3. Putting well-being at the forefront

A combination of economic, social and environmental elements affects our well-being. Economic aspects determine the jobs we can find, the houses we can afford and the productivity and competitiveness of firms. Social arrangements define how social services and networks are available and support the cohesiveness of communities. Finally, environmental aspects define the quality of the air we breathe and the land we can use. Overall, these immediate living conditions define how resilient we are to shocks and what prospects future generations might have. They also influence regional attractiveness and, consequently, define where people choose to settle in the long term. The balance among these elements may vary considerably across regions and is largely impacted by structural changes and global trends.

Structural transformations have created new challenges and opportunities for rural areas. These changes include an ageing population, urbanisation, the rise of emerging economies, climate change, increasing globalisation, technological breakthroughs and global shocks, such as the global financial crisis in 2007 or the recent COVID-19 crisis. Chapter 2 has shown that rural regions have borne much of the cost of these structural transformations in recent decades. The re-orientation of OECD economies toward services has largely benefitted cities and industries have been exposed to increased competition from lower-wage countries, declines in trade and disruptive technologies.

Despite this, rural places make a vital contribution to the well-being and prosperity of OECD countries. The COVID-19 crisis has demonstrated, ever more importantly, how essential the production of food and raw materials, amenities and ecosystem services are for the functioning of our societies and economies. Rural economies, however, go beyond agro-food and natural resources nowadays and range from manufacturing hubs, service providers, logistical hubs and tourism destinations to name just a few. Understanding the new opportunities in these rural economies as well as how to exploit linkages with urban communities will be important in enhancing the well-being of rural citizens. Building resilience in rural regions has become indispensable due to their unique links to natural resources.

Over the long term, rural regions will continue to undergo a profound structural transformation. For instance, workers in regions with low density, specialised in carbon-intensive industries, will need to explore new job opportunities in the light of the much-needed energy transition and decarbonisation of economies. Policy makers in regions facing demographic decline will need to provide services that are sustainable over the medium and long terms, making the most of innovative solutions. Elderly people will need to become familiar with using online health services. Finally, rural entrepreneurs will have to find ways to stay competitive as the speed of innovations is facilitated through the Internet and as they compete with businesses around the world.

These structural changes highlight the need for rural policy makers to find ways to succeed in a dynamic environment and address a number of interconnected challenges and opportunities at once. It calls for the implementation of a new rural development framework that is centred around the well-being of individuals and encompasses economic, social as well as environmental aspects. A place-based and people-focused well-being agenda does not abandon the objective to improve rural competitiveness; rather it recognises that competitiveness is a necessary but not sufficient condition to enhance well-being. This chapter presents a broader rural development framework that is multi-dimensional and people-centred to support policy makers in shaping rural regions into places of opportunities.

To unlock the growth potential of rural regions and improve the well-being of rural dwellers, the OECD’s new rural development framework Rural Well-being: Geography of Opportunities offers countries a people-centred approach built on:

  • Three types of rural – Those near a large city, those with a small or medium city and remote regions.

  • Three objectives – Encompassing not only economic objectives but also social and environmental objectives.

  • Three different stakeholders – Including the government as well as the private sector and civil society.

The previous chapter provided a diagnosis showing different patterns of development and performance trends among the different type of rural regions, necessitating differentiating policy responses. This chapter addresses the second dimension of the framework: policy objectives. The chapter starts with an overview of the structural changes that have important implications for the design of rural policies, followed by a section that outlines the OECD’s evolving rural development framework. The final section presents the policy strategies to improve the economic, social and environmental dimensions to enhance rural well-being and unlock opportunities to attain a sustainable and sustained future for people and businesses in rural regions.

OECD countries have faced numerous structural changes that have had strong implications for rural regions. These have been amplified by the 2008 financial crisis and by the COVID-19 pandemic. While new economic activities have flourished in rural regions (tourism, manufacturing), replacing agriculture as the primary economic engine during the great recession, some of these advances, particularly in tourism, have scaled back after the COVID-19 pandemic. In parts of the OECD, we have observed that greater infrastructure connectivity has increased linkages between cities and rural regions, creating greater interdependencies and facilitating the movement of people, goods and ideas. However, globalisation and the reduction of transport cost has also driven delocalisation of production to developing countries, adding a fierce competition to OECD rural regions. Likewise, tertiarisation has occurred in a context of greater allocation of high-value-added services in cities, increasing the income gap between cities and rural regions. As a result of such economic reshuffle, rural communities and citizens have experienced a discontent and demanded more from governments, forcing policy makers to think beyond gross domestic product (GDP) and deliver improved well-being. Today, a number of megatrends including digitalisation, demographic change, climate change and the recent health pandemic are drawing a new future for rural regions, adding new considerations for the design and implementation of rural policy. This section analyses these structural changes, arguing for the need for a new rural framework that is able to cope with current and forthcoming changes in rural regions. Table 3.1 summarises the framework outlined in this section.

While different types of rural regions exist, rural economies tend to be characterised by their low density and low level of diversification. In low-density economies, a small workforce limits the number and size of firms that can effectively operate and the distance from markets makes some rural economies sensitive to transport costs. Highly influenced by their specific natural environments, many rural economies often rely on extraction and first-stage processing of local natural resources that are exported beyond the region. This reliance on primary sectors coupled with the small size of economies leads to high vulnerability to national and global business cycles. Furthermore, in some rural regions with a higher reliance on a single sector and actor (i.e. mining regions), suppliers of goods and services, in particular when they are SMEs, tend to get trapped in lock-in supplier effects, making it hard to diversify in other sectors or markets (OECD, forthcoming[1]). After the 2009 crisis, top-performing rural regions were characterised by their specialisation on high-value-added services, while the bottom performing ones stood out by their overspecialisation in primary sectors (Chapter 2). The current projections following the COVID-19 pandemic suggest that rural economies specialised in tourism will be the hardest hit, but the effect of the crisis depends in a large part of the role of rural economies in supply chains. Rural places that heavily depend on imports in primary agricultural goods, such as food, will be hit hard by soaring food prices and lack of supply. On the other hand, rural economies that are net producers (and exporters) of agricultural goods will have more stable outcomes, if not a positive demand effect due to short-term consumption substitution patterns of surrounding regions.

Rural economic diversification is relevant to improve quality of life and meet national goals on poverty reduction. Unlike cities that enjoy the benefits of economies of scale and agglomeration, rural regions have lower-density, remote and often fragmented markets, which make it harder to unlock new business opportunities. Emerging research demonstrates that rural diversification can lead to faster poverty reduction and more inclusive growth than urbanisation (World Bank Group, 2017[2]). In Poland, for example, approximately 1 in 4 farmers live in relative poverty and 11% in extreme poverty (OECD, 2018[3]). Economic diversification that provides opportunities outside the agricultural sector contributes to increasing income and improved well-being for rural dwellers. Overall, economic diversification is an important component of OECD economies, where SMEs account for 99% of all firms, 60% of employment and more than half of gross value added (GVA) (OECD, 2019[4]).

Economic diversification also helps to make regions more resilient to external shocks. Less diversified rural regions are vulnerable to global sector or economic activity-specific shocks. Low-density regions producing a limited range of goods and services tend to be more vulnerable to sector-specific shocks, positive or negative. Yet specialisation is a key driver for productivity and growth and should involve a type of diversification within similar activities to reduce sectoral vulnerability, so-called smart specialisation (see the economic dimension in the next section). In a very large, dense economy, the greater range of activities and services, the greater the protection. As a result, large metropolitan areas exhibit a greater degree of resilience to external shocks. As shown in Chapter 2, the effects of the crisis display a much lower growth rate in GDP per capita from 2008 to 2016 across all regional categories than before the crisis. The slow growth rate is especially present in remote regions and regions with access to a small/medium city. Metropolitan regions and those close to them have weathered the effects of the crisis much better than regions far from large cities.

Diversification means countries can no longer rely on “one-size-fits-all” economy-wide policies. Rural regions with low-density economies face different barriers to growth than their urban counterparts, so policies need to reflect the fact that regional growth patterns are not uniform (OECD, 2012[5]). Rural regions contribute significantly to aggregate growth and support to the continued diversification of these regions benefits the entire economy. Some of the opportunities for diversified rural economies, such as participation in tradeable goods production, are discussed in the section on economic well-being. Given the strong competition from emerging economies, rural regions in OECD economies can no longer compete on low-cost labour. As we will see, these economies must specialise in adding value.

Many institutions still associate the rural economy primarily with agricultural production. Subsidies for agricultural production have directed rural policy for decades, yet support to producers in OECD countries has declined gradually over the long term (OECD, 2019[6]) The primary agency responsible for rural development in the majority of OECD countries is an agricultural or food ministry (in 57% of OECD countries) and the agriculture sector remains as a top priority in many OECD rural policies (Chapter 4). Within the European Union (EU), rural development policy constitutes the “second pillar” of the Common Agricultural Policy (CAP). Most of the budget of this policy (76% of the CAP budget) is allocated to direct payments for farmers, while the remaining funds covering a wide array of rural development activities including competitiveness, ecosystems and social inclusion. Yet, there exist other funds, such as the ERDF, ESF and Cohesion Fund, that intervene to address the wider needs of rural regions.

Traditional rural policy focused primarily on land and natural resource assets. Despite growing diversification, these assets still play an important part in resource-rich rural regions. As urbanisation concentrates larger populations into a limited number of cities and land remains a primary asset in rural regions. With low population densities and significant ecological diversity, rural spaces account for more than 75% of land in OECD countries (OECD, 2016[7]). Land availability creates opportunities for space-intensive activities and flexibility in land use. Moreover, regions with land assets experience improved well-being as a result of reduced congestion, lower environmental pressure and lower housing costs. In the Netherlands, the Environment and Planning Act (currently being updated) aims to preserve a sound balance between the use of natural resources and environmental protection by managing land development at different levels of government and with an approach drawn up in consultation with local stakeholders (OECD, 2019[8]). Policies developed in co-operation with stakeholders at the local level can identify the best way to utilise and conserve land assets.

However, the goal of diversification has increased in many countries, shifting the tide towards a more diverse set of tools intended to build capacity and improve outcomes for rural regions. The rural development approach has been evolved in many OECD countries to now include more ministries aside from only agricultural ministries. For instance, in Denmark, the responsibilities to diversify rural economies also lies within the Ministry of Enterprise and Innovation and the Ministry of Industry, Business and Financial Affairs. Likewise, rural development policies have prioritised areas beyond agriculture, including service delivery, innovation and environmental sustainability (Chapter 4). Supporting farmers and agricultural production alone does not address concerns about ageing and outmigration, accessibility and service delivery, or quality of life for rural residents. Farming jobs are often poorly protected, provide low remuneration and can be hazardous for workers. Looking for complementary policies that can function alongside policies currently targeting agricultural production is necessary to ensure programmes are effective in improving economic and well-being outcomes.

While the past few decades of structural transformation towards the services sector has benefitted cities, the most recent COVID-19 pandemic is expected to have a stronger negative impact on urban economies. The delocalisation of industrial activity from developed to developing counties has led to a growing focus on services activities, in which the relative share of services – both as a proportion of total output and employment – has increased during the past decades. Services currently account for 80% of value-added across OECD countries, representing an increase of 15 percentage points relative to the share of services 15 years ago. Although the growth of employment in services appears to offset declines in agricultural employment in the aggregate, a changing economic geography disadvantages rural region that are unable to enjoy the benefits of proximity and agglomeration – often considered prerequisites for a successful economic transition to the service sector (Chapter 2). In fact, while rural remote areas have experienced a faster transition to service sector than other rural regions in the aftermath of the financial crisis, those services are mostly from low-value-added activities that tend to be non-tradeable goods (Chapter 2). On the other hand, there have been much larger gains from the transition to the service sector in cities. The COVID-19 pandemic has disrupted supply chains for processed manufacturing intermediate and final goods for rural and urban areas. However, government restrictions on movement to contain the pandemic may dampen areas with a higher concentration of jobs in the service industry (i.e. urban areas). For rural economies, those specialising in non-tradeable goods in particular, the shock may be mitigated.

Well-being plays an important role in contexts where income does not effectively capture the full picture. In light of growing inequalities and negative externalities stemming from increased globalisation and delocalisation of production, policy makers can no longer look to GDP to provide an accurate assessment of progress. Since the financial crisis, policy leaders have acknowledged the need for a framework that recognises broader measures of social progress alongside more traditional “production-oriented” measurements (Stiglitz, Sen and Fitoussi, 2009[9]). Today, governments are paying greater attention to dimensions of well-being, such as housing, education, access to water and civic engagement (Cornia et al., 2017[10]).

The concept of well-being recognises that economic progress works within these dimensions, encompassing a broader view of social progress beyond production and market value (Box 3.1). To drive the point, comparative measures of well-being measured by the OECD reveals that individuals who have made significant income gains often report their economic situation to be worse than much poorer rural individuals who have not achieved any income gains (Graham, 2018[11]). Individual countries have also established their own frameworks and indicators to reflect on well-being, such as those listed in Table 3.2. New Zealand has taken this a step further by seeking ways to improve quality of life for citizens through its Wellbeing Budget. The budget prioritises mental health, child well-being and Indigenous aspirations alongside more traditional economic growth goals.

The increased prioritisation on well-being has important implications for rural regions. Low-density economies may struggle to compete on GDP but often outpace their urban counterparts in certain quality of life measures. For example, surveys in Poland reveal life satisfaction among rural dwellers (80.6%) is higher than the national average (78.4%) (OECD, 2018[3]). With a significant portion of rural population, policies in these places can make a significant impact on national growth and well-being. Some advantages of rural communities might include greater personal security, better natural environment, more social capital and greater food security (De Muro, Degli Studi and Tre, 2010[13]). In addition to providing opportunities for firms, such advantages can attract people to live in rural regions. As well-being becomes a greater topic of concern in OECD countries, policy makers can no longer focus on competitiveness policies. Competition is a necessary aspect of development but alone is an insufficient condition. Supporting lagging regions with subsidies or investments will not address all dimensions of well-being. For these reasons, rural places need multi-dimensional policies that account for the economic, social and environmental agenda.

Rural and urban are more connected than ever, thanks to improved Internet accessibility and changing commuting patterns. Rural places are becoming increasingly integrated into the global economy as rural regions close to cities can participate actively in the local labour force and workers in more remote areas can participate online. The changes in connectivity have strong implications for urban areas, whose agglomeration economies see increased employment and wages, and for rural ones, where the least mobile are subject to declining wages and increased costs of living (Bosworth and Venhorst, 2017[16]). Increased urbanisation is largely seen as a positive force for economic growth and productivity on a national scale but has more mixed effects on both the economy and well-being at the local level.

The positive economic impacts of cities are not constrained by city limits. Firms and workers in rural regions close to cities can benefit from the same agglomeration benefits urban areas enjoy. Rural linkages to cities are not limited to transport connections. Some of the other benefits include the movement of people and businesses from central locations to commuting zones, looking for cheaper land cost and bigger areas (Veneri, 2017[17]), providing access to a larger market, easing firm-worker matching and improving knowledge sharing (OECD, 2018[18]). Close proximity facilitates increased flows between rural and urban areas. Rural regions close to a functioning metropolitan area can better take advantage of a city’s public services or open up green spaces to urban dwellers than can rural remote regions. However, many linkages depend more on the level of embeddedness with a city rather than simply physical proximity. It includes linkages through corporate relationships, market pervasion and communication networks (Meijers and Burger, 2017[19]). As we have seen from the COVID-19 pandemic, areas with increased connectivity, in particular in telecommunications infrastructure, have been able to take temporary measures to adapt to public service delivery in education and health services, as well as provide opportunities for some types of service workers to telework.

Rural-urban linkages can take on many forms. The first and most obvious is through trade and exchange (Bulderberga, 2011[20]). Goods, services, finances and labour move constantly between rural and urban regions, with increasing levels of mobility as proximity increases. The second linkage is through institutions, as cities are more likely to host formal institutions that affect issues of governance and service delivery in rural regions. Depending on proximity, rural and urban regions may also be linked through the environment or a shared identity. For example, cultural or ethnic groups are unlikely to be separated by administrative distinctions. The implications for increased linkages depend heavily on the nature of rural-urban relationships.

Growing rural-urban linkages indicates a need to integrate rural and urban policies. Although regions across the territory may have fundamentally different goals, policy makers cannot have separate agendas for cities and rural regions that are unaligned. Implementing rural policy will require collaboration with policy makers working on rural issues, either through explicit rural-urban partnerships or through more deliberate multi-level governance or horizontal co-ordination. Chapter 4 will discuss the different strategies that OECD countries are attempting to strengthen and build on rural-urban linkages.

Technological change and digitalisation are bringing new challenges and opportunities for the sustainable development of rural economies (Chapter 5). The recent pandemic of coronavirus has placed high on the policy agenda the need to provide enabling conditions (infrastructure) and training for workers of all regions to work digitally (or remotely) and transition to high-value-added service activities. This crisis has also highlighted the need to further embrace digital solutions to provide public services including health and education. The overall impact of technological change on rural development will very much depend on the capacity of rural regions and policies to face changes.

On the one hand, technological change is creating opportunities to make rural economies more productive while simultaneously improving quality of life. If well-prepared, technological change can spark faster rates of economic growth and improved well-being in rural communities (Freshwater and Wojan, 2014[21]). Technology can provide improved health and education outcomes by bringing remote schooling or telemedicine to areas outside large cities as well as help rural dwellers access information about different service providers, improving the quality of supply. Other new technologies, such as 3D printing or augmented reality and virtual reality, can improve access to goods and services that would otherwise be expensive or difficult to obtain for low-density economies. Improvements in technology allow firms in rural economies to participate in international markets, keep up with global trends, find new sources of financing and recruit skilled workers (see Chapter 5). The COVID-19 pandemic also confirmed that, without access to the same technologies and services available cities, rural economies will suffer disproportionately in terms of jobs and economic activities.

While technology has the ability to improve living standards, it also carries a risk of major job reallocation. As Chapter 5 will depict, rural economies might face the higher risk of job displacement as many of these economies have a lower share of jobs in services and a higher share in manufacturing, which entails a higher share of repetitive tasks. At the same time, a single employer or industry is more likely to dominate in a rural setting, making it more difficult for displaced workers to find new opportunities as industries automate. Increased automation requires policies that carefully balance the dual challenges of high unemployment and low productivity often at play in rural economies in order to ensure technology is improving well-being overall.

The ability of digitalisation to simultaneously improve productivity and opportunities relies heavily on access to infrastructure like broadband Internet and appropriate education services. This was particularly relevant during the recent COVID-19 pandemic. Benefitting from technology not only requires good ICT infrastructure but also fast and affordable broadband connections (see Chapter 5). Providing this type of infrastructure can be challenging for some rural places, in particular remote places where low population density and large land extensions make it harder to balance cost and benefits of broadband investments (Chapter 5). In fact, Most OECD rural regions have slower Internet speed connections than urban areas (Chapter 2). OECD countries are addressing challenges in broadband access in rural regions through a variety of policy initiatives (Table 3.3). In the recent COVID-19 pandemic, access to broadband Internet was a major determinate for individuals to keep jobs, and firms to find emergency methods to temporarily adapt business models to keep firms afloat. Importantly, while digital infrastructure may help firms and (some) individuals transition to the changing occupational and sector structure of rural economies, without adequate worker upskilling and educational services, there is a disproportionately larger increased risk of long-term unemployment for workers displaced by technological advances. Continuous education and work-study arrangements are important policy levers to support the transition phase for workers.

As depicted in Chapter 2, rural places face increasing pressures from demographic changes. Economies of agglomeration attract firms and people to densely populated areas due to lower transportation costs, proximity to markets and a greater variety and match of supply and demand for labour. In all but three OECD countries, population growth occurs much faster in metropolitan areas than in rural regions, with one-third of rural regions experiencing population decline during the last two decades. Within rural regions, remote regions experienced the fastest population growth, driven by higher fertility rates. Outmigration of youth to pursue high degree studies or looking for new economic opportunities is one of the drivers behind this trend. A shrinking share of the younger population creates labour market shortage, reduces rates of entrepreneurship and affects local cultural life, weakening the mechanisms to integrate new inhabitants and migrants to the local community.

Coupled with outmigration, rapid population ageing accelerates the shrinking of the workforce in rural regions. In all except one OECD country, the elderly dependency ratio is much higher in rural regions than in metropolitan regions. This phenomenon hampers attractiveness of the rural business environment to meet labour demands of extent and new firms. An ageing and declining population also adds pressure on the government capacity to deliver quality public services. These challenges require co-ordinated strategies to provide economic opportunities and education alternatives to retain the young population, attract migrants and promote labour mobility.

Health service workers will become especially valuable in rural regions as the rising old-age dependency ratio increases demand for long-term care. A demography with a high share of elderly populations will increase demand for labour-intensive occupations, including in-person care, transportation, and other services (Autor, 2019[23]). The demand for long-term care workers is expected to double by 2050, providing an opportunity for rural regions to take the lead in improving care. A shrinking workforce population alongside an increasing share of the elderly population requires policy interventions to mitigate growth in long-term care spending and increase the supply of care (OECD, 2011[24]). Since the elderly dependency ratio is highest amongst remote rural regions in the majority of OECD countries, policy makers in these regions should aim to improve productivity and well-being for care workers.

Women have increased their participation in the economy of all types of rural regions driven by the tertiarisation of the economy. The female employment rate increased in all rural regions types after the crisis, while the male employment rate has only recovered to pre-crisis levels in regions with access to cities. In remote rural regions and regions with or near a small/medium city, the male employment rate is 5% below 2007 levels. This trend has followed an increase in service activities in rural regions and a higher level of education of women (Chapter 2). Policies adapted to women in terms of training and entrepreneurship are increasingly needed. In contrast, reskilling the male workforce is essential to compensate for the negative effect of decreasing shares of manufacturing activities and associated low-skilled employment in rural regions.

The integration of migrants is acknowledged as a mechanism for rural communities to face a natural decline in the working-age population. Migrants tend to be younger than native populations in some rural regions (OECD, 2019[8]). An inflow of young working-age people can mitigate population ageing and offer opportunities to increase economic vibrancy and diversity while balancing out the demand for public and private service provision. Further, areas outside cities can offer low housing prices and short administrative pathways, which tend to be challenges for large cities in the integration of migrants (OECD, 2018[25]). At the same time, reaping these benefits also comes with further involvement of migrants in the local community. It involves investing in language training, education and administrative support. Those actions also need to address the social challenges of a sudden high influx of new arrivals in small communities, including social tension with local excluded populations due to the special support to non-natives (OECD, 2018[25]).

Service delivery policies have gained relevance in the policy agenda as policy makers recognise the need to support well-being in rural areas. A study of 19 rural communities in Canada revealed a trend towards reductions in health, education, protection, government, business and recreation services, negatively impacting quality of life and limiting the ability of these places to attract economic development (Halseth and Ryser, 2006[26]). In the UK., a qualitative review of services particularly affected by rurality showed significantly higher costs for transportation, waste collection and disposal, social care, libraries, regulatory services, economic development and tourism, amongst other services (Ranasinghe, 2014[27]). The decline in the availability of services alongside the additional costs requires different delivery models in lower-density areas.

Many city-focused policy solutions focus on mobility as a way to solve economic problems in rural places. Even as congestion and rental costs increase drastically in large urban centres, economists laud urbanisation as the way to increase productivity. In its latest Transition Report, the European Bank for Reconstruction and Development recommends, “relocation opportunities for those left behind” as a policy solution for declining rural regions (EBRD, 2018[28]). Such recommendations reflect a belief that policies should target left-behind people rather than left-behind places, preferring to relocate individuals to productive places rather than investing in the declining ones. Some urban economists tend to disapprove subsidies that target transportation in low-density areas or construction in declining regions, as these interventions might be misguided and lack impact (Glaeser and Gottlieb, 2008[29]).

However, labour mobility is not a solution for many demographic groups. Suggestions that individuals facing labour market transitions simply move to a city are not feasible and, for many, do not promote well-being. Some researchers have credited insensitive policy proposals to invest only in already prosperous places with the rise of populism in the “places that do not matter” (Rodríguez-Pose, 2018[30]). For example, college education is associated with increased mobility (Malamud and Wozniak, 2012[31]), yet rural workers are less likely to be college-educated (Echazarra and Radinger, 2019[32]). At the same time, as age correlates negatively with mobility, rural communities with high elderly shares will struggle to promote policies to support commuting of older workers to other markets when the local labour market becomes unfavourable. Place-based policies that recognise the value of even those regions with historically low growth can better account for the limits to labour mobility in recent years, particularly amongst older and low-skilled workers.

Recent research suggests place-based policies can be effective if well-designed. Using place-based identifiers, such as location rather than people-based identifiers may be especially effective when designing certain types of interventions (i.e. social insurance) (Yagan et al., 2014[33]). Any policy that induces movement to the target area risk limiting the intervention’s effect on the target population (Kline and Moretti, 2014[34]). If mobility increases, the additional welfare benefits to the movers lead to declines in welfare for receiver residents who may face increased housing costs and a reduced capacity for public services. Where concerns about increased mobility to declining areas exist, place-based policies may not be effective. However, where labour mobility is limited, place-based policies are especially desirable to provide targeted interventions and investments to benefit the population in a specific region.

Demographic changes have important implications for rural policy making. First, population ageing and the shrinking population indicate a need for greater focus on service delivery for rural dwellers. The needs of rural populations are changing, necessitating a greater focus on issues of healthcare, transportation and digital connectivity. Second, demographic changes require investment in human capital. With overall fewer people living in rural regions, firms require highly productive workers in order to maintain current levels of output and compete in external markets. Finally, policy makers need to address demographic changes while accounting for the limits to labour mobility (see next section for detailed policy recommendations). Place-based policies that support populations who wish to remain in low-density areas, rather than pushing for movement where the appropriate conditions may not exist, may provide the best tools to support current and future development. While interventions in low-density areas are often likely to be more expensive per head than in higher density ones, this may be the only way to ensure adequate opportunities for rural dwellers.

Signed in 2016, the Paris Agreement introduced a long-term goal to limit the increase in global average temperature to well below 2°C above pre-industrial levels. As a result, countries are seeking to develop long-term, zero- and low-emissions development strategies (OECD, 2019[35]). A number of OECD countries, including France, Germany, Norway, Portugal and The United Kingdom , amongst others, have pledged to reach net low-carbon emissions by 2050 or earlier (Committee on Climate Change, 2019[36]; Darby, 2019[37]). The European Commission’s Green Deal Communication proposes reaching carbon neutrality across the EU by 2050. Increasingly, governments recognise climate action must be taken to ensure well-being, equity and long-term prospects for future generations. Although current infrastructure investment and financial flows are insufficient and poorly aligned to climate goals, a growing sense of urgency is driving countries to accelerate the transition. Yet, as policy makers strive to build more resilient cities, manage water in urban areas and strengthen spatial planning, they must not forget rural regions.

The natural resource base of many rural economies makes them particularly vulnerable to climate change. Extreme weather events, including floods, droughts, wildfires and landslides, are especially damaging and even dangerous for rural industries like agriculture, mining or forestry. Climate change will also disrupt recreational activities like hunting, fishing, and winter sports and, increasingly, forces communities to relocate because of increasing sea levels or melting permafrost soil. In addition, it is a threat to sustainable food production, as changes in temperature, rainfall and extreme weather events negatively affect crop yields and profitability. Rural communities will need help in assessing and managing these costs, risks and vulnerabilities, prioritising and co-ordinating projects, and funding and allocating resources (U.S. Global Change Research Program, 2014[38]). As a result, rural regions are critical stakeholders in global, national and regional initiatives to adapt to and mitigate climate change.

Policy efforts to transition to a low-carbon economy disproportionately affect rural regions. Carbon-intensive activities such as agriculture, mining and energy play an important role in rural economies across the OECD. Decarbonisation legislation that puts a price on carbon and aims at phasing out certain extractive industries presents a challenge to regions where firms operating in these sectors count for a large share of employment and are facing higher transport costs (Botta, 2018[39]). Further, rural economies are less resilient than urban economies in responding to these structural adjustment pressures because their economies are less diverse with lower levels of human capital. This can result in discontent and blockages to building domestic and international consensus about climate change policies. Policy makers in all countries must consider not only the sectoral but also the local impacts, taking account of the needs of the communities most severely affected by climate change mitigation and adaptation efforts, and ensuring a just transition.

Structural changes in OECD economies necessitate changing policy responses. The OECD rural development framework provides a lens through which to evaluate effective policies in light of these changes. Earlier OECD country frameworks on rural development focused on sectoral support (primarily agriculture) and subsidies to promote rural development. The New Rural Paradigm, endorsed in 2006 by OECD member countries, proposed a conceptual framework that positioned rural policy as an investment strategy to foster competitiveness in rural territories. This approach represented a radical departure from the typical subsidy programmes of the past aimed at specific sectors. The Rural Well-being Policy Framework is an extension and a refinement of this paradigm. The new framework focuses more on the mechanisms for implementation and makes well-being a leading objective.

The Rural Well-being Policy Framework is a continuation of the New Rural Paradigm. The OECD framework has existed for more than 40 years but has gone through significant changes. The New Rural Paradigm introduced what was at the time a bold claim – rural is not synonymous with agriculture, nor is it indicative of economic decline. This framework guaranteed adequate attention to rural issues beyond large subsidies to agriculture by seeking to empower local communities and governments.

The New Rural Paradigm was the first attempt to provide a policy roadmap that took into account the specific challenges facing rural regions. The New Rural Paradigm called for policies that could focus on places instead of sectors and investments in place of subsidies. The primary objective of the New Rural Paradigm, reflecting a shift in policies happening across OECD countries, was to increase competitiveness. Policy makers were attempting to do this by valorising local assets and exploiting unused resources. In the EU, the LEADER programme has helped rural regions capitalise on assets and resources by developing a network of local food producers in Sweden, exploiting 80 000 hectares of chestnut trees in France, and supporting cultural initiatives in Greece. The new paradigm targeted key sectors in rural economies (such as tourism, manufacturing or the ICT industry) with investments. By calling on action at all levels of government and stakeholders from the public, private and non-profit sectors, the new paradigm brought rural needs to the forefront and highlighted policies already making an impact.

The Rural Well-being: A Geography of Opportunities policy framework takes into account several important changes in rural development. Rural regions have evolved into more diverse and complex socio-economic systems than initially understood. Although certain major themes are common, such as ageing populations or the presence of nature-based industries, the new framework accounts for a greater degree of diversity between rural regions. Improved data and analysis have been especially crucial in providing a greater understanding of rural regions and moving away from the presumption that all rural regions are alike. The new framework also moves beyond focusing on industry sectors and growth to a broader perception of what constitutes well-being. Aside from economic aspects, it includes social and environmental dimensions as well. Finally, the updated framework recognises the strong interdependencies between different stakeholders and the need for partnerships between the government, the private sector and civil society to successfully implement policies.

Rural Well-being: A Geography of Opportunities shifts from a one-dimensional to a three-dimensional view of rural policies:

  • Three types of rural – From a simple rural dichotomy to rural places inside FUA, close to cities and remote (and interactions between them and cities).

  • Three objectives – The shift beyond just economic objectives to encompass social and environmental issues.

  • Three different stakeholders – From the government acting alone to working with the private sector and civil society.

Rural places require their own definitions and categories beyond simply “non-urban”. Defining rural regions by what they are not, rather than by what they are, creates challenges to policy design. Not all successful urban policy strategies have the potential to succeed in rural places and not all rural places require the same prescriptions. As the country profiles demonstrate, some OECD countries still do not have a concrete rural definition. For example, both Japan and Switzerland leave “rural” to encompass all that is not urban. Most countries define “rural” based on the size of the population or level of population density.

The OECD’s new rural typology recognises the complexity of rural areas. To define rural, the OECD now looks at three layers of characteristics: the degree of linkages to cities, proximity to metropolitan regions and level of settlement. The first layer of the typology distinguishes between rural regions embedded within a metropolitan region and those resting outside. The second layer divides rural territories into those that are near or remote from a metropolitan region. The third layer further subdivides remote rural regions into uniformly settled or sparsely settled regions. A nuanced typology is necessary to understand the challenges and strengths of different regions as well as how global trends affect growth and well-being in distinct rural regions.

The three types of rural areas are structurally different. In the first two, there are strong interactions with urban areas but these interactions take different forms, whereas in remote rural regions the interactions are much weaker. All three types of regions face different challenges and opportunities (Table 3.5). Understanding these within each of the three categories leads to the possibility for shared action and more effectively targeted policy responses.

  • For rural places within the commuting zone of an FUA, development is intimately linked to that of the core city. The main challenges facing them are service delivery, as services concentrate in the core area; the matching of skills to the requirements of the labour market; and managing land use policy brought on by increasing pressures of urban expansion.

  • Rural places that are close to FUAs often enjoy a good industrial mix, which makes their local economies more resilient. They are also frequently able to attract new residents. The economic and social diversity of rural places that are close to an FUA can pose challenges such as competition for land and landscape in the case of economic activities, and different needs and visions between old and new residents. Conflicts over development patterns can occur between these regions and the nearby FUA.

  • For remote rural places with a relatively dense settlement pattern, primary activities play a relevant role in the regional economy. Growth comes from building upon areas of absolute and comparative advantage, improving connectivity to export markets, matching skills to areas of comparative advantage and improving the provision of essential services. A strong resource base can result in high levels of income and productivity, but it can also result in cyclical (boom-bust) economies.

Understanding the growth dynamics of rural economies, such as distance to markets, the role of the tradeable sector and absolute advantages, helps to elevate burdens on rural regions that hinder growth. In the EU, for example, grant and matching requirements for investment may be too high for small businesses in low-density economies (OECD, 2019[40]). Rural regions with a smaller population and firm sizes are often ineligible for funding and investment opportunities because of policies with such minimum grant request requirements. SMEs in remote and rural regions face uneven access to finance (OECD, 2019[4]). Overcoming funding gaps will improve innovation and productivity for small firms in rural regions, thereby encouraging economic growth and resiliency throughout the market cycle.

Place-based policies offer the opportunity for policy makers to target geographic areas based on unique characteristics and address the geospatial heterogeneities of global crises. Governments often use explicit place-based programmes to encourage economic development in lagging regions (Kline and Moretti, 2014[34]). Place-based policies offer benefits to rural regions that may be otherwise disadvantaged due to a number of market imperfections: the private sector providing insufficient public goods, a lack of agglomeration or monopsony power in the labour market. In the United States, policy makers introduced one of the largest place-based policies to serve rural communities during the Great Depression (Kline et al., 2013[41]). The Tennessee Valley Authority provided public infrastructure investment to help modernise primarily rural, agricultural regions in seven states. More recently, the European Commission’s “Territorial Agenda 2020” points to a place-based approach as a way to serve heterogeneous regions and rural communities (EC, 2015[42]). In places where mobility is limited, effective policies can mitigate many of the challenges inherent in living in distressed areas.

All policies have spatial consequences. Sectoral policies alone are insufficient because they affect different places differently. Based on a single, all-encompassing view of “rural”, many of the traditional policy approaches fail to recognise the different typologies of rural regions as well as the importance of a rural-urban continuum in determining access to opportunities. For example, rural policies acknowledging only agriculture are likely to ignore the many rural regions where agriculture is not the dominant sector or employer. Instead, policy design must take place with specific places in mind, considering for each the assets and leading industries, limiting labour mobility and linkages to cities that make that place unique.

The policy focus must evolve away from short-term and sectoral support towards helping to build conditions favourable for the long-term growth of low-density economies. The fundamental economic structure of a low-density economy and its growth opportunities follow a considerably different logic than is the case in urbanised regions. Recognition that the rural economy is fundamentally different leads to the need for a new set of policy prescriptions that reflect differences in growth opportunities and constraints. These should focus on investing in human capital, infrastructure and innovation, which are enabling factors for growth, rather than short-term responses that seek to protect existing economic activities.

The Rural Well-being Policy Framework recognises that economic growth and reducing inequalities are no longer competing policy objectives. Inequality has a negative impact on growth in places with lack of access to opportunity (Aiyar and Ebeke, 2019[43]). Effective policies will address both concurrently by acknowledging the economic, social and environmental dimensions of well-being. Any approach to measuring one aspect of well-being will invariably affect the others, so policy solutions must consider both in tandem. For example, improving access to education may positively impact health outcomes and per capita incomes in addition to the overall productivity of labour. However, barriers to social mobility today run the risk of widening well-being gaps tomorrow (OECD, 2017[15]). Reducing inequalities of all kinds (economic, social and in access to opportunities) is a prerequisite to maintaining high levels of well-being across OECD countries and regions.

Growing concerns about regional inequality demand a multi-dimensional approach to well-being. OECD country surveys indicate national rural policies apply different levels of consideration for economic, social and environmental dimensions of well-being, but none are completely ignored. In large part, no dimension can be overlooked as they are so interconnected. Economic development largely drives social and environmental goals. At the same time, inclusive growth and productivity determine to what degree economic development is possible. While most national rural policies indicate economic well-being as a priority dimension (see Chapter 5), policy makers recognise achievements in this dimension require work in the others. The following sections explore the role of rural policy in attaining economic, social and environmental well-being.

The Rural Well-being Policy Framework is a people-centred approach that moves beyond focusing on industry sectors. It focuses on delivering a level of well-being to rural dwellers that is comparable to what is attainable in urban areas, even though different aspects may be emphasised. In general, quality of life has: i) economic dimensions, where household income hinges on employment in firms that are productive and competitive; ii) social dimensions whereby households have access to a broad set of services and local society is cohesive and supportive; and iii) a local environment that provides a pleasant place to live. The balance among these elements may vary considerably across rural. This broader well-being agenda does not abandon the objective to improve rural competitiveness; rather it recognises that competitiveness is a necessary, but not a sufficient, condition for well-being.

Effective rural policies involve the engagement of a broad array of actors and multi-level governance mechanisms. Rural development extends across a wide range of policy areas and involves a variety of actors, making complete separation of policy responsibilities and outcomes difficult. A pooling of resources and capabilities across entities creates the ability to collectively accomplish what no individual actor can achieve independently. This demands the collaboration and engagement of government at multiple levels, and involvement of the private sector and third sector. Building capacity underpins the implementation of rural policy. Long-term capacity building makes rural communities more engaged in processes of development and more resilient to shocks.

Rural policies should focus on integrated investments and delivering services and programmes that are adapted to and meet the needs of rural communities. There is strong pressure to make better use of investments and more efficiently deliver services in rural places. Integrated investments have the potential to reap the benefits of complementarities when they are adapted to the needs of different types of rural areas. For that, different sectoral policies need to be co-ordinated and mutually reinforcing, and the mix between them should be rebalanced to meet differing local needs. Moreover, policy interventions that target administrative boundaries in silos can miss the strong synergies that are present between rural and urban areas. Better co-ordination between stakeholders and levels of government can help to integrate policies, for instance using rural and urban linkages.

The Rural Well-being Policy Framework provides tools to governments to better engage with stakeholders, promote rural-urban partnerships and embrace multi-level governance. It recognises that rural people and businesses know best about their own needs, suggests the use of new technologies to facilitate participation and underlines the needs for meaningful engagement. Further, it acknowledges urban regions as key partners in increasing rural well-being and highlights ways for effective partnerships and collaboration between policy makers from different levels of government.

The analysis of contemporary rural trends suggests three priority dimensions of action for OECD countries to increase well-being. The first is how to increase productivity and foster competitiveness in the context of GVCs and digitalisation. This includes implementing incentives and mechanisms that support rural regions to identify unique assets, reduce bottlenecks and invest in enabling factors. The second is how to adapt to an ageing population and address demographic pressures. Focus areas include making rural regions more attractive through the provision of high-quality services and leveraging economic opportunities associated with an ageing population. The third is supporting rural economies in the shift to a low-carbon economy. Priorities will include facilitating shifts to more sustainable forms of land use, investment in renewable energy and proactive support for regions affected by economic restructuring.

Economic well-being refers to the material living conditions that determine people’s consumption possibilities and their command over resources. This includes the ability of individuals to be able to consistently meet basic needs, such as food, housing, healthcare, transportation, education as well as the ability to make choices that contribute to security, satisfaction and personal fulfilment. Income and wealth enable individuals to meet their basic needs and thus help achieve overall economic well-being. Productivity gains – the efficiency with which people and capital are combined in the output of the economy – is an essential component to generate greater income and growth and translate in improvements of living standards (Bernanke, 2005[44]).

Increasing productivity has become a key policy goal to raise rural well-being. It directly affects the resources available to improve well-being, such as investments in healthcare or environmental protection (OECD, 2018[18]). Most OECD countries see rural regions as places of opportunities for economic growth and job creation. In most of these countries (70%), economic matters are the most relevant areas when it comes to rural development policies (see Chapter 5). However, policies’ pro-productivity alone is not a guarantee of an increase in income and quality of life across the population as a whole (OECD, 2018[45]). Over the last two decades, increases in productivity are largely concentrated in urban regions, leaving rural places lagging behind (OECD, 2015[46]). In fact, after the financial crisis, an increase in productivity with employment losses has been more prevalent in remote regions and regions with access to a small/medium city. It could outline a greater process of automation with a slower labour reconversion into new sectors.

Rural regions benefit from a number of assets with the potential to boost economic growth. Forestry, mining, oil, gas, electricity production, fishing and agriculture are almost exclusively rural industries (OECD, 2018[48]). Rural dwellers and firms can benefit from diverse natural endowments, a relatively better environmental quality, lower cost of land and larger surfaces than their urban peers. Individuals in rural places own particular know-how on managing natural resources and adapting technologies to their specific environments. For instance, Indigenous Peoples benefit from traditional knowledge that is able to support better natural resource management and innovations in food production and harvesting. Combined with other assets such as land and culture, it has led to creating competitive businesses that meet the community’s objectives for development and benefit the wider region (e.g. traceable and territorially differentiated food and beverage products, ecotourism and creative industries) (OECD, 2019[49]).

Access to natural resources represents another asset for many rural communities. Unlike other assets, the natural resource assets that contribute to economic development in remote rural regions cannot be created or changed through policy (OECD, 2018[18]). Strong natural resource management creates natural capital, which can both raise incomes and help rural communities invest in other productive assets that will sustain wealth over generations (Canuto and Cavallari, 2012[50]). Efforts to regulate natural resource assets to ensure future wealth and well-being, such as through sovereign wealth funds, are especially important to rural places where fewer firms and lower overall levels of growth leave communities vulnerable to global economic shocks.

Natural endowments or “first nature” assets can indeed be a source of higher productivity level in some rural regions. In OECD countries, the most productive regions are mostly those with either a thriving extractive sector, e.g. Alberta in Canada or Antofagasta in Chile, or with a capital city (OECD, 2018[18]). However, relying solely on their natural endowment make rural regions more vulnerable to external shocks. Demand for minerals can evolve over time and resources are limited. For example, traditional rural economies in Spain that rely on coal mining are now struggling to retain people and find alternative sources of income. Policies for economic diversification are thus essential to increase resilience and reduce over-reliance in a single economic sector.

Boosting productivity in rural economies also requires a special focus on SMEs. Across the OECD, SMEs account for about 60% of employment and between 50% and 60% of value-added, as the main drivers of productivity in many regions and cities (OECD, 2019[4]). As local labour markets in rural regions, particularly more remote regions, are small, there is little likelihood of a large employer (e.g. 1 500 workers) locating to these regions (Freshwater et al., 2019[51]). Most large firms in those rural economies are focused on first-stage processing of a natural resource. Therefore, SMEs are essential to add value to the local economy while attaining greater economic diversification.

Nevertheless, the potential effect of agglomeration economies on productivity levels is lower in rural economies. Lower agglomeration economies make it harder for rural economies to benefit from agglomeration economies stemming from greater competition, deeper labour markets (better matching of workers to firms), faster spread of ideas and a more diverse intellectual and entrepreneurial environment. In fact, the vast majority of firms in rural regions are SMEs (employment of less than 250) and this population is highly skewed towards micro enterprises (which employ less than 10 people) (Freshwater et al., 2019[51]). Further, demographic trends represent an additional challenge for rural economies to close productivity gaps with urban areas. Rural regions have experienced the outmigration of talented young people looking for opportunities in high dense areas (Chapter 2).

To mobilise their assets and overcome productivity generation challenges, rural regions need to enhance the links with urban areas and further increase their added value in tradeable activities: both proximity to cities and participation in the tradeable sector can be key drivers of productivity and growth for rural economies if policy makers correctly identify and employ these assets:

  • Better links with cities lead to higher rates of GDP and population growth. Rural regions near large cities have experienced higher productivity growth than the more remote ones (Chapter 2). This advantage is mainly explained by benefits from the proximity to agglomeration economies, including innovation spill-overs and a greater movement of workers and ideas. These rural regions can access to a larger variety of goods and services from urban centres.

  • Tradeable activities offer the opportunity for rural areas to overcome small market size. These activities in rural economies are often the export of a high-value natural resource, which in some cases is produced by a large branch plant but in many others, originates from SMEs (Freshwater et al., 2019[51]). Rural regions benefit from participation in the tradeable sector because it provides a larger market for their goods and services. While increased exposure to international markets presents a risk for firms in tradeable sectors, the wider reach ensures growth and success is not limited to the local market (OECD, 2018[18]). A study in France revealed jobs in the tradeable sector make more significant productivity gains alongside faster wage increases than jobs in the non-tradeable sector (Frocrain and Giraud, 2017[52]).

The tradeable sector could be an important source of growth for rural regions. High value-added tradeable goods and services expand the links with cities, improve productivity in rural firms and help them access global markets. Many rural regions rely on tradeable activities (agriculture, manufacturing) to attain economies of scale and higher levels of income. In the post-crisis period, manufacturing growth – a key element of the tradeable sector (OECD, 2018[18]) – contributed to half of GVA in regions with access to a small/medium city, a higher share than in any other region.

The tradeable sector can spur transition toward high value-added services activities. Traditional tradeable activities in rural economies such as manufacturing, agriculture and extractive industries require a range of services to function and be sustainable. The embedded services in the production process represent a great share of the value-added of the tradeable sector. For instance, the service sector is the one with the largest backward linkages in mining activities (OECD, 2019[53]). Services represent, on average, 23% of the value-added of exports from the mining sector (based on a sample of 65 countries included in the 2018 version of the OECD Trade in Value Added (TiVA) dataset (OECD, forthcoming[54]). These services include geological services such as: surveying and sample analysis; engineering services (feasibility studies and mining design); construction services for roads, mine sites and mining camps; drilling services at both exploratory and construction phases, among others (Outokumpu). These activities offer the scope to create new jobs and new income opportunities for the local and national economy.

The tradeable sector can trigger innovation based on its exposure to global competition. Globalisation and declining transport costs has led to delocalisation of production, where different areas can contribute towards the development of a final product. Rural economies specialised in these activities have then faced fiercer competition from emerging economies. Such competition along with a greater flow of information and ideas contributes to innovation (Chapter 5). Further, participation in GVCs opens up opportunities for firms to access foreign knowledge and technology and share practices with other markets.

Engagement in GVCs enhances productivity due to the efficiency-enhancing impacts of international competition and the benefits of specialisation and economies of scale (OECD, 2013[55]). It also facilitates the diffusion of knowledge spill-overs from suppliers or foreign direct investment (FDI). However, not all steps in the production chain achieve high levels of value-added. The Smile Curve, a concept proposed by Stan Shih in 1992 (Shih, 1992[56]), depicts which aspects of the value chain generate high levels of value-added (Figure 3.2). The model shows that early-stage activities, such as research and development, and late-stage activities, including marketing and sales, generate the most value-added while the manufacturing process generates the least. For this reason, economies that seek to “catch up” must engage in more knowledge-intensive and creative activities if participation in GVCs is going to lead to higher productivity and economic growth.

GVCs are not a one-size-fits-all solution to increase economic well-being. Research has shown that participation in GVCs can sometimes but not always lead to higher-paying jobs, more bargaining power or overall improvement in well-being for workers (Barrientos, 2014[57]). This can be the case of some of the regions, mainly those with access to a small/medium city, that have experienced productivity gains and employment loses, suffering by a decrease in the employment share of manufacturing. Rural regions can benefit from hosting manufacturing process or low value-added activities in a GVC by increasing the ratio of domestic value-added to these exports.

Rural regions must seek alternatives to overcome their challenges and unleash opportunities to boost productivity and attain sustainable development for people and business. Key policies for this include: i) adding value to tradeable sectors; ii) internationalising SMEs; iii) retaining value locally; and iv) strengthening rural skills (Figure 3.3).

A main challenge to ensure sustainable development in rural economies is to increase productivity in tradeable activities. These activities often depend on unique assets and resources existent in each type of rural area. Rural places close to cities can more easily leverage linkages with cities. Firms that are able to specialise within the tradeable sector can extend their network by forming linkages with nearby cities along with their participation in international markets through GVCs. In contrast, remote rural places must look to global trade for growth opportunities. Increasing the value-added of tradeable activities in rural economies requires a combination of policies including smart specialisation strategies, increasing innovation and productivity of rural SMEs as well as upskilling the labour force.

Smart specialisation is one way for rural economies to become more competitive on international markets and aims to identify local assets in order to increase competition on international markets. It is a process of “entrepreneurial discovery” whereby market forces and the private sector discover and produce information about new activities, while the government assesses the outcomes and empowers the actors most capable of realising the potential. This strategy aims to identify the regional strengths in the form of activities – rather than sectors per se – by conducting an exploratory approach in which public decision-makers listen to market signals using a range of assessment tools (e.g. SWOT analysis, surveys) and mechanisms such as public-private partnerships, technology foresight and road mapping.

Smart specialisation within the tradeable sector is strategic for rural economies. Low-density economies cannot rely on either the services sector or primary activities to achieve long-term and sustainable productivity growth. Whereas more concentrated urban economies may be able to use vertical integration to control multiple activities in a GVC, rural economies must rely on a specialisation to focus on one aspect of the value chain where the firm has a distinct advantage (Mudambi, 2008[58]). Since manufacturing has a relatively low value-added, rural firms should seek to specialise either early in the GVC, through research and development (R&D) and design, or near the end of the GVC, through marketing, logistics and after-sale services. Policy makers can help firms specialise by focusing on the enabling factors of skills, accessibility, market intelligence, institutions and innovation.

Smart specialisation also entails specialised diversification. It means unlocking synergies among related activities to promote new growth opportunities, rather than just focusing the economy entirely into one single economic sector. This is particularly relevant for rural economies that rely on natural resource extraction or one single industry. Unleashing the new economic activities required joint work with entrepreneurs, existing firms, government and research centres. Forward-looking planning with local leadership is a key additional ingredient for a successful transition to new areas of growth. Some OECD rural regions have successfully experienced economic transitions and overcome the decline of nature-based industries (Box 3.3).

Increasing diversification for rural areas requires integrated development projects. Compensating lagging regions through farm subsidies creates dependency, not development (OECD, 2012[5]). Rather than relying on subsidies and state aid as the essential tools, policy makers can support infrastructure that benefits both agriculture and the entire region, and link funds to farming to the provision of public goods for the benefit of society as a whole. Agriculture makes up only a small share of rural GVA and employment, so focusing exclusively on this one sector fails to recognise regional assets that could drive growth in other domains, such as renewable energy, tourism or the tradeable sector. The most dynamic economies are those that are diversified amongst products (Brummitt et al., 2018[59]). Policy makers need to be thinking beyond agriculture if they hope to improve outcomes for rural economies. With the right policies, underdeveloped regions can potentially become important sources for economic growth.

Key policies to support smart specialisation strategies:

  • Policies for entrepreneurial discovery: The smart specialisation approach calls for an “entrepreneurial selection” of market opportunities (e.g. to minimise failures and to avoid ill-informed policy decisions). While successful companies will constitute the new specialisation of the country/region (self-discovery), the role for policy is to develop a flexible strategy focusing on measurable intermediate goals, identifying bottlenecks and market failures and ensuring feedback into policy learning processes.

  • Focusing on a pool of sectors: Specialisation does not mean concentrating all efforts in one single sector. Diversification among related sectors or activities is essential to strengthening resilience in rural economies. Some regions (in Norway or Sweden) have decided to specialise in three relative sectors. For instance, Lapland, one of the first regions in Finland to adapt smart specialisation, based its strategy in achieving a leading position in sustainable utilisation and commercialisation of Arctic natural resources and conditions. Its smart specialisation strategy has three sectors of focus: i) mining and metal industries; ii) bioeconomy; and iii) tourism and related industries.

  • Promoting general-purpose technology platforms and networks. Given the range of applications of general-purpose technologies, technology platforms involving public and private actors but also standard-setting organisations can help increase productivity in existing sectors and help identify sectors in which to concentrate resources.

  • Diagnostic tools and sound infrastructure. Smart specialisation requires regions and countries to maintain an infrastructure and indicator base to monitor and evaluate performance and policies.

  • Strategic governance for smart specialisation. Good governance and the development of local capabilities are key to identifying local strengths; aligning policy actions, building critical mass, developing a vision and implementing a sound strategy.

Innovation has become a key factor to increase competitiveness among a more globalised and interconnected world. The tradeable sector offers untapped opportunities for constant innovation. Contact and exchange with other sectors and markets generate greater rates of innovation. Likewise, close links between cities and rural regions allow firms and entrepreneurs to benefit from knowledge spill-overs and sharing of innovation and resources (OECD, 2018[61]). Ensuring wider participation of firms and entrepreneurs in GVC and external market can unleash greater rates of local innovation (OECD, 2018[62]).

Rural regions can benefit from a broader perspective of innovation by creating ecosystems that ensure new practices and ideas in a wider range of activities. As described in Chapter 2, innovation is more than R&D and technology investment. It goes from new managerial practices to marketing innovations. Non-traditional economic activities such as culture can facilitate an innovative ecosystem in rural regions (Box 3.4). Experience across OECD countries reveals that a common environment for all key stakeholders is relevant to concentrate ideas in the same geography and enhance local innovativeness (OECD, 2011[63]). The externalities that emerge from the concentration and co-opetition of firms either within a specific industry or by the diversity of complementary industries and stakeholders in a specific area stand out as an essential component of innovation. Therefore, innovation strategies should support a wide-ranging collaboration and partnership among public, private, not-for-profit and educational organisations to spur rural innovation and create competitive business for global markets.

The innovation ecosystem should ensure the territories have the right assets in place to absorb new ideas and technologies. Innovation policy should enable firms to adopt forms of work organisation that support innovation. OECD research indicates that different models of work organisation adopted by SMEs can be related to differences in their innovation performance (OECD, 2015[64]). Investing in skills and ICT infrastructure are essential to ensure absorption capacity at the local level.

Key policies to enhance innovation:

  • Strengthening the links, collaboration and knowledge sharing between urban and rural.

  • Enhancing links of rural firms with GVC and global firms and promoting knowledge sharing and information exchange to encourage collaborative innovation.

  • Supporting co-operation and networking among rural firms.

  • Generating common environments that concentrate firms, entrepreneurs and research institutions.

  • Investing in skills and ICT infrastructure to facilitate the uptake of new ideas and technologies.

While the above policy recommendations can be applied across all rural places, innovation policies should acknowledge the different characteristics of rurality:

  • For regions near large cities, policies should focus on fostering the linkages with urban institutions and firms. Rural firms in tradeable activities can indeed benefit from spill-overs from agglomeration economies through direct contact, partnerships for production or integration of innovative suppliers.

  • For regions with or near small/medium cities, policies should facilitate the access of firms to global markets and skill workers. Better integration with cities can boost the whole innovative ecosystem of the area.

  • For remote regions, an important focus should be dedicated to ensuring the right skills and infrastructure investments to foster competition in global markets. Much of these remote areas host tradeable industries in extractive activities, forestry and agriculture.

SMEs are main actors in rural economies and essential for economic resilience, productivity and inclusiveness. They also maintain the industrial fabric of many regions and contribute to the identity of local communities. Yet, the vast majorities of rural SMEs (less than 250 employees) have slow employment growth and remain micro enterprises (less than 10 employees) (Freshwater et al., 2019[51]). This is explained by multiple factors including difficulty in identifying new market opportunities, limited financial capacity, labour shortages, high transport costs to external markets and owner preferences to limit growth.

A more competitive tradeable sector requires a sound business ecosystem of firms from all sizes to sustain market growth. Firms in tradeable sectors can leverage their productivity on competitive suppliers that help them cope with changing market requirements. For this, a business-friendly environment is instrumental to stimulate the development of the local private sector. It includes supporting a simplified administrative process to facilitate the opening and operation of businesses, reducing costs of complying with administrative requirements and enabling collaboration between firms, the administration and academia as well as ventures of all sizes and origins.

Linking SMEs with established firms competing in the tradeable sector can foster new business opportunities and boost SMEs’ growth. As mentioned above, tradeable activities require a range of services associated with the production processes, including designs, sales, maintenance and financial management. In some cases, those services are provided remotely from the company headquarters but, in others, they need to be delivered on site. It offers an opportunity for SMEs and entrepreneurs to provide solutions to large firms. Further, large firms can contribute to the transformation of business ecosystems through business accelerators and innovation labs that provide start-ups and innovative SMEs with access to resources and markets (OECD, 2019[4]).

Innovation and new technologies are important to boost SMEs’ productivity. Emerging digital technologies, including big data analytics, artificial intelligence and 3D printing, enable greater product differentiation and mass customisation, which benefit smaller and more responsive businesses (Chapter 5). Technological progress is creating new sources of financing, from peer-to-peer lending to alternative risk assessment tools, and initial coin offerings (ICOs).

Key policies to increase productivity in rural SMEs and rural firms:

  • The high degree of economic and geographic diversity across rural regions means that support for rural SMEs has to be flexible, not only by the type of industry but also by the geographic setting of the firm.

  • Promote a friendly business environment for SMEs. This includes supporting a simplified administrative process to facilitate the opening and operation of businesses, reducing costs of complying with administrative requirements and enabling collaboration between firms, the administration and academia as well as ventures of all sizes and origins.

  • Supporting the co-operation and networking of SMEs with large firms and multinationals.

  • Providing specific support and training for women in enhancing entrepreneurship capacities and developing SMEs.

  • Promoting SMEs’ connection to innovative sources of financing through the use of new technologies.

  • Investing in skills and capacity building for SMEs to be able to uptake new technologies.

In regions with or near small/medium cities, the productivity of SMEs can be boosted through greater integration with universities and larger firms and SMEs from urban areas. When it comes to remote regions, supporting the vertical integration of SMEs into the production process of global firms as well as entrepreneurship culture should be a priority. These policies should promote entrepreneurship that unlocks the potential of existing assets in the area. For example, in North Karelia, Finland, SME support aims to enhance value-added of the smart specialisation sector, including bioeconomy and metal technologies.

The OECD’s work on economic well-being suggests a need for policy solutions that support innovators, entrepreneurs and SMEs in rural economies. These stakeholders provide a valuable contribution to rural economies but may need support connecting to GVCs and making the best use of specific know-how (OECD, 2017[68]). In fact, OECD countries with a relatively high share of exports from SMEs, experience smaller differences in average salaries between SMEs and larger firms (OECD, 2019[4]).

To make the most of GVCs, policies should support SMEs in moving up the value chain, either in the pre-production or post-production process. Supporting SME participation in the services sector can lead to greater participation of the local economy in global markets. For example, displaced firms and workers from mining and extractive industries hold transferable knowledge that they can share with the global market.

Global companies connected to GVCs can be a platform to internationalise local SMEs. Linking SMEs to new markets and knowledge can lead to innovative business ideas among local companies, increase income and find diversified sources of growth (Mitchell and O’Neill, 2015[69]). Strategies to support those links include the participation of SMEs in international fairs and business rounds, quality accreditation and technological upgrades (OECD, 2016[70]). For example, governments such as Mexico have developed national SME funds to co-fund on one-to-one basis programmes and projects that addressed local problems. Some states (e.g. Queretaro) have used these funds as a vehicle to link SMEs into international supply chains through quality accreditation and the organisation of events for established transnational companies (OECD, 2019[71]).

Digitalisation can also help SMEs integrate global markets and global value chains (GVCs). The fragmentation of production worldwide has provided smaller businesses with significant scope for competing in specialised GVC segments and scaling up activities abroad (OECD, 2019[4]). In this process, SMEs can capture international knowledge spill-overs and capitalise on more robust growth in emerging markets. Governments should provide the enabling factors (i.e. capacity building, quality broadband) to help rural SMEs benefit from new technologies (Chapter 5).

Key policies to promote the internationalisation of rural SMEs:

  • Improving various types of networks – transportation, business, professional and telecommunications – since these help to reduce the penalties of distance and low density, thereby increasing access to external markets.

  • Because individual SMEs in a rural region have few local peers in the same industry, local governments need to support opportunities for firms in specific industries to build professional networks through meetings and electronic means. It may also be useful to facilitate meetings of all SMEs through umbrella organisations, such as the chamber of commerce or business owner associations.

  • Promoting the participation of SMEs in international fairs, quality accreditation and technological upgrades.

  • Facilitating access to international markets for women-owned SMEs.

Many rural economies tend to struggle with distributing the gains from tradeable activities to the entire population. Many tradeable industries rely on capital imported (machines, trucks) and in some cases provide few direct job opportunities (automated mines). In very remote regions specialised in extractive sectors, job creation does not benefit the local labour force because it relies on specialised outsiders. This reduces employment opportunities for local communities. Policies need to seek a larger integration and fit of local workers and business with industries.

Investing in enabling factors can help communities to retain benefits from large and multinational firms. A sound infrastructure, skilled labour force and conducive regulatory conditions lead to more competitive local economies able to retain value from international activities. A coherent policy will promote the reinvestment of royalties and taxes in improving those enabling factors. Collaboration with industry, communities and academic institutions can also help define the basic conditions needed to reap the benefits from private investments.

Benefit-sharing measures in tradeable activities are widespread strategies for retaining additional benefits for the local population. This measures the need to differentiate monetary and non-monetary benefits for mining communities and second to make the most out of them:

  • Monetary benefit-sharing mechanisms include investment funds, equity-sharing and tax-sharing mechanisms between regional and national governments. Many countries specialised in mining and extractive activities have special tax regimes or monetary arrangements that collect the rents from extractives activities and revert them to the regions where they are extracted to different degrees (OECD, 2017[72]). In other countries, revenues from mining are mainly collected through national taxes and form part of the consolidated national revenue without a specific revenue transfer mechanism to mining regions (i.e. Finland) (Hojem, 2015[73]).

  • Non-monetary benefit-sharing mechanisms include investments in education and medical facilities, local employment generation, local procurement and staff training (Söderholm, 2014[74]). These measures should consider different dimensions of well-being (income, jobs, education and training, housing amongst others) to ensure benefits match local needs. For example, quality standards and training programmes to suppliers help local companies to improve their production process and quality of the final product. Policy responses can be quite effective in upgrading or increasing local inputs into the production processes in the extractive industries. These include:

    • Reducing information and capacity gaps that diminish local firms’ chances of responding to extractive firms’ tender.

    • Offering technical or business assistance to suppliers and SMEs and support them in obtaining necessary certifications to respond to the needs of extractive firms.

    • Ensuring timely payment facilities for SMEs with limited cash flow.

Across OECD countries, private sector-led initiatives also implement measures for benefit sharing with local communities. Some large firms support SME capacity through a number of partnerships, including deploying specialised accelerators for start-up and individuals, setting up innovation labs with a view to encouraging “out-the-box” thinking and new collaborations within the firm (OECD, 2019[4]). Firms in extractive industries can consider capacity-building policies are needed to create a pool of competent and competitive suppliers and a workforce with the required skill level close to their operations (OECD, 2017[72]). For example, BHP Billiton has created its world-class suppliers’ development programme in Chile to address its competitiveness challenges jointly with local suppliers (Box 3.5).

Key policies to retain more value in rural places include:

  • Ensuring a sound infrastructure and competitive regulation for local economies to reap benefits from foreign investments.

  • Promoting local benefit-sharing policies (monetary and non-monetary), including capacity-building activities for local firms, promoting quality standards and training programmes.

The gap in skill levels between rural regions and cities and the sectoral structure of rural economies imply that the former are less well-prepared to face the changing labour demand resulting from a rise in automation (OECD, 2018[76]). Skill differences between rural regions and cities are already visible at school age (Chapter 2). At the time, developing relevant skills can help rural communities harness new economic opportunities associated with technological innovation and expanding digital infrastructure. A skilled workforce is also key for rural regions to transition towards higher-value-added activities in the production chain and to attract and retain businesses more broadly. The labour force’s ability to adapt to new market requirements and technologies matters in particular for ensuring the competitiveness in tradeable activities.

The resilience of the local economy as a whole also relies on the relevance and level of skills in the community. As rural economies tend to be specialised in a limited number of sectors, market shocks and shifts in demand affecting certain sectors can threaten the sustainability of local economies more broadly. Policies to support the reallocation of labour are essential to mitigate the negative effects of employment changes across industries with high GVC participation in OECD countries (OECD, 2016[77]). It can be particularly relevant for the male workforce that has struggled to cope with the trend of tertiarisation in rural regions.

At the same time, digital technologies can facilitate measures to help rural regions catch up. For instance, digitalisation opens up new ways to foster adult basic education through distance learning (Gungor and Prins, 2011[78]). Indicative research from Australia suggests that digital technologies could also facilitate Indigenous students’ access to and retention in higher education, even though important physical, literacy and content barriers need to be overcome (Watson, 2013[79]) (see Chapter 5).

Vocational education and training can be another key vehicle for developing relevant rural skills. However, rural sectors may face specific challenges associated with the provision of training opportunities, such as transportation. The balance between costs and benefits of offering apprenticeships depends on the size of the firms, for instance, because larger firms are to a greater extent able to retain former apprentices as skilled workers as a return on their investment in training. It is therefore key to foster strong co-ordination between rural firms, not-for-profit organisations and government programmes to ensure that investments in training provision are worthwhile for both smaller and larger companies. Smaller employers can, for instance, be supported by policies to encourage the development of models allowing them to share risks and responsibilities related to apprenticeship provision, structures to support with the administrative burden and training delivery itself (OECD, 2018[80]). The challenge of remoteness could, for instance, be mitigated by moving some of the training requirements for apprentices to a digital platform and providing public funding to support students’ transport costs where in-person training is needed, as is the case in rural Nordland in Norway (OECD/ILO, 2017[81]).

More broadly, local education and training provision needs to meet the skill demand of the local economy and establish a close link to employment if it is to have a positive impact on economic growth and job creation (EC, 2008[82]). To address staff and skills shortages in the agricultural sector, vocational training in this area should be made attractive for young people and middle-aged workers alike. At the same time, the work in this sector itself can be upgraded. In Northern Ireland (United Kingdom) for instance, an EU-funded ICT training programme was provided to farmers through a combination of computer training, face-to-face mentoring and financial support (Soldi et al., 2016, p. 72[83]). The ten-week programme allowed farmers and their families to enhance their ICT skills and make better day-to-day use of the technological tools in their work, with reported efficiency gains for their business.

Improving skill levels and the match of skills in rural regions with local employers’ evolving needs by those different avenues can help render rural economies more performant and resilient.

Key policies to strengthening skills in the rural economy include:

  • Fostering collaboration between public authorities, local businesses and not-for-profit organisations to ensure local education and training in a way that matches the skill needs of rural employers.

  • Providing comprehensive support to rural apprentices and firms, providing training to ensure relevant learning opportunities in low-density and remote areas.

  • Harnessing digital technologies to support lifelong learning for rural youth and experienced workers as automation, market trends and structural economic change reshape skill demand and job profiles.

Social well-being refers to the arrangements through families, networks, associations, institutions and economies that influence our quality of life. Much of this well-being is based on hard attributes including affordable and accessible services including healthcare, education as well as affordable housing and well-connected transportation systems. Yet, these are not sufficient to build vibrant, inclusive communities. Soft attributes including a sense of belonging and mutual trust, founded in positive social relationships and networks build through religious and educational institutions or cultural and family connections are equally important for social well-being.

In the light of demographic change, rural places have to manage a range of challenges related to social well-being. For instance, as people become more mobile and conduct more of their lives online, relationships and sense of community suffer, detracting from social well-being. In rural communities, this is especially prevalent, where demographic change, remoteness and low population density limit the availability of community centres or public transit to rural dwellers. As a result, policies seeking to improve social well-being must take a place-based approach.

Inclusive policies aim to empower citizens to live happy, healthy and meaningful lives. Structural changes relating to demography require policy makers to pay special attention to the social well-being of different groups present in rural communities to ensure inclusivity. Apart from ensuring individual well-being though delivering on specific needs, inclusive policy making can also help to reduce regional inequalities, strengthen resilience and contribute to delivering on the 2030 Agenda for Sustainable Development, promising to leave no one behind.

Elderly people make up a large part of the rural population. By 2050, nearly 30% of the population in European regions outside of metropolitan areas is expected to be 65 years old or older (OECD, 2019[8]). Current elderly dependency ratios in rural regions – the share of the population aged 65 and over as a percentage of the population aged 20-64 – stands at 28.6% on average (Chapter 2). Remote regions and regions with access to a small/medium city have the highest elderly dependency rates. Four OECD TL3 regions are already above 60% in elderly dependency ratios and its ratio is over 50% in 53 TL3 regions. This shift strains economic development as retired people are not involved in productive activities (OECD, 2019[8]).

A growing elderly population increases the need for age-related goods and services in rural places. Rural dwellers face greater difficulties in accessing health and social care services. Geographical distances and less developed transportation services amplify these challenges as people’s mobility or cognitive function decreases with age. This increases the demand for adequate transportation, assistance with daily chores and activities and more frequent medial support. As rural remote regions have a higher share of elderly males, services in these regions need to specifically consider male-related factors of ageing, for instance in terms of male prone diseases or habits such as avoidance to seek medical help or social support. In addition, the rural elderly are also at risk of social isolation and feeling of loneliness, in particular, when their mobility is reduced and they often have difficulties maintaining social networks (UNECE, 2002[84]).

Ensuring the social well-being of elderly people offers opportunities for economic development. While rural regions face a shrinking labour force, developing and testing “silver” services in rural economies is an opportunity for developing the economic inclusion of the older population and can attract investment to rural economies. The consumer spending power of elderly people is significant. By 2020, it is estimated to total USD 15 trillion for the population aged 60 and over (OECD, 2014[85]). Technological innovations that are focused on finding a solution for ways to live well as we age are at the heart of this market. Broadband can help the elderly population to better participate in community life as the elderly are adopting social media to keep up family connections.

Older people are a valuable resource for making contributions to rural communities and economies. Many people do not want to stop being productive and contributing to society just because they have reached a certain age. Well-being often also means continuing to work or being productively engaged, this needs to be recognised by governments and employers alike. Older workers can contribute by bringing institutional knowledge, social maturity and stability and can pass on business relationship to younger workers (Jenkins, 2019[86]). At the same time, retirees, who have free time, can be vital in contributing to voluntary work and help mitigate gaps in regional support structures including childcare.

Demographic trends in OECD rural regions outline a similar pattern of outmigration of youth. While OECD remote rural regions experience the highest fertility rates among all type of regions (Chapter 2), the young population tend to leave in search of higher education levels. In Europe, 57% of regions are expected to lose population by 2050 (OECD, 2019[8]). The analysis in Chapter 2 shows that half of EU countries will have to manage population decline in remote regions and one-third of countries will need to manage population decline in regions with access to a small/medium city. This will shrink tax bases and make it more difficult to provide public services.

Gender shares in the workforce are geographically dependent. In more than half the OECD countries considered (18 out of 30), rural remote regions had larger shares of male workforce in 2017, in contrast with metropolitan regions with larger shares of females across all categories and most OECD countries considered (27 out of 30). These results suggest that rural economies offer fewer jobs to females, with many jobs happening in resource-related industries with low shares of the female workforce. Yet, this trend might be changing as the employment rate of females in rural regions has increased since the crisis. This trend, explained in part by raising service activities, can lead to an increase in female workforce participation in rural regions. The COVID-19 pandemic will likely have a significant impact on the gender participation rate, as the sectors that were heavily impacted, such as tourism, employ a relatively large share of female workers.

Rural communities that face labour market shortages and seek to stabilise service provision need to become more attractive and retain a diverse workforce. Attractiveness can be broadly defined as the factors that people generally value about their local neighbourhood, town or city, such as accessible and reliable public transport, high-quality open space, good schools as well as vibrant community life. These factors are generally immobile or place-based, thus important to regional growth and competitiveness. Enhancing regional attractiveness requires an integrated approach to improving services, local infrastructure and amenities, housing choices and opportunities for social participation.

People only come and stay in places if these offer the potential for personal and professional development. Attracting young people and especially women to rural communities requires a strategic, group sensitive approach. This fundamentally involves improvement in three key areas:

  • First, ICT availability, which can facilitate a new form of economic activities and jobs including tourism, services (marketing, design), niche manufacturing and food production, and can provide alternative employment pathways for young people (OECD, 2017[87]).

  • Second, the developing services related to maternal health and childcare, enabling young parents and especially women to remain active in the workforce.

  • Third, communicating rural amenities, such as lower cost of living and closeness to nature, and working towards building brands that highlight progressive and modern aspects of rural economies.

Furthermore, governments and education systems need to provide specialist teaching and leadership to young rural populations and support co-business and development of networks.

The availability of quality public services is a necessary component in ensuring a high level of well-being in rural communities. Investments in public services can require economies of scale that are difficult to achieve in low-density areas, so communities must identify other arrangements to ensure adequate service provision (OECD, 2014[88]). With growing pressures on public spending due to an ageing population, regions are beginning to adopt new approaches to continue providing for rural dwellers.

Remote rural regions are much more likely to face challenges accessing services than rural places close to cities. In Denmark, for example, rural places close to cities, especially those located along regional rail lines, show the strongest performance in terms of service accessibility, household income and employment (OECD, 2016[89]). However, in remote rural regions, migration trends are increasing pressure to provide public services in conditions of stagnating or declining population and productivity. Rural places face higher costs of service delivery due to lower population density, thereby precluding any economies of scale and increasing distances that service users and providers must travel. Policy makers need to address how to ensure services reach all rural communities, particularly those less connected to large cities.

The attractiveness of rural regions can be improved through the availability of high-quality public services. Investments in public services can require economies of scale that are difficult to achieve in low-density areas, so communities must identify other arrangements to ensure adequate service provision. Integrated service delivery is one approach frequently implemented to improve services delivery by providing improved cost, quality and access. Furthermore, the COVID-19 pandemic further demonstrated the importance of access to digital health and education services. Different forms of integration include colocation, collaboration, co-operation and co-production.

Colocation is one form of integration that locates many services or agencies in one building. For example, “wraparound schools” in the US do this by providing academic support, health and mental healthcare, and enrichment opportunities for students within the school (García and Weiss, 2017[90]). Schools have implemented similar models in rural parts of the UK, where “often the only community facility locally is the school and it is usually seen as a positive resource” (Dyson, Kerr and Jones, 2016[91]). The benefits of colocation include reduced administrative and capital costs, a collaboration between professionals in different sectors and the ability to continue operating in regions with population decline. Table 3.6 provides examples of colocation strategies in four OECD countries.

Another form of integration is collaboration, whereby agencies work together as part of a network to share information and training. Collaboration helps reduce gaps in service provision by providing opportunities for horizontal and vertical service integration. In rural communities, collaboration is naturally easier due to the small number of individuals and organisations involved in public service provision. By sharing knowledge, institutions and agencies can ensure rural dwellers have knowledge of and access to services.

Co-operation, a third type of integration, entails different levels of government communicating and working together on multi-agency teams. This form of horizontal co-ordination strives to lower the costs of delivering services and reduce duplication. For example, Italy created the National Strategy for Inner Areas to involve national, regional and local tiers in implementing its strategic approach to support its rural communities (ENRD, 2018[93]). Integrating national and local activities is helping to remove obstacles to service provision and local development in rural Italy. Rural-urban partnerships, discussed in a later section, are another form of co-operation connecting a territory with functional linkages.

Finally, co-production is a type of integration that involves community and non-profit groups, also known as the third sector, in providing services. By partnering with citizens and local organisations, public service providers can ensure products and programmes reflect the needs of the community as identified by the people receiving the services. Engaging citizens and citizen organisations in the design, production and delivery of services leads to higher satisfaction and cost reductions. In France, rural communities are co-producing solutions for housing and care service through “villa housing” (OECD, 2011[95]). This scheme enhancing life for the elderly through neighbourhood engagement, providing better services and quality of life for the same cost. Many existing public services already have elements of co-production but the growing imperative in rural economies to drive innovation and cut costs opens the door for greater engagement with this strategy.

Technological change can improve the quality and decrease the cost of delivering services in areas outside cities (see Chapter 5). This was particularly important in the COVID-19 pandemic. Education can find support in technology to overcome some challenges in areas outside cities such as distance, classroom size or teacher attraction/retention. Long-distance education, for example, can be effective in terms of student-content and peer-to-peer interactions. Likewise, health already relies on technology to modify the provision of healthcare and medical research. Drones delivering blood, t-shirts that monitor health or medical 3D printing are health solutions that are currently in use.

Innovation can also create new services for rural dwellers. Too often rural service providers seek to exploit a local monopoly situation and pay little attention to improving the quality of service. When their customers are “captive” – limited in choice – the decline in service quality did not impact the demand for it. However, with increased mobility, many users are better able to identify alternative service providers. Innovation and the willingness to consider a new methodology or approach – instead of simply rescaling the way the service is provided – is a key factor to expand the offer of services and thus improve well-being. Tailoring the service delivery to better fit the circumstances of the rural area may involve: finding a different type of service provider, a different technology for delivering the service, or even developing a new service that results in a similar outcome.

In order to benefit from ICT deployments, a multi-dimensional response is needed (as will be argued in Chapter 5). Deployment of ICT infrastructure by itself is a necessary but not sufficient condition to reap the potential benefits of new technologies. These range from attracting new economic activity and skills, improving the productivity of firms, raising the quality and reducing costs of service delivery, connecting to a new market and overcoming isolation.

Besides healthcare, education lies at the core of public service provision the state needs to ensure in rural regions and has a key role to play for social mobility. Starting from children’s early years, high-quality education and care can help raise outcomes in education and the labour market (Shuey and Kankaraš, 2018[103]; Chetty et al., 2018[104]). At the same time, for young families, the traditional gap in early childhood education and care provision between rural regions and cities can be particularly challenging (EC, 2008[82]). Children and students in pre-primary, primary and most of secondary education are limited in their geographic mobility, especially in remote areas where the school they attend will largely be determined by the location of the home of their parents or guardians. Given the lack of alternatives, rural and remote schools, therefore, have a unique responsibility for the educational opportunities of children and youth in their catchment areas.

Financial pressures and quality concerns have long forced national education policy makers to formulate a variety of responses to rural and remote education provision. Approaches like the ones discussed above, to integrate services and harness digital technologies, as also discussed in Box 3.6; providing education and other services in low-density contexts is often still at the pilot stage or limited in scope. Thus, the focus of many established policy measures lies in increasing school size. School size influences the costs per student as larger schools can more easily fill up classes to the legal maximum, whereas smaller schools risk operating under capacity given the human and physical resources that are in place (OECD, 2018[105]). This means that when student numbers dwindle, it becomes less and less financially viable to provide quality education services in proximity. In response, policy makers often seek to re-establish scale through mandated or incentivised changes to the organisation of the school network.

The consolidation of schools implies that one or more schools are being closed and that students are transferred to other providers in the vicinity. This approach of merging and closing schools is widespread and, according to the European Commission (EC), two-thirds of countries and regions in the EU enacted such measures between 2010 and 2012 (EC/EACEA/Eurydice, 2013, p. 60[106]). In Poland, for instance, the number of rural primary schools has dropped by 9.3% since 2003-04 (EC/EACEA/Eurydice, 2013, p. 61[106]). There are different mechanisms to achieve such results. If a per-student allocation determines the financial means local authorities or school leaders receive for their institutions, the operation of small schools becomes less viable and local authorities might be given temporary grants to transition to larger units (OECD, 2018[105]). When school funding is devolved to the local level, local financial constraints or priorities in favour of other expenditures can drive school consolidation without direct national influence (Ares Abalde, 2014[107]). The levels of education provided by each institution can also be adjusted to cushion the impact of consolidation on younger students. This was the case in Estonia where upper secondary education was further separated from lower secondary to allow for the consolidation of the former (Santiago et al., 2016[108]).

Another approach to fostering economies of scale is the formation of clusters or federations, i.e. structures in which schools formally co-operate under a single leadership to allocate resources, such as staff, more flexibly and efficiently (OECD, 2018[105]). Clusters can involve both horizontal (i.e. integrating schools with a similar educational offer) and vertical integration (i.e. integrating schools at different levels of education). School clusters in countries covered by a recent OECD review were of different sizes but typically comprised up to 15 geographically close schools (OECD, 2018, pp. 143-144[105]). Similar to consolidation, clusters may be established through in the context of a Ministry of Education strategy or as a locally initiated approach to foster information exchange and more efficient resource use (Giordano, 2008[109]). Co-operation can also be initiated without formal clusters, for instance through schools’ or local authorities’ initiatives to bundle resources and exploit synergies (OECD, 2018[105]). In Spain, for instance, so-called “grouped rural schools” (Colegios Rurales Agrupados) allow providers across municipalities to share resources such as peripatetic teachers and instruction materials, jointly offer extracurricular activities and support the professional community of teachers through regular co-ordination meetings (Ares Abalde, 2014[107]). Such initiatives are shaped by multiple factors, including local capacity, potential incentives as well as the presence of pre-existing co-operation structures and traditions.

The provision of school transportation is key to avoid conflicts with parents’ work schedules and ensure a safe commute for students when schools are not available nearby (OECD, 2018[105]; Gottfried, 2017[110]). In Chile, for example, the central government provides transportation services for students attending municipal schools located in remote areas free of charge from pre-primary to secondary education (Santiago et al., 2017[111]). While school transportation can mitigate some of the challenges of longer travel distances, there is also a risk that increased time of travel and transportation costs affect the net benefits of school consolidations, both financially and in terms of students’ learning experience (Ares Abalde, 2014[107]). As the evidence on the association between school size and educational quality is patchy, it is important to carefully weigh the educational opportunities of larger schools against potential downsides outside of the classroom for students and their families.

Building a vibrant community life can improve attractiveness and help tackle societal challenges specific to rural communities. Social capital, civic engagement and other softer, more intangible attributes, such as social support networks, trust and co-operative norms, often do not rank high on policy agendas. This presents a missed opportunity for rural areas. These attributes do not only support higher individual and community well-being but also influence the effective functioning of both the economy and governments. Positive impact ranges from the mental health advantages of having good social support to improved institutional performance through greater civic engagement and benefits to businesses, which can trust interactions will run smoothly (Scrivens and Smith, 2013[112]; OECD, 2019[8]).

Social innovation is a tool to find new solutions to societal challenges with the goal of enhancing societal well-being. Social innovation concerns regarding conceptual, process and product change as well as changes in financing and organisation entail new relationships with stakeholders in order to identify and deliver new services that improve the quality of life of individuals and communities.

Companies today are increasingly focused on corporate social and environmental responsibility. Many companies face new constraints in decision-making processes, including the impact of activities on the climate and local communities. Companies are trying new models to strengthen community sustainability. Co-creation and mutual co-operation and consultation imply involving different actors that work together to tackling a challenge openly. Partnerships with local actors (non-governmental organisations [NGOs], co-operatives and social leaders) help the companies get a better grasp of its market and future opportunities (e.g. expand knowledge about low-income groups) and gain social and environmental value-added through this socially innovative dynamic. For example, Danone, a major foods company, has been harnessing genuine co-creation strategies with certain NGOs and social entrepreneurs throughout the world to strengthen the local “ecosystems” and thereby the sustainability of its suppliers.

The environment is an essential component of well-being. This includes environmental quality such as the cleanliness of air and water, but also biodiversity and the availability of green spaces that impact individual health status as well as subjective life satisfaction (OECD, 2011[119]; OECD, 2014[120]). Further, the environment not only contributes to our current state of well-being but also has indispensable value for future well-being, which can be described as natural capital. This includes basic aspects such as the supply of food and freshwater, balanced ecosystems for pollution breakdown, climate stability and recovery from natural disasters.

The weakening of natural capital, poses a risk to regional well-being and development. Rising sea levels and the increased frequency of extreme weather events, the depletion of stocks like water and land make certain places increasingly inhabitable and threaten people’s livelihoods forcing them to migrate or move. The latest OECD How’s Life? publication raises concerns for the state of natural capital largely due to biodiversity loss and global greenhouse gas (GHG) emissions (OECD, 2020[121]). To ensure that future generations have the resources they need natural capital needs to be preserved.

Falsely, some policy makers view the environment as a trade-off with issues of economic growth. In fact, environmental well-being is inherently linked to other dimensions of well-being. First, the well-being of future generations is largely determined by our use of natural resources today, so long-term well-being and continued economic growth will require a more concerted effort to preserve our stock of natural capital. Any economic growth is unlikely to compensate for the effects of displacement and loss of livelihoods caused by climate change. As a result, rural policies need to recognise the interconnections between rural economic activities and environmental well-being, not only for rural populations but also for society as a whole.

Rural economies are pivotal in the transition to a low-carbon economy because of their natural endowments and specialisation in resource-based industries. Climate change is already affecting these economic sectors (agriculture, forestry, fisheries, mining and energy) for example, due to dislocation and costs associated with the increasing frequency and intensity of extreme weather events. Without sufficient climate action and reduction of GHG emissions, global temperatures are likely to increase by more than 4°C by 2100. The list of consequences, already at an increase of 2°C, is long and devastating, ranging from mass extinction to extreme droughts and natural disasters that are “severe, pervasive and irreversible” and significantly impact human well-being including global food shortages (Masson-Delmotte et al., 2018[122]; Field et al., 2014[123]). To adhere to the goal of the Paris Agreement – limiting global average temperature rise to only 1.5 degrees compared to pre-industrial times – the reduction of GHG emissions in all sectors, especially energy and transport, need to go hand in hand with safeguarding the world’s carbon sinks and biodiversity, and creating and investing in new ways for emission removal. These efforts can result in important well-being and development opportunities for rural regions.

Ecosystems and biodiversity are key for current and future human well-being and they help mitigate environmental pressures and natural threats. Rural paces can be home to ecosystems that provide food, freshwater, purify the air, decompose and detoxify waste, or help with pest control (IPCC, 2019[124]; OECD, 2011[125]). Further, many rural regions provide flora and fauna habitat varieties. Increasing losses in biological diversity, due to unsustainable activities, pose risks to food security and undermines the resilience of agricultural systems (IPBES, 2019[126]). In order to continue to use these natural benefits and provide services vital for the well-being of society as a whole, this natural capital needs to be preserved and restored where possible. Rural policies have an important role to play in protecting biodiversity and reversing negative trends.

Land present in rural regions is fundamental to absorbing carbon from the atmosphere. Forests and wetlands function as natural carbon sinks – trees and other vegetation absorb large amounts of carbon dioxide from the atmosphere and thereby sequester an amount equivalent to roughly one-third of global emissions (IPCC, 2019[124]). To contribute to combatting climate change carbon sinks need to be maintained and enhanced in order to remove greater quantities of carbon from the atmosphere. Drained peatlands and wetlands are concentrated sources of GHG emissions and need to be restored to halt the constant high levels of emissions (Mrotzek et al., 2020[127]). Possible ways to increase sequestration include reforestation (converting land back into forests) and biodiversity-sound afforestation (planting forests where they did not previously grow), organic carbon in croplands and grasslands. Bioenergy use with carbon capture and storage can also withdraw CO2 (IPCC, 2019[124]). These offer development opportunities for rural regions that require more sustainable use of land. They also bring local challenges including competition for land use competition and sustainability concerns that will need to be carefully managed and governed.

Rural communities and land-users are often forced to make trade-offs between the environment and economic development. Services are often only recognised as provisioning services (production of food, wood and energy) rather than the full range of supporting, regulating and cultural ecosystem services (such as nutrient cycles, pollination, water filtration, biodiversity services, disaster prevention such as for floods, or recreation) (Natural Capital Germany, 2016[128]). One reason this happens is because – unlike food or other raw materials – these public goods do not have a clearly identified market value. Alongside exchange values linked to price and markets, which primarily reflect the values of provisioning services, policy makers must give due consideration to ensuring that the providers of regulating, cultural and supporting ecosystem services are rewarded for their services to society.

Rural economies are disproportionately affected by policy efforts to decarbonise the economy. Carbon-intensive rural industries like agriculture, mining and energy often are important employers in regions with low economic diversity. Measures to decarbonise the economy, by phasing out certain industries for instance, threaten local livelihoods and prosperity. While the need for mineral and metal extraction as well as food production will remain and indeed increase, the type of minerals quarried and the transformation of agricultural production systems for the transition to a low-carbon economy will present significant challenges for those working in the sector. Similarly, putting a price on carbon can increase transport costs for rural households and firms reliant on car and truck transportation. This can result in discontent about transformation measures that are geographically blind. The “gilet jaunes” demonstrations in France, for instance, were triggered by increasing the tax on diesel and petrol to facilitate the transition to a green economy. The policy was perceived as yet another measure favouring the needs of objectives of the well-off metropolitan parts of society and sparked greater discussions about regional inequalities and a tax system de-favouring the lower and middle class (Christophe Guilluy, 2018[129]; The Guardian, 2018[130]).

Striving for a just transition, policy makers need to consider environmental sustainability in coherence with decent work and social inclusion. The concept of “just transition” defines the understanding that developments towards an environmentally sustainable economy need to be managed in a way that contributes to job creation, job upgrading, social justice and poverty eradication (ILO, 2015[131]). The international community has acknowledged the importance of promoting a just transition for instance through the Paris Agreement, the ILO’s Guidelines for a Just Transition and the EU’s Coal Regions in Transition initiative. Just Transition requires social consensus on an appropriate enabling environment for transition which does not further disadvantage marginalised communities.

Well-managed transitions can also result in new opportunities for workers in rural places. The ILO estimates that a transition to more sustainable economies could generate up to 60 million new jobs worldwide over the next 2 decades. In the EU, between 2000 and 2014, 1.4 million jobs were added to the green economy (ILO, 2017[132]). Yet, without intentional policy efforts, new “green” energy jobs may not arise in the same places where employment in carbon-intensive industries declines. In Germany, a new Commission on Growth, Structural Change and Employment is taking steps to address the impact of the energy transition on mining communities (Steinberg, 2018[133]). The commission is preparing a roadmap for the phase-out of coal, with a special focus on strengthening growth and employment for the people living and working in affected regions.

In 2018, electricity and heat generation accounted for 42% of global emissions. At the same time, the share of renewables in meeting global energy demand is expected to grow by one-fifth in the next 5 years to reach 12.4% in 2023 (IEA, 2018[134]). In this context, renewable energy production is expected to deliver threefold: secure the increasing demand for energy (especially from cities); add to climate change mitigation; and enable economic development through economic diversification and job creation in rural economies.

Yet, renewable energy is not a silver bullet to create employment in rural places but requires careful consideration of local conditions (OECD, 2012[135]). For instance, while large biomass plants can generate new employment opportunities in rural communities, they require sustainable biomass production. Similarly, local employment opportunities can be limited as the energy sector is more capital- than labour-intensive and installations might source labour and equipment from outside the region, instead of drawing on local labour (OECD, 2012[135]). Hence, policy makers need to develop coherent sustainable strategies that ensure local populations receive adequate benefits for the cost they bear.

If local conditions are considered, renewable energy (RE) can be an opportunity for rural areas to capitalise on assets including space and resources. Benefits from RE for rural communities can include: i) new revenue sources that can be used to support service provision and diversity the economy; ii) new job and business opportunities, especially along the RE supply chain; iii) exposure to new technologies that create innovations in product, practices and policies as they are locally adapted; iv) capacity building and community empowerment through acquiring new skills and enhancing capacity to innovate; and v) opportunities to become energy independent (OECD, 2012[135]).

In order for RE development to have positive outcomes on the climate and rural economies, important policy consideration need to be taken into account. Energy strategies should be included in the local economic development strategy so that they reflect local potentials and needs. Further, alternative energy should not be considered as a standalone sector within regional rural economies. Potential backward and forward linkages with rural industries such as forestry or manufacturing should be developed through an integrated approach to RE deployment. Collective action should be stimulated through intermediate institutions active in rural communities and policy makers should aim at involving a larger number of stakeholders in policy interventions to stimulate sustainable development and improve local support (OECD, 2012[135]).

Globally transport accounts for one-quarter of total CO2 emissions, largely driven by road transport (IEA, 2018[134]). While reducing transport emission is crucial for rural and urban areas alike, the solutions to each will vary greatly depending on the spatial configuration. In France, for instance, transport in areas of medium density close to cities accounts for about 17% of the country’s total CO2 emissions (The Shift Project, 2017[136]). Especially, medium- and low-density areas are heavily reliant on individual transportation including cars. Measures to punish high CO2 emissions, for instance by increasing tax on fuel to disincentive car use, are likely to disproportionally affect rural dwellers. The analysis of on-road transportation in the US shows much higher per capita emissions in rural than in urban areas. This highlights the need to investigate low-carbon transportation alternatives in these areas that are place-specific (Muratore, 2017[137]).

Reducing travel demand in rural places can save emissions and has the potential to (re)vitalise local business and services. Business and service availability play a role in reducing transport-related CO2 emissions in rural regions. The decline in local service provision in areas outside cities often results in the need for longer transport ways. Research shows that rural people like to use local services and that temporary subsidising local services can result in long term financial viability, while at the same time reducing emissions (Kamruzzaman, Hine and Yigitcanlar, 2015[138]). Further, innovations such as the collective distribution of e-commerce purchases to reduce individual travel can be used to support local business, as they function as order and receipt points (The Shift Project, 2017[136]). Other possible interventions involve aspects like increasing scope for teleworking or innovations in car-pooling possibilities. These can reduce travel and induce local interaction, for instance, if teleworking is located in rural co-working places. Germany’s first and most well-known rural co-working space is situated in Bad Belzig, in Brandenburg. The Community and Concentrated Work in Nature (Coconat) is a temporary work station in a remodelled estate. Since 2017, it has become a meeting place for digital nomads, urban working tourist and regional dwellers working for the digital and knowledge industry (Coconat, 2020[139]).

Incentivising and supporting low-carbon transportation need to consider population density. In places close to cities, improved bicycle infrastructure and service offers as well as improvement in public transports (express lanes and optimisation of train-lines) are important to offer alternatives to car use (The Shift Project, 2017[136]). In remote places, that have greater distances to overcome, solutions need to focus on alternative engines and technological innovations to reduce emissions. As new technologies enter the market, policy makers need to make sure certain sections of society such as the elderly and unemployed, who might not be able to afford or engage in these innovations, are not left behind (Kamruzzaman, Hine and Yigitcanlar, 2015[138]).

Land offers large potential to reduce emissions through sustainable approaches to managing land and livestock. Today, 70% of the global, ice-free land surface is affected by human use (IPCC, 2019[124]). By 2050 alone, land will need to supply 60% more food than today. Current land use (mainly agriculture and forestry) is responsible for around 25% of global GHG emissions (OECD, 2015[140]). Agricultural food production systems will need to transition to a low-carbon model in order to satisfy the demand for food production in a sustainable manner. The potential for rural development from more sustainable land use still needs to be unlocked. There is a range of instruments policy makers use to reduce emissions from land use, including standards and rules for land management, increasing investments in technologies and research, and targeting environmental outcomes or production practices. Improving the status of the natural environment contributes to the well-being of rural residents and can bring economic benefits through enhancing the potential for tourism or the value of food production. However, more remains to be done to maximise the benefits of such policy approaches for rural development, rural economies and well-being.

Resource extraction is needed for RE technologies. An increased need and growing market for certain metals (e.g. cobalt, copper, lithium, nickel and zinc) offers development potential for rural economies. At the same time, extractive industries generate a number of environmental impacts that influence local well-being. There is strong evidence that mining and extractive industries generate localised environmental impacts and externalities ranging from effects on land, water and air quality to noise, vibrations, wildlife extinction and aesthetic impediments (Noronha and Nairy, 2005[141]; Hendryx, 2015[142]; World Economic Forum, 2016[143]). This needs to be carefully managed to ensure long-term quality of life and well-being for local residents. Most common well-being effects of environmental degradation caused by mining operations relate to health impediments, disturbance of residence as well as to other livelihood activities dependent on natural resources. For instance, significant use of water in mining activities, such as copper and gold, can create conflicts with agricultural businesses, particularly in remote areas which may lack the necessary infrastructure.

Across OECD countries, mining and extractive activities are closely regulated to reduce environmental risks and impacts (OECD, 2019[8]). An essential aspect of this is environmental impact assessments (EIA) that aim to identify potential effects and damages caused by developments and help to foresee costs, losses and consequences. Despite this, some mining regions past mining and extractive activities have left legacy costs, which are costly to ameliorate. For instance, the remediation in Saxony in Germany amounts to EUR 65 billion and a project to relocate and confine uranium mining waste in Colorado is budgeted at around USD 1 billion (NEA/OECD, 2014[144]). If these costs are not defined in agreements with companies, then the cost burden can fall to public authorities or be resolved through costly litigation.

Resulting from increased public concerns for environmental preservation and sustainable practices mining companies and governments aim to make mining more sustainable. Local measures include a greater focus on more efficient use of resources (using less water, power and land) as well as a greater focus on starting remediation processes alongside mining operations and reusing and recycling commodities and metals. This offers opportunities for rural economic development, such as local universities and firms that support the development of technologies that can increase resource efficiency in mining operations and the value chain, and the potential to use decommissioned mine sites for RE production or other businesses.

The transition to a low-carbon economy needs to reduce waste and enable more sustainable use of resources. The circular economy concept aims to improve economic and resource efficiency by linking production processes so that a side or waste product of one production process is used as an input to another production process. This way, the value of products, materials and resources is maintained for as long as possible and waste is significantly reduced or even eliminated (OECD, 2019[8]).

The concept of the circular economy is not only a way to potentially achieve better environmental quality and increased resource efficiency, it is also a means for greater well-being and new job opportunities. In Romania, for instance, a modern dairy farm makes full use of all its products and by-products. The dairy farm includes an onsite biogas station that is fed by slurry and milk-processing waste from the farm and a wastewater treatment facility that provides drinking water. The upgrade of the farm has resulted in the creation of additional jobs that offer a large variety of tasks that allow the inclusion of people from different backgrounds. Success factors of the project included careful business planning, that combines profitability as all as environmental benefits with exiting regional potential (European Network for Rural Development, 2017[145]).

The full potential of the circular economy in rural communities is still largely untapped. Today, less than 10% of the global economy is circular (Circle Economy, 2019[146]). Making use of this potential requires rethinking business models to become more circular and policy makers to set the right support and incentive structures. This includes legal and financial incentives but also the stimulation of innovation and building a common knowledge base (OECD, 2019[8]).

Land use has a unique role to play in increasing carbon removals from the atmosphere. Yet, decisions on land use including agriculture, forest and infrastructure uses, are often guided by market forces, government incentives and regulations that do not always fully consider environmental costs and benefits (OECD, 2015[140]). The ability for rural communities to benefit from this requires a shift in the conceptualisation of environmental services.

Assessing, measuring and communicating positive externalities of ecosystem services can help to promote an improved understanding of the services that are largely unpriced. International initiatives include the UN Statistical Commission, System for Environmental Accounts (SEEA) and a global partnership launched by the World Bank to help countries implement natural capital accounting. Research suggests, however, that, these methods are complex to implement and require a tailor-made approach (OECD, 2015[140]). In the UK, for instance, the National Ecosystem Assessment framework considers economic value, health value and shared social value when evaluating changes in ecosystems (UK National Ecosystem Assessment, 2011[147]).

Payment schemes are one way for governments to reward the value of the provision of ecosystem services. Payments for ecosystem services (PES) usually involve per-hectare payments for the preservation or protection of a service. In France for instance, the European Agricultural Fund for Rural Development supports framers for conserving flower species in grasslands, meadows and pastures. A key aspect of the programme is that farmers qualify for the payment on the basis of demonstrated results rather than on performing specified actions and have full autonomy in how to manage their grasslands. This autonomy is an important success factor as it provides farmers with flexibility such as when to cut the grass. As an additional benefit, farmers develop knowledge on the identification of plants and develop a positive attitude and pride towards the value of biodiversity on their land (European Network for Rural Development, 2017[145]). Alternatively, payments can be dependent on fulfilling a defined management prescription designed to deliver specific benefits (such as providing suitable breeding habitat for vulnerable birds). Greater benefits can be generated where schemes are implemented by groups of farmers/land managers rather than individuals, thus at landscape scale, and hence ways to build the scale needed to be considered by policy makers.

The OECD has developed a list of 12 key criteria essential for increasing the cost-effectiveness of PES (Box 3.8) (OECD, 2010[148]). More recent assessments, however, find that financial incentives are not yet compelling enough (OECD, 2015[140]). Other factors such as empowerment, social dynamics, availability of advice and training, respect and recognition play an important role. Further research needs to be done on how sustainable land management practices including reduced deforestation, restoring degraded land, such as drained peatland, low-carbon agricultural practices and increased carbon sequestration in soils and forests can be used to foster rural development.

Transition processes involve synergies and trade-offs between different policy agendas. Competing policy objectives easily create confusion, for instance when it comes to trade-offs with regard to land use. Enhancing coherence requires overcoming sectoral and segmented decision-making and the promotion of policy integration across sectors such as climate change, industry, infrastructure, food security, forestry and economic development (OECD, 2015[140]).

A number of EU countries already embed climate change objectives in the local economic development strategies and programmes (OECD, 2013[149]). An analysis of the EU’s Regulation for the European Agricultural Fund for Rural Development (EAFRD) for 2014-20 which identifies “promoting resource efficiency and supporting the shift towards a low-carbon and climate-resilient economy” as one of the six priorities for rural development, features a range of examples that range from finance to investment, skills acquisition, supporting market access and enabling co-operation (EU, 2017[150]). Apart from case studies, there is no in-depth understanding to what extent regional development policies feature climate change objectives and incentives to transition to a low-carbon economy across other OECD countries. Also, more work is needed to identify how policy makers could help manage synergies and trade-offs between the different agendas to make create opportunities for environmentally sustainable rural economies.

As countries make commitments to transition to a low-carbon economy, policy makers must pay special attention to the needs of rural dwellers. In terms of renewable energy, for instance, rural communities are more likely to oppose installations if they are perceived as “top-down” and do not allow for participatory decision-making or provision of local benefits. This often happens when renewable energy policies are viewed as “hard” industrial policy that offer limited possibilities for hosting the involvement of communities and hence do not feel some ownership for interventions or share in the overall vision (OECD, 2012[135]).

To improve opportunities for the active participation of rural dwellers, policy makers must create meaningful mechanisms for engagement. Case studies suggest that, operating with a low communication threshold and offering platforms to involve different voices, is crucial to building trust in transition processes. Further, early engagement with key stakeholders in goal setting and planning will also help ensure the relevance and consistency of policy objectives and expectations. Generally, governments play a key role in terms of brokering and facilitating solutions between different stakeholders. They can balance multiple interests and objectives between researchers, private companies and civil society and are crucial to opening up new networks, supporting and mobilising leaders and enabling people to identify the collective benefit.

Across these three priority objectives, a couple of crosscutting themes emerge. These are important to highlight the interconnectedness between the areas and to build an enabling environment for all three objectives.

  • The first relates to human capital in rural regions. Upgrading skills and knowledge is needed to deal with upcoming changes in technology, demography and climate as well as to increase the attractiveness of rural regions to balance outmigration through improving quality of life across all three dimensions.

  • The second relates to digital infrastructure and its possibility to open new frontiers of well-being in rural regions by enabling new ways to produce, work, communicate, trade, consult and manage.

  • This is closely linked to the third, which deals with setting up required innovation systems to enable new opportunities, such as developing advanced automated production processes and new ways of public service delivery to remote places, as well as improving resource efficiency and smart ways to safeguard natural capital.

  • Finally, the fourth suggests that all policy areas need to be sustainable. This not only means that policies should be aligned with environmental and climate change goals, they also need to consider well-being implications and outcomes for future generations and deliver on equity amongst peoples.

Demographic, economic and environmental changes require investment in human capital in rural communities, to ensure adaptability to a changing world and the uptake and creation of new ideas and technologies. Many rural places cannot draw on knowledge and skills as readily available as cities; instead, regional economies need to build human capital or attract people that have the needed skills and knowledge. Only in this way can rural communities ensure the future use of economic, social and environmental opportunities. Economically, human capital is key to build competitive economies, transition to higher-value-added activities and become more dynamic in adjusting to new market requirements and technological innovations, including expanding digital infrastructure. Similarly, upgrading skills is required to effectively deliver and maintain a new generation of educational and health services that embrace technological progress and require an understanding of software and hardware in all age groups. Environmentally, rural communities can only become resilient to climate change and drive mitigation activities if they possess the right expertise in sustainability practices and technologies, including sustainable land management and circular economy systems. The section above outlines different techniques that can be used to build human capital, ranging from improving local education offers and making use of currently underutilised knowledge such as traditional Indigenous knowledge and the internationalisation and attraction of migrants to access and build new networks and knowledge streams. In order to attract and retain people, rural places will also need well-maintained airports, roads and ports and other infrastructure to facilitate accessibility, as well as high-quality public services.

Any choice of location, be it for private or personal reasons, nowadays largely depends on available and affordable Internet connections in order to overcome distances to markets, services and knowledge. In the endeavour to attract people and businesses to rural communities, digital infrastructure including high-speed broadband as well as accompanying requirements such as stable energy, wires and computing centres is indispensable. Digital infrastructure can spur new forms of economic activities and jobs including tourism, services (marketing, design), niche manufacturing and food production and can provide alternative employment pathways for young people. It also enables contact and exchange with other sectors and markets which generates innovation. Further, it allows for the delivery of quality services at a reduced cost, for instance long-distance education. It can also be essential to overcome isolation and facilitate teleworking, as demonstrated during the COVID-19 crisis. Environmentally digital infrastructure is relevant as it can reduce the need for transportation and travel, which is an important source of emissions, but also enables a better understanding of land use through live tracking to inform policy making. Without the right incentives and policy interventions, rural communities could miss out on the benefits of the ongoing technological revolution further widening inequalities. Box 3.10 summarises good practices of rural broadband development.

Rural communities can offer a quality of life and amenities attractive to people with skills and capital through innovation. While (product and service) innovations are important in the economic context to increase competitiveness and open up new market possibilities, they are also vital in solving societal and environmental challenges. Social innovations can be used as a tool to enhance social well-being and add to building vibrant community lives through advancing social support networks and trust amongst different population groups by reconfiguring societal practices in response to societal challenges. To integrate and retain migrants for instance, actions might include connecting migrants to the local labour market, learning about different traditions through communal social activities. Similarly, innovations are crucial to move away from unsustainable climate-damaging actions and seek solutions to improve aspects like energy efficiency, closing waste cycles and protecting biodiversity. Supporting the emergence of new practices can benefit rural regions across all three objectives. Innovation strategies should support a wide-ranging collaboration and partnership among public, private, not-for-profit and educational organisations to promote relationships and build trust, while also equipping local actors with leadership and networking skills, complementing know-how and assuring access to finance.

Overall, the policy focus must evolve away from short-term and sectoral support towards helping to build conditions favourable for the long-term sustainability of rural economies. Investments in human capital, digital infrastructure and innovation are important to enable the development of sustainable long-term goals rather than coming up with short-term responses. To secure well-being for future generations, sustainability – in terms of aligning economic, social and environmental objectives – is required. It is not enough to just deliver on one objective as all are interconnected. This means that policies to increase productivity cannot fall short of environmental or social considerations. Similarly, environmental considerations such as transitioning out of carbon-intensive industries must be economically and socially just. Hence all rural policies should make sure they are sustainability-proof.

Rural Well-being: Geographies of Opportunities is a policy framework aimed at helping national governments support rural development across different types of rural regions, encompasses economic, social and environmental objectives and is inclusive of different stakeholders. Earlier frameworks in OECD countries on rural development focused on sectoral support and subsidies to promote rural development. The rural well-being approach is a progression and a refinement of the New Rural Paradigm from 2006 and represents a people-centred approach, focusing on how to improve the well-being of rural dwellers, making rural regions places of opportunities.

In essence, the OECD’s new rural development framework, Rural Well-being: Geography of Opportunities, is built on:

  • Three types of rural regions – Those near a large city, those with a small or medium city and remote regions.

  • Three objectives – Encompassing not only economic but also social and environmental objectives.

  • Three different stakeholders – Including the government as well as the private sector and civil society.

The framework is based on what OECD countries have learned facing numerous structural changes that have had strong implications for rural region, many of which have been amplified by the recent COVID-19 pandemic. Structural changes include global megatrends like demographic change, increased digitalisation and environmental change that play out differently in rural regions: the population has grown slower in rural regions compared to metropolitan regions; shrinking shares of younger populations create labour market shortages; technology will have the ability to improve living standards but also carries the risk of job relocations; and rural regions are crucial but also vulnerable during the transition to a low-carbon economy. The chapter further explains how the shift to a service-driven economy bundled with GVCs has disadvantaged OECD rural regions that have limited economic diversity and rely on tradeable goods. Growing regional inequalities have further shown that GDP is not good enough to understand what constitutes a good life for people as well as what assets regions might have. In line with that, the chapter argues for a more comprehensive framework to cope with current and forthcoming changes in rural places. It highlights the need for rural policy makers to find ways to succeed in a dynamic environment and address a number of interconnected challenges and opportunities at once.

The analysis of contemporary rural trends suggests three priority dimensions of action for OECD countries to increase well-being. The first, the economic dimension, is focusing on how to increase productivity and foster competitiveness in the context of GVCs and digitalisation. This includes implementing incentives and mechanisms that support rural economies in identifying unique assets, enhancing innovation investments in enabling factors such as developing skills and fostering internationalisation. The second, the social dimension, is how to adapt to an ageing population and address demographic pressures. Focus areas include making rural places more attractive through the provision of high-quality services and leveraging economic opportunities associated with an ageing population. Further, it highlights opportunities resulting from social innovation and reinforcing rural education systems. The third, environmental dimension is supporting rural economies in the shift to a low-carbon economy and ensuring the protection of natural capital. Priorities will include facilitating shifts to more sustainable forms of land use, investment in renewable energy, devising new systems of rural transportation and proactive support for regions affected by economic restructuring. Across all of these dimensions, four crosscutting areas are identified. They include: investments in human capital; digital infrastructure; innovation; and sustainable thinking. These areas are important to build and create an enabling environment for all three objectives illustrating their interconnectedness.

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