ECONOMIC REGULATION AND RURAL AMERICA.

• Author: Eisenberg, Ann M.

ABSTRACT

Rural America today is at a crossroads. Widespread socioeconomic decline outside cities has fueled the idea that rural communities have been "left behind. " The question is whether these "left behind" localities should be allowed to dwindle out of existence, or whether intervention to attempt rural revitalization is warranted. Many advocate non-intervention because rural lifestyles are inefficient to sustain. Others argue that, even if the nation wanted to help, it lacks the law and policy tools to redirect rural America's course effectively.

This Article argues that we do have the law and policy tools necessary to address rural socioeconomic marginalization and that we neglect to use those tools to our own collective detriment. The Article focuses specifically on the tool of economic regulation, meaning government oversight of entry, exit, and participation parameters for service providers in certain markets. Robust historical precedents establish that strategic economic regulation is uniquely capable of sustaining rural communities, and that using it to do so is in fact critical to national resilience.

Rural diseconomies of scale--the problem of higher costs per capita and lower demand for resources in population-sparse regions--must be understood as a keystone question concerning whether and how rural communities can gain access to the amenities they need to survive. The pre1970s regulatory regime governing infrastructure industries helped overcome the problem of diseconomies of scale by safeguarding rural access to services that precede economic growth. Infrastructure industries' subsequent abandonment of rural America during the deregulatory era amounts to a market failure because the nation remains dependent on rural communities for food and energy production, environmental stewardship, political stability, and retreat from urbanism. Thus, for the benefit of all, a broader conception of infrastructure and corrective interventions into infrastructure markets must help connect rural America to community-sustaining systems like broadband internet and national grocery store chains. Ultimately, this discussion also offers an answer to the problem of the so-called "urban/rural divide enhancing "urban/rural connection," both literally and symbolically.

TABLE OF CONTENTS INTRODUCTION I. RURAL CONDITIONS AND THE CHALLENGE OF DISECONOMIES OF SCALE A. Rural Socioeconomic Decline B. Rural Diseconomies of Scale II. RURAL AMERICA'S RELATIONSHIP WITH REGULATION A. The Old Regime, 1870s-1970s: Ensuring Rural Access to Services B. The New Regime, 1970s--the Present C. Rural Abandonment as a Series of Market Failures III. CORRECTING RURAL INFRASTRUCTURE MARKETS IN THE MODERN ERA CONCLUSION INTRODUCTION

Throughout the country, communities outside major urban centers are no longer sustained by livelihoods in agriculture, natural resource extraction, and manufacturing. (1) Many of these communities are instead weakening by attrition as population and wealth flow toward regions with growing modern industries. (2) After the Great Recession of 2008, rural America fell below zero population growth for the first time in the country's history. (3) This and other trends--high rates of rural "deaths of despair" by suicide and opioids, high rates of rural unemployment, and high approval rates among rural voters of President Trump's isolationist rhetoric--have prompted commentators to deem these regions as increasingly "left behind" in the calculus of national economic development. (4)

The question before the country is whether these trends should be left to run their course. Should these "left behind" localities be allowed to dwindle out of existence? Or is some form of intervention warranted to stop or reverse large-scale patterns of rural socioeconomic decline? (5) Many advocate non-intervention, insisting that the rural way of life is simply too inefficient to sustain and that rural populations--still about one seventh of the national population (6)--should instead be incentivized or helped to relocate en masse to cities. (7) Proponents of this view tend to insist both that nothing should be done to address rural decline, but also that nothing can be done--namely, no set of tools in law and policy is positioned to counteract the worldwide tidal waves of globalization, automation, and urbanization that drive these patterns. (8)

As a threshold matter, this Article insists that intervention is indeed warranted and that in fact, we fail to nurture rural livelihoods to our own collective detriment. Rural communities remain essential to a functioning, resilient nation. (9) The full spectrum of rural communities' worth and potential is outside the Article's scope. But the current and possible contributions of the small towns and remote counties characterized by greater expanses of land and sparser populations are not insignificant. (10) Rural communities and workers produce the bulk of the nation's food and energy and steward eighty percent of the country's land mass and its associated ecosystem services. (11) They are an integral part of the national political community. (12) In the face of the COVID-19 crisis, they have offered an alternative to urban lifestyles that have become newly stressed, where skyrocketing housing costs were already prohibitive for many. (13) The need to intervene stems not from nostalgia for a mythologized, antiquated rural idyll, but more from the urgency of envisioning a healthy and modernized rural future as a necessary part of an interdependent national system. (14)

More centrally, the Article argues that the idea that we lack the law and policy tools to counteract rural socioeconomic decline overlooks important historical precedents that are critical to informing a more fruitful and equitable path forward. (15) This discussion focuses on the tool of economic regulation, or government oversight of entry, exit, and participation parameters for service providers in certain industries. (16) In particular, the regulatory apparatus governing infrastructure industries for the century from the 1880s to the 1970s reveals the unique power of economic regulation to support and sustain rural communities. (17)

This argument about the import of economic regulation to rural communities has four components. First, rural diseconomies of scale--the higher costs per capita and lower returns on investment associated with rural service provision due to lower population density--must be understood as a keystone question as to whether and how rural communities can gain access to the services and resources they need to survive. (18) Rural communities' struggle to achieve economies of scale means they are naturally disadvantaged in attracting most types of resources, ranging from public education funding to hospitals to private housing developers. (19) Limited access to fundamental amenities, such as affordable transportation and broadband internet, plays a substantial role in today's rural socioeconomic challenges. (20) The question of whether to maintain or extend such amenities to under-served communities largely drives the conversation on whether rural populations can or should be sustained at all. (21) A common instinct is to direct scarce resources to population centers that offer greater returns on investment for more recipients, raising the question of whether, how, and why rural communities can be adequately served despite appearing not to offer the "best" use of resources.

Second, the regime regulating infrastructure industries from the 1880s to the late twentieth century showed that measures to ensure rural access to the services that precede economic growth were key to protecting and cultivating rural communities. (22) In other words, this regime helped overcome the natural barrier rural diseconomies of scale pose to accessing the infrastructure that any community needs to thrive. (23) The term, "infrastructure," can describe "a wide range of goods and services"; throughout U.S. history, the infrastructure concept has encompassed at one time even the provision of milk. (24) But much of the discussion of this regulatory genre focuses on what were once known as the regulated industries, including common carriers (trains, trucks, buses, and airlines) and utilities (telecommunications, electricity, and natural gas). (25)

Until relatively recently, economic regulatory policies embraced the idea that rural communities, in light of their remoteness and smaller populations, needed protection from service providers' unilateral, profit-driven decisionmaking, which would tend to motivate those providers either not to serve rural communities or to charge them substantially higher prices. (26) Under the germinal 1887 Interstate Commerce Act (ICA) and subsequent regimes enacted for a variety of industries, common carriers and public utilities were bound by a principle of non-discrimination among localities and mandates to provide universal service at "just and reasonable" rates. (27) Cross-subsidization and resource bundling helped to finance entry into less-profitable places. (28) These protections were understood at the time as anticipating and preventing the potential for markets to fail to provide sufficient services to small and remote communities; failing to serve such communities was seen as both unfair and contrary to national interests. (29) Equitable rural access to infrastructure services in turn promoted the growth of local and regional economies and connected rural communities, literally and symbolically, to the rest of the country. (30)

Third, the deregulatory era then served to prune small and remote localities off the national systems on which they depended. Following a "vigorous and sustained critique" of existing regulations, reforms such as the Airline Deregulation Act of 1978, the Staggers Rail Act and Motor Carrier Act of 1980, and other developments in transportation and...