How Capitalism Underdeveloped Rural America

A toxic brew of economic suffering, racism, and community decline prepared the ground for authoritarian populism in America’s devastated rural areas. Trumpism will not be defeated unless the Left can promote a progressive agenda to rebuild rural America.

n the wake of the 2016 US presidential election, the liberal intelligentsia belatedly realized that rural and small-town America was in crisis. One sector of liberal opinion insisted that the key to Donald Trump’s victory lay in racism rather than economic distress (partly because of its own complicity with the neoliberal, free-market project). Another sector, blind to the central importance of racial inequality for US capitalism, preferred to stress narrowly economic explanations for Trump’s rise.

Both schools of thought failed to grasp the different ways in which economic suffering, racism, and community decline have interacted to prepare the ground for authoritarian populism. They also grossly underestimated the human toll of the catastrophe engulfing rural areas and small towns, overlooking the “social pathologies of collapse” that have become ever more glaring.

Since the turn to more cutthroat free-market policies in the 1980s, American capitalism has systematically underdeveloped rural and small-town regions of the United States. The 2008 crash poured gasoline on the fire. Mutual savings banks and credit unions, cooperatives, mom-and-pop businesses, local industries and newspapers, health and elder care facilities, schools, and libraries have all fallen victim to relentless austerity policies or private-equity raiders.

As people could no longer share in the wealth they had produced, while community tax bases and social institutions withered away, “rural resentment” and economic anxiety boosted fear of cultural and demographic changes and heightened receptivity to authoritarian appeals and conspiracy theories. Aggrieved masculinity and a loss of white privilege were certainly vital ingredients in this toxic brew, along with the question of gun rights. But such “cultural issues” were also bound up with economic decline and social fragmentation: white men who have experienced economic setbacks “are the group of owners most attached to their guns,” and the ones most likely to view the home as a bunker requiring defense against threatening outsiders.

Losing the War on Poverty

In July 2018, the White House Council of Economic Advisers claimed that the “War on Poverty” first initiated during the Johnson presidency in the 1960s was now “largely over and a success.” This rosy assessment flew in the face of ample evidence that things were getting much worse.

After 1980, wages stagnated and became detached from productivity growth. Between 1940 and 1980, the wage gap between poorer and richer cities had narrowed by an annual rate of 1.4 percent, but after 1980, this convergence ended. On the international stage, the collapse of the Bretton Woods framework in the mid-1970s spurred an “opening up” of global finance and trade. On the home front, concerted attacks on organized labor, especially after Ronald Reagan entered the White House, undermined the bargaining power of workers.

By 2018, 40 million Americans lived in poverty, 18.5 million in extreme poverty, and 5.3 million “in Third World conditions of absolute poverty.” By 2011, 1.5 million households — half of them white — were surviving on incomes of less than $2 per person per day. Those households included 3 million children. Nine million Americans have zero cash income. By 2016, 63 percent of Americans lacked $500 in savings to cover an emergency, and 34 percent had no savings at all. That same year, the official poverty rate was 12.7 percent.

A 2017 study of fifteen states, which accounted for 39 percent of all US households, found that so-called ALICE households (“asset-limited, income-constrained, employed”) — those who were above the poverty line but earned less than the “bare-minimum survival budget” — made up two-fifths of the total. Between 2007 and 2016, median household wealth fell by 31 percent.

Many of the poor and near-poor are employed, often in multiple low-wage jobs, and have to rely on food stamps to eat — in effect a public subsidy for their employers, which include some of the world’s largest and most profitable corporations. In 2017, 78 percent of US workers reported that they were living from paycheck to paycheck. Nearly 40 percent of working-age adults indicated that they had trouble meeting at least one basic need — food, health care, housing, or utilities — in 2017.

A rapidly growing number of the poor sell their blood plasma twice weekly in order to survive. Blood collections doubled between 2008 and 2016. While plasma exports are booming, frequent donors often suffer negative health consequences.

Low-income Americans spend a huge part of their income on gasoline and the cars that are essential for commuting to work, especially in rural areas that lack systems of public transport. Evangelical Christian and right-wing talk shows dominate the airwaves on these unavoidable long-distance journeys. A hospital visit or car repair can trigger a downward spiral that culminates in job loss and homelessness. US households are deeply indebted from mortgages, automobiles, credit cards, medical bills, and student loans. Business indebtedness, which has long played an important role in the demise of farms and other small enterprises, is an additional source of stress for many.

Financialization on Main Street

In Glass House: The 1% Economy and the Shattering of the All-American Town, Brian Alexander describes an Ohio community whose story is replicated in thousands of others throughout the United States. Home to a large glass plant, it was a place where “a factory worker might live three blocks from a factory owner,” and where owners backed bond issues to fund good schools and hospitals that attracted skilled employees.

In the 1980s, corporate predators mounted a raid, loaded the company with debt, dismembered it, crushed the union, and cashed out. The new owners — hedge funds and private-equity shops — slashed wages and pensions, and ordered executives to live elsewhere “so they wouldn’t be troubled by requests for civic involvement or charitable contributions.”

The priority now was maximizing shareholder value, not making things — let alone squandering profits on community institutions. The deindustrialization of the United States reached a crescendo after the 2008 crash: non-metro areas outpaced the rest of the country in industrial job losses, with a 35 percent drop in manufacturing employment.

Populist demagogues like Trump blame those job cuts exclusively on free trade and factory flight — their liberal critics also cite automation and a failure to innovate — but neoliberal financialization has clearly been central.

Financialization — the involvement of financial actors in business and markets, and the ownership of assets not for what they might produce but for how they might be stripped and flipped to generate shareholder value — has its origins far away from the affected communities, and it tends to be an opaque process. As Jennifer Clapp points out: “This lack of transparency about which actors are involved in driving these trends creates space for competing narratives — often advanced by the financial actors themselves — that point to other explanations for negative social and environmental outcomes.” As neoliberalism fails to deliver the promised prosperity, people trying to understand what has happened to their communities increasingly fall back on conspiracy theories and “post-factual” claims.

Banking Deserts

Mutual savings banks used to power small-town economies. Their directors contributed to local institutions, knew clients, and sometimes made loans based on trust. From the 1980s on, private-equity investors seeded mutual and savings banks across the country with small deposits, anticipating their conversion into stock institutions. Depositors could buy stock at insider prices before initial public offerings (IPOs). Typically, shares appreciated by 15 percent on the day of the IPO, and 20–50 percent more over the following months.

Directors and investors encouraged giant regional banks to gobble up and shutter the local ones, then cashed in as shares soared 200 to 400 percent above the IPO level. In the process, they sucked wealth out of communities, imposed stricter lending criteria, and cut the ground from under small businesses. Many people found themselves trapped in “banking deserts,” forced to rely on high-cost check-cashing outlets and payday lenders (often financed at one remove by the larger banks that had created those deserts in the first place).

Like mutual banks, cooperatives and credit unions reinvested wealth that communities produced locally and acted as a bulwark against rapacious corporations and banks. About one-quarter of the 8,000 credit unions active in 2007 had closed by 2017. Between 2000 and 2015, more than a third of the 3,346 agricultural cooperatives still active at the beginning of the century had been forced to shut down.

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Ting BarrowOctober 20, 2021