By Matthew McKenna, Executive in Residence, Rural Opportunity Initiative, a program at Georgetown University’s Global Social Enterprise Initiative, part of the McDonough School of Business
The United States has experienced an historic geographic imbalance in its recovery from the Great Recession. Rural America significantly lags the economic advances enjoyed by their more prosperous urban neighbors.
This decline in rural prosperity can be tracked on many fronts: lower high school graduation rates, housing, employment, increasing poverty rates, decline in median incomes, and establishment of new businesses.
While there are many causes to these trends, the relative decline in rural prosperity begs for a new wave of economic development targeted to these regions.
The Rural Opportunity Initiative (“ROI”) was established at Georgetown University’s Global Social Enterprise Initiative, part of the McDonough School of Business to advance one specific tool to address this decline: the opportunity to increase private investment in the rural economy. ROI is a consortium of four schools, Georgetown University and its land grant partners at Iowa State, Mississippi State and Purdue, as well the United States Department of Agriculture. Together, these institutions have prepared a program aimed at mitigating the impact of the hurdles facing expanding traditional sources of investments in the rural economy.
The effort to improve rural prosperity has attracted much attention in the last year. In the last few months alone, a number of programs and initiatives have been announced in Washington, DC.
- Rural Prosperity Task Force Report
- Opportunity Zones in the new Tax Bill
- Proposed Infrastructure Legislation
- Omnibus passage with additional funding for rural programs
More is expected soon including anticipated provisions in the new Farm Bill and potential infrastructure packages.
These are all worthwhile. However, there is an additional opportunity that relies less on the public sector and more on the willingness and availability of capital from the private sector. This is the focus of ROI.
There is no lack of funds available for this investment program. The combination of low interest rates and the lack of long term fixed asset investing opportunities has produced a significant demand from the investment community. However, the rural market poses both new and historic barriers to these investors. ROI represents an effort by these institutions to assemble a program aimed at mitigating the impact of several hurdles facing the expansion of traditional sources of investments in the rural economy.
There have been isolated examples of emerging asset classes in rural America. Farmland and timber plantations are examples. However, scale in these areas has typically been achieved through passive holdings of real assets, where the investment goal is a return from capital appreciation as opposed to operating returns from active businesses and increased hiring.
Rural America and NFU members have an aligned interest in bringing more capital to their underserved markets.
Research continually shows that the largest source of job growth comes from building new, small businesses. Small scale farmers are seeking off farm income to support their families.
The imbalance between rural America and its neighbors can also be found in the equity markets, in particular venture and early stage capital. Scale is often a barrier. Currently only 1 percent of all venture capital flows to rural communities. This can be mitigated by a regional approach to funds, which are formed as special purpose funds to invest exclusively in rural ventures. The recent wave of Rural Business Investment Companies established by the USDA is evidence of both the need for such funds as well as the success these funds can represent.
A common platform for all of these efforts is the need to build an increased awareness of the opportunities for investment in rural America. Regional financial firms have often played an historic role in financing local businesses. A key example is production and distribution agriculture. These same resources have sponsored exciting developments in Ag technology and R&D. But there is a new wave of economic development that can be sponsored by a new group of investors. While Ag and Ag technology are well established as a target of many investors, this acceptance needs to extend to a broader class of assets that reside in the rural geography. Included in this next wave are natural resources, new sources of energy, untapped human capital, and other investments that will allow this region to catch up to its urban neighbors.
These efforts will benefit from the catalysts provided by expanding innovative financing tools such as impact investors and public private partnerships. There is also an opportunity to expand the traditional economic development programs with increased cooperation from the private sector, who often feel this is a party to which they have not been invited. ROI was built to begin an effort in all of these areas.
The Rural Opportunity Initiative is led at GSEI by its Executive in Residence, Matt McKenna. Until recently, Matt was senior advisor to U.S. Secretary of Agriculture Tom Vilsack. In this role, he developed public-private partnerships for rural investment to create economic development and growth. Previously, Matt served as chief executive officer of Keep America Beautiful, which focuses on volunteer leadership to build and sustain vibrant communities. He also brings 16 years of experience in senior management positions, including senior vice president of finance at PepsiCo and as a partner with Winthrop, Stimson, Putnam & Roberts, a law firm in New York. He is a graduate of Georgetown Law and is an adjunct professor at Fordham University’s School of Law.