Monday, July 29, 2013

Detroit the City vs. 'Detroit' the Auto Industry

Robert Samuelson wrote one of the columns on Detroit that I find a bit frustrating, and leave me wondering if Samuelson has ever been to the city. Samuelson finds it to be a "great irony" that Detroit's bankruptcy "seems to suggest the obsolescence of central cities when just the opposite is true", pointing to the success and revival of "Boston, New York, Philadelphia, Seattle, San Francisco and others".
All have stubborn concentrations of poverty, but many have benefited from gentrification and stronger job markets. High energy costs, a backlash against commuting, lower crime and cities’ vibrancy have renewed their appeal.
But here's the thing: Detroit developed as something of a suburban city, the place where you could live the city life while residing in your own home. Detroit is not situated in an area in which developers are constrained by geography, and must redevelop within its limits. Instead, Detroit is sprawling - 139 square miles - with a low population density, roughly 5,100 people per square mile, as compared to New York City's 27,000 or San Francisco's 17,400. Thanks to poorly considered urban planning decisions in the 1960's, the sort of neighborhoods that have helped lead to redevelopment in other cities, loft conversions and the like, were bulldozed to make way for freeways. Mass transit is poor and, even if it weren't, if you were to develop new residential neighborhoods within Detroit, the jobs for people who could afford to live in them would largely lie outside of the city limits.

Samuelson then asserts that the leading reason for Detroit's failure is that "It became a prisoner of its dependence on the auto industry." Here, Samuelson makes the common mistake of confusing the common shorthand term for the domestic auto industry ("Detroit") with the actual city called Detroit. The problem is that the auto plants that used to employ residents of Detroit were for the most part around the city, and the hollowing out of Detroit was well underway before Michigan started losing those plants to non-union states. Workers were easily able to relocate to towns outside of the city limits while keeping their factory jobs. And as much as Samuelson complains,
In the 1950s and ’60s, most Americans — not just people in Michigan — took the dominance of the Big Three for granted. General Motors, Ford and Chrysler commanded about 90 percent of the vehicle market. Who could challenge them? The result was a plausible and self-serving business model: high wages, generous fringe benefits, job security (with supplementary unemployment benefits to cover workers during temporary layoffs). The compact generally bought labor peace between the companies and the United Auto Workers. Given their market power, automakers could pass most costs on to consumers.

But what made short-term sense spelled long-term suicide — for companies, workers, Detroit and Michigan. High costs, shoddy quality and mediocre management made the companies vulnerable to foreign competition from imports and nonunionized plants, generally in the South. Employment eroded. Worse, the auto industry’s model shaped the state’s labor market and policies. By 1978, average hourly earnings in Michigan were 32 percent higher than the national average. Michigan had an anti-business reputation. This frustrated the state in its efforts to diversify its economic base.
Again, Samuelson confused "Detroit", the domestic automobile industry with "Detroit", the city. Samuelson, who seems to be generally opposed to collective bargaining, drops "nonunionized plants, generally in the South" into the mix without mentioning the policy choices that led to the split between "union" and "non-union" states, as if the City of Detroit were somehow responsible for the Taft-Hartley Act. He neglects to mention that many of the southern states that benefited from the relocation of plants from Michigan subsequently experienced plant closings as factories were moved to the developing world. But perhaps most of all he isn't even capturing the reality of what was happening in Detroit and surrounding communities. Take a look at a household income map for Michigan from the year 2000. If you don't know that Detroit is in southeastern Michigan, well, now you do - now take a look at that map and tell me where Detroit is located. You can see that the area surrounding Detroit remained quite wealthy, while Detroit had average wages similar to the most isolated and rural parts of the state. In 2010 Michigan's per capita income was $25,135. The state with the lowest per capita income was Mississippi, at $19,977. Detroit's per capita income was $15,261. Michigan certainly has struggled in the face of a global economy and a loss of traditional manufacturing jobs, but the areas immediately surrounding Detroit remain the richest in the state while Detroit sits, impoverished, in their midst.

Now a second map. This map shows the ethnicity of the residents of the Detroit metropolitan area, "White people are represented by pink, Black people are represented by blue, Hispanic’s represented by orange and Asians by green." How many seconds did it take you to locate Detroit? Knowing that that the northern boundary of Detroit was Eight Mile Road, how many seconds did it take you to figure out where that road is located on the map? Knowing that there's a separately incorporated city within Detroit, the City of Hamtramck, how many seconds did it take you to figure out where Hamtramck is located?

Don't get me wrong - I don't mean to suggest that there is some sort of racial redlining at work, or that the boundaries of Detroit were drawn to include only poor black neighborhoods. The problem is that as Detroit has lost population it has been unable to provide adequate municipal services, while its property taxes are high due to the low value of its real estate. If you're an employer thinking about opening a business in Detroit, you have to consider that your workers are probably going to want to commute in from a suburb where they have better schools and municipal services, and that they're going to pay a city income tax. Unlike the cities that have existing working class populations, and where living in the city can mean a shorter commute - or a commute on public transportation - working in Detroit can mean a longer commute, with a higher tax bill to boot.

Samuelson pontificates,
By reducing debt and pension payments — though hurting creditors and retirees — bankruptcy might break this cycle. But there’s no quick fix. What Detroit teaches is that those who deny economic change often become its victims.
It's difficult to see how reducing Detroit's debt will "break" its cycle - which is much less a cycle and much more of a decades-long downward trajectory. It's even harder to see how reducing pension benefits for the city's retirees, many of whom still live in the city, will benefit the city. By national standards the pension benefits aren't even particularly generous. Samuelson's theories of economics often seem to be driven by austerity theory and thus tend to be counter-factual, but surely even he can recognize that further reducing Detroit's per capita income and giving its people even less money to support local businesses is more of a stumbling block than a road to recovery. The cuts may well be necessary to balance Detroit's books, but if Detroit does not do far more than that to reinvent itself this is likely its first bankruptcy, not its last.

What I would like to see Detroit accomplish is a serious plan to consolidate its all-but-abandoned areas, and to engage in the wholesale removal of abandoned buildings. To do that effectively will require an infusion of state and federal money - many abandoned buildings are simply too large or require too much environmental clean-up for the city to do itself, particularly when it has no money. But I don't see that the void inside of Detroit will be filled with new people, businesses and jobs unless developers are looking at brownfields ready for redevelopment, as opposed to having to spend a small fortune demolishing an abandoned structure, and it's not realistic that developers will want to erect new structures or homes alongside vacant, derelict shells. The reasons that there is development around Detroit, but little development within Detroit, are not state secrets. Detroit is not going to become what Samuelson describes as an "incubator[] for new ideas and industries" as long as most businesses don't preface the idea of building or expanding in Detroit with the phrase, "anywhere but...."

Samuelson's admonition about "Detroit" holds more true for the state as a whole, which makes sense given that the State of Michigan is more aligned with that conception of Detroit than is the city itself. Contrary to Samuelson's suggestion, though, that Michigan workers get paid too much and have benefits that are too good, the fact is that Michigan is best served by trying to attract the sort of jobs and talent that keep wages high in the counties around Detroit. Samuelson observes, "New York has recovered, led in part by a resurgent (and maligned) financial industry", so let's be honest - being grossly overpaid relative to your contribution to society isn't an impediment to urban renewal, or even something to which Samuelson actually objects. (We can note, also, that Beltway pundits are paid extremely well for what amounts to a marginal contribution to society.) It's a matter of finding jobs and industries that fit with the present economy.

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