Is it really a depression?

SOMEWHERE in the 1980s, rural America took a wrong turn on the road to prosperity. If urban America's highway seems well paved and well lighted these days, rural Americans find themselves on a fogbound road full of potholes. Not all rural Americans are stuck in the mud. But the problems many face are severe enough to emerge as major issues in this decade. Rural communities are going through a period of economic contraction -- but their citizens haven't lost hope.

Here on the Iron Range, in a small, green living room with a dirty red curtain pulled back at one end, John Golden of Evelyth fills out job applications. Four years ago he lost his $24,000-a-year job mining taconite, a key ingredient in steelmaking. Now, he scrapes by on $3,000 a year in welfare payments and food stamps. ``This is all I need,'' he says of his small, dilapidated house.

Outside Bucklin, Mo., Jerry and Jeanne Parks used to live in a large home and rent a two-bedroom house to others. When bankruptcy took their larger home, the farm couple moved to their smaller property. Last month, unable to keep up the payments, they lost ownership of the second house and the rest of their land. ``We're going on a wing and a prayer,'' says Mrs. Parks. Now the couple hope to rent the house and the land they used to own.

``If what has happened to agriculture had happened to the whole country, there's no doubt that it would have been deemed a depression,'' says Neil Harl, an agricultural economist at Iowa State University.

``It's a rural depression, although you can be nice and call it a recession or deflation if you want,'' says Carl Anderson, an agricultural economist at Texas A&M University.

Up to now, however, it has been a selective depression, pinching some and crushing others. The question facing America is how far the decline will spread.

The trouble stems from the contraction in natural-resource industries that began in the early 1980s. During the deep recession of that period, the economy flip-flopped. Instead of high inflation and low interest rates, which had fueled the '70s boom in manufacturing, agriculture, and other natural-resource industries, the opposite became true. Consumers and service industries zoomed out of recession, while resource-related industries, major rural employers, never fully recovered.

``In 1983, people looked at it as another recession'' on the Iron Range, says an economist at the University of Minnesota. But in all these historically up-and-down industries, there is a widespread perception that the current downturn is more permanent.

Oregon's lumber industry is a classic example. While production shows signs of recovery, nearly back to the boom years of the late '70s, prices remain low and consolidation is keeping employment 22 percent below 1979 levels. ``The timber industry will never be back to that level locally,'' says Dale Young, who heads the economic development effort of Union County, Ore.

The other big question mark is oil. No one seems to know if the six-month tumble in prices is short-term or long-term. Analysts point in all directions. West Texas is just beginning to feel the effect.

``We're seeing some of our oil-related businesses close, which might be expected,'' say Scurry County judge Preston Wilson. On top of an already weak farm economy, the declines don't bode well, he adds. ``In the past few weeks, we've lost two clothing stores and two furniture stores.''

By itself, the downturn in natural-resource industries would be too small to drag down the rest of the rural economy. In 1980, agriculture, forestry, fisheries, and mining employed 10 percent of the rural work force, while manufacturing (25 percent), trade (18 percent), and professional services (17 percent) each played greater roles. The problem is that these industries and businesses are interconnected and, in many remote rural areas, resource-related activity is crucial to the survival of small towns, economists say.

``It's spreading down Main Street,'' says Alvin Wheaton, a farmer in Lewis, Kan. The nearby town of Kinsley has lost both of its farm-machinery dealers, he says. Instead of five auto dealerships, there is now one.

In Texas, with 80 percent of Scurry County's tax revenues derived from oil production, country services and local schools could be hard hit if oil prices don't recover by the end of the year.

A similar budget crunch looms for many small rural communities. One nine-county farming area of southwest Minnesota has lost 29 percent of its property tax base since 1983, according to a recent study by the US Senate's intergovernmental affairs subcommittee. More erosion is expected because Minnesota's farmland values have declined nearly twice as much.

``We're just seeing the tip of the iceberg,'' says Tom Stinson, a University of Minnesota economist, who headed the Senate study. In 1984, with only a slight fall in the tax base, one school district in the area cut its budget 10 percent, laid off seven staff members, eliminated a bus route, dropped two sports, and saw its reserve funds disappear at the same time. Tax delinquencies in the state have soared from $500,000 in 1981 to more than $3 million last year.

Larger, more diversified communities may escape the severest squeeze. Hibbing, for example, in the heart of Minnesota's Iron Range, has more or less maintained its $10 million annual budget, says Mayor Richard Nordvald. ``But it's getting more difficult every year.''

All is not, however, gloomy in rural America. In the face of a seemingly inevitable economic contraction, the countryside is dotted with examples of innovation and entrepreneurship.

In Littlefield, Texas, a group of cotton farmers have pooled resources to build a textile mill. They now process their cotton into denim. The result: higher returns during a period of depressed cotton prices.

After six years of losses in the troubled timber industry, Bob Peacock is modernizing his small, 30-year-old sawmill north of La Grande, Ore. ``We all have to get tougher and be innovative to be here tomorrow,'' he says. One of Mr. Peacock's targets: Japan and its need for accurately cut 85-by-85-millimeter studs.

The decline ``triggered a complete turnaround in the community's attitude,'' says Phil Neighbors, development director of the West Texas Chamber of Commerce. Last month, the town of Eden, a sheep-ranching center in decline since the '50s, broke ground for an industrial park. Two businesses are already committed to it.

``Attitude plays such an important part in it,'' says Norm Starr, who lost his Hartington, Neb., store in 1983 and now works as a service man for a computerized livestock feeding program. ``We're all going to run into things that don't work out the way we've planned. [It's a] blessing in disguise . . . if you're willing to pick yourself up and start over.''

Part one of a five-part series. Next: farmers produce more, but get less.