Tuesday, August 6th, 2013
[ Continuing the discussion on Detroit, here's Scott Beyer with his take on the causes of its decline - Aaron ]
Recently Detroit, under orders from a state-appointed emergency manager, became the largest U.S. city to go bankrupt. This stirred predictable media speculation about why the city, which at 1.8 million was once America’s 5th-largest, declined in the first place. Much of the coverage simply listed Detroit’s longtime problems rather than explaining their causes. For example a Huffington Post article asserted that it was because of “racial strife,” the loss of “good-paying [sic] assembly line jobs,” and a population who fled “to pursue new dreams in the suburbs.” Paul Krugman, who has increasingly become America’s dean of misguided thinking, downplayed the city’s pension obligations, instead blaming “job sprawl” and “market forces.” The implication is that Detroit’s problem just arose organically from structural economic changes, and within decades somehow produced a city of abandoned homes and unlit streets.
But a closer look suggests that Detroit’s problems, which include 16% unemployment, 36% poverty, and 60% population decline, were self-inflicted by a half-century of government excess. Thomas Sowell nicknamed this excessiveness the “Detroit Pattern”, and defined it as the city’s habit for “increasing taxes, harassing businesses, and pandering to unions.” These three problems have proven as instrumental to decline as the “Big Three” automakers once were to Detroit’s rise. Analyzing their background, and potential for reform, could expedite the city’s turnaround.
The foremost measure would be addressing taxes. Currently Detroit has one of America’s largest tax burdens for major cities, offering notoriously bad services in return (police response times average 58 minutes, and 40% of streetlights do not work). Its property tax rates are the nation’s highest, exceeding 4% for some buildings. This has caused particular disinvestment in the city’s large stock of abandoned homes, some of which sell for below $1000, but are avoided since they get assessed at far above their actual worth, leaving owners with inflated tabs.
Detroit could also help its cause with a business climate that better encouraged entrepreneurship. For decades it has done the opposite, championing a growth policy that mirrored the city’s overly-centralized private sector. It has gambled—with tax breaks, subsidies, and extensive eminent domain—on stadiums, casinos, office towers, factories, and a downtown monorail, only to find that these didn’t produce nearly the anticipated benefits. Meanwhile it has squelched small businesses, which are generally better at creating jobs, with a cobweb of protectionist regulations—on food trucks, taxis, movie theaters, and so on. This was summarized in economist Dean Stansel’s recent “economic freedom” study, which ranked the regulatory and tax climates of U.S. metro areas. In a field of 384, Detroit placed 345th.
These regulations have emanated from Detroit’s vast, union-controlled public bureaucracy. Recent debate about this bureaucracy has focused on retirement benefits, which apologists note are far less generous than in other big cities. But this does not detract from the sheer number of retirees, which at 20,000 are nearly twice Detroit’s existing public workforce, and account for obligations of potentially half the city’s $18 billion debt.
Less discussed is the way unions protect existing workers also, by stifling needed service reforms. When a philanthropist offered $200 million in 1999 to open the city’s first charter school, which would require changes to state law, the Detroit Federation of Teachers organized a work stoppage to protest in Lansing, ultimately causing withdraw of the donation. Various other city unions (which total 47) have resisted reduction or privatization of water utilities, trash-pickup, street lighting, and transportation. This is despite the city having proven wildly incompetent at providing these services itself, a point made recently in the Wall Street Journal by a former transportation chief. He claimed that unionization of the 1,400-employee DDOT had ensured worker protections for rampant absenteeism and poor performance, thus creating a climate in which 20% of scheduled buses did not arrive. Similar protections from firings and layoffs existed in other city departments, he wrote, perhaps explaining why Detroit, at over 10,000 workers, remains one of the most overstaffed big cities in America, while managing to do so little with them.
Of course many would argue that Detroit’s post-World War II racial conflicts were the real reasons for decline. More plausible is that these conflicts were inflamed by that era’s top-down government policies, which became all the worse when enforced by seemingly prejudiced officials. Throughout the 1950s and 1960s white mayors steamrolled roadways through functioning black neighborhoods like Black Bottom, and housed the displaced in dangerous, high-rise government projects. Funding for this and other “urban renewal” came from federal programs like President Johnson’s Model Cities, and using Detroit as a flagship, was meant to modernize aging urban communities. But the programs instead fragmented them, including a Detroit black population that, according to Sowell, then had 3.4% unemployment and “the highest rate of home-ownership of any black urban population in the country.” For them this “renewal” created a housing shortage, and along with discrimination and police brutality, inspired riots in 1967.
These riots killed dozens, injured nearly 1,200, and along with the ones inspired by Martin Luther King’s assassination, immediately spurred a mass white exodus. This cemented the demographic changes needed for both the 1973 election of Detroit’s first black mayor, Coleman Young, and subsequent policies that instead targeted the city’s whites. A paper by economist Edward Glaeser argues that this was done intentionally by Young as a way to further drive political rivals to the suburbs, and increase the share of his poor black voting base. He did this, writes Glaeser, by cutting off services in white neighborhoods, imposing onerous taxes, and displacing thousands of Polish households for a GM factory in the Poletown neighborhood. This led to further white exodus and diminishment of the tax base.
All these are examples of rampant abuses, under both black and white leadership, that have resulted because of Detroit’s notorious governing “pattern.” But one silver lining of its bankruptcy is the opportunity for structural change. This could occur by channeling the urban reforms—from charter schools, to defined-contribution pensions, to looser permitting, to plain-old lower taxes—that have helped other U.S. cities the last two decades. If these reforms can thrive in the Motor City than they probably can anywhere, turning it at the very least back into a functioning city, and at best into a reemerging economic star.
Scott Beyer is now crossing the country to write a book about how “market urbanism” can revive U.S. cities. He also writes weekly columns on urban issues for his blog BigCitySparkplug.com.