How Detroit Kills Entrepreneurism And How Other Cities Foster It
A 2011 piece by Edward L. Glaeser on City Journal. An excerpt:
Detroit also has much to teach us about how wrongheaded public policy can discourage entrepreneurship. The federal government, to begin with, has repeatedly acted to save the auto industry. In 1979, President Jimmy Carter signed the Chrysler Corporation Loan Guarantee Act, which guaranteed $1.2 billion of Chrysler debt. In 1981, the U.S. government pressured the Japanese into accepting "voluntary export restraints" that limited the number of Japanese cars imported into America to 1.7 million per year. (A side effect of the restraints was pushing Japanese manufacturers to open production plants within the United States; needless to say, they typically chose spots far from union-dominated Detroit.) Most recently and spectacularly, the feds bailed out General Motors with $50 billion and Chrysler with $10 billion.It's easy to understand why the government wanted to keep two large companies from collapsing in the middle of a recession. But the Big Three were synonymous with industrial stagnation; for all we know, a dissolution of General Motors would have led to a cluster of smaller, more nimble companies. Some might have failed, but others might have been innovative enough to start adding employment. What we do know is that we haven't produced a world-beating car industry that will be a future jobs machine. These companies will probably keep sputtering along, making money in good years and requiring more bailouts in bad.
...Detroit's People Mover now glides over underused, often empty, streets, a reminder of the mistaken notion held by all three mayors and by the urban-renewal movement generally: that shiny new buildings can make a shiny new city (see "Urban-Development Legends"). Subsidizing new housing never makes sense in a declining city, since the hallmark of declining cities is that they have an abundance of structures relative to the level of population and demand. At the moment, more than 90 percent of Detroit's houses are priced below construction cost, so it hardly makes sense to bribe people to build more of them. As for infrastructure, it can be valuable, especially when it radically reduces the costs of doing business, as the Erie Canal did. But today, America and its cities are already well connected, and new infrastructure investments are likely to have fairly modest effects. They are especially unlikely to bring back declining cities.
What would help is knocking down the barriers that block entrepreneurs from thriving. Here, alas, Detroit is a leader in erecting barriers. Take Pink FlaminGO!, a food truck operated by entrepreneur Kristyn Koth, who sold "Latino-influenced locally-sourced fresh food," as the blog Eat It Detroit put it, out of a Gulf Airstream. Rather than cheering her on, the city gave her so many tickets that she had to close. What Crain's Detroit Business calls "Detroit's archaic ordinances governing all types of vending in the city" block food trucks from locating near existing restaurants or "in the most populated areas of Detroit"; they also tightly limit which foods street vendors may sell, partly to limit competition with restaurants.
Just as it isn't the federal government's job to prop up failing companies, it isn't a city's job to defend the status quo against innovative entrepreneurs. Detroit's heavy regulations are a big reason why there aren't enough new firms rising to offer alternatives to the Big Three.
Declining industrial cities don't have to follow Detroit's path--thanks to entrepreneurs. Forty years ago, as Boeing chopped down its local workforce, two jokers put up a billboard on a Seattle highway that read: WILL THE LAST PERSON LEAVING SEATTLE TURN OUT THE LIGHTS? Today, of course, Seattle looks nothing like Detroit. A stream of innovative companies--Microsoft, Amazon, Starbucks, Costco--has completely transformed the city. Between May 2010 and May 2011, it added more jobs than any metropolitan area except Dallas and Houston.
The question is what will happen to all the residents when the rest of the streetlights no longer come on; the roads aren't cleared in the winter; the water turns off?
There is a 47% illiteracy rate.
Is it going to look like The Warriors?
Jim P. at July 28, 2013 7:20 AM
Bread and circuses in the dying city.
Detroit's new hockey arena.
Gog_Magog_Carpet_Reclaimers at July 29, 2013 2:56 PM
The thing is, overall, America's auto industry is actually doing pretty well. It's just that most of the good stuff is not in Detroit anymore.
Cousin Dave at July 31, 2013 8:50 AM
The rate of success in American business is not related to distance from Detroit, or any other obvious geographic formula (except that during the current virulent growth of big government, being close to Washington, DC brings prosperity).
Instead, business is thriving in those places that have the lowest tax and regulation burdens, and especially in right-to-work states. I hope that soon, more blue states will see the light in that regard, as Michigan and Indiana recently did.
In the meantime I'm getting the bleep out of California as soon as I can afford to. Let the granola people have their paradise to themselves.
jdgalt at August 1, 2013 6:27 PM
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