21 June 2006

Detroit Still Hasn't Hit Bottom

Detroit was again one of the fastest shrinking cities in the United States in 2005. New York City lost several thousand more people than Detroit in 2005, but it is about nine times as large.

In 1950, Detroit had 1,849,568 people. By 1970, it has lost about 345,000 residents. Between 1970 and 1980 it lost another 311,000 residents. Between 1980 and 1990 it lost another 172,000 residents. Between 1990 and 2000 it lost about 67,000 residents, so that by 2000, it had just 951,270 people. By 2005, it had lost another 65,000 or so residents, bringing it to a population of roughly 885,000. It lost roughly 16,000 people from 2004 to 2005 alone. Detroit's population will probably have fallen to below 825,000 by the next census at this rate.

Detroit has experienced five decades of relentless decline. And, in the 2000s, the rate of decline, rather than leveling off, has actually accelerated from the more modest declines it experienced during the boom years of the 1990s. There is no end to this free fall in sight.

The laws of supply and demand that are supposed to attract people to places with declining housing prices and excess infrastructure already in place, like a phoenix, seem to take second fiddle to the economic impact of an equally relentlessly declining manufacturing sector. Comparative advantage apparently trumps economic equilibrium.

General Motors, the corporate patron of Motown, is teetering on the brink of bankruptcy, losing thousands of dollars for every car it makes, burdened by legacy costs associated with its own repeated rounds of layoffs, its bonds downgraded to junk status, and its balance sheet arguably in the red if you accounted properly for the debts it owes to its retirees. A betting man would have to assume that GM will lay off more people still before it hits bottom, and as goes GM and its captive suppliers, like recently spun off Delphi, whose fiscal health is almost as bad, so goes Detroit. Ford, another Motown mainstay, is doing better, but not much. Chrysler has already been bought out by German automobile company Daimler, taking some key executive posts with it. Michigan based pizza giants Dominos and Little Caesers seem poised to eclipse the automobile industry in Southeast Michigan at this rate.

This means continuing ugly cuts in city government and local school districts that will discourage new people from coming into the city. Yet, politics dictate that local government cutbacks will almost certainly come slower than that the decline in population, which means that the city's government will continue to bloat governments and local taxes will continue to rise as fewer people must support more government per capita. In growing places the reverse happens, as populations grow faster than government can keep up, creating different problems. This means property values in Detroit are likely to continue to fall, and that more homes will be simply abandoned to mortgage companies and tax collectors. This means a city already dominated by the poor, will likely get even poorer, as those who leave a declining city tend to be those with above average incomes, who can afford to do so.

Detroit is one of the hubs of the Arab-American community, a community composed to a signficiant extent of people who have fled depositic failed states in the Middle East for the promise of the American dream. It is ironic that many will have landed in a community more ridden with despair than almost any other in the United States.

The 4.5 million person Detroit metropolitan area isn't actualy declining in population. It actually grew 4.8% during the 1990s, although the metro area's growth, like that of most of its industrial cousins, St. Louis, Pittsburg, Cleveland, Providence, Milwaukee, Buffalo, and Rochester, for example, has been sluggish compared to national averages.

By comparison, the Denver metropolitan area's population grew 30.7% in the 1990s. Denver proper is at its all time peak population and has grown steadily since 1990 (18% in the 1990s), although it declined in population during the 1970s and 1980s.

Every Detroit mayoral candidate since the beginning of time, it seems, has been running on a campaign of ending decline and turning the city around after all these years. Detroit hasn't seen a mayor able to deliver on this promise yet. There are loft projects downtown, not far from the Wayne State University campus, one of the few parts of the local economy not has not up and left the city. But, they seem to have fizzled compared to similar projects elsewhere.

More than once, I've heard the heartfelt, if bittersweet, cries of Detroiters and former Detroit residents who love their troubled city, with its charming local landmark stores, its Motown and now hip hop music, its memories. It seems like a perfect place for new ideas in some ways.

Denver's LoDo didn't emerge out of its permier residential communities, it rose up out of skid row, where no one complained about people with radical new ideas for the area. The same can be said for the former railyards that are now Denver's South Platte neighborhood, the parking lot wasteland that is now becoming the Coors Field neighborhood in Denver, the dead malls that have become thriving Belcaro and Cinderalla City (the Southglen Mall in metropolitan Denver is planning on following suit), and the military bases that nobody wants that have spawned new neighborhoods in Lowry and Stapleton, and a new biomedical center at Fitzsimmons.

But, what distinguishes the host of projects that have turned some of Denver's wastelands into healthy neighborhoods and Detroit, which certainly has no shortage of urban wastelands, is jobs. Denver's infill projects can thrive, because there are lots of people who want to and need to live here because they work here, in a city with a healthy, diversified economy. The growth is inevitable in the short run. It is just a matter of whether it will happen in the city, or on the suburban frontier.

Detroit has no such luxury. Until it finds a new engine of economic growth to replace the automotive industry and related manufacturing sector activity, it is dead in the water. And, the prospects of replacing that manufacturing sector activity with new investment from outside the city seems bleak.

While the United States has lots millions of manufacturing jobs in the last half decade alone, there have been new factories, indeed new factories in the automotive industry, built in the United States. But, not in Detroit. While U.S. automakers have shipped jobs overseas, Toyota, Honda and other foreign car companies, foreseeing backlash against imported vehicles, have further muddied the waters buy building new automotive factors in the United States. But, for the most part, they have avoided traditional rust belt manufacturing centers in favor of rural Midwestern and Southern locations where unions are weak, wages are low, good jobs are scarce, and the greenfields the factories are built upon carry no environmental baggage. The have built new state of the art facilities, rather than trying, as many American firms have, to salvage as much as possible of existing outdated facilities. The newcomers have tried to avoid accumulating what they see as bad attitudes and bad corporate cultures in their manufacturing workforce by starting to a great extent from scratch, something impossible in a place like Detroit where many workers have already absord the ethics of America's declining manufacturing sector.

The numbers may show that union shops are more productive than non-union shops, but executrives in car companies building new plants don't believe it. Brownfield laws may try to mitigate the environmental baggage of building new factories in existing industrial areas that may already be contaminated, but until there is actually an economic downside to building a factory on virgin territory, no environmental cleanup risk will always have an edge over some environmental cleanup risk in the boardroom. I have no doubt that a new factory in Detroit would have thousands, if not tens of thousands of people ready to line up to apply for jobs, but in the eyes of corporate executives looking to hire thousand of new employees, the only partially true myth of a chaotic, violent, ill educated city has a hard time competing with also less than completely true myth of America's hard working, well behaved small towns.

The only way manufacturing will return to Detroit is for local entrapreneurs, who are already committed to the city, to draw on local expertise and start from garages and empty warehouses making products that compete, in price and quality, on the world market from day one. I don't know if this is possible, and given increased automation, even if it was, it wouldn't create as many jobs as the automobile industry did, even if the movement was so huge that its output rivalled the output of that immense industry. Barring an embargo or protectionist policies that end the flow of cheap foreign goods, or more likely, economic development abroad that makes foreign goods from places like China and Mexico no longer so cheap, it is hard to see a reinvigorated American manufacturing industry revitalizing Detroit.

Barring such a development, Detroit really has only two options. Find some new industry to which to hitch its star, and/or downsize itself on a permanent basis, not just to where it is now, but to where it expects to be in a a decade, which will have even fewer people. Perhaps, if Detroit can resign itself to more modest ambitions so that it can stop failing, it can finally turn the corner. Maybe I should run for Mayor of Detroit. Only, given the poor track record of those who have come along so far, I'm not sure I'd have any more success.

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