Tuesday, August 6th, 2013

Root Causes of Detroit’s Decline Should Not Go Ignored by Scott Beyer

[ 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.

Tuesday, April 16th, 2013

Federal Immigration Policy Should Cater to Local Needs by Scott Beyer

[ This week’s guest post comes courtesy of reader Scott Beyer – Aaron. ]

Last Sunday, as the issue was being prepared for Congress, I was witnessing the remunerative effects of immigration firsthand on city streets just an hour north. This was while at Chicken Rico, a Peruvian hotspot in Baltimore’s Highlandtown neighborhood. After eating a plate of chicken and plantains–priced, as usual, at under $5—I stepped outside onto Eastern Avenue. This crowded thoroughfare is the center of Baltimore’s Hispanic community, which stretches a half-mile through the city’s southeast side, even merging into what’s known as “Greektown.”

But Highlandtown wasn’t always like this. Although once working-class, it suffered, like much of the city, through decades of industrial decline. In 2000 the City Paper quoted an official who represented it in the 1990s, when it teemed with “absentee landlords, dysfunctional families, loss of businesses,” and a robust drug trade. Its revival, just then beginning, has continued the last decade because of public improvements, and gentrification in nearby Canton. But this revival is also due to immigration, suggesting a potential long-term fix for Baltimore, and other declining cities.

After all Baltimore, a city that for decades was mostly black and white—and heavily segregated—has reestablished its role as an immigrant enclave, adding 20,000 the last two decades. During this it lost 115,000 people overall, mirroring similar population declines in every decade since the 1950s, and making one wonder what would’ve become of the city without these new foreigners.

According to a report by the Abell Foundation, a local non-profit, it occurred here in Baltimore because of the communal nature of immigrants, who after settling somewhere often invite friends from back home. But it’s continuing because of conscious efforts to attract them under Stephanie Rawlings-Blake. In 2011 the mayor announced an initiative to add 10,000 families to Baltimore, declaring immigrants instrumental for this. A year later she signed an order preventing policemen from questioning people’s citizenship status. She also started Spanish-only classes within city-run schools, and community groups that help immigrants with paperwork. As a result housing is being filled and businesses started in once-dying neighborhoods, not only by Hispanics, but West Indians, Jews, and Koreans. According to the Fiscal Policy Institute, these and other immigrants now compile 9% of Baltimore’s population but 12% of its workforce, and a whopping quarter of its small-business owners.

Baltimore is an example of how the benefits of immigration can vary by locality. In many growing municipalities, immigrants have overwhelmed the services, causing resentment and even legal backlashes. But in declining cities, they’re considered essential for survival. This includes not only in Baltimore, but in Detroit, where “Mexicantown” is one of the only functioning neighborhoods, and heavily-Arabic Dearborn one of its nicer suburbs. Immigration has also helped St. Louis, Birmingham, and Richmond, VA; and has accelerated growth in emerging but relatively-homogenous cities like Charlotte and Nashville. Its benefits were recently validated by both the Cato and Manhattan Institutes, who published papers linking immigration with greater innovation and productivity.

But how can the issue become localized when enforced at federal level? One way, said demographer Joel Kotkin in an interview, is for declining areas to attract, on their own, the immigrants that do exist. This doesn’t necessarily mean taking Baltimore’s aggressive measures, but simply providing the same things, like jobs and affordable housing, that also attract natives. In his article “California Needs More Immigrants”, he explained that the state’s failure at providing this has caused sharp immigration declines, which have dovetailed with its economic decline overall. Instead immigrants now settle for states with lower taxes and living costs, like Texas, and that to attract them back California must adopt similar policies.

Nonetheless Kotkin also saw a “compelling argument” for a federal program that directed immigrants to where they were most needed. This was explored recently in an article by Nancy Scola about Canada’s “Provincial Nominee Program”, which enables provinces “to self-determine the sort of immigrants they’d like to admit.” The program has matched immigrants and their skills with relevant locations and industries, creating, for example, an influx of garment workers in Winnipeg and truck drivers in Saskatchewan. The same strategy, she wrote, could be implemented in the U.S. with “place-based visas” that enable states to select their preferred number of immigrants, who must then remain for a given time.

Of course this would limit both the number and the quality of locations available to immigrants, generating, for example, what Scola imagined might be a robust “Detroit Visa” program. But it would still grant states more autonomy than federal policy now does in dealing with the issue. And while some states would use this stringently, others would become immigrant welcoming mats, only to watch their inner city neighborhoods become hotspots for cheap eating, eclectic shopping, and revived entrepreneurialism.

Scott Beyer writes about cities at Big City Sparkplug.

The Urban State of Mind: Meditations on the City is the first Urbanophile e-book, featuring provocative essays on the key issues facing our cities, including innovation, talent attraction and brain drain, global soft power, sustainability, economic development, and localism. Included are 28 carefully curated essays out of nearly 1,200 posts in the first seven years of the Urbanophile, plus 9 original pieces. It's great for anyone who cares about our cities.

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Aaron M. Renn is an opinion-leading urban analyst, consultant, speaker, and writer on a mission to help America’s cities thrive and find sustainable success in the 21st century.

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