The American Interest Magazine - March- April, 2007  

here's looking at us

Little Start-up on the Prairie

 

n the rolling countryside of eastern Nebraska, the town of Aurora, population 4,500, resembles a small urban outcropping amid the spreading wheat, cornfields and cattle ranches America’s midsection. With its neat town square and red-brick civic buildings, it suggests a reflection of America’s bucolic past. Yet it may also represent an oblique looking-glass glimpse into America’s future. In the first half of the 21st century, as the nation grows from 300 toward 400 million people, Aurora and other places in the American Heartland will provide a critical outlet for the restless energies and entrepreneurial passions of its people. In some senses, such a trend represents a reprise of the region’s role in the evolution of the country and the shaping of its national identity.

This renewed promise is manifest in towns like Aurora, whose population, unlike that of many rural communities, has been expanding since the 1960s and is on target to grow to 5,000 or more over the current decade. “We think this town has a great future”, says Gary Warren, who operates Hamilton Communications. Warren’s firm, which employs 250 workers there and another 350 spread across Nebraska, provides telecommunications solutions software, call centers and other services for firms from across the country. And it’s not the only such game in town. Low electrical costs, access to Interstate 80 to Omaha and Lincoln, and excellent high-speed telecommunications make Aurora a desirable location for several growing businesses. So, too, does a reliable, literate and highly trainable workforce.

“We’re seeing a shift now”, Warren explains. “The offshore thing is slowing down. People are figuring out they need domestic knowledge and that flat, neutral American accent.” But it’s not just on-shoring of services that is driving the local economy. New ethanol facilities, a seed research company and a burgeoning group of small technology firms are also pacing growth. Unemployment barely exists, and the biggest problem—as in many other places in the Heartland—is finding new workers. “Our biggest concern now is building houses for people”, he suggests. “There is no sense of dying here; we are building. Aurora is all about the future.”

Beyond the Buffalo Commons

hat is happening in Aurora and in many other parts of the American Heartland contradicts conventional wisdom about the vast region between the Mississippi River and the Rocky Mountains. Most media coverage portrays a kind of Mad Max environment—a desiccated, postmodern, Lost World of emptying towns, meth labs and militant native Americans. Typical was a 2006 New York Times article describing North Dakota as “Not Far From Forsaken.” Its imagery was of “irresistible decline”—dying towns, aging populations, a place for the curious Easterner to visit now before it all blows away.

Other pieces have celebrated the fact by pointing out, as one writer put it, “that there are more Indians and bison on the Plains than at any time since the late 1870s.” If there is anything positive, according to such accounts, it lies in the hope that much of the country between the Mississippi and the Rockies might end up as a giant enviro-playground, subsidized by environmentalists like Ted Turner. Two New Jersey academics, Frank J. and Deborah Popper, have suggested that Federal policy accelerate the depopulation of the region and create “the ultimate national park”—their notion of returning the land and communities to a “Buffalo Commons.”

[credit: courtesy of Aurora Area Chamber and Development]

The Poppers’ prescription for the region is as breathtaking in its boldness as it is simple. They regard the settlement of the Plains as “the largest, longest running agricultural and environmental miscalculation in American history.” They would encourage those sturdy folks who still live in the region to leave and let the land, as they put it, “ be returned to its original pre-white state”—that it be, in effect, deprivatized. But their formula misses what is happening across large parts of the Heartland. Restoring the natural environment where possible is no doubt a good thing, but many places in this vast swath of the country also are rebounding in terms of jobs, population and income—in many cases more so than parts of urban coastal America. Fargo, North Dakota, for example, grew by more than 20 percent between 1990 and 2000. Scores of other Heartland towns and cities—Sioux Falls, Des Moines and Bismarck among others—have seen similar expansions.

Indeed, as we look at the fastest job growth in the country, micropolitan areas are fairly dominant: Of the 393 fastest growing regions in the country, fifteen of the top twenty were micropolitan areas, while only one, the sprawling city of Las Vegas, ranked among the fastest job-growing metros in the country. Cities like Grand Forks, North Dakota, Dubuque, Iowa, and Casper, Wyoming, enjoyed some of last year’s most robust job growth, and there are profound social and economic forces driving this resurgence. Among the most prominent are the impact of the telecommunications revolution, which has allowed rural areas to compete for high-value-added jobs, and the ongoing expansion of the energy industry, covering both fossil and renewable fuels. Above all, and making all else possible, are the fundamentals of a place where the sense of community remains vibrant. Both new jobs and the intangibles of cultural affinity are attracting more and more Americans back to the countryside.

The Heartland in History

ince the inception of the Republic, one of America’s critical advantages over its global rivals has stemmed in large part from the successful development of its vast landscape. Unlike other continental-size countries such as China or Russia, which traditionally have had trouble feeding their people, the American Heartland produces an almost unimaginable bounty, able to sate the appetites of much of the planet. Equally important, the Heartland has played a central role in shaping America’s national identity. In a sense, the settlement of the Plains represents the dominant narrative of American history. It is a story of both great sacrifice and cruelty, particularly in its deleterious effects on indigenous peoples. Yet it is also arguably the nation’s most impressive economic and social achievement.

The development of the American Heartland, perhaps more than anything, reflects the durable nature of the nation’s entrepreneurial spirit. The American agriculturalist has tended to be a restless person, Alexis de Tocqueville noted in the 1830s, often on the lookout for ways to improve his lot. In contrast to the pastoral, more passive model of the European peasant, “most farmers of the United States”, he wrote, “combine some trade with agriculture; most of them make agriculture itself a trade.”

This individualist spirit also informed the social and political perspective of the American hinterland. From Colonial times, the “relative religious freedom and economic opportunities of the new world”, noted Charles and Mary Beard in 1944, “worked radical changes” in social relations both within families and among classes. Royal attempts to limit the activities of Americans, including farmers’ interest in moving onto new lands, after all, had been one major reason for the American Revolution. The Beards described the period after the Revolution as an era of “agricultural imperialism”, with many of the most energetic and ambitious young people from the Eastern seaboard heading toward a wilderness perceived to be rich in arable land. Between 1810 and 1860, the largely agricultural region west of the Appalachians enjoyed an enormous population growth from less than 15 million to more than 47 million.

Even in the South, where roughly half the farms used some slave labor, most farms were relatively small and owned by those who worked the land. In the North, there was only one hired male worker per every two farms. Less than 0.1 percent of farms in the North and only 4.7 percent in the South were more than 500 acres. Yet as he tilled his own small farm, the American farmer supported institutions for self-improvement. The then-new Western states of Ohio, Michigan and Missouri, for example, emphasized early in their history the growth of new infrastructure like turnpikes, canals and railways. Farmers also vigorously expanded educational institutions that might allow their sons and daughters to achieve greater prosperity. By the 1830s, colleges were rising throughout Ohio and Indiana, and virtually everywhere grammar schools proliferated.

The final great stage of developing the Heartland followed the enactment of the Homestead Act in 1862. Vast portions of the American land base were opened up to settlement, ideally in the form of private, independent farms that soon spread across the country from the Midwest to the Rockies. In 1860 there were two million farms in the United States; by 1910 there were more than six million.

This movement west constituted nothing less than an heroic epoch, what historian Ellwyn B. Robinson described as “the story of how a modern, civilized society was carved out of the wilderness of the Northern Great Plains.” Like the Native Americans and hunters before them, the newcomers, ranchers and farmers alike, were by nature risk-takers and many—some 43 percent of all North Dakotans in 1890—were foreigners.

Residents of the Plains, like the earlier settlers in Ohio and other trans-Appalachian areas, adapted their newly settled land to their own culture. They built churches, schools, hospitals and stores at a rapid rate. They were highly innovative, constantly developing new methods of animal husbandry, new crops and new ways to market their products. “In the North Dakotan”, observed Bishop Cameron Mann of the Episcopal Church in 1902, “one finds a man prompt, generous, speculative, ready to learn each new thing, hard to tie to anything, but, when tried, staunch, sturdy and loyal.”

The unprecedented pace of settlement (in the 1820s, Federal officials expected it would take 500 years to fill the West) brought with it unforeseen problems. Capitalistic and opportunistic, the American farmer believed that producing more and better crops was his salvation, and technological change encouraged his hopes. The man-hours required to produce wheat and corn fell by half between 1840 and 1900. But this accelerating productivity was to prove his ultimate undoing. Ever greater yields led to lower prices and, frequently, bankruptcy. Many yeoman farmers lost their homesteads. Between 1880 and 1900 the percentage of farms tilled by renters grew from 25 to 35 percent. Farmers and small town residents organized to fight off the railroads and assure higher commodity prices, but in the end they often succumbed to worsening market conditions.

By the 1920s, another crisis loomed over the Heartland, this one of an environmental nature. Across large swaths of the central Plains, drought conditions created great clouds of moving soil. Thousands of farmers went bankrupt in the “dust bowl”, and whole populations migrated, many of them to California and other far Western states. The solution to the crisis contradicted the basic entrepreneurial, self-reliant ethos of the region’s farmers and townspeople. Now they had to accept massive assistance from the Federal government to support crop prices and save them from losing their mortgages. Hardest of all, they needed to embrace the notion that producing less served their interests better than producing more.

To be sure, the New Deal programs of subsidy and conservation ameliorated many of the worst crises of the Heartland. The reinvented agricultural sector that emerged after the Depression produced more wealth with less land. In 1910, for example, corn and wheat covered more than 145 million acres and produced roughly 3.5 billion bushels. In 1972, barely 100 million acres produced more than seven billion bushels. In 1930 the average American farmer fed about ten people here and abroad. By the 1990s the average farmer could feed a hundred people.

Yet over this period of time, rural America also became less important to the overall American economic and political system. Agricultural exports began to drop as a percentage of total U.S. exports by the late 1890s, replaced first by manufacturing and, later, service exports. America remains the world’s largest exporter of many commodities, including wheat, but this represents a shrinking component of overall U.S. exports. At the same time, as the number of farms began to fall, many towns built to service farmers began to empty out. Many people, particularly the young and ambitious, sought employment in other areas. In many small towns, these problems have deepened on account of aging leaderships resistant to new ideas. “Some rural areas prefer a slow death to having to change”, one North Dakota entrepreneur complained to me half a dozen years ago over a beer. “You wonder if you can raise a family in a place that seems about to die.”

The New Pulse

et even as this entrepreneur was lodging his complaints, a new demographic trend, a new pulse, was building throughout the Heartland. By the 1970s, demographers started to register a slight uptick in rural population. The trend started in areas closest to the big cities but increasingly spread to small towns and cities located far from core metropolitan regions. Although some small towns continued to evaporate, others, from the Great Plains to New England, were showing signs of new life.

For the most part, this resurgence was a product of migration, since natural increase in the 1990s (the excess of births over deaths) slumped by one-third in non-metro counties on an annual basis compared with the 1980s. Net migration, however, shifted from an average annual outflux of 269,000 in the 1980s to an average annual influx of 348,000 in the 1990s. Several factors appear to be contributing to this shift. Perhaps most critical has been the rising cost of living, particularly in housing, in urban coastal areas. Another has been the technological revolution that allows companies in traditionally urban-centered fields—from high-technology services to manufacturing and warehousing—to consider locations far from major metropolitan areas.

This trend appears to have accelerated since 2000, according to recent census information. Demographer Wendell Cox, for example, claims that more than 2.7 million Americans have moved out of the largest cities. Although communities under 50,000 continue to lose population, much of the migration went to smaller and midsized locations, a significant portion to places with populations between 50,000 and 500,000 people.

To be sure, this resurgence has not affected all rural areas or small towns. Instead, we have seen the emergence of a certain subset of smaller cities and towns, including in the Great Plains and the inter-Mountain West, that are absorbing much of the expansion. These represent Heartland “growth nodes”, places that have enjoyed rapid growth even while more remote communities continue to shrink. Some of these rural communities are high amenity areas—for example, the Rapid City/Black Hills region of South Dakota, Wenatchee, Washington, Bozeman, Montana, and St. George, Utah—that have grown largely due to their peculiar appeal to migrants from urban areas. Many of these communities are evolving well beyond tourism and developing more sophisticated, technology-based economies.

Another type of Heartland growth could be described as re-emerging rural hubs. These are usually small and midsized cities that grew up during the period of agricultural expansion in the late 19th and early 20th centuries, and then began to decline or plateau as early as the 1920s. Prominent examples include Fargo, Sioux Falls, Des Moines and Boise. These communities are exploiting their lower costs, good public schools, universities and better quality of life for middle-class families to lure high-end professional service firms, information companies and diversified, often innovative small manufacturers.

In coming decades, these trends may be further driven by aesthetic preferences, particularly those of retiring baby boomers, for a less dense environment. In contrast to always popular stories about people “returning to the cities”, more than twice as many adults say they would prefer to live in a rural or small town area. That is partly because most Americans perceive rural America as epitomizing traditional values of family, religion, self-sufficiency—someplace attractive, friendlier and safer, particularly for children. These views are held by the majority of suburbanites as well as by a slightly larger proportion of rural residents, suggesting that there is a large, mostly untapped market that would consider a move to a smaller community in the Heartland. As one demographer suggests, “America’s love affair with suburban life may be winding down in favor of the countryside.”

The Agri-Energy Revolution

reference alone will not be enough to force a resurgence in the American Heartland. Population growth will have to be driven by solid economic growth, predominately in energy, technology and business services. In particular, the rise of the Heartland as an energy center represents a reversal of recent trends. Over the past two decades, critical new energy supplies were found farther afield, offshore in the Gulf of Mexico, in Alaska and, sadly, in the chronically hostile nations of the Middle East, Africa and Russia. In most cases, towns dependent on fossil fuel production suffered strong declines in both population and economic output. This is now changing. Rising prices and growing concerns over the security of foreign energy supplies have driven a new wave of investment into many Heartland communities. These changes can be felt both in the dry plains that drift upward from west Texas toward Wyoming, Montana and the Dakotas and in the more fertile, wetter lowlands toward the eastern end of the Plains.

In Western areas, we are witnessing a rapid expansion of traditional fossil fuel production—oil, coal and increasingly shale. In the East, there has been a breakneck expansion of more renewable, agriculturally-based sources such as corn-based ethanol, biodiesel and biomass. These changes are dramatic in west Texas. Mike Bradford, an oilman from Midland, where George W. Bush raised his family, says that until recently west Texas exploration companies balked at making investments because they feared high energy prices would not last. They are now persuaded that the market has escaped OPEC control. “People held back and held back”, says Bradford, who also sits on the Midland County Commission. “But now we think the high prices are for real, and we’re going nuts.” There are barely a hundred houses on the market in the city, Bradford notes, down from 500 just a year or two ago. Unemployment, once well above the national average, is now the lowest among all the metropolitan areas in Texas, at 3.8 percent. Office vacancy rates, hovering around 50 percent two or three years ago, are now only 10 percent.

This same pattern is evident elsewhere in the Plains, particularly in the far northern energy belt in North Dakota, Wyoming and Montana. In small towns like Williston, Bismarck and Gilette, the biggest problem in many communities now is not rural poverty or depopulation, but how to find housing for new workers pouring into the region. This trend is likely to accelerate. With the rise of new extraction technologies, deposits in places like the massive Bakken shale formation in western North Dakota and eastern Montana, with reserves upwards of 200 to 300 billion barrels of crude, are now being eyed for massive development. According to the most recent geological evidence, there are prospects for decades of new energy production from the Bakken shale. But even without the Bakken, North Dakota’s energy economy is booming, in large part due to significant deposits of lignite—35 billion tons in North Dakota alone—and existing oilfields. In once sleepy Dickinson, the seat of Stark County (population 25,000), not far from the rugged Badlands, there are more than 800 job openings.

Cheap energy, as well as low business and housing costs, are also luring manufacturers. Industrial jobs have grown 30 percent since 2004. Unemployment is less than 3 percent, notes Gaylon Baker, executive director of the Stark County Development Corporation, and jobs in fast food restaurants can start at more than $10 an hour. “Anyone who wants to show up for work around here has a job”, Baker told me this past summer.

One big difference in the current energy boom is that its effects are not restricted to the traditional fossil fuel areas. With the rising interest in sustainable fuels made from grains, plant and animal wastes, the boom is extending into traditional farming regions. It is increasingly rare to run into any town or small city in the Great Plains where a new biofuels or ethanol plant is not already running, under construction or in the planning stages. The new energy economy could have even wider influence on the Heartland economy as the demand for renewable energy drives up commodity prices. Many in the region now believe that sustainable fuel production—aided by Federal subsidies—could transform the entire regional economy. By 2012, according to the Renewable Fuels Association, the new biofuels initiatives could create more than 200,000 new jobs and increase household incomes by $43 billion. They estimate roughly $8 billion in new facilities, the vast majority expected to be located in the Heartland.

The Rise of the Brain Belt

erhaps even more important to the revival of the Heartland may be the growth of high-technology services and communications, energy production, manufacturing and warehouses as the critical levers for new employment and wealth creation. Only 10 percent of rural Americans live on farms and only 14 percent of the rural workforce is employed in farming. The area’s future clearly lies in the continued expansion of other industries.

The key to this growth is not merely cheap energy or labor; it’s the quality of the workforce. Although these areas are often seen as lacking in educated workers, many rural regions of the country—from New England to the Great Plains and even parts of the Sierras—actually have a surplus of skilled labor. The basis of this surplus lies in the high level of education among young people in many Heartland states. In virtually every measurement, students in key rural states—particularly the Dakotas, Iowa, Nebraska and Kansas—tend to perform better than those in more urbanized ones, as measured by graduation rates, college attendance and enrollment in high-level science and education programs.

In essence, these young people make the Heartland the nation’s Brain Belt, but for generations the problem has been that many of these talented younger people have tended to leave for opportunities elsewhere. Today, new dynamics, such as the worsening congestion and cost pressures in the nation’s major urban regions, may be slowing this phenomenon. Perhaps more importantly, advances in telecommunications and transportation are helping to break down the traditional sense of isolation, intellectually and culturally, that has hampered the development of the sophisticated industries necessary to lure educated workers back to rural areas. According to researcher Sean Moore, between 1990 and 2000 the percentage of rural counties with a “skills surplus” dropped 14 percent, compared to only 6 percent for metropolitan counties, meaning that educated workers are now finding jobs. As Moore suggests, this reflects a shift in the location of information, business service and other technology-related business to the periphery. The Internet is rapidly diminishing the traditional near monopoly of information that throughout history has belonged to the metropolis; today a farmer, a securities dealer, a machine shop proprietor or a software writer in a small town enjoys the same access to the latest market and technical information as someone located in midtown Manhattan or Silicon Valley.

These trends are reflected by the location decisions of a broad array of business. Large companies like Wells Fargo are expanding largely in Heartland areas, most notably with a massive new office campus of nearly a million square feet going up in a western suburb of Des Moines. Other major firms such as Dell Computers, Lehman Brothers, 1-800-Flowers, Choice Hotels International (owner of Comfort Inn), and the Quality, U.S. Bank and Clarion chains all have set up software or call centers in the region. At the same time, there has been a proliferation of home-grown firms, such as Arkansas-based Rural Sourcing, Eagan, Minnesota-based Cross USA as well as Hamilton in Aurora, most of which have grown rapidly in recent years. In general, these firms report that the advantages of on-shoring include a greater receptiveness by customers, who prefer conducting business with English-dominant workers, as well as greater perceived security for sensitive personal information.

In many other areas, smaller firms, often individuals working from home, are clustering in pockets of what researcher Amy Zuckerman has called “hidden tech.” These dispersed networks of knowledge workers, many of them refugees from large coastal cities, are particularly evident in places like Bellingham, Washington, the Rapid City area of South Dakota and the Pioneer Valley region of western Massachusetts. But perhaps no city epitomizes the dynamic Brain Belt more than Fargo.

A decade ago, Fargo was a classic backwater, and, after the release of the eponymous movie, something of a national joke. A critical shift occurred in the late 1980s when Doug Burgum, a local boy from nearby Arthur, moved back home from Chicago to join a fledgling local start up called Great Plains Software. Burgum recognized the area’s considerable engineering expertise, both from North Dakota State University and a large and expanding specialty farm equipment industry, and he anticipated growth.

“My business strategy is to be close to the source of supply, it’s like being near fertile land or a raw material”, suggested Burgum, dressed casually in jeans and down vest. “North Dakota gave us access to the raw material of college students—and distance in this business was not a factor.” Leveraging some farmland and getting help from some family members, he bought the company. In the next 15 years Great Plains Software became a force in the information business, and in 2001 it was acquired by Microsoft. Today the company employs roughly 1,000 people in its sprawling, wooded complex on the outskirts of Fargo and plays a critical role in the overall strategy of the world’s dominant software company.

The success of Great Plains Software sparked other start-ups in fields ranging from biotechnology to wireless networking to radio frequency identification systems. Today, extrapolating from recent National Science Foundaton data, North Dakota has one of the highest rates of high-tech startups in the nation, with the Fargo area as the undisputed epicenter. The area is also luring businesses from the coasts. Alien Technology, a nanotechnology firm based in Morgan Hill, California, has established a major presence in Fargo. California residents who have transferred often complain about the cold and the isolation, yet few transfer back once adjusted to the place. Some of this may be due to the remarkable changes that have taken place in the city. The once desolate downtown, for example, boasts numerous coffee shops and ethnic and high-class restaurants, complete with black clad thirty-something clientele who would not look out of place in West Hollywood, Dupont Circle in Washington, DC, or Portland’s Pearl District. There’s even a clothing store on Fargo’s Broadway that seeks to appeal to the city’s growing population of “metrosexual” sophisticates.

Fargo also boasts a first class boutique hotel, The Donaldson, owned by Karen Burgum, Doug’s ex-wife. Yet even here, her motive for building the hotel lay not in being “hip and cool”, but in creating something for the downtown that she visited on holidays and weekends as a young girl from Clearbrook, Minnesota, a town of 569 people 130 miles to the northeast. All the guest rooms are decorated with pieces from local artists. The hotel has become a source of pride for many who have never stayed there, but who show it off to visitors all the same. “People thought I should be put in a padded cell for doing this”, the tall blonde mother of three likes to joke. “But I wanted everything to be done by local yokels. I didn’t want it to be trendy. It’s what a bunch of small town people who live in a town that’s not so bad do to show that this, too, is who we are.”

Heartland Sensibility

o even in the new, hipper Fargo, the real driver of success remains a set of values—self-reliance, community spirit, a dedication to family and faith—that have long been at the center of the Heartland ethos. After all, along with its finer dining and hip bars, Fargo has a microscopic crime rate compared to any major coastal city and little in the way of an underclass. As in Aurora, local charities thrive and community involvement is the norm.

These characteristics are the main draw, particularly to relocating thirty-somethings, notes Mike Chambers, founder of the fast-growing biotech firm Aldevron. It’s an experience common to many companies in this buckle of the Brain Belt. “Wherever you go you find people who went out and came back”, says Howard Dahl, CEO of Fargo-based Amity Technologies, a fast-growing agricultural machinery firm, and former head of the local Arts Council. “We constantly get resumes from people at Boeing in Seattle or somewhere else. They don’t come for the mountains or the sunshine or the culture—they come back because of the kind of people who are here.”

Dahl, a former Lutheran seminarian, says religion also plays a major role, but not in the loud, assertive tones one might find in Houston or Dallas. “Religion and family play a huge role in everything, but it’s quiet. It’s people’s sense of ethics”, he suggests. “It’s that you care about your community and can count on your neighbors.” Such values, Aurora’s Gary Allen believes, are the real secret behind the nascent Heartland resurgence. In a town of barely 4,500, there are more than thirty non-profit foundations, with assets in excess of $45 million. It is all part, notes Gary Warren, of a community spirit reflected in the city’s extensive recreation facilities, its well-maintained central square, library, senior center and museum. “Community building is a way of life here”, Warren offers. “You give to your community the way you give to your church on Sunday. It’s the essence of what it is to live here, and it’s why people decide they want to come here.”

Hotel Donaldson in Fargo, ND [credit: photo courtesy Hotel Donaldson]

The conventional wisdom of rural idiocy, depopulation and boredom in the American Heartland is already more than a decade out of date, if it was ever really true in the first place. Culture and technology are combining to create a new reality for rural America, and for America as a whole. One gets the sense that Thomas Jefferson is smiling down on all of this. This is an American Dream he would well understand.

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