Friday, August 01, 2008

The South

Hailing from the South, as I do, I'm always on the lookout for interesting interpretations of its development. My father, who became a sociologist and studied the effects of bringing electricity to the southern Appalachians, of noted the importance of having just a single electric light dangling from the ceiling--it changes everything. Children can study, farmers can work on record-keeping, all setting of a chain reaction of personal and public development. Mark Thoma points out this study today:

A novel contribution of this paper is that it appears to provide a real-world example of the 'Big Push' theory. Never heard of the 'Big Push' theory? Well, here is how the authors describe it:
According to the “big push” theory of economic development, publicly coordinated investment can break the underdevelopment trap by helping economies overcome deficiencies in private incentives that prevent firms from adopting modern production techniques and achieving scale economies. These scale economies, in turn, create demand spillovers, increase market size, and theoretically generate a self-sustaining growth path that allows the economy to move to a Pareto preferred Nash equilibrium where it is a mutual best response for economic actors to choose large-scale industrialization over agriculture and small-scale production. The big push literature, originated by Rosenstein-Rodan [1943, 1961], was initially motivated by the postwar reconstruction of Eastern Europe. The theory subsequently appeared to have had limited empirical application... [S]cholars have found few real-world examples of such an infusion of investment helping to “push” an economy to high-level industrialization equilibrium.
Until this paper, that is. The authors continue:
We argue here that the “Great Rebound” of the American South, which followed large public capital investments during the Great Depression and World War II, is one such application. Although 1930s New Deal programs are typically presented in the context of their attempt to bring relief and recovery to the U.S. economy through demand-stimulating public expenditures, the long-term economic effects of these and subsequent wartime expenditures were profound for the South. Specifically, and consistent with big push theoretical literature, the infusion of public capital—roads, schools, waterworks, power plants, dams, airfields, and hospitals, among other infrastructural improvements—fundamentally reshaped the Southern economy, expanded markets, generated significant external economies, increased rates of return to large scale manufacturing, and encouraged a subsequent investment stream. These improvements helped create the conditions that allowed the region to break free from its low-income, low-productivity trap and embark on its rapid postwar industrialization.
This paper deals with the break from the South's poverty trap. The sustained nature of the South's postwar economic recovery has been covered by other studies: Connolly (2004) looks to improved human capital formation, Cobb (1982) points to industrial policy, Beasley, Persson, and Sturm (2005) finger increased political competition, and Glaeser and Tobio (2008) discuss the merits of the climate or Sunbelt effect. (I will also note I have seen somewhere the advent of air conditioning did wonders for development in the South).

New Deal socialism spurred the development of the "New" South. My parents knew that because the saw it first hand, my father even wrote about it. I'm glad to see the dismal science is now joining in with a "Big Push" Theory. What's interesting to me, of course, is the degree to which the South has forgotten that the roots of its 20th-century growth were planted by FDR, instead opting to side with the neoliberal "conservative" faction. This is in no way surprising, since surplus labor in the South is still regarded as a story of race and not class, which has allowed for the divisive politics of the last 40 years. Division represents politics and economics in the South, where a vibrant middle-class has yet to arise, and where income disparity remains the greatest. I made up the following (hard to read) graph to show this. D.C., NY and CA all have great income disparity for their own reasons--NY and CA both have extremely large concentrations of wealth, for example. Of the next 10 states that follow them in income disparity, 8 are in the south: Lousiana, Texas, Mississippi, Florida, Connecticut, New Mexico, Georgia, Alabama, Kentucky, Tennessee. (I apologize for the chart being so hard to read. Click on it for the full size.)

While the "New South" is in some ways only following the line of increased division between the rich and poor, it tends to be leading the way. By the way, you can find the data for the chart here: