1. Poverty Rates by Residence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

l-2. Nonmetropolitan Net Migration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

l-3. Employment of Rural Residents, 1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

l-4. Rural Area Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

l-5. Bandwidth Requirements in Industry ...,. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

l-6. Organizational Chart of Agencies Involved With Rural Development . . . . . . . . . . . . . . . . . . . . . 24
Chapter 1

Summary and Policy Conclusions

Introduction

Rural communities have played a central role in

American life. Politically, they have served as the

centerpiece of American democratic thought. Economically, they have provided the labor, food, and

other natural resources that fueled and sustained the

industrial revolution. Now comprising 24 percent of

the Nation’s population and 28 percent of its labor

force, rural areas continue to be a source of

inspiration and sustenance. In the minds of many,

these communities reflect and reinforce the traditional American values of community and individualism. Increasingly, they are viewed as a haven from

the intractable problems caused by urban development.

Notwithstanding their basic strengths, many rural

areas today show signs and symptoms that raise

concern for their futures. These include a loss of

economic vitality, a relative decline in income, high

Rural areas are showing a loss of economic vitality, a relative decline in income, high unemployment, low workforce participation, and a high level of

outmigration.

unemployment, low workforce participation, and a

high level of migration out of rural areas. Thus we

find that per-capita income in rural areas is much

lower than in urban areas, and that the communities

considered to be the most rural are the worst off.

Rural poverty rates, having been on an upswing

since the early 1970s, are also higher than urban

poverty rates (see figures 1-1 and 1-2).

A number of forces underlie the problems that

now beset rural communities. These forces are

structural in nature, so they are unlikely to be easily

reversed. One of the most important forces is the

dramatic shift in the economy away form the

production of primary resources and manufactured

goods towards the provision of services. Since rural

areas are more dependent on these declining sectors,

Figure l-l—Poverty Rates by Residence*

25 Percent poverty rates

20-

15-

,0 /

10- “ - _ - - _ . ” ” - - - - - - = ” ” ’

5 - -–- Total Metro I

I I — Nonmetro II I L J I

o ~

67 69 71 73 75 77 79 81 83 85

Year

“Metro and nonmetro for 1985 based on the Census of 19S0, for 1969 and

1971 -830 on the 1970 Census, and for earlier years on the 1960 Census. No

1984 data.

SOURCE: Bureau of the Census, Current Population Survey, as cited in

U.S. Department of Agriculture, Rum/Economic Development

in the 1980’s: Prospects for the Fufure Washington, DC: U.S.

Department of Agriculture, 1988), p. 12. -

Figure l-2—Nonmetropolitan Net Migration*

Migration in thousands

200

0

-200-

-400-

-600-

-800-

-1000 

80/81 81/82 82/83 83/84 85/86 86/87

Year

● For 1980-83, nonmetropolitan counties are as defined in 1970; 1984

definition Is used thereafter (nonlnstitutionalized population).

SOURCE: U.S. Bureau of the Census, as cited in U.S. Department of

Agriculture, Rural Economic Development in the 1980’s: Prospects for the Future (Washington, DC: U.S. Department of

Agriculture, 1988), p. ix; U.S. Department of Commerce,

Geograhic Mobility: March 1986 to March 1987(Washlngton,

DC: U.S. Bureau of the Census, 1989), serbs P-20, No. 430.

–3-
4 ● Rural America at the crossroads: Networking for the Future

Advances in communication and information technologies coincide with a shift

toward a more service-oriented economy.

they are especially vulnerable to this shift (see figure

1-3). With the emergence of a global economy, and

the rise of the newly industrialized countries, rural

areas are facing intense competition in resources and

primary manufacturing from abroad.

Not all trends are necessarily negative. Tremendous advances in communication and information

technologies, and radical changes in the way these

technologies can provide services have occurred

along with the shift toward a more service-oriented

economy. Many people believe that these developments hold promise for rural America, because

Figure 1-3-Employment of Rural Residents, 1988

Percent of rural jobs in each industry -1988

20.9

D Service

~ Public Administration

~ Manufacturing

D Agriculture

~ Construction

_ Mining, Forestry, Fishing

SOURCE: U.S. Department of Commerce, Rura/ and Rural Farm Population 1988 (Washington, DC: U.S. Bureau of the Census, 1989).

Photo credit:Mark G. Young

An uninhabited shack in a ranching community in

rural Colorado.

communication technologies reduce the importance

of distance and space-two factors that disadvantage rural areas. Rural communities with modern

communication technologies can more easily deal

with their problems. Using advanced communication technologies, for example, a rural business can

link to other businesses, or access major markets,

just as easily as a business in an urban area.

Other observers are less sanguine about the

impact of technological developments on rural

America, because communication networks work in

two directions-they could undermine rural economies rather than bolster them. Skeptics warn against

being too fixated on technology, because technology, by itself, cannot bring about development.

Economic development requires the coming

together of a wide array of people, skills, and

resources. How, and the extent to which, new

communication technologies can be used to improve

the prospects for success depend on a number of

factors. This study defines the role of communication in the development process and develops

several criteria for policy strategies and options that

encourage such development. Policy options that

meet these criteria are outlined and discussed.

Request for the Study

This study was requested by the Joint Economic

Committee of Congress and by Senators Charles E.

Grassley and Orrin G. Hatch. Noting that the

widespread deployment of communication and information technologies will inevitably bring major

changes in the way all Americans live and work, the
Chapter 1Summary and Policy Conclusions ● 5

Economic development requires the coming together of a wide array of people,

skills, and resources.

committee asked OTA to examine how these developments might affect economic conditions in rural

America. The questions that the committee asked

OTA to address are:

●

●

●

●

●

●

Will technological advances be available in a

timely manner to rural America?

Does information-age technology involve economies of scale and scope that will enable rural

businesses and communities to adopt these

technologies?

What are the expected economic effects of

information-age technologies in rural areas,

particularly on employment (including job

creation, training needs, and job displacement)

and investment (including capital requirements

and public infrastructure)?

Which rural areas are likely to have the greatest

ability to make use of these new technologies?

What roles can the various levels of government play in fostering information-age 

ogy?

Can rural America expect to be competitive in

serving national and international markets for

the goods and services of this new era?

What Are the Stakes?

The Stakes for Rural America

Although often isolated and remote, America’s

rural communities do not exist in a vacuum. They

will inevitably change as the world around them

changes. As communication technologies extend

rural ties and expand rural markets, these communities will become increasingly vulnerable to national

and global trends and events. For rural America, the

most critical of these developments will be the

adjustment to a highly competitive, service-based,

global economy and the emergence of major,

worldwide environmental concerns that will compel

them to reorient their economies. Since many rural

communities lack essential financial and human

resources, and often depend on a single industry for

the lion’s share of their wealth and vitality, their

ability to adapt to these changes is limited. Without

Photo credit: Mark G. Young

A study in contrast: a new house with a satellite dish abuts

an abandoned adobe hut in Garcia, Colorado.

If these technologies are to enhance the

economic prospects of rural areas, then

policy makers must develop policies to

create the most favorable conditions for

their use to go along with policies that

promote technology deployment.

some form of intervention, these communities are

headed for decline.

Advanced communication and information technologies are certainly not “the” solution to the

many problems confronting rural America. In fact,

one needs only to look historically to see examples

where the deployment of these technologies has left

rural communities “worse off. However, in the

current economic environment, in which businesses

are using these technologies strategically to gain a

competitive advantage, communities and businesses

that have limited access to them are unlikely to

survive. While not a panacea, in a global, informationbased economy, these technologies could help rural

communities overcome a number of the barriers that

have limited their economic well-being in the past.

Precisely because communication technology is a

mixed blessing and often functions as a doubleedged sword, it is essential that decisionmakers

clearly understand, and take into account, not only

the benefits and costs associated with this technology, but also -and perhaps more importantly-the

socioeconomic conditions under which the benefits
6 ● Rural America at the Crossroads: Networking for the Future

Box l-A—Telecommunications for Business

Each of Edward D. Jones & Co.’s offices is a far cry from Wall Street-from the hustle and bustle, maybe,

but not from the stocks and bonds. Jones & Co. is a full-service brokerage house specializing in low-risk securities

serving mainly rural communities and towns with fewer than 20,000 people. The company uses advanced

telecommunications to deliver big-city financial services to smaller towns and rural communities.

When Jones & Co. initially branched out from its main office in Maryland Heights, MO in 1955, it relied on

teletype machines to connect its separate one-person offices to the headquarters. By 1980, when the company had

completely switched over to computers, it had grown to some 300 retail branches. In the 10 years since, Jones &

Co. has mushroomed to nearly 1,600 offices in 44 States, and has upgraded the computer hardware and software

as growing demand has outpaced the capacity of the successive systems. With more retail offices than any other

financial services company in the United States, Edward D. Jones & Co. earned $249 million in revenues in 1989.

More recently, Jones & Co. invested $30 million in 1988 to install a private two-way satellite network to link

its dispersed and numerous offices that went online in 1990. With rising costs of local and long-distance

communications services, which can be a particular problem in rural areas, the very small aperture terminal (VSAT)

satellite system gives the company greater control of its telecommunications and stabilizes these costs. Jones &

Co.’s computer network has links to banks to expedite crediting clients’ accounts, insurance companies, mutual fund

firms, and information services such as Standard & Poor’s MarketScope service. With VSAT’S video capacity,

Jones & Co. is able to broadcast live product presentations or training sessions between sites. The VSAT technology

also permits the company, which plans to expand to 3,000 offices by 1991, flexibility in adding or moving branch

locations.

SOURCE& Robert Cullen, “Trial by Fire,” Edward D. Jones & Co. press package; Edward D. Jones & Co., ‘Satellite Technology Brings Wall

Street to Main Street,” press release, undated; Edward D. Jones & Co., “Edward D. Jones&Co. Sees Technology As Key to Rapid

Growth,” press release, undated; as cited in MESA Consulting, “Telecommunications and Rural Economic Development,”

prepared for United States Telephone Association, October 1990.

are most likely to be realized. If these technologies changing environment in which they find themare to enhance the economic prospects of rural areas,

then policymakers must develop policies to create

the most favorable conditions for their use to go

along with policies that promote technology deployment.

Market as well as government decisions determine how communication technologies will be

deployed in the future. Rural America clearly has

tremendous stakes in the outcomes of these decisions. Certain courses of action can provide rural

communities an opportunity to gain greater control

over, and perhaps reverse, the direction in which

they are headed. Other actions are likely to foreclose

this possibility.

The National Stakes

Whether rural communities experience development or decline is not merely a local concern. All

Americans have a stake in how well rural communities cope with, and take advantage of, the rapidly

selves. The kinds of economic activity that occur in

rural America can have a significant impact on the

Nation’s overall prosperity.

Long-term economic development requires the

continual flowering of new centers of innovation. As

we increasingly realize, such innovation takes place

primarily in relatively small local enterprises.1 Most

rural areas, however, have been forced to play a

supportive role in this process. With their long

distance from commercial centers, and their sparse

populations, the small communities in these areas

have generally been unable to assemble the skills,

information, and capital required for development to

take place. These barriers of distance and space are

likely to be much less formidable in the future. By

taking advantage of advanced communication and

information technologies, rural communities may

find it easier to access and assemble the resources

that foster innovation and growth in city regions.

Equipped with communication and information

technology and the wherewithal to take advantage of

1 See for dkussions, J= Jacobs, Cities and the WeaZth ofNations (New York NY: The Vtig k.% 1985); M*1 J. ~Ore~ ~les F. S*L

The secomi Industrial Divi&: Possibilities for Pro~enty (F&w York NY: Basic Books, 1984); and David Osborne, Laboratories of D~~

@OStO~ MA: Harvard Business School Press, 1988).
Chapter 1-Summary and Policy Conclusions ● 7

Economic development in rural areas

will not only affect national economic

performance, it will also help determine

how well the United States fares in an

increasingly competitive, global economy.

it, rural communities can be viewed not as potential

problems, but rather as untapped national resources

(see box l-A).

Economic development in rural areas will not

only affect national economic performance, it will

also help determine how well the United States fares

in an increasingly competitive, global economy.

Since 1970, the U.S. trade position has steadily

worsened, while those of our major competitors

continue to improve. Much of the increased trade

competition is in the area of primary goods and

low-technology industries-the industries in which

rural areas have traditionally specialized. Rural

areas can contribute to an improvement in the U.S.

trade balance if economic development in these

areas leads to greater economic diversification

and/or a shift to those industries-such as services

and high-tech manufacturing-that are growing in

demand worldwide.

Rural economic development can contribute not

only to the national economy, it can enhance the

overall quality of national life. If rural communities

use new technologies to diversify their economies,

becoming less dependent on the production of

primary resources, they may make less of a claim on

the Nation’s environmental resources. Communication technologies can also be used to substitute for

travel, thereby conserving energy and reducing air

pollution.

The economic viability of rural communities will

determine the extent to which these areas can

provide an amenable lifestyle and a counterbalance

to the pull of urban implosion. Many urban regions

suffer from problems of overdevelopment: congestion, pollution, crime, high costs of living, etc. Rural

areas might provide a means of escape if there were

sufficient amenities, such as good schools, adequate

health care, and cultural activities. Many elderly are

taking advantage of the benefits of rural living by

moving to retirement communities established in

these areas.

Key Findings

The Diversity of Rural Areas

Although rural communities share a number of

common problems, many of their individual characteristics, and the local resources they can draw on to

address their problems, are very different (see

appendix). 2 One community’s strength may be

another’s weakness. Communities are often endowed differently with respect to their locations,

landscapes, and natural and human resources, as

well as access to communication and information

technologies. For example, Kentucky’s location in

the center of the United States makes it attractive to

foreign capital; New Mexico’s Native American and

Hispanic populations lend support to a prospering

tourist trade; while the forests of Washington State

and Maine supply raw materials for the Nation’s

timber industry. Because of such differences, rural

communities will need to pursue a variety of

development approaches.

New Ways of Thinking About

Communications in Rural Areas

Ironically, at the moment when communication

and information technologies are beginning to play

a critical role in business, the regulatory structure

that once provided rural areas equal access to these

technologies is coming unraveled. Divestiture of the

Bell System and the shift towards deregulated

services, together with the emergence of large

Divestiture of the Bell System and the

shift towards deregulated services, together with the emergence of large private networks, are undermining the

traditional system of rate averaging and

subsidies for local telephone service.

~o capture this diversity, and to better understand its implications for Federal policy, O’Ill conducted field studies in four States-Kentucky, New

Mexico, Washington and Maine.
8 ● Rural America at the Crossroads: Networking for the Future

Photo credit:Mark G. Young

El Morro, New Mexico.

private networks, are undermining the traditional

system of rate averaging and subsidies for local

telephone service. These developments have occurred at a time when rural economies are themselves becoming more fragile, and when—given the

trend towards a service-based global economy—

their information and communication needs are now

more important than they have ever been.

If rural areas are not to experience further decline,

measures must be taken to assure that they have

access to the needed infrastructure. However, the

previous means for providing infrastructure to rural

areas is no longer sustainable, because of rapid

technological change and a more competitive industry environment. Thus, it is time to devise new ways

of designing communication systems and delivering

communication services to rural areas.

A Rural Area Network would link up as

many users within a community as

possible-including among them businesses, educational institutions, health

providers, and local government offices.

The divestiture of the Bell System and recent

technological advances provide a number of new

opportunities to do this. Most important is the

unbundling of the communication infrastructure,3

and the subsequent development of new network

architectures and new technologies and technological applications.

With unbundling, users no longer must buy

services as a single unit. Now they can purchase

services separately, on a piece-by-piece basis, configuring them to meet their own particular needs.

Many businesses are taking advantage of this

capability to develop their own private communication networks.4 Increasingly they are connecting

their various departments through local area networks (LANs) and their offices through metropolitan area networks (MANs) or wide area networks (WANs) (see box l-B). As the information

and communication needs of these businesses become more specialized, so too are their communications systems. For example, banks and other

financial institutions have developed specialized

communication services, such as the Society for

Worldwide Interbank Financial Telecommunications (SWIFT), and manufacturers have developed

their own communications protocols, such as the

Manufacturing Automation Protocol (MAP). Even

system integrators are beginning to specialize in

providing networking services.5

Just as businesses are taking advantages of these

developments to create their own customized communication networks, so too might rural communi3Unbund~gfirst am in telec~uni~tiom with the FCC’s Carterfone decision of 1%8, which allowed customers tO add equipment @ th~

telephones as long as they did not adversely affect the operation of the telephone system or its usefidness to others. The development of open network

architecture (ONA) will lead to the further unbudling of the telephone network. If pursued far enou~ open architecture would allow independent

providers and others to pumhase the most elemental functions. They could also create their own products, reconfiguring and customizing these iilnctions

to meet their own needs.

Ah ~PM4 one ~l=o~~~onIMXSVOIJC existd to provide universal service to all USCXS. ‘rh.is arrangement -@@ sui~ble, ~ ~’*

were very similar and the services that could be offered were relatively limited. Businesses used the telephone for voice communication in much the

same way that households did. ‘Rxlay, this is no longer the case. Different kinds of businesses increasingly have different kinda of business needs.

SFor a dis~ssio~ S= Eli M. Noaq “The Future of the Public Network: From Star to the Mi311%” TeZecommun ications, March 1988, pp. 58-59,

65, and 90.
Chapter I-Summary and Policy Conclusions ● 9

Box 1-B—LANs, WANS, and MANs

Local Area Networks (LANs): LANs are data communication networks that are relatively limited in their reach.

They generally cover the premises of a building or a campus. Like all networking technologies, LANs facilitate

communication and sharing of information and computer resources by the members of a group. Within the business

community, the number of LANs deployed has recently grown by leaps and bounds. Predictions are that in 1992

the number of LANs deployed will surpass 5 million, and more than one-half of all PCs will be connected by LANs.

Wide Area Networks (WANs): Wide area networks are data communication networks that provide long-haul

connectivity among separate networks located in different geographic areas. Many businesses are using WANs to

extend and restructure their operations on a national or worldwide basis, while at the same time gaining the

economies of scale and scope that can be achieved by large-scale, shared networks.

WANs make use of a variety of transmission media, which can be provided on a leased or dial-up basis. WANs

can also be privately owned. Recently, many businesses have chosen satellite networks, taking advantage of the

recent development of relatively low-cost small aperture terminals to link their various offices to a headquarters

facility. General Motors is planning to build the largest network of this kind. Scheduled for operation in 1992, it

will consist of 9,700 very small aperture terminals that will connect GM locations nationwide.

Metropolitan Area Networks (MANs): Still in the field-testing stage, metropolitan area networks provide

switched data networking services at very high speeds (45 to 50 megabits per second) within a geographic area of

at least 50 miles. MANs connect LANs to LANs, as well as LANs to WANs. As designed by Bellcore, MANs will

provide Switched Multimegabit Data Services (SMMDS), which will allow users to setup a virtual (or logical)

private network and give them access to individual services on demand. These networks are designed for shared

usage.

SOURCE: Office of Technology Assessment 1991.

ties. However, whereas many business networks are ● RANs would induce communication providers

established along functional

- lines, Rural Area Networks (RANs) would be configured, instead, around

the geographic boundaries and needs of an entire

community. Designed on the basis of a ring (or

campus-type) architecture, a RAN would link up as

many users within a community as possibleincluding among them businesses, educational institutions, health providers, and local government

offices (see figure 1-4). Rural Area Networks could

be linked statewide, perhaps by piggybacking on the

State government and/or the State educational networks.

Rural Area Networks have a number of potential

benefits:

RANs could foster the deployment of advanced

technology to rural areas in an economically

viable manner. By pooling diverse users, they

would provide considerable economies of scale

and scope.

Built to meet shared needs, they could foster

cooperation and community ties.

RANs would overcome the limitations of

technological expertise in rural areas since they

could be designed by one systems integrator.

to be more responsive to the communication

needs of rural communities. By joining forces,

rural users will be able to exert greater leverage

in the marketplace.

Wider Technological Choice

In creating such networks, rural communities can

choose from a variety of technologies, particularly

new technologies such as digital radio and advanced

satellites as well as niche markets for old technologies, each of which have special applications for

remote, rural areas. Many of these technologies are

radio-based so their cost depends more on total

demand than on population density.

With digital radio, for example, cable is not

required beyond the Radio Carrier Station; each

subscriber has a radio transceiver that provides a

standard phone service drop. Whereas it can cost on

average about $10,000 per subscriber to provide

access lines via copper wire, the average cost today

with digital radio is about $3,000 per subscriber.

Digital radio systems capable of carrying four DS-3

(each transmitting at 45 megabits per second) lines

are expected to be available in the early 1990s.
10 ● Rural America at the Crossroads: Networking for the Future

Figure 1-4-Rural Area Network

Schools Hospitals Government

and clinics offices

a

Industries Businesses Residences

A Rural Area Network would be designed to foster the deployment of advanced technology to rural areas in an economically viable manner

by pooling the communication needs of the businesses, educational institutions, health providers,

and local government off 

SOURCE: Office of Assessment 1991.
Chapter l-Summary and Policy Conclusions ● 11

If rural communities are to make use of

an assortment of technologies to create

Rural Area Networks, they must develop strategies to optimize the advantages of each and make them work

together.

Advances in satellite technology also hold considerable promise for rural areas. Because satellitebased signals are broadcast over a wide area,

virtually any user within the satellite’s ‘‘footprint’

can easily access the network at the same cost. The

mobile satellites being designed now for launch in

the early 1990s will have sufficient power to enable

the use of a large number of small, mobile terminals

on the ground. Portable units will be self-contained

and lightweight, capable of fitting on a company or

family car. These terminals will allow the user to

connect with private networks or the public telephone network for a variety of services, including

voice, data, facsimile transmission, and computer-tocomputer communications. Most recently, Motorola

is developing a global, satellite-based cellular network technology, called Iridium, that, once operational, could greatly reduce the cost of delivering

communication services to rural areas.

Technological advances have also reduced the

cost of deploying wireline communication services

to rural areas. For example, the development of

remote digital switching modules now permits

carriers to use fewer expensive host switches to

provide advanced intelligent services such as access

to 800-number databases. The cost savings can be

substantial. One host switch, such as the AT&T

5SEE, costs approximately $510 million, whereas a

remote switching module will cost between $600,000

and $700,000.

The Need for Greater Technological Expertise

If rural communities are to make use of an

assortment of technologies to create Rural Area

Networks, they must develop strategies to optimize

the advantages of each and make them work

together. These are by no means easy tasks. Nor does

the average rural businessman or woman have the

experience, skills, and resources to do this.

Under the old Bell System, few subscribers were

required, or even inclined, to explore their service

options. Thus, today, many are unprepared to sort

out the many options available to them in an industry

environment driven by rapid technological change.

Taking the time out from normal business operations

to come to terms with information-age technologies

is also difficult. Most rural businesses are small; job

responsibilities are not specialized enough so that

any one person could devote much time to become

a communication expert. As one rural businessman

said: “I run my business on a shoestring. I supervise

operations; keep the books; and even sweep the

floor. When would I ever have time to learn about

how to use communication strategically?”

Nor are there many people to whom rural businesses can turn for help. In a competitive environment, many communication vendors are focusing

their energies on the needs of the much more

lucrative large business users. Among those who

have supported small rural businesses in the past—

such as agricultural extension agents, economic

development officials, or the local chambers of

commerce-few recognize or understand the economic development opportunities that new technologies offer. It is not surprising that when a rural

business, or a rural community, has been successful

in deploying new technology effectively, there has

generally been a knowledgeable, energetic, and

visionary individual involved.

Enhanced Technology Requirements

In taking advantage of the new technological

capabilities, businesses are changing the way they

conduct business. More and more, they are using

technology to gain a competitive strategic advantage. For example, as in the case of electronic data

interexchange (EDI), communication technologies

are being used to gain competitive advantage over

competitors (see box l-C). Within companies they

are being used to improve the efficiency and

effectiveness of business operations. In addition,

they are being used as a basis for creating new

products and services. For this reason, it is imperative that rural communities not be left behind

technologically.

It is not clear, however, just what level of

technological deployment is needed for rural areas to

keep pace. Many of the services that will likely be

required by an individual rural business could be
12 ● Rural America at the Crossroads: Networking for the Future

Box I-C—Electronic Data Interexchange

Electronic data interexchange (EDI) is a notable example of how information and communication technologies

are emerging as important strategic tools for efficient and effective business operations. EDI is essentially the

modem, computer-based method by which companies order, invoice, and bill their products and services. Such

common transaction functions as invoices, shipping notices, and bills, which traditionally have entailed the transfer

and processing of paper documents, are replaced by electronic transfers between the businesses’ computers.

Electronic data interxchange improves the efficiency and effectiveness of operations by empowering

businesses to purchase supplies and to produce and distribute products precisely when and where they are needed.

The company’s computer system, for example, will initiate a purchase order and execute the purchasing transaction

when an item is requested and removed from the inventory. The price, terms, and conditions of the contract are all

stored in the computer. In addition to the considerable savings gained as inventory costs are reduced, EDI also

minimizes human clerical error and the considerable processing costs involved with paper transactions. By reducing

or eliminating the prolonged and often error-plagued paper trail, large retailers and manufacturers are able to gain

a competitive advantage by streamlining transactions with their suppliers and buyers,

SOURCE: Office of Technology Assessment 1991.

Standardized

purchase order

~ .

EDI \

‘r’)

‘~) “#l ———-

Specifier

I

Expert system -

monitors inventory

and production,

and automatically

reorders inventory

Buyer

% transmissions.

r’ 1 “ Automatic

order confirmation

/~~ Computer generates

l~~ndardized P.O. form

-.-1 L--l report

o

Instant data to:

Sales

Manufacturing

Engineering

Automatic billing

. Seller

Product delivery

How electronic data interexchange internally and externally expedites business transactions.

SOURCE: Reprinted from Datamation, Mar. 15, 1988 @ 1990 by Cahners/Ziff Publishing Associates, L.P.
Chapter I-Summary and Policy Conclusions ● 13

provided with narrowband (64 kilobits per second to

1.5 megabits per second) capacity (see figure 1-5).

However, if rural businesses pool their communication needs, they can benefit from the same kind of

efficiencies that large businesses enjoy by using

broadband technology (1.5 to 45 megabits per

second).

In evaluating a rural community’s technological requirements, one must not

only consider a community’s own economic activities, but also—and increasingly—the activities of its competitors.

In an information-based economy, communication needs are relative. In evaluating a rural community’s technological requirements, one must not only

consider a community’s own economic activities,

but also-and increasingly-the activities of its

competitors, whether they be businesses in urban

areas or in other countries. Estimating rural needs in

relationship to its competitors is, however, a very

complicated and uncertain task. There is currently

not a consensus about the capabilities large business

users need, and within what time frame. Nonetheless, it is clear that the deployment of advanced

technology in rural communities is likely to lag well

behind that in urban areas. With few exceptions,

communication vendors are focusing their development and marketing efforts on the large, lucrative

business customer, instead of bringing advanced

technology to remote areas (see ch. 3).

Regulatory policy reinforces this situation. Regulators generally do not focus on promoting economic

development, so they do not view rural needs in

relative terms. Instead, they tend to consider needs

for the present, evaluating them on an individual

user, service-by-service basis. Accordingly, they

contend that the needs of most rural businesses can

be met by deploying narrowband capabilities ranging from 64 kilobits to 1.5 megabits, which later can

be upgraded to broadband capabilities of 45 megabits. From the regulators’ point of view, infrastructure modernization should focus on immediate

problems such as assuring that all subscribers have

single-party lines, digital switching facilities, and

touch-tone dialing.

Figure 1-5-Bandwidth Requirements in Industry

 High tech/

High aerospace

’ 99 ‘et&m &

University m Government

g Medical Insurance T1

● Travel

Automatic

‘I% h ao t ● ““e r

reach me

● Petroleum

Retail point-of-sale point-of-sale

Low ●

Close Dispersed

Geographic distribution

● Agent/distribution networks Backbone networks

Bandwidth requirements for different types of users.

SOURCE: Mary Johnston and James Herman, “Two Tracks to the Future of private Networks,” Business

Communications Review, April 1990, p. 18. Reprinted with permission of publisher, Business Communications.
14 ● Rural America at the Crossroads: Networking for the Future

Photo credit:Mark G. Young

An example of the importance of information technologies

in rural areas: fax service in Espanolar New Mexico.

This approach is inappropriate for the development of community-based Rural Area Networks.

Networks that seek to pool business needs or that use

communication technologies to address social needs

as well as business concerns will require broadband

capacity. The State of Maine’s education network

already uses three DS-3 lines, and this capacity will

likely not suffice for long. The State of Michigan

also plans to deploy a statewide broadband network.

In such situations, an evolutionary approach to

network modernization would be unwise. Broadband technology is optimally designed for sharing.

It provides new ways of organizing communication

networks, and is not a mere extension of narrowband

technology. Upgrading can be costly. The amount of

capital available for network modernization is particularly limited in rural areas, so care must be taken

to assure that investments made now do not preclude

the timely installation of more advanced technologies in the future.

Joining Technology Policy to Economic

Development Policy

Notwithstanding the many opportunities that new

technologies afford, technology, in and of itself,

cannot level the playing field for rural areas and their

urban and global competitors. The lack of effective

Many benefits can be lost when technology deployment takes place in response

to market demand rather than as part of

a comprehensive economic development

program.

communication links is only one of a number of

barriers to economic development. Other barriers—

which in many cases are more crucial and immediate

—include social problems such as low educational

attainment, extreme poverty, and poor health conditions, as well as inadequate physical infrastructure

and a shortage of capital. If economic development

in rural communities is to be self-sustaining, these

problems must be addressed as well. What is

required is a holistic approach to economic development that incorporates the idea of comprehensive

community development. In most cases, communication technologies can foster and support such an

approach; they can be used to provide education,

deliver health care, and strengthen local government

(see box l-D). However, to make the most of new

technologies, technology deployment and economic

development policy need to be joined.

Failure to link the deployment of communication

technology to a program for comprehensive economic development could actually harm rural communities. By all measures, whether they be poverty

rates, income levels, or levels of educational attainment, rural areas begin from a disadvantaged position vis-d-vis urban areas. As the history of communication technology shows, under such circumstances,

the mere deployment of technology may expose

rural economies to urban competition and hence

widen the economic gap rather than narrow it (see

box l-E).

It is only by pooling public and private

demand that advanced communication

systems can be economically deployed to

rural areas.

●

The impact of mass media on rural businesses

provides a good example. The explosive growth of

popular magazines intensifed competition for ad-
Chupter Summary and Policy Conclusions ● 15

Box l-D—Technology and Health

The health care crisis in America is an especially acute problem for rural communities. The closing of hospitals

and medical facilities and the rising costs of medical insurance pose a serious threat to rural communities and their

economies. In Texas, for example, 73 hospitals have been forced to close since 1984; the majority of these served

rural communities. To overcome this potentially disastrous trend, Texas Tech University is designing and

implementing several telecommunications-based programs to help deliver medical services to rural hospitals,

clinics, and practitioners. The University’s 4 campuses serve 108 counties and 135,000 square miles in western

Texas with a population of 2.5 million people.

The University’s Health Services Center launched the Kellogg-Affiliated Remote Environments Network

(KARENET) in 1985 to afford doctors in rural west Texas access to vital support mechanisms. KARENET is an

online computer network that rural physicians and medical professionals can access by telephone and modem for

such programs as recording and monitoring patient care information, consulting with up-to-date treatment

procedures and protocols, health-care research, and continuing medical instruction. With $2.4 million funding from

the W.K. Kellogg Foundation and with computer support from AT&T, KARENET creates a “medical

telecommunity” that benefits the rural hospitals by retaining more patients and benefits the patients by reducing

the costs and problems associated with travel.

The Health Services Center also operates MEDNET, a 3-year project “to demonstrate the use of interactive

telecommunications systems to link rural hospitals, clinics, and practitioners, with the purpose of improving rural

health care by using technology to overcome professional isolation.” Funded by a $1.9 million grant from the U.S.

Department of Health and Human Services, MEDNET involves several technologies that provide an array of

important medical services:

. Two-way interactive video-along with voice, graphics and data-carried over digital T1 telephone lines

enables “ [t]he primary care physician in the rural hospital [to] communicate with physicians in larger

hospitals or medical centers for consultation and diagnosis. ”

. Personal computers donated by AT&T and special modems (codecs) are used to transfer x-ray images and

pathology slides as well as for other office functions such as word processing, spreadsheets, billing,

appointments, and record keeping.

. A satellite-delivered continuing education curriculum gives physicians, nurses, and health-care professionals programs that are specially tailored to address rural health concerns. The satellite broadcasts the video

program to the 22 participating rural hospitals while a telephone connection completes the two-way audio

portion.

. A telefacsimile network that supports 19 hospitals has been particularly useful in requesting and receiving

materials from the Health Service Center Libraries and for consulting.

Twelve sites were originally chosen to receive the satellite downlink and display equipment to take part in the

continuing education program under the initial grant funding. Others have joined subsequently, and the satellite

education project can, according to Jeffrey Cowan, become self-sufficient. For other of MEDNET’s program, the

expense of the equipment is often a considerable burden for rural facilities, so that seed money and outside funding

will be an important determinate to success.

SOURCES: John M. Holden “Across the Phone Lines,” American Medical News, Jan. 27, 1989, p. 13. Executive summary, the Texas Tech

MEDNET demonstration Project Texas Tech University Health Services Center, School of Medicine, Lubbock TX. KARENET

Pamphlet. Personal correspondence, Jeffrey Cowan, Satellite Communication Specialist for the MEDNET project Jan. 10, 1991.

vertising among segments of the publishing indus- positioned to run advertisements for nationally

try, and the winners in this competition matched the

shifts in the Nation’s marketing system. The small,

local retailers, who had once served their communities with little competition, suddenly faced a

succession of new challengers-department stores,

mail-order firms, and chain stores. The metropolitan

press increasingly tied its fortunes to department

stores and chains; and magazines were wellmarketed consumer goods that were sold through all

kinds of outlets.

Many benefits can be lost when technology

deployment takes place in response to market

demand rather than as part of a comprehensive

economic development program. It is only by

pooling public and private demand that advanced

communication systems can be economically de-
16 ● Rural America at the Crossroads: Networking for the Future

Box l-E—Technology and Culture

The Zuni Indian Reservation, some 150 miles due west of Albuquerque, lies in New Mexico’s dramatically

stark and strikingly wild country on the border of Arizona. It is a short way down the road from Gallup, the principal

trading center for the huge Navajo Indian Reservation. As on other reservations, unemployment and attendant social

problems are severe. The primary source of commerce in Zuni is trade in traditional hand-crafted jewelry.

There is very little about the Zuni Middle School that sets it off from other rural schools. It is housed in a modest

and modem one-story, red-brick building. The school children at the middle school wear name-brand sneakers and

T-shirts emblazoned with the names of popular music stars-evidence, we are told, of the profound effect of Home

Box Office (HBO, the subscription movie broadcaster) and Music Television (h/lTV, the popular music video

channel). However, while the students are exposed to mainstream popular American culture through TV and

satellites, the middle school’s Language Literacy Center is creating a computer program to help teach the native

language to the students, many of whom are only familiar with the language in spoken form and are unable to read

or write it. The project is an example of the application of technology to preserve and reinforce culture.

Education is something of a mixed blessing: because the Reservation does not have the resources to satisfy

those students who become interested in further education, they are thus inclined to leave and often relocate where

the opportunities are commensurate with their ambition and ability. Yet the middle school’s Language Literacy

Center, with the support of Apple Computers, is entering the Zuni language on HyperCard, a user-friendly

application that enables the student to quickly and easily switch between menus and topics as a way of

cross-referencing material. The user learns to associate the pronunciations of words and sounds with the spelling.

Several lessons, for example, are taught through short stories, and the student can look up an unfamiliar word by

switching to the program’s dictionary or alphabet.

SOURCE: Office of Technology Assessment site visit, 1990.

Zuni Language Literacy Center

e

..-. . . . :.. .:. *

=$=!s A

“@’

123

Zuni Numbers Milo and

A sample menu from the Literacy Center’s computer program.

SOURCE: Language Literacy Center, Zuni Middle School.

w
Chapter 1-Summary and Policy Conclusions ● 17

Federal telecommunications policy is

often at odds with States’ economic

development goals.

ployed to rural areas. Moreover, there area number

of positive synergisms to be gained from linking

technology deployment to development policy. Communication vendors will learn more about economic

development, while community leaders will gain a

greater understanding of the technology. With such

cross-fertilization, new development approaches

and innovative technological applications could

emerge. In addition, with the benefits of sharing

communication resources, key individuals and

groups that have previously operated independently

will find opportunities to cooperate on behalf of their

community’s development.

The Role of Telecommunications Policy

Successful rural economic development strategies require that communication regulatory policy

have parallel-if not consistent—goals and approaches. For example, if economic development

goals include the provision of education and health

services, then regulatory cost/benefit analysis must

include the social benefits of these services in their

calculations. This currently is not the case. In most

States, those responsible for development and those

responsible for regulatory policies have little contact.

Orchestrating Change: The Role of

the Federal Government

To capitalize on the potential of communication

and information technologies for rural America,

coordinated action is needed by many different

persons, organizations, and institutions. The more

broadly economic development is defined, the more

varied and numerous are the participants needed for

successful rural economic development. Revitalizing rural communities through communication technologies requires the cooperation and commitment

of:

1.

2.

3.

rural institutions such as schools, libraries, and

medical and health providers, and the local and

regional development agencies;

the communication providers such as the Bell

operating companies, independent telephone

companies, cable television and satellite companies; and

catalysts for change, coming, for example,

from colleges or universities serving rural

areas, local educational or community leaders,

Federal, State, or local government, and private entrepreneurs.

If the cooperation needed for economic

development is to take place, government must provide incentives for cooperation, while making it costly for players who fail to work together.

Federal telecommunications policy is often at

odds with States’ economic development goals.

Tension between regulatory and economic development goals was less apparent in the past because

communications was not considered a key component of economic development. This tension will

become more serious as the intensity of interstate

and global economic competition increases and as

communication is used even more for competitive

advantage. It is therefore necessary to reevaluate

communication regulatory policies in light of broader

economic development goals, and to establish mechanisms for collaboration among players and policymakers in both of these governmental functions.

OTA field studies6 suggest that competition for

turf and economic rewards hinders the cooperation

needed for economic development and limits the

efficient use of communication technologies in rural

areas. Many stakeholders have never dealt with one

another before, and economic and political incentives are such that they are not inclined to do so now.

With the growing role of communication and

information in society and their enhanced market

value, the stakes involved in providing these services are higher than ever before. Since only one

network may be economically feasible for a particular rural area, stakeholders will be tempted to take

6See appendix.
18 ● Rural America at the Crossroads: Networking for the Future

Photo credit: Mark G. Young

The Purchase Training Center outside Paducah,

Kentucky, for training barge operators for the

Mississippi River.

the lead in configuring and controlling the communication infrastructure for their own benefit. If the

cooperation needed for economic development is to

take place, government must provide incentives for

cooperation, while making it costly for players who

fail to work together.

Criteria for Making Policy Choices

OTA has identified a number of criteria that an

economic development strategy must meet to increase its chance of success. Experience shows that

whether communication technologies will be successful in promoting rural economic development

depends not just on their availability to rural

communities, but also on the social and economic

context in which they are deployed and used. The

criteria discussed below are the set of conditions

that-taken together-increase the chance for SUCcess. These criteria are an interdependent, total

package. To the extent that policy, measures fail to

address all of these criteria, the chance for success

and the likelihood that technology will be deployed

to the benefit of rural areas will be diminished.

A Vision, Together With Entrepreneurial

Leadership

The notion of employing communication technologies to foster rural development is unconventional

and relatively untried. To make it work requires

vision, imagination, ingenuity, and enlightened leadership.

A Multidimensional, Integrated Notion of

Economic Development

Experience suggests that if sustainable economic

development is to occur, economic development

policies and programs must be conceived in a

holistic fashion. Broad-based policies are especially

useful when integrating communication technologies into the development process, because these

kinds of policies offer new ways for rural communities to achieve economies of scale and scope, and

hence economically just@ the deployment of technology.

Minimum Cost and the Effective Use of

Existing Resources

With current national budget concerns, it is

unlikely that there will be substantial additional

resources available for promoting rural economic

development, unless the value of technology deployment can be convincingly demonstrated. Development strategies, therefore, must make efficient and

effective use of existing funds and institutional

resources.

Flexibility To Deal With the Variety of

Situations and Settings To Be Found in

Rural America

Rural communities are extremely diverse; hence

development policies must address the individual

needs and appeal to the unique strengths of each

community. Any State or Federal programs must be

flexible enough to allow this.

Flexible and Creative Thinking With Respect

to Rural Network Architectures

It generally takes longer to deploy technology in

rural than in urban areas, so technological advances

that affect rural and urban settings alike could make

rural areas worse off. To improve their competitive

positions, rural areas need technologies or technical

capabilities that can reduce the urban advantage.

Increasingly they must think about their communication systems less in terms of past urban models

and more in terms of the conditions found in rural

communities today.
Chapter 1-Summary and Policy Conclusions ● 19

Policies That Incorporate a Technology

Transfer and Educational Component

Many rural communities are unaware of the

potential of communication technologies to meet

their needs and aspirations. Moreover, they are often

stymied in using technology by the higher transaction costs-such as the costs of putting systems

together-caused by divestiture and the unbundling

of the national communication infrastructure. National development policies, therefore, must provide

technical assistance and education to users to

familiarize them with communication technology

and assist them in planning and devising communicationbased development strategies.

Reconciliation of Telecommunication

Regulatory Policies and Economic

Development Goals

There are a number of instances where economic

development goals and telecommunication policy

goals are in conflict. Ways must be found to

reconcile these differences if communication technologies are to play a major role in future development programs.

Cooperation Among All Key Players

Political turf battles and intense economic competition have doomed many economic development

programs in the past. If such programs are to be

successful in the future, they must include all of the

players and seek solutions. Incentives for such

cooperation must be built

ment strategies.

Economic

into economic developViability

The previous means of supporting rural communication systems are becoming increasingly less suitable. New ways of achieving economies of scale and

scope in rural areas are needed for the future.

Allowance for Choice

Not all communities are interested in economic

development. Development programs must allow

communities the choice to adopt them or to opt out

in accordance to their wishes.

Public Policies To Meet

Development Criteria

Providing Vision and National Leadership

If Federal policymakers are to provide the vision

and leadership needed to promote the effective use

of communication technologies for rural economic

development, they must state this objective as a

major policy goal. Establishing a formal goal will

signal a commitment and provide a benchmark for

weighing policy choices and evaluating policy

actions. A statement of goals would also provide a

basis for assigning and coordinating institutional

responsibilities, and for determining the efficiency

and effectiveness of each program.

Failure to emphasize the potential that communication and information technologies have to improve the prospects of rural development may result

in inadequate funding and a lack of institutional and

human support. The Federal budget crisis makes this

even more likely today. With the shrinking pie,

beneficiaries of current Federal programs will lobby

intensely against efforts to rethink or redirect

program priorities. Opposition will be less effective

if there is a clear vision of the role that telecommunication can play in promoting economic development.

Establishing formal goals is difficult. Goals focus

on the question of how scarce resources should be

distributed among competing groups and organizations. By not questioning goals, or by referring to

them in broad terms, decisionmakers can avoid

accountability to stakeholders who are losers in the

goal-setting process.

It will likely be difficult to set a goal for making

communication a priority in the economic development process. A consensus has not developed in the

United States to support the notion of communication as infrastructure. There is an unawareness of the

potential role of new communication technologies in

the development process, and skepticism about its

effectiveness. A few years ago, former Federal

communications commission (FCC) Chairman Fowler

equated television sets with toasters, a comparison,

he said, implying that communication services

should be treated like any other commodity to be

bought and sold in the marketplace. This narrow

view is shared by many consumers, regulators, and

economists.
20 ● Rural America at the Crossroads: Networking for the Future

Being too cautious is a serious drawback. Most successful programs that

have had a decidedly positive impact on

rural America—such as the land-grant

college system and agricultural extension, or the Rural Electrification Administration—have all been major national

efforts, inspired by a larger vision.

things get done. People in rural areas, however, are

limited in their ability to creatively apply new

technologies to problems of development. They lack

an adequate, low-cost communication infrastructure

and the skills and experience required to optimally

use it. This situation contrasts with urban areas

where there is a “critical mass” of both technology

and sophisticated users, which stimulates new applications and additional use. To create a “critical

mass‘‘ in rural America will require a significant

commitment and the willingness to take substantial

risk.

Although the Federal rural economic development legislation enacted by the IOlst Congress

acknowledges the importance of and provides a

specific role for communications in the development

process, the bill takes a cautious approach. The

Rural Economic Development Act of 1990 seeks to

assure that modem communication technologies are

available in rural areas by making it easier for rural

telephone providers to borrow money ii-em the Rural

Electrification Administration (REA) and the Rural

Telephone Bank to modernize their networks. It also

calls for these borrowers to play a more active role

in rural economic development. The Act further

envisions the use of communication technology to

achieve other economic development goals, such as

improving educational and medical resources.7 However, the Act does not provide a clear picture of the

role of technology as a central force in the development process.

Being too cautious is a serious drawback. Most

successful programs that have had a decidedly

positive impact on rural America-such as the

land-grant college system and agricultural extension, or the Rural Electrification Administration—

have all been major national efforts, inspired by a

larger vision.

An overly conservative approach to communication technologies could undermine the chance to

make a real difference. Where communication

technologies have been effective, it has often been

because they served not only as more efficient means

of providing basic services, but also as catalysts for

innovation-for actually changing the way that

Ways To Achieve Flexibility and

Encourage Creativity

Policies designed to allow flexibility and encourage creativity are needed to accommodate rural

America’s diversity and limited experience using

communication technologies to promote economic

development. If communication technologies are to

benefit rural communities, the 10 criteria listed

above must be met. Fulfilling these criteria will

require strong national leadership. The challenge for

policymakers is to strike a balance between flexibility and forceful national leadership.

To achieve this balance, two different approaches

have been used in the past: 1) providing block grants

to the States with programmatic strings attached;

and 2) establishing agencies at the State and local

levels charged with administering a federally based

program. The second of these two approaches is the

preferred as it applies to the goal of promoting

information-age technology for rural economic development. Unless the Federal Government establishes the guidelines for a technology-based program, many of the criteria needed for successful

development are unlikely to be met.

The Block-Grant Approach

Block grants have been used to distribute Federal

funds for health, education, and human services.

This approach is increasingly being used for other

funding, including rural economic development

programs. For example, the Rural Economic Development Act authorizes pilot testing of an institutional framework for distributing rural economic

7For example, Subtitle B, Enhancing HumanResources, provides “incentives for local telephone exchange carriers, rural community facilities and

rural residents to improve the quality of phone service, to provide access to advanced telecommunications services and computer networks, and to

improve rural opportunities.’
Chapter l-Summary and Policy Conclusions . 21

It is at the State level that many development programs are coordinated and

priorities set.

development funding through State governments in

up to five States. It establishes a new process to

deliver grants and loans by creating State Rural

Economic Development Review Panels8 and/or

Rural Investment Partnerships.9 These panels would

rank applications for assistance according to State

needs, and allow flexibility to transfer certain rural

development funds from one program to another.

Although the Secretary of the U.S. Department of

Agriculture need not accept the recommendations of

the State Review Panels, the Secretary would have

to notify the Review Panel and the Chairmen of the

Senate and House Agriculture Committee if funding

decisions differed from those recommended.

State and local governments strongly favor a

decentralized approach that would give them considerable control over the allocation of Federal

funds. Grants and loans to the States and localities

provide flexibility, allowing programs to be tailored

to the specific needs of a State or local area. They

also permit diversity, and the learning that comes

from experimenting with different approaches. Involving State governments in the process also helps

assure their commitment to Federal programs. It is

at the State level that many development programs

are coordinated and priorities set. State support and

leadership will be essential to promote unconventional and untried development programs that rely

heavily on communication technologies. Moreover,

State public utility commissions set most of the

regulatory policies affecting rural economic development. Therefore, it will be the State governments

that must reconcile economic development and

regulatory policies and goals.

Although favorable to the States, block-grant

programs may not allow room for sufficient Federal

leadership. As more responsibility is shifted to the

States, the Federal Government will find it more

difficult to assert leadership, guide programs, or

meet national priorities. Without strong Federal

leadership, many prerequisites for successful development will not be met.

For example, with a block-grant program, it

would be difficult to assure that States pursue

development approaches based on the use of communication technologies. Established interests are

well-positioned at the State level to vie for Federal

funds. But there are few constituent groups to speak

on behalf of using communication technologies as a

development tool. Nor are many State officials

either well versed in the use of technology or aware

of the development opportunities and choices that it

offers. In general, States will find it difficult to

provide the entrepreneurship or vision required to

overcome entrenched interests and the traditional

ways of doing things.

Block grants are unlikely to provide

either sufficient incentives to encourage

holistic approaches to development or

sanctions to discourage States from simply “writing off” their most depressed

communities.

Block grants are also unlikely to provide either

sufficient incentives to encourage holistic approaches

to development or sanctions to discourage States

from simply “writing off” their most depressed

communities. Many States focus their development

efforts exclusively on the business sector, and they

favor those regions in their States that offer the most

commercial promise. This tendency is likely to be

more prevalent in the future as States compete even

more intensely to attract new businesses and jobs.

Communication technologies will be underutilized,

serving only a narrow set of business interests, while

other important aspects of community development

founder.

8 The partnerships would provide Iocal revolving funds for rural development, with Federal seed money available to State local government and

nonprofit public or private rural economic development agencies.

9The “Rural Partnership Investment Board” would be composed of the Administrators “ of the Rural Electrification Administration Rural

Development Administration “ “ , and Extension Service plus two other members appointed by the President. The Board would provide Federal lines of

credit local agencies administering “ “ the funds would make the investment decisions.
22 ● Rural America at the Crossroads: Networking for the Future

If the Federal Government is to pursue a development program based on block grants, it must assure

that States have the technical capacity to make

educated decisions about the use of technology.

Moreover, funding would need to be made conditional on its use for specific purposes.

A Federal Program Administered at

the State Level

One way to provide both Federal leadership and

flexibility at the local level is to build on the

successful model of the Cooperative Extension

Service. Through this program the Federal Government played a major role in transferring industrial

technology to agriculture. Cooperative Extension

was successful because it relied on participative,

self-help programs-farmers working together with

experts and officials to solve problems.

An equivalent program today would be a Rural

Development” Service, whose basic mission would

be to encourage the use of communication technologies for development purposes. As in the case of its

agricultural model, administrative units would be

established at the Federal, State, and local levels, but

program activities would vary from State to State

and within States. Decisions would be worked out

locally and flow upward through the system to the

State level. Subject matter specialists, who might be

employed by land-grant institutions, would help

local development officials incorporate communications into their programs. Supervisors and State

leaders would assist in program planning, budgeting, and public relations. The Federal Government

role would be largely one of consultation and

leadership, rather than of direct management or

control.

This option would signal a true commitment to

promoting rural development through 

age technologies. It is also a proven method for

technology transfer, a major need for a successful

program. The previous success of this kind of a

program suggests it is likely to have considerable

payoff.

States, however, may not favor this approach,

especially if it is seen as an alternative to receiving

block grants. Many State leaders may not view

telecommunications as a major priority. Others may

simply want to control funds spent within their

jurisdictions. One way to overcome such resistance

would be to separate out Federal funding for

Photo Mark G. 

The farm bureau and cooperative in Page, VA.

telecommunications programs from other grants and

to link these funds to State support and commitment.

This approach may be difficult to execute through

existing organizations. Even within Federal agencies, there is little understanding of communication

technologies and their potential. Success will depend on how willing and able agency employees are

to improve their technical knowledge or to hire those

knowledgeable in this area. If new organizational

arrangements are required, the cost of pursuing this

option will be greater.

Taking Advantage of Existing Organizations

A national program to encourage the use of

information technology for rural economic development will be less costly if existing organizations are

given charge of its direction and implementation.

There are a number of organizational candidates for

this task, including a wide variety of agencies and

institutions involved in development activities at the

Federal, State, and local levels. Each, however, is
Chapter l-Summary and Policy Conclusions ● 23

generally responsible for only one piece of the

development puzzle. Thus, the problem for policymakers is not to establish new institutional

arrangements, but to assign agencies tasks that

match their existing strengths and to assure that

cooperation and coordination among these agencies

provides a holistic development approach.

There are at least three organizations that could be

considered for major rural development roles (see

figure 1-6). These include the United States Department of Agriculture, the Rural Electrification Administration, and the State land-grant colleges and

university systems.

The United States

The Department

Department of Agriculture

of Agriculture (USDA) is responsible for coordinating rural policy, and chairs

the interagency committee on rural development

that operates under the auspices of the White House

Economic Policy Council. Over the last few years,

it has made a concerted effort to expand its focus

beyond agriculture-related issues to include more

general economic development issues affecting rural

areas. Several USDA agencies now have important

rural development responsibilities-principally the

Farmers Home Administration, the Rural Electrification Administration, and the Cooperative Extension Service, and-to a lesser extent—the Forest

Service, Soil Conservation Service, Economic Research Service, and the National Agricultural Library.

If USDA is to play a commanding role in rural

development, even greater leadership and coordination is needed. Title XXIII of the Rural Economic

Development Act of 1990 (Public Law 101-624)

reorganizes the Department of Agriculture to do this

by creating the Rural Development Administration

alongside the Fanners Home Administration “ to be

vested with primary responsibility for rural economic development policy.

Within USDA, the Economic Research Service

conducts research on rural areas, and its work has

identified and explained the underlying causes of

rural America’s recent decline. Further research,

monitoring, and examining the role of communication in the development process at the local level

If the Cooperative Extension Service is

to play an expanded role in introducing

information-age technology to rural areas,

it must be reenergize and develop

greater technical expertise, especially at

the grassroots level.

could also be fruitful. Section 2349 of the Rural

Economic Development Act provides research

grants for the purpose of further studying rural

development. In addition, it directs the National

Rural Information Center Clearinghouse operated

by the National Agriculture Library to maintain and

disseminate information on various leadership training programs, as well as information on participants

involved in rural development. The listing is to

include information about rural electric cooperatives; nonprofit business development companies;

economic development districts serving rural areas;

small business development centers; regional development organizations; vocational or technical

schools; and Federal, State, and local agency programs.

The Cooperative Extension Service is part of the

Department of Agriculture. This program is uniquely

suited to help introduce information-age technologies to rural areas where unfamiliarity and lack of

experience with communication technology is a

major barrier to its use. Knowledge is rarely

transferred passively. Moving innovations from

development to production is not a one-way process.

The experience and understanding of potential users

is as important to the process as is expert knowledge.

Thus, effective technology transfer requires outreach programs based on mutual trust and respect,

similar to those administered by the Cooperative

Extension Service.

However, while the Cooperative Extension Service has a rural development strategy at the national

level, at the grassroots level it is often not perceived

as a vital institution, with an important mission to

fulfill. Instead, it is viewed as lacking creativity and

initiative, and focused on agriculture to the exclusion of other kinds of rural development problems.

Federal Extension Service officials, now more aware

of the potential role for communication technologies

in the development process, are developing an
24 ● Rural America at the Crossroads: Net-working for the Future

Figure 1-6-Organizational Chart of Agencies Involved With Rural Development

------- ,/’ ‘ .\ / \ / \ / \

\

Us. \,

I

Congress ———--——————

’

1

/

.7-7 -.””’

I

I

I v

Other Federal agencies

- Extension Service

- Farmers Home Administration

- Small Business Administration

Economicr nafin -:e Developmentn-.,

,- c-m”. .!

- Rural Electrification Administration

- Wul I Ul I 1 1 - 

- Forest Service

Administration

- Soil Conservation Service

- Federal Communications

- Economic Research Service

Commission

- National Agricultural Library

- Department of Education

Rural Information Service

)

- Health and Human Services

- Department of Defense, etc.

I

w@(-J

The key players involved in rural development at the Federal, State, and local level, and how they relate to each other.

SOURCE: Office of Technology Assessment, 1991.
Chupter 1-Summary and Policy Conclusions ● 25

overall information technology plan.10 But the

knowledge gap at the local level is great. If the

Cooperative Extension Service is to play an expanded role in introducing information-age technology to rural areas, it must be reenergize and

develop greater technical expertise, especially at the

grassroots level. It also must work more closely with

other rural development agencies, such as the Rural

Electrification Administration, the Economic Development Administration, the Small Business Administration, and statewide university systems (see

ch. 6).

The Rural Economic Development Act of 1990

takes steps to enhance the role of the Cooperative

Extension Service. Section 2346 establishes a rural

economic and business development program within

the Extension Service. Funds are provided for State

and county-level Cooperative Extension Service

rural development specialists to:

Assist individuals in creating new businesses,

including cooperatives, or assist existing businesses,

and to assist such businesses regarding advanced

telecommunications, computer technologies, technical or management assistance, business and financial

planning, and other related matters, and to assist

community leaders in community economic analysis

and strategic planning.

Rural development specialists would provide:

Advanced telecommunications, business management, computer operations, and other technical

assistance to community leaders and private sector

entrepreneurs and cooperatives.

The Extension Service is also directed to coordinate and cooperate with any similar service provided

by other Federal agencies or programs.

The Rural Electrification Administration (REA)

Like the Cooperative Extension Service, the REA

has a long and successful history serving rural

communities. Its basic charge was to foster technology deployment through a low-cost Federal loan

program. Communication services in rural areas

would have lagged greatly had rural telecommunication providers not used REA loans.

Although the REA program has helped rural

telephone providers make strides in upgrading the

rural communication infrastructure, there is still

REA could help rural communities and

development agencies serving rural areas

sort out their communication needs and

explore new ways of meeting them.

much for REA to do. Many areas continue to have

poor-quality service. Many do not have single-party

access to the public switched network, equal access

to competitive long-distance carriers, access to

value-added data networks, emergency 911 service

or touch tone and customized calling services.

Moreover, rural communication needs are likely to

increase greatly in the future due to the rapid

advance of technology and the importance of

communication in modern life. Experience suggests

that advanced technologies will not be quickly

deployed to rural areas without some form of

government intervention.

There are also new roles that REA could play in

the post-divestiture communication environment.

Most important, REA could help rural communities

and development agencies serving rural areas sort

out their communication needs and explore new

ways of meeting them. If rural areas are to benefit

from new technologies, they must develop alternatives for organizing and financing their communication networks. Fortunately, technological advances

and the unbundling of the communication infrastructure permit all users to develop customized

communication systems that meet their unique

needs.

With its successful lending experience and technical expertise, REA could play a key role in helping

to launch such experimental approaches. The REA

could establish forums and discussion groups of

community leaders, communication providers, and

communication users to consider rural communication needs, and explore how communication systems

might be designed to meet these needs. In a more

proactive mode, REA might conduct research and

development to investigate new and creative ways of

deploying advanced communication and information technologies to rural areas, and/or provide

financial support for demonstrations and trials of

such strategies. The REA could serve as an honest

I @or a discussion of thk pl~ = ch. 6.
26 ● Rural America at the Crossroads: Networking for the Future

broker between borrowers and potential users. It

could also provide loans and technical assistance to

groups of users and providers who undertake cooperative communication ventures.

The Rural Economic Development Act of 1990

includes measures to expand REA’s role in several

of these respects. Section 2350 creates a new REA

Assistant Administrator for Economic Development

to carry out REA programs that involve rural electric

and telephone systems in community and economic

development. This section mandates REA to spend

10 to 20 percent of its annual budget on development

activities, and not less than 1 percentona‘‘technical

assistance unit” to provide advice and guidance to

REA borrowers concerning community and economic development. Section 2345 provides the REA

Administrator with additional powers and assigns

duties to provide advice and guidance, establish and

administer pilot projects and demonstrations, and

act as an information clearinghouse for dual development-related activities of REA borrowers. REA’s

technical assistance role is strengthened across the

board.

The Act reaffirms the continuing importance of

the REA loan program, and calls on it to play an even

greater role. Public Law 101-624, for example, finds

that:

Making modern telecommunications technology

and services available in rural areas in the United

States promotes economic development and improves the quality of life in rural areas, and the

efficient operation of the Rural Telephone Bank and

the Rural Electrification Administration loan program is essential to the continued development of the

telecommunications infrastructure in rural areas.

The Act extends lending authority to advanced

telecommunication services; mandates the expeditious processing of loan applications and the use of

available loan funds to the extent authorized by law;

and prohibits, in the strongest possible terms, any

further attempts to dismantle or weaken REA and

REA telephone programs. In addition, Section 2101

of Title XXI establishes a technical assistance unit

within REA to provide advice, guidance, and

information to REA electric and telephone borrowers concerning rural development programs, activities, and projects. It also directs REA to “promote

local partnerships and other coordination between

The REA is well-suited to assume leadership in planning for, and supporting,

rural communication networks for the

future.

borrowers under this Act and community organizations, States, counties, or other entities, to improve

rural development. ’

The REA is well-suited to assume leadership in

planning for, and supporting, rural communication

networks for the future. Moreover, the creation of an

economic development office within the REA is

consistent with the criteria calling for a joining of

economic development and technology policy. However, REA is likely to be most effective when

focusing on technology issues. As it now stands, it

has neither the staff nor the resources to play a major

economic development role. Thus, it maybe best not

to recast REA into a full-blown rural development

agency, for which it is ill equipped, but instead to

direct REA to work closely with other agencies,

focusing and providing expertise and advice on the

many new and challenging technology issues emerging in a post-divestiture environment.

Dispersed throughout rural areas, institutions of higher education provide an

ideal hub, not only for rural communication networks but also for bringing

together the myriad of players needed

for economic development.

Community Colleges, Land-Grant Universities,

and State University Systems

Although colleges and universities played a

critical role in helping Americans adjust to the shift

from an agricultural to an industrial-based economy,

they are sometimes overlooked as resources for-rural

economic development, In the Rural Economic

Development Act, educational institutions are hardly

referred to at all, at most being called on to play a

coordinating, research, and/or limited implementa-
Chapter 1-Summary and Policy Conclusions ● 27

tion role.11 This is a serious oversight. Dispersed

throughout rural areas, institutions of higher education provide an ideal hub, not only for rural

communication networks but also for bringing

together the myriad of players needed for economic

development.

Many colleges and universities already have

computer/communication networks that are electronically linked to other institutions, libraries and

databases, and research centers throughout the

United States and the world. The future development

of a high-speed national research and educational

network (NREN) will provide universities even

Having established their own communication networks and successfully used

them to meet their educational goals,

most educational institutions are knowledgeable in the use of communication

technologies.

greater access to computing and transmission capacity, and information services. In addition, the

number of educational institutions using communication

technologies to develop and share educational resources and materials is growing at a steady pace.

Many colleges now deliver at least some classes

over the air or online to students at distant locations.

Having established their own communication

networks and successfully used them to meet their

educational goals, most educational institutions are

knowledgeable in the use of communication technologies. As large users of communication servicesoften ranking second only to State government—

they exert considerable market power. As in the case

of a large business, the demand of a statewide

university system can, by itself, justify the deployment of advanced technology even to a relatively

remote area. Because of these strengths, educational

institutions can play a key role in assuring the

success of telecommunication-based development

programs. Not only could they provide expertise,

they could also leverage their market power to draw

communication providers to rural areas (see box

l-F).

Colleges and universities also provide a locus for

many of the key players involved in development.

Businesses are now aligning themselves with educational centers to promote education, training, and

research. They are also taking advantage of university online library systems and the growing number

of applied research and development centers located

at, or near, university centers. Similarly, many

organizations involved in development are either

housed at or near the university. For example, the

Small Business Administration’s (SBA) offices are

generally located on university campuses. So too are

Federal regulatory policies that aim to

guarantee rural areas equal access to

advanced technologies may founder

because regulatory authority is divided

between the Federal Government and

the States.

many Extension Service’s offices. Universities are

also well connected to State governments, since

many are governed by State boards and funded by

the States.

Thus State colleges and university systems could

contribute to the rural economic development process. Federal and State programs that do not include

them will lose a powerful resource.

Reconciling Economic Development and

Regulatory Policies

It is a mistake to use the regulatory system as the

primary means for achieving rural economic development. Regulators and economic developers have

different missions. They often view issues and judge

policies in different terms. These differences are

even greater in the post-divestiture, competitive

environment. Regulators are committed to protecting individual consumers; economic developers to

llq’he ~tr~~ ~t~ys~te Rural Economic DevelopmentReviewP anels that may beestablishedinclude nonvoting representatives from SChOOIS

or colleges of business, en@eering, and agriculture. Also, the Act establishes rural telecommunication access programs intended to improve the use

of telecommunication and computer networks by rural students and teachers, among others. And education is to be included in rural development plans

proposed for rural areas in participating States.
28 ● Rural America at the Crossroads: Networking for the Future

Box l-F—Big Sky Telegraph

In Cody, a remote town in northern Wyoming, stands an old log house. What was once a mid-ji!-es Holiday

Inn coffee shop now encloses the Big Horn BBS [computer “bulletin board system”], a rather unlikely location for

a telecommunications system with global capabilities.l

Ever since the inception of the Big Sky Telegraph at Western Montana College introduced the idea of

linking citizens and communities through modem telecommunications, there has been a proliferation of BBSs

around these Northern Mountain States, where people are spread over great distances.

Big Sky Telegraph, the inspiration and model for other bulletin board systems in Colorado, Wyoming,

Idaho, and Nebraska, was first conceived as an electronic network to link Montana’s 114 one-room schools to

each other and to Western Montana College. With initial support from the M.J. Murdoch Charitable Trust and

US West, Big Sky started operating-’ ’went on line’—in January 1988. The Telegraph has gone beyond being

“a resource support system and recertification program for teachers”2and its mission has since grown into “a

rural educational, business, and individual telecommunications support service. ” About 100 community sites

(including schools, libraries, county extension offices, chambers of commerce, women’s centers, and hospitals)

will be equipped with a modem to connect their computers to Big Sky’s network. Circuit riders travel throughout

the State to introduce people to the technology and familiarize them with its offerings, and local system operators

are given training to help the community use the services.

The Big Sky Telegraph exemplifies how communication technologies serve to support human

communication which ultimately and essentially

serves to define and unite communities. Big Sky is a

means of sharing ideas and information among

communities with common circumstances and concerns and similar needs and opportunities-but

which are separated by great distances. “The Big Sky

Telegraph ‘virtual community of communities’ consists of frontierspeople from over 100 rural Montanan

communities and statewide dispersed organizations

working together to learn from each other survival

techniques.

The Telegraph is a tool for enhancing education,

for broadening and strengthening community, for

facilitating economic development, and for building

grass-roots democracy. For example, several students are being taught a class in Chaos Theory from

a professor at the Massachusetts Institute of Technology over the Big Sky Telegraph. In addition, the

Telegraph will give subscribers to the system access

to a greater range of external and foreign information

sources such as national and international databases

and computer bulletin boards.

photo credit: Frank Odasz

Members of three tribes at work during Big Sky's recent project, 

the Native American Graphic workshop.

luster Santos, “me Conception and Development of the Big Horn COIUIINU@ Business BBS,” ~ubfish~ 

 Cowtig, and Rural Economic Development” prepared for united 

October 1990.

 Hughes, to Rural Global Trade Frontier: the 

SOURCES: Big Guide to Community Frank University of Western

Montana College; David Hughes, “On the Trail to the Rural Trade Frontier: From the 

unpublished Lester Santos, “The Conception and Development of the Big Horn Community Business BBS,”

unpublished MESA Consulting, and Rural Economic prepared for United States

 October 1990.
Chapter I-Summary and Policy Conclusions ● 29

Communication policies now being debated and decided will determine when,

and to what extent, rural areas have

access to modern communication technologies.

fostering broader societal goals. Whereas regulators

tend to assess the need for deploying new communication technologies on the basis of a demonstrated

market demand; economic developers tend to evaluate the benefit in terms of technology’s potential to

address a social problem.

Federal regulatory policies that aim to guarantee

rural areas’ equal access to advanced technologies

may founder because regulatory authority is divided

between the Federal Government and the States.

Even when the Federal Communications Commission adopts policies to encourage the modernization

of the communication infrastructure-as in the case

of setting depreciation rates 12-States may not

follow suit. Recent court decisions have circumscribed the FCC’s authority to preempt the States in

such instances.

Despite the problems entailed in relying on

regulation, rural economic development must take

telecommunications policy and regulatory policy

goals into account. Communication policies now

being debated and decided will determine when, and

to what extent, rural areas have access to modern

communication technologies. Thus, if communicationbased rural economic development policies are to

succeed, the conflict between economic development and communication regulations must be reconciled. There is too little attention being paid to these

issues. The recently enacted Rural Economic Development Act, for example, does not address the potential communication regulatory issues that the legislation might cause, nor does it suggest ways to

resolve them.

Several steps might be taken to remedy this

situation:

1.

2.

3.

4.

5.

Photo credit: Mark G. Young

A view of the main street in Ritzville, Washington,

a community heavily dependent on agriculture.

establish institution W ways to improve

communication between economic development policymakers and regulators,

take better advantage of the Federal/State joint

board (see below) to resolve differences on

technology deployment,

give regulatory agencies authority to include

development goals in their evaluations,

pursue technology deployment strategies that

are likely to work through-not against—

market forces, and

set regulatory policies that distinguish rural

from urban areas.

Establish Institutionalized Ways To Improve

Communication Between Economic

Development Policymakers and Regulators

Regulators and policymakers involved in economic development would better understand each

other’s values and goals if they routinely met to

discuss overlapping issues. Atypical way of promoting such discussion is to set up an interagency

12 Beginning in 1980, the FCC adopted a number of changes with respect to determiningdepreciation rates that were designed to take into account

advances in technology. This step led, however, to conflicts with the State public utility commissions. The Supreme Court supported the States’ rights

to an independent position, ruling-in the case of Louisiana Public Service Commission v. Federal Comnunications Commission-that in-the 1934

Communication Act, Congress did not want to preempt the States on depreciation issues generally.
30 ● Rural America at the Crossroad: Networking for the Future

Regulators and policy makers involved

in economic development would better

understand each other's values and goals

if they routinely met to discuss overlapping issues.

committee. 13 In this case, an interagency group might

be established between the Federal Communications

Commission (FCC) and the Rural Development

Administration within USDA. Interagency committees are often formed for expedience.14 They seldom

reach consensus; but they can promote shared

understanding. Such arrangements are rarely satisfactory, so interagency committees should be

viewed as a complement to other mechanisms.

Some of the shortcomings of interagency committees are that they tend to obscure problems rather

than resolve them, subvert the political interest and

commitment to addressing problems because there

are too many people with peripheral interest, and

seek outcomes based on a distribution of power

instead of policy needs.l5 Mission agencies often

oppose such coordination and set out to assure that

they fail. As Harold Seidman has noted, efforts at

coordination are not designed to make fiends, for

“coordination is rarely neutral, ” and always “advances some interests at the expense of others. ’ ’16

Thus, any proposal to improve coordination is often

judged less on its merits than on how it might

redistribute power among existing players.

Interagency groups work best when aiming towards established goals. They may be only marginally effective in resolving rural economic development/

telecommunication policy issues unless the goals are

clearly stated. Interagency committees should not be

discounted, however. Without a dialogue between

policymakers in both development and regulation, it

may not be possible to find solutions.

Utilize Joint Federal/State Boards To Foster

Communication Among Federal and State

Regulators About Meeting Rural Communities>

Communication Needs

States are pursing a number of different approaches to reduce the tension between economic

development and regulatory goals. Some of these

conflict with the policies and approaches of the FCC.

Sharing experiences on the State and Federal levels

through a joint forum might help reconcile and

resolve jurisdictional issues.

The Federal/State Boards sponsored by the FCC

and the State public utility commissions may be

appropriate forums for these discussions. The boards

consist of three FCC commissioners and four State

commissioners nominated by the National Association of Regulatory Utility Commissioners. They

consider divisive State-Federal issues and bargain in

ways similar to contract negotiations. Most particiIf rural economic development is considered a major national goal, Congress

could direct FCC to also consider social

goals in its evaluations.

pants agree that the joint board process has been

useful. 17

Give Regulatory Agencies Authority To Include

Development Goals in Their Evaluations

Regulatory agencies are constrained by law as to

the criteria they can apply to regulatory decisions.

For example, some State regulatory commissions

are prohibited from considering anything but tech13T@y, two intergovemmen~ agencia are Concernd with communication and communication-related issues: The SeniOr rntmgency coup on

International Communication and Information Policy, which was established by the National Security Council in 1984; and the Economic Policy

Council, which although it does not directly focus on communication issues, provides an interagency forum for addressing them.

14AS Htiold Sei-has descri~ me~ “~temgency committees are the crabgrass in the garden of gOveHIInent tititutions. NobOdy wwsthem,

but everyone has them. Committees seem to thrive on scorn and ridicule, and multiply so rapidly that attempts to weed them out appear futile.” See,

Harold Seim Politics, Position, and Power: The Dynam”cs of Fe&ral organization (New York, NY: Oxford University Press, 1980), p. 270.

ls~m Schick ‘cmCmr-@tiom” in peter smto~ Fe&raZ Reorganization: What Have We tiarned? (-b, NJ: ~~ HOUse

Publishers, 1981), p. 95.

IGSei-, op. cit., footnote 14, p. 205.

ITWc~d sch~~, ~~~o-Tier R@ation ~d Joint Bo~& in ~eric~ ~l~ommunic~om,’ ‘ unpub~shed~~p~July 1987.
Chapter 1-Summery and Policy Conclusions ● 31

nology cost/benefits and may not include social

costs and benefits. This makes it impossible to

account for economic development goals in regulatory decisions. Even in cases where consumers may

benefit socially, regulators’ choices are limited.

Some States—such as Michigan-have passed laws

authorizing their State regulators to incorporate

social goals in their analyses to avoid this obstacle.

If rural economic development is considered a major

national goal, Congress could direct FCC to consider

social goals in its evaluations. The FCC is now

prohibited from actively supporting economic development. Congress has been reluctant to act on

communication issues. If this reluctance continues,

a change in FCC’s authority is unlikely.

Encourage Technology Deployment Strategies

That Will Work Through—Not Against—

Market Forces

Regulators do not disagree with social goals per

se, but they generally oppose policies that circumvent market forces or that distort market signals.

They encourage modernization programs that are

driven by demand, rather than technology. Economic development strategies that create demand

are consistent with regulatory policies. For example,

strategies that combine users’ needs and create the

demand needed to financially justify the rapid

deployment of advanced communication technologies will meet regulatory criteria.

Changes will require government intervention.

Consumers act as individuals in the market, with no

incentive to join together. Consumers may not

recognize their common interests in rural areas

where communication expertise is limited. Government could provide incentives to assist consumers

through information sharing and/or loans and grants.

The REA could play an important role in providing

technical assistance.

Section 2334 of the Rural Economic Development Act encourages joint use and sharing of

telecommunication transmission facilities through

grants to end users. The Act also streamlines the

process for granting telephone carrier loan requests

and requires grant applicants to work with local

telephone carriers. Section 2337 creates a loan

program for business telecommunications partnerships to help rural businesses and governments share

telecommunications terminal equipment, computers, and computer software.

Although consistent with regulators’ compulsion

to work through the market, a cooperative approach

could still raise regulatory problems. A large and

coordinated group of users could establish its own

communication system and bypass the public network.

Regulatory Policies That Distinguish Rural

From Urban Areas

Conditions in rural areas are dramatically different from those in urban areas. This difference

requires different telecommunications strategies.

Regulatory policies must be designed to reflect these

differences. Policies that pertain to lower Manhattan

in New York City are not likely suitable to Aroostook County, Maine. Whereas Manhattan can sustain three competing telephone companies, Aroostook County barely sustains even one modern

communication system. Rate-of-return regulation,

depreciation policies, alternative regulatory frameworks, cable/telco cross-ownership, telephone companies entry into information services, and LATA

boundaries and exchange boundaries require special

treatment for rural areas. To address these policies,

Federal-State jurisdictional conflicts must be resolved, and sensitivity to rural needs must be

nurtured among regulators.

Federal-State jurisdictional conflicts must

be resolved, and sensitivity to rural

needs must be nurtured among regulators.

Creating Incentives for Cooperation

Communication-based economic development

programs are likely to have substantial long-term

benefits. But some stakeholders may feel threatened.

Agencies may try to protect their turfs or may lack

the willingness to acquire the technical know-how.

Telephone service providers might be concerned

that users bypass their communication systems.

State development officials may resent loss of

control over development funding. local development groups may resist new programs seeking a

share of development funds. The cooperation needed

for rural success is unlikely in such a competitive

atmosphere. The Federal Government must promote
32 ● Rural America at the Crossroads: Networking for the Future

cooperation among stakeholders by using its leverage through grants and loans.

Educators lead in developing this kind of cooperative approach. Under the Star School Program, for

example, $33.5 million (in the form of 2-year

competitive matching grants) is available to partnerships for using telecommunications for longdistance learning.18 Taking advantage of a similar

opportunity, the University of Maine/Telecommunications System used a 5-year, $4.4 million grant

from the Department of Education under Title III of

the Higher Education Act, matched by the State

government, to help telephone providers pay for the

upfront costs of deploying a fiber network linking

State universities and community colleges.

A similar grantor loan program might be administered through the USDA’s Rural Development

Administration, which coordinates Federal activiGovernment must promote cooperation

among stakeholders by using its leverage through grants and loans.

ties in rural economic development. However, the

interagency working group that exists within USDA

should be expanded to include the Departments of

the Interior and Defense and the FCC. Loans might

be administered through the REA.

If effective, these grants could have a very high

payoff. Such grants could help establish selfsustaining relationships that promote cooperation

and commitment among players. The Federal Government could guide the grant program through a

competitive process. The Federal Star School Program identified the players that must be involved in

developing educational partnerships, and targeted

benefits for low-income groups; a rural grant program could similarly require that certain criteria be

met.

Programs and partnerships developed under such

a grant or loan program could prove threatening to

rural communication providers, and cause some

tricky regulatory problems. There are bound to be

some failures with this unconventional approach.

However, something can be learned from failure in

such high-risk programs, and the experience gained

can be built into later grants. Moreover, the rate of

failure is likely to be less if this kind of program is

implemented in conjunction with the necessary

informational, technology transfer activities. Regulatory problems might also be resolved if Federal

plans are discussed regularly with State regulators.

Conflicts with local communication providers will

be avoided, if they are participants in the development of any grant proposals, and thus have something to gain by their acceptance.

ls~e S~ Schook legin~tion~flestwo fo~ts for the composition of eligible partnerships. In one, membership must include at least one Stite

educational agency, State higher education agency, or local education authority responsible for a significant number of poor or underserved students.

Furthermore, this type of partnership is required to have at least two other institutions from a host of types, including universities, teacher tmining

institutions, and public broadcasting entities. The other type of partnership must include a public agency or corporation already formed to operate or

develop telecommunication networks to serve schools, teacher training centers, or other education providers. AU partnerships must be statewide or

multistate. These requirements were meant to create new patbs to improve the educational system by fostering cooperation among institutions. For a

further discussion, see linking for Learning, OTA-SET-430 (Washingto~ DC: U.S. Government Printing (Mice, November 1989), pp. 136-141.
Chapter 2

The Challenge for Rural America
Contents

Page

Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Defining Rural Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Evolution of Rural America in a HistoricaI Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Current Rural Situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Key Trends Likely To Affect Rural America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Shift to an Information-Based Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Decline of the U.S. Competitive Position and the Emergence of a Global Economy . . . . . .

A Growing Concern About the Environment, and the Environmental Tradeoffsin

Economic Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

35

35

36

38

40

45

45

48

50

Boxes

Box Page

2-A. Forces Underlying The Global Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Z-B. New Forms of Global Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

2-C. Maine’s Sea Urchin Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

2-D. Lake Cumberland, Kentucky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ . . . . . . . . . . . . . . . . . . . . 53

2-E, Development v. the Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

2-F. Retraining Miners in Appalachia ...., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Figures

Figure Page

2-1. Number of Farms and Farmworkers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

2-2. Census Regions of the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

2-3. Nonmetropolitan County Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

2-4. Poverty Rates and Unemployment by Residence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

2-5. Real Per-Capita Income ......,.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

2-6. Net Nonmetropolitan Migration by Education Level, 1985-86 . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

2-7. Structural Change and the Information Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Table

Table Page

2-1. ERS Classification of Nonmetropolitan Counties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Chapter 2

The Challenge for Rural America

Findings

Unless rural communities act decisively to reverse present trends, their economies will become

more fragile. Without intervention, unemployment,

poverty, and out-migration will likely increase,

exacerbating the structural problems typical of rural

areas. The growing importance of high-technology

service industries within the economy and the higher

value placed on employment in these fields, as well

as greater environmental constraints, require that

economic development strategies be broader-based

while focusing more on such technology-oriented

businesses.

To attract firms in these growth industries, rural

areas will have a number of obstacles to overcome.

Competition for such companies will be intense,

coming from urban and other rural areas and

increasingly from other countries. Unlike routine

manufacturing industries that migrated to rural areas

in search of lower production costs, today’s hightechnology industries are attracted both by a highly

skilled workforce and communication networks to

other economic markets and information centers.

These are precisely what rural areas lack.

With comparative disadvantages, it is clear

that one key component of a successfull development

strategy is upgrading the labor force. A second

component is the improvement of the communication infrastructures in rural areas.

Introduction

Although isolated and remote, rural communities

do not exist in a vacuum. They are linked to the

world surrounding them through a variety of transportation and communication networks and the

commodities that flow over them.1 Rural communities have, throughout American history, been shaped

by advancements in transportation and communication technologies. By extending their ties and

expanding their markets, these technologies have

made rural communities more vulnerable to external

developments and events.2

Rural America continues to evolve in response to

its changing environment. Today, rapid advances in

communication and information technologies are

restructuring and redefining rural communities and

markets. In the past, these technologies brought rural

villages and towns into a larger, national community; now they link communities on a worldwide

basis. As rural communities become even more

interdependent, their futures will be determined by

trends and developments far beyond their control.

 Communication of James W. Carey, Time, 

Communications: A Tribute to Harold James W. Carey (cd,), Communication Essays on Media and Society MA: 

Hyman, 1989).
36 ● Rural America at the Crossroads: Networking for the Future

Many are concerned lest in this process rural

America be left behind. Others believe that these

social and economic changes could instead be a

means to improve rural America’s comparative

advantages. Policymakers must have a clearer understanding of present conditions and the trends likely

to affect rural communities in the future in order to

evaluate rural communities’ needs and prospects.

Defining Rural Areas

National rural economic development policies

require a perceptive understanding of what the term

rural America means-its location, its characteristics, its values. Present rural policy is not founded on

such an understanding, so rural policies often reflect

popular stereotypes instead of genuine needs.3 One

such stereotype equates rural areas with farming. As

a result, a disproportionate share of Federal funds for

rural areas targets farming, although only 8 percent

of the people in rural areas farm, and fewer own their

farms 4 (see figure 2-l).

These misperceptions persist, in part, because

rural America is hard to define. Some policymakers

use overly broad definitions deliberately, so they can

appeal to a wide and diverse audience.5 Others, who

aim to be more precise, characterize rural areas in

terms of the data available. Their definitions tend to

be too constrained because reliable information

about rural areas is limited.6 Most definitions

juxtapose rural and urban areas.

Two agencies in the Federal Government-the

Bureau of the Census, within the Department of

Commerce, and the Office of Management and

Budget (OMB)-have defined rural areas. The

Census Bureau defines rural areas by exclusion: all

nonurban areas are rural. According to the Census,

urban America includes urbanized areas and urban

places. An urbanized area consists of a central city

and the contiguous, closely settled area outside the

city’s political boundaries (the urban fringe) that

together have a population of at least 50,000. Its

boundaries are drawn to include all areas with a

residential population density of at least 1,000

persons per square mile. People living outside

urbanized areas, but in places with 2,000 or more

residents, are also considered part of the urban

population.7

The OMB divides the United States into two

groups of counties: metropolitan counties (MSAs)

and nonmetropolitan counties. An MSA typically

contains either a city with 50,000 or more residents,

or is an urbanized area as defined by the Census

Bureau. All counties outside MSAs are considered

to be nonmetropolitan (see figure 2-2).

3For example, Jonathan Sher, a critic of past rural policy, complains that rural policy has shifted in aCCOdaIMX with hVO viSiOnS of ti~~c%

m ‘ ‘bucolic” and the “butinic.” He notes, ‘‘During periods in which the bucolic view prevail~ the presumption was that evqthi.ng was just fme

in the country side andtberefore, governmental intervention constituted interference. ‘II@ in ~al.lowedpolicymakers to feel comfortable about turning

a blind eye towards rural issues. . . . [A]t other times the govunment pendulum swung to the opposite extreme. During the Great Society ew for example,

some agencies and polkymakers became transfmed by the bubonic image of rural people and their communities. Rural Americans were the People left

Behind and the self-appointed role of government was to save these baclnvard folks. . . .“ U.S. Congress, Subcommittee on Agriculture and

Transportatio~ Joint Economic Committee, Jonathan Sher, “Rural Development Worthy of the Name,” NewDimensz”on in RuraZPoZicy: Bw”&iing Upon

Our Heritage, June 5, 1986, pp. 515-516.

drn fhyear lg87, $29 billion was spent on development programs for all of rural Ameriq while $Zz.a%illion was spent On agriti~ Price ~d

income support alone. Furthermore, a large proportion of agricuhuml subsidies were spent supporting the least needy fanners.In 1987, OVer hdf (57

percent) of direct government agricultural subsidies went to farmers who were in the top 15 percent in terms of wealth. See U.S. Congress, Geneml

Accounting Oftlce, RuralDevelopment: FederalPrograms ThatFocus on Rural America andItsDevelopment, Briefing Report to the Ranking Minority

Member, Subcommittee on Conservation@ cred.i~ and Rural Development Committee on Agriculture, House Of Representatives, RCED -89-56 B~

January 1989, p. 29. See also, U.S. Department of Agriculture, NadonalFinancialS ummary, 1988, Econonu”cIndicators of the Farm Sector, Bconomic

Research Service, ECIFS, 8-1, pp. 39 and 43.

Sconsiderforexample fie def~tionused in the policy report accompanying the Rural Development Policy Act of 1980. It states: “For b Purposes

of this document the word ‘rural’ is used in general terms to describe geographic areas of relatively Iowpopulation density-the countryside, the village,

the small American town. . . Even within. . . areas of high population density, there are communities of distinctively rural character. It is this character,

which resists precise definition in the abstract but is univcrsallyfamiliar impractical experience, that makes rural Amcricaaspecial place.’ JohnR.BFrank W. Naylor, and Willard Phillips, Better Country: A Strategy for Rural Development in the 1980s (Washington DC: U.S. Department of

Agriculture, Office of Rural Development Policy, 1983).

61t is @te ~Five t. Coll=t tie ~w &@ on ~or nonme~litan areas. As a re~~ l~ing F~e~ agenci~ tend to COM~ less hlfOrmatiOn

about them. Moreover, as the National Academy of Science notes, “Our [factual] knowledge of rural people and their environment is imperfect and

incomplete. ~t consists mostly] of annual statistics for large aggregations of areas with only occasional benchmark data for census years for small areas.

[And] aggregated data are often misleading because rural areas are so heterogeneous.” As cited@ U.S. Congress, Joint Economic Conmu“ttee, James

T. Bonneq “The Statistical Database for Rural Americ&” Towar& Rural Development Policy for the 1990’s: Enhancing Income and Employment

Opportunities, Washington DC, S. Rt. 101-50, Sept, 14, 1989, p. 27.

~.S. Department of Commerce, Bureau of the Census, “Census and Geography-concept and Products,” Factfinder, CFFNO. 8 (Washington DC:

U.S. Government Printing Office, August 1985).
Chapter 2—The Challenge for Rural America ● 37

Figure 2-l—Number of Farms and Farm Workers

6

4

2

0

/lillions of farms

1950 1960 1970 1980 1986

10

8

6

4

2

0

of workers

1950 1955 1960 1965 1970 1975 1980

SOURCE: Dorm Reimund and Mindy Petrulis, “Performance of the Agricultural Sector.” David L. Brown and Kenneth L. Economic

 Prospects Future DC: U.S. Department of Agriculture, 1988), pp. 81,891 “

Figure 2-2-Census Regions of the United States

!

I

SOURCE: U.S. Bureau of the Census, Census of and (Washington, DC: U.S. Government

Printing Office, 1982), p. 52.
38 ● Rural America at the Crossroads: Networking for the Future —..

Table 2-1—ERS Classification of Nonmetropolitan Counties

Size of urban population

Less than 2,500 2,500-20,000 More than 20,000

Adjacent to a metro county . . . . . . . . . rural less urbanized urbanized

adjacent adjacent adjacent

Not adjacent to a metro county . . . . . rural less urbanized urbanized

nonadjacent nonadjacent nonadjacent

SOURCE: David A. MeGranahan et al., So&land Economic Characteristics of the Popu/afion in Metro and Nonmetro

Counties (Washington, DC: U.S. Department of Agriculture, Economic Researeh Service, 1986).

Having two definitions is confusing because they

are not always interchangeable. There are Census

Bureau-defined rural areas that include parts of

MSAs, and there are OMB-defined MSAs that

encompass rural areas. In 1980, 40 percent of the

rural population lived in MSAs and 14 percent of the

MSA population Lived in rural areas.8 The census

showed that 26.3 percent of the U.S. population

lived in rural areas.9 The sizes of the rural and

nonmetropolitan populations, however, turn out to

be roughly equivalent.l0

For general policymaking purposes, OMB’s definition of rural areas is preferred. There are more

extensive data for counties than for rural or urban

places. Both definitions are inappropriate, however,

for a study that looks broadly at economic development issues. Neither captures the broad range of

variables entailed in development.

One way to incorporate development-related variables is to differentiate rural communities according

to their urbanization and proximity to urban centers.

These two variables can be enlightening because

access to urban areas is advantageous for developmental. 11 Rural areas close to urban centers have

greater access to urban goods and services and, more

importantly, to urban consumers.

The U.S. Department of Agriculture’s Economic

Research Service has created such a classification by

subdividing nonmetropolitan areas into six categories (see table 2-l). This classification illustrates the

geographic extent of the rural economic development problem. Figure 2-3 shows the distribution of

nonmetropolitan counties for the years 1970 and

1980. In both time periods, there were fewer

nonmetropolitan counties than urbanized counties.

Less-urbanized counties-those with between 2,500

and 50,000 residents—were more common than

either urbanized or rural counties, and rural nonmetropolitan counties were more urbanized than urbanized counties. Furthermore, the majority of nonmetropolitan counties were nonadjacent to metropolitan

counties. 12

Rural communities are much more than geographic entities. They are at one and the same time

products of their pasts and incubators of their

futures. In assessing the problems that rural communities face and their potential to overcome them, it is

important to consider how the communities labeled

‘‘rural’ have evolved.

The Evolution of Rural America in a

Historical Context

In the earliest years, the United States was a

Nation of small farmers. The farm was the mainstay

of the preindustrial American economy, and the

gwa Hewifi, D+”ning ‘‘Rwal’ Areas: Impact on Health Care and Researc~t@Paper (waShiIlgtOIL DC: ~CX of Whology ~m~ent,

Jtiy 1989), p. 13.

9~~kk~tic~~f~ pop~~ow$~ 1$)80 Cems ~~~he Population U.S. Department of Commerce, Bureau of the Ce-(WaS@toQ ‘C: ‘.s”

Government printing Otlice, 1981), pp. 1-37.

1~.s+ ~p~mtof comer=,Bur~ of ~ce~,state a~Me@opoli@n&eaDa& Book (w-()~ DC: U.S. GOV ernment Riming Office,

1986), pp. 675-676.

IIAS Ms~iolo@t Kenneth Wilkinson nOkX, “Distance is perhaps the most enduring characteristic of the quality we call ‘rural’ and distamx

impedes access. Access is essential for wellbeing and ruralness impedes access. These simple fwts form the core of the rural proble~ a problem found

in virtually all societies and all regions. ” Kenneth P. WilkinsoQ “Information Access in Rural Areas,” unpublished paper, Department of Sociology,

Pennsylvania State University, University P@ PA, September 1989, p. 2.

12~ ~~ *O *OW ~ d~line ~ the ~~nm~r of nom~wli~counties ~tween 1970 ~1980. ‘1’’his decl~ wss heaviest amo~ the urban

adjacent nonmetropolitan counties, a number of which have become metropolitan counties, and rural nonadjacent counties, a number of which have

grown in population. The decrease in the number of adjacent counties was due in part to different deftitions of adjacency in 1970 and 1989. Margaret

A. Butler, Population SectioU Bconomic Researc h Service, personal correspondence, July 21, 1989.
Chapter 2—The Challenge for Rural America ● 39

Figure 2-3-Nonmetropolitan County Distribution

800

600

400

200

0

Less- Less- Rural Rural Urban Urban

urban urban non- adjacent non- adjacent

non- adjacent adjacent adjacent . . adjacent

SOURCES: David A. et al., Social and Economic 

 of the Population in Metro and Counties

(Washington, DC: U.S. Department of Agriculture, Economic

Research Service, 1966) Rural Development Research Report No. 58, p. 3; Margaret Butler, Population Section,

Economic Research Service, U.S. Department of Agriculture,

personal correspondence, July 21, 1969.

attitudes of the farm community reflected those of

the people at large.13 Most rural communities were

self-sufficient.1 4 Together they sustained the livelihood and well-being of most agricultural trade

centers. In fact, it was the agrarian economy that

defined town boundaries.l5

Social life within farm communities was also

self-contained. The provision of services was unspecialized. The community provided the institutional

context in which families organized to worship and

educate their children. Members of each community

relied on their families and other local institutions to

cushion the hardships of rural life.l6

Farms were also viewed as the building blocks of

democracy .17 A high political value was attached to

their continued well-being and the lifestyle they

engendered. This perspective-epitomized by the

views of Thomas Jefferson-presumed a “causal

connection between the occupation of farming and

the political system of democracy.18 Jefferson’s

vision of a nation comprised of small independent

farms was enthusiastically embraced by a burgeoning constituency of yeomen farmers in the Middle

Atlantic and Southern States. As these farmers and

their counterparts in the emerging West began to

vote, the idealization of farm life became a potent

political idea.l9

Rural America was transformed by two major

events—the industrial revolution and the American

Civil War. Both events greatly increased the demand

for agricultural products. With the adoption of

land- and labor-saving technologies to meet this

rising demand-often financed by external sourcesthe American farm became commercialized.20 As

commercialization proceeded, the size and value of

farms increased, while their number declined. The

disappearance of the family farm undermined the

viability and independence of rural communities.

“The Nature and Magnitude of Changes in Agricultural Richard et al. Changes in 

America: Causes, Consequences, and Alternatives (St. MO: The Mosby Co., 1978), p. 9.

 Communities “self-contained production-consumption units. quality Of 

reflected own labor and technical capacities, which were usually limited to local natural resources and artisan skills.” Louis 

 About Farm and Community,” and Louis E. Swanson American Communities (Boulder, CO: Westview Special

Studies in Contemporary Social Issues, 1990), p. 21.

 describes: of neighborhoods and communities in the United States, one of the created

by families living in a localized area was that formed by the grouping of twelve to forty families for protection and mutual aid. These early

groups were forerunners of neighborhoods, and they soon provided the nucleuses through which families organized for religious worship and

for the education of their children.” Douglas ger, “Rural Neighborhoods and Communities,” et al., op. cit., footnote 13, p. 295.

 A. Griswold, and Democracy (New CT: Yale 

 p. 19.

 Grow opening of new lands and the westward expansion between 1790 and 1850 one of 

migrations in the history of the world. In 1790 there were 4,000,000 people in the United States, of whom 94 percent were in the 13 original States; within

 years there were 23,000,000 people and 32 States.” Grove “The Nature and Magnitude of Changes in Agricultural 

 et al., op. cit., 13, p. 11.

 old a he 

 part of the past. Agriculture, like all other business, is better for its subdivisions, each one growing that which is best suited to his soil, climate

 andwithits proceeds his other needs.’ As quoted in Paul H. Johnstone, ”On the the Farmer,” Rural Sociology,

 5, March 1940, p. 39.
40 ● Rural America at the Crossroads: Networking for the Future

Photo credit: Post Wolcott

A sign along the road points the way to the telephone in Great Falls, MT, September 1941.

Many farmers suffered as a result. Fast growth in

rural regions, resulting in part from easy credit

extended by Eastern financial institutions, left farmers overextended. Especially in the semi-arid Plains,

farm communities experienced hardship due to

drought, low commodity prices, high freight costs,

and high interest rates.21 Moreover, in this new

commercial environment, farmers soon found themselves competing with one another for the first time.

Failure in this competition often entailed a loss of

social status, with many farm owners and operators

becoming tenant farmers or hired laborers. While the

income level of some farming families increased, so

too did the income disparities within the agricultural

sector as a whole.22 Under such circumstances,

many displaced rural Americans gave up fanning

and migrated to urban areas. At the same time, the

proportion of the workforce employed in the agricultural sector fell from 72 percent in 1820 to 33 percent

in 1910.23

 of rides to available 

and easy credit to those who would settle on farms and along their routes. During a period of post-Civil War prosperity, eastern had been eager

to loan money using farm land as collateral. With credit available, farmerspurchased “improvements,” animals, and implements. Many new

settlers also bought land speculatively as values appreciated. Don F. “A History of Rural Economic Development and 

Policy,” contractor report prepared for the of May 1990, p. 11.

 of the Census, Population: 1988 

1989).
Chapter 2—The Challenge for Rural America ● 41

In this changing environment, rural communities

became more dependent on outsiders to meet their

social and economic needs.24 Industrialization

brought with it new kinds of problems, with which

increasingly smaller farm communities could not

deal.25 To meet these developing needs, new towns

and trade centers emerged, located at a reasonable

traveling distance from farm communities. These

centers were, in turn, linked more and more to urban

areas. Thus, over time, the self-sufficient rural

community became the exception instead of the

rule. 26

The two World Wars, which gave rise to increased

mechanization and greater agricultural productivity,

exacerbated and finalized these changes. During

World War I, manufacturing provided more employment than agriculture for the first time, a situation

that became permanent after the Second World

War.27 Rural out-migration also increased because

most of the new manufacturing jobs were located in

urban areas. At the same time, farms became even

more commercialized; between 1950 and 1986, the

average farm size more than doubled, while the

number of farms declined by 60 percent.

The Current Rural Situation

Most rural economies prospered throughout the

1970s. With a booming national economy, the

demand for natural resources was quite high. Rural

manufacturing was a special beneficiary of this

growth. With labor costs and land values increasing,

many manufacturing fins-especially those in

low-tech industries producing standardized goods—

moved to rural areas where their input costs were

lower. 28 As a result, manufacturing grew more

rapidly in rural areas than in urban ones, while rural

unemployment rates dropped below those in urban

areas.

29 Farmers also benefited. With higher prices

and high rates of inflation, they could make greater

investments in productivity-enhancing technologies. Under these conditions, the total wage and

salary from employment in rural areas rose from 19

percent to 22 percent between 1969 and 1984.30

This prosperity came to an end at the close of the

seventies. A number of factors contributed to this

reversal, including the sudden hike in oil prices, the

financial squeeze on banks holding Third World

loans, the Federal Government’s decision to pursue

a deflationary monetary policy, the U.S. grain

embargo, a glut in the world market for oil and other

energy-based resources, and heightened foreign

competition, especially from Third World countries.

Although these problems pervaded the national

economy as a whole, they had the greatest impact on

rural areas. Whereas job growth in urban areas

simply slowed down, rural unemployment soared,

increasing from 5.7 percent in 1979 to 10.1 percent

in 1982. In the early 1980s, the average rural

unemployment rate was 7 percent higher than the

urban rate; by 1987 it was 40 percent higher.31

As in the previous decade, manufacturing is key

to explaining how rural economies performed during

this period. This sector is significant because 22

percent of all manufacturing occurs in rural areas,

and manufacturing accounts for 40 percent of all

~Emfiger, op. cit., foo~ote 16, PP. 295-296.

~As described by SWa.tISO~ “. . . Previous social formations, such as the rural church or the one room six grade schoolhouse, gave way to the demands

of new industrial employers and regional and national trade. Rural schools were now expected to prepare children for the financial and technical demands

of a rapidly industrializing agricultural and nonfarm sector. LOCat socioeconomic networks such as cooperative harvesting (and risk taking) and

quasi-barter exchange systems that mediated local production and comuption Uder non-commercial conditions were gradually subordinated to and/or

eclipsed by new institutions.” SwansoW op. cit., footnote 14, p. 22.

‘Ibid.

27~ he 1930s, tie Depression slow~ wow of cities ~d subufis and re~ed people to ~~ ~~. me pofitics of tie Depressio~ ~CfiCWy

Franklin Roosevelt’s New Deal philosophy, brought government money into rural areas, helping to attract and support business.

28A B1oomqukt notes, ‘‘The most notable rural advantage has been the cost of W-xx . . . Nonmetro areas have comparative advantages over metro

areas in other ways as well. Construction of the interstate highway system, for example, substantially reduced transportation costs for many nonmetro

places. Land and taxes are also generally cheaper in nonrneho mem. Ftily, many nonmetro placm ~de spwial concessions to f- in the form of

tax exemptions, rent-free plant facilities, and so on. ”Leonard Bloomquist, in USDA, Rural Economic Development in the 1980’s: Prospects for the

Future (Washington DC: U.S. Department of Agriculture, 1988), p. 52.

~t is important to note, howevti, that the relatively ]OW ~ucation level of tie workform a~acted more low-tech manufacturing facilities -

high-tech ones.

WJ.S. Department of AgricuMure, David L. Brown and Kenneth L. Deavers, “Summary, “ USDA op. cit., footnote 28, p. 3.

sl&jwfi paker, Hea&er Hudsoq ~n Dim ad ~&ew D. Ro~~, Rwa/ A~rica in the lnfo~~~n Age: The com~~”cations poli~ for

Rural Development~MD: University Press of America, Inc., 1989), pp. 17-19.
42 Rural America at the Crossroads: Networking for the Future

rural employment.32 Moreover, rural manufacturing

takes place in old industries for which there is

relatively stagnant demand and severe foreign competition. Unlike the more vigorous complex manufacturing industries that completely recovered from

the 1980 recession, these routine manufacturing

industries had almost 12 percent fewer jobs after the

recession than in 1979.33

This decline in employment is probably permanent since many of these jobs have actually disappeared. Over the past two decades, there has been a

major structural shift in the economy away from the

routine manufacturing jobs typically found in rural

areas towards the more highly technological manufacturing and services jobs that are more prevalent in

urban areas. This trend will likely continue; even in

rural areas service industries now provide more

employment than goods-producing industries.%

Farm and farm-related workers were also adversely affected by the 1981-82 recession. Farm

establishments continued to increase their productivity and size while reducing their need for employment, following the course established during industrialization. Between 1950 and 1986, the number of

farms declined from 5.65 million to 2.21 million,

while the average farm size increased from 213 acres

to 455 acres.35 The number of agricultural workers

also shrunk dramatically, from 10 million in 1950 to

3.7 million in 1980.36

Farm communities became much more susceptible to the national economic problems of the 1980s

as a result of these developments.37 Having borrowed and invested heavily during the high-growth

period of the sixties and seventies, many farmers

found themselves severely overextended when prices

and land values dropped sharply. This financial

situation was provoked by a decline in agricultural

exports due to increased world production and a

constrictive monetary policy that lead to high

interest rates.38 Many farmers were forced to liquidate some, or even all, of their farm assets so they

could meet their operating and debt-servicing expenses. 39 Agriculture like manufacturing, did not

recover quickly or totally from these circumstances.

Between 1981 and 1984, agricultural jobs in most

regions declined at a rate of 2 percent per year.40

With even greater productivity gains and consolida-

 A. in op. cit., footnote 28, p. 36. Testifying to the continuing importance of manufacturing in areas is the fact that

developments in this sector account not only for those communities that did poorly but also for those that did well. However, it was the new manufacturing

facilities that did well. See also, Herman and A. in USDA, op. cit., footnote 28, p. 34.

331bid., 40.

 cit., 28, pp. 5-6. According to the Bureau of Statistics, of new Jobs 

1934 and 1995 are likely to be in services.

 and “Performance in the Agricultural Sector, ” USDA, op. cit., footnote 28, p. 81.

 p. AS by and “No g insulated developments in the rest of the Nation and the world,

Farming is a complex business, highly dependent on and linked to supporting input supply industries, food and processors, distributors, retailers,

and domestic co and international trade. ” Ibid., p. 78.

 and stress, the economic problems that farmers faced resulted much policies-tight monetary policy,

stimulative fiscal policy, and financial market deregulation-than they were by agricultural incomes or policies. ” ibid., p. 92.

 p. 81.

 p. 89.

@As by and “Aside from gains in food and fiber wholesale and retail of about 157,000 jobs (about 3.3 percent 

year), job losses reached almost 107,000 in the farm sector, 45,000 in the input industries, and some 53,000 in the processing and marketing industries.

These job losses to negative annual growth rates of 1.3 in the farm sector, 5.8 percent in the input industries, and 1.5 percent in the

processing and marketing industries.” Ibid., pp. 97-98.
Chapter 2—The Challenge for Rural America ● 43

Figure 2-4--Poverty Rates and Unemployment by Residence*

25 Percent poverty rates

20-

15-

- .=

10- “--_ --.--- /’------- 

5

01

67 69 71 73 77 79 81 83 85

Year

Percent unemployment

--- Metro

10 — Nonmetro

8 - /’

/ / /

73 75 77 79 81 83 85

Year

● Metro-nonmetro: 1965 based on the 1960 Census, 1969 and 1971-63 on the 1970 Census, and earlier years on the 1960 Census. No 1984 data.

SOURCE: Bureau of the Census, Current Survey, as cited in USDA, in 1980’s: the Future

(Washington, DC: U.S. Department of Agriculture, 1988), pp. 3,12.

tions of farm establishments, agriculture will probably never serve again as a basis for economic revival

in rural areas.

Nor have the energy-producing and extractive

industries been any more successful in coping with

the cyclical and structural changes that have taken

place. The shift from inflation to a period of tight

money was especially difficult for the timber and

wood products industries. Inflation initially served

to encourage the purchasing of housing. With the

pursuit of deflationary policies, however, the real

price of mortgages increased, and the housing

market collapsed.41

Rural areas have few resources to help them

overcome these economic problems. Poverty is

prevalent, having increased steadily since the late

seventies until 1986 when it peaked.42 The most

extensive poverty is in the South where more than

half of the nonmetropolitan poor reside.43 The

poverty rate is particularly high among minorities. In

fact, blacks living in rural nonmetropolitan areas

especially among the elderly—are far more Iikely to

live in poverty than those living in urban areas.44

Because the rural poor consist primarily of the

working poor, nonmetropolitan poverty tends to be

more sensitive to fluctuations in unemployment than

urban Poverty45 (see figure 2-4).

These high poverty rates reflect, in part, a lag in

nonmetropolitan wages. In 1982, the earnings gap

between nonmetropolitan and metropolitan areas

 A. N. and L. “Performance of National Industries, ” USDA, Op. 28.

 poverty has been on the while metropolitan poverty has held steady. However, 

rate in 1988 was still 3.8 percentage points above the metropolitan rate in the same year, and 2.3 points higher than the rate in 1979,

the year which the last recession began. Robert Hoppe, Economic Research Service, U.S. Department of Agriculture, personal Aug.

21, 1990. See Porter, Poverty in DC: Center on Budget and Priorities, September

1988),

 ties” highest incidence of poverty in 1980,81 were located the South. 

suggest that the rural poor tend to be clustered in three Southern regions. 242 counties that have experienced persistent poverty,

92 percent are located in the Plateau (which actually includes a portion of Missouri, a state in the North Central region),

and the Mississippi Delta. See Characterization of Poverty in Counties, Elizabeth S. Morrissey, Rural Development Research Report

No. 52, Economic Research (Washington DC: U.S. Department of Agriculture, July 1985); and Thomas F. Hady and Peggy J. Ross$An 

The Diverse Structure of America DC: U.S. Department of Economic 

Service, May 1990).

 H. Overview DC: Center on Budget 

14-15.
44 ● Rural America at the Crossroads: Networking for the Future

13

11

9

7

5

Figure 2-5-Real Per-Capita Income

Thousands of dollars

 __,’

I I I 1 I I I I

65 70 75 80 84

Year

SOURCE: U.S. Department of Commerce, Bureau of Economic Analysis.

was $5,115 (in 1987 dollars). While wages had

increased in both nonmetropolitan and metropolitan

areas between 1982 and 1987, they increased less in

nonmetropolitan areas, causing the early gap to

increase to $5,666 in 1987 (in 1987 dollars).%

Per-capita income, which takes into account employment, wages, and population size, reflects the

same discrepancy. Between 1985 and 1987, nonmetropolitan per-capita income was just over 72 percent

of metropolitan income. Per-capita income statistics

also suggest that the most rural areas are the worst

off. Of those nonmetropolitan counties exhibiting

persistent poverty, 6 percent were towns of 2,500

residents or fewer. These counties comprise 35

percent of all nonmetropolitan counties47 (see figure

2-5).

levels of educational attainment in rural areas are

also lower than in urban areas. In 1980, the median

years of education completed by metropolitan residents was 12.6, while the same figure was only 12.3

for nonmetropolitan residents. The high school

dropout rate was also higher (16.9 percent in rural

areas as compared to 15 percent in urban areas),

while the college graduate rate was lower (9.2

percent as compared to 12.8 percent) .49 This gap in

1

0

-1

-2

-3

Figure 2-6-Net Nonmetropolitan Migration by

Education Level, 1985-86

Percent

I

1

No high High Some College and

school school college beyond

SOURCE: Bureau of the Census, Current Population Survey, March 1986.

educational attainment is exacerbated by the outmigration of better educated people from nonmetropolitan areas. During 1985-86, nonmetropolitan

counties experienced a net loss in college-educated

residents 50 (see figure 2-6).

Rural school districts also spend less on education

than do urban districts. In the 1984-85 school year,

for example, urban States outspent rural States by

almost $800 per pupil.51 One reason for this discrepancy is limited resources; as people leave rural areas,

the local tax base shrinks, leaving less money to

spend on public service for the people remaining.

Rural areas may also have less incentive to invest in

education, since graduating students are likely to

leave home.

As in the case of other socioeconomic indicators,

levels of education vary by region. With the

exception of several predominantly white counties

in the Ozark region of Missouri, a few Native

American counties in Arizona and New Mexico,

three counties on the North Dakota/South Dakota

border, and an Alaskan county, nonmetropolitan

 Areas Lag Metro Earnings per Sara Mills (cd.), Rural Conditions and DC: 

spring 199’0), p. 12.

 ROSS, op. cit., 43.

 op. cit., footnote 28, p. 

 L. and Margaret A. Butler, Resource Base of Rural Economies,” op. cit., footnote 28, p. 165.

 p. 170.

51Norman Reid, “Rural Areas in the 1990s: Prologue to the 21st paper presented at “Risky State Policy Reflect Rural

Diversity,” the Policy and Planning Center Annual Louisville, KY, Dec. 4-5, 1988.
Chapter 2—The Challenge for Rural America ● 45

areas with the lowest level of education (the bottom

10 percent in average years of education) lie

exclusively in the Southern census region. 52 In the

South, regions of particularly low educational attainment include the predominantly white Appalachian

Mountain region, much of the Mississippi Delta

region, counties on the Virginia/North Carolina

border, poor black areas of Georgia and Alabama,

and Hispanic parts of southwestern Texas.53

Key Trends Likely To Affect

Rural America

How well rural areas cope with their economic

problems depends not only on their present situation

and resources, but also on future developments and

events. There are three major trends that will likely

affect rural communities:

1.

2.

3.

the shift to an information-based economy and

the enhanced role of communication and

information as a strategic weapon in business.

the emergence of a global economy and hence

the growing need to compete on a worldwide

basis.

a growing concern about the environment and

the environmental costs of economic development.

These trends are eroding the boundaries of rural

communities, making these communities more dependent on external events. Together, they define the

context in which rural development choices will be

made.

The Shift to an Information-Based Economy

The increasing importance of information to the

economy is evident from the continued growth of the

information sector, a trend that is occurring in all

nations. It was to highlight this change that terms

such as the “information society” and the “information age’ were first employed.54 The information

sector now constitutes about 34 percent of the gross

national product, and accounts for approximately 41

percent of the national labor force.55

Figure 2-7-Structural Change and the Information

Economy

35

1

Basic High-tech

investment

industrial

30] investment d

.\-/\ \ \ \/ \\ 20- . \

15- \ \

\

-U 

10- I I 1 I 1 I

1964 1968 1972 1976 1980 1984

55- Information ‘ \

Production workers

‘ .

workers \ \— /-- \

50- \ \ .——=

\\

‘\ 45- \

40 1 I I I 1 I I 1 1

1964 1968 1972 1976 1980 1984

SOURCE: Adapted from Information Management Review, vol. 1, No. 1, p.

14, with permission of Aspen publishers, Inc., Copyright

summer 1985.

The changing economic role of information is

indicated by the rate and extent to which businesses

are deploying and using information technologies

(see figure 2-7). Many are now applying computer

technology to all of their activities-horn recruiting

to laying off workers, from ordering raw materials to

manufacturing products, from analyzing markets to

performing strategic planning, and from inventing

new technologies to designing applications and new

products and services. These technologies can be

 op. cit., footnote 

 was one of the to note these changes the information in his pioneering now a classic, entitled The

Production and of Knowledge in the United States NJ: Princeton University 1%2).

 The in the UnitedStates: NJ: 

1986). This volume updates the work done by Fritz 
i46 ● Rural America at the Crossroads: Networkng for the Future

used by rural and urban businesses alike to promote

efficiency, effectiveness, and innovation.56

Computer-based communication can improve efficiency in several ways. Technology can be used to

improve business operations, by reducing the time it

takes to exchange information among persons and

machines. In manufacturing, computer links between machines speed up production and assembly.

In service firms, such as insurance companies and

banks, communication systems increase the efficiency of transaction processing .57 A well-known

example from banking is the reduction of time

needed to process letters of credit using computerized files accessible from workstations in several

departments. In retailing, the use of machinereadable product codes and automatic scanners in

supermarkets increases the efficiency of store operations. Checkout time, inventory control, and accounting operations can be improved by linking the

cashiers’ stations to the store’s computer and automatically recording sales information at checkout.58

Faster communication allows businesses to integrate and coordinate widely scattered activities to

improve efficiency and effectiveness. In the case of

automobile manufacturing, transportation and computer-based communication technologies allow companies to produce components in different regions of

the United States and the world, and to assemble

them at various locations. Thus, they can reduce

costs by taking advantage of favorable conditions in

different regions, such as lower wages, cheaper

materials, energy savings, liberal financing, etc. In

addition, data communication systems allow companies to transfer information instantaneously so they

can optimize production schedules, resource allocation, materials management, etc.59

Being able to network among disparate locations

also gives businesses more flexibility. Management

can respond immediately to changes in demand and

Photo credit:Mark G. Young

The Information Processing Center in Presque Isle, ME,

is an example of how rural areas are making the

transition into the information economy.

issue orders to one or more manufacturing plants to

reduce or increase output accordingly. Moreover,

because programmable machine tools can rapidly be

redirected to produce, for example, machine cams

instead of gears, computer networks let manufactures tailor highly differentiated products to customer specifications.60

As businesses move to take advantage of these

opportunities, the use of information-age technology

is likely to be deployed more rapidly and to become

more routine. Looking out only as far” as 1993,

business consultant Peter Keen outlines eight business realities that he expects will be commonplace

for all large corporations. These are:

1.

2.

3.

4.

Twenty-five to eighty percent of a business’

cash flow will be online.

Electronic data interexchange will be the

norm.

Point-of-sale and electronic payments will be

one facet of core services.

Image technology will bean operational necessity.

 for new of opportunities that information-age a 

of how many businesses are taking advantage of them be found in the OTA study, Connections: for the Future, DC: Government Printing January 1990).

 and Advantage the Business and contractor

report prepared for the Office of Assessment July 1988.

 Becoming Age, Apr. 18, 1988, p. 36.

 communication is more associated with Brokerage f- securities for millions

of customers all over the United States and throughout the world. customers are seined by sales personnel in geographically dispersed 

In banking, the makes it possible for to their in a variety of and settings, some of which

are not traditionally bank sites at all. For a discussion of the communication needs of financial institutions, see Deborah G. ‘cFinancial Institution

Communication Systems,” contractor report prepared for the Office of December 1986.
Chapter 2—The Challenge for Rural America ● 47

5. Businesses will reorganize and distribute work.

6. Work will be increasingly location-independent.

7. Electronic business partnerships will be standard.

8. The cost of technology failure will be high.61

Rural communities cannot stand still in the face of

these rapid and fundamental changes in their economic environment. As with any business, they must

take advantage of these changes by discovering new

ways of becoming competitive, or they will be left

behind.

The information age does, in fact, present a

number of potential business opportunities for rural

America. However, to capitalize on them rural

communities must have access to technology and the

knowledge of how to take advantage of it.

Previously, the mass-production process limited

the kind of activities that rural economies could

perform. 62 Rural communities were rarely, if ever,

able to operate on a scale large enough to initiate

businesses organized around mass-production techniques because of their small size and limited

financial and human resources. When rural workers

did engage in mass production, it was generally in

company branches located and directed from an

outside urban center. The key suppliers and markets

for such companies were also located far from rural

areas. Thus, apart from the direct wages paid to

labor, most of the economic benefits escaped the

rural economy.

Today, however, given the structural changes

mentioned above, these characteristic may no longer

disadvantage rural communities. Now, most serviceoriented businesses are not operated on a large scale.

In fact, approximately one-half of the new jobs

created in 1989 were in companies with fewer than

100 employees, and more than one-third were in

companies that have fewer than 20 employees.b3

Thus, rural communities’ limited size may no longer

have a detrimental effect on their ability to compete

on an equal basis with urban areas for these

businesses and jobs.

Businesses will also be able to operate on a

smaller scale using these new technologies. With

applications such as electronic data interexchange

(EDI), businesses can purchase supplies and produce and distribute products precisely when and

where they are needed. Thus, they can avoid the

considerable costs (and hence scale required) to

procure, store, and distribute a large quantity of

goods. In addition, by using technology to identify

and target distant consumers, rural businesses will

be able to create a demand that is sizable enough to

allow them to produce a limited line of goods for

niche markets. The number of such markets is

estimated to grow in the future, because consumers

tastes are increasingly becoming more diversified.64

The restructuring and decentralization of business

operations could also work in rural America’s

favor.65 Depending on the particular case, a firm

might decide to manufacture a product at its central

headquarters, but transfer elsewhere such downstream activities as distribution, sales, marketing,

and service. Rural areas could benefit from this

development, to the extent that they can effectively

compete for these newly externalized jobs. On the

other hand, if conditions are better in other regions

or in other countries, rural areas could lose out. This

could easily occur because labor costs are often

lower in other countries.

The quality of work life could also be improved

with information technologies. Many workers will

Glpeter G.W. Ke~, “Business Integration Tbrough Tkcbnology Integration” Advunce, VO1. 4, No. 1, PP. 1-2.

GZAs Piore and Sabel have deseribed:”. . . Mass production required large investments in highly speeializedequipment and narrowly tminedworkers.

In the language of manufacturing, these resources were ‘dedicated’: suited to the manufacture of a particular pmduct-oft~ in fae~ to just one make

or model. When the market for that particular product declined, the resources had no place to go. Mass production was therefore profitable only with

markets that were large enough to absorb an enormous output of a single, standardized commodity, and stable enough to keep the resources involved

in the production of that commodity continuously employed. Michael Piore and Charles Sable, The SecondZndustrial Divide: Pos~”bilitiesforP rospen”ty

(New Yorlq NY: Basic Books, 1984), p. 49.

G%c~d P. Adler, “’lkkcomm~cations, Information lkchnology, and Rural Development” paper prepared for Aspen Institute Conf-nce on tie

Importance of Communications and Information Systems to Rural Development in the United States, July 24-27, 1988 (Merdo Park: CA: Institute for

the Future, Paper P-154), p. 10.

@rbid. sm *0, ~nAoDi-~~~ SWM ~pacts of ~o~tionT..~ologies in Ru~ Nofi Americ~” ll~alsociozo~, 1985, VOI. 50, No.

1, pp. 1-26; and Don A. Dilhnan and Donald M. Beck ‘ ‘Information lkehnologies and Rural Development in the 1990s,” Journal of State Government,

vol. 61, No. 1, January~ebruary 1988, pp. 29-38.

65s= Dtid R. Vincent “BuiMing the Information Based Corporation,’ Conqmterworld, Mar. 12, 1990, pp. 71-72. See also, Ralph Kim

“Tomorrow’s Company Won’t Have Walls,” New York Times, June 18, 1990, p. 3.
48 ● Rural America at the Crossroads: Networking for the Future

not need to be organized on assembly lines, since

new technologies allow businesses to carry out

flexible manufacturing organized around craft principles. 66 Information technologies can also upgrade

and enhance jobs, when they are deployed together

with education and human development programs.

However, for this to happen management will need

to make a definite commitment. All too often, such

a commitment is lacking, and technology ends up

deskilling workers. Deskilling is a particular danger

in rural areas where skill levels are low to begin with.

local business leaders in rural areas may even

oppose human resource development, because the

kinds of jobs they want to fill are at or near the

minimum-wage level and require an unskilled labor

force.67

Rural businesses may find it difficult to benefit

from new technologies in a number of other respects

as well. New technologies provide a competitive

advantage precisely because skill and ingenuity are

required to apply them effectively. The necessary

technical sophistication and understanding is not

common in many of the small businesses found in

rural communities.68 Being small, rural businesses

may also be unable to get the kinds of discounts and

higher quality services large businesses enjoy.69 The

same is true for gaining access to market data and

strategic information. Large conglomerates, which

are able to aggregate multiple data sets from

multiple sources, are better off than small fins. It is

also much harder for small companies to get

financing for new technologies. This is particularly

true in rural areas where access to capital is very

scarce. While large manufacturers can absorb the

cost of $70,000 for computerized tools, small

manufacturers most likely cannot. To a small

business, $10,000 is a major investment.70

Small rural businesses may also be unable to gain

access to new technologies if the public switched

communication network in their areas is inadequate

and they lack the resources required to deploy and

manage their own communication system. One D3

circuit, for example, which provides a transmission

pipeline operating at the rate of 45 megabits per

second, costs approximately $1 million per year.

Thus, the costs for a business to operate a large-scale

telecommunication system on its own can be prohibitive. 71

The Decline of the U.S. Competitive Position

and the Emergence of a Global Economy

The technological and economic foundations that

once gave the United States a dominant position in

the world economy have been slowly and subtly

changing for at least three decades. But it was not

until the early eighties-when the balance of U.S.

trade began to worsen dramatically-that the end of

U.S. hegemony became starkly apparent.72 Much of

the increased trade competition is in the area of

primary goods and low-tech industries. Rural areas

could easily suffer because these are the industries in

which they have traditionally specialized. On the

other hand, increased foreign investment in the

United States and worldwide growth in trade might

provide new economic opportunities for rural communities.

One continuing trend has been the shift away from

the importance of agriculture, a development that is

no longer limited to industrialized countries. While

~fiore and Sabel, op. cit., footnote 62.

6_lA ~~dy of Soutia s~te~ fo~~ for e-le,tittho~ nonmetropolitan counties that had a him or grow@, proportion of their labor fO1’Ce h

the service sector were associated with higher levels of unemployment and lower levels of median family income. Louis E. SwansoU op. cit., footnote

14.

6S~ Don Ditihas POhlkd OUt: “Traditionally rural people and places are slower to adopt new technologies than are urban people. Survey data

from Washington state suggest that this lag continues in the case of information technologies . . . For miuly people, learning to utilize information

technologies will involve dramatic and perhaps traumatic change.’ Don A. D-“lkstirnony Before Subcommittee on Rural Economy and Family

Farming,” Committee on Small Business, U.S. Senate, July 13, 1988.

*As the Chief l%~utive Ofiicer of one network management company noted: “. . . Here is where large companies and their fat contracts have two

key advantages over a smaller user. Small companies are often stuck with buying vendor vanilla. Nothing can set than apart from the competition.

Strategically, large companies, however, can do some tailoring, which can give them an edge. This is a distinct rev~ of the concept that says smaller

companies can be more innovative than big companies. ” Margie Semilof, “Communication Gap, ’ Commum“cationsWeek, June 13, 1988, p. C9.

70=~ Kmhem “~v~~~ormation ~hnology and SdhhIUfaC~rS,’ ‘ SCience, Apmy 19*6S p. 26-

TIIt ~~n~~t~, for ezle,tittie -~exPn&~es of the top 1~ ~mmuni~tion ~rs range from ~tw~n $1 billion at h @Of

the list to about $20 million at the bottom with the average expenditures falling between $50 million and $100 million. See Jim Foley, “Our First Look

at the Top 100 Communication Users, ” CommunicationsWeek, Closeup, May 1, 1989, p. C3.

~’rhe in-ein imports resulted in pat fium a 75-perent ti~ in the value of the U.S. dollar. This sizable revaluation of the dollar created an

enormous incentive for U.S. consumem to purchase foreign goods, and a disincentive for foreigners to buy U.S. products.
Chapter 2—The Challenge for Rural America ● 49

Photo credit:Mark G. Young

The customers of the South Central Rural Telephone Cooperative in Glasgow, KY, are greeted

with this instructive sign on how to connect their own telephones.

agricultural output has increased in absolute terms,

its share of total output continues to decline worldwide. In developed countries, the share of agriculture in gross domestic product fell from 5.5 percent

in 1965 to less than half of that by 1986. Dramatic

shifts in the importance of agriculture have also

taken place in the developing countries, particularly

those in Asia. Between 1965 and 1986, for example,

the agricultural share of all developing countries

taken together fell from 28.4 to 15 percent. The share

of the developing countries in Asia dropped from

38.0 to 17.8 percent.

The decline in agriculture has freed up resources

for other kinds of economic activity. In developing

countries, there has been a shift to all other sectors .73

Of particular concern for rural areas has been the

outstanding rate of growth in manufacturing activities achieved by the developing economies of the

Pacific, such as the Republic of Korea, Hong Kong,

and Malaysia. Here, growth in manufacturing output

averaged over 10 percent between 1965 and 1986.

This shift has been accompanied, moreover, by an

improvement in their trade positions. By 1987, all of

the developing countries, collectively, accumulated

a positive trade balance totaling over $53 billion.

Rural areas in the United States, the developing

countries’ major competitors, appear to be the losers.

Other evidence supports this conclusion. According to the United States Department of Agriculture,

rural areas in the United States lost 11,000 jobs

between 1975 and 1982 due to imports. All in all,

201 rural counties experienced severe unemployment, having lost more than 10 percent of their

manufacturing jobs. Some industries, and hence

some regions, were more sensitive to imports than

others. The sharpest decline was in the textile and

apparel industries. These labor intensive, low-wage

industries use simple production processes and

require only modest labor skills so they are especially vulnerable to competition from less developed

 1%5 to for the of output originating in the industrial, construction and service 

in percentage terms from 23.3 to 30.6; from 16.9 to 20.7; and 42.8 to 48.7. Larry contractor report prepared for the of 

Assessment, Spring 1990.
50 ● Rural America at the Crossroads: Networking for the Future

Box 2-A—Forces Underlying The Global

Economy

● The growing similarity of countries, with respect

to tastes as well as to infrastructure, distribution

channels, and marketing approaches.

● The emergence of a global capital market as

witnessed by large flows of funds between

countries.

. Declining tariff barriers and the establishment of

regional trading agreements.

. Shifting opportunities for competitive advantage

due to technology restructuring.

● The integrating role of advanced information and

communication technologies.

 Slow and uneven world economic growth that

has fanned the flames of international competitiveness.

. The emergence of new global competitors, principally from East Asia.

SOURCE: Michael E. Porter (cd.), Competition in Global

Industries (Boston, MA: Harvard Business School

Press, 1986), p. 405.

- .

in urban areas did not increase due to imports.74

This heightened competition is reinforced by the

emergence of a global economy (see box 2-A).

Patterns of international trade now primarily reflect

patterns of international production. And specialization takes place on the basis of parts and special

components, rather than on the exchange of finished

products. Today, for example, Japan provides approximately 40 percent of U.S. component parts in

electronics and automobiles.75

In this global economy, the multinational corporation is becoming the norm. And, whereas in the past

multinational corporations tried to exploit comparative advantage by producing or selling in a single

country, today they seek more the advantage to be

gained by integrating all their activities on a

worldwide basis76 (see box 2-B). In such an environment, production, just like capital, can be moved

from place to place throughout the world.

Box 2-B—New Forms of Global Competition

The operation of this new international division

of labor can best be illustrated by the processes used

(initially) by Japanese consumer electronics firms.

The first stage of production, involving the conception, research and development of new products,

requires highly trained and specialized technical

personnel of the type residing in Japan. This

labor-intensive, initial stage is carried out domestically. The second stage is more capital intensive,

but requires highly skilled and specialized labor to

produce very sophisticated and highly technical

electronic components. This phase is typically

carried out in flexible, special-purpose plants at

home. The third and final stage is again labor

intensive, but requires a different kind of labor from

that utilized in the first two stages. It is basically an

assembly process, designed to be simple, and

requiring a disciplined, but not exceptionally skillful labor force.

SOURCE: For further discussion see, Nigel Grimwade, International Trade (hmdon: Rout.ledge, 1989).

counties. In contrast to rural areas, unemployment If rural communities are to survive, they too must

be globally oriented. The global economy could

harm rural economies, if rural businesses (or businesses that might otherwise have located in rural

areas) export jobs and capital to other parts of the

world. On the other hand, if they create the right

conditions-such as an educated workforce-rural

communities might attract foreign businesses and

capital to their communities. With access to a much

larger and more diverse market, rural communities

will also be able to produce on a small scale for niche

markets (see box 2-C). To identify new markets and

to sell worldwide, rural communities must have

upgraded communication infrastructures.

A Growing Concern About the Environment,

and the Environmental Tradeoffs in

Economic Development

Environmental concerns about the potentially

negative impacts of growth can be traced back to the

early sixties. Since that time, the public has become

TdHowever, hth the sectoral composition and regio~ location chang~ with “low-tech” industries in the North-t ~d Midwest los@

employmul~ while “high-tech” industries in the South and West (and Vermont) offset those losses withincreased employment. Metropolitan areas in

Califo* ‘I&ma, and Florida gained over three-quartm of the new jobs. Ibid.

75A J=k B~has pointed out specialization has also taken place”. . . hased on different product characteristics; mass consumption versus high

fashiom or low quality versus high quality, or generic versus trademarked goods.”Jack N. Be-In&strial Policies: International Restructun”ng

and Transnationals (hxingtoq MA: Lexington Books, 1984), p. 72.

76Mic~el E. po~er (~.), competition in GZohlI~~”es (BOStO~ MA: -tid BUS~HS SChool ~ss, 1986)) P. 45.
Chapter 2—The Challenge for Rural America ● 51

Box 2-C—Maine’s Sea Urchin Industry

Sea urchin roe is a prized delicacy in Japan served on special occasions and holidays, and is found all over the

world-Chile, Alaska, California, North Korea, South Korea, and the Soviet Union. Until recently the sea urchin

off the coast of Maine was regarded by lobstermen as a pest that scavanged the bait from lobster pots. Within the

last few years, though, sea urchin has been discovered as a valuable resource, and a new industry has been born in

Maine. Now merchants, lobstermen, and divers along the coast are claiming a portion of an industry that has become

estimated at $100 million intemationally.l

As few as 6 years ago, there were only two divers harvesting sea urchins in the State, according to Lloyd

Covens, one of those two pioneers. Six years later, after Mr. Covens convinced a few Japanese merchants to take

a risk on Maine’s product,2 Maine has become an important source of uni, as the sea urchin’s roe is called in Japan.

Last year, 74 merchants harvested an estimated 8.7 million pounds, worth about $3.5 million.3 This year, about 10

million pounds of sea urchin will be harvested, of which about half will be by Lloyd Covens’ Portland-based

company, Urchin Merchant. Urchin Merchant, which employs about 300 divers and fishermen, is the largest such

firm in the area, with an estimated payroll of $3 million.4

The rise of this industry is greatly facilitated by transportation and communications. Virtually all of it is

shipped to Japan (the roe that is consumed in Japanese restaurants in America comes from California), and because

the urchin’s roe must be delivered while it is still alive, it requires fast and reliable communication and

transportation. In addition, the market for uni is very volatile, fluctuating greatly in such events as the death of a

statesman or a natural disaster. Merchants, therefore, must be in constant contact with their customers in Japan.

In order to keep Urchin Merchant competitive in the international market and ahead of his regional rivals, Mr.

Covens keeps a computer database on each of the reefs off the Atlantic coast from Gloucester, MA, up into Canada.

He explains that each reef’s family of urchin is be ready for harvesting at different times. By keeping this information

on a computer, he is able to direct his fishermen and divers to the optimal locations for harvesting, and thus ensure

the highest quality of product for his customers.

A second factor which gives Covens an edge is that he uses his computer to gather weather data in order to

track and predict the weather, which plays an important part in the harvesting of urchin. Success depends on the

ability to accurately anticipate the amount and the timeframe for delivering the product. The roe must be delivered

to Japan still alive and thus cannot be stored. (The roe is sent to be processed in Japan within hours after being

removed from the ocean. After being processed, it will remain fresh for as long as a week.5) His ability to compute

and analyze weather patterns gives him a distinct advantage over his smaller counterparts who do not have such

capabilities.

The affect of this new source of commerce is a tremendous boon to Maine. Many lobster fishermen are out

of work once the demand for lobster wanes during the winter months. Many collect unemployment compensation

or are forced to take up other menial jobs in fisheries, according to Covens. The rise of the sea urchin industry,

though, provides a well-paying alternative for the lobstermen in the area in which they are skilled-operating their

boats and navigating the ocean. Maine’s sea urchin season, which runs from October to April, compliments Japan’s

season, which generally lasts through the summer months.

The harvesting of the sea urchin also requires high-skilled divers who pick the urchins off reefs along the coast.

Divers generally earn between $600 to $1,200 a week, and up to as much as $2,500.6 Covens estimates that the

industry supports as many as 1,000 divers. Marine supply stores and dive shops, which in the past closed down

during the winter, also benefit from the robust and growing trade. Covens points out that whatever measure this

industry has on the trade deficit-even if it is humble-is not nearly as important as the psychological effect of being

able to employ hundreds of Maine residents in well-paying jobs.

l~mMe- “Scorned at Home, Maine Sea Urchin Is a Star in Japan,” New York Times, Oct. 3, 1990, p. Cl.

Zpmsoti correspondence with Lloyd Clovens, Jan. 3, 1991.

3Joh Laidler, “For -e’sUrcti Industry, a Sometimes Prickly Roe tO Hoe,” The Washington Post, Jan. 4, 1990, p. A3.

4pao~ ~m=pndence tifi Lloyd Clovens, Jan. 3, 1991.

5Dem ~em~~scom~ at Home, ties= Urcti ~ a Sm in Jap~” New yor~ Tins,wt. 3, 1990, p. Cl.

61bid.
52 . Rural America at the Crossroads: Networking for the Future

Photo credit: Mark G. Young

The small lumber mill in Cle Elum is a testament to the

continued importance of forestry to Washington State’s

rural communities.

more sensitized to the environment, often providing

strong support for environmental protection. Thus,

today, environmental impact statements (EIS) are

commonplace. Environmental issues will loom even

larger in the future, because, as a society, we are

becoming more dependent on technological solutions.

Rural areas find it particularly difficult to make

choices regarding growth and the environment.

Many rural economies are totally dependent on

activities that have major environmental consequences, so environmental protection can cost them

jobs. The protection of public lands has limited

logging and mining; concerns about groundwater

contamination, soil erosion, and food safety have

constrained farm practices; and efforts to control

emissions and waste disposal have restricted rural

manufacturing (see box 2-D).

Because rural areas face so many problems, they

find it difficult to attract newer industries that have

fewer environmental impacts. Some communities

have been able to take advantage of their scenic

beauty to develop recreation areas and retirement

communities. All too often, however, they are the

communities of last resort-at worst, a place to

dump urban waste.77 With high unemployment rates

due to a depressed uranium industry, the town of

Grants, New Mexico, for example, believes its best

prospect for providing jobs is to become the prime

location for privately owned prisons.78

Communication and information technologies

can provide rural communities a means to develop or

attract rural businesses that are neither harmful to

their environment nor to their local ways of life.

Using these technologies to identify distant buyers

and negotiate optimal prices, some rural communities have developed niche markets, based on their

own local resources. Ganados del Valle, for example, is a weavers’ cooperative operating out of Los

Ojos, New Mexico. For years, seasonal unemployment rates were so high that many State officials

were ready to “write it off. ” Inspired and energized

by Maria Varela, a woman seeking to help develop

the area, members of the community set up a

successful sheep herding and weaving cooperative.

Their goal was to build an economic base using the

community’s own natural resources. Pooling their

flocks, the townspeople held phone auctions and

sold their sheep at a top price. The women in the

community produced garments in keeping with

traditional Rio Grande weaving techniques.79

Rural citizens often feel that outsiders are forcing

them to make choices about development and the

environment. Many times local sentiment favors

development, while the State government, Federal

Government, or the national environmental community seek to limit it (see box 2-E). Residents of

northern Maine, for example, are eager to mine a rich

copper lode in Ball Mountain, and resent that the

State’s Department of Environmental Protection is

standing in their way. Some States are trying to

reduce the job impact of environmental protection

by supporting retraining and the diversification of

rural economies (see box 2-F). One fruitful approach

might be to link these programs to the deployment

of information and communication technologies to

rural areas.

 On how to create safe nuclear facilities, Massachusetts gubernatorial candidate John for a 

 nuclear the damn thing could have an and not hurt anybody.” As cited in Newsweek, Aug. 13, 1990, p. 15.

 to much it unzoned. to 

Prisons Go Private The Go to June 11, 1990, p. 28.

 Field,” for work helping

the communities of rural New Mexico as one of the 36 recipients of the annual and Catherine T. MacArthur Foundation awards. Kathleen 

“MaeArthur Grants Are Awarded to 36,” New York Times, July 17, 1990, p. 
Chapter 2—The Challenge for Rural America ● 53

Box 2-D—Lake Cumberland, Kentucky

The proposed expansion of Union Underwear in Jamestown, KY, has sparked a controversy pitting

environmentalists and recreationalists against local developers and residents who depend on the company’s $45

million annual payroll. The company proposes to construct a pipeline to divert treated wastewater-used in the

process of dying fabnc—from Lily Creek directly into Lake Cumberland. Although the project potentially poses

environmental harm, the town of Jamestown and the State find themselves in a bind. If opposition becomes too great,

Union has stated its intention to move part or all of its operation to North Carolina.

For its part, Union Underwear sees the pipeline as a solution to environmental concerns: rather than emptying

the wastewater into the smaller, but more convenient Lily Creek, the company would construct a pipeline that would

carry the wastewater into the larger body of water, Lake Cumberland, where the concentration of chloride-the salt

used to bind color to the fabric used for Union’s undergarments—would be 250 parts per million, well below the

standards established to protect the Lake’s aquatic life.

Conservationists and local fishers fear that despite the regulatory guidelines to limit the concentrations of salt,

copper, lead, arsenic, and other metals in Lake Cumberland, the government can actually do very little to protect

the environment once Union starts emptying the effluent. Environmentalists raise the issue of the cumulative effects

of the effluent from Union Underwear, as well as the wastewater that reaches Lake Cumberland from Jamestown

and 30 other municipalities. They contend that overtime, Lake Cumberland will face the same consequences as did

the Great Lakes when they became industrial dumping grounds.

Union Underwear, its workers, and many in the community of Jamestown who depend on Union either directly

or indirectly for their livelihoods, view the arguments of the environmentalists-who come mostly from outside

the community to enjoy the natural beauty and recreational opportunities at the Lake-with suspicion and some

resentment. They contend that Union’s presence is critical to the economic survival of Jamestown.

SOURCE: Bob llil~ “The Cumberland Flap,” The CourierJourna lMagazine, May 13, 1990, p. 4.
54 ● Rural America at the Crossroads: Networking for the Future

.- . .

Box 2-E—Development v. the Environment

Many rural communities increasingly depend on tourism to produce much-needed local income. As the

environmental movement gains momentum and legitimacy, however, conflicts over how such development will

effect an area’s environment-its resources, its people, and its history—are a growing impediment to such

development.

The conflict over the environment versus the economy is particularly complicated in Washington, where the

battle lines are already clearly, and often fiercely, drawn with regard to the issue of logging the State’s rich forests.

As another manifestation of this conflict, the development of the Early Winters Resort in the Methow Valley, on

the other side of the Cascade Mountains from Seattle, has aroused considerable friction in the State for the past

several years. The contested development includes plans for a four season destination resort facility complete with

a ski mountain, ranches, residences, golf courses, and a village. It typifies the tension between developers along with

those for whom development promises jobs, on the one hand, and environmentalists and those who caution that

development threatens to scar the area’s scenic splendor and rural quality and to interfere with traditional ways of

life, on the other.

Tourist-based local development brings in new jobs and stimulates the local economy: Early Winters estimates

that upon completion, the resort will generate 1,200 jobs in Okanogan County and add $80 million a year to the

local economy and $100 million a year to the State’s economy. Before the project is even complete, the resort will

produce 200 to 300 full-time construction jobs a year, with a construction payroll of $11 million.

Because tourist-based development depends on the beauty and recreational offerings of the region, it is in the

interest of the developer to preserve the original character or charm. However, developers have often largely

disregarded the ecological problems associated with development. Wary of the changes that development might

bring and cautious about the environmental impacts of developing the Methow valley, citizen groups such as the

Methow Valley Citizen’s Council and the Friends of the Methow Wiley have held up the project with administrative

proceedings. These groups contend that the development could harm the mule deer population, which is the largest

in Washington State. Project opponents also fear that instream waterflows could be damaged by snowmaking

activities, sewage treatment, and increased domestic water uses.

Rather than dismissing the environmentalists concerns, the Early Winter’s development has undertaken

extensive studies of the Valley’s environment and investigated ways for the development to exist as part of the local

beauty instead of exploiting the natural surroundings. For example, mule deer migration corridors and habitat areas

will be designed into the baseland resort. Water systems will be designed to store the spring run-off from winter

snows for irrigation and snowmaking purposes later in the year. Water used for sewage and indoor domestic uses

will be treated and returned to the aquifer. In addition, construction plans have been designed so the trees and natural

landscape will screen most buildings, roads, signs and other structures from view along Highway 20, which leads

into the Wiley.

Compliments of: Early Winters Resort Associates

Artist’s rendition of Wilson Ranch, a part of the proposed plan.
Chapter 2—The Challenge for Rural America ● 55

Box 2-F—Retraining Miners in Appalachia

The Business and Industry Technical Assistance Center (BITAC) was formed as part of Kentucky’s Hazard

Community College in 1986 to redress high unemployment in the eight-county region due to the loss of jobs in the

coal industry. The Center’s main mission is to teach displaced miners and disadvantaged workers the entrepreneurial

skills to start their own businesses, according to its director, Charley Simpson.

Hazard is located in the heart of the Appalachian coal fields. Yet coal jobs, the mainstay of economic survival

for generations of Eastern Kentuckians, have declined over 25 percent in 10 years. Real unemployment in some

counties approaches 50 percent.1

BITAC was conceived of by Hazard Community College’s President, Dr. G. Edward Hughes, who has made

economic development a priority of the college, along with Professor Richard Crowe, whose Small Business

Information Center was BITAC’S predecessor. According to Dr. Hughes, “BITAC is an aggressive, active

economic and community development arm of the College. ”2

Its instructors-experienced local businessmen—

help others find niches that are not being served in the community or that are only being served at great distances

and start up and operate businesses to fill that demand in order to keep the dollars in the community.

The Center’s success is well known. With a staff of 6, including the director, a business liaison, and 2

entrepreneurial instructors, the Center has helped to launch nearly 200 businesses since it was founded in 1986. It

has won several awards in recognition of its positive impact on economic development in Appalachian Kentucky,

including the American Association of Community and Junior Colleges ‘ “Putting America Back to Work Award. ”

BITAC has been singled out by the National Association of Counties and by the U.S. Department of Commerce’s

Economic Development Admininstration. The State legislature is considering creating similar programs in the other

14 community colleges and 6 regional State universities.

lNo ~S1o~ ~ @SSiblCJ~ COmni~, Technical, uti Junior College Jou~l, vol. ~. No. 4, Fe_mch IW.

21bid.

SOURCES: Fran Jeffries, “Heralded Hazard Training Program hunches Mountain of Entrepreneurs,” The Coun”er Journal, Imuisville, KY,

Mar. 19, 1990. Steve BarorL “Through BI’E4C, College Creating Business, Jobs,” Communi-K, the University of Kentucky’s

Faculty-Staff Newspaper, vol. 22, No. 11, Nov. 13, 1989. “No Mission Is Impossible” Community, Technical, andJunior College

Journul, vol. 60, No. 4, February/March 1990. Personal correspondence, Charley SimpsoPBITAC Coordinator, Jan. 8, 1991.
Chapter 3

Rural America and the Changing

Communication Infrastructure
Contents

Page

Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . ..

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

The Impact of Communication Technologies on Rural Areas in the Past ... ... ..... . . . . . . . . 60

. . . . . . . .

Recent Regulatory, Marketplace, and Technological Developments Affecting the Evolution

of the Communication Infrastructure . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . 62

Implications of a New Regulatory Framework for Rural America . . . . . . . . . . . . . . . 65

The Rural Communication Infrastructure, . . . . . . .. . . ........

. . . . . . . . . . . . .

. . . . . . . . . . . . . . . ..... .... 66

Information Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Access and Transmission Technologies . . . . . . . . . . . . . . . . . . . .

● . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . 68

Switching and Other Networking Technologies . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . 74

Implications and Opportunities for Rural Areas . . .. ........ . . . . . . . . . . . . . . . . . . . ......,.. 79

Changing User Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

Boxes

Box Page

3-A. Computer-Aided Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

3-B.Fiberoptic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

3-C. Berks Community Television . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

3-D. .Digital Radio Service . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . ...... .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

3-E. VSAT Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

3-F. The Intelligent NetWork . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . ..,.... ...

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Figures

Figures Page

3-1.Evolution of VSAT Technolagy. . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

3-2. Regional Bell Operating Companies’ Centeral Offices: Present andProjected . . . . . ... ..,.. 75

3-3. Fast Packet Switching . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

3-4.NSFNET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . ....,.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ 78

3-5. LANs and MANs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

3-6. REA Central Office Switching Characteristics . . . . . . . . . . . . . . . . . . ., . ., .. ... ,,... .,., 81

3-7. Rural Area Network. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

3-8. Nucleus City for Nebrmh

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..,, 84

3-9. Sharing Schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Chapter 3

Rural America and the Changing

Communication Infrastructure

Findings

If rural areas are not to experience further decline,

measures will need to be taken to assure that they

have access to the necessary infrastructure. The

previous means and methods of providing access are

no longer viable. New ways need to be developed for

delivering communication services to rural areas.

With divestiture and greater competition in the

communication industry, urban models are no longer

valid in rural areas. What are required are Rural Area

Networks (RANs) that allow rural communities to

devise new and creative ways of achieving economies of scale and scope. Just as businesses are taking

advantage of advances in technology and the unbundling of the network to develop local area

networks, wide area networks, and metropolitan area

networks, rural areas will need to develop networks

that are customized to their own needs. To do so,

they will need a far greater understanding of the

possibilities that new technologies afford, and of

how these technologies can be used cooperatively by

all rural citizens, allowing them to share in the

benefits of the information age.

Introduction

The communication infrastructure that supports

the flow of communication in society is a critical

part of the social structure. Its makeup and the rules

that govern its use greatly affect all social interaction.1 The technical features of the infrastructure, for

example, determine the types of messages that can

be exchanged, the ease and speed of their delivery,

and their accuracy. Similarly, the infrastructure’s

architecture-the way that facilities are arranged,

distributed, and interconnected-determines who is

able to communicate, under what conditions, and

how effectively.

Rural areas characteristically have low population

densities and are generally distant from urban areas.

For them, one of the most critical aspects of the

communication infrastructure is that related to the

costs associated with providing services to few

people over large areas. Thus, access in rural areas

is likely to be affected most if technological

advances or regulatory decisions alter the distantsensitive costs of providing these services. Because

of this, innovative ways must be sought to share

resources and costs.

How rural communication systems are designed

and the technologies that comprise them will also

affect rural areas. Communication technologies are

not equal. They give rise to different impacts. Some

communication technologies and network architectures tend to reinforce community ties, whereas

others serve to undermine them .

2

Rural communities must also maintain the quality

of their communication infrastructure (its capacity,

reliability, interoperability) vis-a-vis communication networks in urban areas. If modernization in

rural areas lags behind that in urban areas and other

countries, rural residents may be unable to link to

other critical communication facilities, such as

private business networks. In order to interconnect

efficiently, communication networks must be comparable.

The form that the communication infrastructure

takes will be determined by decisions made in the

marketplace and by government. These decisions

are greatly influenced by technological advances.

l~e ~om~c~on ~m~c~e is ~~~eSt~ ~ and ~stains the ~ger soci~ system of which it is a part. FOr Cmnnunicatim is tie basis fOr

all human interaction and one of the means for establishing and organizing society. Communication is the process by which all social activity is

conducte@ without it a society could not survive. It is the means by which group norms are establish~ expectations are voic~ individual roles are

assigne~ change is enacted, social control is maintained, and activities are coordinated.

Communication also allows the individual to function in society. Only through interaction with others do individuals acquire the tools of language

and the shared sense of reality they need to establish intimate relations and to cooperate to achieve common goals. Through acts of communicatio~ people

define themselves-their sense of uniqueness as well as their self concepts-and negotiate and sustain a position and place for themselves in the world.

See for discussions, Martin Lawrence L&leur, Theories of Communication (New Yorlq NY: David McKay Co. Inc., 1970); Lucian W. Pye (cd.),

Commuru”cation andPoliticalDevelop~nt (Princeto~ NJ: Princeton University Fress, 1976); and 13udley D. ~ Jr., Communication in Interpersonal

Relations (Albany, NY: State University of New York Press, 1985).

~chaxdKielbowicz, “TheRole of Communication in Building Communities and Markets,” contractor report prepared for the Ofllce of lkchnology

Assessment, November 1987.

–59-
60 ● Rural America at the Crossroads: Networking for the Future

All of these developments are, together, reconfiguring the Nation’s communication infrastructure in

ways that present both problems and opportunities

for rural America. To formulate policies that allow

rural communities to benefit from information-age

technologies, decisionmakers must understand how

the changing infrastructure may affect rural areas.

The Impact of Communication

Technologies on Rural Areas

in the Past

Communications technologies change relationships of time and space. This is particularly important to remote, sparsely populated rural areas. One

way of assessing the potential impacts of communications on economic development in rural areas is to

examine how the emergence of new communication

technologies affected it in the past. The impacts of

communication technologies on rural areas have not

necessarily been favorable.3

The transformation of the rural American landscape at the turn of the century was facilitated, if not

actually promoted, by improvements in transportation and communications.4 Advances in these technologies were particularly important in the development of a national market.5 Improvements in

intrafirm communication, through the use of telephones and telegraphs, allowed businesses to expand their spheres of operation and centralize

decisionmaking in distant headquarters.6 Firms grew

larger and extended their reach; distance no longer

insulated local firms from competition with out-ofHarold The Bias of Communication, 1951 University of Toronto Press, 1971). According to commu

that served to overcome the barrier of distance and time tended in long run to make rural areas overly dependent on urb

notes with reference to attempted to show how localities and regions resisted the spread of Communi

 decided by a protracted series of conflicts over the spread of time, the mail order house, parcel post and rural f

store and the corporation. ” James W. Carey, “Space, Time, and Communications: A Tribute to Harold Innis,” James W

Communication as Culture: Essays on Media and Society MA: 1989), p. 143.

 by development and deployment of new transportation 

process of decentralization that moved forward in a dialectical way as small hinterland communities att

influence, only later to be absorbed back into it. ” James Carey, ibid.

 development is clearly illustrated by a convergence of prices across the Nation. As Richard DuBoH notes with re

“Data on cotton prices in New York show diminishing fluctuations over time. The average spread between lowest narrowed steadily, high

except during the Civil War and its and the steepest declines in high-low price ranges and dispersion of prices 

in the telegraph decade, ’ as it might well be called. ” Richard B. “The the Structure of Markets in the Un

1845 -1890,” Research in History, vol. 8, 1983, p. 257.

 pointed specialization can only and productivity 

that goods can be moved, and distributed and that the production process itself can be coordinated. It was only

railroads in the 1830s and the telegraph in 1844 that the requisite speed and control in process of production and ex

increasing the of extending the range of possible the railroad, the telegraph, and later th

 of organization management structures, a first step in the centralization of production and distrib

discussions, Alfred D. Chandler, Jr., The Hand: The in American Business (Cambridge, MA: Harvard Univ

 and James R The Control Revolution (Cambridge, MA: Harvard University Press, 1986).
Chapter Rural America and the Changing Communication Infrastructure ● 61

town businesses. Although competition was greater,

increasingly it took place among larger and larger

firms located primarily in urban rather than rural

areas.

7

The advent of the mass media also encouraged the

development of a national marketplace. The trend

toward national distribution of printed matter culminated with the emergence of inexpensive popular

magazines such as The Saturday Evening Post, The

Ladies Home Journal, and Country Gentleman. The

mails, of course, were crucial in the delivery of these

publications, and the inauguration of Rural Free

Delivery in the 1890s enabled magazines to flow

from publisher to country lanes.8

However, the impact of the mass media on rural

economies was also problematic. The explosive

growth of popular magazines intensified competition for advertising among segments of the publishing industry, and the winners in this competition

reflected shifts in the Nation’s marketing system.9

The small, local retailers, which had once served

their communities with little competition, suddenly

faced a succession of new challengers---department

stores, mail-order fins, and chain stores. The

metropolitan press increasingly tied its fortunes to

department stores and chains; and magazines were

well positioned to run advertisements for nationally

marketed consumer goods that were sold through all

kinds of outlets.

Notwithstanding the problems associated with the

deployment of communication technologies, rural

areas could not have afforded to forgo them, for the

shifts in the national economy were not accidental.

They were closely associated with the development

of regional and national infrastructures, and a rural

area’s proximity to these trade networks proved to be

a critical factor in determining its ability to survive.l0

The deployment of some communication technologies also served to undermine the cohesiveness of

rural communities, weakening their sense of autonomy and resolve. This made it more difficult for

economic development to take place. The impact of

the telegraph is a case in point. Because of high

costs, telegraph use was confined largely to businesses and the press; few people used it for social

communication, at least in the United States. Among

the press, the telegraph fostered the standardization

and central processing of news reports, allowing all

Americans to read the same national and international news stories for the frost time. But standardized content diminished the community’s importance in the eyes of local citizens, while centralization shifted the locus of control from local editors to

national press association headquarters and bureaus. 

11

7As Richad DuBoff has described, “. . .The telegraph dramatically erdarged information networks; it saved time, reduced the need for large

inventories, decreased fwcing requirements, and prompted e “ “ hmmation of middlemen. But ‘competition’ and ‘monopoly’ are not as neoclassical

theory implies, polar opposites. The telegraph improved the functioning of markets and enhanced competition, but it simultaneously strengthened fores

making for monopolization. Largerscale business operations, secrecy and control, and spatial concentration were all increased as a result of telegraphic

communication. ” DuBoff, op. cit., footnote 5.

g~e~ore petmsou Magazines in the Twentieth Century, 2d ed.(Urti IL: University of Illinois Press, 1964), pp. 1-43. For a discussion of R~~

Free Delivery, see RFD: The Changing Face of Rural America (Bloorningtou IN: University of Indiana Ress, 1964).

%e emergence of a special kind of syndicate, called readyprint companies, worked to encourage the development of national advertising and a

national marketplace. By buying paper in bullq insertm“ g ads from national marketers, and printing incentmlized plants, these readyprint f- furnished

weekly newspapers with bundles of half-printed sheets for barely the cost of the blank paper. But to take advantage of the economies of scale presented

by readyprin~ local editors had to relinquish control over half of their news and advertising columns.Advertising agencies discovered the efficiencies

of placing clients’ ads with readyprint firms so their messages would appear in thousands of country papers. By 1889, a handful of companies furnished

“patent insides” and “patent outsides” to 3,089 of the Nation’s 8,633 weeklies. See S.N.D. Nor@ History and Present Condition of the Newspaper

and Pen”odical Press of the United States (Washingto~ DC: U.S. Government Printing Oftlce, 1884), p. 94.

l~~sSwuoq $ ‘Retig ASSuptiom About FIWIII and community, ’ A.E. Luloff and Ixmis Swmn(eds.), Amen”can Rural Commum”fi”es

(Boulder, CO: Westview Special Studies in Contemporary Social Issues, 1990), p. 21. As one observer described the situation in 1850: “~usiness

merchants, farmers, bankers, shippers, and others soon learned the] great advantages of this mode of instantaneous communication of intelligence [which]

is with them not so much as a matter of choice as of necessity, for, without availing themselves of it they must necessarily be behind others in that which

is essential to the success of their business. ” As cited in ibid.

llFora discmsion of ~ly ~ws ~=~tiom,stifi~~ckHu~mJourna/i~ in the UnitedStates (New Yor~ w:mm, 1873). Foradiscussion

of the impact of the telegraph on news-gathering, see F.B. hfarbu~ News From the Capital (Southern Carbondale, IL: Southern Illinois University Press,

1976). Changes in William Allen White’s Emporia (Kansas) Gazette during the 1920s illustrate some of the consequences for rural areas. According

to Griffhh: ‘‘The net effec~ then, of the Gazette’s increased advertising and greater access to syndicated materials was to diminish the very centrality

of its community. Emporians could no longer gain the impression from reading their local newspaper that Emporia-or their own lives-mattered much

in the scheme of things. . . .~ecommunity’s citizens] may also have been aware of a concomitant waning of a sense of thelegitimacyof their day-to-day

lives. For, rather than focusing on local events, the paper dramatized far-away people and places. Instead of recording the life passage of their neighbors,

it reported the abnormality of strangers.” As cited in Kielbowicz op. cit., footnote 2.
62 ● Rural America at the Crossroads: Networking for the Future

Rural experience with the telephone was notably

different, however. Although for businesses the

telephone continued to accentuate the effect of the

telegraph, for individuals, it reinforced social interaction at the local level. Between 1907 and 1927, the

average person’s local point-to-point communication—

letters, telegraphy, and telephony—increased primarily because of growing telephone use.12 This

reinforcement of social interaction at the local level

played “a part in the preservation and even in the

enhancement of local patterns of attitude, habit and

behavior, and serve[d] as an inhibitor of the process

of cultural leveling which is so often assumed as an

outstanding and unopposed tendency of American

life.” 13

The value of telephony to rural communities and

markets was reflected in penetration levels: some

Midwestern States had more phones per-capita than

Eastern States. The benefits of the telephone were

many: rural households used the phone to summon

doctors, visit each other, obtain weather reports,

learn about sales in towns, and follow prices for

agricultural commodities in local or regional markets. 14 Not surprisingly, residents of rural areas

heralded the telephone’s potential to end their

isolation. While American Telephone and Telegraph

(AT&T) promoted the development of the longdistance network, a number of towns and cities

launched their own systems. Impatient with the slow

deployment of lines, some farmers even constructed

crude systems using barbed wire attached to fence

posts.

This brief look at how previous communication

technologies affected rural America reinforces the

notion that sorting out the effects of deploying new

communication technologies is a complex and

complicated business. Different technologies have

different impacts, depending on their capabilities

and the circumstances under which they are deployed. While the telegraph generally undermined

rural America’s independence and its influence

vis-a-vis other areas, the telephone tended to reinforce it.

One should keep this lesson in mind in considering how the new communication technologies will

affect the prospects of rural economic development,

and in determining what, if anything, policymakers

need to do about their deployment. Without making

reference to the characteristics and capabilities of

new technologies, or to the socioeconomic context

in which they are deployed, these technologies will

likely give rise to a number of unintended consequences. Thus, policymakers at all levels of government must try to determine the particular circumstances under which rural areas-in all of their many

varieties-might gain a fair share of the economic

benefits afforded by information-age technologies.

The need to understand this issue is becoming

increasingly acute. Not only is the communication

infrastructure being altered in response to technological advances and regulatory changes; the strategic

value of having access to communication and

information services is also greater than ever before.

Because people living in rural areas are today

inextricably linked to external events and conditions, policymakers must consider how the evolution of the communication infrastructure might

affect them.

Recent Regulatory, Marketplace,

and Technological Developments

Affecting the Evolution of the

Communication Infrastructure

The breakup of the Bell Telephone System

radically altered the U.S. communication infrastructure. This event has major consequences for rural

America because it undermined the pricing structure

that traditionally supported rural communication

sevices. Divestiture also shifted a great deal of

communication decisionmaking from the government policymaker to the business user. As a result,

rural users’ needs and interests may not be taken

sufficiently into account. Rural users are not well

represented among large business users.

1% IW7, an avemge of 4.5 months elapsed between each toll telephone call but only 3 days between each local cdl. Malcoti Wiley ~dStuart A.

Rice, Communication Agencies and Social Life (New Yorlq NY: McGraw Hi~ 1935).

131bid., pp. 153-154.

ld~ese ~fier ~. applic~ons Wme ~oW tie few by which the telephone enbanced the competitive position ofs-Producers and m~~. ‘or

discussions of the impact of telephony on rural communities, see Wiley and Rice, op. cit., footnote 12; Michael OlseQ “But It Won’t Milk the Cows:

Farmers in Colfax County Debate the Merits of the ‘IHephone,” New Mm”co Historical Review, vol. 61, January 1986; and ItMel de Sola Pool,

Forecasting the Telephone: A Retrospective Technology Assessment of the Telephone (Norwo@ NJ: Ablex Publishing Co., 1983).
Chapter 3-Rural America and the Changing Communication Infrastructure ● 63

The regulatory agreement that Theodore Vail,

General Manager of AT&T, worked out in 1910,

gave rise to the Bell System, which had as its

operational goal, ‘‘one system, one policy, universal

service. As Vail described his vision of the

telephone industry in the Annual Report of 1910:

The position of the Bell System is well known. . .

The telephone system should be universal, interdependent and intercommunicating, affording opportunity for any subscriber of any exchange to communicate with any other subscriber of any other

exchange. . . annihilating time or distance by use of

electrical transmission.15

Comprised of AT&T and its subsidiaries and

affiliates, the Bell System offered a complete range

of telecommunication services including research

and development, equipment manufacturing and

sales, local and long-distance services, as well as

access to international transmission service. Having

a total of $150 billion in assets in 1983, prior to

divestiture, it constituted the world’s largest corporation.

The regulatory framework that governed the Bell

System and remained intact for more than half a

century was decidedly American. While operating in

a capitalist framework, it provided some social

control over the negative impacts of the singlemindedness of the marketplace. 16 Moreover, taking

the form of a monopoly, the Bell System provided

for interoperability and was able to take advantage

of economies of scale and scope.17 By most accounts, this system worked well.18

From the perspective of rural America, the most

important aspect of the Bell System was its provision for subsidies. To subsidize the expansion of

telephone services, AT&T adopted a pricing structure based not on cost of usage, but rather on value

of use. Such a system assured that toll users

(disproportionately represented by business users)

would pay some proportion of the nontrafficsensitive (the fixed) costs of the local exchange. The

formula for establishing the amount and distribution

of these costs was inexact. Therefore, the tendency

over time was to shift more of the service costs from

local exchange users to toll users. Increasingly, this

formula fostered residential service at the expense of

long-distance users.19

By continuing to adjust the cost allocation formula in favor of the local exchange, the Federal

Communications Commission (FCC) and AT&T

created a situation where the costs and prices of

telecommunication services were increasingly dissociated from one another. In 1941, the FCC adopted

a policy of ‘‘equal charges for equal service’ that

was intended to eliminate interstate rate differentials. 20 This rate-averaging system worked in favor

of rural customers whose long-distance service was

generally more costly per call.

These subsidies served well as a means of

fostering the development of universal telephone

service. The prospect of attaining the goal of

universal service was well in sight by 1950, with 80

15As cited in Richard Victor, “AT&T and the Public Good: Regulation and Competition in ‘Xklecommunications, ” Harvard Business Schoo4

unpublished paper, April 1987, revised March 1988, p. 3.

lc~c~el D. R~gq Regulation: The Politics of Policy (Bostou MA: Little, Bron~d CO., 1987).

ITVietor, op. cit., footnote 15, p. 17.

lgAs GkzmRolinsonhas pointed out: “ . . .She ~Bell] was held in fairly high regard. In contrast to other monopolists we’ve loved to hat+-railmads,

gas utilities, broadcast stations, and countless other enterprises with protected market positio~AT&T’s monopoly seemed not only natural but

relatively benign. . . .The system pioneered and developed by AT&T was justly acclaimed the world’s freest. ‘IUephone rates were comfortably

affordable; furthermore, in the heyday of the telephone monopoly the rate system was generally perceived as fair. Service innovatio~ while not rapi~

nevertheless did proceed more rapidly than in other sectors of the economy. ’ Glen O. Robinsou “The Titauic Remembered AT&T and the Chan@ng

World of ‘Iklecommunicatio~” Yale Journal ofRegulation, vol. 5, 1988, pp. 517-518.

19Some&ve~gued that in the Iong~ given t~hnologic~ changes and efforts to upgrade thenetworkfor the business U*I, this subsidy has actu~ly

worked in reverse. According to Pat Aufderheide, for example: “Cost shifting is justified on the grounds that the individual user is the ‘cost-causem’ and

that the local loop must now ‘pay for itself.’ This rationale ignores the changing pattern of technological costs. More elaborate and sophisticated digital

switching equipment making possible semices of great immediate value to large users and increasing capacity to carry huge data transmission demands,

incurs tremendous investment costs while lowering the cost of switching and transmission.’ Patricia Aufderheide, ‘ ‘Universal Service. TklephonePolicy

in the Public Interes~” Journal of Communication.r, vol. 37, No. 1, Winter 1987, p. 83.

mvietor, op. cit., footnote 15, p. 23.
64 ● Rural America at the Crossroads: Networking for the Future

percent of American homes equipped with telephones.21 By 1952, AT&T operated almost entirely

under a nationwide average pricing system. However, for political as well as economic reasons,

subsidies such as these could only be sustained

under a regulated monopoly. Over time, the policy

of maintaining the telephone monopoly became less

and less viable.

Technological developments helped undermine

the traditional Bell System. With the convergence of

information (computers) and communication (telephones) technologies, there was no clear distinction

between a monopoly—and hence regulated—

service, and competitive market-driven services.

This convergence led to changes in network architecture, with the intelligence (control) being increasingly dispersed. As a result, network unbundling

(purchasing separate, individual services) was greatly

facilitated. As new technologies increased in capability and declined in cost, the barriers to entry into

the telecommunication market were reduced. Under

these circumstances, newcomers were able to make

significant inroads into AT&T’s traditionally protected market. Their chances for success were

greatly enhanced because AT&T was required to

provide universal service while its competitors

could target products and services for the lucrative

business markets and offer them at a lower price.

Thus, competitive entry put pressure on the subsidy

pricing system that had been elaborately constructed

over the years.

Economic developments also greatly increased

the incentives for others to enter the telecommunication/

data communication market. As information came to

play a more important, strategic role in business,

large users sought alternative, more efficient ways of

purchasing telecommunication services.22 Where

their needs were great, or where they wanted more

control over their operations, users created their own

internal telecommunication networks. In other cases,

business users were able to make the best deal by

bypassing the Bell System and purchasing services

and equipment in the unregulated market. Since

expenditures on these services constituted an increasing portion of their overall business expenses,

large users had tremendous stakes in how the

telecommunication regulatory structure evolved.

Recognizing this, they joined forces with the burgeoning new service providers to press for greater

competition. 23

Changes were also taking place in the way

regulators viewed the regulatory system. 24 As early

as 1962, a number of regulatory economists began to

question the public utility concept. Together, their

work—if it did not itself give rise to the new

deregulatory climate-served at least to legitimate

it. 25 This changed attitude was also evident at the

FCC.26

Although perhaps not fully aware of the final

outcome of its actions, the FCC took its first steps

toward divestiture and the Modified Final Judgment

(MFJ) in 1959 with its “above 890” decision. This

decision, which liberalized the licensing of private

microwave systems, allowed the newly created

Microwave Communications, Inc. (MCI) to offer a

new product-discount private-line service.27 With

the subsequent Carterfone decision in 1969, the FCC

also opened the customer-premises equipment market to entry. Finally, with the decisions on Execunet

in 1976 and 1978, requiring AT&T to provide

connections to MCI, the FCC struck a final blow to

the 100-year-old AT&T monopoly by opening the

zlIt sho~d be noted that the goal of providing universal telephone service was greatly facilitated by Federal support of independent ~telephone

companies. In response to a decline between 1920 and 1940 in the number of farms that had telephones, Congress, in 1947, authorized the Rural

Electrification Administration to make low-interest loans to persons, public bodies, and cooperatives to improve and extend telephone service in rural

areas. By the end of 1985, REA had provided loans or loan guarantees to approximately 1,000 small, independent rural telephone companies totaling

$7.7 million. U.S. General Accounting Office, Zssues Aflecting Rural Telephone Service (Washingto~ DC: Mar. 17, 1987), p. 12.

22For a discussion of the changing role of ltige business users, See Dan sc~er, ‘‘Business Users and the Telecommunication Network” Journal

of Communications, vol. 32, No. 4, autumn 1982, p. 35.

ZIbid.

~For one dismssioq S= Alfred E. - “The Passing of the Public Utility Concept: A Reprise, ” Eli Noam (cd.), Telecommunications Regulation

Today and Tomorrow (New York NY: Harcourt Brace Jovanovich Publishers, 1983), ch. 3.

~See, for instance, Roger G. Noll, “Regulation After Reag~” AEIJournal on Government and Society, No. 3, 1988, pp. 13-20.

~As tie fomer~c Co~ssionerNicholm Jo~nnotedwhen~e FCC d~id~ to approve Mm’s application to setup a loIlg-dis@m priVak-k

service: “. . .1am not satistled with the job the FCC has been doing. And I am still looking, at this junc@re, for ways to add a little salt and pepper of

competition to the rather tastel~s stew of regulatory prot@ion that the Commission and BeH have wok~ up. ” A4icrowave Communl”cations, Inc., 18

FCC 2d, 953,971-972.

ZTA//ocation o~~requencie~ in the Bands Above 890 MHz, 27 FCC 359 (1959) 29 FCC 190 (196@.
Chapter 3-Rural America and the Changing Communication Infrastructure ● 65

long-distance telecommunication market to competition.

Implications of a New Regulatory

Framework for Rural America

The divestiture of the Bell System undermined the

pricing structure that traditionally supported rural

communication services. In particular, it led many

communication providers to price access closer to

real costs and to base their prices on measured usage,

thereby eliminating the sources of subsidies.28 In

this deregulated climate, where competition is allowed and fostered, differences between costs and

prices are untenable. Wherever prices are kept

artificially high, users will seek alternative, private

solutions to meet their communication needs.

To avoid the bypass of the public telecommunication network, the FCC is shifting costs from

interstate interexchange service to local exchange

service by imposing subscriber line charges and by

limiting the interstate share of local plant costs

assigned to interstate calls. Making the local exchange companies responsible for a larger share of

the nontraffic-sensitive costs (NTS)29 is likely to

affect low-density rural areas more than highdensity urban areas because these costs tend to be

higher in rural areas. In the past, rural telephone

companies allocated as much as 85 percent of NTS

costs to the long-distance, interexchange carriers.

Under FCC’s new provision, they can allocate no

more than 25 percent. The newly imposed subscriber

line charges are intended to eventually makeup for

past subsidies.

The amount of subsidy available for communication services is also likely to decrease in the future

as business-users, who have traditionally subsidized

rural users, leave the public network to set up their

own telecommunication systems. Under such circumstances, less money will be available to support

publicly shared communication services. Similarly,

if communication services that were once provided

through the public network, and thus served to

cross-subsidize one another, are unbundled and sold

in the marketplace, many small users may have to

pay much more for services.

Changes in the communication infrastructure

have also increased the transaction costs (design,

installation, standardization) that rural residents and

businesses have to pay to take advantage of new

communication technologies and networks. In the

past, many transaction costs, especially in telecommunication, were hidden. For example, as part of the

product they sold, providers of telephone services

included their technical expertise and assured interconnection and connectivity. In addition, they provided services such as directories, maintenance,

protocols, and routing. Today, while residential and

business users benefit from a greater choice of

communication services, they must absorb these

transaction costs on their own.

Many businesses regard this post-divestiture development as an opportunity to employ their communication and information systems strategically as

a competitive, economic weapon. However, assembling and maintaining a communication network is

costly, and requires considerable expertise and

technical skill, as many businesses developing their

own private networks have discovered. Whereas in

the past, vendors performed a number of key

functions-e.g., providing network management,

developing industry standards, designing system

architecture, planning the introduction of new technologies, and evaluation and assessing alternative

products and services-today these tasks are the

responsibility of the business-users themselves.30

2S@e of tie ~o~t ~~o~ pr~bl~~e~ts from tie d ‘d~v~a~g’ of toll mtes. Witi d~vem~, a ~ of @v~ent diswce wo~d cost mOm On

a low-volume rural route than would a call on a high-volume urban route. In this case, long distance rural calling would dimkdsh along with the toll

incomes of the rural telephone comptim.Large businms customm and wlepho~ companies alSO wish to reduce toll settlement payments to small

telephone companies. These events may not only hinder rural network modernization and service quality, they may also threaten the very survival of

many rural telephone companies. Bruce Eg~ “Bringing Advanced ‘IUecommunications to Rurrd America: The Cost of lkchnology AdoptioQ”

contractor report prepared for the CX3ice of Technology Assessment October 1990.

~ontraffic-sensitive costs are those costs that a local telephone company incurs in providing its subscribers with a connection to the company’s

central offices. The nontrafllc-sensitive portion of the company’s plant iS largely comprised of the telephone lines (referred to as “local loops”) running

from the subscribers’ premises to these central offices. A company’s nontraffic-semit.ive costs primarily depend on the number of its subscribers and

the average length of its subscribers’ local loops. Non(raffiGsensitive costs do not vary with the amount of telephone traffic carried over the loops, which

is why they are generally considered “freed” costs.

~o meet the needs of business-users, new companies are emerging and old ones are reorganizing to better position themselves to take part in what

is now a very lucrative systems integration market. According to the market rescxwc h fm International Data COW., the system integration market is

growing at an estimated annual rate of 20 percen~ with revenues increasing horn $8 billion in 1987 to $22 billion in 1993. Mark Breibart, “Systesna

Integration Surge,’ Computer World Focus on Integration, special issue, Feb. 6, 1989, pp. 29-33.
66 ● Rural America at the Crossroads: Networking for the Future

Shifting the burden of transaction costs to the

communication-user raises questions of fairness. In

particular, it is likely to disadvantage rural areas,

where few businesses will be able to assume these

transaction costs.

Aware of the problems that rural areas might face

in a post-divestiture environment, the Federal and

State governments took a number of actions to

alleviate some of them. For example, within a year

of divestiture, the FCC initiated a targeted subsidy

program that waived all of the monthly $2 Federal

subscriber line charges if the State contributed at

least another $2 to reducing an eligible subscriber’s

monthly bill. In addition, the Universal Service Fund

was established to reduce the impact of divestiture

on high-cost subscribers. It allocated about $180

million to high-cost areas in 1988. In April 1987, the

FCC began the Link Up America program-using

funds from charges on long-distance carriers to

contribute up to $30 towards installation fees. The

Rural Electrification Administration also provides

direct subsidies to rural telephone companies in the

form of low-interest loans. A number of States also

provide subsidies. For example, in 1983, California

adopted a Lifeline plan, according to which customers with incomes below specified levels obtain a

50 percent discount on basic local service plus other

benefits.31

While these measures may limit the negative

impact of deregulation with respect to providing

rural citizens ‘plain old telephone service,’ they are

unlikely to deal with the problem of how new

capabilities are to be deployed throughout the

network in the future. To understand the magnitude

of this problem, one must look frost at the condition

of the rural communication infrastructure as it is

evolving today.

The Rural Communication

Infrastructure

It is useful to subdivide information-age technology into information technologies, access and transA sign marking the route of AT&T’s intercontinental cable

through Bowling Green, KY.

mission technologies, and switching and networking

technologies. It is important to note, however, that

the boundaries among them are not always clear cut,

and are eroding in the face of technological

change. 32

Information technologies allow individuals to

store, process, and reorganize data into a more useful

form. Examples include computers, modems, facsimile machines, and answering machines. Access

and transmission technologies are the means by

which individuals can transmit or receive information from other individuals or information systems.

Some examples are cables, radio waves, and satellites. Network technologies are the means by which

transmitted information can be managed, routed, and

 Telephone Assistance Low-Income Households: A 

CA: Rand 1988).

 of it 

increasingly to distinguish between the functions of switching and sion. See “The Evolution of Transmission Systems

for the Next 10 Years,” Telecommunications, Aug. 10, 1987. Some noted by the author are statistical multiplexer, digital 

systems, concentrators, and switches with built-in optical interfaces such as DS3. See also, A.M. 

Boundaries That Have Outlived Their Usefulness,” Telecommunications, June 1987, p. 8; and Richard Solomon, “Broadband With 

the Sum Is Always Greater Than the Parts,” Networks, vol. 5, No. 2, Sept. 5, 1987.
Chapter .&Rural America and the Changing Communication Infrastructure ● 67

interconnected. These include, for example, switches,

bridges and routers, local area networks (LANs), and

signaling systems.

Information Technologies

Information technologies encompass a vast array

of storage and processing devices. The most important is the personal computer. In 1989, there were

16 million personal computers deployed in business,

20 million in residences, and 2 million in the

educational and scientific communities.33

Computer applications are also multiplying rapidly due to increased storage and processing capacity 34 dispersal of intelligence thoughout communication systems,35 as well as digitalization and

the convergence of media. 3G According to one

estimate, by 1993, office workstations will be able to

handle 32 million instructions per second; have

16 megabytes of random access memory, and cost

approximately $350.37 Given such performance/

price improvements, market analysts expect that, by

the early 1990s, the total number of computer

workstations in Europe, Japan, and the United States

will surpass 100 million.38 Many of these will soon

provide multimedia access at the desktop39 (see box

3-A).

Rural areas have been much slower than urban

areas to adopt information-age technologies.40 There

are a number of reasons for this lag. One is cost.

Even when the price of customer premises equipment is not excessive, the cost of network access and

transmission can be prohibitive. To access major

databases, or to network their computers, people

living in rural areas generally have to make long

distance calls. In urban areas, this is often not the

case.

41

The poor quality of the rural infrastructure also

inhibits the use of information technologies. As

discussed below, in many rural areas the communication infrastructure is still unsuitable for simple

data transmission. With faster speeds and more

powerful applications, the need for a high-capacity,

high-quality infrastructure will be even greater.

CAD-CAM applications, for example,require broadband capacity of 45 megabits per second.

The lack of technology awareness and expertise

also helps explain the low levels of computer

ownership in rural areas. Rural people who own

computers have more education, income, and professional experience than those who do not.42

Although information technologies are becoming

%lark C’OOpCT, Expanding the Information Age for the 1990’s: A Pragmatic Consumer Analysis, written for the Amerim Aswktion of Re~~

Persons and the Consumer Federation of America, Jan. 11, 1990, pp. 15-16.

34A ~tic. factor ~ this ~g~d~~enthe ~pid ~v~~es ~ficmelw~onicsr~~ting from the development of vq~ge wale integration (VLSI).

VLSI allows the placement of over l(f logical operations on a single integrated circuit chip, and this number is doubling every 18 months. Given this

level of integratio~ communication within computms~tie plme much more rapidly and efflcientl~ bits no longer have to travel between chips over

shared buses when the source and destination both reside on the same chip. Over the past 20 years, chip densities have increased several orders of

magnitude. See, foradiscussio~ Debra Estrin, ‘Communication Systems for An Information Age: A TWm.ical Perspective,’ ccmtractorreport prepared

for the Office of lkchnology Assessmen~ December 1986.

ssMore ~d more system ~e~o~defm~ @~venbysoftw~e. This development will -efu~ communication t6?ChL1010@eS ~d SySt~

more flexible and more versatile. See, for a discussio~ U.S. Congress, Office of ‘lkchnology Assessmen4”Cn.tica/ Connections: Communication for

the Future, OTA-CIT-407 (Washington DC: U.S. Govemment Printing (Xtlce, January 1990), ch. 3.

36A C&ew@Brmd~ d~~~ ~ Phenomenon ‘ ‘wi~ digi~~on ~ of them-~ome ~l~bleinto each other-computerbits tll@k.

merrily-and they escape from their traditional means of transmission. A movie, phone call, letter, or magazine article maybe sent digitally via phone

line, coaxial cable, fiber optic cable, microwave satellite, the broadcast air, or a physical storage medium such as tape or disk. If that’s not revolution

enough, with digitalization the content becomes totally plastic-a.nymessage, soun~ or image maybe edited from anything into anything else.” Stewart

Brand, The iUed.a Lab: Inventing the Future at MIT (New Yor~ NY: Penguin Booka, 1988), p. 19.

37Denis Gilhooly, “Welcome to a Future Where Less Is More,” Communications Week, CLOSEUP, Sept. 4, 1989, p. C4.

38fiid.

39AI~ou@ ~afly in its infmcy, the multim~ industry is growing rapidly and expeeted to constitute a $7 billion tiet bY l%.

*nDillrnan et al., for instance, showed that people living in Washington State’s rural counties tended to own fewer information technologies that

might be used in business applications. Don Dilhn~Lesli Peterson Scott, aud John Alle~ TeJecommmu nications in Wmhington: A Statewide Survey,

for the Joint Select Committee on ‘lkIecommunications of the Washington State Legislature, Social and Economic Science Research Center, W-n

State Univtxsity, ~WA January 1987, P. 17.

A similar study by cMford Schera COmpti compubr OWXIerShip in metroWlitan and nonmetropolitan New York. It found that 18 percent of the

people living in metropolitan counties owned computers as compared to 14 pereent in nonmetropolitan counties. Clifford Scherer, Data Book: A Study

of New York State Restienttiem%g Inforr.nationfor Daily Living, Department of Communication Cornell University, I- NY, 1988.

AIPa~ yartiou~ “~omtionTHI.I.IOIOg and Rural Economic Development: Evidence From Historical and Contemporary R~h”

contractor report prepared for the Office of ‘lkchnology Assessment May 1990.

421bid., p. 22.
68 ● Rural America at the Crossroads: Networking for the Future

Box 3-A-Computer-Aided Design

Computer-aided design is becoming the norm for

businesses to efficiently design and test products

and design and monitor the machines and factories

that make and assemble the products. With the help

of computers, designs for buildings, machines,

consumer products, semiconductor components,

etc. are electronically simulated and tested. CAD/

CAM (computer-aided design/manufacturing) replaces the construction and testing of actual models.

Because designs are stored in electronic form rather

than on paper, they can be quickly and easily

updated and transferred.

Integraph Corp. recently introduced a product,

the CAD Conferencing Module, that permits people

at as many as eight different locations to simultaneously view and edit computerized blueprints and

designs. Engineers and designers, for example, can

simultaneously and interactively work in real time

on a file with each other or with a client. The

electronic blueprints are transmitted and loaded into

each of the separate workstations so that they can be

called up during the networked conference to be

viewed and edited. Modifications to the still-frame

image, such as zooming or highlighting features, by

one person are registered at all the participating

workstations. This conference arrangement expedites the design and engineering process by minimizing the encumbrance of mailing blueprints back

and forth, and increasing the communication between the firms’ various departments.

SOURCE: Charles Bruno, “Intergraph Ushers in CAD Conferencing ErA” Network World, Nov. 12, 1990, p. 37.

more user-friendly, the difficulties entailed in linking technologies and systems will likely continue to

discourage use.

Access and Transmission Technologies

Access and transmission technologies transport

information among and between other users and

networks. They may provide point~to-point interconnection, as in the case of the telegraph and the

telephone; point-to-multipoint interconnection, as in

the case of radio and television; or multipoint-tomultipoint interconnection as in the case of bulletin

boards, electronic mail systems, and local area

networks (LANs). These technologies can have

either one-way or two-way capabilities.

Telephony

Telephony is by far the most important and

ubiquitous two-way medium for transmitting information. There are today, in the United States, over

1,300 telephone companies and a total of 130

million access lines. The top 25 companies account

for 90 percent of the access lines. The Bell telephone

companies serve about 80 percent of the market with

about 50 percent of all central offices. The remaining

companies are quite small by comparison.

A wide variety of new and more specialized

service providers have emerged since divestiture.

For example, some providers, such as Telenet and

Tymnet, sell packet-switched data communication

services .43 Other carriers specialize in high performance, point-to-point T1 service.44 And others, such

as Teleport and Metropolitan Fiber Systems, provide

metropolitan area networking (MAN) services. Many

private businesses have also taken advantage of the

unbundling of the communication network and the

availability of a wide range of new, advanced

products to develop their own communication systems.

In rural areas, about one-half of all service is

provided by small independent telephone companies, with the Bell operating companies (BOCs)

providing 53 percent.

45 Few, if any, Of the larger or

more specialized providers are trying to enter or

develop rural markets. Given a highly competitive,

post-divestiture environment, they are focusing their

efforts on the more lucrative business market,

generally to be found in urban areas. The regional

Bell operating companies (RBOCs), for example,

have been concentrating on the deployment of their

switched multimegabit data service (SMDS)46in an

effort to forestall bypass by alternative providers.

dsPacket-switching makes efficient use of a transms“ sion channel. It breaks messages up into small bundles, or packets, each of which carries with

it its own address; then interleaves them on a channel, taking advantage of the “silences” present in the information strearq and f~y routes them

throughout the network to their destination where they are reassembled.

44T1 chits Owrateat 1.5Mmegabifi Wr second and consist of 64 kilobits persecondvoiceor daw plus aframing bit. For adetiption we, victo~

A. Browq “T1 Networking and Open Systems,” Telecommunications, January 1989, p. 56.

45= Provid= fiv=~mt ~d f~cti data for over gOO @ telephone comp~es serving over 5 million customers in very thin markets. This

data is considered for the purposes of this report to be representative of “rural” subscribers.

*SMDS is a high-sp~ fast packet. switch~ service provided in a campus type arrangement SihMd Within a 5&tie mdius.
Chapter 3-Rural America and the Changing Communication Infrastructure ● 69

The RBOCs’ early ISDN trials were also conducted

to the same end with large business users located in

metropolitan areas. 47 This urban focus means that

even when rural businesses are large enough to

economically justify the delivery of advanced services, they are often the last to be served. This can

have a spiraling effect, since businesses sometimes

will not locate in rural areas for lack of an adequate

communication infrastructure.48

A comparison of the circumstances under which

urban and rural telephone companies operate illustrate some of the problems of providing service in

rural areas. Costs are higher in rural areas because,

with low-density populations and low-volume traffic dispersed over large areas, costs are harder to

share. The Bell companies, which serve primarily

urban areas, have about 10,000 lines per central

office, whereas REA borrowers-generally the smallest of the independents-average only 2,500 lines

per central office.

Moreover, whereas Bell companies have, on

average, almost 130 subscribers per route mile of

outside plant, REA companies average only 6.49 In

addition, the average length of a large company’s

subscriber loop (the wire between the central office

and the user’s premises) is about half that of REA

companies (10,787 v. 20,330 feet) .50 The Bell

companies also have many more higher paying

business access lines than rural companies. Not

surprisingly, revenue per line for small companies is

$682 per year or $56 per month, as compared to $757

per year, or $63 per month for large companies. If

rural telephone companies did not have significant

cost efficiencies relatively to large companies,51 

or

access to low-cost financing through REA, the gap

between urban and rural telephone revenues would

likely be higher.

The quality of rural access is also inferior to that

in urban areas. Poor quality stems, in part, from the

number of multiparty lines still found in rural areas.

Multiparty lines cannot transmit data because of

possible interruptions. Although their number is

declining, multiparty arrangements are much more

prevalent in rural areas than in urban areas. In 1987,

multiparty lines accounted for only 1.2 percent of

Bell access lines as compared to 7.4 percent of

independent telephone companies’ access lines.52

Long local loops also diminish the quality of rural

access. When loops exceed 18,000 feet, they require

special treatment to maintain the quality of voice

transmission. Loading coils are used, for example, to

reduce voice frequency attenuation and range extenders are used to amplify a distant voice signal.

But these treatments limit the usefulness of the line

for data. Loading coils, which are present on about

40 percent of all rural subscriber loops, introduce

delay distortion that limits data transmission to a few

hundred bits per second. And range extenders may

garble data, requiring retransmission.53

Advances in technology are helping to reduce the

costs and improve the quality of access in rural areas.

One important development has been advances in

loop plant technology. Of great importance has been

the introduction of the serving area concept in

current plant designs. This design was first introduced by the Bell System and adapted for use in rural

areas by REA companies in the mid- 1970s. In

accordance with this design, logical groupings of

subscribers are arranged so that they can be served

by relatively short and large pair-size distribution

dTCmoI Wilson, “pacBe~ Launch= Primary Rate ISDN,” Telephony, Dec. 10, 1990, p. 11.

~For Such fi~ces, see Teleco~nicatiom and Rural Econo~”c Development (Rdondo Beach CA MESA COXSul~, et. 30, 19$0.

49u.s. Department of Agriculture, “1988 Statistical Repoz Rural lklephone Borrowers,” REA Bulletin #300-4, 1989.

~g~ op. cit., footnote 28.

sl~e mason for the-companies’ relatively low costs is the savings from arrangements to share large company toll facilities and traffic and billing

Systems. Thus, these operations are treated as operating expenses, while the same activity for a large company may rcquim capital outlays. Nevertheless,

even operation and maintenance expenses per line are consistently and significantly lower for smaller companies. Large companies have a more mobile

access line base, and service quality on their loops tends to be higher (while their loops are shorter). Moreover, labor costs for both craft and management

functions are much smaller for rural telephone companies.

WMwin B. parker, RUral America in the Information Age: Telecommunications Policy for Rural Development &anharq MD: University Press of

Americ~ Inc., 1989), p. 69. The actual number of multiparty lines may overestimate the number of p~~ or f- for whom such service is a hindrance.

Many customers with multiparty lines do not use them for data transrm.ssion and may voluntarily choose multiparty lines over single-party lines in order

to pay lower rates.

53EWop. cit., footnote 28, P. 47.
70 ● Rural America at the Crossroads: Networking for the Future

cables from an intermediate field location called a

Serving Interface Point.54

Two significant developments in loop technology—

the introduction of loop carrier systems and digital

remote electronics and switching technology—

helped implement this design. Loop carrier systems

concentrate access lines by combining many customers into one or more shared trunks. Previously,

each customer needed a dedicated (nonshared) loop.

The introduction of digital switching reduced the

amount of dedicated loop plant by allowing remote

nodes to be connected to the host digital switch.

The deployment of fiber optics will also greatly

improve rural access. Fiber optics generally provide

more capacity, reliability, flexibility, and functionality than existing metallic cable. With minimum

transmission loss, fiber allows more signals to travel

over longer distances with smaller numbers of

repeaters than does copper wire.55 Thus it can

support new broadband applications such as video

telephony, multi-media services, and very high

speed data services (see box 3-B). Already, commercial systems have been developed that transmit

1.7 billion bits of information per second on a single

pair of glass fibers, an amount equivalent to 24,000

simultaneous phone calls. And the capabilities of

lightwave transmission are doubling every year, a

trend that is likely to continue for at least a decade. 56

Constraints on the deployment of fiber are clearly

economic, not technological. Although fiber is

increasingly being used for interoffice trunk lines.

and even in some local loop facilities for business

users, it will not likely be extended to the home (with

the exception of new construction) for a number of

years.57 Fiber lOOp systems are still uneconomica1

for most of the residential communities; splicing and

cabling costs are still high.58 The residential demand

Box 3-B—Fiber Optics

Fiber optics: Changing communication

This new technology uses light pulses traveling though glass fiber to

transmit Information. Conventional telephone cable uses electricity

traveling through copper wire.

What it’s made of Why it’s better

■ Light can travel much

I Glass core where Light farther before a costlv

light pulses travel . pulses amplifler is needed to

/., boost the signal. , . ,

■ Optical fibers can carry . more information. I ■

fibers can 

3.5 million ■ A conventional 3-inch-thick cable conversations. contains 1,200 pairs of copper wires.

It can carry 14,400 telephone conversations,

SOURCE: Judy Knight-Ridder Tribune News, adapted

from Popular Science World Book Encyclopedia, and The of 

for fiber in the local loop also remains uncertain;

most residential service can be provided through the

existing network, or as in the case of video services,

through alternative distribution channels such as

cable TV and videocassette recorders.59

The deployment of fiber will be driven by

business demand. It is cost-effective for businesses

 to the 

and distribution cables to the SIP points. op. cit., footnote 28.

use of single mode fibers and coherent schemes. op. cit., footnote 34, p. 17.

 199@” p. 

Computing,” June 26, 1986, pp. 83-89; and op. cit., 34. the use of laser systems and wavelength division

multiplexing on a single fiber will push transmission capabilities into the range of 20 per second. With wave eaeh 

optic cable can accommodate multiple channels by assigning data stream a different wave length or color.

 one see Robert “Through the Looking Glass: Integrated Broadband Networks, Regulatory Polities, and Institutional

Change,” working paper No. 24, Federal Communication of Plans and Policy, 1988.

 of are focusing on the intermediate step of delivering 

 discussions, see Graham “The Disciples of Fiber,” and Graham “Lighting Up the Loop,”

Telecommunications, January 1989, pp. 31-32,37-38, and Lloyd F. Brisk, “Neighborhood Fiber: Putting a Laser in Everyone’s POTS,” Telephony,

Feb. 20, 1989, pp. 27-28.
Chapter 3-Rural America and the Changing Communication Infrastructure . 71

to adopt fiber long before residential users, because

they typically share network facilities among a

number of telephones. However, rural businesses

may be unable to drive demand because they are

generally too small in size. To have such an impact,

they will need to pool their demand, either with other

businesses or other large users within a community.

Cable Television

Cable television is an important one-way communication system serving rural areas. The Community

Antenna Television Association (CATA) estimates

that cable penetration (homes passed) in rural areas

is higher than in urban and suburban areas [about 60]

percent). However, while the actual subscription rate

in nonmetropolitan counties may be higher than in

metropolitan counties, communities with fewer than

3,000 residents had a subscription rate of only 46

percent compared to 69 percent for more populous

places in the same County.60

Cable is valuable to rural households as a source

of entertainment and access. Cable television can be

accessed using wire or satellite. In urban areas,

access is almost exclusively through coaxial cable

provided by a cable company. In rural areas it is

available primarily through coaxial cable, with

10 percent of it provided by satellite. To gain access

via satellite, rural residents must buy a television

receive only (TVRO) satellite dish that costs between $750 and $1,800.61 Ownership ranges from

6 percent in the open country to 11 percent in rural

mountain areas.62

One-way communication systems, such as cable

TV, are less important to rural businesses because

they do not presently support the information

exchange required in most business communications.63 They are, however, being used in the public

sector, especially in schools (see box 3-C).

Box 3-C—Berks Community Television

Berks Community Television (BCTV) was created in 1977 as a nonprofit organization, supported

by the citizens of Berks County, PA, and its largest

city Reading (famous for the railroad to which it

lent its name), to provide “to the community the

best possible educational and informational programs. ” The programs are organized and produced

by volunteers. Its programming is fed into the cable

system and delivered as a regular subscriber channel.

In contrast to larger regional or national formats,

BCTV uses television as a live, two-way, interactive medium that depends on audience participation

and feedback. For example, BCTV, through a series

of National Issues Forums raises relevant issues,

such as the day-care dilemma and drug crisis, while

permitting and encouraging home viewers and the

studio audience to actively take part in the discussion. In addition, community agencies, such as the

chamber of commerce, county bar association, and

hospitals and medical firms, use BCTV “to continue their outreach, information, and referral services. ” Productions can be organized at two different

locations and shown simultaneously on split screen.

SOURCE: Berks Community ‘Iklevisio~ Reading, PA.

Nonwireline Media

In remote areas, where the cost of providing

wireline service is prohibitive, microwave, radio and

satellite technologies can be used to provide less

expensive access to communication services. With

technological advances, these technologies provide

services that are increasingly comparable to wireline

service.

Microwave has long been a mainstay in telecommunications network technology. Historically, its

primary use was high-capacity, long-haul toll service, and it will likely continue to be important in such

~ga op. cit., footnote 28, p. 57.

61 Joseph N. pelto~ “satellite Communication for Rural and Remote Appli~onsin the Unitd s~t~,” contractor report prepared for the Oflice

of Tkcbnology Assessment, December 1989, p. 13.

G~~rou@, op. cit., footnote 41, pp. 45-46.

Gs~e CO- cables used for CA~ tmnsmissions Cm h-t very wideband signals; this fac~ plus the fact that a majority of U.S. residences am

passed by CATV systems, has generated much interest iu the use of cable television technology to offer services beyond one+vay video progmmming,

including tw~way switched voice and data. The attractiveness is clear: aside fi-om the wide availability of CATV service, the cable medium is relatively

inexpensive, and electronic interface equipment for subscrikr applications is also inexpensive to design and produce. There are, however, a number of

regulatory concerns surrounding the issue of CATV-based local exchange telephone service, and cable companies have been slow, if not reluctan~ to

move in these new directions. Dale llattiel~ “Information Age Technology and Rural Economic Development” contractor report prepared for the

Office of Technology Assessment, October 1989, p. 23.
72 . Rural America at the Crossroads: Networking for the Future

.

L

Box 3-D—Digital Radio Service

In the United States, the International Mobile Machine Corp. (IMM) has developed a wireless digital radio

service called Ultraphone, which is now being used to provide telephone access in a number of remote rural areas.

As of the end of 1989, IMM had installed approximately 40 Ultraphone systems serving about 15,000, mainly rural,

customers.

A digital radio transceiver at the customer’s premises encodes the analog voice to digital format to be

transmitted through the radio waves (rather than through the more traditional terrestrial copper or fiber-optic wires)

to the Radio Carrier Station, where the signal is then routed to the central office switch and along the public-switched

network

Radio telephony is particularly advantageous for rural areas where the expense of extending wires to the

customers—which may involve digging trenches, clearing rights of ways, or crossing difficult terrain-can become

prohibitive. It is thus especially useful when extending service to only a few, widely dispersed customers. Another

inherent advantage of wireless technology is that telephone companies have much greater flexibility in adding on

additional customers and reconfiguring their facilities than with conventional cable routes/kind lines.

Digital radio also has a number of advantages over analog radio:

. greater degree of security because of more complicated encoding schemes for the digital transmission,

. digital transmission is inherently better suited for handling data transmission,

● greater ability to operate in the presence of interference,

. higher capacity,

. time division multiplexing conserves spectrum and reduces costs because less base-station hardware is

required to support a given subscriber population, and

. ultraphone is software-based and thus more open to further technological improvements.

SOURCE: George M. CalhoU “Wireless Access and Rural Wlecommunications,” con@actor report prepared for the Ofllce of ‘Rdnology

Assessment 1990.

markets. Recent technological advances in micro- Like microwave, radio technology relies on the

wave, as well as increases in the usable spectrum for electromagnetic spectrum and has long been used in

telecommunications, have made it a popular tech- various forms for telecommunications and broadnology for high-capacity, short-haul applications. casting services. Its use in providing basic rural

Microwave is used for both digital and analog service has only recently been approved by Federal

services. regulators, who must approve all private uses of the

spectrum.64 This technology is sometimes referred

One of microwave’s advantages is its relatively

low construction costs for rural applications compared with other technologies. Unlike terrestrial

wireline technologies, it does not require placement

of physical cable plant, usually the highest component of deployment costs. Rooftops, hills, and

mountains can often provide an inexpensive base for

microwave towers. Unit costs of microwave service

are also falling, as more high-powered systems

expand the usable spectrum. Very small capacity

systems with only a handful of circuits are also now

available. One major disadvantage of microwave is

that it requires line-of-sight of the transmission path

and is subject to electromagnetic interference.

to as the “wireless loop,” and its immediate

advantages in terms of speed and ease of installation

are clear since there is no requirement for placing

physical transmission plant. The term “radio” in

this case refers to certain frequencies assigned to the

service that are distinct from those assigned microwave toll service. As an over-the-air technology,

radio service supports both analog and digital

applications and has the same relative advantages

and disadvantages as microwave (see box 3-D).

Unlike microwave, rural radio provides short-haul

telecommunications, and requires different power,

performance, transmission, and reception capabilities and devices. Digital radio systems capable of

carrying four DS3 lines-each with a capacity of

~D~~entsfiled in FCC CC Docket #86-495 (BETRS) provide detailed information on this service.
Chapter 3-Rural America and the Changing Communication Infrastructure ● 73

Figure 3-l—Evolution of VSAT Technology

First generation Second generation Third generation I I

Pre-1 980 1980 I 1983-84 1985 I 1987

The evolution of very small aperture terminal (VSAT) technology: three generations.

SOURCE: Art by permission of magazine.

45 megabits per second—are expected to be available in the early 1990s.65

Clearly the most advantageous feature of radio

technology is its low cost in rural service applications. Unlike wireline service, its cost is based on

total demand rather than on population density.

Thus, whereas it can cost, on average, $10,000 per

subscriber to provide access lines via copper wire,

the average cost of digital radio is about $3,000 per

subscriber. According to present estimates, rural

radio service is now the most cost-effective option

for serving about 900,000 remote subscribers who

do not have service at all, or whose service upgrades

using other technologies are not cost-effective.66

The idea of using satellite systems to provide

low-cost communication services to isolated areas is

not new.67 In the United States, the Alascom

Satellite operating through the Aurora satellite

system has served to meet the communication,

health, educational, and entertainment needs of the

people of Alaska for two decades. In addition, over

25 developing countries have leased capacity on the

INTELSAT satellite system to meet their domestic

communication needs. A number of countries—

including among them Brazil, India, Indonesia, and

Mexico-have deployed their own satellite systems.

Advances in satellite technology will lead to even

greater rural applications in the future. The development of very small aperture terminal (VSAT)

technology has been particularly important in improving performance while reducing costs (see

figure 3-l). The mobile satellites being designed

now for launch in the early 1990s will carry

sufficient power to enable the use of a large number

of small, mobile terminals on the ground.68 Portable

units will be self-contained and lightweight, capable

of fitting on a company or family car. They will

allow users to link up with private networks or the

public telephone network to access a variety of

services, including voice, data, facsimile transmission, and computer-to-computer communications.

Many businesses are shifting from wireline to

VSAT technology (see box 3-E). VSATs are particularly cost-effective when businesses need to communicate with remote sites. Thus many major corporations-e.g., Chrysler, Nissan, Toyota, K-Mart, Thrifty

Stores, and Frito-Lay-are using VSATs to develop

wide area networks (WANs). Hughes Network

 Calhoun, “Digital Radio Technology and Rural Economic Development” contractor report prepared for the of Technology

Assessment, October 1989.

 a see Joseph “Satellite and Rural Economic Development,” contractor report prepared for the Office of

 Assessment, October 1989. See also, S.S. Kamal, “Advanced for Rural Applications, ” Communications,

October 1989, pp. 21-23.

“ ‘Third-Generation’ Technology Fuels Growth,” Telecommunications, September 1990, pp. 29-34.
74 ● Rural America at the Crossroads: Networking for the Future

Box 3-E—VSAT Technology

As the technology for very small aperture terminals (VSATs) develops and their costs decline, many companies

are finding that VSAT networks are more advantageous than terrestrial networks for the transmission of large

amounts of data between widely dispersed locations. A $200 million industry in 1988, markets for VSATs are

expected to now exceed $1 billion. VSATs' “inherent performance advantages [include] fewer discrete points of

failure, simpler network deployment, more flexible network configuration, and simplified network management.”

The technology is proving especially valuable to manufacturers and retailers, such as Chrysler, K-Mart, Thrifty

Stores, and Frito-Lay, with many retail and plant facilities spread over large areas.

Smaller companies that cannot afford to install their own systems can take advantage of shared-hub networks.

For example, Terra International, Inc., based in Sioux City, IA, recently chose a shared-hub VSAT network to

connect its outlets spread throughout the country with its centralized computer center, which provides an array of

business support applications. Terra, which manufactures and sells agricultural products, cites a reduction in

communication costs in excess of 25 percent since VSAT was installed in 1989. Another benefit is increased

reliability of the transmission of data. The VSAT network eliminates the need to deal with many phone companies,

each with different pricing structures and technical capabilities.

SOURCES: “VSATS: Far-Out Communications for Remote Sites, ” Telecommunications, September 1990, p. 37. Tariq _ “ ‘ThirdGeneration’ lkchnology Fuels VSATGro@” Telecommunications, September 1990, p. 29.

Systems is planning to provide leased WAN service terns were deployed 20 years ago. In the 1970s, when

to businesses from a shared hub facility.69

Switching and Other Networking

Technologies

The value of information and communication

technologies is greatly enhanced to the extent that

they can be networked together, allowing information to be efficiently routed from place to place. A

number of technologies support networking by

performing interconnection, switching, routing, and

signaling functions. Included among these, for

example, are, switches,70 bridges and routers,71 local

area networks (LANs), signaling systems,72 and

intelligent peripherals.

Network technologies have advanced greatly over

the past several years as a result of digital processing. The first computer-controlled switching sysadvances in integrated-_circuit technology permitted

the creation of a solidstate exchange, telecommunications providers began to deploy all digital switches.

Today, approximately 98 percent of all AT&T

switches are digital.73 With respect to the regional

Bell operating companies (RBOCs), approximately

55 percent of Ameritech’s central offices are digital,

66 percent of Bell Atlantic’s, 62 percent of Bell

South’s, 47 percent of Nynex’s, 43 percent of Pacific

Telesis’, 27 percent of Southwestern Bell’s, and 32

percent of US West’s.74 For the RBOCs’ projected

deployment of SSI and ISDN see figure 3-2.

With the deployment of even more powerful

microprocessors, faster computing speeds, and larger

memories, it is possible to locate intelligence not just

in the central office switch, but also at nodes

throughout the network. Because these “intelligent” nodes can communicate in real time with one

@Paul J. Nichoison, ‘The Hughes Network Systems Shared Hub Facility at Spring Creek NY,” Telecommunications, September 1990, pp. 69-70.

~A switchcm~ defm~ as “mcansof ~locatingreso~~p~,bandwid~ or time-to people or ~chinCsthXUSethemSOUrWtOcommunic*

at a distance. ” As quoted in Ivan T Frisch ‘‘Imcal Area Networks versus Private Branch Exchanges,” Telecommunications, November 1988, p. 24.

71 Bridges and rou~rs are devicm to intercomect networks. See for a discussion William Stallings, ‘Wemetworking: A Guide for the p~lex~”

Telecommunications, September 1989, pp. 25-30.

72Si@@ systa perfOIIII Supervisory functions, a&essing functions, as well as information support functions. h previous Systems,siinforrnation was passed together on the same channel as a message (called in-band signaling). This method was less efficient. It used up capacity and

precluded the modification of calls, once in progress. However, with Signaling System 7, it is now possible to provide out-of-band signaling, which

allows for a much more flexible and intelligent network. Abdi R. Modarressi and Ronald A. Skoob, “Signaling System No. 7: A ‘IMorial,” IEEE

Commum”cations h4agazine, July 1990, pp. 19-35.

731~ M. ROSS, K~ote Address for Publication in the Conferemx~“ s of the 1988 Bicentennial Engineering Conferenm, Sydney, Austral@

Feb. 23, 1988, p. 12.

‘fdAc~N@ to the ~rnp~~’ filings with the FCC in late 1989 for rate-of-return reproscription. Personal coInInUni@iOnwith StiWil-,

Bellcore, Feb. 13, 1981.
Chapter Rural America and the Changing Communication Infrastructure ● 75

Figure 3-2—Regional Bell Operating Companies’ Central Offices: Present and Projected

1,600

1,200

800

400

0

Central offices

L

Ameritech Bell Atlantic BellSouth Nynex Pacific SW 

L

Bell US West

Telesis

1990 1994

SS7 central offices 

ISDN central offices 

SOURCE: Carol Wilson and Czatdana Inan, “LECs Flatten Spending, Feast on Fiber,’ r Telephony, vol. 219, No. 26, Dec. 17, 1990, p. 42.

another, as well as with other networks, communication based on this kind of architecture offers greatly

enhanced flexibility-they can respond quickly to

network problems and to changes in user demand,

optimize network capacity, and ensure greater system and service reliability .75

Fast packet-switching is an important development in this regard, and it will provide the basis for

shared networking. Like conventional packetswitching, fast packet-switching makes optimal use

of a transmission channel, but it does so with even

greater speed and flexibility. Whereas conventional

packet-switching is suitable for data only, fast

packet technology can be used to switch voice, data,

and images in an integrated fashion. Also, fast

packet-switching can transmit hundreds of thousands or millions of packets per second, while

conventional ones operate at a rate of only a few

thousand packets per second (see figure 3-3).76

This dispersal of intelligence throughout communication systems is well illustrated in the intelligent

network.77 Using intelligent switches and databases,

 Richard B. Control The Brains Behind the Intelligent 

 1987, p. 13.

 David P. “Fast Packet Switching: Telecommunications, 1988, p. 68; and 

“Fast Packet Switching: A November 1988, pp. 65,67-68,7072, and 76.

 not new. It was conceived by AT&T divestiture a of 

 and private virtual networks. Since divestiture, both AT&T and Bell Communications R with the cooperation of

other vendors, have been conducting and development in this area. However, the development of the intelligent network has been much slower

than was originally anticipated. Initially, to develop the intelligent network in stages-Intelligent Network/l which was 

for completion in 1991 and the Intelligent Network/2 (N/2), which was cast as the network of the Designed to be even more flexible than N/l,

N/2 would allow services to be provided in a variety of physical network under the control of many different entities. January 1989,

however, adopted a revised, more staggered and postponed the development of the Advanced Intelligent Network (equivalent to an

 version of N/l, often referred to as until a delay of 4 years. See for a Robert “Bells ‘Intelligent Network’

Could Be Delayed Until 1995,” Communications Week, Feb. 20, 1989.
76 ● Rural America at the Crossroads: Networking for the Future

Figure 3-3—Fast-Packet Switching (Hello Central)

In the fast-packet systems, you don’t Fax

have to hold the line open. Data are

separated into tiny packets, assigned machine

a sort of ZIP code and routed

individually via any number I

I of paths, then reassembled

at the receiving end.

Fax

machine

Personal

computer

Modem

Telephone

Data Packets Local area I network 

Video 

data n -

SOURCE: Copyright 1990 by The New York Times Co. Reprinted by permission. l \

together with common channel signaling, the intelligent network allows network control functions to be

separated from network switching functions.78 This

capability permits the network to select the most

appropriate services and optimal routes, and to

introduce new value-added services via simplified

and modularized software. Among the services that

the intelligent network can provide are dynamic call

routing, call forwarding, call queuing, credit card

billing, reverse charging, control of calls based on

data held in a central database, wide area Centrex,

and virtual private networks.79 A description of the

basic components comprising the intelligent network, and a discussion of how they are joined to

provide intelligent services, is provided in box 3-F.

Intelligent networking technologies are also being

used to create a wide variety of special purpose

communication networks. In the past, one telecommunication network existed to provide universal

service to all users. This arrangement was quite

suitable, as users’ needs were very similar and the

services that could be offered were relatively limited. Businesses, for example, used the telephone for

voice communication in much the same way as

households did.

Today, this is no longer the case.80 For many

businesses, transmitting data now represents a more

significant cost item than transmitting voice, and

their data traffic is growing at a rate of 40 percent or

 William “Multiplexing With Intelligence,’ February 1988, pp. 73-74 and

79; see also E. “’he State of the Intelligent Art,” Telecommunications, February 1988, pp. 47,52, and 57.

 op. cit., footnote 37, p. 

 pointed out: emergence of technological and operational alternatives undercut the economies of and scope once offered

by the centralized network. In the sharing a standardized solution was more acceptable to users because the consequential loss of choice was limited

and outweighed by the benefits of the of scale gained. As the significance of telecommunications grew, however, the costs of 

standardized solutions began to outweigh the benefits of economies of scale, providing the incentive nonpublic solutions. Furthermore, some 

began to employ a differentiation of telecommunication services as a business strategy to provide an advantage in their customer’s eye. Therefore they

 sought a customized rather than a general communication solution.”Eli M. “The Future of the Public Network: From the Star to

 Matrix,’ March 1988, pp. 58-59, 65, and 90.
Chapter 3-Rural America and the Changing Communication Infrastructure ● 77

Box 3-F—The Intelligent Network

The intelligent network is comprised of four basic elements. These include:

. a Service Control Point (SCP), which consists of a centralized database that uses algorithms and customer

instructions to route messages;

 a Common Channel Signaling System (CCS7) that provides out-of-band, packet-switched communications

among network elements;

. a Service Switching Point (SSP) that consists of local and tandem-switching nodes designed to carry out

low-level, high-volume fictions such as dial tone, announcements, and routing. The SSP performs

functions as directed by the SCP; and

● an Operations Support System (0SS) that provides for network planning, engineering, provisioning, monitoring, maintenance, and repair.

How these elements relate to one another to provide

service can be seen in the figure below.

To envision how this network operates, consider what

happens with an 800 call. When an 800 number call is

generated, it is sent to the SSP, which identifies its as an

800 call. At this point, the SSP sends the number, together

with other information about the calling party, to the SCP

via the CCS7 signaling network and asks for further

instructions about how to treat the call. The SCP searches

its database, translates the received 800 number into a

standard telephone number, and returns this telephone SSP: Service Switching Point

number together with a routing instruction to the SSP, CCS7: Common-Channel Signaling No. 7

which then routes the call to its correct destination. SCP: Service Control Point

0SS: Operations-Support Systems

SOURCE: Paul Bloom and Patrick Miller, “Intelligent Network@, ” SOURCE: Art reproduced by permission of Telecommunicstions

Telecommunications, June 1987, p. 58. magazine.

more. In addition, different kinds of businesses Specialized networking has also proliferated within

increasingly have different kinds of business needs.

Thus, businesses have been quick to take advantage

of the unbundling of the communication infrastructure and the availability of a wide range of new,

advanced products to develop their own customized

communication systems. Banks and other financial

institutions have developed specialized communication services such as the Society for Worldwide

Interband Financial Telecommunications (SWIFT),

while manufacturers have developed their own

communication protocols, such as manufacturing

automation protocol (MAP). Even ‘system integrators are beginning to differentiate themselves by

providing specialized networking services.81

the scientific community. The first computer-based

message system, ARPANET, was set up in 1968 in

the Department of Defense by the Defense Advanced Research Project (DARPA) to provide communication between computer terminals and host

computers (see figure 3-4).82 Today, members of the

education and scientific communities are pressing

for the development of a more advanced communication network—the National Research Education

Network (NREN). Designed to link supercomputer

centers, this network would operate at very high

speeds, in the gigabit range.83

This kind of networking offers a number of

benefits. At a minimum it can provide electronic

 of System Communication Week, Aug. 28, 1989, pp. 

 Packet. technology developed by other agencies developed specialized networks 

communities and Meanwhile, other research-oriented networks, such as BITNET and were developed in parallel

by academic and industry users who, not being grantees or contractors of Federal agencies, were not served by the agency-sponsored network. John S.

 The Matrix: Computer Networks And Systems (Bedford, MA: Digital Press, 1990).

 issues raised by “Networking the Nation: The National and

Education expected publication date, summer 1991.
78 ● Rural America at the Crossroads: Networking for the Future

Figure 3-4--NSFNET

BARRNet

T1 beckbone network

— T3 network

 is the National Foundation’s high-speed network to mid-level regional

computer networks that support scientific research facilities throughout the By the end of 1991,

all of the backbone sites will be to the T3 network.

SOURCE: Merit Network, Inc.

mail and news services. Networks can also provide

remote processing, allowing any computer in the

network to access computer programs stored on any

other host. Network users can also gain remote

access to supercomputers to do advanced graphics,

chip design (and remote fabrication), and scientific

or economic computer simulation, and can access

remote databases. In addition, they can use the

network to collaborate with others or to participate

in computer and/or video conferences. Perhaps the

most important attribute of networks is that they can

sort out people with similar interests and bring them

together. Like the telephone and unlike the telegraph, they tend to reinforce community ties.

Local area networks (LANs), wide area networks

(WANs), and-more recently-metropolitan area

networks (MANs) are the building blocks of communication networks. LANs are relatively limited in

their reach. They generally cover the premises of a

building or a campus. Within the business community, the number of LANs deployed has recently

grown by leaps and bounds. Predictions are that, in

1992, the number of LANs shipped will reach

5,228,945, and more than half of all PCs will be

connected by LANs.

WANs provide long-haul connectivity among

separate networks located in different geographic

areas. Many businesses are using WANs to extend

and restructure their operations on a national or

worldwide basis, while at the same time gaining the

economies of scale and scope that can be achieved

by large-scale, shared networks.

WANs make use of a wide variety of transmission

media, which can be provided on a leased or dial-up

basis. WANs can also be privately owned. Recently,

many businesses have chosen satellite networks,

taking advantage of the development of relatively

low-cost small aperture terminals to link their

various offices to their headquarters facilities. General Motors is planning to build the largest network

of this kind. Scheduled for operation in 1992, it will

consist of 9,700 very small aperture terminals

(VSATs) that will connect GM locations nationwide.

Still in the field testing stage, MANs provide

switched data networking services at very high

speeds (40 to 50 megabits per second) within a

geographic area of at least 50 miles. MANs connect

LANs to LANs as well as LANs to WANs. As

designed by Bellcore, MANs will provide switched

multimegabit data services (SMDS), which will

allow users to set up a virtual (or logical) private

network, and give them access to individual services
Chapter 3-Rural America and the Changing Communication Infrastructure ● 79

on demand. These networks are optimally designed

for shared usage (see figure 3-5).

To take advantage of advances in networking,

rural areas will-at the very least—need digital

switches.84 Unlike loop technologies, the cost of

switching facilities is shared, so digital switching is

likely to be available in rural areas long before fiber

technology. According to one estimate, the total cost

of upgrading rural subscribers to digital central

office switches is about $2.5 billion, or $250 per

subscriber. 85 This is not beyond the financing capability of the average rural telephone company, even

at existing subscriber rate levels. Current REA

company total annual cash flow is over $1 billion,

and construction spending is also estimated at about

$1 billion 86

.

Figure 3-6 gives switching plant characteristics

for REA companies. Interestingly, REA companies

—while serving proportionately more of their subscribers with old step-by-step mechanical switching

technologies—have a higher proportion of lines

served with advanced digital technology (45 percent) compared to Bell companies (30 percent) and

the 10 largest independents (61 percent). This has

important implications for network upgrade decisions. On average, Step-by-Step switches are much

older than the stored program control IAESS and

cross-bar electromechanical switches that serve

many Bell access lines and therefore closer to

economic retirement. Thus, small companies may

have an advantage over large telephone companies

who must consider the financial effects of early

retirements of their embedded base of electromechanical analog and electromechanical switching

plant.

The per-subscriber costs of digital switching are

also likely to fall as the technology advances and is

used more efficiently. For example, the development

of remote digital switching modules (called Transfer

Switching Points in the context of the Intelligent

Network Architecture) now permits carriers to use

fewer expensive host switches to provide advanced

intelligent services such as access to 800 number

databases. The cost savings can be substantial. One

host switch, such as the AT&T 5ESS, costs approximately $510 million, whereas a remote switching

module will cost between $600,000 to $700,000.

Implications and Opportunities for Rural Areas

Technology Requirements and the Pace of

Technology Deployment

In an information-based economy, communication needs are relative. In evaluating a rural community’s technological requirements, therefore, it is

necessary to look not only at a community’s own

economic activities, but also at its economic aspirations and, increasingly, at the activities of its

competitors, whether they be businesses in urban

areas or in other countries.

Rural areas will be unable to compete if the pace

of technology deployment lags greatly behind that in

other areas. All indicators suggest, however, that this

will be the case. The history of the telephone, for

one, points to such an outcome: first came major

trunks linking Northeastern cities, followed by lines

to smaller towns in their immediate hinterlands, then

connections to major Midwestern cities, and so

forth-a sequence of connecting ever lower order

cities. Thus, although patented in 1876, it took 12

years for the telephone to reach Chicago, and

transcontinental service was not inaugurated until

~Di@~ switches can provide users with ~my Of c~l- management capabilities including call waiting, call forwarding, and three-way calling, as

well as newer services including caller identifkatio~ cdl trace, distinctive ring, call block call rem and preferred call forwarding. Analog switches

can be upgraded to perform some, but not all, of the callmanagement functions that are possible with digital switches.

It should be noted that both analog and digital switches can provide touch-tone service. lbuch-tone service enables the caller to conduct telephone

transactions with automated answering systems. These transactions rauge from banking to placing calls with a calling card to obtaining prerecorded

tax information from the Internal Revenue Service.

85EgW op. ci~, foo~ote 28. ~s es~te~mes 20 million rural subscribers with half already served by digiti cen~ offiw switches. A ~nt

study of switching upgrade costs for rural loops for U.S. West estimated average per subscriber digital upgrades at $300 to $500 per subscriber in one

State and $180 in another. This report also suggests that a reasonable near-term target is as low as $150 per subscriber. See Julio Molina and E. Reed

‘Runquist “Rural Network Modernization in U.S. West” draft, July 251989.

Wga op. cit., footnote 28, pp. 40-41.
80 ● Rural America at the Crossroads: Networking for the Future

Ethern

LAN

Figure 3-5-LANs and MANs

Future Metropolitan SMDS Network

Token Ring LAN

Host Workstation

m

“Access ~ Subscriber

‘‘Transport’

Network Interface

~- ‘~ \ Diverse Routing Transmission

ti=~-%etwOrk(T-3’soNET)

Workstation Host

FDDI Network

Transmission speeds are scheduled to increase in the future. Access speeds

to SMDS are planned to be T-1 (1.544 Mbps) through T-3 (45 Mbps).

Transport (on the ring) is planned to go from T-3 to the ultrafast Synchronous

Optical Network (SONET) speeds (150 Mbps — 600 Mbps).

SOURCE: Courtesy of Southwestern Bell Telephone.

1915.87 As a result, favorably situated businesses in analysis suggests that, assuming a cost of $1,000 per

the Northeast enjoyed a headstart of several decades subscriber, narrowband digital service can be delivin utilizing regional and interregional telephony .88 ered to rural areas within a 10- to 20-year timeframe.

Broadband capabilities could be delivered to busiWith deregulation and a highly competitive in- ness subscribers within 2 to 10 years, at a cost of

dustry environment, it is unlikely that the deploy- $5,000 per subscriber. It would take 10 to 20 years

ment of new, information-age technologies will for residential users to receive broadband services,

deviate greatly from this earlier pattern. One recent assuming the same per-subscriber costs.89

87~el~~m, ~p. ~i~, fw~ote z. ~~ow=, -ycomm~ties oufiide tie Nofi~t develo@ ~e~O- IOC~ ~d @ond .SyS@rOS, but fOr the

most part fhey were not effectively integrated into the larger network.

88~ tie ~me of tie telePp@ it tmk 17 Y=s to ~bo~ ~m~+ Rictid ~offdescribestie pmble~ of tie sfi town USer: “k COnCrSte t-,

telegraph users in smaller towns often found that the lines were tied up by heavy volumes of messages traveling between and within major cities. . . In

1848, an important business reply sent from Troy, New Yom to Rochester took more than 24 hours to be transmitted to Roehester, ‘solely because the

~roy] operator could not get his turn at the wires. ’...Incidents like this one appear to have been commoa and they persisted into the era of improved

instrument technology after 1870.” DuBoff, op. cit., footnote 5, pp. 269-270.

8~Wop. Cit., f~~ote 28.
Chapter 3-Rural America and the Changing Communication Infrastructure ● 81

Figure 3-6-REA Central Office Switching Characteristics

Average exchange size distribution

Frequency (borrowers)

180

150

120

90

60

30

0 400 800 1,200 1,600 2,000 2,400 2,800

Average exchange size

4,000

3,000

2,000

1,000

0

Average number of lines per central office

Common Step-by- Digital Other Total

control step

The figure on the left shows the distribution of the exchange sizes of the 900 independent telephone companies that borrow from REA.

Nearly one-third of these providers operates small exchanges, serving between 200 and 600 subscribers. The figure on the right shows

the average number of lines that each type of central office supports for the REA borrowers.

SOURCE: Rural Electrification Administration.

There is considerable disagreement as to whether

such a deployment schedule can meet the needs of

rural areas. For example, many regulators and

vendors do not view rural needs in relative terms.

Instead, they look at needs in the present, evaluating

them on an individual user, service-by-service basis.

Accordingly, they contend that the needs of most

rural businesses can be met given the evolutional

deployment of technology. From their point of view,

efforts to modernize the infrastructure should focus

on immediate problems such as assuring that all

parties have access to single-party lines, digital

switching facilities, and touch-tone dialing.

There are others, however, who believe this

assessment to be overly conservative. Citing the

growing capacity requirements needed to support

functions such as office automation with multifunction workstations, computer/aided design/computer aided manufacturing (CAD/CAM), and highspeed distributed data processing, they predict that

rural businesses, if they are to be competitive, will

need broadband capabilities within a much shorter

timeframe.

This debate is not likely to be easily resolved. At

present, there is not even a consensus about what

capabilities large business users will need, and

within what timeframe.90 Trade-offs can be made

between software capabilities and transmission capabilities. For example, with advances in compression technology less transmission capacity will be

required. However, if new applications multiply

faster than the advances in compression technologies (as might be the case, for example, with

supercomputing and multimedia technologies) bandwidth requirements will be greater. Past estimates of

future needs have been overly conservative, and

vendors have been slow to anticipate future demand.

Up until now at least, users have generally found

ways to make full use of the bandwidth available to

them. 91

Wor a discussion of the debate about broadbant see Martin C.J. Eltcq “Integrated Broadband Networks: Balancing the Risks,” COhmbia

University, Center for lkleemnmunicationa, 1989.

91As ind~try observer~m Vdovic has noted, “Current applications should not Mused as a yardstick for future bandwidth requirements. Oth@se,

it’s another variation of the ‘chick~egg’ question” the tmnsnus“ sion people won’t build the capacity unless the applications are thereto justify thenL

and the applications people won’t develop new ones because the transmission capacity isn’t available. The real truth of the -called bandwidth argument

lies in something called Deboever’s Axiom: ‘Data will expand to fdl the bandwidth available’.” ‘lbm Vtlovic, “T1, T3, and tie Nev=End@

Bandwidth ArgumenC” Telecommun ications, December 1988, p. 6.
82 ● Rural America at the Crossroads: Networkng for the Future

New Ways of Configuring Rural Networks

Together, the trends towards unbundling and

decentralized intelligence will allow rural communities to have greater choice about, and control over,

the configuration of their communication infrastructure. This is an important advantage since communication technologies define communities .92 By multiplying and intensifying contacts among people,

some communication technologies tend to reinforce

local, geographically based communities while others do not.93

Having more choice and control over their communication infrastructures is even more important as

rural communities seek to use technology to compete more effectively with urban areas for businesses

and jobs. It is not enough to improve the overall

performance/cost ratio of communication technologies. Since it takes longer to deploy technology in

rural than in urban areas, technological advances

that affect everyone equally are likely to make rural

areas worse off. What rural areas need to actually

improve their situations are technologies or technical capabilities that can reduce the urban advantage.

Thus, they will need to think about their communication systems less in terms of urban models and more

with reference to the specific set of conditions found

in rural areas.

One way of reducing the urban advantage is to

deploy technologies, such as digital radio and

satellite, where costs are relatively insensitive to

distance. Another is to finding new ways to achieve

economies of scale and scope. The trends towards

the convergence of media and developments in

networking provide rural communities a number of

new opportunities in this regard.

The convergence of communication functions,

media, and products and services will permit communication providers to spread their costs more

widely, and thus to reduce the price that users must

pay for service. With the deployment of advanced

digital switches and fiber optics, for example,

communication providers will be able to integrate

services, transmitting two-way voice, data, and

video on a joint basis. This prospect has particular

relevance in rural areas, where the cost of providing

any one of these services alone can be prohibitive.%

New economies can also be generated through

networking. As noted above, networking allows

like-minded people not only to communicate with

one another, but also to share common resources. In

so doing, they can benefit from significant economies of scale and scope. This kind of networking

could be especially fruitful in rural settings, where

people and facilities are few and far between.

Just as businesses are taking advantages of these

developments to create their own customized networks, so too might rural communities. However,

whereas many business networks are established

along functional lines, Rural Area Networks (RANs)

would be configured, instead, around the geographic

boundaries and needs of an entire community.

Designed on the basis of a ring, or campus type,

architecture, a RAN would link up as many users

within a community as possible-including among

them businesses, educational institutions, health

providers, and local government offices (see figure

3-7). Rural Area Networks could be linked statewide, perhaps by piggybacking on the State government and/or the State educational network.

Rural Area Networks have a number of advantages:

●

●

RANs would foster the deployment of advanced technology to rural areas in an economically viable manner. By pooling diverse users,

they would provide considerable economies of

scale and scope.

Built to meet shared needs, they could foster

cooperation and community ties.

92A John~w has pointed OUg communities are defined and reinforced by their communication systems. Accord@ to hey, “Society not o~y

continues to exist by tmnamissioq but it may fairly be said to exist in communication. There is more than a verbal tie between the words commom

cxmrmmity, and cmmrmnication. Men live in a community by virtue of the things they have in commo~ and communication is the way in which they

come to possess things in common. ” John Dewey, Democracy andl?ducation (New YorE NY: Macmillan Co., 1915).

g3For a -sio~see fielbowic~ op. cit., fOOtnOte 2.

m-ttiemm@tions limit the extent to which carriers and service providers can take advantage of this opportunity. To prevent mgdated

telephone companies from engaging in an anticompetitive bebavior, the Modified Final Judgmeng which gave rise to divestiture and the break up of

the Bell System, forbids them h providing “.. any product or service that is not a natural monopoly sewice actually regulated by tariff.” State

regulations, which preclude intraLAZ4 competitio~ also serve to constrain the extent to which communi cation providers can take advantage of new

technologies to create additional economies of scale and scope. lhese regulatory issues are discussed in some detail below, in ch. 5.
IChapter 3-Rural America and the Changing Communication Infrastructure ● 83

Figure 3-7—Rural Area Networks —

Schools

Is------- .-.-.. . . .

Industries

w A

IImm

Hospitals Government

and clinics offices

❑ @

Businesses Residences I kc.1 ‘--l?-d

A Rural Area Network would be designed to foster the deployment of advanoed technology to rural areas In an eoonomioally viable manner

bpoolingthe~m~ni=tion needs ofaoommunity’s many users-espeoially the businesses, educational institutions, health providers,

and iooai government offioes.

SOURCE: Offics of Technology Assessment, 1991.
84 ● Rural America at the Crossroads: Networking for the Future

Figure 3-8-Nucleus City for Nebraska

It will be economically infeasible for many rural communities to keep pace with the modernization of

telecommunications, and as a consequence many rural citizens will be further disadvantaged in securing

fundamental services such as health and education. It will therefore be necessary to identify ways to give

rural people and businesses access to these critical information highways and the services they will

support and deliver. According to this model of nucleus townships, small rural communities will be most

effectively served by concentrating on upgrading the telecommunications services of certain towns and

small cities that will “function as hubs for the surrounding immunities.”

SOURCE: Sufi University of Nebraska, and Development in Rural America:

A Case for Nebraska,” contractor report prepared for the Office of Technology Assessment, 

1990.

. RANs would overcome the limitations of

technological expertise in rural areas since they

could be designed by one systems integrator.

. RANs would induce communication providers

to be more responsive to the communication

needs of rural communities. By joining forces,

rural users will be able to exert greater leverage

in the marketplace.

The ways of configuring rural networks are as

diverse as rural America itself. Experimentation is in

order. Sufi Nazem, for example, proposed the idea of

creating nucleus cities, or hubs, throughout the State

of Nebraska, each of which could serve communities

within a 30- to 40-mile radius (see figure 3-8). As he

points out, while “it is inconceivable that all small

communities in Nebraska could be connected by the

costly network any time soon, it is not. . . inconceivable to install a high technology network for

approximately twenty-two townships. ’ ’95

The Maine Research and Productivity Center, in

Presque Isle, already serves as such a hub for small

businesses in the surrounding area.9G Among the

services that the Center provides are access to

comprehensive information services as well as a

shared CAD/CAM system. According to William

Forbes, the Center’s Executive Director, some small

business owners and operators travel 50 miles to use

the jointly owned CAD/CAM system, which would

be much too costly to purchase on an individual

basis. Because the Center is linked by a fiber

network to the Canadian research facility in Fredericton, New Brunswick, it can also provide local

businesses access to the services of this prestigious,

multimillion-dollar institution.

Bloomsburg, a business center in rural Pennsylvania, has also taken a proactive role in assuring that

its communication infrastructure can meet presentday business needs. Reassessing its communication

 nd.

 Maine and Center is a nonprofit corporation located on the campus of the University of Maine at Isle. Separate

from the University it is funded by the Maine and Commission. Its primary task is to provide assistance

to Maine industry on a fee basis.
Chapter 3-Rural America and the Changing Communication Infrastructure . 85

infrastructure in the light of its changing economy,

the town concluded that “Bloomsburg is in the

position of being a telecommunication ‘island’

without an effective bridge to the outside. ” 97

Although businesses and institutions within Bloomsburg can obtain services such as local loop T1

circuits for high-speed data, voice, and compressed

video applications, the town concluded that ‘‘connections between Bloomsburg and the rest of the

world are not economical. ’ To address this problem,

it developed-together with the Ben Franklin Partnership and Bloomsburg University-a plan to

construct and operate a high-capacity, digital ‘highway’ to Harrisburg, the location of access points to

all long distance telecommunication providers. This

will be a 45 megabit per second digital microwave

link with the capability of providing a broad range of

telecommunication transmission services such as

high-speed data, high-resolution graphics, compressed motion video, etc. Operated as a private

carrier, it will resell capacity to users within

Bloomsburg, providing them with gateway access

for voice, video, and data communication services.

The total cost of implementing the network including design and licensing, network construction, local

infrastructure enhancements, and project administration) is estimated at $800,000. The town considers this price to be modest when weighed against the

potential long-term economic benefits. Once in

place, the network would provide a broad range of

public as well as private communication services.

For example, some capacity will be used to provide

a two-way digital video and data link between

Bloomsburg University and the Harrisburg University Center.

Creatively sharing communication and information systems and services can, of course, also be

done in a smaller community, or on a much more

modest scale. In many small rural Scandinavian

towns, for example, a number of telecottages have

been established to help local residents prepare for,

and access the benefits of, the information age.

Among the kind of services provided are:

● information services,

. data-processing services,

● information technology consultancy,

● distance working facilities,

. training and Education,

. telecommunication facilities, and

. village Hall facilities.98

In some locales, these telecottages-although

they were originally set up using outside funds—

operate on a self-sustaining basis. In other places and

communities, they continue to be subsidized.

Where an adequate communication infrastructure

already exists, it is sometimes possible to piggyback

new services on it at very little cost. For example,

when two professors at the University of Kentucky,

Louisville, wanted to link the small private colleges

in the Appalachian region of Kentucky up to the

nationwide university research network, BITNET,

an agreement was reached allowing these two

faculty members to transmit BITNET via a portion

of the television network’s vertical blanking intervals. The costs to the university were minimal99 (see

figure 3-9—for other sharing schemes).

Changing User Requirements

While the unbundling of communication technologies and services now permits rural businesses and

communities to design and deploy communication

systems to meet their own particular situations and

needs, it also places on them the burden of doing so.

These are by no means easy tasks. Nor does the

average rural businessperson have the requisite

experience, skills, and resources to successfully

undertake them.

Under the old Bell System, few were required, or

even inclined, to explore their service options. Thus,

today, many are unprepared to sort out the myriad of

options available to them in an industry environment

driven by rapid technological change. Taking the

time out from routine business operations to come to

terms with information age technologies is also

difficult. Most rural businesses are quite small: job

responsibilities are not specialized enough so that

any one person could devote much time to becoming

a communication expert. As one rural businessman

reported to the OTA project staff:

. . . I run my business on a shoestring. I supervise

operations; keep the books; and even sweep the

~see Dove~ Systems COrp., “’lklecommunications Opportunities for Bloomsburg,” June 15, 1989.

98Lars Qvortrup, “The Nordic Tklecottages: Community lkleservice Centers for Rural Regions,” Telecommu nz”cations Policy, March 1989, pp.

59-68. See also, H. Albrechtscxq “The ‘IUecottages in the Nordic Countries,” Telecommunications Journal, vol. 55, pp. 298.

~conver~tiom tith Professors Ken Kubota and Paul ~ Department of Computer Science, University of Kentucb.
86 ● Rural America at the Crossroads: Networking for the Future

Figure 3-9-Sharing Schemes

Centrality Strategy Centrality Strategy

ENMR Telephone Cooperative is an excellent example of how

rural areas can capitalize on the flow of telecommunications

between metropolitan areas by acting as a switching point.

Though serving a remote and sparsely populated region of

eastern New Mexico, ENMR benefits from its location between

major metropolitan areas. As an important switching point between these cities, ENMR is able to attain advanced technologies

for its customers, such as Signaling System 7 capabilities.

According to ENMR’s General Manager, the company’s technological sophistication “has been aided by the fact that our

inoperative serves as a ‘golden highway,’ routing calls among

such cities as Denver, Albuquerque, Dallas, Lubbock, and

City

Piggyback Strategy

user

Big telecommunications user

Amarillo.”

Piggyback Strategy

Because telecommmunications networks of many large corporations often extend to remote rural areas, one sharing strategy is to

resell the excess capacity of the private networks to these rural

communities, whose telecommunications needs are likely to be

relatively small.

As an example of this strategy, EMRG, a software company in

Kearney, NE, which depends heavily on telecommications,

uses the excess capacity of the POP (point of presence, or

telecommunications’ equivalent to an on/off ramp) installed on the

premises of Cabela’s, the large sportswear retailer.

Tap-in Strategy

In the last few years, the competing Iong-distance carriers have

rapidly modernized their networks and have installed highcapacity fiber optic lines connecting the major metropolitan areas.

These lines by necessity crisscross “the land between the cities,”

and many rural regions of the United States are “hookable” into

these networks with comparatively little cost.

Tap-in Strategy

SOURCE: Harmeet Sawhney, University of Texas at Austin, contractor material

City

prepared for the Office of Technology Assessment, January 1991.
Chapter 3-Rural America and the Changing Communication Infrastructure ● 87

floor. When would I ever have time to learn about

how to use communication strategically?

Nor are there many people to whom rural businesses can turn for help. In a competitive environment, many communication vendors are focusing

their energies on the needs of the much more

lucrative large business user. And among those who

have typically supported rural businesses in the

past-e. g., the agricultural extension agent, the

economic development official, or the local chamber

of commerce-few are even cognizant of the business opportunities that new technologies afford.

Thus, it is not surprising that in most of the instances

when a rural business, or a rural business community, has been successful in deploying new technology effectively, there has generally been a highly

knowledgeable, energetic, and visionary individual

involved.
Chapter 4

Rural Development
Contents

Page

Findings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

What Do We Mean by Economic Development? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

Economic Development Is Not Just Jobs and Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

How Relevant Are Employment Levels to Economic Development? . . . . . . . . . . . . . . . . . . . . . . 92

What Do Income Statistics Tell Us?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

Holistic Economic Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... 94

Setting Goals .. .. .+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. 4.. ... ...... 94

The Basic Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Employment and Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Health and Wel1-Being . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Stability With Vitality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

Prerequisites and Obstacles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Structural Economic Obstacles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Human Resource and Social Infrastructure Obstacles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

Social Infrastructure .. .. .. .. .. .. .. .. .., . . $ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

Other Obstacles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

Strategies for Holistic Rural Economic Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

Strategy Classifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

Boxes

Box Page

4-A. Alternative Measures of Economic Well-Being . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

4-B, Communications and Development The Other Edge of the Sword . . . . . . . . . . . . . . . . . . . . . . 97

Figures

Figure Page

4-l. Employment Status of Nonmetro Poor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

4-2, Unemployment Rates: Metro and Nonmetro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

4-3. Employment Change in Nonmetro Counties, 1976-86 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

4-4. Educational Attainment: Urban and Rura l.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

4-5. Percent of Population with Health Insurance-1984 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

4-6. The Community College of Maine... . . . . . . . . . . . . . . . . . . . . . . . . . . ....$.. . . . . . . . . . . . . . 111

Table

Table Page

4-1. Differences in Selected Health Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Chapter 4

Rural Development

Findings

Telecommunications and information technologies can play a critical role in rural development. If

they are not integrated into a comprehensive development plan, however, these technologies could do

more harm than good. For too long, economic

development has meant industrial recruitment. In a

global economy, where skilled labor and high

information content provides the competitive advantage, this strategy is outdated. If information technologies are deployed for the sole purpose of

attracting information-intensive jobs to rural communities, they will merely add a high-tech dimension to the traditional smoke-stack chasing development strategies that have failed in the past.

For development to work, a multitude of factors

must come together to create a self-sustaining

process. Rural communities must improve their

education, health care, and public administration

capacities in addition to improving local employment and income levels. A successful development

strategy will take inventory of a community’s assets

and weaknesses. When the health and education

levels are so low that the community can only

accommodate marginal employment, a development

strategy must focus on raising the skills and level of

health in the community. When human resources are

adequate for development, but jobs are lacking, a

development strategy must address ways to increase

local employment. Most often, these problems

cannot be solved in isolation, but must be attacked

in a comprehensive development strategy.

Communications technologies can augment these

various types of development efforts. When development is undertaken comprehensively, the role of

telecommunications can be even more effective

because the technology can bring the many community development players together to share the risks,

the benefits, and the costs.

Introduction

Communications and information technologies

offer rural areas the opportunity to overcome the

traditional barriers of time and space, to attract

high-paying, high-technology, information-intensive jobs, and to access information that could

improve health care, education, and local government. However, these technologies are not a panacea. Rural economic development is a complex

process that requires interaction among a multitude

of players and institutions. Communications and

information technologies can enhance and even

make this process possible. However, if they are

considered a solution by themselves, they will not

fulfill expectations and could work against the

prospects for real economic development in rural

areas.

To make the most of communications and information technologies, a broad, holistic view of

economic development is needed. Traditional economic development definitions, goals, and strategies

have taken a one-dimensioal approach, focusing on

the business sector of a society or community and

measuring development progress with standard economic indicators. These approaches ignore the less

quantifiable factors, such as the quality of the

laborforce, and access to education and health care,

that allow businesses and people to develop and

prosper.

In contrast to this purely business approach are

community development approaches. They seek to

develop community well-being as a means of

generating economic well-being. However, when

pursued along a single social dimension, they too

have failed. Just as economic activities need support

from community services, so does community

infrastructure need economic energy to remain

viable. Community development projects can stimuate the economic development process, but alone,

they will be only partially successful.1

IJme JWobs ~W~ ~f~=y of ~~g Bats for ~m~~ development proj~ts done to produce economic development: “The failure is btit

into the fact that they are loans, gmnts, and subsidies; those golden eggs, being only eggs, don’t hatch goslings.” The key to success is the presence

of innovative activity, which transfer payments could then invigorate. Jane Jacobs, Cities and the Wealth of Nations: Principles of Econonu”c Life (New

Yom NY: Vintage Books, 1984), p. 110. See also, ‘l&i K. Bradshaw, “Economic Development in Rural America: The Hard Case,” Looking Ahead,

VO1. 9, No. 2, 1986.

-91–
92 . Rural America at the Crossroads: Networking for the Future

A narrow focus on technology can also lead

programs astray. Typically, policymakers see magic

powers in technology, or they use technology as a

disguise or means to accomplish other narrow

economic objectives. Whether policymakers look

for a solution in technology, business, or community

infrastructure, by seeking a tonic, they neglect to

consider the many factors that go into making and

sustaining a successful development formula.2

What Do We Mean by Economic

Development?

In formulating strategies and policies for rural

economic development, it is critical to understand

what economic development is and what it entails.

Contemporary rural America presents a mosaic of

socioeconomic and political conditions and various

levels of development, so a narrow concept of

economic development is inappropriate. A workable

definition of economic development must accommodate the inherent differences between communities, and allow for alternative approaches to the

problems.

The economy and the community are inextricably

linked, therefore, this report is based on the premise

that economic development encompasses community development. The linkages between the community and the economy in rural areas are critical.

Due to the small population of a rural community,

there is less social redundancy. Often, a few

businesses, or one large business, one school, and

one hospital or health-care provider serve the entire

community. If a school or business closes, rural

citizens cannot simply go to a different school, or

merchants cannot find other suppliers. Thus, if one

community link fails, the entire system is jeopardized.

Economic Development Is Not Just

Jobs and Income

Viewing community development as an integral

part of economic development requires measurements that focus on quality of life considerations,

Photo credit: Mark G. Young

Sign in a small town in rural Kentucky announcing a

construction project funded by the Department of

Commerce’s Economic Development Administration.

such as health and social services and quality

educational opportunities for children and adults.

These factors are inputs, as well as products, of

economic well-being. As such, these non-material

necessities must be considered as ‘‘important condition[s] to meeting material needs. ”3

Standard economic indicators, such as employment and income levels, are often used to measure

economic well-being but do not account for these

important amenity factors. Too often, the measures

become ends unto themselves, and other lessquantifiable development goals are subordinated to

the economic goals embodied in these measurements.

How Relevant Are Employment Levels to

Economic Development?

Development officials and policymakers, for example, typically use jobs and income as measures of

economic well-being. In this case, economic devel2

The industrial park strategies of the 1970s illustrate such an approach. In many cases, it was believed that industrial capacity-in terms of office

and warehouse space-would induce firms to locate in a region and thus provide jobs and then tax revenue to pay for social services and community

infrastructure. As a result of this strategy, however, many industrial parks lay vacant and communities were disappointed or disillusioned because they

could not attract or nurture businesses, which also demanded an educated workforce and access to community services and health care for potential

employees.

 “A Approach to Economic Development,” Kenneth P. and Charles K. Directions in Economic

Development (South Bend, IN: University of Notre Dame Press, 1979), p. 74.
Chapter Uural Development ● 93

opment plans and policies seek growth in regional

employment as the key to greater economic-and

hence overall-well-being .

4 Such a strategy links

employment growth to lower unemployment and

higher incomes; it assumes a causal relationship

from jobs to income to community welfare. At first

glance, this strategy seems to make sense. And, in

fact, the logical progression from economic growth

to greater well-being is supported in much of

classical economic literature.5

There are, however, flaws in this approach. First,

there is little evidence that employment growth

necessarily produces income growth.6 An increase

in the number of jobs in an area does not imply that

the wage levels or the quality of jobs increases.7

Job recruitment strategies also fail to recognize

that imported jobs often attract imported labor.

When this occurs, the unemployment in the community can persist even though employment statistics

have risen. If industrial recruitment strategies were

to attract enough outside labor to create a surplus

labor pool, they could actually depress the local

wage level. Even when indigenous workers become

employed, they might remain poorly paid or underemployed due to greater competition for jobs. The

workforce in rural areas is generally small, so rural

communities are particularly vulnerable to competition from imported labor.

Additionally, the types of jobs that can result from

job recruitment strategies vary significantly. Even if

one assumes that any job is better than no job, it is

still important to consider factors that might determine whether local workers would consider the

imported jobs desirable or within their reach.

Even after acknowledging these shortcomings,

planners x-night still choose an industrial recruitment

policy, hoping to capture the “multiplier effect”

that additional jobs might create. They assume that

population growth from the influx of new workers

will stimulate the economy and increase the demand

for services.8 Under these circumstances, indigenous

workers might find employment in the growing

service sector. However, the service sector typically

pays low wages. This type of employment growth

might not raise the income levels of the indigenous

workers, whom the development was intended to

benefit.9 Job creation is a sensible goal,l0 but job

creation—in and of itself-is only one part of

economic development.

What Do Income Statistics Tell Us?

Just as higher employment measures do not

necessarily lead to higher income, neither do higher

income levels necessarily produce greater economic

well-being.

11 Development policies that equate ‘-

come levels with well-being can result in misguided

and unproductive strategies.

4AS Lionel Beaulieu nOkX: ‘‘. - - over the past 25 years, the primary concern of State and local development oftlcials in the South has been with

creating as many jobs as possible.” Lionel Beaulieu, The Rural South in Crisis: Challenges for the Future (Boulder, CO: Westview Press, 1988),

p. 266.

sc~sic~ economists, starting with Adam Smit& presumed that the proceeds from economic growtlA even if they accrued to o~y one segment of

society, would trickle down through the whole society. They also presumed that increases in national monetary wealth-or gross national

product-would improve living conditions for the citizens of the Nation. Largely this was the case because there is a strong correlation between greater

wealth and greater amenities. Nonetheless, the relationship is not necessarily causal. Moreover, the forces at work in a national economy may differ

sigriificrmtly horn those of a regional economy. For example, labor is much less mobile at the mtional level than at the 10cA or regional level. As aresul~

labor can move in or out of a regio~ depressing wages but increasing employment levels. Such activity dramatically affects the local economy, but is

less apparent at the national level.

~omas Michael Power, The Econom”c Pursuit of Quality (Armonlq NY: M.E. Sharpe, Inc., 1988).

~eaulieu explains that the development programs that focused on creating jobs failed because “. ..[w]hether these jobs were white collar or blue

collar, high wage or low wage, dead-end or on a p~motion track was overshadowed by the ovenvhelming desire to report job numbers. . .“ op. cit.,

footnote 4, p. 266.

8Gene F. Summers, “Rural Industrializatio~” New Dimensions in Rural Policy, Joint Economic Committee, June 5, 1986. The magnitude of this

multiplier effect is much smaller than expected. Figures range from zero to 3.0, but the average is around 0.30; this means that for each job that a recruited

firm adds to the local economy directly, it will also generate 0.30 jobs in the community indirectly. These jobs typically will be in the service sector,

supporting the new economic activity.

~omas Michael Power, ‘The Folk Economic of ImcalEconomic Development: ‘Intuitively Obvious’ But Dubious Strategies,’ unpublished paper,

University of Monk 1988.

l@~5 Swmoq ~~Non.~~~ B~~s t. tie Use of ~l~o~~catiom ~c~ologies for RM~ Development” contractor report preptlred fOr

the Office of lkchnology Assessmen4 1990, p. 23

1 l~ouwc~el Power, ‘‘M easuring Economic Well-Being in Non-Metropolitan Areas,”contractor report prepared for the Oftlce of ‘IkcImology

Assessment, May 1990. See also, Power, The Econom”c Pursuit of Quality, op. cit., footnote 6.
94 . Rural America at the Crossroads: Networking for the Future

Per-capita income levels paint a cloudy picture of

economic well-being. Per-capita income says nothing about the relative distribution of income. Therefore, the statistic will rise when the income of any

portion of the population rises, whether the increase

was shared across all sectors or concentrated in a

small group. A development strategy to raise percapita income could do so without affecting the

income level of the majority of the population.

Per-capita income also does not account for

differences in the cost of living between regions, or

changes in cost of living over time. An area with a

lower cost of living12 usually will report a lower

per-capita income. A lower income level does not

necessarily mean that the population is economically worse-off than a region with a higher percapita income since it may cost more to live in the

‘‘richer’ region. Efforts to equalize per-capita

income with other regions will be misguided if they

ignore this caveat.

Per-capita income also does not reflect differences in the quality of amenities needed for personal

well-being. These include factors such as climate,

leisure opportunities, absence of crime, quality of

schools, and cultural opportunities.13 The status of

such amenities must be included in any development

strategy (see box 4-A).

Holistic Economic Development

A “large part of economic well-being is determined by the quality of nonmarketed [and nonmeasured] resources, ’ ’14 which are essential to economic

development. In this sense, economic development

embodies community development.15

A community-based rural economic development

program would improve the lives of rural people,l6

wherever they eventually may reside.17 It would

create an environment in which people can choose to

live-because basic services, amenities, and jobs are

available from which they can migrate with

adequate skills to make their ways in other communities. It would be sensitive to the type of future that

members of the community envision for the community. Such a development program may or may not

include an aggressive economic growth strategy. If

pursued, a growth strategy would constitute only

part of a more comprehensive recipe for rural

economic development. The importance of a holistic

development strategy is that it builds on the relationship between the community infrastructure and a

vital economy.

A holistic approach to rural economic development requires policymakers to look for more than a

technological fix aimed at a single sector of the

community. When determining how communications and information technologies can affect rural

economic development, it is critical to consider the

quality of each of the elements of economic development and how these technologies can address the

many dimensions of economic development.

Setting Goals

Rural development goals must be both consistent

with a holistic definition of economic development

and suitable for addressing the breadth of the

problems and conditions found in rural America. It

would be unrealistic to set uniform standards that all

lzproblems a.ISo tie in using cost of liv~ as a comparative statistic. The American Chamber of Commerce Research Association (ACCRA)

publishes cost-of-living data quarterly for 250 cities. This data is based on the cost of a prespecified “market basket” of goods. Although useful, such

a measure does not account for regional differenc~ in the availability or cost of the components of the “market basket. ” Additionally, the costs of

housing and labor vary across regions; also, the proportion of income that people spend on housing has varied significantly overtime. These factors affect

the cost-of-living, but are generally not reflected or accounted for in cost-of-living data that are used in comparisons. Nonetheless, adjustments to

cost-of-living data that would discount for these realities are not re~larly made, or even generally feasible, since there is no systematically collect~

reliable data set that would allow such adjustments. The ACCRA data me plagued with probkzns of consistency and reliability. Power, “Measuring

Economic Well-Being,’ op. cit., footnote 11, p. 7.

lqfiono~c timw ~Wests that tie effmts of ti~e ~alititive factors will be reflected in people’s choices of where to live. Attractive U-(ofier

things, such as cost of living, being equal) will have lower wages and incomes; conversely, unattractive areas will have higher wages and incomes. In

essence, people will c ‘pay” to live in attractive areas and “chmge’ to live in unattractive areas. This theo~ does not, however, account for the fact that

still other qualitative factors, such as family tie-s, influence decisions about where to live.

IOpower, The Econom”c Pursuit of Quality, op. cit., foomote 6, p. 15.

ISVeM D. Rym ~{~e Si@lcmce of comrn~~ Development to R~ ~nomic ~velopment ~tiativ~,” I_Jnited Stites ~~ent O f

Agricuhure,RuralEc onom”c Development in the 1980’s: Prospectsfor the Future (WashingtO~ DC: USDA Economic Research Service, 1988), Ruml

Development Research Repoz No. 69, p. 364.

lbJonathon Sher, “Rural Development Worthy of the Name, ” New Dimem”ons in Rural Policy: Bw”lding Upon Our Heritage, studies for the

Subcommittee on Agriculture and Transportation of the Joint Economic Committeef 1986.

ITLuther weet~, professor, ohio State Univesity, comments at Panel M=ting, JI@ 30, 19~.
Chapter 4-Rural Development ● 95

Box 4-A—Alternative Measures of

Economic Well-Being

No single measure will fully capture the array of

qualities and quantities that comprise economic

well-being. Rather than using one composite measure as a guide to development strategies, developers

might consider using alternative economic indices

to create a more complete picture.

For example, quality-of-life indicators are increasingly used in the popular press to rate a city’s

‘‘livability. ’ These indicators take account of

characteristics such as the quality of schools,

research facilities, cultural opportunities, climate,

the availability of capital and skilled workers, and

the extent of union membership and the political

climate. Although useful for qualitative impressions, such measures are limited due to the arbitrariness of the included factors and their inherent

subjectivity.

Another attempt to measure development is the

“Physical Quality of Life Index” (PQLI). The

PQLI is used primarily in the international development community. This composite index uses indicators of infant mortality, life expectancy, and basic

literacy to measure results of development efforts in

meeting the most basic needs of a community. The

PQLI is useful in assessing the extent of serious

poverty, but is limited in the extent to which it can

measure the economic activity of a region.

SOURCES: Hazel Henderson, “Mutual Development: Towards

New Criteria and Indicators,” Futures, December

1989, pp. 571-584. Gerald M. Meier, badinglssues

in Economic Development (New York, NY: Oxford

University Press, 1989), p. 9.

rural communities must meet, but it is necessary to

identify objectives to guide development efforts.

The Basic Framework

Thomas Power suggests several goals for holistic

economic development18 that provide a flexible

framework for any community. These objectives

include:

. the availability of useful and satisfying work

for community members;

. access to biological and social necessities;

. stability in the local community; and

● a thriving, vital local economy.

This list is consistent with the goals of rural

development policy defined by Kenneth Deavers,19

which call for:

●

●

●

improved rural income levels and employment

opportunities;

improved access by rural residents to adequate

housing and essential community facilities and

services; and

responsible use of rural resources and the rural

environment to preserve the rural quality of

life.

Together, these sets of goals provide for the

development of a rural environment that supports

the health and well-being of people as well as the

businesses they patronize, work at, and/or operate.

By addressing both the human and the business

conditions in a community, they recognize the

fundamental linkages between these two aspects of

community life.

Employment and Income

GOAL 1: The availability of employment opportunities that are useful and satisfying, and

which provide income levels consistent with

the income needs of the region.

This goal must incorporate the quality of employment, including the challenge and the opportunity

for advancement, in addition to the income levels

associated with such employment. Both aspects of

employment are important to the individual and to

the community.

Rural workers need jobs, but they also need

employment that uses their skills and abilities and

that affords them a reasonable standard of living. In

addition to compensation, employment gives workers an identity, personal satisfaction, status in the

community, and a stake in the sociopolitical system.

By giving workers a place in their community,

lgpower, The Economic Pursuit of Quality, op. cit., footnote 6, pp. 169-174.

1%ermethDeavers, ‘Social Science C. ntributions to Rural Development Policy in the 1980’ s,’ American Jourmd ofAgriculturalEconomics 62(5),

pp. 10-21. Cited in Gary P. Green and Kevin T. McN~ 1988, “Traditional and Nontraditional Opportunities and Alternatives for Local Economic

Development” in Beaulieu, The Rural South in Crisis, op. cit., iootnote 4.
96 ● Rural America at the Crossroads: Networking for the Future

Figure 4-l—Employment Status of Nonmetro Poor*

24.3%

 Worked - not full-time year-round

 Worked - full-time year-round

Nearly a quarter of the rural poor work full-time year-round, and

nearly half work part-time and/or in seasonal employment.

● Family houseowners who were not ill, disabled, or retired, 1987.

SOURCE: Calculations based on U.S. Census Bureau data, as cited in

Center on Budget and Policy Priorities, Laboring for Less:

 but Poor in America (Washington, DC: 1990),

 5.

29.5%

prefer to, but because it is the only available

employment. 22

Health and Well-Being

employment also builds a larger sense of civic

consciousness .20

Jobs must also provide adequate income for

workers. More than 70 percent of the poor in

nonmetro areas work full- or part-time during the

year (see figure 4-1).21 For a variety of reasons, jobs

in rural areas often do not pay enough for workers to

emerge from poverty. Among the year-round, parttime workers in rural areas, 39 percent are underemployed. Many work part-tine not because they

GOAL 2: Access for community members to

necessities, such as health services and adequate housing, as well as to social necessities,

such as government services, and educational

opportunities.

The health and social welfare of the people are

essential elements to a community’s economic and

overall well-being. A healthy population living in

adequate housing is a minimum standard for community welfare and a productive workforce. Though

more difficult to identify, social necessities are

indispensable to a community’s well-being. They

include, for example, government services ranging

from postal delivery to police and fire protection to

education. Education is especially important.23 It is

fundamental to gaining useful and satisfying work

and ‘‘shape[s] a population’s ability to devise new

solutions] to problems, [and] adapt to change,’ 

 J. Planning and Theory and Practice, vol. 168, Sage Library of Social 

NJ: Sage Publications, 1989), p. 17. Also, Power, The Pursuit of Quality, op. cit., 6, p. 171.

 Budget for 

among workers has risen in the past decade, despite the Nation’s economic 

 Inc., “Work in Rural contractor report prepared for the Off&of Assessment, 1990, p. 22.

 associated with the well-being of is of 

among the adult population. ” Joint Economic Committee, Jerry R. and Louis “Southern Poverty, and Rural Development:

The Case for New Policy Assumptions,’ Towards a Rural Development Policy for the 1990s, 1989, p. 78.

 and Margaret A. Butler, Resource Base of Rural Economies,” in op. cit., footnote 15, p. 157.
Chapter 4-Rural Development ● 97

Box 4-B-Communications and Development: The Other Edge of the Sword

Since 1962, Wal-Mart stores have become staples in many small towns across the country, especially in the

South. They have been a boon to rural consumers because of the wide variety of products they offer at discount

prices, consolidating the services of many stores into one discount center.

Wal-Mart is often heralded as a triumph of technology. The discount retailer has staked its claim in rural

America by using sophisticated telecommunications technologies to transmit data and voice and video messages

that allow the company to purchase and distribute a huge variety of consumer goods at prices far below the local

competition. Using very small aperture terminals (WATS), Wal-Mart coordinates its purchasing at a national level

and thus takes advantage of the market power it enjoys by virtue of its size.

Although these discount retail stores can be a great deal for rural America, communities are discovering that

sometimes stores like Wal-Mart are no bargain. In the wake of the Wal-Mart phenomenon lie the empty storefronts

of the many local businesses that could not compete. Businesses in surrounding communities often suffer as well

because of the magnet effect that a discount retailer creates in a region. People will drive longer distances to reach

the discount prices and one-stop shopping. While as consumers, rural citizens are enjoying the cut-rate prices, as

employees and entrepreneurs, rural residents are suffering from the layoffs that result from the closing of local

businesses. In many rural towns, the closing of even a few stores has a suffocating impact-as much on the psyche

of the community as anything else.

In addition to suffering the losses of local businesses, rural economies can suffer because the revenues of

national retail chains return to corporate headquarters, rather than circulate through the local economy as they might

have with a locally owned business. Thus, if rural communities are not braced for the kinds of changes that

technology could bring, economic development boons like Wal-Mart and other similar ventures could develop into

economic busts.

SOURCE: Lisa Bell@ “Wal-Mart is Closing, And ‘lkxas ‘lbwn Reels,” New York Times, Dec. 14, 1990, p. A-18.

qualities that are integral to maintaining community — — business that might relocate elsewhere as soon as it

welfare.

Stability With Vitality

GOAL 3: Local participation in the development

of a stable and vital community.

Stability and a sense of local control go hand in

hand as critical ingredients for establishing an

environment where people and enterprises can

flourish. local control vests decisions and planning

for the community’s future with those who stand to

benefit or lose in the process-the residents of the

community (see box 4-B). Jonathan Sher notes that

too often in the past this has not been the case.

Because development has been done “to rural

communities rather than by them,"25 the fruits of

rural development have not accrued to rural citizens.

The benefits of a development scheme could

easily evaporate if it is based solely on an outside

became advantageous. Such is the case when footloose manufacturing firms uproot local operations to

move production overseas, where wages are lower.

This pattern has repeated itself in many rural areas

throughout the 1980s.26

As Bradshaw points out, “rural development

programs throughout the country still seem to be

designed to capture the benefits of outside firms and

to neglect the development of local resources.”27

For sustainable development, a measure of selfsufficiency is necessary. To be self-sustaining, rural

communities must avoid dependence on a single

firm, industry, or outside government agency; they

must seek alternatives in which to participate as

equals, rather than as pawns in the development

game.

Economic stability, however, does not imply

inflexibility. To the contrary, communities that

~Sher, 1986, “Rural Development Worthy of t-he Name,” op. cit., footnote 16, p. 519. (Emphasis in text.)

~omas LysoQ “Economic Development in the Rural South: An Uneven Past-An Uncertain Future,“ in Beaulieu, The Rural South in Cn”sis, op.

cit., footnote 4, p. 266.

z?I&I K. Bm&@w, “~onomic Development in Rural America: The Hard Case,” Op. Cit., footnote 1.
98 ● Rural America at the Crossroads: Networking for the Future

cannot adapt to changes will be vulnerable to, and

dependent on, outside forces. As Kenneth Wilkinson

explains, “dependency depresses adaptive capacity. “28 Thus, stability and adaptability are complementary and interdependent qualities.

Prerequisites and Obstacles

Structural changes in the national and global

economies have substantially changed many of the

prerequisites and obstacles to meeting rural development goals. In many cases, obstacles and prerequisites are two sides of the same coin: the absence of

a prerequisite becomes an obstacle to development.

Structural Economic Obstacles

Global economic trends caused significant structural changes in the national economy throughout

the 1980s and into the 1990s, but these forces have

affected rural areas differently. Dependent on single

industries or larger urban economies for their

livelihood and well-being, rural areas have not had

the resources of a diverse economy and a broadbased social infrastructure to make the necessary

adjustments. 29 As a result, some of the obstacles to

rural economic development have increased.

The factors that gave rise to the recession of the

early 1980s had a far greater impact on rural areas

than on urban ones. These included rising energy

prices, tighter credit, a U.S. grain embargo, a glut in

the world market for oil and other energy resources,

and heightened foreign competition, especially from

Third World countries. In the wake of these developments, rural unemployment soared relative to urban

areas,30 wages and salaries grew at a much slower

rate,31 and rural poverty rates increased by nearly

one-third between 1978 and 1987 (see figure 4-2).32

Figure 4-2—Unemployment Rates: Metro and

Non metro

Percent unemployment

~ Metro

7

5

3

79 80 81 82 83 84 85

Year

SOURCE: Bureau of the Census, Current Population Survey, as cited in

USDA, Rural Economic Development in the 1980’s: Prospects

for the Future (Washington, DC: U.S. Department of Agriculture,

1988), p. 3.

The decline of U.S. manufacturing was largely

responsible for the severity of the economic downturn in rural areas. Many rural jobs depend on the

fate of urban manufacturing industries. For example,

when the U.S. auto industry declined, many rural

manufacturing plants that produced components or

parts shut down. Other industries, such as textiles,

clothing, and leathergoods, were located in rural

areas where the impact of the decline was directly

felt (see figure 4-3).33

Nearly 40 percent of nonmetro counties depend

primarily on manufacturing for employment, so the

strains of rural manufacturing have affected a large

portion of this rural population.34 These employment losses are likely to be permanent because many

jobs have disappeared as a result of the structural

Rural Sociology, vol. 51, No. 1, 1986, p. 8.

 of these global and national forces acting economies, see David Freshwater, ‘‘Rural Development and 

Policy,” presentation for Apr. 19, conference on Rural America at Corning, NY.

 unemployment grew from 5.7 percent in 1979 to 10.1 percent in 1982; at the same time, job growth in urban areas merely slowed down. As

a the gap rural and urban unemployment rates grew. In the early the average rural unemployment rate was 7 percent higher than

the urban rate; by 1987, it was 40 higher. Parker et al., in InformationAge: RuralDevelopment

 University Press of 1989), pp. 17-19.

 employment increased by about only 1 compared with a gain of ahnost 6 

Bluestone and A. Long, “Growth Falters in Most Counties: Manufacturing Both Hero and Goat,” Rural Development Perspectives,

February 1989, p. 9.

 on Policy Priorities, op. 

 were linked to thestrugglingauto and steel industries. . the textile, clothing

 leather goods industries, which are concentrated in areas, suffered from stronger import competition during this period. ” David L.

Brown and Kenneth L. Deavers, in op. cit., footnote 15, p. 3.

 p. 5.
Chapter 4-Rural Development ● 99

Figure 4-3—Employment Change in Nonmetro

All industries

Farming

Mining

Construction

Manufacturing

Services

Counties, 1976-86

Absolute employment change

+ 6.6%

I I I

-500 0 500 1,000 1,500 2,000

Thousands of jobs

The rise in service jobs accounts for the overall growth of jobs

despite employment losses in manufacturing, farming, and mining.

SOURCE: Edwin B. Parker et al., in Information Age:

Telecommunications Policy for Rural Development 

MD: University Press of America, Inc., 1989), p. 18.

shift in the U.S. economy away from routine

manufacturing jobs toward more high-technology

manufacturing and services jobs. Urban areas are

better able to adapt to this trend, thus such jobs are

most prevalent in urban areas.35 Add the farming

crisis and the industrialization of U.S. agriculture to

the decline of rural manufacturing, and the result has

been fundamental and permanent structural changes

in much of the rural economy.

Such changes would wrench any economy, but

rural areas were particularly hard hit because they

often lacked access to information that would inform

them better about how to react and adapt. Urban

areas, in contrast, are usually the locus of innovation

and information, and support more specialized

services and occupations that create a cycle of

information creation.36 This urban dynamic enables

cities to adjust to changes more easily and provides

them with a competitive advantage over rural areas

in attracting and retaining industries.

A mismatch between the needs of a structurally

changed global economy and the ability of human

resources and physical capital in rural areas to adapt

is at the root of the problem. Many rural areas can

accommodate 1960s style growth,’ which calls for

industrial parks and vocationally trained workers.

The global marketplace, however, has redefined

what is now necessary for growth. A skilled

workforce and sophisticated communications have

become primary ingredients for growth.37 Many

rural communities were never even “primed for

1960s style growth,’ but they relied on the resources

and traditional industries that had always supported

them, such as farming and extraction.

A shortage of investment capital compounds the

difficulties that rural areas face in adapting to new

economic conditions. Many argue that the financial

deregulation of the 1980s reduced the amount of

credit available to rural areas. The centralization of

the American banking system, which resulted from

deregulation, tended to shift banks’ investment

decisions from ‘‘locally owned community banks to

the main offices of state and regional banks. ”38 As

credit markets became globalized, and investment

decisions more detached from local communities,

lenders increasingly turned away from rural investments in favor of larger and more profitable investments in the international credit market.39

Most likely, those rural areas most in need of

capital pose the greatest risk to creditors. Venture

 pp. 5-6.

 David observes,”. . towns and areas are generally the last to get new information. Not only do most innovations occur

in urban settings, but even when the innovations are rural, information about them tends to flow first to urban places and then to other rural areas.. 

a larger volume of information and trade flows, larger communities have more specialized and occupations, and larger organizations with economies of scale.” David in USDA, op. cit., footnote 15, pp. 30-31.

 A. Development in the Rural Beaulieu, op. cit., 4, 267.

 p. Green and Kevin T. “Traditional and Nontraditional Opportunities and Alternatives for Local Economic Development,” 

 op. cit., footnote 4, p. 290.

 t. is uncertain it is 

the impact of deregulation. Daniel L. Milkove and Patrick J. “Should Rural Communities Fear Bank Deregulation?” United States

Department of Agriculture, Economic Research Service, Development Perspectives, February 1989. When community banks can coexist with

branches of larger, regional banks, customers a greater array of choices and available credit. Moreover, the larger regional banks could offer

advantages for rural areas. The and informational resources available to these larger, broad-based institutions enable them to extend credit to

innovative businesses, whose lines of business would not be familiar to small local bankers. The larger and more diversified portfolio of a regional bank

could allow it to on small businesses that would be poor risks for banks with Even if this hopeful scenario bears out, however,

opportunities will p exist in areas with relatively vibrant economies and promising investment opportunities.
100 ● Rural America at the Crossroads: Networking for the Future

neediest face the greatest obstacles in obtaining

credit. Part of the problem is the lack of knowledge

within the community about how to deal with

financiers. 43 Business plans and financial information are standard parts of a loan application, but they

can be obstructions as well as screening devices.

Human Resource and Social

Infrastructure Obstacles

Workforce Skills

A mismatch between the qualities of the rural

laborforce and the needs of a diversified and

information-intensive economy constitutes an obstacle to holistic development. The skills of factory

workers, farmers, and miners do not correspond to

the needs of the growing service sector or high-tech

manufacturing. 44 But retraining these workers for

jobs that do not exist does little good either.

One possible ‘‘advantage’ of the rural laborforce

is the availability of an isolated, low-skill pool of

workers in need of any kind of employment.

Willingness to work for few, if any, benefits and

minimal union activity are sought after features for

marginal enterprises, which are unlikely to create the

kind of jobs that improve economic and social

well-being in the community. Education levels

largely determine the type of “advantage” a laborforce offers. Low educational a “ attainment translates

to a low-skilled rural laborforce with a perverse

“advantage’ relative to urban areas. The persistent

disparities between metro and nonmetro educational

levels suggest that should high-skill jobs be created

in rural areas, they would be difficult to fill (see

figure 4-4).45

As more skills and greater sophistication and

adaptability are required from the global laborforce,

populations that do not stack up will suffer. During

the 1980s, rural areas experienced the beginnings of

the globalization trend. Rural areas must change the

nature of their laborforce ‘‘advantage” in order to

 and op. cit., footnote 38, p. 297.

 S. Fisher explains,‘‘the more rural sections of the US contribute relatively little to, and receive relatively little the venture funds.’ 

Economic Committee, “Risk Capital and Rural Development,” Towards A Rural Development Policy for the 1990s, 1989, p. 137.

 _ Systems Serving Rural 

Their Current Structure and Future Prospects,” New Dimensions in Rural Policy, Joint Economic Committee, June 5, 1986, p. 406.

 op. cit., 

 op. cit., footnote 33, p. 25.

 Joint Economic Committee, Op. 23, p. 
Chapter 4-Rural Development ● 101

100

8 0

60

4 0

20

0

Figure 4-4-Educational Attainment:

Urban and Rural

Percent

Completed 1 or more Completed

years of college high school

SOURCE: U.S. Department of Agriculture, Rural Economic Development

in the 1980’s: for Future (Washington, U.S.

Department of Agriculture, 1988), p. 20.

attract challenging and skilled employment for its

citizens.

Health

A healthy population is necessary for economic

development, but rural health care is facing a crisis

situation. Access to health care in rural areas is more

limited than in urban areas, yet rural areas often have

greater needs for health services because the population has relatively more elderly and children than

urban areas. Remoteness and poverty, combined

with a shortage of trained medical personnel, technology, and transportation, make health care even

more inaccessible to rural residents (see table 4-1).46

In many ways, rural areas face a “Catch-22” in

health-care provision. The lack of access to adequate

health care is an obstacle to economic and community development; yet, other development barriers

also limit access to health care. Low-income groups

have greater difficulty in obtaining health care, and

poverty aggravates both the problems of providing

health care in rural areas and the state of health of the

rural population. For example, high infant mortality

in rural areas is associated with low incomes.

Table 4-l—Differences in Selected Health Indicators

Metro Nonmetro

Infant mortalitya

. . . . . . . . . . . . . . . . . . . . . . . . . . 9.88 10.07

Chronic diseaseb . . . . . . . . . . . . . . . . . . . . . . . . 12.6%_ 14.9Y0

Overall healthc . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.1 14.7

aDeaths 1,000 infants under age 1—1 987.

bpercentof with activity limitation ions1988.

 of restricted days per 987.

SOURCE: Office of Technology Assessment, Care in 

~ OTA-H-434 (Washington, DC: U.S. Government Printing

Office, September 1990), p. 44.

Figure 4-5—Percent of Population with Health

Insurance-1 984

. Percent

m

E

Private Medicare Public Military/ No

insurance assistance Veterans insurance

(Medicaid Admin.

or other)

Nonmetro population has a higher percentage of people with no

insurance and a smaller percentage covered by private insurance.

The higher percentage of Medicare reflects the larger proportion

of elderly among the rural population.

SOURCE: Office of Technology Assessment, Care in 

 OTA-H-434 (Washington, DC: U.S. Government Printing

Office, September 1990), p. 48.

Additionally, inadequate health insurance discourages people from seeking preventative and primary

care until there is an emergency (see figure 4-5).47

Rural socioeconomic factors work against rural

areas in attracting health-care professionals. This

problem results from two aspects of rurality: First,

physicians tend to locate in urban areas, where the

population is larger and well-equipped hospitals and

 L. Clarke and Michael K. Miller, “The Character and Prospects of Rural Community Health and Medical Care,” American 

Communities, and Louis E. Swanson (Boulder, CO: Westview 1990), p. 92.

 pp. 90-92.
102 . Rural America at the Crossroads: Networking for the Future

clinics are more prevalent.48 Second, during the

1980s, dramatic changes in the U.S. health-care

environment created increased financial pressures

for rural hospitals, resulting in higher costs, lower

revenues, and lower inpatient admissions. As a

result of the increased financial pressures, it has

become more difficult for physicians to practice in

rural areas .49

Social Infrastructure

Many other factors contribute to the quality of

human resources in rural areas. Among them are the

array of public and private services and amenities

that make up the social infrastructure, such as

schools, hospitals, public safety, public and private

cooperatives, and the quality of local government.50

The quality of local governments is often an

overlooked factor in economic development. Local

governments face increasing challenges from the

many changes in the rural and national economies .51

The Federal budget deficit means less money is

available for federally backed rural programs. Rural

areas feel this crisis from another angle as well. With

increased competition for Federal funds, rural interests must understand the processes and have the

information to coordinate activities in the community and establish contacts between the community

and the larger society. Small, rural governments,

however, often rely on volunteers or part-time

administrators with inadequate resources for strategic planning or writing grant proposals that must

meet technical regulations. Federal programs are

biased toward urban areas because “larger, urban

communities are better equipped to compete for

resources since they are likely to have full-time,

Photo credit:Mark G. Young

A view of the newly built community plaza in Costilla, New

Mexico, complete with a general store and restaurant, bed

and breakfast, and sporting supply store to attract and

accommodate visitors from a nearby ski resort.

technical staffs who know how to play the grants

game. ”52 The same problem persists when rural

communities seek financing from private sources.

A professional, technically knowledgeable government is also an important factor in coordinating

economic and community development. One of the

most important community development functions

of government is working with the larger group of

organizations that influence the community’s destiny.53 Because local involvement in development

strategy is an essential element to success,54 rural

communities must overcome the substantial barriers

that derive from being rural.

Leadership can manifest itself in local government, but businesspeople or commercial councils

also play a major role. It is less important whereto

find leadership in a community than that it be present

 fewer did 

the ratio worsens as the population size of the rural area declines. While considerations play a role in this because physicians can expect

to earn less rural areas than in urban areas, professional considerations are also important. The dearth of peers and professional development

opportunities are important barriers to attracting and retaining medical professionals to rural areas. U.S. Congress, of 

 Care in Rural America, OTA-H-434 DC: U.S. Government Printing September 1990), pp. 8-10.

 rates are a problem for both the rural patient and physician. Many rural poor are so hospitals or doctors may not be reimbursed

for care. Malpractice rates become a greater problem in they do not reflect patient volume. Consequently, a rural physician must

distribute the same costs faced by urban practitioners over fewer patients, increasing the cost of providing the care. For further reading, see ibid.

 op. cit., footnote 10, p. 37.

 Lionel J. Beaulieu, “ in E. Swanson and American Rural (Boulder,

CO: Westview Press, 1990), pp. 181-183.

521bid., pp. 201-202.

 Development and Potential and Policy,” prepared for of 

Assessment, May 1990, p. 42.

 28; K. CO in AdvancedIndustrial (New NY:

Praeger, 1979); Bradshaw, op. cit., footnote 53; Clarke and Miller, American Communities, op. cit., footnote 46; and 1988, op. footnote

15.
Chapter 4-Rural Development ● 103

and resourceful. The key to successful development

efforts often is access to information. Leaders need

information from the community and from the larger

national and global context. Information technologies, such as the telephone, allow information

exchange and can enhance a sense of community.55

Regulations that make telephone calls and information services more expensive for rural citizens

discourage access to much needed outside information.56

Other Obstacles

Distance from urban centers and small, dispersed

populations characterize rural areas. These qualities

account for the ‘‘bucolic and bubonic visions’ of

rural America.57 These visions, though hyperbolic,

illustrate that remoteness and small populations are

often considered amenities of rural life, but they are

also barriers to economic development. Distance

from urban areas limits access to employment,

goods, and services. This raises the transportation

costs involved in buying or selling products in rural

areas. At the same time, the small populations of

rural areas diminish their ability to produce goods or

services cheaply because they typically cannot

achieve the economies of scale that reduce the unit

cost of production.58

Remoteness and small populations also mean that

“rural communities must choose between trying to

do many things inefficiently or specializing in a

small number of areas and facing high access costs

for externally provided goods and services. ”58 The

industrialization of agriculture and the decline of

rural manufacturing mean that many rural areas can

no longer specialize, but do not have the resources

to diversify. These communities, and the persistently poor rural communities, are not just experiencing another cyclical downturn in the economy,

but are in danger of being excluded from the larger,

national economy.

Urban-adjacent rural communities and those with

a natural setting that can attract tourism or retirement

communities have not fared as badly from the

economic troubles of rural America.60 One reason

that urban-adjacent communities have more options

is because they benefit from the economic diversity

of the adjacent city. They also face lower prices for

goods and services because the nearby urban areas

support enough population to do many things

efficiently. Further, they face relatively lower access

costs for urban-produced goods and services than

their more remote counterparts. Tourist and retirement communities benefit from the outside resourcesboth information and economic activity-to which

they have access by virtue of the influx of people to

their communities.

Nonurban-adjacent communities or those without

potential for tourism typically are unable to develop

a diverse economic and social structure. Yet, social

and economic diversity are prerequisites to economic and community development, 61 for they

permit access to resources that are fundamental to a

self-perpetuating community. To attain this type of

diversity, rural areas must reduce their isolation

from the “resources and institutions of our essentially urban society. ’ ’62

Strategies for Holistic Rural

Economic Development

The nature, the number, and the severity of the

obstacles facing rural communities vary widely. The

diversity of the communities requires a variety of

strategies for development. These strategies should

address the underlying symptoms of distress and

generate sustainable solutions.

SsRichard KielbolwicZ ‘‘me Role of comm~~tion in Building Communities and Markets: An Historical Werview,” contractor report pr~~

for the Office of lkchnology Assessment 1987.

56~pter 5 addresses Stite and F~er~ telecommunication re@ations that Conflict with mnOmic development goals.

sTJoint fionomic COrmnittee, Jonation Sher, “Rural Development Worthy of the Name,” New Dimensions in Rural Policy: Building Upon Our

Heritage, 1989, p. 515.

SgJoint Economic Committee, David Freshwater, “A Synopsis of the Proceedings of the Rural Development $mposiwm” U.S. Co~sS, Sm.

101-50, Toward RuraZDevelop~nt poZicy for the 1990’S (Washington DC: Government Printing Office, 1989), p. 6.

S?lbid.

@J.F. coat=, Inc., op. Cit., fOObIOte **.

GIJacobs, op. cit., footnote 1.

62wmoW op. cit., foomote 28.
104 ● Rural America at the Crossroads: Networking for the Future

Strategy Classifications63

There are many classifications and ways of

organizing rural development strategies used by

various levels of government and private groups.

Rural development can be divided into categories

such as agricultural programs, industrial development, infrastructure, or human resources. These

categories are part of many effective development

programs, but tend to reflect the missions of various

government agencies rather than different development strategies.64 The fact that each of these programs is relevant at different stages of development

suggests that such classifications may be myopic

from a sustainable development perspective. Effective development strategy classifications must be

based on a more complete theory of development.

Type I Strategies: Building Individual Capacities

The most severely depressed rural communities

lack most of the resources needed for rural economic

development. 65 Firms in these communities are

typically weak or dominated by outside interests that

have little commitment to the community. Low

levels of education and ineffective organization are

obstacles to development in such communities.

These depressed communities seem to get only the

“bad news” about plant closures, falling farm

prices, drought, or technological changes that pass

them by. Local initiatives are generally limited to

reacting to bad situations and keeping them from

getting worse.66

Such counties and communities need direct assistance. Typically, the local economy has failed due to

uncontrollable change or other problems, and efforts

to recruit new employers have failed. Demands on

community infrastructure rise at the same time that

its capacity to meet these needs diminishes. In the

absence of intervention, communities can be thrust

into a downward spiral of poverty, where a lack of

employment opportunities leads to high unemployment, personal poverty, and rural-to-urban migration. 67 The cycle continues because low personal

income and the depletion of community resources

erode the local tax base and lead to reduced public

services such as education, health, job counseling,

and community development. As a consequence,

displaced and new workers do not get adequate

training and services, available skilled jobs are

unfilled, and businesses that could provide employment are neither retained, cultivated, nor attracted.68

The dominant strategy for depressed areas in a

cycle of poverty is expenditures for the people in

greatest need. This strategy assumes that human

ssp~ of this section draw on work done by ‘&d K. Bradshaw, “Rural Development and lklecommnnications: Potential and Policy,” contractor

report prepared for the office of ‘Ikdmology Assessment, May 1990.

@Fore-le, the Gene~Acco~~~lce,in its report on~~development, catego~dpm~sin terms of economic developrnen~ @Cldhlre

and natural resources, infiastmcture, and human resources. General Accounting Office, Rural Development: Federal Programs that Focus on Rural

America and its Econondc Development, WashingtorL DC: General Accounting Office report 89-56B~ January, 1989.

65Much of the~South ad p~s of v-y~other Stites ~ve regiom of perv~ive poverty ad de@ssed lhring conditions htfldl hltO this

category. There are no available estimates of how extensive this problem is in the United States. A proxy measure might be the 242 persistently poor

counties that were in the bottom quintile of a national ranking of nonmetro counties based on per-capita income from 1950 to 1979. (Thomas F. Davis,

“Persistent Low-Income Counties in Nonmetro America” (M%shingtom DC: USDA, 1979), Economics, Statistics, and Cooperative Semice, Rural

Development Research Report No. 12. See also, Lloyd D. Bender et al., ‘‘The Diverse Social and Economic Structure of Nonmetropolitan America”

(w_o~DC: USDA, Economic Research Service, September 1985), Rural Development Research Report No. 49. Among these regions are the

pemistentpoverty counties, which account for about IOpercent of thenonrnetropopulation.‘l%esecommunities are heavily concentrated in the Southeast.

They have had chronically low income over severrd decades, low population density, and contain disproportionate numbers of disadvantaged persons

with limited potential for laborforce participation. Peggy J. Ross, “The Changing Landscape of Rural America: Implications for Policy and Planning,”

LookingAhead, Spring 1986, pp. 6-11. Along with the persistent poverty counties, nonmetro counties that are dorninated by Federal lands, or by single

extraction industries, such as agriculture and mining, also have poor opportunities for development. About half the nonrnetro counties and their

population fit into these categories. Thus, severe development problems face between 10 and 50 percent of ruml America.

66Much of Third World development efforts and I.itemtmv we directed towmd Such circums tances. For further reading, see Jameson and Wilber, op.

cit., footnote 3. Gerald M. Meier (cd.), Led-ng Issues in Economic Development, 5th cd., (New Yo~ NY: Oxford University Press, 1989).

s7Jomthon Sher, Education in RuralAw~”ca: A Reassessment of Conventional Wisabm (Boulder, CO: WestView press, 1977).

68~ido For ~chcom~ties, a development s~tegy titffi to recox tie role of outside ~sis~ce ignores the fwt that these COMMllrdtieS eXiSt

in a larger regioI@ natiox@ and global context. Factors and trends outside the community have often imposed obstacles and constraints to the degree

that the community can not spontaneously act of its own accord. Addressing this problesq Kenneth Wilkinson cautions against development strategies

thilt “blame the victim” in demanding that rural communities solve their own problems. WilkinsoIL 1986, op. cit. footnote 28, p. 9. At the same time,

however, Wilkinson also stresses the importance of local actors and community involvement in achieving a development process that is lasting and

m-w.
Chapter 4-Rural Development ● 105

development is the fundamental building block for

development. Absent human capacity, other efforts

fail. Human resource development is a lasting

investment that is transferable; if the rural economy

falters and rural people leave for opportunities

elsewhere, the migrants can take their skills and

training with them.

Job training is important to overcoming the

obstacle of a poorly or inappropriately skilled local

laborforce. 69 Many Federal training efforts in this

arena are administered by the Department of Labor.70

Vocational education, work experience programs,

and cooperative extension reinforce human resource

training in rural areas, targeting young workers in

particular. In addition to training, programs that

enable workers to leave the home to work are often

crucial. Often workers lack personal resources such

as childcare, transportation, tools, or clothing needed

to seek work.71

There is a major role for telecommunications and

information technologies in building human resource skills. Experiments in distance learning have

produced successful formats and innovative approaches to engage students and achieve educational

goals. Many of these programs began as efforts to

serve isolated rural students. For example, classes

broadcast daily from Norton, VA over satellite and

microwave channels enable students in Wise county,

in the Appalachian regions of western Virginia, to

take college preparatory classes that otherwise

would be unavailable in their school district due to

its remoteness.72

Beyond academic instruction, distance-learning

tools could prove valuable for upgrading worker

skills and familiarizing students with technology.

For example, as part of Mississippi’s Star Schools

program, Mississippi State University produces

teacher training courses in mathematics and science,

enabling teachers from rural and disadvantaged

communities to build their own skills.73 These

training techniques need not be limited to the

education profession. To reap the maximum benefit

from technologies in a human resources development strategy, these tools should also be used to

bring professional accreditation courses and the like

to improve the skills of the professionals in the

community.

Telecommunications and information technologies can also improve health-care delivery in rural

@U.S. Congress, Office of Technology Assessmen$ Worker Training: Competing in the New International Economy, OTA-ITE-457 (Washingto&

DC: U.S. Government Printing OffIce, September,1990).

~egirming with the Manpower Development and Training Act of 1%2, to the Comprehensive Employment and Training Act (CETA) of 1973, and

the Job Training Partnership Act of 1983, these programs have focused on skill or specific-job tmining. The fmt programs focused on @airing displaced

and unemployed workers, using Federal funds. Later programs have been decentralized, with State and local programs targeted to more particular needs

and training goals, and forging sfronger links with potential employers. See Sar Levitan, ‘‘Helping People with Labor Market Roblems: An Overview

of Key Policies, ” Policy Studies Revz”ew, vol. 6, No. 4, May 1987, pp. 712-721.

TITr~o~tionproblem~ep~c~ulysevere for poorp~om in remote rural communities. Work is often a low distance ffom home, ~d limit~

public transportation networks almost demand that a person have a car-a barrier to many of the poor.

~isaBerger, “Beaming bssons Across Appalac@” Appalachia, fall 1989, pp. 23-27. Currently, however, many distance-leaningprojects target

advanced students. Those who lack basic skills might not find suitable curricula among the packaged programs.

73u.s. CO-M, ~m of ‘RzhIIoIogy AsKs~en~ Liti”ng for Learnz”ng: A New Course for Education, OW-SET-4S() (_wd3h@OXL m:

Government Rinting Office, November 1989), p. 29.
Chapter 4-Rural Development ● 105

development is the fundamental building block for

development. Absent human capacity, other efforts

fail. Human resource development is a lasting

investment that is transferable; if the rural economy

falters and rural people leave for opportunities

elsewhere, the migrants can take their skills and

training with them.

Job training is important to overcoming the

obstacle of a poorly or inappropriately skilled local

laborforce. 69 Many Federal training efforts in this

arena are administered by the Department of Labor.70

Vocational education, work experience programs,

and cooperative extension reinforce human resource

training in rural areas, targeting young workers in

particular. In addition to training, programs that

enable workers to leave the home to work are often

crucial. Often workers lack personal resources such

as childcare, transportation, tools, or clothing needed

to seek work.71

There is a major role for telecommunications and

information technologies in building human resource skills. Experiments in distance learning have

produced successful formats and innovative approaches to engage students and achieve educational

goals. Many of these programs began as efforts to

serve isolated rural students. For example, classes

broadcast daily from Norton, VA over satellite and

microwave channels enable students in Wise county,

in the Appalachian regions of western Virginia, to

take college preparatory classes that otherwise

would be unavailable in their school district due to

its remoteness.72

Beyond academic instruction, distance-learning

tools could prove valuable for upgrading worker

skills and familiarizing students with technology.

For example, as part of Mississippi’s Star Schools

program, Mississippi State University produces

teacher training courses in mathematics and science,

enabling teachers from rural and disadvantaged

communities to build their own skills. 73 These

training techniques need not be limited to the

education profession. To reap the maximum benefit

from technologies in a human resources development strategy, these tools should also be used to

bring professional accreditation courses and the like

to improve the skills of the professionals in the

community.

Telecommunications and information technologies can also improve health-care delivery in rural

 Congress, Office of Technology Worker Training: Competing in the New International Economy, OTA-ITE-457 

DC: U.S. Government Printing 

 with the Manpower Development and Training Act of 1%2, to the Comprehensive Employment and Training Act of 1973, and

the Job Training Partnership Act of 1983, these programs have focused on skill or specific-job The programs focused on displaced

and unemployed workers, using Federal funds. Later programs have been decentralized, with State and local programs targeted to more particular needs

and training goals, and forging links with potential employers. See Sar ‘‘Helping People with Labor Market An Overview

of Policies, ” Policy Studies vol. 6, No. 4, May 1987, pp. 712-721.

 for in remote communities. Work is often a distance 

public transportation networks almost d that a person have a car-a barrier to many of the poor.

 “Beaming Across Appalachia, fall 1989, pp. 23-27. Currently, however, many distance-leaningprojects target

advanced students. Those who lack basic skills might not find suitable curricula among the packaged programs.

 of for A New Course for Education, 

Government Office, November 1989), p. 29.
106 ● Rural America at the Crossroads: Networking for the Future

areas. From online databases that provide physicians

with indexed scientific periodicals, to remote defibrillation and monitoring of heart patients, to

inventory control systems that link suppliers and

hospital administrators, to diagnostic services that

connect general practitioners with specialists at

research hospitals, communications technologies

can provide rural communities with levels of health

care now available only in urban centers. These

technologies can also help cut costs so that rural

hospitals could remain open when they otherwise

could not.

These applications will have a greater chance of

success if they are part of a comprehensive development strategy. The implementation of technological

solutions takes time, money, and knowledge, so

small rural hospitals or schools that are already

Straining to survive might not be able to integrate

technology into their strategic planning without

some sort of guidance.

Type II Strategies: Building Industrial or

Enterprise Capacity

The development of human resource and social

infrastructure will not help an unemployed or

underemployed rural person if there are few job

opportunities in the community. To overcome this

obstacle, economic development must also seek to

expand employment opportunities.74 Most economic

development strategies presume that communities

must increase their productive capacities in order to

attract or develop jobs and make their economies

self-sustaining. These strategies often attempt to

develop a “base” for economic activity.75

The basic assumptions of resource development

strategies for rural areas are:

●

●

●

Most areas can support expanded industrial or

commercial activity because their resources are

currently underutilized.

Barriers to development include lack of information about the area’s resources, inadequate

physical facilities, lack of fins, or poor

financing.

The effects of increased business activity will

multiply throughout the community; thus the

public good is served by having increased

economic activity, even at public expense.

Traditional economic development approaches

share these same assumptions, however, their narrow business focus sets them apart from an integrated development approach. A Type II approach

recognizes when the critical human and political

infrastructures are in place, but the community still

lacks economic stimuli.76 A Type II approach is,

therefore, consistent with a holistic development

approach.

Type II development strategies might include

efforts to attract outside fins, or programs to

expand and retain existing businesses in the community.77 A Type II strategy might emphasize local

financing projects if access to capital is a barrier to

increasing employment in a community. 78 Or a Type

II approach might focus on infrastructure development if shortfalls of the local transportation, sanitation, water, electricity, or telecommunications sys7~~p~-wok for this type of development is the five “M’s”. According to this premise, economic development needs Money, Materials,

Management, Marketing, and Manpower. See Blakely, op. cit., footnote 20. Other paradigms draw on the interplay between fmcreatio~ expansiou

financing, infrastructure, and technological transfer. In many cases the emphasis is to discover the industries that fit the community’s resources.See also

Barry M. Moriarty, “Industrial Imcation and the ‘Ilmory of the Urban Labor Market” (Chapel Hill, NC: University of North Care@ Department of

Geography, 1982), mimeo.

751,u Some cases, this base will bC a _industry or resource, such as agriculture, forestry, or mining. In other cases, a natural resource can provide

an attractive site for touri~ trade, or transportation-related services.

76~~r caution ~xtthe ~tio~d~elopm~t~p is tit by @nd to -t@o~ ~owth mtheI mcreate it. The p~lllke Of

industrial attraction usually is to attract economic activity that could occur somewhere else-a“beggar-thy-neighbor” approac-ther than to create

new economic activity.

~wi~ any of -strategies, it is criticaI that development planners at the local level bear in mind wbat types of jobs SUCh effO~ MU ~ to ~

community: jobs that will stay rather tban leave for lower wages or tax breaks elsewhere, and jobs that will provide full-time employment tbat matches

the skills of indigenous workers.

78~blic or ~v~e~-scould x-low fm f-~co~d ~o~ ~~tmtes but due to thek ~ location could not get fbllcillg. A

municipality could issue bonds, which would provide money at below market rates to selected economic development projects. Additionally, local efforts

could seek out Federal interest rate reduction programs such as the Small Business A&mm“ “stration programs, which are typically administered in State

agencies. Inmanycases, it is lack of information about financing activities that inhibits access to capital in rural areas. For example, small business makes

up a larger share of rural canployment tban in urban areas, and rural banks tend to have limited incentive and capability in dealing with business loans.
Chapter 4-Rural Development ● 107

terns are barriers to job growth.79 When remoteness

from markets and market information is a barrier to

local employment, market identification and development can play a critical role in a Type II strategy .80

Often, rural communities have difficulties in finding

markets for their products or establishing the institutional ties to develop markets. A promising strategy

for business growth in rural areas is an analysis of

local spending patterns to determine what types of

businesses are not locally available, but which the

local market could support. For example, small

communities of a certain size tend to have enough

business to support a dry cleaners and a hardware

store, so communities of that size could encourage

the establishment of these businesses.8l Such strategies tend to provide a better balance between rural

and urban areas. Thus, rural citizens spend money in

their own community, where it can stimulate further

economic activity, rather than in urban centers,

where the multiplier effect is lost.

The variety of applications of telecommunications and information technologies in business make

them an especially attractive component of a Type II

strategy. For a community trying to attract outside

businesses, a telecommunications service such as

New Mexico’s “One-Stop-Shop” could be helpful.

This program enables small and large businesses to

access an online database that provides information

about communities across the State.82 Although this

program mainly allows outside businesses to select

potential locations within New Mexico, communities could benefit from an analogous database, with

information about firms looking to relocate. This

could assist in matching the needs of firms with the

communities’ development criteria.

Communities seeking to develop business from

within the community could use communications

technologies to directly target markets for local

products and services. The Palouse Economic Development Council, working in the interests of four

counties in southeast Washington State, has such a

project. Using communications technologies, local

fins, ranging from a farm equipment vendor to a

local computer consulting firm, market their products overseas. In this way, businesses that require a

relatively large market can exist and prosper in a

community that could not previously support them.

In a similar fashion, communications technologies

could be used to identify investment capital that is

unavailable within the community. For both local

and outside businesses, such an application could

make an important difference.

The use of communications and information

technologies requires various levels of firm, community, and State involvement. If a network or

bulletin board existed, perhaps only community or

even firm coordination would be necessary to link

up. If a system does not exist, concerted action by

many players, including telecommunications providers, is needed. Individual firms cannot afford to

design and implement such a system since the cost

would exceed the benefits to a single firm. If the

costs are spread across several businesses, or if a

wspfi~-~c~ePmj=ts, Such x indus~parks, were long heralded as prere@sites for economic development in fi~~.For

example Kale and Lonsdale write, “The presence of developed industrial sites or parks will probably become an increasingly important consideration

for many industries seeking a nonmetropolitan location. . .Towns without [developed sites] may fd themselves automatically excluded ftom

consideration by prospective industries.” Steven R. Kale and Richard E. Ixmsdale, “Factors Encouraging and Discmmgiug Plant Location in

Nonmetropolitan Areas,” Richard E. Imnsdale and H.L. Seyler (eds.), Nonmetropolitan Indusm”aZization (Washington DC: Winstaq 1979). Evidtmce

for this point of view is negligible; critics assert that the growth-inducing properties of such projects are a myth. For example, Belz.erand Kroll idcMMad

24 industrial parks that had been placed in rural Northern California timber communities. Of these parks, 16 stood totally empty tim a decade, and only

two, built forlumbermills, were full. DenaBelzez and Cynthia Krol&NewJobsfor the TimberRegion:Econom”cDiversijicationforNorthern California

(Berkeley, CA: University of Califomi~ Institute of Governmental Studies, 1986). There aremanyaccountsof similar developments with similar resuks.

Infrastructure shortfalls canbe important barriers to increasing employment in a rural community. Many rural rail lines and roads areinpoorconditio~

_access to these areas both time consuming and costly. Inadequate water supply and sewage capacity constrain business activity in many rural

areas. Whereas most rural residents can use wells and septic tanks or small package plants for sewage treatment industrial demands are generally too

kgeforsuchsrnall-scale systems. Federal environmental protectionprograms, along with Corps of “

~pro-tit ow~ed through the 1970s, provided a significant share of funds for the expansion of municipal systems, but these programs have dramatically reduced their funding in recent years.

Communities that did not get their systems upgmded when the Federal money and initiative were available will find it difllcult to do so now.

~or example, in the introduction of the kiwi fruit by California agriculture interests, there was an active interplay between the production interests

who planted new acreage and their producers’ organizatio~ which conducted extensive marketing efforts to introduce consumera to the new fruit. In

another example, rural economic developers have found markets for locally produced agricultural products, rnanufacturedgoods, or arts and crafts items,

often in foreign countries; a Wisconsin fm developed a way to make chopsticks for an expmt mark~ in Washington Indians started marketing their

smoked salmon in major department stores in New Yoriq instead of limiting themselves to the local market.

SISuch opp~ties ~iden~led USing a shift-sIMI-c analysis technique. See Blakely, op. cit., fOOtrlOte 20.

s~cluded on the database is information about f~ial resources, labor statistics, site and building locations.
108 ● Rural America at the Crossroads: Networking for the Future

grant provides the initial funding, the combined

benefits to firms in the region can justify the costs.83

Type III Strategies: Developing Social and

Organizational Capacity

In addition to human resources and a vital

economy, sustainable development needs an active

community structure. A Type III development strategy is needed when a community lacks social

and community organizations to motivate citizens,

mobilize opportunities, and expand on existing

resources. Without community capacity, few locally

owned businesses will be created, and the community will have neither the ability nor the will to

control its destiny.

Community development projects have evolved

through three models.84 The first model utilized

technology transfer to bring modem and sophisticated knowledge and techniques to rural communities,85 including information about community planning, government administration, and the economy. 86 The second model built on the experience

with technology transfer programs, which showed

that active social networks were necessary for

successful technology transfer to take place. Thus,

this model emphasized forming communities into

stronger social groups. 87 The third model took

community alliances a step further to focus on

forging linkages among the active groups, if they

already existed. Coordination and mediation among

community groups and other institutional players

are critical for development. Such strategies usually

involve community development organizations and

small business programs.

Since the end of the Great Society initiative,

community development programs have been subPhoto credit:Mark G. Young

The Community Services Center in Warrenton, Virginia

undergoes expansion as the area is touched by the

metropolitan sprawl of Washington, DC.

stantially cut back. Such programs have never been

perceived as being widely successful in rural communities. There have been isolated successes, but

the general failure of these programs to meet the

needs of rural communities was likely due to the

programs’ complexities. Eight criteria are associated

with successful community development organizations:

1. ample startup money;

2. a base of community support, including influential persons and community groups;

3. clear, specific, and understandable goals;

4. involvement of the intended beneficiaries in

the development process from the start;

5. managerial capability;

 of arrangement. This electronic ‘@@

to communicate with one another and share information about markets and about computer applications (see box l-E).

 and op. cit., footnote 54, pp. 137-142.

 U.S. community development came the agricultural extension program. agriculture, it 

that more efficient agricultural production was often blocked by communities. For example, early research on the diffusion of innovation showed that

 would not be adopted by individual farmers some opinion leaders first the innovation or gave personal

encouragement to local farmers to adopt it. Abbe “Cooperative Extension: A Functional Model for Transfer and Economic

Development in Rural contractor report prepared for the of Technology May 1990.

 so much to the cities small rural communities the basic businesses 

deemed necessary to the continued economic well-being of the people living there. Responding to this trend and the needs of rural citizens, the USDA

 development part of the official functions of the Cooperative Service. Bryan

 “History of Community Development in Co Development James A. Christenson and Jerry W. Jr.

(Ames, IA: Iowa State University Press, 1980), 2. The Johnson administration added a large number of development programs as part

of the “Great Society” effort.

 of 

social and economic change and develop self-help strategies.
Chapter 4-Rural Development ● 109

6.

7.

8.

diverse approaches including technical assistance provision, capital formation, human resource development;

successes to build on; and

dedicated leadership that will persist in their

role and learn during the difficult times their

organizations go through.88

Despite the complexities involved in community

development strategies, they can succeed in a variety

of forms. Planning departments of local government,

federally funded programs such as Farmers Home

and Economic Development Administrations, local

development corporations, and private groups are

also essential. However, these groups typically

operate with little knowledge of the other community groups, or the interests and needs of the larger

community.

Coordinating local institutions is an important

step in the development process. Such efforts are

difficult to organize because they require cooperation and planning among several groups from within

and outside the community. The difficulties in

orchestrating such a strategy are compounded because the effects of community development on

economic performance are often indirect and unplanned. Well-organized rural communities can still

decline if there are too few jobs or if the economic

benefits are isolated. A Type III approach is effective

and appropriate only when a weak community

structure is the primary obstacle to rural development. Without human resources or economic activity to sustain organizational initiatives, a Type III

approach will not work.

Communications and information technologies

can play an important role in a Type III development

strategy. For example, to the extent that the telephone reinforces a sense of community,89 it could be

valuable for a population in which a strong community and family bond are important cultural characteristics. 90

More sophisticated technologies would allow the

electronic delivery of public assistance programs.91

Similarly, by streamlining the operations of local

agencies, communications and information technologies can strengthen their effectiveness in the

community. For example, information technologies

can generate budgets, estimate the number of calls,

project annual operating costs and annual revenues,

and optimize ambulance location(s) in a rural area to

minimize response time and/or cost for emergency

medical units.92 Such analyses could be useful to

improve many government and community functions. By pooling the needs of several programs,

agencies could better afford such a system and

would also become aware of each other’s activities.

Type IV Strategies: Developing Economic and

Community Resources

A Type IV rural development strategy blends the

benefits of Type II-business development—and

Type III-community development—programs, and

overcomes many of the disadvantages of pursuing

each alone. Type IV programs are complex to design

and to fund. They are also difficult to administer and

evaluate, and require the economic development

resources of Type II programs as well as the

institutional and community capacity of Type III

programs as inputs to a successful strategy. Despite

these difficulties, Type IV strategies can effectively

bring together the necessary ingredients for a

self-sustaining and vital community .93

ggHubti L. Smith with SUSan Hudson-Wfison and Heather Paley, Non-Agricultural Rural Development: Four Case Studies @OStOn, MA: Boston

University, Institute on Employment Policy, August 1980).

8~e1bowicz, op. cit., fOO~Ote 55.

90sm&a M. ~en~out, “Ufiv~~ Senlce fi tie Navajo Nation Now a possibfli~ wi~ wireless Digi~ mess,” Wpublhhd paper, 1990.

Armentrout explains that the Navajo Nation possesses the cultural characteristics that make community and family bond important. Hence, the telephone

plays an important cultwv-enforcing role.

91u.s. CoWess, ~lce of ~~olo~ Ass=sment, E1ec~onic Delive~ Of public ASS&ance &n@S: Technology Options and policy ISSUS,

BP-CIT-47 (Washingto~ DC: U.S. Government Rinting Off3ce, April 1988). Millions of retired persons receive their social security checks in rural

locations. Sometimes errors are made and service is delayed, but overall, electronic funds transfer and computerized administration have the potential

for improving the administration of social security and other government entitlements programs. But if computerization makes it more diffkxdt for

beneficiaries to get information or correct errors, technology could undermine the effectiveness of the progmrns.

~Lu~er Tw~t~, “Hi@ ‘Ikchnology in RLUd Set’tiIlgs, ” stat-of-the-art paper, OffIce for Research in High ‘lkchnology Educatiou University of

lknnessee, 1984, p. 33.

gssteven Habersfeld explains, “unless both the material and human/iistitutional dimensions are addressed simultaneously in community economic

development there will never be a basis for self-sustaining development to break the economic and psychological dependency that exists in these

communities. ’ Steven Habersfeld, “Economic Planning in Economically Distressed Communities: The Need to ‘lhke a Partisan Perspective,”

Econonu”c Development and Luw Center Report, October/December 1981, pp. 7-16.
110 . Rural America at the Crossroads: Networking for the Future

A Type IV strategy recognizes that rural organizations must learn to build local economies based on

their natural and human resources. A community

must identify the public and private resources

available to it, and then invest in the missing parts.

It must selectively focus on programs and projects

that yield the highest return and ensure diversity in

the local economy.

Simultaneous development of economic and community resources contrasts with conventional economic development approaches in several ways:

●

●

●

instead of simply equating more businesses

with more jobs, the community should look for

firms that build quality jobs that fit the needs

and skills of the population;

instead of building on a single economic sector

(e.g., agriculture or manufacturing), build sets

of integrated economic activities that bridge

economic sectors;

instead of focusing on physical assets, focus on

the quality of the environment that stems from

extensive community development activities;

and

instead of focusing on available labor, focus on

the ability of the human resource base to

expand to meet the needs of growing and

changing industries.94

This type of development strategy seeks a fit

between the economy and the people of the community. It requires community control and participation

in the development process. This approach also

requires local firms and agencies to participate as

partners in managing the community.

The Community Development Corps (CDCs) that

evolved from the War on Poverty provide a useful

model. They are locally rooted, with strong representation from the community. They are structured

for a variety of activities, such as running for-profit

companies, making loans, and obtaining training

grants. They pursue a broad agenda of community

development and economic growth. The variety of

tasks the CDCs perform include:

● using private development techniques for public purposes,

●

●

●

●

●

●

●

targeting benefits to communities and individuals in need,

mobilizing local initiative to address local

priorities,

taking a long-term approach to development,

linking planning to implementation,

linking complementary projects within a comprehensive strategy,

linking public and private sectors, and

reinvesting resources in the community .95

The reduction in Federal funds for such programs

has reduced the scope of CDCs, but nevertheless

their functions are important as guides to a holistic

strategy. Even in a changed political environment,

CDCs can pursue many effective programs and

marshal needed resources.

In addition to CDC development programs, Type

IV strategies can take advantage of many other vital

community resources. For many communities, the

local colleges, hospitals, and other public organizations are the backbone of local employment. For the

most part, these organizations are not called on to

play an economic development role. Yet, they

possess a large and untapped reservoir of talent and

resources that can benefit economic development.

For example, hospitals have helped start nursing

homes, health and recreational facilities, and other

health maintenance activities. Hospitals or colleges

could also share computer facilities, training facilities, and meeting rooms with local groups. This

could help defray some of the institutions’ costs and

make these resources available to the community.

The most extensive involvement for these institutions is to actually become partners in private

ventures that will create jobs in the local community.%

By taking an integrated approach to development,

government programs can attack a larger set of

problems. For example, housing programs can be

linked to occupational training programs in construction trades, and the county planning department

can stimulate development projects that produce

local jobs. Waste disposal agencies can establish

recycling or energy production projects that might

stimulate related industries. Several regional devel-

!)4B~ely, op. Cit., foo~ote 20. pp. 68-70-

fiB~nF. Roberts, Robert O. Zde@ and William E. Bivens ~,CO~ na”ty Development Corporations and State Development Policy: Potential

fm Partnership (Washingto~ DC: National Congress for Community Economic Development December 1980).

MS= ~ K. Bmds~w, Bfi My~, ~d ~~~wm ‘tcomm~~ Colleges ~ Job Cration ve~cles in S@~wns,” SmalZ Town, May-June,

1987, pp. 26-28.
Chapter 4-Rural Development .111

opment projects, such as the Tennessee Valley

Authority and the Appalachian Regional Commission, provide examples of development integration.

Regardless of the institutional setting, an integrated approach must combine the interests and

resources of several groups. This approach builds on

the best of the other strategies; it relies on trained

individuals, whose basic needs are provided; it

builds strong economies from strong communities

and ensures that the benefits accrue to the community, instead of outsiders.

The complexity of Type IV strategies is evidence

that there is no shortcut to rural development.

Projects are often costly and time consuming,

requiring sustained support in order to develop the

leadership and the community roots necessary to put

the pieces together and generate local jobs. They

require extensive planning, coordination, and cooperation, and demand innovation and creative use of

scarce resources to accomplish their ends. Therefore, local economic development projects are often

at the center of political conflict.

Such strategies are largely unprecedented, so

examples of how technologies can be employed are

scant. With its statewide university fiber optic

network for distance education, Maine’s efforts

represent one of the frost steps in an integrated

development strategy .97 Recognizing that half of the

jobs in the State would disappear by 2000, to be

replaced by jobs requiring higher levels of education, the University of Maine System saw the need

to increase people’s access to education.98 As part of

this plan, the University of Maine at Augusta, with

a grant from the U.S. Department of Education,

provided the front capital that allowed New England

Telephone Co. to install fiber optics throughout the

State decades before this would have otherwise been

economically possible. The University broadcasts

courses to remote campuses and high schools across

the State (see figure 4-6). The system also allows for

special events programming and teleconferencing.

For example, the Maine Department of Economic

and Community Development uses the University’s

facilities to conduct monthly teleconferences between Portland and Augusta, eliminating the need

for travel; Head Start has used the system to deliver

interactive programs on child care training; the

Figure 4-6-The Community College of Maine

The backbone of the Community College of Maine’s

Interactive Television System is the University of Maine

System’s seven branch campuses that are linked by

high-capacity, fiber-optic, digitally switched lines. Specially

equipped electronic classrooms permit interactive classes

(both audio and video) at multiple sites. In addition, the 6

technical colleges, 11 university centers, and about50high

schools serve as receive sites for the transmission of

interactive secondary and postsecondary courses. The live

classes are transmitted throughout the State by microwave. Each receiver site is equipped with a television, a

VHSNCR and cordless phone for students to communicate with the teacher and students in the other classrooms.

In its first year in operation, 36 courses were transmitted to

more than 2,500 students at 47 locations.

SOURCE: The Community College of Maine, Year

 Office of Distance learning, University

of Maine at Augusta.

 have plans for 

 University of Maine at Annual Report: 
112 ● Rural America at the Crossroads: Networking for the Future

Maine Municipal Association broadcast a four-way

interactive program that explained the changes in

laws affecting municipalities in 1990; and Lotto

America broadcast presentations introducing lottery

agents to Lotto America, using 42 of the system’s

remote sites.99

The case of Maine illustrates how institutions can

and must work together in order to orchestrate an

integrated development plan and to employ communications and information technologies as part of

such a plan. Although the University administers the

system, there is a symbiotic relationship among the

many uses and users of the system. This type of

relationship makes the system viable. Without the

agglomeration of users, the deployment of DS-3100

capacity would be economically infeasible; yet it is

the broadband capacity that makes the system useful

for so many purposes.

%bid.

100DS.3 ties ~ve a ~aci~ of45 me~i~. ~S compares to the more common T-1 line, which has a capacity of 1.5 me@it.s. For more de~ed

information. see ch. 3.
Chapter 5

Regulation and Rural Development
Contents

Page

Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., . . . . . . . . . . . . . . . . . . . . . . . . . 115

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

. . . . . . ● ,,.... . . . . . . . . . . . . . 115

Regulatory Implications for Economic Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

Technology Diffusion and Network Modernization . . . . . . . . . . . . . . . . . 115

Rate-of-Return Regulation ..,.. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

Depreciation Practices and Modernization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

Alternatives to Rate-of-Return Regulation . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . 119

Cable Television . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... . .......... . . . . 120

Information Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

Affordable Technologies Necessary for Economic Development. .

. . . . . . .... . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . 123

LATA Boundaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123

Extended Area Service . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . ... . . . . . . . . . .... . . . . . . . . . . . 124

Coordination of Users and Providers: Leveraging Demand and Supply .. ................ 126

Rural Area Networks: Coordinating Users . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

Rural Area Networks: Coordinating Providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 129

Boxes

Box Page

5-A. Experimenting With Price Caps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., .. ., ... ... ...... 120

5-B. Price Caps With Rural Provisions. . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . 121

Figures

Figure Page

5-1. National Local Access and Transport Area (LATA) Map ... ...... .. .. .. .. .., .+. . . . . . . . 125

5-2. Rural Players .. .................... . . . . . . . . . . . . . . . . .

. . . . . . . ... . . . . . . . . . . . . . . 127 7

5-3. Bloomsburg, PA Telecommunications Network Configuration .. .. .. . ................... 129.

5-4. Iowa Network Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130

5-5. Palmetto Network Configuration ..,. . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . 130
Chapter 5

Regulation and Rural Development

Findings

Telecommunications regulation has greatly affected the extent to which rural areas gained access

to telecommunications in the past. Despite deregulation, regulatory decisions will continue to determine

whether rural areas have access to advanced telecommunications and, hence, whether they can participate fully in the global marketplace.

The small populations and large distances of rural

regions are incompatible with the economies of

scale that characterize many aspects of telecommunications. As a result, market forces, absent regulatory mandates and incentives, rarely work to benefit

rural areas. Current regulatory approaches do not

bridge the gap between market forces and the

technology needs of rural areas.

Regulators must develop new regulatory approaches for rural areas. The communications infrastructure provides socioeconomic benefits that must

be incorporated into their cost-benefit analyses.

Similarly, the indirect costs of distance-sensitive

pricing practices such as interLATA and interexchange toll charges, which make communications

more expensive for rural citizens, must be evaluated

in this context. Regulation must also encourage

communities and telecommunications providers to

find new ways to create economies of scale and

scope, making the deployment of advanced communications technologies to rural areas financially

feasible.

Introduction

The conflicts between economic development

goals and regulatory goals stand out in rural areas.

From an economic development perspective, communications is a means to a larger end. The current

regulatory climate, however, views communications

narrowly, as a commodity to be bought and sold. As

such, it is an end in itself. Urban areas, with many

independent users who can create their own private

communications networks and afford the costs of

interconnection, can adjust to and benefit from such

regulatory policy. In rural areas, however, this is not

the case. It is more costly to deploy technologies in

remote areas, and there are fewer users to share these

costs. Therefore, if the infrastructure evolves by

market forces to meet the needs of dispersed

individuals in rural areas, it will be uneven and

service quality will vary.2

It is important for policymakers to consider both

the commodity and infrastructure characteristics of

communications technologies in determiningg their

role in rural development. While focusing on communications as a commodity may lead to inadequate

infrastructure in rural areas, treating all infrastructure development in a uniform manner could waste

resources.

Communications can help arrest the decline of

rural areas, so it is imperative to balance rural

economic development and regulatory goals. Currently, little is being done to achieve this. Regulators

rarely consider multifaceted economic development

goals when making regulatory policy. On the other

hand, educators, health officials, and local government are often unaware of what is at stake for them

in the regulatory process.

Regulatory Implications for

Economic Development

Technology Diffusion and Network

Modernization

Economic and technological trends are changing

the global economy and transforming rural economies, forcing them into the information age. The

speed with which rural areas will gain access to the

advanced technologies, allowing them to participate

in the information economy, will be determined

largely by the regulation or deregulation of communications and information.

IAIOW with the State legislators and the courts, who detae the scope of regulators’ authority.

2A ~ev~y develo~ ~e~ofi ~~ve~ ~~t~liatiom, As he tec~ologi~ sop~tication of ~public switched network in~~,

the potential for geographical disparity of service also incmwes. A danger is that the network will continue to evolve, but with ditTerent standards of

service depending on the power a region or community can leverage in the telecommunications marketplace. Even under the unified Bell Syst~ the

network evolved unevenly. As a resul~ locations exist in rural areas where there is no telephone semice, while other remote locations that are able, like

most urban regions, to generate enough demand or comman d public service comrnis sion attention have relatively sophisticated communications.

–115–
116 Rural America at the Crossroads: Networking for the Future

During the era of the Bell monopoly,3 regulation

encouraged subsidized service to rural areas from

the excess revenues earned in densely populated

areas. This is no longer the case. Nonetheless, the

partially competitive post-divestiture climate encouraged alternative providers, such as digital radio

carriers, to enter the communications market with

innovative products that can improve service in rural

areas.

Rate regulation critically affects network modernization and technology deployment in rural areas. In

many areas, rate-of-return regulation is giving way

to price-cap regulation and the impact on rural areas

is uncertain. In addition, other forms of regulation,

including depreciation rates and the cable/telco

cross-ownership ban, also impact rural network

modernization.

Rate-of-Return Regulation

Until recently, both National and State regulators

almost exclusively used rate-of-return regulation for

the telecommunications industry. Under rate of

return, regulators determine the total revenue a firm

requires to provide service. This revenue requirement includes operating expenses, depreciation and

taxes, and a “fair” return on its rate base. The rate

base consists of the total of the firm’s invested

capital, including switching, transmission, and distribution facilities.

A number of subtleties of rate-of-return regulation

affect the incentives to improve the network facilities and to extend service to rural areas. These

factors involve how regulation treats the fro’s costs

and how these costs affect the consumers’ prices.

First, regulators can allow or disallow modernization costs in the rate base. If these costs are allowed,

the rate base increases and the firm must raise more

money from its subscribers through higher rates to

generate the prescribed rate of return. If the costs are

disallowed, then new equipment does not become

part of the rate base and the company may not be

willing or able to invest in plant equipment for which

consumers do not directly pay. In this case, modernization likely occurs more slowly. Regulators must

Photo credit: Mark G. Young

A “Slick-96” host-remote switch in Houlton, ME. This

remote digital switching unit improves the quality of

transmission for rural residents because their calls no

longer necessarily have to travel the many miles, along

which the signals get attenuated, to the central office

switch in a larger town.

strike a balance between technological sophistication and the cost to the consumer.

Regulators also determine how costs are split

between consumer groups, such as residential and

business. Businesses usually pay more than their

proportional share of the costs so that residential

consumers can pay lower prices. Similarly, urban

areas historically have paid more than their share of

the costs to subsidize rural services.

Many inefficiencies are attributed to rate of return

regulation, 4 but two problems are particularly relevant to network modernization and technology

diffusion to rural areas. First, regulators must rely on

cost forecasts and data provided by the firms they

regulate to determine the revenue requirement. The

allocation and justification of costs determine the

prices consumers are charged and affect the fro’s

rate of return. Hence, there are incentives to misreport costs. Regulators must be wary that a firm could

report cost estimates higher than its actual costs,

charge customers higher prices, and thus earn a

higher return. However, regulators must also be

concerned about revenue short-falls caused by faulty

3& still allow for subsidies of 

diminished since the divestiture of AT&T and the growth of a partially competitive telecommunications market. If the telecommunications industry

evolves, as many believe it will, toward an even mom competitive structure, the system of subsidies that benefits communities could become further

eroded, either forcing the era to pay higher rates than their urban counterparts for comparable service, or implying that rural telephone companies

might not be able to invest enough in their facilities to maintain adequate service---service comparable to that in urban areas.

 R. and C. “Diversification Incentives Under ‘Price Caps’ and ‘Cost Based’ Rand Journal of

Economics, vol. 20, No. 3, autumn 1989, p. 390.
Chapter 5-Regulation and Rural Development ● 117

cost estimates. If a firm’s costs significantly exceed

the estimated costs, resulting in a lower than

prescribed rate of return, the firm might not be able

to afford modernization costs. Although there is no

guarantee that the company will recover its entire

revenue requirement, on average the company will

earn close to a market return on its investment.5

Second, some believe consumers face higher

prices because rate of return can induce firms to

overinvest in capital.6 Because the amount of a

firm's return is directly proportional to the size of its

rate base, the firm might seek to expand its rate base

by investing in more technology than would be

economically warranted without the regulatory incentive. 7 Such investments can be wasteful because

consumers pay higher rates for unneeded technologies.

In addition to making the rate base larger,

over-capitalization can increase revenues in other

ways. In the past, the separations and settlements

process affected the relative costs of modernizing

different parts of the local network. Since a local

exchange carrier’s (LEC) share of pooled nontrafficsensitive (NTS) costs determined its share of the

settlements pool, there was incentive for overinvestment in certain facilities. Recently, the LECs’ desire

to insulate themselves from competitive pressures

may have led them to invest in technologies that

raise entry barriers or lower their own costs at

strategic points in the network. However, it is

difficult to prove that these are anticompetitive

practices, and there are no reliable empirical studies

supporting this hypothesis.

To safeguard against over-capitalization, firms

must gain regulatory approval to make large capital

investments. Regulators determine whether demand

for the proposed technology exists in the local

community before it is approved. This process

requires the community and regulators to understand

the potential and capabilities of telecommunications

to improve community life. Rarely does such an

understanding exist, either in the local community or

in the regulatory bodies.9 Thus, the regulators’

efforts at consumer protection can work against the

consumers’ broader interests.

Industry observers question whether rate-ofreturn regulation actually produces incentives for

the firm to overinvest in capital. They contend that

the many assumptions-about the regulated firm,

the industry, and the regulatory agency—needed for

the method to function make it ill-suited for the

telecommunications industry.l0

As the telecommunications industry becomes

more competitive, the effects of rate-of-return regulation become more complicated. With more private

networks, the costs of completing calls between the

shared public network and private networks could

rise because fewer customers are sharing the costs on

the public network. This trend could affect how

much subscribers to the public network must pay

5Sanford Berg, “Regulatory Structures and the Deployment of Information ‘IiAmologies in Rural Areas,” contractor report prepared for the (lftlce

of lkchnology Assessment, June 1990.

bBreutiga,m and P~, op. cit., footnote 4. As part of the overinvesbnen~ fms might choose inefficient technologies or undertake cost-reducing

innovation in an inefilcient way. For example, a cost-reduction innovation could require more labor input but the fm would substitute more expensive

technology for the labor in order to increase the rate base.

TAverch and Johnson first identifkd this tendency in 1962, in their*UPim, ‘‘Behavior of the Firm Under Regulatory Comtrain4° American

Econonu”c Review, vol. 52, pp. 1052-1069.

8As Jo~ T. Wmdtis exp~,tie ~paratiom and set~em~ts process is extremely COmpliGXed: “[i]t iS a fU1l-emp@mentact for accoun~ts. c “

Separations simply refer to the policy of separating both the traffic and nontraffic sensitive portions of local accounting costs into two parts: One part

remains in the state jurisdiction in which the exchange is locat~ and the other part is assigned to the interstate arena under the~sdiction of the Federal

Communications Commission (FCC) where these costs are added to the cost of providing interstate toll services.” John T Wenders, The Econom”cs

ofTelecommunications: Theory and PoZicy (Cambridge, MA: Ballinger Publishing, 1987), p. 2. This process was an integrrd aspect of the rate averaging

between high-cost and low-cost service areas, which benefited rural areas because of their high cost of service.

g~. 4 desfi~~ how tie lack of fiomtion about and ~dem~~g of tie role of information t~~ologiesin wllllllllrlity and @XXIOIUiC

development serves as a barrier to rural economic development. Even if rural communities gain access to sophisticated technologies, lack of

understanding of their capabilities will persist as a barrier unless some form of technology transfer and education is part of a larger development plan.

l~rwks B. Albery and Mark P. Sievers, “TheAverch-Johnson-Wellisz Model and the Telecommunications Industry,’ TheFederalCommunications

Law.JournaZ, vol. 40, No. 2, April 1988, pp. 157-192. Brooks and Sievers list 12 assumptions of the Averch-Johnson Mode~ 6 about the firmand6 about

regulation. About the fm: 1) the firm chooses inputs so as to maximize profic 2) the fro’s profit maximizing revenues are greater than its revenue

requirements as set by the regulator; 3) the cost of capital (r) is constant and is set in aperfeetly competitive environment 4) inputs are perfect substitutes;

there are no constraints on inputs employed; and inputs display “~~margti returns; 5) demand for the fro’s product or service is fix~ 6)

the fm has no competitors. About regulatiorx 1) the allowed rate of return is set greater than the fro’s true cost of capital (r); 2) revenue requirement

adjustments occur instantaneously 3) the only regulatory tool used by the regulator is the allowed rate of re@ 4) the firm is constrained by only one

regulatoc 5) cost minimhation (economic efficiency) is the only goal of regulatio~ 6) all parties possess perfect information.
118 ● Rural America at the Crossroads: Networking for the Future

and the extent to which they can enjoy advanced

technologies. In some situations, rate-of-return regulation can reduce incentives for efficiency and

innovation, and result in higher costs than with

alternative regulatory approaches. For example, why

should a firm undertake a risky modernization

program if consumers immediately benefit from any

cost savings resulting from innovation, but investors

must bear the risk of regulatory disallowances and

losses from unsuccessful innovations. Such asymmetric regulation can result in higher costs to the rate

payers, delay modernization of the country’s infrastructure, deny customers access to new and innovative services, and compromise the competitiveness

of regulated firms in the marketplace.

Regulators must be aware of potentially anticompetitive practices by regulated fins. Well-heeled

firms could subsidize a competitively offered service long enough to force out their competition. This

could effectively foreclose unregulated providers

from offering a competitive service, potentially

slowing the rate at which rural areas could gain

access to new technologies. Yet, excluding regulated firms from competitive markets could deny

consumers lower prices, and deny investors of

opportunities to take advantage of new markets.11

The effects of regulation on network modernization are complex and generalizations cannot be

made. Since incentives for innovation and network

modernization are central to economic development,

it is important that the implications of rate of return

regulation be considered in the context of economic

development. When communications is viewed as

an infrastructure, necessary for a variety of social

and economic functions, the regulator’s dilemma of

allocating costs gains a different perspective.

Regulators must consider the costs to society and

also to the individual subscriber, if the community

cannot link up with the rest of the world. If the local

hardware store cannot exchange data with the larger

national franchise, it may not be able to remain in

business. If the school cannot access library information services or video courses, the community

suffers in the short and long term. Similarly,

regulators must also consider the value of the range

of applications of information technologies within a

community. Telecommunications access to state-ofthe-art medical technologies, international markets,

and distance learning curricula is more valuable to a

community than merely the ability to make routine

telephone calls. The effects of rate of return regulation could be very different if regulators calculated

the costs and benefits of network modernization and

technology for economic development.

Depreciation Practices and Modernization

The rate at which a company depreciates its

capital investments affects the rate at which it can

modernize its facilities .12 A long depreciation schedule can imply a slower modernization process

because the cost of equipment must be spread over

a long period of time. In this case, a firm could not

afford to make new investments as quickly, but

subscribers rates could remain low. A short depreciation schedule recovers the cost of an investment

over a short time, and the consumer absorbs this with

higher rates. Because the firm recovers the cost of

the investment quickly, it can afford to make new

investments sooner. In addition, the shorter payback period means that the company will pay less

interest on the loan, and therefore the total cost of the

equipment will be less. Thus, although the higher

cost is passed to consumers, they ultimately pay less

for that technology .13

Historically, rural independent telephone companies have faced relatively long depreciation rates.

Rather than replace their equipment with new

technologies before the old equipment was fully

depreciated, most companies continued to use electromechanical switches while urban areas installed

analog electronic switches. Technology advances

have occurred rapidly in recent years, so digital

electronic switches have replaced analog electronic

switches as the preferred technology. At the same

llsome analysts call for “resid~ pricing” of core services, using revenues from new services with market-based priceS tO cover a pOfiOn of smed

costs. However, the share covered by new semices would not be based on some arbitrary ‘‘fully allocated cost,” but on what the market dictates.

lz~e MS ~Wem deprmiation practices and modernizah‘on are cle~ in theory, although quantitative studies are unavailable. One of the few

empirical studies in this area found that higher realized rates of return lead to greater investments in plant modernhtion by AT&T in the 1%0s and

1970s. B. Branch “Quality of Service and the Allowed Rate of Return: American ‘IiAephone and lklegraph,” Journul of Econom”cs andBusiness, vol.

32, 1979, pp. 86-98.

lss~cdy ~~,~i=orm ~ oppo~w cost t. tie Comuti of ~ex~ roomy thq WW pay for a ~orter period of time. COIMumerS will

pay less for the technology assuming that the telephone company carmot emn a higher return on the extra amount of money it would be paying on the

shorter depreciation schedule if it invested that money elsewhere and paid the utility over a longer depreciation schedule.
Chapter Regulation and Rural Development ● 119

time, the electromechanical equipment in some rural

areas was fully depreciated, enabling telephone

companies in rural areas to purchase digital switches

-essentially leap-frogging a level of technology.

As a result, many rural areas have digital switching

before their urban counterparts. Nonetheless, the

majority of rural areas are still behind urban areas in

terms of technology.

If regulators allow fast depreciation schedules, a

telephone company might modernize its network

more quickly. However, regulators must consider

the value of the sophisticated equipment in light of

the higher rates consumers must pay. Although

industry observers, regulators, and communications

companies continue to debate how sophisticated the

technology needs to be for the average consumer, the

scope of the debate and the range and number of

those debating are limited. When such debate

occurs, it often focuses on the residential users’

needs. If, however, communications is viewed as an

infrastructure, simultaneously supporting multiple

functions, the community’s need for advanced

technology is much greater.

In determining an appropriate depreciation rate,

regulators must balance not only the firm’s financial

needs, the effects on consumers’ rates, and the

expected life of the equipment, but also the level of

technological sophistication needed by the community. This requires accurate technology forecasting

as well as accurate accounting.

Alternatives to Rate-of-Return Regulation

Price-cap regulation is designed to overcome

some of the negative aspects of rate-of-return

regulation. This alternative approach sets a price

based on the firm’s costs for a designated group of

services. The set price changes over time, based on

inflation, improvements in productivity, and changes

14 By regulating prices rather in the prices of inputs.

than the costs of physical inputs, price caps create an

incentive for firms to innovate in order to reduce

costs and improve their efficiency.l5 Advocates of

this form of regulation argue that investors may face

greater risks, but the reward structure is more

symmetrical (see box 5-A).l6

Enthusiasm about price caps must be tempered by

a recognition of implementation difficulties. Regulators, for example, must consider what price levels

are appropriate as a starting point, what productivity

index should be used to partially offset inflation

adjustments, what items should be in the regulated

bundle and what items should be unregulated, the

extent to which the firm could cross-subsidize its

regulated services with the revenues from its deregulated services, the time period for such a plan, what

interval is appropriate for reassessing the price-cap

approach, and under what conditions and by what

criteria to reevaluate the results of price caps.

In addition, regulators must also monitor quality

of service for all subscribers. A firm with capped

prices can potentially discriminate between customers by making concessions to politically powerful

consumer groups or more profitable users .17 Furthermore, the firm may be subject to deregulation:

regulators (and legislators) cannot guarantee that

they will not intervene again in the future. A

reevaluation after a given time period is generally

specified in the negotiated price-cap agreement.

Price-cap regulation relies on competitive incentives for firms to undertake efficient and innovative

activities. This type of regulation could leave rural

14um~ly the @ce is set accor~ to a formu4 Such M pT+l = P= + 1— Z where PT+l is the allowed price, which is equal to PT, the price in the

previous time period, adjusted for inflatio~ I, and minus a given amount X, which accounts for increases in the fro’s productivity that should lower

its costs.

ISBr~tig~ ~dP~argue that, “at least in principle, [price-cap regulation] can induce the fm to minimize costs, produce efficiently in noncom

markets, undertake cost reducing innovation as an unregulated firm woul~ and diversify into a noncore market if and only ifdiversitlcation is efllcient.

Incentives to misreport cost allocations and choose an inefficient technology simply disappear.” Breutigam and Panzar, op. cit., footnote 4, p. 390.

Additionally, Cabral and Riordan (1989) fmd that incentives for innovation are greater under a price-cap system. L.M.B. Cabral and M.H. Riordm

“Lncentivss for Cost Reduction Under Price Cap Regulation” Jourrud of Regulatory Econon”cs, vol. 1, 1989, pp. 93-1(E2.

16~y~lieve ~tpfim.cWre@tiondso lwds to better regulatory oversighttxxauseregu lators Can focustitlyon the policy issues of conc~

rather than on detailed historical &ta, such as historic costs or depreciation expense, which can clutter regulatory proceedin~verting attentionfiom

how utility activity affects the telecommunications industry.

17~y ~w~tom ~d~onomists kfime that price caps create inC~tkS for h to disc rimiuate in such a way.
120 ● Rural America at the Crossroads: Networking for the Future

Box 5-A—Experimenting With Price Caps

Several States and the Federal Communication Commission have begun to experiment with price-cap

regulation. At the State level, public utilities commissions (PUCs) have undertaken price-cap regulation as part of

a technology deployment and economic development strategy. For example, in Vermont-a predominantly rural

State-the PUC granted greater pricing flexibility to the local exchange carrier (LECs) in exchange for a

commitment from the telephone companies to upgrade their technology and provide a basic level of service to every

community. Kansas recently took a similar approach. Under the TeleKansas plan, Southwestern Bell agreed to

invest $160 million in network technology at a faster rate than it would have under the traditional rate of return

regulation. In exchange for Southwestern Bell’s commitment, the Kansas Corp. Commission agreed to more

flexible pricing regulation. A number of other States are also taking similar approaches.

At the Federal level, the local exchange carriers have received price caps with ambivalence. Although all seven

of the Bell operating companies face mandatory price-cap regulation, the majority of independent telephone

companies have yet to yield to the new regulatory regime. Meeting the required productivity increases appears to

have discouraged some of the smaller telephone companies.1

l{ ‘~dewnden~ Snub WICO fiwCaPs, “ Telephony, Nov. 16, 1990, p. 20. See also, “Price Caps? NO Thanks,” Co~nications Week,

Nov. 12, 1990, p. 12.

areas vulnerable.18 Rural areas have traditionally they will be working with, the source of funds, and

been among the last to get new technologies

precisely because firms will maximize profits by

serving the least expensive, most lucrative, and

easiest-to-serve customers first. Analysts have little

hard evidence about how price caps would affect

rural areas because these plans have not been in

effect until recently, or have been implemented only

in limited cases, mostly for competitive longdistance service. If the regulatory flexibility of price

caps promotes beneficial technical change, firms

and customers, including those in rural areas, could

realize substantial savings (see box 5-B).

An analysis of the positive and negative incentives of price caps would be incomplete if costs are

viewed strictly as the cost of the firm’s investments.

Communications technologies are much more than

a commodity, especially for rural areas, so regulators

should treat investments in communications technologies as investments in community infrastructure. 19 Price caps alone cannot accomplish this. Even

if regulators implement a social contract, mandating

investments that firms would not make otherwise as

a condition of allowing price-cap regulation, regulators and firms must identify the costs and benefits

the-means to evaluate these investments. Will the

cash flows come from cost savings induced by the

new regulatory incentives? Will the financial markets view the new social contract as involving net

benefits to investors? Will prices in urban areas be

kept artificially higher—providing subsidies for

rural customers? Depending on the answers to such

questions, rural areas could benefit or lose.

Interestingly, in those cases where States have

adopted price caps under the condition that the

telephone company make specific investments, the

funds for those investments do not come solely from

productivity increases. Rather, urban consumers’ or

business rates are allowed to rise to compensate for

the increased investments in the network. Crosssubsidization between urban and rural areas, therefore, persists.

Cable Television

The possibility of one company providing both

cable television and telephone service could have

significant impact on the rate of network moderniza18Even urba areas and large business users can be vulnerable to some of the abuses that can arise from price<ap regukion. k markets without

effective competitio~ telecommunications companies will face greater incentives to maximize profits by not improving saice. This experience has

been the case inthe United Kingdom where price caps have been in place the longest. A Citibank executive notes, “for longer-hati long distan~ service,

. . .price caps have kept rates down because of the fierce rivalry between British ‘lblecom plc and Mercury Communications Ltd.,” but for less

competitive markets, such as local service and medium-distance toll service, Citibank ‘‘has fac~ escalating rates.” I@Meen Killette, “Price Caps

Criticized,” Communications Week, July 16, 1990, p. 12.

l~~ycm=, ~W~tom ~ecom~~~statelaw~dco~pr~ents in the extent to which they cmcomidamnomicdevelopm~t~ncems.
Chapter 5-Regulation and Rural Development ● 121

Box 5-B—Price Caps With Rural Provisions

Utah’s Public Service Commission recently

adopted price-cap regulations for the Bell operating

company serving the State. Under the new plan, US

West is granted greater pricing flexibility in exchange for their commitment to invest over $6

billion to upgrade their service to the rural regions

in the State. However, as a result of the new plan,

residents of Salt Lake will likely pay higher rates.

tion and technology deployment in rural areas.20

Economically and technologically, such an arrangement is not only possible, but also advantageous for

rural areas. Economies of scale exist for both

telephone lines and cable television lines in rural

areas and therefore, each is a natural monopoly in a

rural setting. 21 Both telephone lines and cable

television lines can carry digital information. Thus,

entertainment video as well as voice and data

messages could easily travel along the same lines.

This capability will grow as fiber optics, or other

high-capacity transmission media, are adopted for

cable and for telephone lines. Because it is so

expensive to lay the wires for cable television,

telephone, and other telecommunications services

across vast distances in rural areas, combining all

modes of traffic along one conduit could enable rural

areas to take advantage of economies of scope and

thus more easily and quickly afford a sophisticated

communications infrastructure.

Despite the potential advantages of jointly providing services in rural areas, such an arrangement

raises important public policy issues. Legal and

regulatory barriers against this type of facilitiesA cable television satellite-receiver and microwavetransmission site in rural Virginia.

sharing have been devised to protect consumers

against possible monopoly abuses that could arise

from one firm controlling the only lines of communication and information. Action to change these

restrictions will be hotly contested because the

stakes are very high for both the cable and the

telecommunications industries.22

 M. Pepper not telephone companies provide video programminggmay not make a significant difference to whether

 eventually deploy fiber but may significantly affect the of such deployment” [emphasis added]. Robert M. Pepper, Office of Plans and

Policy, Federal Communications Commission, “Through the Looking Glass: Integrated Broadband Networks, Regulatory Policy, and Institutional

Change,” 1988, p. 16.

 AT&T to question Of 

telecommunications industry. In urban areas, telecommunications may in fact, be a natural monopoly; the size of the subscriber base, combined with

the density of subscribers, may mean that several might be able to achieve the requisite economies of scale. In rural areas, however, this is not the

case. For further reading about the natural monopoly characteristics of terrestrial telecommunications service in areas, see John C. “The

Continuing Role for Franchise Monopoly in Rural summ 1987, pp. 43-50. Also, John C. testimony

for Notice of Inquiry: Comprehensive Study of the Domestic Infrastructure, Docket No. 912969296.

 AT&T: discussion No. to Workshop On

Applied Macroeconomics, Industrial and Regulation Stanford University, Stanford, CA. See also, U.S. Congress, of 

Assessment, Critical Connections; Future, OTA-CIT-407 (Washington DC: U.S. Government Printing Office, January 1990).

See also “Cable TV Rates, Deployment of Fiber to Rural Homes Debated Before Rep. Wise’s Panel, Telecommunications Feb. 12, 1990, pp.

20-21.
122 Rural America at the Crossroads: Networking for the Future

Under the 1984 Cable Communications Policy

Act,23 local telephone companies cannot provide

video programmingg within their service areas. By

prohibiting telephone companies from providing

cable programmingg either directly (along their own

lines) or indirectly (along the lines of an affiliate or

subsidiary), 24 the Cable Act effectively created a

monopoly for the cable providers in each franchise

territory. From a strict economic perspective, two

separate transmission lines terminating at each home

or business is a wasteful solution.

One rationale for codifying the cable monopoly

was to encourage technology diffusion. Policymakers

reasoned that a monopoly would deploy technology

faster than a competitive market. They feared that, if

telephone companies could own cable television

facilities, they could discriminate against cable

programmers and operators who were not in some

way affiliated with the telephone company. Moreover, the telephone company could undercut competitors’ prices and drive the competition out of the

market. As a result, technology would advance at a

slower pace.

Although the cable monopoly persists, policymakers continue to debate whether telephone companies should be banned from the cable industry.

The focus of the debate has shifted from the question

of technology diffusion to that of market power.

Some analysts believe that the cable industry has

abused its monopoly position and should be subject

to the discipline of a competitive market that would

include telephone companies. Others contend that

the telephone companies are already so large and

powerful that they could easily purchase existing

cable systems and thwart any real competition.

In some rural areas, the cable-telephone crossownership debate has been resolved. The Cable Act

includes an exemption from the rules for towns with

populations under 2,500. Congress is now considering expanding the current Federal Communications

Commission (FCC) definition of rural area from

population of 2,500 to 20,000, so that many more

Photo credit:Mark G. Young

A cable company and telephone company in rural

West Virginia share the same premises but maintain

separate transmission facilities and completely

separate ownership structures.

rural locations would be exempt from cross- 25 This action represents a

ownership restrictions.

frost step in recognizing the unique problems of rural

areas and addressing rural issues differently from

urban issues.

Information Services

The rationale for allowing telephone companies

to offer information services, such as videotex,

electronic yellow-pages, dial-up video, and cable

television is similar to the rationale for allowing

cable-telephone company cross-ownership. Such an

arrangement could take advantage of economies of

scope, by utilizing the same facilities for several

different functions, and economies of scale, by

attracting the demand of several different user

groups. The Bell operating companies (BOCs) argue

that such an increase in the demand for network

capacity would be necessary to justify rapid, highcapacity network modernization. Before this could

occur, however, the provisions of the courtsupervised Modified Final Judgment that prohibits

the BOCs from offering information services would

 (-b).

 20, p. 21. Communications Act of 1984 prohibits a a 

company, other than that of carrier-user. This means that the telephone company may provide the cable company with telephone service, but there can

be no other relationship, whereby the telephone company would provide capacity for the cable company to transmit its signals along. Additionally, there

can no affiliations between the two parties.

 included of a to 20,000 Of a

 cross-ownership waiver. this legislation did not pass, it is expected to in sessiona of Congress as an important

issue.
Chapter 5-Regulation and Rural Development ● 123

have to change.26 This ban exists to prevent the Bell

companies from acting in an anticompetitive way

that could slow technology diffusion and industry

innovation, and could make consumers ultimately

pay higher rates.2728 In addition, some Critics

contend that the information-services ban should

remain in place because it would be dangerous for

one company to control all the information to each

household.

As a way to allow the telephone companies to

offer information services, the FCC and several

State regulatory agencies29 have proposed a system

of Open Network Architecture (ONA).30 With ONA,

enhanced service providers could gain equal access

to the telephone companies’ networks. Thus, the

telephone companies could offer information services under the condition that they open their network

to competitors, who would pay for the technology

that they needed to reach potential customers.

Hypothetically, ONA would create a‘ ‘level playing

field” whereby a BOC could not use its network to

discriminate against competing enhanced services

vendors who rely on the local network.31 Such an

arrangement would take advantage of the economies

of scope while also taking advantage of competitive

forces.

Network unbundling, which is implicit in ONA

plans, could create incentives for faster network

modernization and technology diffusion, but it could

also place rural America at a further disadvantage

relative to the rest of the country. If rural areas are

not able to configure the various pieces of the

network, they will not be able to effectively use

communications as a component of their economic

development plans.

Affordable Technologies Necessary for

Economic Development

Bridging the technological gap between rural and

urban areas is not enough. Modem technologies will

be of little value to rural citizens if they cannot afford

to use them. Often, because of their remote location,

rural citizens must pay more for transactions that are

part of economic development and vitality. The

extra cost of making a long-distance telephone call

to a nearby database that lies across an exchange

boundary, or to call the local school in another

LATA, 32 is a barrier to economic development. Not

only do rural areas need access to technologies that

are comparable to those in urban areas, this access

must be comparably affordable.

LATA Boundaries

One factor that creates a cost differential between

urban and rural areas is the greater frequency of

interLATA calling in rural areas. Because LATA

boundaries tend to reflect the calling patterns and

exchange locations of standard metropolitan statistical areas, most urban subscribers can conduct daily

transactions, such as ordering materials for their

business, without considering the extra cost of an

interLATA call. LATA boundaries often do not

match rural calling patterns so well. Whether they

must call an adjacent community, or the nearest

urban center, rural citizens frequently encounter the

~cable television service would qualify as an information *rVice.

27*Y ~no~sts ~d cable fidustry ~v~ates contend that the B(XS could subsidize their competitive ~rvic~, which wo~d ~clude ‘ble

television if the information service ban were lifted, with revenues from their monopoly local telephone service. In doing so, they would charge their

“captive” monopoly customers highex prices and use the extra revenue to compensate for losses they might incur by under-pricing their competitive

products. This would then drive out the competition and create a monopoly for all services.

~~eB~s~dsever~ telecommunications hdustry ~dco~er organiza tions, including the Videotex Industry Associatio~ the U.S. lblephone

Association% and Action for Children’s ‘IklevisioU issued a joint request to U.S. District Court Judge Harold Greene asking for the lifting of all the

restrictions for information services, claiming that there is no evidence that telephone company entry into information-services markets would be

anticompetitive. They went so far as to say that such an action would stimulate competition. Telecommunications Reports, Aug. 27, 1990, p. 5.

%%deral Communications Commissio~ through Computer Inquiry III, and New York State along with several other State Utilities Commissions

have issued comments on ONA.

30~ the FCC con~ue~ t. debate ON~ ~ver~S~@s @ve d~id~ to go fo~~dwi~network~~~g ~d ONA. u~~suchapl~Wdl@@n

has ordered that the BOC establish separate subsidiaries for its information services and its plain old telephone services.

slKe~ethDonowmd LwM@l~ < C@nNe~ork~c~t~~e:fiblicpolicy for ~Evolv@ ~l~omm~catio~Networ~’con~ctorreport

prepared for the OfiIce of ‘lkchnology Assessment July 1990, p. 3.

32A ~TA p-~cess ~dTqrt~)is ~mpris~ of a re~tively l~ge n~&r of loc~ exc~es. The term Iocd exc~e ref~ tO the

geographic area served by the same local switching equipment. Subscribers within a local exchange have telephone numbers with identical three-digit

prefixes. LATAs were developed as a result of the divestiture settlement to define geographic areas within which the former Bell operating companies

(BOCs) provided telephone service. The settlement allows the BOCS to provide intraLATA service, but it forbids them fmm providing interLATA

telecommunications.
124 ● Rural America at the Crossroads: Networking for the Future

extra costs of making an interLATA call (see figure

5-l).

Whether this disparity is unfair is debatable.

Many economists argue that the extra costs required

for more frequent interLATA calls from rural areas

are not necessarily unjust because rural areas have

always been subject to more long-distance calls than

urban areas.33 The question of whether or not LATA

boundaries are fair may be less important, however,

than whether they impinge on development in rural

areas. Since LATAs were an artifact of divestiture,

they are unlikely to change unless the Modified

Final Judgment changes significantly.

Extended Area Service

In addition to the long-distance costs of crossing

LATA boundaries, rural citizens face higher costs

for calls that cross exchange boundaries. Because

small, independent telephone companies often serve

rural areas,34 calls across short distances may require

different companies to make the connection. If two

firms must interconnect to complete a call, the costs

of that call must be allocated between them and thus

usually cannot be covered by each company’s flat

local service rate. Although it crosses relatively

short distances, this call is a toll call.

The exchange boundaries that have existed for

several decades may not correspond with local

economic or political boundaries, so they may seem

even more arbitrary than LATA boundaries. Because urban areas are usually served by one large

telephone company, urban subscribers do not face

these interconnection charges.35

Many States have started to implement Extended

Area Service (EAS) plans to address rural customers’ concerns about paying toll fees for calls that

cross short distances.36 Under such a plan, telephone

companies redistribute their costs. For example,

consumers might pay an extra $2 on their monthly

bill so that they can call the neighboring community

without long-distance charges; some consumers

never call that community, while others need to call

frequently. On average, the extra revenue from the

higher flat rate should cover the lost long-distance

revenues.

37

The local exchange carriers’ choice of technologies, their network plans, and the state of modernization are important considerations for defining a local

calling area for an EAS plan. This is because the

costs for each company depends not only on present

engineering and cost allocation, but also on future

technologies. For example:

An all-digital, all-glass network would have a

significantly superior ability to handle congestion

and to reroute traffic. Also, such a system may be

largely distance-insensitive because of its handling

characteristics capacity .38

Thus, future technology plans might make EAS

much more feasible. It might be worthwhile, however, to implement EAS earlier rather than later so

that consumers who would provide demand for

sophisticated technologies in the future would remain in the current calling region.

Future modernization decisions will depend on

present definitions or redefinitions of local calling

areas, as much as the definitions of the local calling

area will depend on technology deployment plans.

The economics of telecommunications are such that

costs tend to decrease as size of the service area and

capacity increases. As a result, the addition of a

host-remote switch, the creation of radio networks,

or the deployment of high-capacity transmission

facilities that could serve more customers at a lower

33some ~mw= tit he ~oq~t of he ~~e.s of MTA ~m~=~ ~~-is legi~te ~der OII)y KVO circumstances: 1) if their own

calling areas were somehow reduced as a result of the divestiture process, or 2) ifinterLATArates have risen dramatically due toregulatorypolicy. This

argument follows since rural consumers needed to make long-distance calls for manytransactions even prior to divestiture. Additionally, competition

in toll markets, which resulted from divestiture, has tended to lower interstate and intrastate long-distance prices.

34~le tie ~jon~ of ~dependent telephone comp~es serve ~m-, most ~~~~~SW SeI’V~ by the Bell OWmting COmp~eS.

35~e ~o~ts for Corn- exc~es ~~tie bo~d~= of ~ ~ger fmme cover~by tie aver@g tit occws witi the flat rate for IOCd SerViCe

in the monthly bill.

~olorado has beenve~ proactive in implementing EAS plans. The rural regions of the State experienced the biggest chauges as a result of the new

plans because their calling areas were incmsed signi.tlcantly.

37~~u~ on ~vemge f-~~up for tie lost loW-dismce ~venues, ~av~ge works out because some firms~fewm revenues ~d

some earn more. States may still have to establish a high-cost fund that would compensate firms who earn lower revenues as a result of the new plan.

38~~ond~Won~dJob Borrows, F~tOr~ A@ting the D@~”tion Of t~ ~Cal Calling Arm: An ASSeS~rlt Of Tre& (ColumbW, OH: The

National Regulatory ResearchInstitute, 1990), p. 45.
Chapter 5-Regulation and Rural Development ● 125

\

---J.
126 . Rural America at the Crossroads: Networking for the Future

cost might seem more feasible if local calling area

boundaries expand.39

To establish the appropriate EAS boundaries,

regulators must first determine the community of

interest. Often, they will survey the calling patterns

of prospective communities to assess how often they

might call a neighboring community. However, the

same problems that are involved in forecasting

demand for technology exist in forecasting demand

for EAS service. If, for example, consumers must

pay toll rates to call a nearby community, they might

call less frequently and report on the survey few

long-distance calls.40

Regulators must also consider characteristics of

the local communications market when reviewing

EAS plans. Three features of the telecommunications market are relevant to EAS.41 First, whether the

local telecommunications provider is a monopolist

will affect the ease with which EAS plans might be

implemented. If an EAS plan requires significant

changes in the technical facilities, regulators could

more easily mandate such changes to a monopoly

supplier than to suppliers in a competitive telecommunications marketplace. Second, the redefinition

of a local calling area could impact the sustainability

of intraLATA toll competition. If competition exists

for the long-distance calls that occur within LATA

boundaries, competitors might not be able to afford

to offer service if their consumer base erodes

because fewer calls are toll calls. Third, the extent to

which consumers use telecommunications could

affect the extent to which they would be willing to

pay the extra cost of EAS. Often, many customers

will make mostly local calls and accept paying a

premium for infrequent toll calls. However, for

many business customers, and increasingly hospitals, schools and individual subscribers, distancesensitive rates translate to higher costs to reach

extended markets or needed information. These

added costs are important for products with highly

elastic demand.

Regulators must balance the impact of EAS on the

rates of those who do not directly benefit from the

service compared to the cost savings for those who

use the service extensively .42 Standard cost-benefit

analyses, using economic cost data, are of limited

usefulness when many of the costs and benefits are

not characterized by physical entities or direct

savings, but rather by social costs and benefits.

These benefits may include positive externalities

associated with an increased calling volume.43 A

negative impact would be that consumers who do

not make long-distance calls must pay higher rates

without benefiting directly.

Local calling area boundaries are subject to

regulatory approval. Hence, regulators effectively

determine market boundaries at the same time they

determine local calling area boundaries. Therefore,

regulators must be sensitive to economic development concerns and explore new approaches for

cost-benefit analyses. As the role of telecommunications and information technologies increases in

society, regulators’ decisions increasingly function

as de facto economic development policies. Ideally,

these decisions would take place in conjunction with

State and local economic development planning.

Coordination of Users and Providers:

Leveraging Demand and Supply

Market forces often work against rural areas; this

is the case for telecommunications technologies and

services. The vast distances and sparse populations

that characterize rural life do not generate the

economies of scale and scope that make communications technologies more affordable in urban areas.

Many of the subsidies that provided telecommunications to rural areas at prices less than the cost of

service have disappeared since divestiture. Now

rural consumers must also absorb the costs of

understanding and configuring telecommunications

services and technologies to fit their needs.44 In this

3?Ibid., p. 67.

%id., pp. 33-53.

411bid., p. 50.

d@fte~ a minori~ of Wbscribers will make the majority of the phone calls. These subscribers, however, are frecluently tie COIWUU@ I=dem ~d

volunteers, who are integral to the development process.

43~enColomdo~lement~ ~MS pmCaII@ volume in the region increased by 500 pement. The hlrge incrme indica~ tit-YPPle

were now communicating because it became affor&ble. Moreover, increased communication tends to lead to even more communication. With such a

growth in calling potential with EM plans, regulators and local telephone companies must be prepared to make the necessary equipment upgrades to

handle the new traffic.

44For a more detailed discussion see ch. 3.
Chapter 5-Regulation and Rural Development . 127

new environment, rural communities and businesses

must find creative ways to make the same market

forces that work to the advantage of corporations

also work for them. However, communities will

likely encounter regulatory barriers that will inhibit

their efforts to exploit the market. In many cases, the

same regulations designed to protect small consumers from market abuses can impede their abilities to

compete.

Rural Area Networks: Coordinating Users

Despite their disadvantages in the telecommunications marketplace, rural areas can take advantage

of market forces to gain access to advanced telecommunications technologies and services. The notion

of Rural Area Networks (RANs) illustrates a strategy that could enable rural communities to do just

that. However, the current regulatory environment

might discourage or inhibit such demand agglomeration. In many cases regulation may not directly

prohibit shared usage arrangements, but to the extent

that such arrangements are unprecedented, communities that try this type of strategy could fired

themselves in the midst of drawn out regulatory

proceedings.

Pricing

Pricing regulation could present an obstacle to

using telecommunications as part of a development

strategy if RANs utilize the public switched network. 45 In most States, the local exchange carriers

(LECs) must file with the PUC for each different

rate, or tariff, they might offer to different customer

groups-e. g., business, residential, or university—

and for different services-e. g., voice, data, or video

services. % Thus, residential subscribers pay certain

rates for the use of the lines to their homes, while

businesses, hospitals, and colleges may pay different

rates for the lines terminating to their facilities.

However, if the local community college were to

share broadband capacity with local businesses,

extend a link to the community’s medical clinic, and

connect several other community agencies or businesses with services or markets outside the community, the capacity would no longer be dedicated to

the sole use of any of the individual subscribers or

for any particular service (see figure 5-2).

Figure 5-2—Rural Players

Residences Businesses

Government

offices

Industries Hospitals

and clinics

A Rural Area Network can include many different pIayers in a rural

community, including small businesses, government offices,

hospitals, schools, and community colleges or universities.

SOURCE: Office of Technology Assessment, 1991.

At minimum, an arrangement like the RAN

described above would require that the community,

the telephone company, and regulators agree on a

tariffing arrangement that treated these various users

as a defined group. Such agreements are commonplace, but typically involve similar entities. For

example, all the State colleges in Vermont are

treated as one users’ group and thus all face the same

rates, which are lower than would be possible if each

were treated as individual users. This system benefits both the colleges, with lower rates, and the

telephone company, by guaranteeing a sufficient

volume of traffic over their lines. Telephone companies typically cannot define a users’ group and

implement anew rate without filing a tariff with the

public utilities commission. Thus, even if a RAN

were not controversial, it would likely require a rate

hearing and substantial administrative proceeding

before it was approved. Most likely, either the LEC

or the community would have to hire lawyers and

technology consultants in order to file for a regulatory waiver. With a RAN, this process could take a

long time and a lot of energy and expense because so

many different parties and types of services would

be involved.

This scenario also introduces new complications

into the cost-based, or de-averaged, pricing strategies that arose in the partially competitive post-

 Concern for internal amounting purposes-since private 

oversight.

 is true for States with rate-of-return regulation. The extent to which the local exchange carriers must file tariffs with the will vary under

alternative regulatory methods.
128 . Rural America at the Crossroads: Networking for the Future

divestiture telecommunications market.47 With a

shared arrangement, such as RANs, prices cannot be

assigned strictly according to the cost of service for

each user or each type of service since it is likely that

none of the services could be provided affordably if

the other services were not sharing the costs. A tariff

designed specifically for RANs might require a

reaveraging of costs across different user’s groups,

and possibly across regions.48 Moreover, the benefits derived from access to advanced services in rural

areas may not correspond to the cost of providing

these services. For these reasons, standard costbenefit analyses would be of limited usefulness in

evaluating RANs unless they included the broader

benefits of economic development and the opportunity costs of not having advanced services available

in rural areas. The inclusion of such nonequipment

or unquantifiable costs and benefits in regulatory

and pricing calculations runs counter to the trend in

telecommunications regulation of pricing according

to the stand-alone cost49 of a service.50o It is critical,

however, to consider that the economic models of

telecommunications regulation that work well in

urban areas may be inappropriate to apply to rural

areas.

Bypass

Just as many large businesses, universities, and

State governments are opting to build their own

telecommunications networks, some rural communities are finding that creating their own network

would be easier than wading through lengthy

regulatory procedures and convincing the telephone

company that the community could generate sufficient demand for service to justify the investment in

sophisticated telecommunications equipment. The

town of Bloomsburg, Pennsylvania is taking such an

approach. In conjunction with Bloomsburg University and the Ben Franklin Partnership, the town has

proposed the construction of a high-capacity digital

“highway” to Harrisburg, where it would link up

with the access points of all long-distance telecommunications providers (see figure 5-3).51 Bloomsburg decided to establish its own telecommunications

system largely because alternative strategies were

unavailable, or unworkable. For example, because

the town cannot demonstrate sufficient demand

conditions at the present, long-distance carriers are

unwilling to invest in the technology that would

make the link between Bloomsburg and Harrisburg

unnecessary. This route also crosses a LATA

47For a more de~~ discussion of the movement tow~d cost-b=tipric~g, sm ch. 3.

4Sfior t. divesti~e, prices were avemged across consumm groups. Many economists argue that price av-l@g ~trodums ~efflciencies fito ~

market which ultimately make consumers worse off. For example, @land Johnson argues that allocating costs in a way that allows cross-subsidization

on the part of the telephone company between profitable and costly semices raises the possibility of two types of dangers. FirsL cross subsidization could

enable the regulated firm to keep other, possibly more efficient suppliers, out of the market by pricing their competitive service below the actual cost

of providing it and making up the difference in the monopoly market. C)n the other hand, if the regulated fm is subject to price floors, under which it

cannot price its services, Johnson warns of the danger of “ ‘umbrella’ pricing, under which new entrants could undercut Bell’s prices even though their

costs would be higher than Bell’s costs of offering the service in combination with its noncompetitive services. ” IAand Johnsom Comperifz”on and

Cross-Subsidization in the Telephone Industry (Santa Monicq CA: Rand Corp., 1982), p. 19.

Concerns about cross-subsidizations can be important in markets that are truly competitive, or even partially competitive. However, the economics

of providing telecommunications to sparsely populated rural areas is unlikely to support competitive provision of sexvice, at least until ONA is a reality.

John Panzar argues persuasively for the telecommunications monopoly in rural areas. See Panzar, op. cit., footnote 21, pp. 43-50.

4~ono~sts c~c~ate the s~d-~one ~St of a s~w to &St Whethm a s~i~ is moss-subsidized by or is cross.sub~”dizing ~C)th~ service. The

test aims to capture whether tie “revenue of the semice exceeds the cost of that service produced in isolatio~ rather than in combination with others.”

JohnsorL op. cit., footnote 48, p. 19.

%Incorporating economic development concerns into the regulatory purview is particularly ~lcult because the telecommunications industry is in

a state of flux, with the final balance of competition and regulation unknowable. Inappropriate cost-allocation rules will yield inefficient price signals,

unfairly burdening particular customers. Costing procedures become even more arcane when regulators must detezmine whether to allot costs within

a single time period or across a longer time horizon. This problem is especfly difficult for evaluating new products. In particular, with new product

pricing, two factors suggest instances in which typical regulatory practices might be quite inappropriate. G.11 Faulhaber and J. Boyd, “Optimal

New-Product Pricing in Regulated Industries,” .lourna/ Of RegtiarOryECOnOrniCS, VO1. 1, 1989, pp. 341-358. First there are customer “demonstration

effects” and network externalities. People become familiar with the capabilities of new technologies by observing how their cohorts benefit from a new

service. In additio~ some new services are valued on the basis of number in the network having a fax machine is much more useful if many others have

compatible equipment. Thus, over time, demand-side effects cause future demand to be a function of current consumption levels. Secon& them are

producer “learning curve” effects. Longer production runs in early periods promote learning, which tends to lower costs in later periods.

Such intertemporalinterdependencies imply that a simplistic cost-allocation scheme could doom a new service. If regulators ignore these caveats, they

could reduce the rate of new product development and introduction. Period-by-period cost recovery canbe very detrimental to both telcos and consumers.

However, the regulator’s job becomes difficult because different consumer classes will likely value quality improvements associated with network

modernization differently. Moreover, these values will likely change over time, as residential subscribers become familiar with new services.

sine townplm to use di@d microwave technolo= to provide the 45 hfbps of capacity between Bloomsburg ~dMburg.M addition to voi~

traflic, this networkcould handle high-speed da~ high-resolution graphics, and compressed motion video. ‘Rnvnof Bloomsburg, “lklecommunications

Concept for the Town of Bloomsburg,” 1990, pp. 4-5.
Chapter 5-Regulation and Rural Development ● 129

Figure 5-3-Bloomsburg, PA Telecommunications

Network Configuration

The Bloomsburg Telecommunications Network aggregates the

telecommunications demand of many local users, including

businesses and Bloomsburg University. This aggregated traffic

then travels along DS-3 lines to Harrisburg, where MCI, Sprint,

and AT&T each have points of presence.

SOURCE: Dovetail Systems Corp., “Telecommunications Opportunities

for Bloomsburg,” Bethlehem, PA, June 1989.

boundary, so Bell of Pennsylvania cannot carry the

traffic. Finally, although the public switched network could technically accommodate many of the

services the town needs, town officials have suggested it is more economical for the town to build its

own system because of the way the regulated

services are priced.

The University of Maine faced a similar situation

when it was considering expanding its fiber optic

distance education network into the neighboring

New England States.52 Although the University

worked out an arrangement with New England

Telephone to deploy the fiber optic network within

Maine, the LEC could not offer its services across

the State’s border because interstate traffic is the

domain of the interexchange carriers (IXCs), such as

AT&T, MCI, and Sprint, and is regulated by the

FCC. The interstate tariffed rates for DS-3 lines were

so prohibitively expensive53 that it made more sense

for the university to build digital microwave links

across the State borders to link up with the networks

in the other States.54

The logistical problems that the University of

Maine and the town of Bloomsburg face in developing their RANs will likely confront many rural

communities and community organizations as they

begin to explore using telecommunications as part of

an economic development strategy. Because the

regulatory system could not accommodate economic development concerns, Bloomsburg and the

University have few options but to bypass the public

network. Although building a RAN--or part of a

RAN--on privately owned facilities might be the

least expensive solution for the immediate future,

the cost of many small networks will almost surely

exceed the cost of extending advanced technology

along the public switched network to these communities. Thus, there is a significant cost of failing to

reconcile economic development and regulatory

policies.

Rural Area Networks: Coordinating Providers

Consortia of telecommunications providers can

take advantage of market forces in much the same

way that coalitions of users can leverage market

power to gain access to advanced telecommunications services and technologies. By cooperating or

entering joint ventures, telecommunications providers can distribute the high costs and diminish some

of the risk of investing in advanced telecommunications technology in rural areas. However, regulatory

restrictions and anti-trust considerations often prevent or impede such arrangements from developing.

In many cases, the regulations and laws that inhibit

the formation of a telecommunications consortia

were developed to protect consumers from market

abuses that typically occur when suppliers collude

with one another.

Iowa Network Services (INS) illustrates the

problems that could arise if telecommunications

providers ally to create RANs. INS is a consortium

of 128 of Iowa’s 150 independent telephone companies that joined forces in 1984 to build a fiber optic

network providing centralized equal access to rural

communities across the State.55 Individually, none

of the independent companies could have afforded to

 not yet 

 rate is so expensive because of the capacity required to t a video message, like those used for distance education or

teleconferencing. Essentially, sending one video message is equivalent to sending thousands of streams.

 for to to cost of the microwave 

 Hem, CA: MESA

 1990).
130 . Rural America at the Crossroads: Networking for the Future

Figure 5-4-lowa Network Services

\\\ I

Creston ‘

 Mt. /’ I

❑ Central switch

Iowa Network Services is a consortium of independent telephone

companies, who jointly invested in a fiber optic network and an

SS7 switch.

SOURCE: The /NS Moines, 1A: lowa Network Services, 1990).

provide such sophisticated services to their rural

customers. Organizing the consortium and finding

financing for their venture proved to be only the first

hurdle these independent companies encountered in

offering advanced telecommunications capabilities

to their customers. The BOC serving Iowa brought

an anti-trust suit against INS in an effort to block the

network. The suit failed, but it took 31/z years of

Federal and State regulatory hearings and proceedings before INS could offer its services (see figure

5-4).56

In contrast to the INS experience, a group of

independent telephone companies in South Carolina

encountered few regulatory or legal obstacles when

they joined together to form a fiber optic network,

called PalmettoNet. Each participating, independent

telephone company built, operates and maintains the

section of the network that passes through their

territory. The consortia, PalmettoNet, then leases

capacity from the individual companies to create the

unified network (see figure 5-5).57

Figure 5-5-Palmetto Network Configuration

PalmettoNet is a consortium of independent telephone companies in South Carolina, who jointly invested in a fiberoptic network.

SOURCE: Harmeet Sawhney, University of Texas at Austinp 1991.

Arrangements such as Iowa Network Services and

PalmettoNet take advantage of synergies to make

market forces work to the advantage of rural

subscribers. These approaches require strategic planning at the regional level, rather than at the level of

each independent telephone company .58 Thus far,

such consortia are largely unprecedented. Therefore,

their legality or feasibility remains untested in many

markets. As the examples show, it is difficult to

predict the extent to which companies will face

regulatory or legal obstacles. Where uncertainties

exist, stakeholders who are opposed to the strategy

might use the regulatory and legal system to halt

progress on such a project. Therefore, anti-trust suits

will be likely if the dominant carrier in a region

perceives such networks as a competitive threat.

Currently, regulatory and development policy in

most States and at the Federal level is unprepared to

deal with creative approaches, such as user coalitions and provider consortia, to technology deployment in rural areas. If rural areas are to access

advanced communications technologies in an economical fashion, it is critical that policymakers at the

local, State, and Federal levels think about and plan

for such arrangements.

‘Ibid.

“Complementarily contractor document prepared for the Office of Assessment, November 1990.

“Rural A Cultural Hypothesis” (draft), doctoral dissertation, The University of at 1991.
Chapter 6

The Role of the

Federal Government:

Orchestrating Cooperation

and Change
Contents

Page

Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . + . . . . . . . . .

From Farm Policy to Rural Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Past Federal Roles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Infrastructure Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Promoting Information Dissemination, Science, and Education . . . . . . . . . . . . . . . . . . . . . . . . . . .

Coordinating Federal Roles for Holistic Rural Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Federal Players . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Intragovernmental Coordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Federal Policy Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cooperating in Pursuit of Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The States as Agents of Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Vision and Leadership at the Local Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

133

133

134

137

137

140

144

144

144

148

149

149

151

Boxes

Box Page

6-A. Fro-m Spending and Rural Spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

6-B. Federal Roles in Rural Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146

6-C. Livermore, KY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

Figure

Figure Page

6-1. Organization Chart of Agencies Involved with Rural Development. . . . . . . . . . . . . . . . . . . . . . 145
Chapter 6

The Role of the Federal Government:

Orchestrating Cooperation and Change

Findings

The Federal Government can play an important

role in rural economic development. To do so, it

must exercise leadership and make rural development and the use of communications technologies in

the development process a national priority. The

diversity of rural conditions across the Nation means

that the development goals set by the Federal

Government must be broad, allowing for more

specific goals and strategies to be formulated and

executed at the State and local levels. In addition to

vision, the Federal Government must provide a

commitment of financial and technical support.

Many players at the Federal, State, and local

levels must be involved in a holistic rural development strategy. Competition for turf and economic

rewards hinders the cooperation among players

necessary for economic development and the efficient use of communication technologies in rural

areas. Many stakeholders have never had to deal

with one another before, and there are no incentives

to do so now. Given the important role of communication in society and the growing market value of

communications systems, the stakes involved in

providing communication services are higher than

ever before. As a result, stakeholders vie to take the

lead in configuring and controlling the communication infrastructure since often only one network is

economically feasible given economies of scale and

scope. With divestiture and the unbundling of the

communication infrastructure, there are also many

new players competing for a piece of this highly

lucrative communication market.

As part of its role, the Federal Government must

help to orchestrate the kinds of changes and cooperation among Federal and local agencies needed for

economic development to take place. Working

through existing organizations, such as the U.S.

Department of Agriculture’s Rural Electrification

Administration, Rural Development Administration, and the Cooperative Extension Service, it must

increase the incentives for cooperation at the local

level, and make it more costly for those who fail to

work together.

. --

Photo credit: Russell Lee

The post office in Costilla, NM in 1939.

Introduction

The Federal Government has consistently taken

steps to promote ruralAmerica’s well-being throughout American history. In the earliest years, government policies were designed to encourage farming

and successful settlement. To link the rapidly

expanding Nation, the Federal Government developed a rural infrastructure, fostered a public education and library system, and promoted the dissemination of public information and news. To meet the

needs of the industrial revolution, it promoted rural

electrification and the transfer of industrial technology to rural applications.

The Federal Government set up a variety of

organizations to implement its rural policies. Among

these, for example, were the Postal Service, the

Department of Agriculture and Cooperative Extension Service, the system of public schools and

land-grant colleges, and the Rural Electrification

Administration.

As rural communities continue to struggle for

their survival, the question is raised as to what role

the Federal Government should play in assisting

them today. To provide an answer, it is necessary to

consider the traditional goals of Federal rural policy;

how well it has been executed; what organizational

–133
134 . Rural America at the Crossroads: Networking for the Future

resources are available to the Federal Government

and the demands likely to be placed on them; who

are the key organizational players and decisionmakers; what are their stakes; and how might they

best work together.

From Farm Policy to Rural Policy

Federal policy, in the earliest years of the Republic, was designed to establish a Nation of small

farmers. It set the tone of rural policy for many years

to come.1 Concern about farmers and farming

became the justification for Federal support of rural

areas. Rural well-being was equated with successful

farming, just as rural policy was viewed as an aspect

of farm policy. This perception became so entrenched that rural policy has failed to keep pace

with major demographic changes.2 Although farmers now constitute somewhat less than 2 percent of

the Nation’s population, farming continues to be the

major beneficiary of Federal rural policy (see box

6-A). These policies and perceptions are likely be

superseded again as the Nation moves forward into

the information age.3

Thomas Jefferson, the leader of the Republican

Party and later President, was the individual most

responsible for pursuing profarm policies.4 Jefferson

not only loved farming; he also believed that an

agrarian environment fosters honesty, self-sufficiency,

and egalitarianism.5 As President, Jefferson opened the

land for settlement by small farmers. To secure these

areas, Jefferson dislodged foreign governments and

Box 6-A—Farm Spending and Rural

Spending

In fiscal year 1987, $29 billion was spent on

development programs for all of rural America,

while $22.4 billion was spent on agricultural price

and income support alone. Furthermore, a large

proportion of agricultural subsidies were spent

supporting the least needy farmers. In 1987, the

wealthiest 15 percent of farmers received over half

of direct government agricultural subsidies.

SOURCE: U.S General Accounting Office, Rural Development:

Federal Programs That Focus on Rural America and

Its Economic Development, briefing report to the

Ranking Minority Member, Subcommittee on Conservation, Credit, and Rural Development Committee on Agriculture, House of Representatives, GAO/

RCED-89-56BR, January 1989, p. 29.

Native Americans. He also opposed land speculation to

allow settlers to establish themselves on the frontier.

Subsequent administrations continued to support farmers for the most part.6

While Federal land policy was successful in

securing land for small farmers, a more proactive

Federal policy was required to assure these farmers

success. In 1862, the Federal Government established the Department of Agriculture and the landgrant college system,7 which were designed to

provide this kind of support. A variety of assistance

programs were administered through the Department of Agriculture including the land-grant college

IAs describ~ by Forest MacDonald: “They. . set out to secure the frontiers of the United States by expanding the country’s territorial domain into

the base wilderness, and they succeeded so well that it became possible to dream that the United States could remaina nation of uncorrupted farmers

for a thousand years to come. ” Forest MacDonald, The Presidency of Thomas Je#erson (Lawrence, KS: University of Kansas Press, 1976), p. 163.

‘As Swanson notes, “It was the financial crisis in farming during the mid- 1980s which ironically, provided the need for a revised ruraJ development

policy. Since part of the problem was the assumption that farm well-being determines rural community well-being, the reintroduction of rural

development in the context of a farm crisis has had the effect of reaffii this assumption.” Imuis E. Swanso~ “The Rural Development Dilemma,”

Resources, summer 1989, p. 15.

3JJMiS SWatISOU ‘ ‘Dilemmas Confronting Rural Policies in the U. S.’ Paper presented to the National Rural Studies Committee Meeting held in Cedar

Falls, Iowa, May 17-18, 1990.

dJ~erson>s Vision, ~ bony ~~ ~jor refi~ous v~ua and pmso~ ~te~sts, may ~ve tin vi~ in _ America toward aII a@an

democracy. A much different result occurred in Argentina, which had a similar frontier of rich vacant lands settled by European immigrants. Argentina,

however, was claimed by a landed aristocracy, leaving farm people unschooled, powerless, and physically isoirdcd. In the U.S. Sou~ too, the tobacco,

rice, and cotton ‘‘slavocracy’ presented a dis~mforting antithesis to the emergent ideal of agrarian democracy. Don Hadwiger, “A History of Rural

Economic Development and Telecommunications Policy, ’ contractor report prepared for the ~lce of lkchnology Assessment January 1990.

SAS noted by Griswold, “No one believed so implicitly [as Jefferson] in a causal connection between the occupation of farming and the political

system of democracy, and no one, before or since his time, has given tbat belief a greater impetus among his countrymen.” Whitney A. Griswold,

Farming and Democracy (New Haveq CT: Yale University Press, 1952), p. 19.

6Hadwiger, op. cit., footnote 4. ~sfarm bias reflects, in part, the political power Of the farm cOmmtity, wfich me erg-d in ‘ie late IW

century. During this period, many farmers suffered severe Ixudships due to drough~ low commodity prices, high freight costs, and increased real costs

of borrowed money. Xn response to such adversity, they organized farm organizations such as the Grange, Greenbacker, and Alliance.

7Sa&as.()~~q Ruralpozic. in the United Smtes:A ~isto~ (ww~~oqDC: con~essio~R~~ch Service, The Library of Congress, 1988),

880487 WV, p. 15.
Chapter 6-The Role of the Federal Government: Orchestrating Cooperation and Change ● 135

system, agricultural research, agricultural extension,

and vocational training.8

Federal policymakers began to distinguish rural

problems from farm problems only at the turn of the

century.9 Commissioned by the Roosevelt Administration to investigate why rural areas were falling

behind urban areas, the Country Life Commission

found that the problems of the countryside could not

be overcome simply by focusing on agriculture.

Accordingly, the Commission recommended that

Federal assistance “. . . should be designed to

forward not only the business of agriculture, but

sanitation, education, homemaking, and all interests

of country life. "10 In releasing the Commission’s

report, President Roosevelt called for the establishment of a Department of Country Life ‘fitted to deal

not only with crops, but also with the larger aspects

of life in the open country. ’ ’11

Farming remained the focus of the Federal

Government’s policy response despite the growing

awareness of the complexity of rural problems .12

This emphasis was nowhere better illustrated than in

the case of the Agricultural Adjustments Act, which

was passed as part of the New Deal. This Act made

the Federal Government essentially responsible for

the economic and social well-being of rural Americal.13 It sought to stabilize farm prices by controlling

commodity surpluses, to forestall mortgage foreclosures and improve access to credit, and to improve

farmers’ prices and incomes in relation to other

businesses.l4 A Even though the Act was viewed as a

temporary response to the farm crisis, most of the

programs it established still exist.

A strong interest in rural problems unrelated to

farming did not reemerge until the Administration of

President Eisenhower. In a special message to

Congress, Eisenhower called for a program to help

low-income farmers. But unlike previous programs

that focused exclusively on farm income support,

Eisenhower’s program looked to off-farm employment as part of the solution, and acknowledged the

need to address problems of health and education.

Because it conceived of the ‘rural’ problem broadly

to include health, education, and other human

services, the Eisenhower Administration also needed

a mechanism for interagency coordination. To this

end, the President established an interdepartmental

committee-the Committee for Rural Development

Program-chaired by the Under Secretary of Agriculture and comprised of the Under Secretaries of

the Interior; Commerce; Labor; and Health, Education, and Welfare; the Administrator of the Small

Business Administration; and a member of the

Council of Economic Advisers.15

Subsequent Presidents, until the time of President

Reagan, followed in these footsteps. Under President Kennedy’s Administration, programs were

extended to take into account the entire rural

economy and community.l6 President Johnson, who

described rural poverty as “America’s unfinished

business,” fostered rural economic development as

part of his Great Society program.17 He claimed that

‘Ibid.

9A major fipe~s for ~~ fiprovement cae from the progressive movement under the leadership of President neodore Rooseve14 W~OW

WilsoW and Robert LaFollette.

10AS quoted in Wape D. I@smussen, Tak”ng the University to the People: Seventy-Five Years of Cooperative Extensz”on (Ames, ~: Iowa S@te

University Press, 1989), p. 44.

1 Iu,s. Residents, 1~1.1~ (RMwve]t)o Report Of the count~ Life Commission: Special h4essage From the president of the United StateS

Transmitting the Report of the Country Life Co~”ssion, Senate Document No. ‘70!5, 60t.b Cong., 2d sess. (WaShingtO~ DC: U.S. Government Printing

Office, 1909), p. 6.

lz~s emp~iswas perpetuated, in p- because f-ers maintained their political power even while their standard of living continued to deteriorate.

IJOsbO~ op. cit., footnote 7, p. 24.

14After World Ww I, f-Pfices &opPd ~rwipitously, se~g off a ~~d tit con~u~ for more&~ a d~ade. ~ provide relief, COnWeSstwi~

passed the McNary-Haugen Farm Relief Bill, but President Coolidge vetoed it. Uncles Presidmt Hoover, the Agricultural Marketing Act of 1929 w~

passed. It created a Federal Farm Board that tried to stabilize prices by buying and selling farm commodities. Osbo~ op. cit., footnote 7.

l@sboW Op. cit., footnote 7, pp. 30-32.

16Rmpondfig t. fiss~t~ gods, s~m~ of Agl-ic~~e~ille ~~menme tie~~ development pro~~ the centel’pime Of hh department.

He created an Office of Rural Developmm~ a R@ Arem Development Bored of depr@nent offlcials, and a public advisory committee. In additio~

the interagency committee for Rural Development ProgT~ was mplwed by a Rti Development COmmittee, whose membership was upgraded from

the level of undersecretary to Secretary. The Secretary of Agriculture was named chair. Osbouq op. cit., footnote 7, pp. 33-34.

ITL~don Johnson’s rural policy was quite comprehensive. “A national policy for rural America with parity of opportunity” was its stated goal. The

key elements were: national economic prosperity to increase employment opportunities; full access to educatiorL training, and healtkare services to

expand earning power; and economic development of smaller and medium-sized communities to insure a healthy economic base for rural America. See

Osbourq op. cit., footnote 7, pp. 3740.
136 ● Rural America at the Crossroads: Networking for the Future

during his administration 184 measures providing

assistance to farmers and rural communities were

signed. President Nixon, too, supported a rural

policy, although he wanted to shift much of the

burden for its implementation to the States.18 President Carter went the furthest in developing a

comprehensive plan to address rural needs. His

Administration sought to institutionalize rural development policy at the national level with the

passage of the Rural Development Policy Act

(Public Law 96-355).19 There was little chance for

policy implementation, however, since shortly after

the Act’s passage President Carter lost the Presidency to Ronald Reagan, who strongly opposed an

activist rural policy. He believed such matters are

better left to the States and private sector.20

The Bush Administration is implementing mechanisms to better coordinate and focus the Federal

rural development effort.21 While the direction of

these efforts is promising, the coordinating and

leadership mechanisms are still in a formative stage.

And the Administration does not yet have, and is not

close to preparing, a government-wide rural development strategy; at most, it has laid down some

general principles.22

The time is ripe for refocusing rural policy. Rural

communities are, today, once again undergoing

major structural changes-the transformation to an

information society, the shift to a global economy,

the problem of environmental constraints. In light of

these trends, it is particularly important to consider

what role communication and information technologies can play in fostering rural economic development.

Insufficient attention is being paid to this issue at

present. Although the Federal rural economic development legislation enacted by the 1Olst Congress

acknowledges the importance of telecommunications and provides a specific role for communications in the development process, the bill takes a

cautious approach.23 It does not provide a clear

vision of the role of technology as a central force in

the development process.

Establishing a formal goal of promoting rural

economic development through telecommunications will signal a commitment and serve as a

criterion against which policy choices can be

weighed and policy actions evaluated. Moreover, a

goal statement would provide a basis for allocating

and coordinating institutional responsibilities and

18AS described by OSbO~ op. cit. footnote 7, p. 46. See also, U.S. presiden~ 1969-1974 (Nixon), Special message to congress ons- F~e~

revenues with the States. Public papers of the Presidents: Richard M. NixoQ 1969 (Washington DC: U.S. Government Printing OffIce, 1971), p. 668.

I%s At sou@t to ac~eve fombasic goals: meet rural citizens’ basic needs; provide employment and business opportunities; addresS IWd problems

resulting from distance; and promote the stewmdship of the Nation’s resources and environment. OSbO~ op. cit., footnote 7, pp. 53-58.

200s~W op. cit., footnote 7, p. 67.

21s= ~ter diwussion of CcFeder~ pollcy Ex~utioq~~ pp. 148-149; U.S. Dep~ent of A@c~~e, A Hard~ok at USDA’S Rural Development

Programs, report of the R@ Revitalization Task Force to the SeCm~ of Agriwlwe, June 30, 1989; Economic Policy COunCil, Working Group on

Rural Development, Rural Economic Deve/op~ntfor the 90s: A Presidential ]nitiufive, JarI~ 1990; and IJ.S. Dep~ent of Agriculture, Office of

the Under Secretary for Small Community and Rural Development Signs Of Progress:A Report on Rural America’ sRevitalization Efforts (Washingto~

DC: USDA, January 1989).

22A ~tio~ ~dvlsov co~sslon t. USDA Wendy issu~ a rewfl ouflining some gener~ principles. For example, tie commission concluded that:

as rural America is diverse, so are its problems;

. neither farm policy nor any other single-issue policy can tilciently address the needs of rural Ameriw

● there is currently no defined rural development policy;

. rural development is important for the economic efficiency and SWurity of this country.

The commission recommended that the Federal Government:

●

b

●

●

●

●

●

●

review all its policies to determine their effects on rural areas;

improve information about rural conditions and development strategies;

adopt a comprehensive approach to rural development. . . that process must assure a holistic approach to rural development policy within the Federal

government. . .

adopt a strategic approach to rural development;

foster better cooperation among rural development participants;

incorporate flexibility in its policies relating to rural areas;

promote innovation and experimentation in the pursuit of rural development;

make education a major component of rural development policies.

For further details, see National- Commis

.

sion on A~cukure and Rural Development Policy, Future Directions in Rural Development Policy

(Washington DC: USDA December 1990).

~’rhe Rwal Economic Development Act of 1990 seeks to assure that modern communication technologies are available in nmd ar- by _it

easier for rural telephone providers to borrow money from the Rural Electriilcation Administration (RIM) and the Rural lklephone Bank to modernize

their networks. The Act further envisions the use of communication technology to achieve other economic development goals, such as improving

educational and medical resources.
Chapter 6--The Role of the Federal Government: Orchestrating Cooperation and Change ● 137

for determining the efficiency and effectiveness of

specific programs. Setting goals is particularly

important today, given problems of balancing the

budget. With the pie shrinking, current program

beneficiaries, trying to secure their “fair share,”

will most likely lobby intensely against efforts to

rethink or redirect program priorities. Opposition

such as this will be less successful, however, if there

is a clear vision of the role that telecommunication

plays in promoting economic development.

Establishing formal goals is, however, one of the

hardest policies to implement. Policymakers avoid

setting goals precisely because they focus on the

question of how scarce resources should be distributed among groups and organizations.24 By not

questioning goals, or by speaking of them only in the

broadest sense, decisionmakers can be held less

accountable to those stakeholders who are losers in

the goal-setting process. It might be especially

difficult to set this kind of goal because there

continues to be a lack of awareness of, and skepticism about, the role that new communication

technologies can play in the development process.

Past Federal Roles

The Federal Government has played two major

roles in implementing its rural policy-one as the

provider of infrastructure, the other as the provider

of information and education. It is useful to consider

the Federal Government’s performance in these

roles, since both are still relevant today.

Infrastructure Building

Today’s communication networks are often compared to earlier transportation networks.25 And many

people call on the Federal Government to play a

greater role in their development, similar to the one

played in developing canals, railroads, and highways. It is wise to draw on this previous experience

in considering the role the Federal Government

might play in developing a rural communication

infrastructure. Support for Federal infrastructure

projects was never universal. Thus, the government

generally assumed a major role only when it became

clear that the private sector would not do so.

The same values that led Jefferson and Jackson to

support small farmers made them oppose a Federal

role in infrastructure building. From their perspective, “the best Government is that which governs

least.’ ’26 In time, however, the farmers who had

benefited from Jefferson’s policies became politicized, and they voted to commit their governments

to regional and local transportation projects. State

and local governments thus became the crucial

actors in building the Nation’s infrastructure.27 They

enacted friendly civil laws; arranged for public

grants, loans, and stock purchases; and granted land

for yard facilities and rights-of-way. Many citizens

also invested their savings in what has been described as a ‘‘speculative orgy of highway, canal,

and railway building.’ ’28

The Federal Government also became a reluctant

sponsor of rail development, under pressure from the

States. During early rail development, the Federal

Government offered a tax subsidy in the form of

~Herbefi Sirnoq “on tie Conmpt of Organizational Ocmls,” ~-nistrative Science Quarterly, VO1. 9, No. 1, June 1964, p. 3.

fisee for e~ple, peter west~~m, Electronic Highways: An Introduction to Telecommunications in the 1990s (Imdom ~ena vnw’i~ 1~).

%For e=ple, the Jefiersoni~ad J~ksotirej=t~ p~ put fo~~d by SWE@-y of the ~m,~e~der hlto~ to kild a mtiOMl

banking system and other intiastructure-believing that it would favor the gentry class. Later they opposed national development plans put forward by

Whig party leader Henry Clay, Speaker of the House. Clay wanted to construct national roads and canals and, ultimately, mtional railroads as well.

Jefferson and Jackso~ in denying these initiatives, encouraged State and load governments to undertake this development. President Jacksou by

decentralizing the financial system provided investment capital for the hinterlands. Hadwiger, op. cit., foomote 4, p.7.

~Jeffe~on did ~prove an act to esmb~h a “Cumberland highway” from Curnberland, Maryland across the mountains to OhiO. su-ent

Congresses provided funding obtainable as 5 percent of the proceeds from public land sales. When Resident Monroe vetoed road appropriations, the

management of the Cumberland road was transferred to the States through which it passed. The Cumberland, however, fell into disrepak as did seveml

other ‘‘highways” when canals and then railroads provided superior transport. Roads were then used mainly for local trafllc and were maintained by

local govemments. U.S. Congress, Report of the Joint Comnu”ttee on Federal Aid in the Construction of Post Roaa3 (63d Cong., 3d seas., 1941), pp.

240-241.

~~e Sbte of New York finmced construction of the Erie Cad to link the Hudson River with the Great Lakes, which qtickly -e a PficiP~

route for Western migratio~ drawing Western settlement into a Northern pattern. The Erie drastically reduced fkeight rates to and from the h.intexlauds

and made the Port of New York the Nation’s major commercial center. Hadwiger, op. cit., foomote 4, p. 8. Given the Erie’s success, New York as well

as several other States, including Pennsylvani~ Maryland, and Ohio, joined with private corporations to finance vigorous development of canals and

other internal improvements. This speculative effort collapsed with the panic of 1837. Most of the roads and canals were soon superseded by railroads,

the new communication technology.
138 ● Rural America at the Crossroads: Networking for the Future

tariff reductions on materials. After 1850, it made

large land grants to the States for the purpose of

financing railroad construction. And in the 1860s,

the Federal Government began to distribute land

grants for transcontinental roads as well.

The telegraph was another communications system inaugurated with Federal assistance. In 1834,

Congress authorized funds for Samuel F.B. Morse to

build a demonstration line between Washington, DC

and Baltimore. But Congress refused to nationalize

the telegraph, as Morse requested, preferring that the

private sector finance and deploy it.

The Federal Government also played a critical

role in assuring the deployment of electricity and

telephones to rural areas. Most urban citizens had

access to electric service by the turn of the century,

but America’s farmers were not served until much

later. Even by 1935, fewer than 12 percent of

America’s farms had electricity .29 Private utilities

were unwilling to provide service to rural areas

because demand seemed low and the technical

problems high. At first, the Federal Government

sought to assist and encourage private industry

rather than displace it. But President Roosevelt was

unimpressed by industry’s response, so he created

the Rural Electrification Administration.3O REA

bypassed the municipal and private utilities. Instead

of cooperating with them, it built its own network

with “grass roots” support. REA’s goals were

ambitious: universal, high-quality service, rapid

deployment, and low rates. It was quite successful in

achieving them. Few rural cooperatives defaulted,

since usage rose so quickly. By 1940, 30 percent of

all farmers had electricity. By 1950,77 percent were

served, and by 1959, 96 percent. Rural cooperatives

also played an important role in economic development, facilitating the movement of industrial, commercial, and nonfarm residents to rural areas.31

Despite (or perhaps even because of) these

successes, REA had its detractors. After 1950, the

private utilities’ lobby sought to shut it down. They

Photo credit: Russell Lee

An old-fashioned telephone used for communication in

a gold mine in Mogollon, NM, 1940.

claimed that REA was no longer needed because its

job was virtually complete. To gain support for their

position, they portrayed REA as “socialistic” and

unfairly competitive. But REA had its own political

support. The National Rural Electric Cooperatives

Association (NRECA) provided a powerful grassroots voice. Moreover, REA was well situated in the

protective environment of the Department of Agriculture. It was also a “favorite” of many rural

Congressmen.

Looking for a new mission, REA welcomed the

task of deploying telephones to rural areas, which

were still largely unserved by telephones in the late

1940s. 32 Legislation permitting REA to play such a

 the first quarter century, farmers had not pressed for electricity. Their main interest was in raising commodity prices. Nor apparently was

the research-extension system troubled by the delay in tion caused by lack of rural electricity.

 D. The Rural An Evaluation DC: 

1963), pp. 4-5.

 cooperative= aggressively recruited and served industrial, commercial, co which had the effect of increasing

the number of ers each year, from 5 million in 1960 to 12 million 1987. U.S. of Agriculture, Rural Administration

A Brief History of Rural Electric and Telephone Programs (Washington DC: 1989).

 39 by (erg- neighborhood due dines,

this service was allowed to deteriorate, and by 1940 only 25 percent of farm residences had working telephones. U.S. Census, compiled by U.S. Congress,

House Committee on Agriculture, 1949, p. 2.
Chapter 6-The Role of the Federal Government: Orchestrating Cooperation and Change ● 139

role was first introduced into Congress in 1945,

where there was substantial support. However,

strong opposition from the independent telephone

companies and private utilities prevented its passage. A compromise bill was passed in 1949 with

President Truman’s passive support. In accordance

with the compromise, REA was permitted to form

rural telephone cooperatives such as had been used

in rural electrification, but the “independent” telephone companies were given the right of first

opportunity. As it turned out, most REA loans went

to the independents. Some telephone cooperatives

were also undercut by Bell companies, which moved

quickly to offer modern services in contested

areas .33

REA was able to achieve high-quality, state-of-theart service, working mainly with the “independents. ’ To serve widely scattered rural residences,

REA pioneered technology to reduce size of wire, its

cost of installation, and its vulnerability to lightning

and icing. REA borrowers replaced party lines with

one-party service. Rates were standardized and

comprehensive “area’ coverage was provided. By

1980, 94 percent of all farms were served by

telephones .34

The Federal Government’s support of highway

building began as early as 1932, when Congress

enacted a penny-per-gallon gas tax.35 The rationale

and the means of financing the Nation’s highway

system were distinct from other infrastructure projects. Presidents Hoover and Roosevelt both believed

that massive spending for road construction would

provide jobs during the depression.36 President

Eisenhower justified Federal support for highway

construction on national defense grounds.37 To

finance this road-building program, Eisenhower set

up a Highway Trust Fund to be replenished from

increased highway user taxes.38

Highway construction had a profound-even if

often unanticipated-effect on rural America. Road

building brought rural and urban areas closer together, forcing many small communities to deal with

urban values for the frost time. Highways also

facilitated massive rural outmigration. They were

also a precondition for agricultural specialization,

which in turn reduced agriculture’s labor needs,

inducing many farm people to seek urban jobs. At

the same time, highways contributed to population

decentralization. Nonfarm employment expanded in

the hinterlands along freeways and other modern

roads. Industrial belts grew up in the towns and

countryside along highways, especially in the Southern and border States. The Nation’s midsized cities,

linked by freeways, also grew. In addition, express

highways allowed people to exercise a preference

for residence in smaller communities.39

Looking backward, it is clear that the Federal

Government was an indispensable backer of the

Nation’s infrastructure, providing venture capital

and other incentives when private capital was

unavailable, and even doing the job itself, when

required. Public policy undoubtedly enabled the

timely and widespread development of each new

communication system, and these systems facilitated the rapid settlement and integration of America’s rural heartland.

This retrospective account not only describes the

historical basis for government involvement in

infrastructure building, it also suggests some models

for action that the Federal Government might adopt

JJDU F. ~wiger and Clay COChr~ ‘‘Rural ‘lMephonesin the United StiteS, ’ Agricultural History, vol. 58, 1984, p. 232.

~USDA, REA, op. cit., fOOt330te 31, p. 7.

35Road pa~ga titer 1905, when automobiles ~aenwemm. By 1915,39 S@tes ~d crmted b@way dep~ents. Road btildhg g~ed

~ impetus in State legislatures, where farm orgtintiom ~d hgrOUpS often control.1~ decisions. During the 1920s, the States constructed 1.3 million

total miles of improved roads. Mark H. Rose, Interstate Express Highway Politics, 1941-1956 (L.mvrenee, KS: The Regents Fress of ~m, 1979), pp.

4-7.

36Hoover’s ~mv~agency, tie Recom~ction F~ce corporatio~ lent $300 million to the States for road construction. Be*em 1934 ~d 1937s

the Roosevelt Adrmms “ “ trationspent$28 billion forroadconstruction. TheU.S. Bureau of Public Roads, loeatedwithintheU.S. DepartmentofAgrieulture

until 1939, envisioned a 30,000-rnile “expressway system’ to speed traffic, eliminate urban and rural deeline, and create jobs. But President Roosevelt

came to view highway building as a poor way of creating jobs, and he feared that the development of a “superhighway system” would unbalance the

Federal budget. He began to cut back on road-building as the Nation prepared for World War II. Hadwiger, op. cit., footnote 4, p. 28.

37-Resident Truman’s Adrninistratiom road-building failed to keep pace with increased road use. There was no consensus about the Federal

role. Rural Senators Milton Young (ND) and John Stennis (MS) sponsored increases in road appropriations including $100 million for farm highways.

However, at the same time, the U.S. Chamber of commerce opposed farm highways, characterizing them as “national socialism.” President Truman

cut back on road construction during the Korean War, even as road use was sharply increasing. Rose, op. cit., footnote 35, p. 40.

38This Fmd WaS es~b~hed by the Highway Aet of 1956. Its passage inaugurated a period of iiCCdCTtttd highw’ay improvement.

%EIadvviger, op. tit., footnote 4, p. 29.
140 . Rural America at the Crossroads: Networking for the Future

today. REA is a particularly useful model, given its

past success in encouraging technology deployment

in rural areas. Recent analyses suggest that advanced

technologies will not be quickly deployed to rural

areas without some form of government intervention. REA could assume the role of helping to

finance and facilitate the development of Rural Area

Networks, just as it took on the additional task of

providing telephone service. Most important, R EA

could help rural communities and development

agencies serving rural areas sort out their communication needs and explore new ways of meeting them.

With its successful lending experience and technical expertise, REA could play a key role in launching

experimental approaches to deploying technology.

REA could establish forums and discussion groups

of community leaders, communication providers,

and communication users to consider rural commucation needs, and explore how communication

systems might be designed to meet these needs. In a

more proactive mode, REA might conduct research

and development to investigate new and creative

ways of deploying advanced communication and

information technologies to rural areas and/or provide financial support for demonstrations and trials

of such strategies. REA could serve as an honest

broker between borrowers and potential users. It

could also provide loans and technical assistance to

groups of users and providers who undertake cooperative ventures.

To play this kind of an expanded role, REA will

need much greater resources. The REA telephone

program staff has dropped from a high of 500 to 149

employees. And the remaining staff has little familiarity with rural development in general. So additional staff and staff training are essential. REA will

also need greater political support if it is to be

successful. REA’s very existence has often been in

dispute. Most recently, the Reagan Administration

claimed that REA has outlived its mandate, since

universal service has been achieved and rural

telephone companies are financially sound. For

REA to get a new mandate, therefore, may require

Congress to redefine the notion of universal service

in the context of an information age.

The Rural Economic Development Act of 1990

includes measures to expand REA’s role in several

respects. It creates a new REA Assistant Administraor for Economic Development to carry out REA

programs that involve rural electric and telephone

systems in community and economic development.

It provides the REA Administrator with additional

powers and assigns duties to provide advice and

guidance, establish and administer pilot projects and

demonstrations, and act as an information clearinghouse for dual development-related activities of

REA borrowers. REA’s technical assistance role is

strengthened across the board. Finally, the Act

reaffirms the continuing importance of the REA loan

program, and calls on it to play an even greater role.

Promoting Information Dissemination,

Science, and Education

The Federal Government’s role in promoting

information dissemination, science and technology,

and education has its origins in the Constitution: the

First Amendment guarantees freedom of speech and

press; Article I, section 8 authorizes the Federal

Government to grant intellectual property rights;

and Article I, section 8, paragraph 7, permits the

Government to build postal roads.40 The Federal

Government took advantage of the postal provisions

to subsidize the distribution of news in the late

1700s. 41 After the Civil War, the Federal Government

played a major role in the development of libraries 42

We American attitude towards information dissemina tion differed radically from that in Europe, where the ruling monarchs regarded it with

considerable alarm. However, building a Nation requid the establishment of communication links, the development of a tiledmarke~ the forging

of a common culture, and the building of a democratic policy. The widespread flow of information was essential to accomplish these tasks.

41s= Rickd B. fielbowiti, “Newsgathering by Printers’ Exchanges Before the Iklegrapk’ Journalism Hi~tOV, vol. 9, 5 ummer 1982, pp. 4248;

and Samuel Kemell, “The Early Nationalization of Political News in Ameri~” Studies in American Polifi”ca/ Development (New Have~ CT: Yale

University Press, 1986), pp. 255-278.

dz~ tie unit~Stitti, libraries have always been regarded as popular educational institutions. Like the public schools, they derived their support fm~

the public education and reform movements that developed after the Civil War. Traveling libraries were founded to bring news and reading materials

to rural areas where book deposit stations were set up in grange halls, neighborhood stores, f~e stations, and women’s clubs. In cities, libraries were

established not only to provide access to books but also-like the settlement houses-to provide a haven and adult education programs for a growing

number of working-class immigmnts. These libraries developed rapidly during the post-Civil War period, and even continued to thrive in the depression

years. See V. H. Mathews, Libranesfor Toalzy and Tomorrow (Garden City, NY: 1976).
Chapter 6-The Role of the Federal Government: orchestrating Cooperation and Change ● 141

and the American public school system.43 Towards ●

the turn of the century, it became more activist in ●

promoting science and technology especially

through the university system. 44 These policies ●

reflected the notion, so prevalent in the United

States, that education and knowledge have distinct

public benefits and play an essential societal role.45

●

These overriding values helped structure the

land-grant colleges;48

supporting research on agricultural problems at

agricultural experiment stations;49

making basic information on farm and home

problems available to people through the extension service;50 and

providing vocational training on agricultural

problems, home economics and industrial subjects. 5]

Federal Government’s response to the farm crisis The Country Life Commission, established under

that followed the Civil War.46 The Federal Govern- President Theodore Roosevelt, also advocated Fedment sought to help farmers adjust to the structural eral assistance in bringing ‘‘both information and

changes in the economy by developing and transfer- inspiration” to all farmers. There had already been

ring modem technology to agriculture.47 Working a number of experiments for providing education

through the Department of Agriculture, the Federal and information to rural communities, and the

Government eventually established four different Commission recommended that these activities be

types of complementary programs: ‘‘nationalized. ’52 Among these were DeamanKnapp’s

dsme ~eric~ co~ment @ public schooling grew in the Wake of the Civil War. This commitment was SO inkxlsc that it gave H* tO a n.rLtiOti

crusade to establish public schools. Concerned about the problems of reconstruction in the Sou@ the influx of Catholic immigrants, and the advent of

industrialization in the Nom Americans saw public schooling as a way of preserving the social, economic, and political order. See Rush Welter, Popular

Education and Democratic Thought in Anwrica (New Yorlq NY: Columbia University press, 1%2); and David ~ack and Elisabeth Hansom “Conflict

and Consensus in American Public Education ” Amen”ca’s Schools: Public and Pn”vate, Daedalus, surnm er 1981.

~rfshould be noted that just as democracy was closely associated with farming, so too was it linked with technology. A democratic pofity wm ~ought

to be a prerequisite for advancement in applied science, while technological achievements were expected to provide the physical means of achieving

the democratic objectives of political, social, and economic equality. See Hugo A. Maier, “lkchnology and Democracy, 180( L1869,” Journal of

American History, vol. 43, p. 625. For a discussion of the evolution of the university system, see Edward Shils, “The Order of Learningin the United

States From 1865-1920: The Ascendancy of the Universities,” Minerva, vol. 18, No. 2, summer 1978.

dscon~sting the attitude of Americans towards education with that of Europeans, Alexis de ~ueville, the Wdl-hOVW3 cOmm@rdOr on America

society, noted in 1831: ‘‘Everyone I have met up to now, to whatever rank of society they belong, has seemed incapable of imagining that one cmdd

doubt the value of education. They never fail to smile when told that this view is not universally accepted in Europe. They agree in thhking that the

diffusion of knowledge, useful for all peoples, is absolutely necessary for a free people like their own, where there is not property qualillcationfor voting

or for standing for election. That seemed to be an idea taking root in every head. ”Alexis de Tocqueville, Journey to America, translated by George

Lawrence, J.P. Meyer (cd.) (New Yorlq NY: Anchor Books, 1971).

46As Wape Rasmussen has described it: “The revolution generated by the Civil War catapulted the mtion’s farmers not only into a new era of

mechanization but also into a world of complex social and economic forces that were too volatile and powerful for individual farmers to confront by

themselves. It seemed that the appearance of more complex and productive tools intended to guarantee the farmer’s survival had made that survival more

complex.” Wayne D. Rasmussen and Paul S. Stone, ‘‘Toward a Third Agricultural Revolutio~” in Don. F. Hadwiger and Ross B. Talbot (eds.), Food

Policy and Farm Programs, proceedings of the Academy of Political Science (New Yorlq NY: The Academy of Political Science, 1982), p. 179.

dTThe idea that howledge could improve agriculture was first put fonvard by agricultural societies composed of well-to-do gentlem~ f~en,f=

journalists, and some educators. Such citizen advocacy was bolstered by public agencies and private agricultural interests that acted in mutually

supportive .ways. These public agencies included tbe U.S. Department of Agriculture and the land-grant colleges. The private interests included general

farm organiza tions as well as commodity groups. Rasmusseq 1989, op. cit., footnote 10, pp. 8-22; also David E. Hamilto~ “Building the Associative

State: The Department of Agriculture and American State-Building,” Agricultural History, vol. 64, pp. 209-218.

48Dem~atic ~d pop~ist, the 1~d-~t movement called on the universities to extend the benefits Of education tO ~ segments Of Soc@.

Responding to the Nation’s rapid industrial and agricultural developmen~ it called on the universities to expand beyond their traditional role of tmining

gentlemen as preachers, lawyers, and doctors, and-through applied researc~to develop tie more practical applications of education. Provided under

the Merrill Act of 1862, land-grant colleges, open to students of all backgrounds, were established to provide education in fields such as agriculture,

engineering, home economics, and business administration. Unlike traditional colleges, land-grant colleges were not isolated communities. Through their

agricultural experiment stations and their service bureaus, their activities were designed to serve the State. For a discussion see Clark Kerr, The Uses

of the University (Cambridge, MA: Harvard University Press, 1972).

d~efitch~tof 1887 autho~ed the es~bfis~ent of agric~~~ex~l-iments@ons to be funded with the procmds from the side of certain public

lands. In additio~ it authorized annual grants of $15,000 for the purpose of testing, research and publication, and dissemination of scientific information

under cooperative arrangements behveen the States and the Department of Agriculture. See Osbo~ op. cit., footnote 7, p. 15.

%e Smith-Lever Extension Act of 1914 called for the Government to disseminate among farmers useful information on crop and livestock

productio~ soil rnanagemen~ marketing, and rural sociology that had been produced in the agricultural colleges.

51’rIhe Sfith-Hughes Act of 1917 provided for Feder~ gr~ts-~-~d to ~~tch~by s~te ~ntributions for promoting instruction bCIOW the COllege

level in agriculture and the trades.

sz~dwiger, op. cit., footnote 4.
142 ● Rural America at the Crossroads: Networking for the Future

“demonstration farms,” on which farmers could

learn by watching and doing, and “movable

schools, ’ ‘ such as George Washington Carver’s

Tuskeegee mule-drawn wagons full of new seeds,

farm machinery, and dairy equipment, as well as

boys’ and girls’ clubs through which it was hoped

parents could be educated.

One promising and widely used idea was to

employ an “extension agent’ in each county to

work directly with innovative farmers. The SmithLever Act of 1914 authorized partial Federal funding

for an extension service in all rural counties. The

costs were to be shared by the States, the counties,

and by county organizations of innovative farmers,

called farm bureaus. Comanaging this new agency

were the U.S. Department of Agriculture and the

land-grant agricultural colleges. On the campuses,

extension and experiment stations formed a partnership. Still another partnership developed between

the county extension agency and the county farm

bureaus; the county agent organized the farm

bureaus, which in turn formed State and National

farm organizations, thereafter becoming Extension’s link with political supporters as well as

farmers. Later on, extension people helped start

other farm organizations, called commodity organizations. The experiment stations also formed links

with the farm bureau and with the commodity groups

so they could better understand the research needs of

producers. Leadership for this public-private network was recruited from graduates of the agricultural colleges. Within a few decades, this elaborate

network of players had achieved its goal of modernizing farming. Moreover, the quality of farm life had

been improved through access to home economics

and other farmer information services.

Despite its many successes, the Extension Service

has been criticized throughout its history for being

elitist, and catering to the most innovative farmers.

Moreover, it has found it difficult to move from the

goal of agricultural efficiency to the broader goal of

community development. Under President Roosevelt, for example, leaders in the Department of

Agriculture tried to develop policies aimed at

Photo credit:Mark G. Young

The Page Co-op Farm Bureau endures even as the county

shifts away from agriculture.

multiple goals. But this initiative was opposed by the

farm bureau, which feared that the Extension Service

might lose control at the grassroots level.53 And

State extension services found it hard to shift their

resources from agricultural to rural development

because of the resistance of farm and commodity

organizations. Moreover, the partnership between

scientists and extension, which was so successful in

modernizing agriculture, often opposed efforts to

renounce conventional agricultural practices that

might endanger health or the environment.54

As rural areas face the challenge of moving into

the information age, the Federal Government must

continue to play a major role in information dissemination, research and development, and education

and technology transfer. At present, there is little

Federal research being conducted that focuses on the

complex relationship between communication technologies and economic development. More is needed

to avoid the kind of mistakes made in the past when

trying to deploy technology to achieve social or

economic ends.55 There is also a need for assistance

in transferring technology to economic development

applications and for providing up-to-date information about these technologies.

 Social Scientists Politics in the Age MO: University of Pp. 

 USDA Research conducts research on the economy, including business, of 

development. However, only a very small percentage (about 5 down from 10 percent a decade ago) of budget is allocated to rural topics,

due to budget constraints and competing priorities (the bulk of research is on commodities, trade, and the like). 

could establish a research focus on rural telecommunication and information services or industries, and on the business, and financial

 of a information economy.
Chapter 6--The Role of the Federal Government: Orchestrating Cooperation and Change ● 143

Having successfully played these roles in the past,

the Cooperative Extension Service (CES) appears

uniquely suited to help introduce information-age

technologies to rural areas. Knowledge is rarely

transferred passively. Moving innovations from

development to production is not a one-way process.

The experience and understanding of potential users

is as important to the process as is expert knowledge.

Thus effective technology transfer requires outreach

programs based on mutual trust and respect, similar

to those administered by the Cooperative Extension

Service. 5 6

At present, CES provides education, information,

and technology transfer on numerous topics relevant

to farming and agriculture generally. The scope

extends to many topics relevant to rural development, and could be further broadened to specifically

include information technology applications for

rural development. CES has the advantage of an

extensive State and county network of land-grant

colleges, extension agents, and field experiment

stations through which to disseminate information

and education.

CES has interpreted its statutory mandate as

extending to the general health of rural America, and

has now developed its own rural development

strategy, in coordination with U.S. Department of

Agriculture and government-wide rural revitalization initiatives.57 Indeed, the CES rural strategy

predates these other initiatives. The CES approach to

rural development emphasizes the importance of

local leadership, the health of the local community,

a well-educated rural citizenry, and strong cooperation among governmental and private sector participants in the development process.5 8

CES is developing a communication and information technologies strategy, to be completed by early

1991. The strategy could serve as a vehicle to focus

USDA and perhaps government-wide efforts for

.

Photo credit: Mark G. Young

The Penal Oreille County Library, led by its energetic and

visionary director, is a major information center for the

town of Newport, WA.

technology transfer in rural areas. CES is already

experimenting with the use of electronic media—

including online databases, compact optical disks,

videodisks, videoconferencing, and computer networking-to carry out its education and information

dissemination fictions.

CES also cosponsors (with the National Agricultural Library) a Rural Information Center (RIC) that

provides information retrieval and rural information

briefs. Eventually, RIC will provide local follow-up

through county extension agencies and database

access in local offices. RIC now includes a Rural

Health Information Clearinghouse Service through

an interagency agreement with the Department of

Health and Human Services. The concept is being

extended to other categories of rural information.

 Moshowitz, “Cooperative Extension: A Functional Model for Transfer and Economic Development in Rural 

contractor report prepared for the of Technology Assessment May 1990.

 for Extension Service, Rural A Cooperative 

Response, November 1986; special issue on ‘ ‘Rural Revitalization,’Extension Review, Winter 1987; and “Revitalizing Rural America: Critical Issues

& Cooperative Extension System Response,” no date. Also see Northeast Regional Center for Development New 

Development: Colloquium Proceedings, co-sponsored by USDA and the National Association of State Universities and Land Grant Colleges (University

 PA: Northeast Center for Rural Development, Pennsylvania State University, February 1989); Northeast Regional Center for Rural Development,

Cooperative Extension and New Alliances for Rural Development: Five Case Studies, prepared in conjunction with the USDA Extension

Service (University PA: Northeast Regional Center for Development Pennsylvania State University, November 1989); and University of

Missouri Extension Service, Extension Responds the Rural Crisis, prepared in conjunction with the university extension services of Iowa, Kansas,

Mississippi, Missouri, North and Vermont (Columbia, MO: University of Missouri Extension Service, July 1990).

 of groups and agencies. For example, has an interagency memorandum 

Small Business “ “ for the exchange of information and expertise on rural business managers.
144 ● Rural America at the Crossroads: Networking for the Future

If CES is to be truly effective in carrying out these

tasks, it will need to upgrade its public image.

Especially at the local level, it is still often thought

of as a “worn out” agency, focused on agriculture

to the exclusion of other kinds of developmen t

problems. Moreover, although Federal Extension

Service officials are now more aware of the potential

role for telecommunication technologies in th e

development process, there is still a large knowledge

gap at the local level. Thus, if CES is to play an

expanded role in introducing information-age technology in rural areas, it must be reenergize and

develop greater technical expertise.

The Rural Economic Development Act of 1990

takes steps to enhance the role of the Cooperative

Extension Service. Section 2346 establishes a rural

economic and business development program within

the Extension Service. Funds are provided for State

and county-level CES rural development specialists

to:

. . . assist individuals in creating new businesses,

including cooperatives, or assist existing businesses,

and to assist such businesses regarding advanced

telecommunications, computer technologies, technical or management assistance, business and financial

planning, and other related matters, and to assist

community leaders in community economic analysis

and strategic planning.

Rural development specialists would:

. . . provide advanced telecommunications, business

management, computer operations, and other technical assistance to community leaders and private

sector entrepreneurs and cooperatives.

The Extension Service is also directed to coordinate

and cooperate with any similar service provided by

other Federal agencies or programs.

Coordinating Federal Roles for

Holistic Rural Development

Just as cooperation among local participants is

critical to the success of a rural development

program, so too is cooperation among Federal

players. In fact, Federal coordination will facilitate

local cooperation. Moreover, budgetary constraints

make intragovernmental program coordination mandatory since money to create new agencies is scarce.

A holistic rural economic development strategy

requires that many Federal agencies and programs

be involved. Using communications technologies as

a fundamental and uniting element of holistic rural

development means that Federal players who previously had no reason to consider rural development

must now take part along side the vast array of

players involved already.

Federal Players

Over the decades, Congress and the executive

branch have established hundreds of programs that

contribute to rural development. Many were designed to carry out broad national objectives—such

as retraining dislocated workers or rehabilitating

deteriorated housing. They applied to all geographic

places—urban, suburban, and rural alike. Other

programs, such as REA and CES, were targeted

primarily at rural concerns (see figure 6-l).

The complexity and magnitude of Federal in -

volvement in rural issues are illustrated by the U.S.

General Accounting Office’s effort to catalog Federal grants, loans, and direct payments to rural

America (see box 6-B).

59 GAO identified hundred s

of programs, spread over the following categories:

. economic development,

● agricultural/natural resources,

● infrastructure,

. human resources,

● general entitlement, and

● special entitlement.

Intragovernmental Coordination

Even this brief examination of Federal programs

affecting rural development reveals a complex web

of agencies and activities. There is no overarching

policy or clear direction to these efforts; each

program reflects a partial strategy.a With so many

different agencies and so many different programs

~.S. General Accounting Office, Rural Development: Federal Programs That Focus on Rural America andlts Econonu”c Development, briefing

report to the Ranking Minority Member, Subcommittee on Conservation Credit, and Rural Development Committee on Agriculture, U.S. House of

Representatives, GAO/IWED-89-56BR, January 1989.

60As ~c~d~ngetal. exp~“~eex.istingc~~ination within the Federal Government among policies andprogramsaffectingrural development

is generally due more to chance than to intentions.” Richad W. Long, J. Norman Rei~ and Kenneth L. Deavers, Rural Policy Formulation in the United

States (Washington DC: USDA Economic Research Service, Agriculture and Rural Bconomics Division, April 1987), p. 27. And USDA officials and

advisory groups concur that there is, at present, no coordinated governmentwide rural development policy.
Chapter 6-The Role of the Federal Government: Orchestrating Cooperation and Change ● 145

Figure 6-l—Organizational Chart of Agencies Involved with Rural Development

/ ‘\

Us.

Congress

~-- i . # -

- Extension Service

- Farmers Home Administration

- Small Business Administration

- Rural Electrification Administration

- Economic Development

- Forest Service

- Soil Conservation Service

- Federal Communications

- Economic Research Service

- National Agricultural Library

- Department of Education

Rural Information Service

- Health and Human Services

- Department of Defense, etc.

The key players involved in rural development at the Federal, State, and local level, and how they relate to each other.

SOURCE: Office of Technology Assessment, 1991.
146 ● Rural America at the Crossroad: Networking for the Future

Box 6-B—Federal Roles in Rural Development

Using the functional categories provided by the General Accounting Office (GAO), it is illustrative to examine

the focus of each category and list important programs.

Economic Development

GAO identified 29 Federal programs directed at economic development. Rural regions received 18 percent of

the $4.2 billion of funding from these 29 programs. Many of the government’s economic development programs

focus on small business development.

The U.S. Department of Agriculture has been allocated the lead role in Federal rural development policy

because many USDA bureaus and programs serve rural America. Within USDA, the most active economic

development program is the Farmers Home Administration (FmHA). FmHA distributes assistance to rural areas

through business loans and industrial grant programs. It focuses on job creation, rather than on promoting particular

industries. FmHA also provides loans for community facilities and for farmers. l The Department of Agriculture also

sponsors the Business and Industrial Loans program, which issues guaranteed loans.

The Department of Commerce’s (DOC) Small Business Administration (SBA) and Economic Development

Administration (EDA) each have numerous programs directed toward small business development in rural areas.

About half of EDA grants are awarded to rural areas (as defined by GAO--counties with under 20,000 population

outside metropolitan areas). EDA grants fund projects ranging local local revolving loan pools and industrial

infrastructure projects to grants for local planning activities. SBA provides loans to individual businesses, small

business investment and development companies, and State/local development companies; grants to small business

development centers; and technical assistance to disadvantaged small businesses. According to GAO, SBA

allocated about 17 percent of its resources to rural areas. The Department of Defense (DoD) also plays a role in rural

economic development through its grants for Procurement Technical Assistance for Business Firms.

Agriculture/Natural Resources

In addition to the extensive Federal programs aimed at agricultural commodities price supports, the Federal

Government provides assistance to rural areas through its forestry and mining programs, which provided about $84

million in grants and payments in 1987. USDA administers the largest of the forestry projects. These programs

provide grants and direct payments to encourage forest resource management, increased timber production, and the

efficient use of wood and wood residues. The Department of the Interior (DOI) participates in rural development

through its program for regulating surface mining.

Infrastructure

GAO lists 30 Federal programs that provide aid for rural infrastructure development, which include programs

for community facilities, transportation, utilities, and public works. Nine agencies allocated $11.1 billion in grants,

payments, loans, and other expenditures for such projects. The Department of Housing and Urban Development

(HUD) administers several infrastructure programs, but it is unclear how much HUD funding goes specifically

toward rural areas. USDA, through its roads projects, water and resource conservation projects, REA, and Rural

Telephone Banks, participates extensively in rural infrastructure development. DOI, through its outdoor recreation

programs, and the Department of Education (DOE), through educational facilities and library construction projects,

also play significant roles in rural infrastructure development. Additionally, The Department of Transportation and

the Appalachian Regional Commission (ARC) each offer extensive highway construction and improvement

funding, which contribute to rural development. DoD participates in rural infrastructure development through its

Corps of Civil Engineers Work Programs.

Human Resources

Rural areas benefit from a variety of Federal programs for human resource development, most of which have

no specific rural orientation. GAO lists 36 programs, administered by 8 different Federal agencies, that provide

about $13.6 billion in aid to rural areas. The Department of Health and Human Services provides funding for several

national programs, such as community services projects, Head Start, and Migrant Health Centers. DOE offers rural

IEfi@ble ~o-~~facfitiw include fi~es,schools, town halls, community centers (if not used p*y for r-don), hospi@

or medical clinics, and fue/emergency rescue stations. FmHA does not at present target or encourage funding for information technology, but

computers and telecommunications equipment would be eligible if included as an integral part of community facilities. In certain cases, such

as emergency, fwe, police, and medical systems, computer systems have been considered to be community facilities and funded directly.
Chapter 6-The Role of the Federal Government: Orchestrating Cooperation and Change . 147

assistance through vocational and general education grant, which are not rural-targeted. USDA’s Cooperative

Extension Service offers several grants for vocational education, but rural areas only receive about 6 percent of CES

funding for these purposes.2 USDA also offers several housing assistance programs, which primarily benefit rural

communities.” The Department of Labor administers several worker training and retraining programs, along with

its programs to assist dislocated workers. Given the changing nature of the rural economy, these programs will likely

have continuing and growing importance for rural America. ARC offers small health and education programs, and

HUD provides property improvement loan insurance.

General and Special Entitlement Programs

To the extent that people living in rural areas are eligible for the Federal Government’s various entitlements

programs, these programs affect rural development. None has a specific rural orientation. However, demographic

trends would indicate that programs directed at the elderly, such as social security, Medicare, and retirement

programs, would have a proportionally larger impact on rural areas due to their greater proportion of elderly.

Similarly, programs aimed at coal miners and Native Americans would tend to have a greater impact on rural areas.

In addition to these programs, rural areas also benefit from the Federal Government’s public assistance programs,

food stamps, Veterans assistance programs, and railroad workers programs.

Information Dissemination and the Promotion of Technological Applications

The Federal Depository Library Program is an important rural resource. Many of the 1,400 participating

libraries are located at colleges and universities in small towns surrounded by predominantly rural areas. The U.S.

Postal Service is also an important source of information dissemination and increasingly promotes information

technology applications. More than half of all post offices are located in rural areas, and some now provide their

communities with access to facsimile machines and electronic mail boxes.

New Players

If the Federal Government makes as a priority the use of communications technologies as a fundamental link

in rural development, new governmental players must become involved in Federal efforts. As the national regulator

of telecommunications, the Federal Communications Commission (FCC) will have to consider how its various

policies affect rural development. FCC can also become involved in rural development issues through the

Federal/State Joint Board. DOC’s National Telecommunications and Information Administration, as the

Administration’s telecommunications advisory body, must also take a broader approach to examining

telecommunications issues, to include their impact on economic development in general and on rural development

in particular.

2&cOrding to GAO, despite CES’ rural charter, the majority of its funding does not go to rural Communities ~use Program funds~

administered to the land-grant colleges, which are generally not in counties designated as rural. Although the colleges themselves are typically

not located in rural-classified counties, much extension work targets rural communities.

SOURCE: U.S. General Accounting OfiIce, Rural Development: Federal Programs That Focus on Rural America and Its Economi”c

Development, briefing report to the Rankm“ g Minority Member, Subcommittee on Conservation Credi4 and Rural Development,

Committee on Agriculture, U.S. House of Representatives, GAO/RCED-89-56BR, January 1989.

within each administering agency, both inter- and The Federal Government has attempted various

intra-agency program coordination is necessary. But degrees of policy coordination and integration.63

it will not be easy, as ‘‘coordination is rarely Eisenhower’s Rural Development Program was one

neutral. ’61 To accomplish such coordination, a of the frost efforts to address rural development from

national strategy and statement of intent is essen- a multifaceted perspective. It was not until the Carter

tial. 62 Administration’s Rural Development Policy Act of

611-Iarold Seidman explains, “to the extent that [cooperation] results in mutual agreement or a decision on some policy, course of actiou or inactiow

inevitable it advances some interests at the expense of others or more than others. ” Harold Seidrna.q Politics, Position, and Power: The Dynamz”cs of

Federal Organization (New York NY: Oxford University Press, 1980).

62rbid. Seidman g~s on to ~p~that ‘ ‘if agencies are to work together harmoniously, they mUSt Sk at I-t Some Commtity of ~t~sts about

basic goals. Without such a community of interests and compatible objectives, problems cannot be resolved by coordination.”

63~w et al, op. cit., footnote 60; P. ‘i”
148 ● Rural America at the Crossroads: Networking for the Future

1980, however, that a comprehensive national rural

policy was formulated. The Carter policy set four

goals:

1.

2.

3.

4.

meeting the basic human needs of rural Americans,

providing opportunities for rural people to be

fully and productively employed and providing a favorable climate for business and

economic development,

addressing the rural problems of distance and

size, and

promoting the responsible use and stewardship

of rural America’s natural resources and environment while preserving the quality of rural

life.64

The Act included an Action Agenda with 200

specific programmatic actions, along with recommendations for strategies to develop the institutional

capacity necessary for policy implementation. Despite its well-studied and comprehensive approach,

however, the Carter policy did not make a strong

impact on rural problems. Critics contended that it

was

●

●

●

●

ineffectual because, among other things, it:

did not increase resources for rural development;

did not rank in priority the 200 items on the

Action Agenda;

merely free-tuned the existing system, instead

of making systemic changes; and

was highly dependent on the efforts of a few

key individuals, failing to develop sufficient

influence with political and budgetary decisionmakers. 65

The Rural Development Act of 1980 is instructive

both for its successes and its failures. Praising it for

its comprehensiveness, observers view the Act as ‘a

basis on which to build."66 Its shortcomings suggest

that nominal commitment is not enough. To be

successful, a rural policy must be backed by the

political and financial will of the Federal Government.

Federal Policy Execution

If the Federal Government takes a holistic approach to rural development, the problem of coordination will need to be addressed from a fictional,

rather than an agency, perspective. To date, most

rural development strategies have reflected the

missions of various government agencies.

This division of responsibility along agency lines

helps account for the limited contact between

Federal telecommunication regulators and agency

officials involved in rural development. The REA,

with its historical legacy of successful rural development and its technological orientation, could play an

important role in providing more cross-agency

fertilization. In addition to the increased responsibilities granted to REA in the Rural Economic Development Act of 1990, the REA could be charged with

acquainting Federal telecommunication policymakers

with rural development concerns.

The Cooperative Extension Service could also

play a coordinating role. The need for technology

transfer and an educational component within a

development strategy underscores the importance of

integrating technological applications into workforce education programs, vocational programs, and

general education programs. From its inception, the

CES has provided technology transfer. With its ties

to educational institutions, CES could coordinate the

technology and educational components of any

Federal rural strategy.

Bringing together all the various communities

involved in rural development—horn health care

and community services to local business development—will require a more broadly based coordinating body, connecting the various Federal agencies as

well as State and local governing bodies and

organizations. The current Administration has taken

initial steps in this direction by formalizing its

Working Group on Rural Development into an

interagency committee as part of the presidential

initiative on rural development.67 With representatives of all cabinet departments (except Defense and

Energy), the Small Business Administration, Office

aosbo~ op. cit., footnote 7, p. ~.

‘Ibid., p. 25.

fiRotid C. pOTVeIS ~d~wmdo. Moe, ‘~epohcy Context for Rural-OrientedResearc&> Don A. IMUman and Daryl J. Hobbs (CdS.), Rura/SOciety

in the LOu”ted States: ls.ruesjbr the 1980s (Boulder, CO: Westview Press, 1982), p. 14. Cited in Sandra Osbmuq ibid.

~~ono~cpolicy COUCS, WO&@ &OUp on R~Developm~~RuralEconom-c Development for the 90s:A PresidentialInitiative (W@bingto%

DC: The White House, January 1990).
Chapter &The Role of the Federal Government: Orchestrating Cooperation and Change ● 149

of Management and Budget, Council of Economic

Advisers, and various White House offices, this

committee has the potential to crosscut many rural

development issues. However, the committee emphasizes the economic and business dimensions of

rural development, overlooking key human and

social dimensions as well as the role of information

technologies. Nonetheless, its existence and breadth

of representation signal much potential for policy

coordination. 68 Moreover, the committee has plans

to establish Rural Development Councils in each

State, starting with councils now being implemented

in 8 pilot States, and eventually extending to all 50

States if the experiments prove successful. The State

councils are intended to coordinate Federal activities

at the State level, respond to State and local rural

development needs, and strengthen Federal/State/

local partnerships in rural revitalization. The councils include representatives from all major Federal

agencies providing rural development programs to

the States, and are staffed by a fall-time rural

development coordinator (who is a Federal employee from one of the participating agencies).

The Rural Development Councils in turn will

coordinate a series of rural development demonstration projects. These projects will target Federal

resources into specific rural areas to meet defined

needs in ways that encourage more coordinated,

synergistic, responsive Federal assistance. These

projects are intended to have both a local option and

evaluation component. The purpose is to encourage

innovation but in ways that protect local flexibility

and choice, and ensure that the project results can be

measured. Projects that work well can be replicated

or adapted in other rural areas.

Also, as part of the Presidential initiative, the

Rural Information Center, operated by the National

Agricultural Library, is being upgraded to include a

wider range of information and technical assistance

on Federal rural assistance programs. And a Presidential Council on Rural America has been established to provide a high forum for rural development

issues and a means to bring rural policy proposals

into focus for the President and senior White House

and agency officials. The Council has representation

from State and local governments, not-for-profit

organizations, small business, and a variety of

industries relevant to the rural economy.

Finally, the USDA has been designed as the de

facto lead agency for rural development, by virtue of

the designation of the Secretary of Agriculture as

chairman of the interagency coordinating committee

and the President’s Council. Many Federal agencies

have programs that affect rural America; but USDA

has by far the heaviest concentration of ruralrelevant activities. USDA has appointed an Assistant Under Secretary for Rural Development, and

supported the establishment of a Rural Development

Administration within USDA.

Cooperating in Pursuit of Change

Undertaking any new approach has the potential

for conflict. It entails giving up some things to gain

others. Some individuals and groups will win; others

will lose. New rural development approaches are no

exception. Introducing information-age technologies into the rural development process will be

especially difficult. These technologies have profound effects. They serve not only as a more efficient

means of providing traditional service but also as a

catalyst for innovation-for actually changing the

way that things get done. Communication and

information technologies also have their own mystiques; they can be very intimidating to the uninitiated.

How well information-age technologies can be

integrated into economic development strategies

will depend on how they are perceived by the key

players. If the Federal Government is to successfully

encourage the use of these technologies, it will need

a clear picture of who these key players are; their

relationship to one another; and their needs and

aspirations.

The States as Agents of Development

Not since the pre-Civil War days of Jefferson and

Jackson have the States been such important players

in economic development. Their enhanced role

stems both from the Federal Government’s withdrawal in this area as well as from the recognition by

State governments that if they are to successfully

cope with the crises in their economies, they need to

a~te HOW ~mors~pof tie interagenq COmmittee siz that “rural development” is an important issue that deserves high-level exeCUtive

branch attentio~ stimulates Federal agencies to at least pay more attention to their roles in assisting xural developmen~ and (combined with related

legislative activity in Congress) gives visibility and support to rural development advocates in the executive agencies.
150 ● Rural America at the Crossroads: Networking for the Future

take a more entrepreneurial approach.69 In apolitical

climate such as this, the States will be critical in

determining whether and how communication technologies are used in the rural development process.

The Federal Government first sought to disengage

from rural development during the Nixon Administration. While supporting the overall goal of development, President Nixon believed its execution was

the responsibility of the States.70 Accordingly, he

proposed legislation to consolidate 11 programs into

a single rural development revenue sharing fund to

be allocated by the States according to a formula.

Congress, however, failed to approve this plan.

President Reagan was much more successful in

decentralizing responsibility. He was opposed to a

Federal rural policy as such, believing that all

communities would benefit if Federal barriers to

State, local, and private action were removed. In

keeping with this “new federalism,” the Reagan

Administration challenged all of the ongoing Federal development programs. While the Administration could not eliminate these programs and the

agencies supporting them, it did significantly reduce

their Federal resources.71

The States acted quickly to fill this policy gap.72

Taking on a new “entrepreneurial” role, they

aggressively sought to encourage local economic

development. Some States have even gone so far as

to subsidize and co-invest in business ventures.73

Whereas in the past, States tried to encourage

development by importing businesses from afar,

now they are trying more to create a national, and

even global, demand for their local products and

services.74 This is a major shift in their development

strategies, and it requires a more activist State role.75

Many States are also beginning to view telecommunications as an important development tool.

Since 1982, 29 States have adopted legislation

pertaining to telecommunications, some for the

purpose of enhancing their development potential. A

number of States-including among them New

York, California, Maine, Minnesota, Michigan,

Tennessee, and New Jersey—have commissioned

studies and task forces to ascertain the potential of

telecommunications for economic development.76

State policies can only go so far, however, because

State governments are limited in their telecommunication expertise.77

Active State participation and support will be

essential to any Federal program intended to encourage telecommunication-based rural economic development. It is at this jurisdictional level that many

development programs are coordinated and priorities met. Moreover, it is the State public utility

commission that sets regulatory policies affecting

@Sw for di~ussions, peter K. Eis@er, The Rise of the Entrepreneurial State: State andLocalDevelopment Policies in the UnitedStates ~diso~

WI: Univcxsity of Wisconsin Press, 1988); and David OSbO~ Ldwraton”es of Democracy (Bosto~ MA: Harvard Business School Ress, 1988).

~AS smti OSbOurnpOintS out “Nixonwde it clear that the goal of establishing a sound balance between urban and ~AmeriWwotid be~~

out in accordance with the requirement of a second goal: ‘. .the restoration of the right balance between the State capitals and the national capital,’”

Osbow op. cit., footnote 7, p. 46.

71 Eis@m, op. cit., footnote 69, P. 85”

72~e s~=fistbeinvolved ~ emno~c development ~ the pefiod follo~ the ~~t Depression< mysouth~ St@S hl p6C~tied

to induce businesses to their areas with offers of land, cheap labor and capital, and tax benefits.

Ts~yShtes useavarie(yof small bustiess management and investment programs to upgrade the quality of rural businessmanagement and improve

the prospects for fmcing small business expansions or new starts. These programs are typically offered through extension services, ecxmomic

development organizations, and small business development centers at community colleges and universities. An important function of these programs

is to disseminate information on market opportunities, competitive activities, new technical or management techniques, and sources of financing.

Computerized databases can be of immense value, for example, to locate the results of product or market research on orgauic agriculture, match ruml

entrepreneurs with urban or suburban investors, and track trends in exports and imports of forest products.

i’ds~te.~d~ compute~~ ~~bmes provide a V- highly lev~ged way to fiterco~ect fi economies with the ~olld ~d eV~ @Obd

eeonomies. Some States are consciously working to build bridges between rural products and services and urban (and foreign) nuukets. This can take

the form of urban-rural buyer-supplier agreements, regional public-private rural-urban partnerships, domestic-foreign joint ventures, export trading

consortia for smallerf~, and the like. The rural economy is viewed not in isolation but in terms of how it can add unique value and capitalize on market

sectors where rural activities can be competitive. This new approach to rural development requires much greater volumes and quality of information

about competitive activities and opportunities, and on a timely basis. Online and ondisk electronic information systems can help make this a reality.

7sEis@m, op. cit., fOOmOte 69”

76pa~ ~c W,ke, Afier Dive~ti~e: The Political Econo~ of State Teleco~m”catiom Reg~ation (Altiy, NY: Stite Uldvemity of New York

press, 1990).

77As HathtiHudsonpofits ou427 s~tes~venomfessio~ wm~gontel~mm~~tio~. me av~genllmbCroftel~IUmlmi~tio13S ~~

~fieremStates is between 1 and 2. See Heather HudsoQ “’lkleeommunications Policy: The State Role, A National Overview,” paper presented

to the 18th Annual lklecommunications Policy Conference, Airlie, VA October 1990.
Chapter &The Role of the Federal Government: Orchestrating Cooperation and Change . 151

rural economic development. Thus, it will be State

governments that have to reconcile economic development and regulatory policies and goals. State

governments also help develop the States’ infrastructures. Increasingly, this set of activities is

coming to include communication networks. As

major users of telecommunication services, the

States can leverage their market power on behalf of

rural development. In addition, they can lead the way

by using telecommunications to provide information

and social services. Bringing State governments into

the process will help assure their commitment to

Federal programs. Many States are now in the

process of devising comprehensive statewide development plans.78 Acceptance of telecommunicationbased approaches will be more likely if they are

incorporated early into these plans.

Gaining State support for a Federal program will

require establishing appropriate Federal/State institutional arrangements. The trend of late has been to

distribute Federal funds using block grants. This

approach is very popular with State governments. It

provides maximum flexibility, allowing programs to

be tailored to the particular needs of a State. It also

provides for diversity, and the learning that comes

from using different approaches.

There are, however, problems with this approach.

The more that responsibility is shifted to the States,

the more difficult it will be for the Federal Government to mount a major campaign, assert program

control, or set national priorities. In particular, this

approach would make it hard to assure a holistic

development strategy that takes maximum advantage of new technological opportunities. Often

States governments focus their development policies exclusively on the business sector, and thus on

the regions of their States that offer the most promise

in this regard. Moreover, officials in many States are

not well versed in the use of technology for

development purposes, nor aware of the new opportunities and choices that it presents.

If Federal finds were distributed through State

governments or State economic development

boards, it would be important to assure that they had

the technical capacity to make educated decisions

about its use. Moreover, some conditions might need

Photo credit:Mark G. Young

Hospitals, such as this one in Culpeper, VA, are important

resources for rural economic development.

to be set to assure that Federal goals were met. For

example, it might be necessary to set aside a certain

portion of funding for small, very isolated communities.

An alternative way of achieving flexibility at the

State and local levels is to work through the

Cooperative Extension Service. CES already has

administrative units in all jurisdictions. And program activities vary from State to State. Subjectmatter specialists, who are usually employed by a

land-grant institution, aid county agents in the

development of technical information; supervisors

and State leaders assist in program planning, budgeting, and public relations. The role of the Federal

Government is largely one of consultation and

leadership rather than direct management or control.

Vision and Leadership at the Local Level

The local community is key to the success of rural

development. Whatever the larger national interest

in a strong rural America, the people directly

affected are those living and working in rural areas.

If rural education is to be strengthened, rural jobs

created, rural health care improved, these changes

will happen because rural citizens are motivated and

 of and might include State economic development departments, State 

State public utility commissions, and various statewide development councils and commissions. Ineffective State rural development planning

office needs the support of the Governor, access to and cooperation relevant State agencies and the State legislature, good rapport with local rural

communities, and sensitivity to the need for leadership and implementation.
152 . Rural America at the Crossroads: Networking for the Future

Box 6-C—Livermore, KY

The importance of energetic, visionary, and dedicated leadership is especially important for economic

development in rural areas. Without local leadership, the presence of good roads, sophisticated communications,

and quality education can accomplish only so much. Even without such underpinning for a healthy economy,

inspired leadership can go a long way in surmounting such obstacles. Such is the case in Livermore, KY, where the

mayor has steered the community through the difficult years of a protracted recession.

Livermore is a small community of about 1,700 people in the western coalfield region of Kentucky. It lies on

the banks of the Green River and is even passed by fiber optic wires though, as yet, the community has not yet been

able to tap this resource. Livermore’s economy struggles because several miles of county roads separate the town

from any significant transportation arteries. Like many

struggling rural areas, Livermore’s economic straits

are also related to its poor educational system, which

drives away those with high aspirations for their I

families. Another problem is the difficulty in securing

financing for small businesses.

Mayor Amber Henton is reknowned throughout

much of the State for her efforts on behalf of

Livermore. “Firecracker” and “livewire” were two

adjectives used to describe her. She started out with the

Federal Government during World War II before

moving on to local politics, and this long experience as

a civil servant, along with her savvy, is perhaps

Livermore’s most valuable asset. With her deep

understanding of Federal and State bureaucracies,

Mayor Henton musters all available financial and

material resources to secure important services for the

town. Among her accomplishments, Livermore has

constructed housing for senior citizens and is building

a 10-acre industrial park along with a lo-acre recreational facility. Photo credit: Mark G. Young

SOURCE: Office of Technology Assessment site visit, January

1990. Mayor Henton’s storefront office in Livermore.

have the skills and resources necessary to make rural resources to undertake a broad-gauged economic

development succeed.

Local communities in most rural areas are not

presently equipped to provide leadership on comprehensive rural development in general or information

technology in particular. Rural town and county

governing bodies typically focus on meeting community infrastructure needs such as roads, schools,

fire/medical facilities, water, and sewage. Many

rural jurisdictions are hard pressed to meet even

these basic needs, and do not have the staff or

development program. Many local governments are

hindered by a piecemeal, narrow view of development, which is aggravated by competition over

scarce resources and a general lack of awareness of

the potential of information technology .79 In sharp

contrast, most urban and suburban jurisdictions have

fully staffed and funded economic development

departments.

To take advantage of information-age technologies, rural communities need visionaries and activ-

 the more affluent cities and suburban areas, economic development are robust to include local trade missions to foreign

countries, zoning and that ensure local and provision of child care, adult and recreational

programs as important adjuncts to a healthy and economy. in metropolitan areas are usually heavy users

of information technology at least for automation andmanagement purposes, and have access to extensive technical expertise both inhouse and

 telephone and cable companies, computer retailers, and systems integrators, among others, who are selling to the local market. And in the major

metropolitan areas, the to learn about telecommunications and are High schools, community colleges, local

universities, vendors, and professional associations offer a potpourri of classes, seminars, and mini- to full-length educational programs on information

technologies.
Chapter 6-The Role of the Federal Government: Orchestrating Cooperation and Change ● 153

ists. Visionaries can help local communities understand what telecommunications and computers can

do and translate the technical possibilities into the

every day life of rural citizens. Leaders and activists

are necessary to implement these ideas80 (see box

6-C).

Visionaries come from many places. Institutions

of higher education provide one important source.

Many colleges and universities already have computer/

communication networks that are electronically

linked to other institutions, libraries, and databases,

and research centers throughout the United States

and even the world. The future development of a

high-speed national research and educational network (NREN) will provide universities even greater

access to computing and transmission capacity, and

information services. In addition, the number of

educational institutions using communication technologies to develop and share educational resources

and materials is growing at a steady pace. Many

colleges now deliver at least some classes over the

air or online to students at distant locations.81

Having established their own communication

networks, and successfully used them to meet their

educational goals, educational institutions are knowledgeable in the use of communication technologies.

As large users of communication services-often

ranking second only to State government-they

exert considerable market power. As in the case of

a large business, the demand of a statewide university system can, by itself, justify the deployment of

advanced technology even to a relatively remote

area. Because of these strengths, educational institutions can play a key role in assuring the success of

telecommunication-based development programs.

Not only could they provide expertise, they could

also leverage their market power to draw communication providers to rural areas.

Colleges and universities also provide a locus for

many of the key players involved in development.

Photo credit: Mark G. Young

Owensboro Community College’s Resource Learning

Center in Kentucky. OCC, in conjunction with the local

government, plans to employ telecommunications for a

variety of social, cultural, and economic functions.

Businesses are now aligning themselves with educational centers to promote education, training, and

research. They are also taking advantage of university online library systems and the growing number

of applied research and development centers located

at, or near, university centers. Similarly, many

organizations involved in development are either

housed at or near the university. For example, the

Small Business Administration’s offices are generally located on university campuses. So too are many

Extension Service offices. Universities and colleges

are also well connected to State governments, since

many are governed by State boards and funded by

the States. Thus, State systems of higher education

could provide an impetus to the rural economic

development process. Federal and State programs

that do not provide a role for them will lose a

powerful resource.

Another source of vision is the library community. Libraries are, by their very nature, in the

information business. The larger public libraries and

most college and university libraries already use

information technology. It is not uncommon now for

 requires a commitment to developing leadership. This means providing 

to expand their horizons, acquire and about the opportunities and challenges presented by emerging information

technologies. This also means identifying persons with future leadership potential and providing experience and build leadership

capacity. Community colleges, small town state universities, professional associations, and Federal/State extension programa, among others, can all help

 courses, seminars, and workshops to local leaders. These training activities can run the gamut from community and

coalition-building to fund raising to effective use of telecommunications and computers.

81 gamut from sponsoring or se* on telecommunications and rural to adding 

development focus to existing courses (e.g., in agriculture, forestry, and business), and to conducting research (perhaps with Federal, State, and private

sector funding) on rural development. Also, interested college and university faculty members are more likely to get involved in rural development 

private citizens and thus provide leadership in the community as well as the classroom. College and university students area still largely

untapped Faculty can encourage student involvement in rural development issues by including site visita, user surveys,

and the like as part of the curricula.
154 ● Rural America at the Crossroads: Networking for the Future

even small town college libraries to use both online

and compact disk systems to search bibliographic

databases. The library community as a whole is quite

well organized and aware of the opportunities and

challenges presented by electronic technologies.

The challenge is to extend this energy and expertise

to libraries and library users in rural America. This

is already happening in some college towns and

county libraries. But most rural libraries do not, at

present, have adequate resources to provide leadership. 82

Vision and leadership can also come from rural

business communities. Businesses participate in

local economic development programs through organizations such as their local chamber of commerce

and their local Economic Development Administration (EDA) office. The quality and resources of such

organizations vary considerably from place to place,

as does their focus on telecommunications .83 As

local businesses become more dependent on communication technologies, they will likely be more

active in promoting technology deployment. However, when businesses view telecommunications as

the harbinger of greater competition, they are often

opposed to change.

If rural communities are to use telecommunications effectively, these visionaries cannot operate

alone. They need to find common solutions to their

diverse problems, given their limited size and scope.

Such cooperation, however, may not be forthcoming. Although communication-based economic development programs are likely to have considerable

long-term benefits, many stakeholders will feel

threatened by such programs. Agency officials, at all

levels, may try to protect their turfs, or be unwilling

to gain the expertise needed for effective program

implementation. Telephone service providers might

be concerned that users, acting in concert, bypass

their communication systems. State development

officials may resent loss of control over development funding. heal development groups may resist

newcomers seeking a share of development funding.

An important role for the Federal Government,

therefore, is to promote cooperation through incentives in the forms of grants and loans.

Educators have taken the lead in developing this

kind of an approach. Under the Star School Program,

for example, $33.5 million (in the form of 2-year

grants) was provided on a competitive basis to

partnerships set up to develop systems and programs

for long-distance learning.84 States must match the

grant by at least 25 percent. These programs are

intended to become self-sustaining. Taking advantage of a somewhat similar opportunity, the University of Maine/Telecommunications System used a

5-year, $4.4 million grant provided by the Department of Education under title III of the Higher

Education Act, and matched by the State government, to help telephone providers pay for the upfront

g~~e~~ds~tegove~atscanplayakeyrole here, through funding and technical assistance to rural libraries and byprovidingmlevant d~~s

directly to rural Anenca. Federal and State extension services and the Federal Depository Library Program are obvious candidates. Many government

agencies already develop databases on research status and results, economic and demographic statistics, trade opportunities, and the like. The key is to

find ways to make these &tabases available to rural libraries and hence to the rural entrepreneurs and activists. Ultimately, if rural America is fully wired

(or cabled or dished) for digital data transmission and switching, rural citizens will be able to access remote online databases directly fkom their homes

and ofilces, and download to compact disks or other storage media, just as many urban and suburban citizens are already doing.

gsFor e~ple, SXIAI fio~tion technology consulting companies are begianing to locate in rural areas. At pmsen~ theSe cOmp@eS SW do most

of their business in metropolitan areas, but they are ready and able to serve rural needs as the rural market develops. Also, in some rural regions, the

small high-tech companies are banding together in consortia to share ideas, information market tips and the like. These high-tech consortia offer great

potential to bring together research educational, entrepreneurial, and economic development interests focused on rural America.

~The sw Schools le~~tionspec~les two formats for the composition of eligible partnerships. In one, membership must ticlude at least one Sme

educational agency, State higher education agency, or local education authority responsible for a significant number of poor or underserved students.

Furthermore, this type of partnership is required to have at least two other institutions from a host of types, including universities, teacher tmining

institutions, and public broadcasting entities. The other type of partnership must include a public agency or corporation already formed to operate or

develop telecommunication networks to serve schools, teach training centers, or other education providers. All partnerships must be statewide or

multistate. These requirements were meant to create new paths to improve the educational system by fostering cooperation among institutiona. For further

discussio~ see U.S. Congress, Ofilce of lkchnology Assessmen~ Linking for L.t?arning:A New CourseforEducafion OTA-SET-430 (Waahingto~ DC:

US Government Printing Oftice, November 1989), pp. 136-141.
Chapter 6-The Role of the Federal Government: Orchestrating Cooperation and Change . 155

costs of deploying a fiber network linking universities and community colleges throughout the State.85

Developing a grant program of this kind has a

number of appeals. Ineffective, it would have a very

high pay off. Moreover, it can lead to self-sustaining

arrangements, if it generates cooperation and a

group commitment among different players. The

Federal Government could also maintain a good deal

of program control, because grants would be provided on a competitive basis. Just as the Federal Star

School Program stipulates the range of players that

need to be involved in developing educational

partnerships, and the amount of benefits to be

targeted for low-income groups, so too a rural grant

program could require that certain criteria be met. It

assures cooperation and a holistic development

perspective by requiring that a broad range of

participants be involved in devising and implementing the development grant proposal.86 And it could

provide for equity and diversity, by setting aside a

given proportion of funds for different kinds of rural

communities. In addition, it could foster a statewide

commitment by requiring a matching grant.

There are some problems with this approach.

Many programs and partnerships developed under

such a grantor loan program could prove threatening

to rural communication providers and give rise to a

number of tricky regulatory problems. There are also

bound to be some failures with such an unconventional approach. The cost of failures can be reduced

to the extent that something can be learned from

them, and the experience gained can be built into

subsequent grants. Moreover, the rate of failure is

likely to be less if this kind of program is implemented in conjunction with the informational technology transfer approaches identified above. Some

regulatory problems might also be avoided if plans

are discussed regularly with State regulators. Conflicts with local communication providers will be

minimized, if they are participants in the development of any grant proposals, and thus also have

something to gain by their acceptance.

ssme Dep~ent aLSO SUppOrtS nine regiod educational laboratories, with 25 percent of each lab’s resources targeted specific~y to m~ education

(at congressional directio~ $14M total for FY87-90). Information technology is a strong theme running throughout many rural projects, and also in math

and science education projects directed at metropolitan as well as rural areas. The raral projects cover virtually every conceivable technology application

for curriculum development, classroom teaching, and school management. lkchnologies include microcomputers, distance learning (via satellite,

broadcas~ and terrestrial transmission), computer conferencing, electronic bulletin boards, videodisks, and compact optical disks. In additiom the raral

projects include development and delivery of innovative courses on career preparation and planning for rural students, ranging from building business

entrepreneurial skills through hands-on “enterprise’ experiences, to learning how changes in the global economy and technology effect job prospects,

to identifying viable career paths for those who wish to continue to live in rural areas (or return to rural America after college or mititary service). See

U.S. Department of Educatioq OffIce of Educational Research and hnprovemen~ “Thirty-One Rural Education Projects of Nine Regional

Laboratories,” no date. and Regional Educational Laboratory Request for Proposal, RFP-91-002, April 1990.

sb~ormation technolo~ kvestments in rural schools pay off several times over because many schools serve multiple purposes ti the comm~ty.

Distance le arning and computer information systems used by students during the day maybe used for adult education and business development seminars

in the evening. Rural citizens generally view the K-12 school system as one of the best hopes for the future of their children and commuuity.
Appendix, Glossary, and

List of Contributors
Appendix

Field Journal

Background

One cannot undertake a study of rural development

without attempting to understand the people, their cultures, their environments, their problems, and their hopes

and aspirations. Americans pride themselves on their

individuality, and the differences among the people of a

State or a region are often as great as between the States

themselves. There are common values shared by many,

but the ways that these values enter social and political

discourse are often very different among communities.

An outsider can only hope to sample this diversity; to

understand it, one must live it.

The project staff chose four States to visit in the course

of the study: Kentucky, New Mexico, Washington, and

Maine. These States were selected for geographic balance, ethnic and economic diversity, and contrasting

approaches to the development of the telecommunications infrastructure.

Kentucky is a Midsouth State that relies heavily on the

infusion of foreign investment for economic development. Its educational system is undergoing substantial

changes, and State leadership is placing major emphasis

on telecommunications to bolster education. Parts of the

State face an economic and social crisis; other areas

prosper with the assistance of Japanese automobile and

electronic manufacturing.

New Mexico is a Southwestern State with a significant

Hispanic and Native American population. Its economy

is based largely on natural resources, and the Federal

Government plays a major role in the economy through

the operation of military and Federal research laboratories. Much of the undeveloped land is owned by the

Federal Government. The populace largely lives apart

from one another in enclaves of their own, with only

nominal contact among the various cultural groups.

Washington is a Northwestern State that shares a

common border with Canada-America’s largest trading

partner-and is a gateway for exports to the Pacific Rim.

High-technology aerospace, nuclear, and computerrelated firms contribute significantly to the economy of

western sections of the State. Agriculture, forestry, and

grazing are staple economies for the eastern section.

Urban areas of Washington are developing so rapidly that

decentralization of business to rural areas has become a

development strategy.

Maine also borders on Canada, but has only one narrow

common border with another State (New Hampshire). It

is the most sparsely populated New England State.

Natural resources, particularly timber and fisheries, play

an important part in Maine’s economy. The Federal

Government also contributes through military bases and

defense industries. Maine is placing great reliance on

telecommunications to deliver educational services to

small communities and scattered institutions. Perhaps

more than any other State, Maine is depending on

telecommunications for its social and economic future.

During the course of the visits to these States, OTA

staff met with economic development professionals,

telephone company representatives, politicians and activists, educators and academics, business people, and

“ordinary” citizens in a number of communities.

The sections that follow are narrative impressions of

what OTA staff experienced in their visits to the four

States, and are not analytical. Each successive section,

Kentucky through Maine, builds on the impressions and

understanding gained in the previous States. Thus, this

journal is the sequential log of the experience gained by

OTA staff as they encountered the views of those with the

most at stake in revitalizing rural America.

Kentucky

The Commonwealth of Kentucky’s economic base,

like many other rural States and communities, is in

transition as agriculture production is consolidated and

the coal mining and tobacco industries are crippled by

mounting national health and environmental concerns. In

addition to representing the rural Midsouth, Kentucky

reflects aspects of Appalachia, the Ohio Valley, and the

Midwest. Furthermore, Kentucky is an example of a State

with a history of unionization and with an economic base

that does not require high education levels.

We contacted a broad base of people to get a cross

section of opinions and perspectives-educators, elected

and appointed officials, businesspeople, telephone executives, regulators—across the State. Covering approximately 600 miles in 6 days, we spoke with more than 60

people in Paducah, Mayfield, Hopkinsville, Owensboro,

Livermore, Bowling Green, Glasgow, Lexington,

Frankfort, and Louisville. However, we were unable to

visit some of the most depressed and isolated areas of

Appalachia in eastern Kentucky (see figure 1).

A State of Crisis—From our discussion with a gathering at the Purchase Area Development District, rural

America-not just western Kentucky-was characterized

as being desperate and in a state of crisis. ‘‘Do we want

rural America?” Charles Terrett, the Superintendent of

the Fulton County School District, asked, ‘or do we want

urban America with a wasteland in between? Fulton

County Judge James Everett called measures to salvage

–159-
160 ● Rural America at the Crossroads: Networking for the Future

Figure l—Map of OTA’s Field Study in Kentucky

 Time zone boundary

 over 100,000 Indiana

 25,000-100,000

 5,000-25,000

● Under 5,000

● State capital Louisville

I

SOURCE: Office of Technology Assessment, 1991.

rural America “a matter of survival. ” Rudy Weissinger

provocatively declared that rural America no longer exists

at all.

Not everyone was as alarmist. The neighboring area

development district boasted of 31/2- to 4-percent unemployment; others were encouraged by the prospects of

new industries locating in the State, assisted by the State

and programs such as Certified Cities. A growing mutual

interest between Kentucky and Japan-such as the State

floating bonds on the Japanese market and the attraction

of Japanese electronic and automotive firms-bodes well

for future development. And a humbly encouraging

milestone for Ohio County-a McDonald’s franchise

recently opened in Beaver Dam.

The Importance of Education for the State’s Development—The dominant theme throughout the Commonwealth was the importance of education (socially and

economically) for the State’s future. The State’s Supreme

Court recently declared the public secondary school

system unconstitutional, and most of those we talked with

regard this decision as positive, if embarrassing, and a

step in the right direction.1 The decision seems to

punctuate a groundswell among the Commonwealth’s

citizenry that an aggressive and innovative strategy for

improving the State’s education is critical to Kentucky's

future. This commitment to education is evident throughout. Examples of this include Kentucky Education

Television’s facility to deliver science and foreign language programs via satellite to secondary schools, and

tele-education programs for community colleges fed from

university courses.

The focus on education is based on the assumption that

by providing better education, Kentucky can draw wellpaying skilled jobs and foster social and cultural amenities, such as fine arts and health services, that will help

attract new companies.

Others are more cautious. We were told that the

Supreme Court ruling presents a potential problem for

higher education, because funds that must be directed to

redress the public school crisis will siphon funds from

colleges and universities. The community colleges in

particular stand in peril. Despite soaring enrollment,

community colleges receive only 64 percent of the funds

they need to operate optimally, according to a formula

established by the Council on Higher Education. This

limitation strains faculty and staff.2 Kentucky ranks

among the bottom third States in Federal monies for

higher education, a circumstance possibly related to the

fact that it is one of the few States that does not have a

Federal research center.

It was said by some that the clamor for education is a

smokescreen, that the improvement of general education

endangers one of Kentucky’s major assets, a benign and

pliable workforce. One of Kentucky’s salient attractions

for companies like Toyota is its proximity to Detroit, and

its eager nonunion workers outside the coal regions.

The Marriage of Communications Technology With

Education-Educators in particular see telecommunications as an important tool to broadening and strengthening

curricula. Almost to a person, education is seen as a key

factor in any strategy for developing the State’s economic

position. Telecommunications is an integral part of these

plans, insofar as satellites, fiber optics, and microwave

facilities can deliver distance-learning programs to

schools that lack the resources to draw able teachers and

offer diverse, well-grounded curricula.

The best example of distance-learning in the State is

Kentucky Educationa1 Television’s (KET) notable, highly

visible, and well-funded operation that broadcasts courses

inside and outside the State. If KET’s service does not suit

a community’s needs, the land-grant colleges and the

regional universities offer similar tele-education programs through one-way video and two-way telephone

lines. For example, Murray State delivers third- and

fourth-year courses over two-way interactive video to

students at Paducah Community College.

 visit, to which court explicitly attached the blame for the failure to provide equitable affordable 

education to all the State’s citizens, has acted vigorously to address this problem. It passed a substantial increase--$ 1.3 billion over 2 years-in order

to entirely revamp the organization and administration of the public schools. effect, greater efficiency and responsiveness will be accomplished by

instating a Commissioner of Education (in place of the Superintendent for Public Instruction) and streamlining “ “ Department of Education. The

Education Reform Act stipulates that the State Board for and Secondary Education (to be created) will establish performan standards for

both schools and studenta, as well as a system of rewards to foster compliance. Principles and local schools districts will nevertheless be afforded

considerable autonomy in dete how they will meet those standards.

 Act of 1990, has allocated additional funds for higher educational that 

 operate with at least 80 percent of the funds that the Council on Higher Education estimates are needed.
Appendix-Field Journal ● 161

Figure 2—The Kentucky Library Network

.

* School

A I

SOURCE: The Kentucky Library Network, March 1990.

Distance learning is, in some instances, becoming a big

business. Large public and private grants are at stake for

distance leaming, as politicians ply a can’t-miss campaign

for better education. Despite a promising start-such as

KET’s network-distance learning is still relatively

untested and may raise some treacherous political and

social issues, particularly with regard to the origination

and control of programming.

New technologies, particularly telecommunications,

have tremendous potential for contributing to education

through libraries. Western Kentucky University has a

facsimile network throughout its service area to expedite

the search and retrieval of materials, and the Lexington

Public Library is involved in a similar project (LEXNET)

to tap the resources of the University of Kentucky’s

libraries (see figure 2). The Kentucky Library Network

for example (with some 200 participating library branches),

plans to create an electronic card catalogue. Finally, new

technologies offer opportunities for libraries to expand

and streamline their resources through, for example,

CD/ROM and access to online information databases.

Better Jobs—Kentucky currently enjoys relatively

high employment, so the goal of development now

concentrates on bringing in better jobs. Signs of Kentucky’s overall economic growth or recovery are evident

everywhere, and one of the most significant indicators is

the drop in the State’s unemployment rate, which, at 5.0

percent in July 1990, was below the national average.

Many of the new jobs are low-wage service industry jobs,

so the challenge now is to improve the quality and the

salaries of jobs.

Internecine Rivalry-on its State road map, Kentucky

proclaims itself “The Uncommon Wealth.” Presumably,

this provocative pun refers to the State’s uniquely

contrasting topography and to the large number of

counties, both of which contribute to the State’s uncommon political factionalism. There is open rivalry and a

sense of territorialism among universities and the landgrant colleges, each believing in its own superiority for

Photo credit: Mark G. Young

Overlooking Bowling Green, KY

best serving the community. There is friction between

KET and higher education institutions over the effectiveness of their distance-learning programs. Similarly, the

delicate issue of bypass sparked a discernible (and

understandable) tension between the two major telecommunications players, South Central Bell and the Kentucky

Emergency Warning System (KEWS). Finally, there is a

surprising lack of communication among the various Area

Development Districts with regard to mutual strategies

for development and resource sharing. As a consequence,

the factionalism of the State seems to draw attention and

energy away from a concerted statewide development

strategy and instead to focus on picayune turf battles.

There are, however, notable exceptions to this general

observation. In order to avoid (or at least blunt the effects

of) another severe recession, a group of citizens from the

Purchase area in western Kentucky enthusiastically embraces the potential for new technologies (particularly

telecommunications) to strengthen their economy by

improving education and job training, by providing new

jobs, and by making existing services more efficient. On

the premise that rural communities must involve themselves globally in order to survive, they stress that

‘‘regional partnerships’ between private enterprises and

government are critical if rural communities are to afford

advanced technology since the marketplace tends to

discriminate against small customers.

Duplication of Services and Infrastructure-Kentucky has virtually two communications networks: the

public communications network of the phone companies

and the Kentucky Emergency Warning System (KEWS),

a State agency that handles official State communications,

such as for police dispatches, and which ensures a back up

to the public network in emergencies.

The Involvement of Japan—The foundation of the

State’s development strategy is to court new foreign
162 ● Rural America at the Crossroad: Networking for the Future

industry and investment-primarily the Japanese. The

location of automobile manufacturing and electronics

plants, such as Toyota in Georgetown and Sumitomo in

Morgantown, are triumphs for the towns and counties as

well as the State. Kentucky was the first State to issue

bonds on the Japanese bond market-further evidence of

the Japanese mystique.

Technical and Technological Assistance and Standards—Many of the people we talked with were informed

about and comfortable with modern technology, but this

level of knowledge was likely and apparently not

representative. Jack Eversole, Executive Director of the

Barren River Area Development District, quipped, “we

don’t know enough to be ignorant.” The need for

technical assistance to overcome the general fear or

distrust of technology was identified as an important

factor for modernization. Development involving modem

technology runs the risk that rural folks, less familiar with

technology, might be induced to invest in equipment that

would soon be obsolete. In some instances, a system

exists, but the expertise to use it does not. Jenny Boyarski,

Librarian at Paducah Community College, noted that

“technology has brought the world to the people, but we

do not have the people to take it out.’

Apprehension That Development Implies Urbanization-The notion of “development” is very tricky

because it is not obtained without a price. Communities

know that development is the only alternative when the

status quo means doom, but most are cautious and want

to control development to avoid the negative effects that

accompany urbanization of rural areas. Chief among the

fears is the urban blights that might afflict rural communities-principally pollution, higher incidence of crime,

divorce, juvenile delinquency, and teenage pregnancy.

Ways must be found so that participation in the modem

age can be achieved while preserving rural values and a

rural lifestyle.

Telecommunications Less as a Business Tool—

Kentucky’s Certified Cities program enables communities

to measure and publicize their capacity to host new

industry. The program has added telecommunications to

its criteria, but the large industries that Kentucky targets

are not typically the information-intensive firms; and

those firms that do require advanced communications

services often install their own networks. The service

industry jobs that are expanding are not the hightechnology or high-skill positions that need data services.

The mission of Kentucky’s Rural Economic Development Authority is to assist the “commonwealth’s depressed counties‘‘ in attracting and accommodating new

manufacturing projects. The current administration has

identified telecommunications as a valuable resource for

strengthening and diversifing the economy. The Authority commissioned a study on the potential and procedure

Photo credit: Mark G. Young

Near Mayfield, KY

for attracting information-based industries to the State.

The Economic Development Cabinet, in conjunction with

South Central Bell, has moved to incorporate telecommunications-related industries in State development strategies.

Triage-The issue of a strategy of triage for developing rural America-where money and resources are

targeted to those communities able to survive and

prosper-is sensitive because it runs counter to the sense

of social welfare and justice. Although politically dangerous, triage is a pragmatic strategy for dealing with rural

regions and communities that are in economic decline.

The profile of the community that can benefit from

telecommunications is taking shape. Ironically, those

communities most in need of innovative development

strategies are least able to assess the role of telecommunications in economic activity because other essential services

take precedence. Healthy communities that could strengthen

their positions through advanced communications systems and services are usually least interested in anything

that might upset their successful balance. The communities in the middle-those with the opportunity and the

incentive for dealing with the impending crisis-are the

ones that cherish what telecommunications and new

technologies may bring.

New Mexico

New Mexico, with its cultural heterogeneity, its

substantial nonmetropolitan population, and low standings in most economic indicators is representative of the

Southwestern United States. Fifty-one percent of the

population lives in nonrnetropolitan areas (as compared to

the national average of 23 percent), Hispanics account for

33 percent of the State’s citizenry and Native Americans

for 7 percent. Its vast tracts of sparsely populated territory

are typical of the Southwest. Much of it is ruggedly
Appendix-Field Journal . 163

Photo credit: Mark G. Young

Zuni Indian Reservation, NM

mountainous or arid, which creates difficult obstacles to

development and spawns a new set of communications

priorities. New Mexico’s topography also creates unique

opportunities for development.

We allotted 8 days to cover New Mexico, much of

which we spent in Albuquerque and Santa Fe meeting

with government officials and representatives from the

University of New Mexico and the telephone and utility

companies. We visited a modest effort at indigenous

economic development in Costilla, a stone’s throw

beneath the Colorado border. From Costilla, we went to

Grants to see how a community faced with the decline in

the mining industry handles economic development, to

the Zuni Indian Reservation, and then to Gallup. We then

flew to Alamogordo, to learn about the State’s southern

half as told in Mescalero and Las Cruces (see figure 3).

Traditional Society-New Mexico’s eternal problem

is water. In a region where irrigation is at a premium, the

control of water and where it goes determines power and

wealth. Such a political order begs the question of the

potential for development (economic and social) because

of the entrenched and unidimensional hierarchy. For

example, on the basis of our experience in New Mexico,

it is clear that the State retains a patriarchal social and

political order. The movement of women into business,

academia, and politics is a relatively recent phenomenon,

therefore women may be less prone to protect the status

Figure 3—Map of OTA’s Field Study in New Mexico

I co

I Costilla} 1 0

Alamogordo

O Pop. over 20,000~

O 7,500-20,000 

 1 

 Under 1,000

● State capital

SOURCE: Office of Technology Assessment, 1991.

quo and more likely to welcome development. Our

experiences in New Mexico and Kentucky appear to bear

this out.

The history of New Mexico began long before its

statehood in 1912. Originally inhabited by Hispanic

ranchers and Indians, these deep-rooted, land-based

peoples are profoundly distrustful of outsiders and

culturally predisposed against wholesale economic development. Earlier exploitation of Native Americans in the

name of progress has made development anathema to

many Indian Nations. They fear that improvements in

infrastructure will destroy traditional tribal communities.

“Economic development—for whom?” they ask.

For tribal peoples, the conventions of money and time

are of less significance than in general society. The Zuni

Indians, for example, leave the marketing of their

jewelry-and a healthy portion of the profits—to outsiders, even on their pueblo. We were told repeatedly that

they have a different sense of-even disregard for—time.

Not all tribes, however, are averse to entrepreneurship

and development. The Mescalero Apaches sit on spectacular land and are harnessing this resource for tourism. One

leader of the Mescalero Apache tribe is purported to have

said: “the Zunis make jewelry, the Navajos make

blankets, the Apaches make money. ”

Cultural Heterogeneity-The State is comprised predominantly of three major cultures. New Mexico’s

diverse cultural base, with its profound distrust of
 164 ● Rural America at the crossroads: Networking for the Future

outsiders and the rivalries and misunderstandings among

them, hinders economic development. The Angles, Hispanics, and Indians are settled in closed, autonomous

communities with little movement among them. For

example, the effect on education of the research facilities

of Sandia or Los Alamos National Laboratories does not

reach far beyond the enclaves themselves. Even among

the Native Americans, we were told, there is little

cooperation. While the All Indian Pueblo Council serves

as a political organization for the 19 pueblos, each tribe

retains and cultivates its autonomy on its own land.

Education and Development—In contrast to Kentucky, where education and economic development and

telecommunications and quality of life are tightly interwoven, the importance of education in New Mexico for

overall quality of life-if not for economic development—

is less obvious in development policy. As a strategy for

economic development, Kentucky, for example, embraces a redoubled dedication to strengthening education

as a means to attractor nurture high-technology, information-intensive industry by both providing an expert

workforce and an environment to satisfy it.

Despite one of the highest per-capita concentrations of

Ph.D.s in the country as a result of defense research

facilities, there is apparently little transfer of technology

to the State at large. There is no emphasis on higher

education needed to match high-technology jobs. (Cultural separation affects this, since the stress on education

centered in the research enclaves has not permeated the

other communities.) We heard repeated boasts that New

Mexico’s labor force was highly skilled and highly

motivated. However, the industries that New Mexico

attracts require less skilled labor than those in Kentucky.

Infrastructure-In New Mexico, the potential for

economic development is shaped largely by the State’s

topographic and demographic characteristics. Because

much of the State is ruggedly arid and mountainous, the

population and infrastructure, including a modem telecommunications system of fiber optics and digital switching, is concentrated along the fertile Rio Grande valley.

While this imbalance promotes development along the

river, it creates problems for the flanks of the State, which

are less accessible for telecommunications, roads, water,

and electricity. US West has a program to defray the

expense of installing telephones to remote rural communities, but even so the small scale and rugged topography

slow modernization. Many of the independent telephone

companies have modem equipment that equals or surpasses US West’s digital and fiber network.

Photo credit: Mark G. Young

Mural in Taos, NM

Access to Capital-Telecommunications is not a major

barrier to development, but access to capital and markets

is. State Representative Nick Salazar pointed out that the

lending history of agencies such as the Small Business

Administration discourage bankers from funding telecommunications projects.

Politics as a Key Economic Bottleneck-Local communities depend heavily on political patronage and

connections for industry or government contracts. Politics

is a major factor in economic development in New

Mexico. One development official noted: “Instead of

governing, government provides jobs; instead of educating, education provides jobs. ”

The development strategy for Grants, for example,

once a prosperous uranium mining town, includes locating a branch of the State’s highway department and bids

for a large Federal penitentiary (the third such facility and

second public one),3 a new State armory, and a new

convention center. Carlsbad, as well, was bidding for a

hazardous waste disposal contract. Meanwhile, the northern town of Costilla had a hard time locating funding

because, as one of its leaders said, it lacked a political

connection.

State Awareness of Telecommunications-me State

is aware of the potential for telecommunications to

improve economic development. The New Mexico Economic Development and Tourism Department names

investment in the public infrastructure as one of four

strategies for economic development: “Telecommunications should be considered a crucial infrastructure capability that can serve economic development and deliver

 t. that describes the allure for New Mexico’s rural areas for the location of prisons, ‘ ‘Much of New Mexico’s

vast desert is unzoned, so prison entrepreneurs consider the state a prime location. other correctional companies have been scouting rural sites

there.” A facility that Corrections Corp. of America plans to build in NM, “will employ 80, an annual payroll of $1 million.” 

Week, “As Prisons Go Private, The Neighbors Go Court,” June 11, 1990, p. 28.
Appendix-Field Journal ● 165

educational and other public services. ” It has inaugurated

a program called One-Stop Shop whereby small businesses throughout New Mexico can access an online

database with information about the State and its communities, such as maps, tax rates, licenses, and regulations.

It is too early to know who the main users of this service

will be: whether the small local firms will become aware

how (and if) One-Stop Shop may strengthen and expand

their businesses, or whether it will be a tool for industrial

recruitment. TechNet, a telecommunications network that

the State created in the early 1980s to link the State’s

major universities and Sandia Labs, receives mixed

reviews.

Problem of Leakage-If technology benefits those

who know how to use it, what happens to those who do

not? Is it a neutral or negative factor? Or does the fallout

of technology apply beneficially to everyone? Insofar as

improved communications can help locate new capital

and new markets, it has potential for small communities

and small businesses. However, communications technologies can also have negative effects due to financial and

cultural ‘‘leakage’ as outsiders capitalize on these

technologies. The small entrepreneur in search of financing is likely to be less able to use telecommunications to

find capital than the banker is able to use it to find better

markets outside the State to invest capital.

New communication technologies may breakdown the

autonomy of the indigenous cultures. Children with

access to better educational resources through distancelearning techniques may be induced to leave home to

complete their education, thus removing them from their

cultural heritage.

There are instances where technology may preserve

rather than erode culture. The Zuni Middle School, with

the support of Apple Computers, is creating a program to

put its language on hypercard. While most of the Zunis are

familiar with the spoken language, it is rare that they know

it in written form.

Industrial Insularity-An interesting hypothesis heard

in New Mexico was that, unlike most other States, it is

buffered from national economic decline related to

manufacturing because by the time it was admitted as the

47th State in 1912, the industrialization of America had

long been under way and had largely passed by New

Mexico. It is thought that because the State’s traditional

land-based cultures were largely undisturbed by industrialization, it is less likely to follow current national trends,

such as the crisis faced by many rural communities as

manufacturing moves overseas and farms are consolidated.

The Relation Between Poverty and Development—E

it is true that poverty is a state of mind as much as an

economic and material condition, then one must ask

“poverty by whose definition?” As Ted Jojola of the

Photo credit: Mark G. Young

Historic neighborhood in Las Cruces, NM

University of New Mexico pointed out, the common

statistical indices that categorize people as impoverished

are immaterial to those with different values and priorities. The Acoma Indian Tribe turned down a lucrative

movie opportunity that interfered with sacred religious

rituals. The Tribe’s attitude toward development shows

the priorities of people who choose to live in rural areas

by design and not default.

Reinforcing what we learned from Kentucky, our

experience in New Mexico suggests that those most able

to undertake economic development and use telecommunications and modem technology are those neither the

worst nor the best off. For the depressed communities, the

basic need for electricity, water, and food takes precedence over planning for the future. These troubled areas

typically are troubled because of a marketable natural

resource or, as is often the case in the rural Southwest, for

lack of water. The infusion of new communications

technology can only accomplish so much in the face of

such obstacles.

Who Else If Not the Phone Company ?—There is a

consensus among the people we visited in New Mexico

that restrictions on telephone companies from manufacturing equipment, providing information services, and

from delivery of broadcast video are stifling to rural

communities. Rural areas strain as they are unable to

generate economies of scale to warrant a broad range of

efficient and modem services. The vertical integration of

the utilities is considered the best chance for obtaining

adequate service.

The prosperity of utility companies is tied to the

prosperity of the areas they serve. It is clearly in their

interest to develop markets where they do not exist and

strengthen ones that do. Therefore, a major initiative for

development in New Mexico is coming from US West

and Plains Electric. Plains Electric, for example, is
166 . Rural America at the Crossroads: Networking for the Future

delivering satellite television to rural areas of the State not

served by a cable system to slow the trend of families

moving from farms. Plains plans to hire an economic

development coordinator to supplement the State’s agency,

which, according to Plains, lacks adequate personnel and

money to recruit industry. US West, meanwhile, provides

$2 million per year to defray the costs of connection to

remote customers as a result of a 1987 bargain with the

New Mexico Public Utility Commission. In addition, US

West is involved in hearings regarding a $20 million fiber

optic education network linking the 2-and 4-year colleges

to be built beginning as early as 1991.

Public Utility Commission Policy—Economic development is not a part of the statutory duty of the State

regulatory commissions, but regulatory and pricing policy directly impacts rural telecommunications infrastructure and the possibilities for development. Universal

service is intended largely to benefit remote rural citizens,

therefore, it is a priority of the New Mexico Public Utility

Commission (PUC) to bargain with US West to leverage

the extension of telecommunications services to rural

communities for more generous pricing schedules in

metropolitan areas. The New Mexico PUC is elected, not

appointed, and therefore is directly accountable to the

populace, so the cost of telephone service is a primary

issue for its constituents.

But, the current definition of universal service may not

be adequate for rural citizens to have comparable access

to information technologies as urban customers, especially as deregulation and competition has introduced

rapid modernization.

Postal Service: Early Communication Technology—

While we presume the current and foreseeable state of

telecommunications (fiber optics, digital switching, integrated broadband networks) we were surprised (and

humbled) to find that some rural areas lack even the most

basic communication technology-postal service. Many

of the areas without an addressing system are barely

inhabitable and undevelopable, while some communities

may choose to preserve their rustic character. The expense

of an addressing system for outlying areas is a major

impediment to development.

Washington

The level of thinking in Washington at the State and

local levels about the use of information technologies for

rural economic development is well advanced. The

tension between rural and urban, characteristic of many

States, is acute in Washington, where this dichotomy

poses significant problems for State policymakers. The

educational level is a barometer of the citizenry’s ability

to make use of technology for development. Washington’s high standard of education contrasts with other

States where education has not been a priority. WashingFigure 4--Map of OTA’s Field Study in Washington

SOURCE: Office of Technology Assessment, 1991.

ton’s economy, which depends substantially on exports,

is flourishing despite the decline of natural-resourcebased activities that contribute significantly to the State’s

economy.

A conscious effort was made to heed the perspectives

and concerns of the “ordinary” citizen in Washington, a

strategy that flushed out previously muted issues. Using

Spokane as a hub for the first 2 days, we traveled south to

Pullman and Washington State University and north to

Newport. We stopped in Othello for one planned and

several impromptu conversations on the way to White

Swan, where we convened a meeting with interested

officials and citizens from around the lower Yakima

Valley. We then traveled to Olympia to learn the issues

and objectives of the various players at the State level, and

finally to Seattle (see figure 4).

Prosperity-Over the past 5 years Washington State

has enjoyed a robust economy, with opportunities for

economic development. Washington as a whole benefits

from a diverse and balanced economic base, including

forestry and agriculture, as well as high-technology

industries, such as aerospace and software development.

The State is fast gaining a reputation as an eminent

wine-producing region, and vineyards are conspicuous

along the Columbia River. A very scenic State whose

landscape features the Cascade and Olympic Mountains

and the Pacific coast, Washington also features one of the

few deep-water ports on the west coast. As trade with

Japan and the countries of the Pacific Rim increases,

Seattle and the area surrounding Puget Sound are

booming. The State is also benefiting from the free trade

pact with Canada The abundance of rainfall for much of

the State and the system of dams to provide energy and

irrigation for the central plains makes this arid area

fruitful. Other parts of the West have suffered from

droughts for several years, but Washington’s agriculture

has thrived.
Appendix-Field Journal ● 167

Nevertheless, there are pockets that do not equally

share in the prosperity, particularly the rural and remote

areas whose economies are heavily or entirely based on

natural resources. The natural-resource-based industries

are on the whole in decline or stagnant. Washington’s

apple industry, for which the State is famous, has been

unsettled in recent years by overproduction and the use of

the pesticide Alar. In Penal Oreille County, the northeastern most county with borders on Idaho and Canada,

agriculture, once significant in the region, is now reduced

to hobby farming; in the meantime, the dominant timber

industry likewise declines.

Many agricultural- or timber-dependent communities

are seeking new ways to support their local economies.

Tourism and retirement, both taking advantage of rural

Washington’s quality of life, are major elements in an

effort to attract diverse, small, balanced, and usually

“clean’ enterprises. The town of Leavenworth in central

Washington is a successful model of tourist-based development patterned after a Bavarian village. The Department of Community Development, meanwhile, is working with the town of Forks on the Olympic peninsula to

help it recover from a collapsing economy based on

timber. Plans for retirement communities, which help

stabilize the economy through steady income, are often

hampered by inadequate health care in rural areas.

Development Philosophy—Policyrnakers in Washington have developed a mature economic development

philosophy. In contrast to New Mexico where opportunities are few by comparison, or to Kentucky where

recessions follow booms in fast succession, the prosperity

has permitted policymakers “the time to intellectualize,”

in the words of the Director of the Department of

Economic Development. They have taken a holistic

approach to development, in which the recruitment of

industries is part of a broader agenda that aims to create

conditions to support and nurture a diverse, balanced, and

strong economic base. Washington is able to attract

“clean” high-technology industries such as software

design and biotechnology.

Rural Development as Seattle’s “Growth Managemerit” -Ironically, the problem facing Washington policymakers is not so much the need for economic development, but rather the need for ‘‘growth management.

Recently, Seattle has been recognized for its treasures

without the problems usually found in big cities. However, Seattle is developing its own problems as a

consequence of rapid growth-strains on highways and

housing for example-thus “growth management” is a

high priority. The need to control growth has triggered an

appreciation of how the State’s rural areas can share in the

State’s prosperity and contribute to its expansion. Rural

economic development is an important partofa‘‘growth

management” strategy for spreading Seattle’s prosperity

throughout the State.

Photo credit: Mark G. Young

Irrigating fields in White Swan, WA

Governor Booth Gardner created a Growth Strategy

Commission to investigate “economic diversification”

and ways to balance growth in the State, while the

legislature commissioned a report on the potential for

urban companies to relocate parts of their operations to

rural areas. Telecommunications is seen as a vital

resource that would enable distant and small communities

to share in the prosperity.

The studies concluded that telecommunications was a

necessary part, but not sufficient on its own to foster

economic growth in Washington’s outback. This conclusion is reached in other reports, such as ‘Telecommunications and Rural Development” by the Partnership for

Rural Improvement of the Community College of

Spokane, which notes that while communications per se

will not guarantee development, the absence of adequate

communications reduces the possibilities for development. Small cities rather than remote or small villages

most likely benefit from the relocation of businesses from

urban to rural areas with the help of telecommunications.

Washington’s rural easterners cautioned that because

this recent awareness of urban-rural linkages is caused by

the overgrowth of Seattle, those promoting these linkages

may not be sensitive to the needs and desires for

development in eastern Washington. Many of Washington’s citizens east of the Cascade Mountains feel more

allied with the citizens of northern Idaho and western

Montana, than of western Washington. In some areas,

such as Okanogan County in north-central Washington,

economic development in most any form is welcome.

Others, such as some residents of White Swan, a small

village on the Yakima Indian Reservation in the lower

Yakima Valley, favor slow and controlled growth. Some

want no growth at all.

The State’s interest in rural development to solve

Seattle’s growth problems does not always appeal to local
168 . Rural America at the Crossroads: Networking for the Future

economic development professionals. The relocation of a

large firm (more than 50 employees) can threaten to

dominate an area and upset its balance. These local

development “guerrillas’’ -as one describes herself and

her colleagues-are more sensitive to the needs and

desires of the community.

Sense of Community-Despite the east-west and

rural-urban schisms, there is a remarkable degree of

community throughout Washington and a sense that,

despite some exceptions, the State functions as a unit: this

contrasts to the insularity of New Mexico and the

factionalism of Kentucky. The common phrase ‘‘forging

sectoral linkages” reflects the notion that the State’s

economy is the sum of its parts: that the fortune of Seattle

depends on and contributes to the fortune of Spokane,

which depends on and contributes to the fortune of the

nearby communities and towns. The word ‘‘networking”

was often mentioned to describe the key to a community's

success, and one citizen noted that “everybody is facing

the same problems, so everybody has to work together. ”

Frequent and casual reference to the transformation of

Eastern Europe showed an awareness and sophistication

that indicated that their own communities must participate

in the larger, global community.

Environment-Economic development in rural Washington involves delicate environmental issues. Washington State has a large and active environmental community. Recently, the tension between the environment and

jobs has been fought over the issue of the protection of the

State’s ancient forests-the habitat of the spotted owl.

Efforts to halt or interfere with logging threaten the

communities that depend on the timber industry. Those

primarily concerned with development see the spotted

owl as a symbol of how the concern for a bird is taking

precedence over people’s lives and livelihoods. In reaction to the tumultuous times for the timber industry, the

Park Service has emerged as a new player in development

by more actively promoting tourism in park facilities.

Financing Development—The difficulty of securing

capital, ’as elsewhere, is cited as a significant impediment

to development. Because the banks serving rural areas

typically are branch facilities of large banks, their interest

in and knowledge of small rural businesses is limited.

Small entrepreneurs in Washington face another financial

burden. By State law, public credit cannot be extended for

private use. Finally, communities that border Idaho must

compete for businesses against a more generous tax

structure across the border.

Regulatory Policy-while development advocates believe in the “Field of Dreams” credo-”if you build it,

they will come”—the State Utilities and Transportation

Commission (UTC) which regulates telecommunications,

operates under the maxim: “if you build it, somebody has

to pay for it.” UTC, with its obligation to ensure that each

Photo credit: Mark G. Young

Cle Elum, WA

customer has an appropriate level of service at a fair cost,

is cautious not to encourage (let alone mandate) the

deployment of technologies or services whose applications have not been demonstrated. But market-orientation

may tend to shortchange rural areas. The experience in

Europe, according to Bill Beyers, Professor of Geography

at the University of Washington, is that technology

deployment and development premised on market forces

tends to work against rural areas.

The general consensus throughout the State seems to be

that the existing communications infrastructure is sufficiently sophisticated to handle most foreseeable applications. Nevertheless, there are complaints about “dirty

lines” degrading service and interfering with data transfer. UTC has the goal of single-party, touch-tone service

to a high proportion of multi-party lines in both rural and

urban areas by the end of 1992. A major issue for rural

telephony is the cost of service, especially when calls to

the local school or to a neighbor a few miles away often

involve a toll charge, and when the rate for basic service

is $30 or $40 per month. Extended area service (EAS) is

a mechanism to redraw exchange boundaries to match the

patterns of regional commerce and reduce the cost for

rural communities to communicate with the town or city

on which it depends. However, the savings accrued to

rural customers and businesses is largely taken at the

expense of the small independent telephone companies

whose settlements from the pool of long-distance tolls is

reduced at the same time the traffic on their networks

increases.

Education and Development—Like Kentucky, Washington State is unequivocally committed to education for

future progress, and here too telecommunications serves

an important function in strengthening educational opportunities. The Satellite Telecommunications Educational

Programming (STEP) network, for example, adminis-
Appendix-Field Journal ● 169

Photo credit: Mark G. Young

University of Idaho, in Moscow

tered by Educational Service District 101 in Spokane,

provides programs taught by educators specially trained

for broadcasting to schools, both rural and urban, in 12

States. With the unique visual capabilities of television,

STEP is able to present course material in innovative

ways. A class in Japanese, for example, maybe presented

with a Japanese music video to help students understand

the culture and its idiom. Although its curriculum is

limited to six classes geared to college preparatory

students-calculus, Japanese I and II, advanced English,

and Spanish I and II-it also delivers inservice programming for teachers. Washington State University in Pullman provides courses to branch campuses through its

WHETS facility, which links them by a two-way audio

and video microwave system.

Although STEP targets rural schools with limited

facilities and teachers there are barriers to the delivery of

education to small and remote rural communities and

school districts, because of the expense of installing and

subscribing to the programming.

Demand for Information and Technology-The need

to effectively and efficiently communicate with distant

and foreign markets is important because much of the

State’s products are exported. The awareness of the

strategic importance of information and telecommunicationsfor continued economic growth throughout the

State is very high. As an example, Telephone Utilities of

Washington, which operates 43 exchanges in the State,

has joined a consortium of independent telephone companies that will offer the advanced switching technology of

common channel Signaling System 7, Several people

noted that the use and demand for cellular telephony

would be large in rural areas, especially among farmers.

Gonzaga University in Spokane recently received a $10

million grant from the United States Department of

Agriculture (USDA) to build a high-technology library to

provide information as a tool for agriculture. Finally, the

Palouse Economic Development, with a $100,000 grant

from the Department of Community Development, has

launched a project to help local businesses market goods

abroad, a project for which telecommunications is indispensable.

Maine

Maine aggressively embraces telecommunications as

an important way to overcome its isolation, its size, and

its low population density. Improving education statewide through the use of telecommunications is the

centerpiece of the State’s development approach.

The largest of the New England States, Maine is the

most sparsely populated State east of the Mississippi, with

density ratios that match some large Midwestern States.

In addition, nearly two-thirds of the State’s 1.2 million

citizens live in nonmetropolitan areas, typically in one of

its nearly 500 small towns and villages. Despite recent

growth, the State’s economy is sluggish, with an average

per-capita income at $13,954 in 1987, compared to the

national average of $15,481.

Starting in the north, we visited Presque Isle and several

of the surrounding towns before traveling south through

Houlton and the small lumber town of Haynesville on the

way to Orono and Bangor. The Telephone Association of

Maine’s annual meeting in Rockport provided a unique

opportunity to speak with many players in telecommunications, with an emphasis on the perspectives of the local

independent telephone companies. Finally, the staff went

to Augusta to speak with the State officials and see the

University of Maine’s Interactive Television network in

operation, then onto Portland to meet with New England

Telephone and the governor’s advisor on communication

and economic development (see figure 5).

Economically Remote—Although geographically, culturally, and topographically opposites, Maine and New

Mexico share several important characteristics with

regard to economic development. Both are sparsely

populated and relatively large. Maine’s geographic isolation parallels New Mexico’s cultural isolation. Sharing

most of its border with Canada and the Atlantic Ocean, it

is the single State to border on only one other State (New

Hampshire). Just as New Mexico is divided into pueblos

and remote enclaves, Maine is organized into small towns

and villages. Both States have been relatively unaffected

by larger, national economic trends and events.

But while many New Mexicans believe that the State

is not yet ready to make full use of its resources,

“Downeasters” welcome the change to participate on a

national or global level. They are increasingly less content

to remain economically isolated, particularly as the free

trade agreement with Canada puts Maine at the crossroads

of an important connection between Quebec, the Maritimes, and the United States’ Northeastern cities.
170 . Rural America at the Crossroads: Networking for the Future

Figure 5-Map of OTA’s Field Study in Maine

Fort 

 Isle

96

Orono

H

SOURCE: Office of Technology Assessment, 1991.

Rural Poverty-As in Washington, the economic

growth that Maine has had in recent years is not

distributed evenly throughout the State. According to the

Deputy Commissioner of the Department of Community

Development, the rich areas become richer, but the rural

areas remain poor. While Portland and southern Maine

have recently been successful in attracting service industries such as advertising agencies and insurance companies from around southern New England, northern

Maine’s economy, dependent largely on timber and

potato farming, remains stagnant. Aroostook COunty, at

Maine’s northern ‘crown,’ faces a health care crisis as its

population, many of whom are uninsured, can no longer

support the four regional hospitals serving a county the

size of the State of Connecticut.

Cooperative Development—The presence of Loring

Air Force Base in Limestone, several miles north of

Presque Isle, greatly benefits Aroostook County’s economy. The base, like others around the country, stabilizes

the regional economy and enables the community to

afford educational facilities that would otherwise be

Photo credit:Mark G. Young

A church spire, Presque Isle, ME

beyond its reach. However, as residents realize that

closing or descaling the base is a “when” not an “if”

proposition, communities and business leaders are trying

to find and create their own opportunities for development. Eight communities around and including Presque

Isle qualified as one of the State’s four Job Opportunity

Zones. Although the Job Opportunity Zones are intended

to provide opportunities and incentives for growth, the

incentive of State support led communities to evaluate

their resources and potential for development and to

cooperate where they might ordinarily have not.

Local business and community leaders in Aroostook

County have formed an ad hoc committee-Leaders

Encouraging Aroostook Development (LEAD)-to tackle

development issues that they believe are not properly

treated by the Regional Planning Commission. Because

transportation—including roads and highways, air access,

and railroads-is such a vital element to development in

remote rural areas like northern Maine, LEAD is working

to reauthorize and release State funds to extend Interstate

Route 95 to Presque Isle. LEAD, along with the University of Maine at Presque Isle, was instrumental in securing
Appendix-Field Journal ● 171

a grant from the Maine Science and Technology Center

for a CAD/CAM system to be installed in one of Maine’s

four Research and Productivity Centers on the campus of

the University of Maine at Presque Isle.

Telecommunications and Development Sanctioned

From the Top-The former chairman of the National

Governors Association’s Subcommittee on Telecommunications, Governor John McKernan has championed the

importance of telecommunications for the State’s future

welfare, and his fervor paces the State’s economic

development philosophy. In particular, his and others’

commitment to telecommunications-assisted education is

becoming a reality, as Maine is in the process of building

a community college system based on interactive television. In addition, Rich Silkman, the Governor’s advisor

for State Planning, similarly supports telecommunications as a means of overcoming Maine’s isolation and

sparse population. Communications provides a way to

recapture “space-specific rents” in rural areas, which

have been declining as natural resources such as metal or

wood are devalued.

Ken Gordon, the Chairman of the Public Utilities

Commission, explicitly stated his view of the fundamental connection between communications regulation and

economic development in an address before the Telephone Association of Maine. While pointing out that the

State has a reasonably modem communications network

with a high degree of digitization and fiber deployment,

he noted that the State is hampered by high intrastate toll

rates and by ‘‘rather modest marketing efforts’ on the

part of the telephone companies. In an effort to align

communications and economic development goals, Chairman Gordon hopes to frame regulation to protect all

parties-customers and small telephone companies included—without intrusive, detailed involvement by the

PUC into the forces of the market.

On the other hand, the legislature, with the recent labor

strife in the paper companies and the telephone company,

is more cautious about development and technology and

prefers keeping regulation in place. Representative Herb

Adams warned in a speech before the Telephone Association of Maine that “technology is not an endless friend,”

citing the increasing incidence of junk fax and computerized telephone solicitations, and that often technology

takes on a life of its own and becomes unresponsive to the

consumer.

Overall, the support for the role of telecommunications

in economic development among the State’s leaders and

the cooperation among these key policymakers seems

greater in Maine than in any other State we visited. One

resident explained this in terms of the State’s small

population. The State’s leadership is comprised of only

200 people. They often socialize together and work out

issues on an informal basis.

Photo credit:Mark G. Young

Mattawamkeag, ME

The Environment and the Role of the DEP—Aware

that the State can ill-afford the status quo, most of Maine’s

residents support economic development. However, there

is significant tension over the extent and nature of

development, which appears largely over environmental

issues. As in Washington State, timber is perhaps the most

important resource for Maine’s northern communities

(much of the land in the north is owned by paper

companies) and so pressure on logging industries tends to

ruffle the feathers of citizens whose livelihoods are at risk.

The villain, from this perspective, is the Department of

Environmental Protection (DEP)--dubbed by one resident “nature Nazis”—who have assumed the role of

surrogate zoning board to monitor the sale and use of

property in the absence of strong local governments. DEP

has become influential in economic development. Viewed

by some as bureaucratically sleepy, the DEP is resented

by many in rural northern Maine, who feel squeezed by

rules and regulations mandated from policymakers in

Augusta.

However, the DEP’s efforts to preserve the State’s

environment spring largely because much of the needed

infrastructure-e. g., roads, bridges, and sewage treatment—is in disrepair and cannot support further development. In some cases, in order for a business to move,

another one has to move out lest it exceed the capacity of

the sewage plant. According to Jack Dexter, the President

of the Maine Chamber of Commerce and Industry,

regulation and the exhaustive regulatory process make it

expensive to do business in Maine, especially for small

businesses.

Concerns for the State’s environment are likely to

provide strong incentives in the future for the deployment

of modem communications, according to Curt Sweet of

the University of Southern Maine. As the condition of

rivers and lakes in the State deteriorates and as logging
172 . Rural America at the Crossroads: Networking for the Future

companies are slow to replace harvested forests, the

importance of an economy founded on nonpolluting,

information-intensive industries is expected to become an

important priority. Furthermore, Maine, along with the

rest of the Northeast, is slowly losing industry to the west,

where as we were told, public policy for the past decades

has focused on developing inexpensive power sources.

Education, Telecommunications, and Economic Development—As in Kentucky, the low level of skills

among Maine’s residents was cited as a significant barrier

to development. However, the State has, until recently,

been hamstrung in its ability to adequately educate and

train its workforce because the community college system

has only been operating 1 year. When the commitment

was made to create the community college system 10

years ago, an ambitious telecommunications-based system was seen as the most efficient and effective way to

improve education in the State. The Education Reform

Act of 1984, recognizing the relationship of education and

development, provided additional impetus for a telecommunications-based network.

From the seven branch campuses of the University of

Maine System which are connected by two-way, fully

interactive video and audio, courses will eventually be

broadcast to more than 200 high schools, university

centers, and technical schools throughout the State-one

within 12 miles of every resident. The system is intended

to be used for college, secondary, and elementary level

coursework as well as for adult continuing education.

Though still in its infancy, the success of the Community College of Maine’s ITV network will in large part

depend on the efforts of local educators to help their

communities realize its potential. For very distant or

isolated communities, ITV opens up new avenues for

delivering education and other invaluable social services.

There is some reluctance, though, among superintendents

and teachers who fear that the success of such a system

could imperil their jobs.

Independent Telcos and Rural Development—In

Maine, just as in Kentucky, New Mexico, and Washington, the small independent telephone companies in

general have more advanced switching and transmission

equipment than the regional Bell affiliate, New England

Telephone. However, this potential advantage can rarely

be exploited because the small local telephone companies,

for lack of the personnel and expertise, must rely on their

Bell counterpart to set protocols and to popularize

services. They are also limited in offerings because many

of them are unable to afford the expense of filing service

applications before the State Public Utility Commission.

With regard to involvement in local development, the

simple answer is that they lack the resources to market

their communications wares and to help their customers

take advantage of the network. There is also a built-in

incentive for local telephone companies to limit growth,

because as their business customers expand, they become

targets for the larger phone companies to pick off.

The prominent issue for rural telephone companies in

Maine involved the treatment of long-distance pricing and

in particular the policy of extended area service. Because

the independents rely heavily on the settlements from the

pool of long-distance in order deflect the usually high cost

of providing local service, efforts to reduce toll rates

threaten to cut into this important subsidy.
Glossary

Analog Communications: A communication format in

which information is transmitted by modulating a

continuous signal, such as a radio wave. Voice and

video messages originate in analog form since sound

and light are wave-like functions; thus, they must be

converted into digital messages in order to communicate along digital communications formats or media.

Bandwidth: The range of frequencies that can be

transmitted along a communications channel. Also, the

range of frequencies required to transmit a communications signal without undue distortion. The more

information a signal contains, the more bandwidth it

requires for transmission. For example, television

signals require a bandwidth of 3 million hertz (cycles

per second), whereas telephone conversations require

only about 3,000 hertz. The higher the bandwidth the

greater the amount of information that can be transmitted in a given timeframe.

Basic Exchange Telecommunications Radio System

(BETRS): An FCC classification for digital microwave radio systems. See Digital Radio.

Bell Operating Companies (BOCs): As a result of

AT&T’s divestiture in 1984, the original Bell telephone system was divided into 22 local Bell operating

companies. These now provide local telephone service

across most of the country. These companies are

managed by the seven ‘‘Baby Bells, ’ the RBOCs or

regional holding companies for the BOCs.

Bit (Binary digiT): The smallest unit of information a

computer can use. A bit is represented as a “O’ or a

“1“ (also “on” or “off”). A group of 8 bits is called

a byte. Bits are often used to measure the speed of

digital transmission systems.

Kilobit: 1,000 bits

Megabit: 1 million bits

Gigabit: 1 billion bits

Central Office: The telephone company facilities that

house switching and related equipment, which serves

the immediate geographical area. The central office is

the most immediate point of interface between the

telephone company and customers.

Centrex: A service offered by telephone companies that

provides business customers direct inward dialing to

their own lines allowing them to circumvent the public

portion of the switching facilities. Centrex allows

companies to more directly manage their telecommunications

Compact Disc Read-Only Memory (CD/ROM): An

optical storage system for computers that permits data

to be randomly accessed from a disc. With read only

discs, new data cannot be stored nor can the disc be

erased for reuse.

Digital Communications: A communications format

used with both electronic and light-based systems that

transmits audio, video, and data as bits of information

(see Bit). Digital communications is particularly suited

to data communications, since computers communicate and function digitally. Digital technology also

allows communications signals to be compressed for

more efficient transmission. Codecs (abbreviation for

‘‘coderdecoder’ are required for video and voice

signals to be transmitted in digital form, since video

and voice are analog messages.

Digital Radio (BETRS): Radio signals that transmit

digital signals. It has greater capacity and is more

secure than analog radio since messages must be

encoded digitally for transmission. See Basic Exchange Telecommunications Radio System.

Digitalization: The process of converting analog information, such as voice and video messages, into digital

signals.

Divestiture: The break-up of the AT&T monopoly into

the 7 regional Bell operating companies, Bellcore, and

the 22 Bell operating companies. Divestiture resulted

from the 1984 Modified Final Judgment, which settled

the government’s long-standing antitrust suit against

AT&T. See Modified Final Judgment.

DS3 Circuits: DS3 circuits-also called T3 circuits—

operate at a capacity of 45 megabits per second

(Mbps). See T1 Circuits, Kilobits Per Second.

Electronic Data Interexchange (EDI): The use of

computers and telecommunications technologies to

process common transaction functions, such as invoices, shipping notices, and bills, that traditionally

have entailed the transfer and processing of paper

documents. With EDI, computers exchange information via telecommunications and process the information without the delay typically entailed with paper

transactions. EDI improves the efficiency and effectiveness of operations by empowering businesses to

purchase supplies ‘and to produce and distribute

products precisely when and where they are needed.

Fiber Optics: Hair thin, flexible glass rods that use light

to transmit audio, video, and data signals. Fiber optics

are particularly suitable for digital communications

since light impulses go “on” and “off” to transmit

messages (see Digital Communications). Fiber optic

cable has much higher capacity than copper wire or

coaxial cable and is not as subject to interference or

noise.

Holistic: Related to or concerned with whole systems, as

opposed to examining the constituent parts of a

system. A holistic approach to development treats the

economy, its politics, and its human interactions as

interdependent.

Host-remote Switch: A device that can provide local

switching capabilities for communities located far

from a telephone company central office (see Central

–173–
174 ● Rural America at the Crossroads: Networking for the Future

Office). Host-remote switching can improve the quality of service for remote communities since their local

calls do not have to travel the long distances, along

which signals can be attenuated, to the central office to

be switched. While the remote switch can perform

most of the functions of a regular switch, it is

dependent on a host switch typically found in a larger

community.

Independent Telephone Company: A local exchange

carrier that is not part of the Bell System of Bell

operating companies (BOCs) and regional Bell operating companies (RBOCs). See Bell Operating Companies.

Integrated Services Digital Networks (ISDN): A protocol for high-speed digital transmission. ISDN provides

simultaneous voice and high-speed data transmission

along a single conduit to the users’ premises. Two

ISDN protocols have been standardized: with Narrowband ISDN, or 2B+D, two 64 kilobits per second

(kbps) channels carry voice or data messages and one

16 kbps channel is used for signaling-carrying

addressing and other call-related information; with

Broadband ISDN, or 23B+D, 23 64 kbps channels

carry voice or data messages and one 64 kbps channel

is used for signaling. See Kilobits Per Second.

Interexchange Carrier (IXC): A telephone company—

such as AT&T, MCI, or Sprint-that carriers longdistance calls. The IXCs are authorized by the Federal

Communications Commission (FCC) to carry interLATA interstate traffic, and can be authorized by the

State public service commissions to carry interLATA

intrastate traffic (see Local Access and Transport Area).

Kilobits Per Second (kbps): A unit of measurement for

the speed at which information travels. Also Mbps—

Megabits per second, and Gbps--Gigabits per second.

See Bit.

Local Access and Transport Area (LATA): LATAs

were developed as a result of the divestiture settlement

to define geographic areas within which the Bell

operating companies (BOCs) can provide telephone

service. (See Bell Operating Companies.) The settlement allows the BOCS to provide intraLATA service,

but it forbids them from providing interLATA telecommunications.

Local Area Networks (LANs): Data communication

networks that are relatively limited in their reach. They

generally cover the premises of a building or a campus

and are private networks-thus the equipment is not

owned by a telephone company. Like all networking

technologies, LANs facilitate communication and

sharing of information and computer resources by the

members of a group.

Local Calling Area: The area within which a customer

may make a call without incurring long-distance

charges.

I.meal Exchange: The geographic area in which there is

a uniform price for telephone service. More than one

central office may serve a local exchange. See Central

Office.

Local Exchange Carrier (LEC): A telephone company

that carries local calls. In most exchanges the LEC is

a Bell operating company, but hundreds of independent telephone companies are LECs. State public

service commissions regulate the monopoly services

of LECs. See Bell Operating Companies.

Local Loop: The portion of the telecommunications

network between the customers’ premises and the

telephone company’s central office. See Central Office.

Metropolitan Area Networks (MANs): Still in the

field-testing stage, metropolitan area networks provide

switched data networking services at very high speeds

(45 to 50 megabits per second) within a geographic

area of at least 50 miles. MANs connect LANs to

LANs, as well as LANs to WANs. These networks are

optimally designed for shared usage. See Area Area

Networks, Wide Area Networks.

Microwave: High-frequency radio waves used for pointto-point and omnidirectional communication of audio,

data, and video signals. Microwave frequencies require direct line of sight between the sending station

and the receiving station to operate. Obstruction such

as trees or buildings distort the signal.

Modified Final Judgment (MFJ) : The 1984 agreement

between AT&T and the U.S. Justice Department,

which settled the government’s long-standing antitrust

suit against AT&T and resulted in AT&T’s divestiture

(see Divestiture). As a result of the MFJ, the Bell

operating companies (BOCs) and regional Bell operating companies (RBOCs) are prohibited from offering

information services and limited in the extent to which

they can engage in manufacturing and designing

equipment; BOCs cannot offer long-distance service;

and RBOCs cannot offer local telephone service. In

1989, the court decided to let RBOCs provide gateway

services in order to encourage the development of an

information service industry.

Nontraffic Sensitive (NTS) Costs: The costs that a local

telephone company incurs in providing its subscribers

with a connection to the company’s central offices.

The NT-S portion of the company’s plant is largely

comprised of the telephone lines-local loops—

running from the subscribers’ premises to these central

offices, and the switches located at the central offices.

NTS costs depend primarily on the number of subscribers and the average length of the local loops. NTS

costs do not vary with the amount of telephone traffic

carried over the loops. Thus, NTS costs are often

referred to as “fixed costs. ”

Open Network Architecture (ONA): A regulatory

construct which was a product of the Federal Communications Commission’s Computer Inquiries. ONA is a

system in which the telephone companies allow

enhanced service providers equal access to their
Glossary ● 175

network facilities. This equal access is referred to as

comparably efficient interconnection (CEI). Enhanced

services include such routine functions as call forwarding and voice mail, but also include more sophisticated

database manipulations and other services not yet

imagined. With CEI, enhanced service providers

(ESPs) can purchase the unbundled components-or

basic service elements (BSEs)—such as switching

capabilities or information processing capabilities, of

the formerly unified public switched network to bring

their services to customers. ONA is the FCC’s attempt

to eliminate the structural separation requirements that

required the telephone companies to maintain separate

subsidiaries for competitively offered services. Without such separations, competition would be fostered

and more products would become available to consumers.

Packet Switching: The process of transmitting digital

information by means of addressed packets-which

include data, call control signals, and error control

information-so that a channel is occupied only during

the transmission of the packet. In contrast, data sent

using modems occupies a circuit for the entire duration

of the transmission, even when no data is actually

traveling over the lines. Using packet switching, the

various packets of information can travel along different routes on the network allowing the carrier to

optimize its network capacity.

Private Branch Exchange (PBX): A small telephone

switch that typically serves extensions in a business or

campus arrangement and also provides interconnectivity with the public network. A PBX offers similar

capabilities as Centrex, except the equipment is owned

by the customer rather than leased from the telephone

company. See Centrex.

Rural Area Networks (RANs): As conceptualized by

OTA, RANs would be shared-usage networks, configured to include a wide range of users in rural

communities. RANs would allow rural communities to

pool their demand for advanced telecommunications

services in order to justify and share the cost of

sophisticated equipment that individual users could

not otherwise afford or fully utilize. RANs would not

be isolated “technology islands,” but would connect

rural areas with the rest of the world.

Signaling System Seven (SS7): A control system for the

public telephone network, SS7 allows telephone company computers to communicate directly with each

other using specialized signaling circuits. The information traveling along these circuits is related to the

routing of telephone calls. By using separate circuits

for these purposes, the carriers do not have to use

bandwidth on the voice circuits, and telephone call

processing becomes more efficient and faster, enabling

more services to be made available to consumers.

Subscriber Line Charges (SLC): Subscriber line charges

are a convention adopted after divestiture to defray the

portion of the cost of long-distance calls that use the

local access plant. Prior to the divestiture of the Bell

System, prices for long-distance service were set

artificially high and the extra revenues were used to

defray some of the costs of local service and keep local

rates low. The Federal Communications Commission

implemented SLCs after divestiture, when this crosssubsidization was no longer possible because longdistance service became competitive. SLCs range from

about $2.50 to $6.00 per month.

Switch: A mechanical or solid-state device that opens or

closes circuits, changes operating parameters, or selects paths or circuits, either on a bandwidth or time

division basis. Digital switches typically switch signals by time division.

Switched Multimegabit Data Service (SMDS): SMDS

is a high-speed, fast packet-switched service provided

in a campus, or ring, type arrangement situated within

a 50-mile radius.

T1 Circuits: T1 circuits have 24 channels-each carrying

64 kilobits per second (kbps) of information and

operate at a capacity of 1.544 megabits per second

(Mbps). T1 is a standard for transmission that is

accepted in North America. See Kilobits Per Second.

Universal Service: A policy associated with the Communications Act of 1934, which granted AT&T the

monopoly for telephone service in the United States, to

provide telephone service to all who want it at a

reasonable price.

Virtual Networks: Virtual networks establish logical,

temporary connections as opposed to dedicated ones.

From the users perspective they are similar to private

networks.

VSATS: Very small aperture terminals, satellite receive

dishes, approximately 1.8 to 2.4 meters in diameter,

that are capable of sending and receiving voice, data,

and/or video signals. VSATS can transmit over wide

areas by relaying to satellites in geosynchronous orbit.

Wide Area Networks (WANs): Data communication

networks that provide long-haul connectivity among

separate networks located in different geographic

areas. WANs make use of a variety of transmission

media, which can be provided on a leased or dial-up

basis. WANs can also be privately owned.

SOURCES: Jack L. Dempsey, Telecom Basics (Chicago,lL: lklephony

divisiom I.ntertec Publishing, 1988); Jack L. Dempsey,

Transmission Basics (Chicago, IL: lklephony divisio~

I.ntertec Publishing, 1989); Jack L. Dempsey, Datacom

Basics (Chicago, IL: Tklephony divisiou Intertec Publishing, 1990); Graham Langley, Telephony’s Dictionary:

Second Edition (Chicago, IL: lklephony Publishing Corp.,

1986); Raymond Lawtou Factors Affecting the Definition

of the Local Calling Area: An Assessment of Trends

(Columbus, OH: National Regulatory Research Institute)

February, 199Q Offke of Tkehnology Assessment, Linking

for Learning:A New Course for Education, OTA-SET-430

(WashingtoqDC: U.S. GovemmentPrinting Office, Novtxnber, 1989); and OftIce of ‘lkchnology Assessmen4 1991.
List of Contributors

Herman Agoyo

All Indian Pueblo Council, Inc.

Albuquerque, NM

John Aragon

Director, Public Relations

US West Communications

Albuquerque, NM

David Atkinson

Mayor

Owensboro, KY

George Baldwin

Chair, Department of Sociology

Henderson State University

Arkadelphia, AR

Wayne Bates

Engineer Manager

Kentucky Public Service Commission

Frankfort, KY

Mary Lou Baylor

Baylor Associates

Washington, DC

Arlin Beehler

Manager

Pro Penal Oreille Economic Development Association

Newport, WA

Al Bell

Manager, Education Technology Center

Educational School District 101

Spokane, WA

Fred Bellott

Associate Dean

College of Education

New Mexico State University

Las Cruces, NM

Greg Benson

Director of Center for Learning Technology

New York State Department of Education

Albany, NY

Sanford Berg

Professor, Public Utilities Economics

University of Florida, Gainesville, FL

Stan Besen

Professor

Georgetown University Law Center

Washington, DC

William Beyers

Professor of Geography

University of Washington

Seattle, WA

Michael Binder

Director of the University Library

Western Kentucky University

Bowling Green, KY

Jerome Block

Commissioner

New Mexico State Corporation Commission

Santa Fe, NM

Shirley Bloomfield

Director of Government Affairs

National Telephone Cooperative Association

Washington, DC

Gary Bousquet

Apache Future, Inc

Mescalero, NM

Jenny Boyarski

Paducah Community College

Paducah, KY

Dan BozaIth

Director, Program Development

Pennyrile Area Development District

Hopkinsville, KY

Ted K. Bradshaw

Professor of Rural Sociology

University of California, Berkeley, CA

Louis A. Bransford

Public Service Satellite Consortium

Washington, DC

Dan Brennan

New England Telephone

Portland, ME

Stuart Brotman

Brotman Associates

Boston, MA

Joe Browder

Browder Associates

Washington, DC

Andy Brown

National Telephone Cooperative Administration

Washington, DC

–176-
List of Contributors 177

Terry Brown

Executive Director

Washington State Community Colleges

Spokane, WA

Sam L. Burke

Associate Director

South Kentucky Industrial Development Association

Hopkinsville, KY

Ellen Burton

Director, Issues Analysis

US West

Washington, DC

Lucy Greer Burton

Doctoral Candidate

Washington State University

Pullman, WA

Alan Buzacott

TCT Program

Office of Technology Assessment

Washington, DC

Lloyd Callahan

Wapato, WA

Brian G. Campbell

Vancouver Public Library

Vancouver, BC

Tom Campbell

Deputy Director, Business and Industry Division

Farmers Home Administration

U.S. Department of Agriculture

Washington, DC

Chris Carson

Librarian

Zuni Middle School

Zuni Pueblo, NM

Richard Casad

Commissioner

Washington Utilities and Transportation Commission

Olympia, WA

Jim Chappell

External Relations

Plains Electric Cooperative

Albuquerque, NM

John Charters

US West Communications

Spokane, WA

Steve Cisler

Library Evangelist

Apple Computer

Cupertino, CA

Bob Clark

Office of Community & Development

caribou, ME

Dale L. Clifford

Haynesville, ME

Joseph F. Coates

J.F. Coates, Inc.

Washington, DC

Vary Coates

TCT Program

Office of Technology Assessment

Washington, DC

Jim Coleman

Executive Director

Economic Development Council

Las Cruces, NM

Robert Collins

Telephone & Data Systems

Northfield, VT

Douglas Corm

Center for Telecommunications and Information Studies

Columbia University

New York NY

Chuck Connell

Limestone Development Foundation

Limestone, ME

Dick Conway

Dick Conway & Associates

Seattle, WA

Kurt Danison

Highlands Consulting

Okanogan, WA

Kenneth L. Deavers

Director

Agriculture and Rural Economy Division

Economic Research Service

U.S. Department of Agriculture

Washington, DC

Alison Deeb

Research Associate

A.T. Kearney, Inc.

Alexandria, VA

Mr. Gerald E. Depo

Town Administrator

Bloomsburg, PA

Jack Dexter

President

Maine Chamber of Commerce& Industry

Augusta, ME
178 ● Rural America at the Crossroads: Networking for the Future

Don Dillman

Professor of Sociology

Washington State University, WA

Donald L. Dittberner

Dittberner Associates, Inc.

Bethesda, MD

Al Dixon

Town Manager

Fort Fairfield, ME

Helen Doroshow

Levinson Foundation

Costilla, NM

Leonard Dow

Maine Department of Economic &

Community Development

Augusta, ME

Gerald Dube

Computing & Data Processing Services

University of Maine System

Orono, ME

Joan Durrance

Professor of Library Science

University of Michigan

Ann Arbor, MI

Jane W. Dyche

College of Agriculture

University of Kentucky

Lexington, KY

Paul Eakin

Professor of Mathematics

University of Kentucky

Lexington, KY

Bruce Egan

Center for Telecommunications and

Information Studies

Columbia University

New York NY

Martin Elton

Tisch School of the Arts

New York University

New York NY

Jon Erickson

Executive Director

Telephone Utilities of Washington

Cheney, WA

Jack Eversole

Executive Director

Barren River Area Development District

Bowling Green, KY

Lou Feldner

Feldner Telecom Consulting

Washington, DC

Richard Ferry

New England Telephone

Portland, ME

Francis Dummer Fisher

Consultant

Cambridge, MA

Don Flannery

Community Development Office

Fort Fairfield, ME

William Forbes

Maine Research & Productivity Center

University of Maine

Presque Isle, ME

Hal Fossum

Policy Analyst

Northwest Policy Center

University of Washington

Seattle, WA

Ginni Fox

Executive Director

Kentucky Educational Television

Lexington, KY

David Freshwater

Professor

Department of Agricultural Economics

University of Kentucky

Lexington, KY

Joseph Gerace

New York State Office of Rural Affairs

Albany, NY

Debbie Gibson

Kentucky Chamber of Commerce

Frankfort, KY

Kenneth Gordon

Maine Public Utility Commission

Augusta, ME

Robert Grady

Associate Director

Office of Management and Budget

Washington, DC

William Graham

Auburn Manufacturing

Mechanic Falls, ME
List of Contributors ● 179

Alan A. Gumbel

Policy Analyst

Lower Mississippi Delta Development Commission

Memphis, TN

Kristey Guthrie

Director of Special Programs

Kentucky Chamber of Commerce

Frankfort, KY

Wayne Gyulai

New Mexico Research & Development Institute

Santa Fe, NM

Donald Hamilton

New Mexico State Corporation Commission

Santa Fe, NM

Donald Hanna

Associate Vice Provost

Extended University Service

Washington State University

Pullman, WA

Amber Henton

Mayor

Livermore, KY

John Hart

University Information Services

Murray State University

Murray, KY

Milda Hedblom

Professor of Politics and Media

Augsburg College

Minneapolis, MN

Ernest Heller

Washington Utilities and Transportation Commission

Olympia, WA

Carol Henderson

Director

American Library Association

Washington, DC

Mike Hickey

Director, Government Affairs

NYNEX

Washington, DC

Walter E. Hill

Associate Under Secretary of Agriculture for

Small Community and Rural Development

U.S. Department of Agriculture

Washington, DC

Henry Hodges

Executive Director

Purchase Area Development District

Mayfield, KY

Link Hoewing

Director, Federal Relations

Bell Atlantic

Washington, DC

Harry Hosey

President

Early Winters Inc.

Seattle, WA

G. Melvin Hovey

Pesident

Maine Public Service Company

Presque Isle, ME

Doug Hoyt

Associate Director for Programs

Green River Area Development District

Owensboro, KY

Dave Hughes

Colorado Springs, CO

Lois Irwin

Institute for Extended Learning

Community Colleges of Spokane

Spokane, WA

Ken Jacobson

Washington State Legislature

Olympia, WA

George James

Development & External Affairs

University of Maine

Presque Isle, ME

Jennifer Jarratt

J. F. Coates, Inc.

Washington, DC

Robert Johnson

Owensboro Community College

Owensboro, KY

Ted Jojola

Professor

University of New Mexico

Albuquerque, NM

Mary Gardiner Jones

President

Consumer Interest Research Institute

Washington, DC

Maureen Kennedy

The Aspen Institute

Washington, DC

Tom Kneeshaw

Palouse Economic Development Council

Pomeroy, WA
180 . Rural America at the Crossroads: Networking for the Future

Sue Kock

Department of Communication

University of Indiana

Bloomington, IN

Marvin E. Konyha

Extension Service

U.S. Department of Agriculture

Washington, DC

Ken Kubota

Professor of Mathematics and Computer Science

University of Kentucky

Lexington, KY

Ronald LaFayette

Institute for Extended Learning

Community Colleges of Spokane

Spokane, WA

Michael Lajko

Systems Manager

Northland Cable

Sandpoint, ID

Pat Lantham

Technology Planning

Pacific Telesis

San Francisco, CA

Fred Lee

National Telecommunications & Information

Administration

U.S. Department of Commerce

Washington, DC

Kathie Leonard

Auburn Manufacturing

Mechanic Falls, ME

Scott J. Loftesness

Senior Vice President

Fidelity Investments

Boston, MA

Bob Lovan

Natural Resources and Rural Development

Extension Service

U.S. Department of Agriculture

Washington, DC

Pamela MacBrayne

Executive Director

Distance Education

University of Maine

Augusta, ME

Jim Maes

Deputy Secretary

New Mexico Economic Development &

Tourism Department

Santa Fe, NM

Shirley Manning

President

Lincolnville Telephone

Lincolnville, ME

John Maple

Manager

Burrelle’s Press Clipping Service

Presque Isle, ME

Donna Marco

Director

TriCounties Economic Development District

Colville, WA

Dennis Matson

Deputy Director

Washington Department of Trade&

Economic Development

Olympia, WA

Elliot Maxwell

Assistant Vice President

Policy Issues and Management

Pacific Telesis

San Francisco, CA

Susan McAdams

Washington Utilities and Transportation Commission

Olympia, WA

Mary McBride

Palouse Economic Development Council

Pomeroy, WA

Richard McBride

Superintendent, Newport Schools

Newport, WA

John McCatherin

New England Telephone

Bangor, ME

David McIvor

Superintendent

Newport Community Hospital

Newport, WA

Steven McLellan

Washington State Utilities and Transportation

Commission

Olympia, WA
List of Contributors . 181

Ruth McWilliams

Cooperative Forestry

Forest Service

U.S. Department of Agriculture

Washington, DC

Joe Mefford

Director for Economic Development

South Central Bell

Frankfort, KY

Viola P. Miller

Murray State University

Murray, KY

Dick Moody

Manager, Governmental Affairs

Educational Service District 101

Spokane, WA

Allie Morgan

Communication Consultant

Paducah, KY

Ronald W. Morgan

Branch Manager

Division of Research& Planning

Kentucky Cabinet for Economic Development

Frankfort, KY

Sufi Nazem

International Center for Telecommunications

Management

University of Nebraska

Lincoln, NE

Steve Neilsen

US West Communications

Seattle, WA

Jim Nelson

Commissioner

Kentucy Library Network

Frankfort, KY

Sharon Nelson

Chair

Washington Utilities and Transportation Commission

Olympia, WA

W. Russell Neuman

Director

Research Program on Communications Policy

Massachusetts Institute of Technology

Cambridge, MA

Mike Newman

Appalachian Regional Commission

Washington, DC

John Niles

President

Global Telematics

Seattle, WA

Eli Noam

Commissioner

New York State Public Utilities Commission

Albany, NY

Jeff Noel

Kentucky Cabinet for Economic Development

Frankfort, KY

Michael Nell

Telecommunications Consultant

Stirling, NJ

Jon Ochs

President

Eureka Farms

LaCrosse, WA

Frank Odasz

Assistant Professor of Computer Education

Western Montana College

Dillon, MT

Ken Olson

Assistant Director

Spokane Area Economic Development Council

Spokane, WA

Sandra Osbourn

Specialist in American National Government

Congressional Research Service

Library of Congress

Washington, DC

Patricia Otis

Consultant (Communication and Education)

Austin, TX

A.J. “Bud” Pardini

Commissioner

Washington Utilities and Transportation Commission

Olympia, WA

James Patterson

Gould & Smith

caribou, ME

Bob Pepper

Office of Plans and Policy

Federal Communications Commission

Washington, DC

Robert Peters

Assistant Administrator for Telephone programs

Rural Electrification Administration 

U.S. Department of Agriculture

Washington, DC
182 ● Rural America at the Crossroads: Networking for the Future

Sandra Peticolas

Dona Ana County Manager

Las Cruces, NM

Charles Pixton

Senior Transportation Advisor

Appalachian Regional Commission

Washington, DC

Janet Poli

Director

Communication, Information and Technology

Extension Service

U.S. Department of Agriculture

Washington, DC

Larry Povich

Federal Communications Commission

Washington, DC

Ruth Pritchard

Director of External Relations

American Mobile Satellite Consortium

Washington, DC

Clinton Quenzer

General Manager

South Central Rural Telephone Cooperative

Glasgow, KY

Joe Quintana

Costilla, NM

Roy Reed

Mayor

Newport, WA

Janet & Christopher Reid

ProActive, Inc.

Livermore, KY

Norman Reid

Deputy Director

Rural Development, Agricultural and

Rural Economy Division

Economic Research Service

U.S. Department of Agriculture

Washington, DC

Dave Remington

Director, Penal Oreille County Libraries

Newport, WA

Lewis A. Rhodes

Associate Executive Director

Instructional Leadership and Technology

American Association of School Administrators

Washington, DC

Rick Richardson

Professor of Architecture and Planning

University of New Mexico

Albuquerque, NM

Gerald J. Richter

Vice President, Video Communications

Dovetail Systems Corporation

Ben Franklin Technology Center

Bethleham, PA

Peter Riley

New England Telephone

Portland, ME

Jose Rivera

Director

Southwest Hispanic Research Institute

University of New Mexico

Albuquerque, NM

Joseph M. Robbins

Executive Director

Account Management

BellSouth/Bellcore

Morristown, NJ

Carol Rogers

Purchase Area Development District

Mayfield, KY

Everett Rogers

Professor of Communications

Annenberg School of Communications

University of Southern California

Los Angeles, CA

Terry Ryan

Apache Future, Inc

Mescalero, NM

Nick Salazar

New Mexico State Legislature

Santa Fe, NM

Daniel Sanchez

All Indian Pueblo Council, Inc.

Albuquerque, NM

Raymond Sanchez

Speaker

New Mexico State Legislature

Santa Fe, NM

Jill Satran

Community Development Specialist

Department of Community Development

Olympia, WA

Arthur E. Schiller, Jr.

Arthur D. Little

Cambridge, MA
List of Contributors ● 183

Gail Garfield Schwartz

Chair

New York State Public Service Commission

Albany, NY

Noreen Scott

Economic Development Representative

New Mexico Economic Development &

Tourism Department

Santa Fe, NM

Jim Sharpe

Kentucky Public Service Commission

Frankfort, KY

Dick Shirley

Continental Divide Electric

Grants, NM

Roy Short

Othello, WA

Richard Showalter

Natural Resources, Energy, and Science

Office of Management and Budget

Washington, DC

William Siembieda

University of New Mexico

Albuquerque, NM

Rich Silkman

Maine State Planning Office

Portland, ME

Marvin Sirbu

Information Networking Institute

Carnegie Mellon University

Pittsburgh, PA

Cathy Sloan

Government Affairs

Comptel

Washington, DC

Susan Smith

Kentucky Public Service Commission

Frankfort, KY

Paul Sommers

Research Director

Northwest Policy Center

University of Washington

Seattle, WA

Terence St. Peter

City Manager

caribou, ME

Bill Stallings

Communication Consultant/Writer

Boston, MA

Dean Stearns

Director, External Affairs

New England Telephone

Portland, ME

Dodie Stein

Executive Director

Office of Business & Technology

Kentucky Cabinet for Economic Development

Frankfort, KY

Christopher H. Sterling

Professor and Director

Telecommunications program

George Washington University

Washington, DC

Larry Sterrs

Contel of Maine

Damariscotta, ME

Blaine D. Stockton, Jr

Assistant Administrator for Management

Rural Electrification Administration

Washington, DC

Louis Swanson

Professor of Rural Sociology

University of Kentucky

Frankfort, KY

Dennis Sweatman

Director of Economic Development

Illinois Commerce Commission

Springfield, IL

Robert Taylor

Dean, School of Business

University of Louisville

Louisville, KY

Charles Terrett

Superintendent

Fulton County Schools

Hickman, KY

Paul Teske

Associate Professor

Department of Political Science

State University of New York at Stony Brook, NY

Margaret G. Thomas

Midwest Research Institute

Kansas City, MO

John Thompson

Director

Spokane Falls Community College

Spokane, WA
184 ● Rural America at the Crossroad: Networking for the Future

Lester Tompkins

Manager

Information Technology Inc.

Presque Isle, ME

Thomas Vidovic

Telecommunications Magazine

Boston, MA

John A. Vance

Deputy Administrator

Natural Resources and Rural Development

Extension Service

U.S. Department of Agriculture

Washington, DC

Meg Van Schoorl

Washington Department of Community Development

Olympia, WA

Roland R. Vautour

Under Secretary for Small Community and

Rural Development

U.S. Department of Agriculture

Washington, DC

Dale Vincent

Director, Public Affairs

US West Communications

Seattle, WA

Jason Vingelen

Vice President/General Manager

RXL Communications

Spokane, WA

Jutta von Guntard

Executive Director

Levinson Foundation

Costilla, NM

Tom Wacker

National Telephone Cooperative Association

Washington, DC

Jeri Wait

Director, Government & Education Services

US West Communications

Portland, OR

T.M. Walker

Director, Legislative Affairs

US West Communications

Seattle, WA

Paul Warnecke

Director, Division of Telecommunications

Department for Facilities Management

Frankfort, KY

David Warnes

Department of Communication

Ottawa, Canada

Robert Warren

College of Urban Affairs and Public Policy

University of Delaware

Newark DE

Helen Weissinger

President

Main Spring Center, Inc.

Louisville, KY

Jean & Jerry White

Educators

Frenchville, ME

Frederick Williams

Chair in Communication

College of Communication

University of Texas

Austin, TX

Hugh Williams

Community Development Director

Gallup, NM

Dan Willis

US West Communications

Albuquerque, NM

John Wohlstetter

Director

Special Projects and Technology Affairs

Contel Corporation

Washington, DC

Steve Worthington

Spokane Area Economic Development Council

Spokane, WA

Mary Yann

Newport, WA

Mary Zimmerman

External Relations

Plains Electric Cooperative

Albuquerque, NM
Index
Index

Acoma Indian Tribe, 165

Agriculture, 42,43,47,48,49

Agriculture, industrialization of, 99, 103

Alarnogordo, NM, 162

Amenities, 92, 102

Appalachia, 159

Apple Computers, 16, 165

Area Development District, 161

Aroostook County, ME, 31, 170

ARPANET, 77

Asymmetric regulation, 118

AT&T, 11, 15,62-64,79

Bangor, ME, 169

Bell of Pennsylvania, 129

Bell operating companies, 69, 122, 123, 130

Bell telephone system, 62-64,69

Ben Franklin Partnership, 128

Block grants, 20,28, 151

Bloomsburg, PA, 84-85

Bloomsburg University, 128

Boyarski, Jenny, 162

Broadband, 13, 14, 80

Bulletin board, 107

Bureau of the Census, 36

Bush administration, 136

Bypass, 65, 128

Cable Communication Policy Act of 1984, 122

Cable monopoly, 122

Cable television, 71, 120, 121

CAD-CAM, 67-68,81,84

Capital, access to, 48

Carter administration, 138, 147-148

Census regions of the U. S., 37.

Certified Cities, 160, 162

Chrysler, 73

Civil War, 39, 140, 141, 149

Community College of Spokane, 167

Community development, 91,92,93, 108, 109, 110

Community Development Corp., 110

Comparative advantages, 36

Comparative disadvantages, 35

Competitive advantage, 48

Comprehensive development, 91, 106

Congress, 30

Congress, 1Olst, 136

Cooperation among stakeholders, 19, 133

Cooperative Extension Service, 23-25, 133, 142-144, 151

Cost of living, 94

Cost-benefit analyses, 126, 128

Costilla, NM, 162

Council of Economic Advisers, 134, 149

Country Life Commission, 134, 141

Credit, access to, 40

Cross-ownership of cable and telephone companies, 122

Cross-subsidization, 120

DARPA, 77

Department of Agriculture, 21-24,49, 133, 134, 141, 143, 146,

149, 169

Department of Commerce, 36

Department of Defense, 146

Department of Education, 111, 153

Department of Energy, 146

Department of Health and Human Services, 146

Department of Housing and Urban Development, 146-147

Department of the Interior, 146

Department of Labor, 105

Depreciation, 118

Deregulation, 80, 115

Dexter, Jack, 171

Digital radio, 9,72, 116

Digital switching, 70,81

Distance learning, 105, 11 8

Distance-sensitive pricing, 115, 126

Distribution of costs, 116

Distribution of income, 94

Diverse economy, 98

Diversity of rural areas, 92,94, 103

Divestiture, 7,62,65, 128

DS-3 lines, 48,72

Early Winters Resort, 59

Earnings gap, 43

Economic Development Administration , 11, 12, 109, 146, 153

Economic growth, 94

Economic Research Service, 23, 38

Economies of scale, 47, 115, 126

Education, 19,50,55,91,96, 100, 104

Educational attainment, 44, 4 5

Edward D. Jones & Co., 6

Eisenhower administration, 134, 147

Electricity, deployment to rural areas, 138-140

Electronic data interexchange, 46,47

Employment, 91

Employment levels, 92,93

Employment, marginal, 91

Employment, quality of, 9395

Environment, 35,45,50,51,52,53,54, 168, 171

Environmental impact statements, 52

Everett, Judge James, 159

Eversole, Jack, 162

Extended area service, 124, 125, 168

Farm communities, 39,42

Farm policy, 134-137

Farmers Home Administation , 10 9

Farming, 36,38, 39,40

Farming, commercialization of, 39,40,41,42

Fast packet switching, 75

Federal budget deficit, 102

Federal Communications Commission, 19, 20, 30, 31, 63-66,

122, 123, 129

Federal Depository Library Program, 147

Federal Government, role in development, 17,21-22, 133-155

Federal/State Joint Board, 147

Fiber optics, 70-73

Financial deregulation, 99

–187–
188 ● Rural America at the Crossroads: Networking for the Future

First Amendment, 140

Forbes, William, 84

Foreign investment, 48

Fowler, Chairman Mark, 19

Frito-Lay, 73

Fulton County, KY, 162

Garcia, CO, 5

Gardner, Governor Booth, 170

General Motors, 79

Global economy, 7-8,45,50,91,98,99, 168

Goals for rural America, 19, 137-138

Gordon, Commissioner Ken, 171

Grants, NM, 164

Grassley, Senator Charles E., 4

Great Society Program, 108

Hatch, Senator Orrin G., 4

Health care, 91, 96, 101, 104, 105, 106

Health insurance, 101

Henton, Mayor Amber, 152

Higher Education Act, 32, 153

Highway Trust Fund, 139

Hispanics, 159, 162, 163-164

Holistic development, 18,94, 100, 106, 144

Hughes Network Systems, 73

Human resources, 91, 105, 109, 110

Imported labor, 93

Independent telephone companies, 68-71,79,81, 118, 119

Industrial Revolution, 39

Inflation, 43

Information economy, 115

Information sector, 45

Information services, 122, 123

Information-intensive employment, 91

Infrastructure, 7, 13,59-61,65-67

Infrastructure, Federal role in development 137-140

Integrated development, 110

Intelligent network, 76-77

Intellectual property rights, 140

INTELSAT, 73

Interconnection, 115

Interexchange carriers, 129

Interexchange toll charges, 115

InterLATA calling, 115, 123

International trade, 50

Intragovernmental coordination, 144-146

IntraLATA, 125

Investment capital, 99, 100, 106

Iowa Network Services, 129, 130

ISDN, 69

Jackson, President Andrew, 137, 149

Japan, 159, 160-162, 169

Jefferson, Thomas, 39, 134-137, 149

Job recruitment, 93

Johnson administration, 134

Joint Economic Committee, 4

Kennedy administration, 134

Kentucky, 53,55, 159-162, l&l-165, 168, 172

Kentucky Early Warning System, 161

Kentucky Educational Television, 160

Kentucky Library Network, 161

Kentucky Rural Economic Development Authority, 162

K-Mart, 73

Labor skills, 49,91,95, 100, 101, 104

Land-grant colleges, 1,33, 134, 138

Large business users, 81

LATA, 31, 123, 128

hinders Encouraging Aroostook Development, 170

Leadership, 102, 109

Less urbanized counties, defined by Economic Research

Service, 38

LEXNET, 161

Lifeline, 66

Link Up America program, 66

Livermore, KY, 152

Local area network, 59,78,80

Local control, 97

Local exchange carriers, 117, 127, 129

Local government, 102

Local 1oop(s), 69,79

Loop carrier system, 70

Maine, 52,84, 111, 150, 169-172

Maine Department of Economic and Community

Development, 111

Maine Department of Environmental Protection, 171

Maine Research and Productivity Center, 84, 170

Manhattan, 31

Manufacturing , 8,35,41,42,46,49,98, 103

Manufacturing Automation Protocol, 77

Manufacturing, high-tech, 100

Market forces, 31

Mass media, impact on rural areas, 14-15,61

Mass production, 47

MCI, 64

MEDNET, 15

Mescalero Apache Indian Tribe, 163

Mescalero, NM, 162

Metropolitan area networks, 59,68,78, 80

Metropolitan counties, defined by OMB, 36,38

Metropolitan Fiber Systems, 68

Michigan, 14, 150

Microwave, 71

Migration to urban areas, 40,41,44

Minnesota, 150

Mississippi State University, 105

Modified Final Judgment, 64, 122, 124

Motorola, 11

Multimedia, 67

Narrowband, 23,80

National Agricultural Library, 143, 149

National Research Education Network, 27,77, 153

National Rural Electric Cooperatives Association, 138

National Telecommunications and Information

. . Administration, 147

Native Americans, 44, 134, 159, 162, 163-164

Nebraska, 84

Networking, 46,78
Index . 189

New Deal, 134

New England Telephone Co., 111, 172

New Jersey, 150

New Mexico, 52, 107, 159, 162-166, 168, 169, 172

New Mexico PUC, 166

Niche markets, 52

Nissan, 73

Nixon Administration , 15 0

Nonmetropolitan counties, defined by OMB, 36,98

Nontraffic-sensitive costs, 117

Norton, VA, 105

Office of Management and Budget, 36,65, 149

Okanogan County, WA, 167

Olympia, WA, 166

One-Stop Shop, 107, 165

Open network architecture, 123

Over-capitalization, 117

Owensboro, KY, 153

Paducah Community College, 160

PalmettoNet, 130

Palouse Economic Development Council, 107, 169

Per-capita income, 44,94

Physical capital, 99

Physical quality of life index, 95

Plains Electric Cooperative, 165-166

Pooling demand, 13, 14

Portland, ME, 169, 170

Postal service, 133, 140, 166

Poverty, 35,43,98, 101, 104

Poverty rates, 43

Presque Isle, ME, 169-170

Price-cap regulation, 119, 120, 121

Private networks, 8

Productivity index, 119

Public Law 96-355, 147

Public libraries, 153-154

Pullman, WA, 166

Quality of life, 92

Rate averaging, 63

Rate base, 116, 117

Rate regulation, 116

Rate-of-return regulation, 116, 117, 118, 119

Reagan administration, 134, 150

Regional Bell operating companies, 68,74

Remoteness, 35, 101, 103

Revenue requirement, 116

Roosevelt administration , 134, 138, 141-142

Rural Area Networks, 8-11, 14,20,59,82-83, 127, 128, 129

Rural areas, defined by Bureau of the Census, 36,38

Rural Development Administration , 30,3 2

Rural Development Policy Act of 1980 (Public Law %-355),

147

Rural Economic Development Act of 1990,20,24,26,31, 140,

144,148

Rural Electrification Administration “ , 23-26,31,69,79,81, 84,

133, 138, 140, 144, 148

Rural Health Information Clearinghouse Service, 141

Rural Information Center Clearinghouse, 23, 143, 149

Rural Investment Partnerships, 29

Salazar, Representative Nick, 164

Sandia Labs, 165

Satellite Telecommunication Education Program, 168

Satellites, 73

Seattle, WA, 167

Seidman, Harold, 30

Service sector, 100

Signaling System 7, 169

Sillman, Rich, 171

Small Business Administration , 134, 146, 14 8

Smith Lever Act of 1914, 142

South Carolina, 130

South Central Bell, 162

Spokane, WA, 166

Stability, 97

Star School Program, 154

States, as agents of development, 21-22, 149-151

Step by step switch, 79

Structural economic changes, 43,47,98,99

Subsidies, 63,65-66, 116, 118,120

Sufi Nazem, 84

Sustainable development, 97, 106

Switched multimegabit data service, 9,68,80

Technology transfer, 108

Telecommunications, as leverage for development, 4, 160, 164,

172

Telecommunications, needs for rural areas, 13

Telegraph, impact on rural areas, 62

TeleKansas, 120

Telephone Association of Maine, 169, 171

Telephone, impact on rural areas, 62

Telephone, rural access to, 68-69,81

Teleport, 68

Tennessee, 150

Terret, Charles, 159

Texas Tech University, 150

Toyota, 73, 160, 162

Triage, 162

Unbundling, 68

Underemployment, 93,96, 106

Unemployment, 35,41, 106

Unemployment rates, 41,43,49,50

Unionization, 159

Universities, role in development, 26-27, 154

University of Maine/Telecommunication System, 111, 129,

154, 172

urban areas, 59

Urban places, defined by Bureau of the Census, 36

Urbanized areas, defined by Bureau of the Census, 36

Urbanized counties, defined by Economic Research Service, 38

US West, 164, 165-166

Utah, 121

Vail, Theodore, 63

Venture capital, 99, 100

Vermont, 120, 127

Very small aperture terminals, 73-74
190 . Rural America at the Crossroads: Networking for the Future

Vision, need for in development policy, 18-19, 152-155 Wide area networks, 8,9,59,73,78,80

Wal-Mart, 97

Working Group on Rural Development, 148

War on Poverty, 110 Yakima Indian Reservation, 167

Washington State, 59, 107, 159, 166-169, 172

Washington State Department of Community Development, 169 Yakima Valley, WA, 166

Washington State University, 166, 169

Washington State Utilities and Transportation Commission, 168 Zuni, 16, 163

Western Kentucky University, 161 Zuni Middle School, 165

White Swan, WA, 167
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NOTE: Reports are available from the U.S. Government Printing Office, Superintendent of Documents,

Washington, DC 20402-9325, (202) 783-3238; and/or the National Technical Information Service, 5285

Port Royal Road, Springfield, VA 22161-0001, (703) 487-4650.