Friday, November 7, 2014
Motor City Needs a New Engine
Today is a big day for Detroit, Michigan.
The city that used to be a grand showcase of America's industrial might is now barely even a shell of its former self. A quarter of its population abandoned the city just in the last 14 years. All totaled, Detroit's population has shrunk by over one million residents since its peak in the 1950's. Unemployment is high, high school graduation rates are low, and municipal dysfunction is rampant.
These days, Detroit is a grand showcase of ruin porn, blighted urban landscapes pockmarked by windowless skyscrapers, abandoned churches, decaying houses, and weed-choked lots where vibrant neighborhoods used to be.
On July 18, 2013, with $18.5 billion in debts, the city filed for bankruptcy protection. Detroit's was the largest municipal default in America's history, and the ignominy was palpable. Trees were growing out of desolate office towers downtown. America's legendary Big 3 automakers, which used to dominate the Motor City, had begun donating free vehicles so Detroit's threadbare police department had cars to use. Even its world-renowned, city-owned art collection was rumored to be on the auction block for one last fire sale to stave off Motown's legions of creditors.
But today, Detroit's sprawling bankruptcy plan was approved by federal judge Steven Rhodes, paving the way, as it were, for the city's drive into the future. Approximately $7 billion of its debt has been erased, and Judge Rhodes simply rebuffed remaining legal challenges to the bankruptcy plan by reasoning, "this city is insolvent."
As part of the deal to get the city out of bankruptcy, thousands of municipal pensioners agreed to cuts in their benefits, an issue that had been a significant generator of populist angst. And the publicly-owned art collection stewarded by the Detroit Institute of Arts will remain the city's.
Of course, it remains to be seen how well Detroit can learn from its past mistakes, value the second chance bankruptcy court has given it, and capitalize on its future opportunities to attract private investment in the form of taxpaying citizens and employers. It needs to practically start from the ground-up to overhaul its police and fire departments, as well as other basic services. Its public schools probably should start over from scratch, too.
So much needs to change, and change so much, that it's woefully premature to celebrate anything about Judge Rhodes' ruling today, except the fact that finally, a consensus has been reached in a court of law regarding the need for a drastic re-think of what Detroit is.
We already know how Detroit got to this point in its history. It was a combination of racism, political corruption, suburbanization, and the manufacturing sector's migration from the Rust Belt. Of course, all these factors have affected other American cities as well, but not nearly to the level they pummelled Detroit.
Yet Detroit's story illustrates some basic reminders about socioeconomic reality that affect more than just southeastern Michigan.
For example, Detroit's very existence began, like it did for many American cities, as a trading post. Not it's wonderful weather, or its scenic beauty, or its abundant natural resources. Detroit began because it was a convenient place to conduct the type of business that was profitable at the time. Its location along a broad river, next to the Great Lakes, and North America's wide-open northern frontier, took full advantage of the New World's robust growth and the key role water played in shipping goods to market.
However, simply because its geography was crucial for its growth, Detroit can't bank on its geography to enhance its viability today as a location for jobs, commerce, the arts, education, and other aspects of modern life. Frankly, few cities around the world today boast a location crucial to their existence.
We know that geography means less today than it ever did, in terms of having a population that can make goods, service goods, buy goods, and invent goods in the first place. Many things are more essential today than geographic location, such as what's called "multi-modal" access, which means the efficient distribution of goods and services by air, mainly; as well as land, and technology, such as the high-speed transmission of data. Lots of newer cities in the world best Detroit in these metrics.
Other qualities modern cities need in order to be viable include less tangible things, such as lenient government regulations, a cost of living that the average type of desirable worker can afford, and an overall lifestyle that is attractive to desirable workers. A "desirable worker" is the type of worker most in demand by the industry located in that city. In Silicon Valley, then, a desirable worker is what we would call a techno-geek. In New York City and Boston, a desirable worker is mostly one with a brain for finance, higher education, or the arts. In Chicago and Dallas, it's business management. In Houston, it's energy, and the engineering necessary to find and harness it.
So what would Detroit's desirable worker look like? A car person? Maybe not. Sure, General Motors has its headquarters in downtown Detroit, but Chrysler and Ford have been in the suburbs for decades, and hardly any car manufacturing takes place in Detroit proper anymore. The city is home to Quicken Loans, but that's mostly because the company's owner, Dan Gilbert, has taken a personal stake in developing Detroit. Not many other large corporations appear interested in risking as much as Gilbert has on Motown.
Also important is the ability of employers to pay market rates to their workers, and by market rate, we're talking about how much it costs to make something in Malaysia, as well as Michigan. One of the reasons why Detroit - and the rest of the Great Lakes region - has lost so much manufacturing stems from the fact that unionized payrolls remained stable, while the willingness of workers in Majority Work (a.k.a "Third World) countries to work for far less made offshoring economically attractive.
Yes, the demise of Michigan's storied auto industry was due to the shoddy manufacturing quality and inferior fuel economy of its vehicles, plus the bloated managerial bureaucracies built-up over the years in the Big Three's corporate cultures, but it was also due to unionized labor's unwillingness to take painful wage cuts in order to keep their jobs at home.
These days, thanks to some creative financing and government incentives, the Big Three have been able to take some of their auto manufacturing facilities around Michigan out of mothballs, and build up the state's employment base, which is good for the region as a whole. But none of this has directly benefited the city of Detroit. Yet, anyway.
Can Detroit, even as it exits bankruptcy, compete in today's economy? That's the question the city needs to ask itself. Detroit's survival doesn't depend on politics, it depends on practicality. How practical is Detroit in terms of being a place businesses want to do business?
Even if the Big Three wanted to bring auto manufacturing back to the Motor City full-throttle, why would they? Nostalgia is one thing, but all this bankruptcy resolution does from a practical business perspective is prove that the city is being held accountable for its past transgressions, which have been many. Indeed, that's the reason why no government - either at the state or federal levels - was willing to bail out Detroit, as some Democrats wanted to see happen.
Fiscal disaster loomed over the city for decades, but failed to propel its voters into substantive action - and change. Corruption and simple incompetence reigned. Racism remained mired in the city's ethos, even after most of Detroit's whites had long ago decamped to the suburbs. At the same time, manufacturing wasn't just leaving Detroit for the suburbs, it was leaving the state, and the country.
And as we all know now, there was no Plan B. Motor City needed a new engine, but it hasn't been able to find one yet.
So, can Detroit, even as it exits bankruptcy, compete in today's economy?
It's the key question Detroiters need to be asking themselves, but it's also the question any number of cities across America need to be asking. Not that they've had to file for bankruptcy. Yet - anyway. But times have changed. The reason cities like Buffalo, Cleveland, Kansas City, Syracuse, Memphis, Des Moines, St. Louis, and New Orleans were founded are no longer reasons for them to be viable urban centers today. Some, like Charlotte, North Carolina, have found their new raison d'être in banking. Minneapolis has technology and healthcare. Miami has international commerce, particularly with Latin America.
Plus, at least for Miami, it never really lost its tourism economy. After all, palm trees and balmy ocean breezes never really go out of style, do they?
Meanwhile, what's Detroit got for tourists, besides a plethora of that ruin porn?
Today, however, Detroit lives to see another day, or another decade, even. It may have taken a bunch of outsiders to hammer together its bankruptcy package, the process may have instigated a lot of bickering and contention, and not everybody's happy about the result, but it had to get done, and it got done.
Not many bankruptcies can be considered a major progressive accomplishment. But for Detroit, today is a major progressive accomplishment.
Unfortunately, that says a lot of negative stuff about where Detroit has been, and how far it still has to go.