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Sunday, November 23rd, 2008

Detroit: Do the Collapse

I enjoy swapping “war stories” about work as much as the next guy. I’ve heard a lot, but some of the most incredulous came from a college buddy who used to work for General Motors. He was a manager level employee in field operations, but was often called in to work auto shows and the like. What was his job at the auto show you might ask? Well, at one Chicago Auto Show, his first responsibility was to make sure the hotel room for the executive was prepped correctly. This exec had very specific detailed requirements as to the brands of soft drinks, liquor, chocolates and cigars that needed to be on hand when he arrived, so it was my friend’s job to make sure this happened. After that, he got his company Escalade and went to O’Hare to pick up said exec’s wife, whom he then spent much of the afternoon ferrying around on a Michigan Ave. shopping trip.

There’s a lot more in this vein, but that should give you a flavor of the auto industry. Even if you assume a lot of this is exaggerated for effect or outright BS, I’ve heard so many similar type things from people who’ve been associated with the auto industry that there must be a kernel of truth in it somewhere.

I lead with this because it is so common to blame the UAW and its $73/hour or some such wage packages for the problems facing the Big Three. And indeed in the modern era that is not sustainable. But there has been particularly little focus on the management excesses of the auto industry, and the corporate cultures of those companies, and by analogy that of Detroit.

Detroit represents the American urban decline story in its purest form. The Detroit region and indeed the whole state of Michigan is in serious trouble. Of all the cities of the Midwest that are are struggling, I think it has one of the toughest roads ahead. It it is fighting terrible structural problems that hobble its ability to compete. The linkage of its fortunes and its public image to automobiles is of course a big problem. The auto industry not only brings many image stigmas, it is also an industry that is undergoing a painful restructuring. Until that restructuring is complete, the city and state can never recover.

The model here is Pittsburgh, which, with the disappearance of the steel industry in the 70′s and 80′s underwent a civic catastrophe the likes of which few places have ever seen absent being overrun in war. Today, while Pittsburgh still has serious problems, it seems to have hit the inflection point and many of the indicators for that city are now positive. I think there’s a powerful lesson there. Until Detroit hits what traders call the point of “capitulation”, there’s little chance of the city reversing its fortunes. That’s a painful reality. The auto industry and the city and state must work through their restructuring before things can turn positive.

Beyond the auto-industry dependence and branding, Detroit also famously suffers some of the worst racial polarization in America. Moreso that most Midwest cities, Detroit has a rich black cultural heritage, and it already has a powerful image in the public mind as a black city. Those who know me know that I think that there is a big opportunity for Midwestern cities to put their black communities at the center of their civic growth strategy. I’m astounded almost no one has done this. Just look at what having a robust and engaged black community in Chicago has done for that city. Without that robust black infrastructure, no President Barack Obama from Chicago in the White House. The problem for Detroit is while it has great assets in this regard such as its Motown music legacy, the racial polarization of the region vitiates them. Healing that divide is critical to the future success of the city. The antics of Kwame Kilpatrick, the disgraced and jailed former mayor of the city, only adds to the problem by reinforcing stereotypes. He also illustrates the feckless leadership in the city proper.

But there’s another structural problem as well, one that is not often remarked upon or considered. Namely, Detroit is just plain too big. With a metro area population of 4.4 million (effectively even higher since Canada isn’t included), Detroit is the second largest metro in the Midwest by a good margin and one of the largest cities in the country. This creates a gigantic mouth to feed. And it makes it just incredibly difficult to turn the ship around. Detroit and the state of Michigan (and Ohio) are the size they are because large volumes of unskilled labor were needed in their factories. Without those factories, the need for the people evaporates. There is simply no raison d’etre for a city the size of Detroit in Michigan today. One reason Indiana is faring much better than Michigan and Ohio despite having lower educational attainment levels and a higher dependence on manufacturing is that it is half the size of those states. This makes its problems much more tractable. One of the biggest problems facing Michigan and Ohio is simply the sheer size of those places. (Illinois is big too, but its population is heavily concentrated in Chicago, which creates a different dynamic).

Any realistic plan for tackling the challenges has to face up to these structural dynamics and put together a strategy for addressing them. Unfortunatley, that hasn’t been a hallmark of local thinking. This isn’t limited to Detroit. I see it repeated in so many similar places. No one wants to admit that their glory days are behind them, that their future is dimmer than their past. That’s not the American way. It’s not the type of forward thinking optimism that we’re used to in this country. But for any number of cities, Detroit being one of them, dealing with the present involve acknowledging that you can never recapture the past.

This is antithetical to how civic leaders are trained to think. Indeed, we see lots of the same types of programs in Michigan and Detroit that we see in every state. Lots of talk about assets, lots of marketing and hype, some small victories – new companies, new jobs, a big research grant, etc – but ultimately not enough to move the needle. I don’t want to lecture too much here. I realize this is a hard and painful thing.

There’s an organization called Detroit Renaissance that appears to be a primarily corporate vehicle for trying to renew Detroit. I actually happen to think they’ve got some good ideas. They have a podcast series called “50 CEO’s on the D”, which is where the CEO’s of the 50 companies that are behind this come in and talk about some aspect of the city and why it is great. One of the things that always comes through for me is how much these people love Detroit and are passionate about the city. I’ve seen it in others as well, even those who left. A friend of mine in Chicago who grew up in Grosse Pointe still talks about how much she wants Detroit to succeed and how much she still cares about it. So there is a reservoir of deep feelings about Detroit. But what that does is often to cause people to not be able to realistically evaluate the situation and instead adopt a “failure is not an option” approach and say that Detroit and Michigan is going to be the next new hip place or the big center of some brand new innovative industry. But the reality is that Detroit is poorly placed to achieve this and it would be better served to adopt strategies designed to slowly bringing the city back to health, even if that means abandoning these super-sky-high ambitions for the time being.

The recipe for Detroit and Michigan is something like this:

  • Complete restructuring of the auto industry
  • Heal the racial divisions
  • Adopt an active shrinkage strategy to reduce the population of the city and state
  • Adopt a regional hub strategy with Grand Rapids as the focus of western Michigan and Detroit as the hub of the east.
  • Continue the good things that are being done on tourism, which can be an ever increasing industry along the Great Lakes and in the north and UP. This is already being done.
  • Restructure state government to be more business friendly, lower tax, and lower cost.
  • Continue to seek to leverage the economic development potential of U of M and State. This is already being done.
  • Create realistic sector specific approaches where Detroit and Michigan are well suited to compete.

This is going to be painful. But it is going to be painful regardless of what anyone does. The restructuring of the auto industry is going to happen. It’s only a matter of how long and painful it will be.

Regarding restructuring, the auto manufacturers are in denial. GM says bankruptcy is not an option. I’ve got news for GM, bankruptcy is the only option. It is physically impossible to restructure the domestic car manufacturers without it. Among other things, restructuring implies rationalizing dealer networks, something that illegal under state franchise laws passed by legislatures that are in the dealers’ back pockets.

I’ve seen estimates that 2-3 million jobs could be lost and that chaos would ensue if the auto makers went bankrupt. That’s probably true if GM, Ford, and Chrysler just waltz down to the court house and file. But it is not the case if they have a government sponsored, pre-packaged bankruptcy. Still, I think it is likely a very large number of jobs are going to be shed across the automotive value chain. Possibly a million or more.

This is a terrifying number to contemplate. But it has to happen and it will happen. It is just a matter of how long it takes to get there. Eventually market forces will drive it. The domestic auto sector simply employs far too many people. The future of the auto industry looks a lot like the steel industry: continued large production volumes, but with a significantly smaller labor force and market based pay and benefit packages. Notably, every US steelmaker except USX went bankrupt.

I’ve been involved in a lot of conversations and listened to presentations on the auto crisis, and there is remarkable consensus among the people I’ve talked to on what should be done. It centers around a government backed, special purpose, pre-packaged bankruptcy that accomplishes the following:

  1. Capital restructuring. All equity and junior debt holders are wiped out. Senior debt holders are forced into a debt-equity swap. The auto makers should emerge from bankruptcy relatively debt-free.
  2. Strategic restructuring. The domestic auto makers have too many models and too many brands. They should dramatically reduce these. Focus on building one great car instead of “brand engineering” to rebadge the same car multiple times. This involves a significant reduction in the quantity of dealerships.
  3. Re-evaluation of the survival of a standalone Chrysler. Perhaps the healthy Jeep, mini-van, and Ram truck franchises could be sold off and the rest of the company wound down.
  4. An infusion of outside management talent. I’m not saying you have to decapitate the leadership of these companies. But I think Alan Mulally has shown that you can bring in an outsider who can make a huge difference. That guy is the biggest reason that Ford is in the best shape right now. He’s done amazing things. Had Ford brough him in 10-15 years ago, the industry might be in a different position today. If Congress forces Mulally out, it would be a tragedy. There is an incredible solipsism in the auto industry. Even one of its fiercest critics, the amazingly awesome Peter DeLorenzo at autoextremist.com, has drunk the kool-aid on this one. He says the auto industry is unlike any other in the world. This implicitly seems to argue that only an insider can run a car company, but Mulally is proving it doesn’t have to be that way. (I know DeLorenzo loves Mulally). The reality is that the auto industry needs to be a lot less unique and a lot more like any other major industrial concern. Boeing and GE have long lead times, etc. in many of their businesses and have done very well. The auto makers need to recruit – potentially with a dose of patriotic arm twisting from President Obama – absolute top talent to see through the restructuring: strategic talent, operational talent, financial talent, organizational talent, etc. Again, this isn’t a wholesale purge of the current management, but an influsion of new blood is clearly needed.
  5. A massive change in the corporate cultures. This is the hardest to change, frankly. But arguably it is the most important for achieving lasting success. The culture of perks and hierarchy, of having to make sure you listed the names in the right order on an internal memo, has just got to go.
  6. Labor force restructuring. All future pension accruals to be terminated and replaced with 401(k)’s, termination of retiree health benefits, elimination of the jobs bank, required employment levels, and restrictive work rules. Everyone is put into the lower scale in the existing two-tier wage structure agreements.
  7. Federal assistance. The feds have a key role to play. One, in guaranteeing the ongoing operations of the company and providing DIP financing during bankruptcy. It also needs to federalize the auto-business by using its interstate commerce powers to blow away state franchise laws and other restrictions on auto operating practices such as bans on direct sales. The most important role for the federal government is to provide transitional assistance to people affected by the radical labor changes above. Someone who took early retirement at 55 in the good faith belief that they had health insurance should not be left out in the cold. The feds should extend Medicare or a similar type of health coverage is available to those who need it. Not gold plated you don’t pay a dime for anything coverage, but solid, quality health coverage. Similarly, through the PBGC, the feds should be sure no one take a huge writedown on their vested pensions. And there should be assistance to older workers who would be adversely affected by the switch from defined benefit to defined contribution plans. And the feds should provide job training and other educational opportunities to those displaces, as well as relocation assistance (see below). These programs should apply to the entire value chain, not just the OEM’s.

This sounds straight forward but it is a clinical description of what amounts to dropping a nuclear bomb on the industry. It sounds simple, but the human toll is going to be terrible. Again, that toll is coming regardless of whether this plan is adopted or not. Even if the feds just hand the companies funds to get through the crisis, that only delays the day of reckoning. For many older workers, that might be just fine with them. Part of the problem is that there is a perverse incentive whereby older workers are made not to care about the long term future of the company. If they just hang on long enough to make it to retirement with full benefits, even if that means GM long term fails, that may be personally beneficial for them. I’m not saying people are out there promoting it, but there are game theory reasons to believe this might be an incentive.

If one thing has been made clear by this auto crisis it is that the nation has lost its sympathy for Detroit, and even for labor. I know that particularly baffles the UAW. But it is understanable. Once the UAW could be seen as the vanguard of labor rights. What the UAW got for its members, the rest of American labor might hope to see themselves one day. Today, nobody believes that. Instead, the UAW is the defender of the last bastion of entrenched labor privilege. They are indeed a labor aristocracy. This is why they are no longer loved.

Even so, we can’t lose track of the fact that there are real human beings, labor and management, with real trauma in their lives. Even if they are at least partially to blame for the mess they are in, that doesn’t mean they deserve what they are getting. It’s like a Greek tragedy: the suffering is disproportionate to the crime. And there but for the grace of God go you and I. I also work in a restructuring industry, and may yet join the auto workers in their pain.

The stories you hear in the Detroit papers are heartbreaking. One that really stuck with me was about people losing their life’s possessions when they couldn’t pay the rental fees on storage lockers. People who had already lost their homes to foreclosure put their possessions in storage, only to lose them too as the storage companies auctioned them to pay the bills. I’m not an emotional guy, but this makes me sick to my stomach. I don’t know about you, but I don’t think this should be happening in a country like America. People who made decisions in good faith, who showed up to work every day, who did the right things to care for their families, shouldn’t be left to lose everything because of the action of economic forces they can’t understand or control. Not in America. That’s why we absolutely need a federal safety net program here. Michigan alone can’t fund this.

Which brings us to the next point: urban shrinkage. Just like the auto manufacturers themselves, Detroit and Michigan need to get smaller, a lot smaller. It doesn’t help to retrain people for different jobs if there aren’t any jobs to be had. In my view the biggest piece of assistance that the federal government can give is relocation assistance. Help people sell their homes – buy it from them if you have to – and give them enough money and support to get re-established in a different part of the country where there are better economic opportunities. I know this sounds radical and heretical, but shrinkage has to be part of the puzzle, especially for Michigan and Ohio. It’s already happening naturally. Detroit has net outmigraton of 58,000 people per year. If this were tripled, in 10-15 years the population could start getting reduced to something more manageable. Detroit would be much better off with a popoulation of 2.5-3 million instead of 4.4 million. I don’t think it will get that far, but some shrinkage is key. Without it, the chronically unemployed will be a huge loss to the state, and also the inability to find meaningful employment will rob the people themselves of their dignity and potential.

I can’t say I fully endorse this yet, since I haven’t thought through the implications or how exactly it would work, but I think the federal government needs to step up with a major “controlled shrinkage” program for the greater Rust Belt. This is really embracing the Youngstown strategy at scale, with serious federal money behind it. It will be politically challeging if not impossible. But since I’m just a blogger, I can at least put the idea forward.

Cities need to be categorized. Some, like Columbus and Kansas City, are doing well and can be invested in as growth cities. Others, like Cincinnati, are below national average in growth, but are growing. They need different strategies. And many places are struggling, Detroit, Cleveland, and especially many of the smaller industrial cities, and an active shrinkage program should be put in place to put them on a sustainable base. This involves abandoning the pretense that these cities will become thriving urban meccas on par with the Charlottes and Austins and Denvers of this world. It means active relocation assistance to help people resettle elsewhere. It means funds to acquire land and “decommission” parts of the urban fabric. This is what Youngstown is trying to do by actively encouraging people to leave certain areas, with plans to rip out the infrastructure later. Perhaps large portion of the city of Detroit could be turned into nature reserves in this way. (Google “urban prairie”). And there would be significant investment in brownfield cleanup. Infrastructure funds are targeted at renewal in select areas, not in capacity expansion for growth or for some type of large scale urban transformation.

In terms of government restructuring, Michigan needs federal assistance to fund its industrial transition. But it needs to adopt a more business friendly approach, and find ways to lower the cost of doing business. One other radical idea: why not a mass commutation of the sentences of certain types of non-violent offenders in the prison system, such as those convicted for minor drug possession? Michigan spends more on prisons that most states. It spends more on prisons than it does on education. No state can survive like that. While violent criminals surely need to be locked up, can the state afford to lock up everyone else? Changes to sentencing and prosecution can make this change permanent over the longer term. In the shorter term, some type of controlled release program might be better. There’d possibly be a short term uptick in spending to fund probation officers, drug and alcohol treatment, etc, but in the long term corrections spending would decline.

As for Detroit sector specific industries, there are many possibilities:

  • Clearly, automotive R&D will continue to be big. The auto industry is not going away in Detroit.
  • Music. Detroit has one of the strongest legacies of music of any city in America, from Motown, to electronica, to hip-hop. Many popular acts have come from Detroit. But I don’t think Detroit has figured out how to monetize this. Nashville figured it out. Detroit also needs to figure it out, though I won’t pretend this is easy.
  • The Detroit Renaissance Aerotropolis plan is a very good one. Detroit has a fabulous airport. They need to aggressively defend their hub (which admittedly the shrinkage strategy is harmful to), and look to develop airport related industries.
  • Being the entry port for cross-border traffic to Canada. A huge portion of the goods that flow between the US and Canada go through Detroit. Significant infrastructure spending can be directed to relieving bottlenecks. How can Detroit monetize this?
  • What commercial potential could come out of Ann Arbor?

There have to be a few others out there. I do not believe chasing the same creative class/biotech dream as everyone else is going to work for Detroit. Certainly not enough to really change the game there.

For the other items, talking about Grand Rapids as a hub is beyond the scope of this already too long post, but clearly large cities are the entities best positioned to compete the global economy. The state should concentrate its resources where it has a chance to win. Tourism is a no brainer. Michigan is already a great tourist destination. As for improving race relations, honestly, I won’t profess to have the answers on that one. It is one of the great challenges bedeviling our country.

Perhaps my ideas sound radical. And indeed they might not be right to implement. But they are certainly ideas that should be explored. Radical problems often call for radial solutions. And with eight straight years of recession, Michigan can’t afford to be taking any options off the table.

There is a lot of good reading out there on Detroit. I mentioned Detroit Renaissance earlier.

Here is a report called Roadmap to Michigan’s Future by a group called the Millenium Project at the University of Michigan. Not surprisingly, investing in education is high on their list. Clearly, this needs to be a focus in Michigan, but my view is this report envisions too sharp a pivot for the state. This is the “we will dramatically transform ourself into knowledge economy” ambition that I think is probably a bridge too far for the state until the restructuring I mentioned is completed. Still, good ideas that should probably be pursued in parallel.

There’s another organization called Michigan Future. They published a very interesting report called A New Agenda for a New Michigan. It is also of the dramatic transformation variety.

I’ll also note the New Economy Initiative. This is a $100 million fund to help transform southeast Michigan. It helps fund Detroit Renaissance among other things. They don’t seem to write reports themselves, but it is notable that John Austin of the University of Michigan and the Brookings Institution, is the director.

One of my favorite reads is Detroit News columnist Daniel Howes. He’s pretty good at calling it like it is in Michigan, though like DeLorenzo, he backs the bailout.

Also in the Detroit News recently, “Michigan asks What’s Next?” And the editorial board begs for a bailout.

Here’s an example of what I mean on changing the ambition level. Detroit wants to build a big rail transit system. This is a variation on “silver bullet” thinking where Detroit will build light rail on Woodward and suddely life will be pumped into the city. It’s possible I guess. But while that strategy might be appropriate for higher growth locations like Columbus, I don’t think it is where declining cities like Detroit need to be spending their money. Detroit has much higher priority needs than this.

Coverage on the auto crisis from the Chicago Tribune.

Lastly, there is no better source of information about the automobile industry than the aforementioned autoextremist.com. It more than lives up to its billing as “the bare-knuckled, unvarinshed, high-octane truth.”

32 Comments
Topics: Civic Branding, Demographic Analysis, Economic Development, Globalization, Public Policy, Regionalism, Strategic Planning, Sustainability, Talent Attraction, Transportation, Urban Culture
Cities: Detroit

32 Responses to “Detroit: Do the Collapse”

  1. Anonymous says:

    “many places: Detroit, Cleveland, and especially many of the smaller industrial cities, an active shrinkage program should be put in place.”

    Can you name a few more? The notion of triage for cities makes sense to me, but I don’t get around the midwest enough to have an informed opinion, and would be interested in what you (or others) think.

  2. The Urbanophile says:

    anon, the term "triage" is probably a bad one since it implies letting some places die. Perhaps "categorization" is a better term. I think the strategies that are applicable to cities in different circumstances are likely to be very different.

    Conveniently, I've already put a lot of thought into this. I realize it is likely to start a flame-fest, but here is how I sort Midwestern cities > 500K metro. This excludes other portions of the Rust Belt like Pennsylvania, upstate NY, and western Mass, but could easily be extended.

    Global Cities
    Chicago

    Successful Cities
    Columbus
    Des Moines
    Indianapolis
    Kansas City
    Madison
    Minneapolis

    Interestingly, Kansas City is the only one of these that is not a state capital.

    Stable Cities
    Cincinnati
    Grand Rapids
    Milwaukee
    St. Louis

    Struggling Cities
    Akron
    Cleveland
    Dayton
    Detroit
    Toledo
    Youngstown

    I think its fair to say that any smaller cities are probably in the Stable or more likely the Struggling category. The smaller industrial cities out there are really hurting unless they have a major college in them or something.

    This will be a separate blog posting soon.

  3. briefs says:

    Great thoughts on though situation. I was glad to see that you blanced your criticism of the auto industry with an equal observation that neither labor nor management has taken serious the fact that the business model is a total failure.

    In this situation bankruptcy is the only option, and yes that will involve the government having to step in and pay a lot of pensions. I wish it weren’t so.

  4. Jefferey says:

    Youngstown is already well-known for their shrinking city plan.

    Dayton is going to follow Youngstowns’ shrinkage concept as a matter of policy. They are already gearing up for a big demolition program.

    For the Dayton area, Montgomery County, there already has been a pattern of outmigration of yound adults between 1990 and 2000 census, and this was a relatively “good time”, economically speaking. So there is a demographic downslope here which will eventually balance out when the region restructures into a smaller, more diverse economy.

    As for the storage locker story, I recall reading about this before someplace else. It’s a fact of downward mobility. If one loses the house, one doesn’t need all the stuff that goes in the house if they can’t fit it into an apartment.

    This happened during the Dust Bowl, too. The dirt farmers sold off their stuff before they headed west to California, which meant there was a little antique row near downtown Oklahoma City where all that old familiy furniture was re-sold.

  5. The Urbanophile says:

    thanks for the kind words, briefs.

    Jeff, thanks for the info on Dayton.

    As for the other things you say, this is a modern day “Grapes of Wrath” situation. It is sad to think that we’re back to the 1930′s, but apparently we are. In a country as rich as we are today, we should not be doing a reprise of the Dust Bowl 1939.

  6. j allen says:

    Have you ever even been to Detroit? Detroit has been falling apart for a *long* time. Since Coleman Young started stockpiling krugerands and mistresses, it’s been downhill — even if the auto industry were strong, Detroit would be in big trouble. And the casinos kind of throw a monkey wrench into any ideas of renaissance.

  7. Radarman says:

    This is a wonderful post. It should be required reading in D.C.

    It would be helpful to see an industrial equivalent of Teach For America in Detroit. For the past forty years the auto industry has lost out on the best young management talent, talented college graduates who have regarded Detroit with suspicion and the auto industry with distaste. Not that auto execs were looking for that kind of talent.

  8. El Hoosier says:

    Loved the post…

    Only issue with your response comment- St. Louis isn’t quite stable yet. Taking out one employer (whether it be ATT, ABInbev, Boeing, or Monsanto) will sink this town. There has been positive movement here but it is still reaching back to the glory days.

  9. Jefferey says:

    Detroit-the city-had massive white flight. Couple that with a dual real estate market and employment diffentials between blacks and whites and the city collapsed. The auto industry decline is just part of that story.

    Essentially it’s the Gary situation writ large.

    In Dayton there was a similar story, except the whites didn’t abandon the city, it just became the home to the local white underclass.

  10. Anonymous says:

    I really like your writing and generally agree with most of your ideas on economic development issues. But here I have to completely disagree. It is simply NOT the role of the federal government to pick winners and losers. That goes for companies, industries, and most importantly, cities and states. I know the federal government is engaged in exactly this kind of winner-picking right now, bailing out banks, insurance firms, etc. So maybe at this point it’s just too far gone not to bail out the auto industry. But the Feds absolutely should not get into the game of helping turn around Detroit or Cleveland or Michigan or Ohio or anywhere else. It is the competition for jobs, talent, investment, and population that should be protected. The problem with usurping that natural competition among locales is that you fail to address the poor leadership and local inertia that contributed to the urban decline in the first place. In effect, you will end up with a sort of reverse “build it and they will come” situation, where “shrink it and they will heal” is the desired goal. Yet when the shrinking process is artificially accelerated, you will end up with huge imbalances between economics, government, infrastructure, and population that will exacerbate pre-existing problems like race relations. Seriously, who do you think will relocate when there is federal assistance to do so? It will still be those with greater means, those with better skills, and those who would eventually leave anyway. This is simply going to speed up the hollowing out of a city like Detroit. And the city will end up being poorer and more racially polarized than it is right now.

    Natural shrinkage of the metro area should be allowed to continue at its own pace. Area leaders should definitely be encouraged to see the situation without the rose-colored glasses and to put forth strategies that leverages the strengths of the area while marginalizing its weaknesses. That is the only way forward for the Rust Belt cities.

  11. The Urbanophile says:

    anon 9:13, thanks for the well-considered remarks. It sounds like you advocate that the auto makers should be left to their fate, which is likely a traditional bankruptcy, and that the best recipe for the failing areas of the Midwest is the status quo. There’s an argument to made for that.

    I think the bottom line is that without some type of federal assistance, the carmakers will more or less cease trading. It will certainly be a mess. I completely oppose a bailout that allows them to defer restruction under the guise of “it’s all about product” or buying them time to build green cars or something. That’s what I’m afraid Obama is going to do however. The core product plans aren’t the problem. The problem is the structural cruft.

    I’ve got a lot more thoughts on the rest of your comments, but alas I have to sign off. Twill probably be after Thanksgiving before I get to them, but thanks again for contributing.

  12. Anonymous says:

    The problem with shrinkage is that all the middle- and high-income people will leave, leaving behind the poor and the criminals who prey on them. Detroit has experienced shrinkage for a half-century, and this seems to be the natural pattern. Unless you forcibly remove the poor from the area to make way for the rich (a rather abhorrent idea), I don’t see how shrinkage will lead to anything but more destitution for Michigan.

  13. serial catowner says:

    I certainly appreciate the thought and time the Urbanophile has put into this post. Too much of what we read on this subject simply doesn’t have enough vitamins and minerals.

    But let me just say this about that:

    Compared with land area, Detroit’s population has sigificantly contracted. It is not clear to me that this strategically located city is an area we want to empty of people- do we really have a better place for them to go?

    Rather, I would suggest it would be in the national interest to sponsor a further contraction and concentration of the population, building new streetcar lines to encourage TOD and offering federal subsidies for new building to extremely high energy-conservancy standards. Extensively depopulated neighborhoods in Detroit should be merged in greenbelts.

    If I had my druthers, the black people of New Orleans would have moved en masse to Detroit, but that’s a hard sell to Southerners and their fears of winter.

    In any case, thanks for the well-written post.

  14. mattw says:

    Shrinkage in metro Detroit is going to happen in any case. The question is what policies to you put in place to accomodate it. SEMCOG (the weak regional planning authority for the region) as of their last report still claimed that employment in the region would be expanding over the next decade. As long as this is the mindset, no one is going to adopt sensible policies–the people of the region think that shrinkage is something that happens in the core, but not elsewhere.

    And I have to agree with Anonymous, most plausible shrinkage policies leave the poor behind, worsening the problems of the area. I don’t think you can or should coerce people into leaving, but a successful shrinkage strategy has to figure out some way to either improve their situation in Michigan or entice them to go somewhere else where their prospects might be better. The problem is that is the region shrinks, housing values fall and act like a magnet to the less-well off. Maybe some kind of buy-and-demolish program could work, but I find that distasteful. The area needs more employers, but I don’t see where they are going to come from.

    Also, you shouldn’t forget Wayne State in the strategy–it already is anchoring one of the most viables part of the city proper, and has a number of highly ranked research departments as well. Michigan and Michigan State are fine, but they are inconveniently located.

  15. Anonymous says:

    The problem with Seth’s idea is that any serious startup car company or group of companies would get crushed by the likes of Toyota, Honda, and Volkswagen. If the Detroit Three go under, it is unlikely that we will ever see a non-boutique American car manufacturer again. There were no giant multinational auto companies in the early 20th century, so there is no meaningful comparison to be made between then and now.

  16. Anonymous says:

    “Also, you shouldn’t forget Wayne State in the strategy–it already is anchoring one of the most viables part of the city proper,”

    This gets at something I’ve been meaning to ask about. When I look at the list of relatively prosperous areas in the midwest, one thing stands out about most of them. They’ve got a lot of government money coming in.

    As I’ve noted elsewhere, I don’t get around the midwest very much but here in Indiana I see three cities that seem to be doing better than most – Indianapolis, Bloomington, and the Lafayette area. All three have one thing in common – large amounts of government money coming in to support either universities or government centers.

    I wonder sometimes if the appearance of economic success is more a matter of political success, a success at being able to divert public funds to the institutions in one’s own city at the expense of other places.

  17. The Urbanophile says:

    Thank you for the comments again.

    Regarding natural shrinkage, and leaving the poor behind, this is exactly what is happening today, no federal help needed. It’s like the auto restructuring: it is going to happen in some form whether Detroit wants it to or not. The question is how best to accommodate it?

    I view shrinkage as part of a multi-part program that also includes auto-restructuring, improving race relations (the hardest thing to accomplish IMO), and identifying industry segments where Detroit and Michigan are realistically able to compete.

    One of the things that I envision about the shrinkage program is that it would assist – not force – those who don’t have the means to relocate on their own to do so. This could include moving assistance, home purchase assistance, etc. It would also involve helping the region shrink its fixed cost base to a reduced level. Please note than when I say Detroit, I am more or less referring to the economic region of Detroit, not just the city or the car industry.

    Thanks again.

  18. serial catowner says:

    I totally do not understand this obsession with shrinking Detroit. Even if there were some lofty scheme to cleanse the soil with Superfunding and return the area to the state of nature with strict protections of a new national park, I would say “Whoa- wrong place.”

    Detroit happens to be about midway on a great landbridge between Chicago and Buffalo that encompasses some extremely productive Canadian territory with which we enjoy a lot of trade. Detroit is also on a great waterway from the upper Great Lakes to the St. Lawrence, and it’s a border city.

    I understand that in the views of some the national interest is best served by allowing corporations to do whatever they think will make money, and calling the results “good”. But seriously, in the history of humanity, has this idea ever been tested as thoroughly as in Detroit, or failed so conclusively? The auto industry in Detroit has had more freedom to do whatever they wished, and more money to do it with, than almost any industry in the history of ever. There has even been competition, something Boeing never faced in Seattle, and US Steel never faced in Pueblo.

    Seems to me that a city like Detroit is a resource for young people who want to get in on the ground floor, and that it is in the national interest to help people make the city work.

    And the simple fact is, there is no inherent virtue in making people move. Emotionally, physically, and financially, it’s expensive, for the person who moves, and for the community they move to.

    When we consider western Europe we see that all the regions are nurtured, in accord as much as possible with their potentials. Thus, for example, the Swiss build tunnels and collect revenues because they are on the straightest route between so any places in Europe. The Spanish have set a goal that no place in Spain should be more than a certain distance from high speed rail, and although I can’t remember the distance exactly, it’s not very far.

    So, no, I don’t see any point in paying people to move away from Detroit, and doubt there is much example for that sort of thing being a good idea.

  19. The Urbanophile says:

    serial, I can appreciate that you might not want Detroit to shrink and have an alternative vision. The nation certainly shouldn’t impose a solution on Detroit that it does not accept. However, shrinkage, like auto industry restructuring, is a reality whether Detroit wants it or not. Some level of shrinkage is going to occur. Beyond that, Detroit can pursue whatever course it wishes, but it certainly should not expect any particular help beyond that given to any other city. It takes two to tango and Detroit has no right to demand special favors from the country any moreso than the country has a right to impose change. Michigan can stay on its present course if it wants. I don’t recommend it, however.

  20. serial catowner says:

    Well, as I mentioned in my first comment here, I favor more contraction of the physical plant of Detroit. Nor do I see any reason to “save” the big automakers.

    However, I find the talk about “people should just move away” to be a little silly. Imagine, for a moment, that we simply gave Michigan to Canada. Do we doubt for a minute that the Canadians would make Michigan a productive and prosperous province? To a Canadian, Michigan would be the warm part of Canada- as, in fact, it was, to the first French explorers to reach the area.

    All of this talk about laissez faire and “let the chips fall where they may” is based on a history that never was and a future that never will be. The prosperous midwest was created by huge government investments (cheap and free land for settlers, subsidies at every level of government for railroads) and natural resource windfalls (the gas fields under Ohio and Indiana) that are exhausted or exploited fully now.

    I find it painfully easy to imagine prosperous scenarios that only require Americans to grow up and start living in the 21st century. For example, high speed rail from Buffalo to Chicago through Toronto and Detroit. This would immediately capture market share from airlines, employ thousands of highly skilled workers, and be entirely congruent with the development philosophies of Europe that have resulted in HSR subsidizing other rail transportation. Not to mention being good for the environment and making it possible for some people to save thousands of dollars a year by not owning cars.

    Besides which, cities don’t spend money on people anyway- cities service property. Detroit doesn’t save a bunch of money if people move away because Detroit isn’t spending money on those people right now. Look it up. What needs to shrink and be rebuilt to modern standards is the physical plant of the city, and the property that firemen and policemen protect and utilities serve. The people are a feature, not a bug.

  21. thundermutt says:

    anon 7:20 wrote “I wonder sometimes if the appearance of economic success is more a matter of political success, a success at being able to divert public funds to the institutions in one’s own city at the expense of other places.”

    Those institutions (and state government) often externalize costs onto the municipality for infrastructure and municipal services without paying property taxes. State capitals and state government tend to be magnets for state and regional nonprofit headquarters, which also contribute little in taxes. The growth payoff in capitals is in FIRE (finance, insurance, and real estate), as well as legal/lobbying services, not in government spending.

    The net gain to a college town is the presence of well-educated residents and a stable jobs base.

    None of that qualifies as a redistributive tax on the rest of the state.

  22. thundermutt says:

    catowner, you’ve merely replaced one laissez-faire fantasy with another (“municipal governments service property”).

    The biggest municipal costs ARE people related: police/criminal justice, streets and trash. All those are directly related to people, not to property. No criminals, no victims…no police. No people living in houses…no trash service. No one driving to work…no street maintenance costs.

    Shrinkage of the “urban services boundary” most assuredly would reduce city costs in the aggregate, for Detroit or for any city.

  23. serial catowner says:

    Oh pulleeze. It’s not exactly a big secret that the major reason for police and fire departments is to protect property. As for trash pickup and other utilities, it would certainly be amazing if Detroit didn’t do what every other city does- bill people, and not pick up the trash if they don’t pay.

    As for streets, they don’t wear out if you don’t run trucks and buses on them, and I’m pretty sure Detroit isn’t maintaining the streets around all those vacant lots you can see in the aerial photographs.

    Take the people out of the picture and you still have police and fire protecting the property. Take the stores and businesses out of the picture and you get someplace like where I live- lots of people, but no police. Cities, of course, don’t work very well without people- which in itself ought to tell you something.

  24. thundermutt says:

    Catwoman, your analysis is too Marxian. It is only recently that cars and houses started calling 911 on behalf of their owners.

    If crime against property happens and no one reports it, no police respond. If a detached garage is on fire and no other structure is threatened, the firefighters let it burn.

    I stand by the statement that public-safety services exist to protect people, streets and sidewalks and buslines exist to serve people, and trash trucks run routes to serve people.

  25. serial catowner says:

    Why, of course thinking that police and firemen protect property is totally Marxian. That explains why police and fire departments are supported by property taxes, even though the largest property owners are a distinct minority and usually don’t even live in the district being protected. You see, they’re materialists, and materialists are Marxists, and that’s why fire engines are red- they’re always Russian around!

  26. thundermutt says:

    I wrote “Marxian”, not “Marxist”.

    The former is an economic term and the latter is a political label.

    Or at least it was so when I studied economics in the last century.

  27. Alon Levy says:

    Do we doubt for a minute that the Canadians would make Michigan a productive and prosperous province?

    I do. Ontario has one productive and prosperous part – Greater Toronto – surrounded by sketchy industrial slums, like Hamilton.

  28. Anonymous says:

    Water.

    Moving people out of Michigan and within the U.S. most of the time involves moving them away from an abundance of fresh water to locations (the SW or SE US) lacking water resources.

    Jack Daniels in Tennessee had to stop production due to water shortages in that state and similar shortages occur every Summer throughout the Southeast U.S.

    Water, not fossil fuels, will be the major determinant of economic reality over the next generation.

  29. Global City Walker says:

    Yes, Water indeed. And a whole lot more.

    THere is much to say about Detroit's problems. Many of which are problems in many cities of the US and globally. Remember that there are at least 350 cities shrinking around the world – and many of them have MUCH less going for them than Detroit.

    Regional Detroit is actually around 5.4 Million people. Thats the size of Denmark, Greater Toronto and bigger than about 40 States in the US. THis is an advantage – it has its own economy. Yes, it is strangled by the auto-industry, but this restructuring is welcomed by many.

    The AUTO industry is LONG overdue for the cleansing. Bring it on – but there are many other industries and economic activities in Detroit. It has huge, established Cultural, educational, health care,
    technological and engineering R&D systems in place.

    The City is perfectly positioned for the future, when location,location, location is all about proximity to other cities, water, and "quality" built PLACES of which Detroit has plenty – it is the oldest city in the Midwest, 1701.

    The bones are good, inefficiently being used, and ready for rebirth. This is the opposite of a "growing"place like Phoenix,which is set-up for HUGE problems starting now. And it has NO good bone, no quality environment and no character – an element that is of significant value to the next boomers, the "Millenials".

    Let the hold of the Auto industry loosen and let the use of the City's infrastructure, location come into a fruitful reality.

    Go Detroit!!!!!!

  30. drug rehab center says:

    The state of Detroit will eventually find a way on how to fund their programs in solving crime related problems. Funds will be given to them in the future when the financial crisis ends.

  31. Steven says:

    I'm confused. You advocate spending 10s if not hundreds of BILLIONS of dollars (because that's what it would realistically cost) to help 100s of thousands, if not millions of people abandon 10s if not hundreds of BILLIONS of dollars worth of already built infrastructure and physical structures in Michigan (homes, businesses, workplaces) so they can move to other areas of the country where 10s if not hundreds of BILLIONS of dollars will have to be spent to accommodate them (new homes, businesses, water lines, electrical lines, etc)?

    Admittedly, Michigan needs to (and is, slowly) restructure itself. But if you're going to spend that much money, it seems that it would be better spent giving tax breaks to new businesses to move to Michigan. And if people say that government shouldn't be picking winners and losers, make the tax break available to ANY company moving to Michigan, as long as they located in "brownfield" areas instead of "greenfields". It would be cheaper and more "green" in the long run. And look at the BILLIONS in tax breaks given to the auto transplants to build their factories in the South. Why would this be any different?

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