New Geography

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  • Financial Crisis: Who will Bailout the State and Local Governments?

    The continual Illinois corruption scandals have created not only ignominy to the Land of Lincoln, but have now placed a negative ranking from Standard and Poor on its credit. If Illinois vies with other states for the title of most corrupt, it has plenty of company when it comes to financial disaster.

    Although building for years, the impending collapse of state and municipal finance has been hastened by the growing financial crisis. The year 2008 will go down as one of the most turbulent years in the history of financial markets. Long established companies such as Lehman Brothers, Fannie Mae, Freddie Mac, and Citigroup have imploded. Large retailers like Circuit City have already filed for bankruptcy and, without federal help, huge companies like General Motors will join the parade.

    Yet with all the turbulence in the private economy, there has been much less media attention on the coming bankruptcy of some municipalities and perhaps even some states. Many of us are taught in college finance classes that the yield on municipal bonds always has to be lower than U.S. Treasury securities, largely due to their exemption from federal income taxation. This normal pricing of municipal bonds no longer exists. Municipal bond yields, the last couple of months, are consistently higher than U.S. Treasuries. This tells us that the credit markets perceive great risk in lending to America’s cities. The perceived ability to pay back principal is now the operating rule in the credit markets.

    As of this writing, Triple-A rated, Tax-Exempt General Obligation Bonds are yielding over 5% while the 30 Year Treasury Bond yields around 3%.This suggests that many communities and some states as well may be in distinct danger of default.

    There’s a general pattern as to where the biggest problems lie: in those states and communities where public employee unions wield all but unlimited power. This is not so much the fault of unions – the purpose of every union is to gain higher wages for its workers – but in many states and cities there is no counterforce to their influence. This becomes a vicious circle. Local politicians overpay unionized government workers who make campaign contributions and organize “get out the vote” drives to make sure the politicians keep overpaying them.

    The most recent famous example is the California city of Vallejo filing for Chapter 9 bankruptcy. George Will writes:

    Joseph Tanner, who became city manager after this municipality of 120,000 souls was mismanaged to the brink of bankruptcy, stands at a white board to explain the simple arithmetic that has pushed Vallejo over the brink. Its crisis — a cash flow insufficient to cover contractual obligations — came about because (to use figures from the 2007 fiscal year) each of the 100 firemen paid $230 a month in union dues and each of the 140 police officers paid $254 a month, giving their respective unions enormous sums to purchase a compliant City Council.

    So a police captain receives $306,000 a year in pay and benefits, a police lieutenant receives $247,644, and the average for firefighters — 21 of them earn more than $200,000, including overtime — is $171,000. Furthermore, police and firefighters can store up unused vacation and leave time over their careers and walk away, as one of the more than 20 who recently retired did, with a $370,000 check. Last year, 292 city employees made more than $100,000. And after just five years, all police and firefighters are guaranteed lifetime health benefits.

    The recent news out of the state of California is no better. The L.A. Times reports that California’s budget deficit could reach $41 Billion by 2010. Can California continue to pay 3600 prison guards over $100,000 a year? It would be wrong to single out California. Many other places are on pace for financial ruin.

    Massachusetts is another state where unions have hijacked the political process for the benefit of their members. Last year, The Boston Globe reported how lucrative rent-seeking can be:

    Nearly one in 10 Massachusetts State Police officers made more than the governor last year, with 225 officers topping the $140,535 annual salary of the state’s chief executive.Four of the 2,338 state troopers were paid more than $200,000, and 123 others were paid more than $150,000, the salary of the governor’s Cabinet secretaries, according to payroll information obtained by the Globe under the state public records law.

    And that brings me back to my home state of Illinois. We not only face an immediate cash flow crisis but also must confront an underfunded public pension fund deficit of more than $50 Billion, and the Blagojevich scandal has held up a needed $1.4 billion short-term bond offering. Chicago Public Radio reports the Illinois pension deficit is “larger than the state’s annual budget.” There is a clause in the Illinois State Constitution that prevents any state or local government worker’s pension from being cut. Will a federal bankruptcy judge have to come in and void a section of the Illinois State Constitution?

    When the major credit rating agencies failed to accurately price in the risk of subprime mortgages, questions about their rating standards are now becoming quite important. If you can’t trust Moody’s, Standard and Poor’s, and Fitch, what should you be looking for if you want to own municipal bonds?

    In the coming years, many municipalities and state governments will need to deal with the conflict between those who pay taxes and those who consume them. Government workers’ salaries come from the taxpayers: which means government workers aren’t net taxpayers. Cheap and easy credit might no longer be available to help pay for overpaid government workers.

    This situation can be resolved in two ways. As in a bankruptcy proceeding, states and cities can work with unions to control costs and reduce obligations. Or they can – as Wall Street and Big Three have done – come to Washington, DC to beg. Once that happens, the long-term credibility of Washington’s debt will need to rise to record levels, with implications that are almost too horrific to contemplate.

    Steve Bartin is a resident of Cook County and native who blogs regularly about urban affairs at http://nalert.blogspot.com. He works in Internet sales.

  • Former Insider on the Auto Bailout: Never Underestimate Brainpower in Detroit

    In all the many (how many) years I worked as an engineer in and around the auto industry, I got to compare conditions in Europe, Japan and America. Yet in many ways the American situation was perhaps the most tragic – the most potential, most eagerly squandered. It’s not Americans who are flawed, but the business model imposed from the top.

    For example, I do not believe American engineers are inferior to those working elsewhere. It’s just the way their inputs are handled. Toyota and Honda have long-term viable plans that forecast many years down the road. This gives engineers a clear direction.

    On the other hand, Detroit’s automakers, as well as some European ones, tend to look at short-term gains in order to satisfy shareholders. GM’s big problems were due to planning short-term while sacrificing the farm down the road.

    GM became too big. They had too many brands and too many models. Alfred P. Sloan created all these brands in order to counter Henry Ford, but also to provide various products for people at all economic levels. These internal GM brands were to compete against one another as well as outside companies. What Sloan did not realize is how this internal competition would impact the engineers who develop products and the marketing staff who have to sell them.

    Of course some of the problem had to do with the power and influence many of GM’s shareholders had over the board as well as the CEO. These shareholders wanted their cut and they wanted things done their way. For years, it all came down to satisfying the shareholders at the expense of GM’s long-term reputation. To this day, I know people who will not buy a GM product simply because they had a poorly made Pontiac back in 1983.

    Keep in mind, buying a car is a HUGE purchase for just about anyone. This cannot be compared to purchasing a ticket on a bankrupt airliner or buying a golf club from a defunct golf manufacturer. Americans today have long memories when it comes to vehicle purchases. Yet, these are the same Americans who demand instant gratification and who trample people at stores on Black Friday in order to save an extra $12.00 on a Chinese-made sweater.

    But my biggest complaint has to do with the wasting of great talent. There is a popular myth that American engineers are lazier or more stupid than their Asian and European counterparts. I highly disagree with this notion. There may well be different cultural values, but that does not define a worker’s skill set or determination. American engineers are simply more independent in their thinking than their Japanese and European counterparts. Independently-thinking renegades will create nothing but extra trouble for a platform design team.

    This is system that American engineers and designers are placed into once they graduate from college. It’s a cultural “machine” if you will. In Japan, Toyota’s engineers become “one” with the company and they simply work as one machine. There is no “I” in Toyota’s system – or in Japan’s industrial marketplace for that matter. Unfortunately, at GM people appeared to be hell-bent on receiving singular credit for their accomplishments.

    Please understand that the Japanese people are not a diverse bunch. They are known in the automotive industry for improving upon established ideas, designs and systems. The Japanese, however, are not known to create something from the ground up like their American counterparts. American engineers take more risks, since they want to be rewarded. The Japanese simply create and work for the common good of their employer.

    Toyota
    Toyota is a company that is known for its stubborn planning and ways. They take their time and do things right the first time. This is the Toyota way – most of the time.

    But this is not always the case. Toyota got derailed with their Avalon model. This car has been nothing but trouble from the drawing board to the production line. It is a piece of garbage.

    Why is it so bad? Maybe it is because this time they followed the flawed American model. Toyota rushed it because it saw the potential for a quick profit. They did not take their time to think things through. They simply used the American business model for a short-term gain and it failed them.

    In contrast, GM took its time to develop the new Malibu, and Ford used over 1100 engineers to develop the new F150. The Malibu is better than anything Toyota has right now. How do I know? I drive a Camry and I compared it to the Malibu.

    Interestingly enough, GM Vice Chairman Bob Lutz had personal input into the Malibu’s development. That is the MAJOR divergence from traditional platform development in the past. Engineers and designers received personal hands-on feedback from a car-guy at the top, not some bean counter. I am sure they felt invigorated to hear his thoughts from him rather than receiving them in a fluff letter typed by a secretary.

    Back to Michigan?
    Up until the late 90s, many in Michigan simply did not value a college education. Many were simply cushioned by the fact that they could graduate high school and get a job on the assembly line. I fear that this attitude towards college will grow in the southern states such as Mississippi and Alabama. Many down there are starting to have the “I’ll be fine” attitude that many in Michigan once had.

    But the future in Michigan may be brighter than many suppose. Southeast Michigan will remain a research and development powerhouse well into the future. Many of Detroit’s auto engineers and related companies can easily adapt (technically speaking) to alternative technologies such as wind, solar, and new materials. Never underestimate the amount of brainpower in Detroit. Prior to my stint in Detroit, I was under the impression that every Big Three employee was a lazy slouch. My ignorant attitude was squashed pretty damn quickly once I started working with them.

    So here’s a bright point for the future. You will see more technical industries branching off from the auto industry. Companies like Dow are already taking advantage of Metro Detroit’s diverse and increasingly well-educated Arab population. I see a future in Michigan revolving around chemicals, green energy, transportation and international trade in general.

    But the car industry won’t go away either. Toyota, for example, decided to keep its R&D operation in Michigan rather than relocate to Alabama. There was simply no incentive for Toyota to migrate its brainpower to the South. Right now – although this may change – the auto industry in the south is incomplete since they lack the planning and design processes needed.

    With or without a bailout, the Big Three as we have known them will not be the same. One or two could disappear. Others will no doubt shrink. But the intelligence that exists within the engineering and industrial talent of Michigan remains. This is what the country should look to save from extinction, not the mediocrities who have ruled from highest management.

    Amy Fritz was born in Cambridge, England during World War II. Her mother was a seamstress and her father a pilot with the RAF. Her uncles worked in various capacities within the British automobile industry and her father became an engineer and professor.

    After studying engineering at Cambridge, Fritz developed an interest in automobiles and went to work for a now defunct automotive supplier. Her occupation took her to Europe, Asia and North America, where she eventually settled as a technical engineering contractor for various auto-related companies. She is now semi-retired and living in the Denver area.

  • Euroburbia: A Personal View

    The image of the European city as a tourist’s paradise of charming inner-city neighborhoods interconnected by high-speed rail networks is not entirely false, but it does not give the full picture of how most Europeans live. Contrary to the mythology embraced by romantics among planners and ‘green’ politicians, urban areas of Europe sprawl just as much as any American or Western city.

    Of course, there are the wealthy and often childless few who live in the renovated urban cores – but at much lower density than at any time in their history. Instead of crowding picturesquely into city, the teeming hordes of the middle class have sought their refuge in the arboreal outskirts. They drive from their single-family homes and townhouse developments to their offices in old city centers, in business parks on the edge of the center and to other villages with massive industrial parks attached to them.

    As a result Germany has long since ceased to be the country that one sees in Grimm’s Fairy Tales or Goethe. Much of it looks like America or Canada. Freeways interconnect exurban villages swelling with housing developments and industrial parks. The German dream is a lot like the American one, only with more rules.

    The most interesting factor is the diversity of these suburbs. They are still predominantly German, but then again so is the country. I live in an exurb of Nuremberg in northern Bavaria. It was the city of Dürer and Hans Sachs as well as the infamous Nazi rallies and post-war trials. It still has castles from the Medieval past, but the need for labor to rebuild destroyed cities – and eventually the resulting prosperity – in the post-war years saw new faces and cultures arrive with immigrants from countries like Turkey.

    Just like in America, many of these newcomers worked until they retired and decided that they wanted to stay. Some of their children are having trouble but not all of them. The children that move out of their neighborhoods to the suburbs integrate better because their parents tend to be more prosperous and thus resent Germany less. The other reason is the fact they are more exposed to the language. Cem Ozdemir was just elected as leader of the Green Party here and he does not speak the pidgin common among a lot of Turkish immigrants. I moved to the suburbs for much the same reason. My wife and I are both non-native speakers but we know that if our children are going to succeed they will need to speak German well and act like Germans. Ideally they will become hyphenated Germans, as in American-Croat-Germans, which is roughly what they would be.

    Of course, some recent newcomers still huddle in their ghettos here, the soulless housing estates built to satisfy Le Corbusier’s destructive urban fantasies. But a lot of them are moving out and up. Their ultimate dream is not a castle or a turn of the century apartment. They want their own house. They want decent schools for their kids, a place to park their cars and easy access to work. That is why they are here and not in their old neighborhoods.

    But diversity is a relatively new benefit of German suburbs. We also moved here for a basic need of space. We had lived in the inner city in a charming apartment but one that simply could not hold kids. It felt cramped just as our offspring popped out.

    There’s also one often-unrecognized advantage to our suburbia: a stronger feeling of neighborhood. Germany is a country of renters. It can be fairly alienating when the residents have little vested interest in where they live. A lot of rental apartments are in buildings that are anything but charming. Here in the suburbs of Germany almost everybody owns their own home. One street is actually named Eigenheimstraße, which translates to Privately-owned-home Street. It is an indication of the pride that Germans have in being able to say that a house belongs to them. They also lovingly tend their yards and fill them with garden gnomes – some harmless, some borderline obscene – and other bric-a-brac that fills countless yards across the urban expanses of America.

    Then there are the schools. The school system here in Germany is fairly uniform with secondary schools more or less standardized. Performance at the elementary school level is vital: children are clearly, quickly and brutally sorted here. At the age of ten, the teachers decide if a child is going to go to college, vocational school or rot in the festering hell of the Hauptschule. The latter is nothing more than a storage facility for tomorrow’s losers.

    We moved to make sure that our neighborhood was mainly German. We wanted to make sure that our children were comfortable with the language and they needed friends who spoke German to feel that way. Most immigrant children fail for the simple reason that they don’t speak German at home, and in pre-school most of their friends speak their parents’ native language as well. This means that they speak Turkish or Russian well but can barely express themselves in German. This then puts them at a disadvantage when working their way through the school system. They have to take remedial language courses. The suburbs allow them to avoid all that.

    The last reason is a place to park our cars. Germans love cars. They love engineering and are very proud of their car industry. They design cars that are the epitome of luxury and performance. Most Germans do not drive cars like this, yet stubbornly continue to own cars despite the government’s multiple efforts to make it too expensive. We pay hefty gas taxes in an effort to fight the “Green House effect,” but most of us feel that it’s just an excuse for the government to steal our money in order to pay for its bloated welfare system.

    Car-ownership in Europe is almost at American levels and Europeans, despite the much-ballyhooed efforts to introduce bikes in Paris, will continue to drive. As in America, the anti-car and anti-suburban ideologues are loud and active, but as long as people prize security, privacy, space and mobility, it’s likely Europe’s version of the suburban American dream will continue to thrive for years ahead.

    Kirk Rogers resides in Bubenreuth on the outer edges of Nuremberg and teaches languages and Amercan culture at the University of Erlangen-Nuremberg’s Institut für Fremdsprachen und Auslandskunde. He has been living in Germany for about ten years now due to an inexplicable fascination with German culture.

  • Who am I?

  • Bailout or Just in Time Delivery?

    Toyota is careful in its ways; it didn’t get where it is today by idly locating manufacturing plants. And, so it chose Georgetown, Ky. – 12 miles north of Lexington on I-75 – for the location of its first and largest U.S. plant. It was followed in the ensuing years by numerous other foreign auto plants locating in the South – BMW, Mercedes, Saturn, Hyundai and yet another Toyota (in Mississippi).

    Why, you may ask, did they come to the South? The easy answer is that they came for cheaper land and labor. They were also drawn by large and much criticized tax incentive packages as the South decided – value judgments aside – to get in the game and establish a manufacturing base to replace the sagging agriculturally based small farm economy. Here in Kentucky, the less than bright future for tobacco was ample motivation for welcoming Toyota.

    But I believe there is more to this move. They came also for laborers eager to find the good paying auto jobs that had escaped the South for too long. The influx reversed a trend of Southerners leaving for the great factories of the North as my father did 60 years ago as he fled Appalachian Kentucky for Dayton, Ohio.

    Also, contrary to East Coast “attitudes” they came for another reason – the work ethic common to this region. In Kentucky workers from 116 of its 120 counties were hired when Toyota began operations – 7,000 strong. They wanted to work, and were willing to move, commute, or hitchhike for the opportunities. Just as importantly, Toyota created a new employment strategy of hiring a “cushion” of temporary employees to insulate full-time employees from the impact of an eventual economic downturn.

    This image contrasts that of Southerners – particularly those in Appalachia – as generally lazy, fat, dumb, happy, pregnant, barefoot, toothless, racist, sexist or any combination thereof. Speaking of lazy, we can thank Gary Tuchman and CNN for the latest contribution to stereotyping our Commonwealth when they chose to find poor sad people on a front porch in Clay County Ky., to enunciate in butchered English their discouragement with the state of the world.

    So when we hear about the bailouts, first for the financial industry and now the Detroit-based U.S. auto industry, we have reason for skepticism. Our auto industry – that is the generally healthy industry created by Japanese, Korean and German manufacturers – doesn’t seem on the bailout list. Neither do our local banks. They’re not too big to fail and not stupid enough to follow the lead of Wall Street.

    Of course, we don’t want to see any part of America fail, including Detroit. According to one Toyota executive, the webbing of the auto industry is so intertwined that the failure of the U.S. auto industry would bring down the entire house of cards, including the supplier plants that Toyota and other “new age” manufacturing plants call “just in time delivery” facilities.

    But others do see the bailout as undermining a trend that favors efficiency in manufacturing – and the wise investment Toyota and other companies have made in developing smaller, more fuel-efficient cars. Still others are baffled about what they would do if it was their congressional vote. The global economy has grown complex in many ways. Among the most vexing issues are those surrounding present and future government involvement in private companies.

    Ultimately we wonder what the attitude of the new administration will be toward Kentucky and the South. Kentucky in particular stood out once again with early poll closings, to be declared “red,” by a large percentage as it went to McCain. Obama tiptoed only once into the state, and that was in “blue” Louisville. He made no effort to win us over as Kennedy and Clinton had in earlier presidential campaigns. We will soon learn if he remains true to his rhetoric that proclaims that we are neither “red” nor “blue” but one America.

    There’s much our new President could do for this part of the world. The mega car factories might show what our workforce is capable of but they have not been enough to reverse our relatively low per capita incomes. New investments – roads, waterways, freight rail lines, skills training – could help lift our region up even further. We just hope that the new President realizes that all of America will benefit if the South can build on its automotive industry success to achieve a much broader prosperity.

    Sylvia L. Lovely is the Executive Director/CEO of the Kentucky League of Cities and the founder and president of the NewCities Institute. She currently serves as chair of the Morehead State University Board of Regents. Please send your comments to slovely@klc.org and visit her blog at sylvia.newcities.org.

  • Michigration: It’s Not About Out-migration in Michigan

    Pertaining to brain drain hype, Michigan has no equal. So profound is the out-migration that a local broadcasting network coined a term: Michigration. This was in January of 2008. I did a little digging and discovered the fuel for the story was a United Van Lines study about Michigan’s net loss of residents.

    Net population loss is often confused with emigration. Upstate New York, another brain drain case for a future article, is no exception. The Federal Reserve Bank branch in Buffalo issued a report that tried to clear up the confusion, explicitly stating the challenge is attracting more people instead of the assumed issue of retention.

    Michigan is in the same boat. There is nothing remarkable about the rate of out-migration from the state. What is shocking is the lack of newcomers. Most of the Rust Belt has a problem with a distinct lack of in-migration.

    Another oversight of the media is the aging population. Rarely does natural decline make the news. Of course, that “problem” doesn’t lend itself to political gain. That is too bad because making better use of an aging workforce is a missed opportunity. Shouldn’t talent retiring in Michigan be celebrated?

    A third misconception about shrinking cities is that the best and brightest are heading to hip out-of-state destinations. The truth is many graduates go no further than the suburbs, resulting in the donut pattern of urbanization. Those that venture beyond likely end up in the next state over, not halfway across the country. A lot of talent moves from one Rust Belt city to another. Much of the rest – although perhaps not the offspring of the remaining economic and cultural elite – shifts to those areas that have been creating jobs, particularly places like North Carolina, Texas and, before the recent bust, Arizona and Florida.

    In and of themselves, reports of Michigration are harmless. But popular perception is often used to push various initiatives such as Michigan’s Cool Cities:

    Building vibrant, energetic cities that attract jobs, people and opportunity to our state is a key component of Michigan Governor Jennifer M. Granholm’s economic vision for Michigan. Governor Granholm kicked-off the “Cool Cities” initiative in June, 2003 throughout the state, in part as an urban strategy to revitalize communities, build community spirit, and most importantly, retain our “knowledge workers” who are leaving Michigan in alarming numbers.

    The promise is that cooler cities will keep talent from leaving the state. I challenge Governor Granholm to list the top-10 Cool Cities in the United States and their respective out-migration rates. How do Michigan cities compare? How do you quantify “alarming numbers”?

    US cities with the fastest growth rates in population tend to have the highest rates of emigration. Ironically, shrinking cities have relatively weak out-migration. Furthermore, the college educated are much more likely to leave any state or metro than people with just a high school education. Knowledge workers leaving Michigan is normal. The low number of knowledge workers arriving, from out of state, is abnormal. Neither better urban place-making nor more tolerance on its own shows any strong positive correlation with less brain drain. In fact, the opposite may be true. Cool Cities simply hasn’t delivered.

    We do understand that knowledge workers are geographically fickle. But Governor Granholm fails to put the attraction of talent on top of the agenda. She continues to play to fears of Michigration as justification for significant investment in the state’s cities. I’m not anti-urban. On the contrary, I’d like to witness the revitalization of Rust Belt downtowns. But sprucing up an aging downtown in a region with massive job losses will not get the job done.

    The most promising research I’ve read comes from Edward Glaeser, an urban economist at Harvard University. The best investment of public money would seem to be in human capital, education. What would attract well-educated parents would be better schools, something the suburbs have mastered. Inner city Detroit’s main competition for talent is the communities ringing around it.

    Michigration will not be stemmed by being “cool” but by providing some sort of opportunity for a decent middle class life. If Michigan could combine its excellent Universities, skilled workforce and low housing costs with a decent business climate, and significant school reform, perhaps the state would again become a beacon for entrepreneurs and knowledge workers.

    Read Jim’s Rust Belt writings at Burgh Diaspora.

  • A Great Philadelphia

  • Financial Bailout Shortchanges Taxpayers and Does Little to Fix the Economy

    Last month, Congress gave the treasury secretary $700 billion, which he said he urgently needed to buy toxic securities from the balance sheets of some of our largest financial institutions that were in financial trouble.

    The secretary said that the economy was in danger, and the bailout funds were necessary to prevent a collapse.

    I agree the economy is in trouble. And I am anxious to support emergency measures that will give our economy a lift.

    But I voted against the $700 billion dollar fund for the secretary because I insisted that any bailout had to include measures that would stop the reckless behavior that caused this financial wreckage.

    Unfortunately, the bailout fund was approved without the tough, new regulations necessary to prevent the actions that steered our economy into the ditch.

    In recent weeks, the treasury secretary changed his mind. He decided not to buy toxic securities. Instead, he used the first big chunk of bailout money to buy $125 billion of capital in the nine largest banks. It would free up some lending in the credit markets, he claimed.

    But, strangely, he gave the big banks the money “with no strings attached.” He didn’t require them to use it to expand lending. He didn’t stop the payment of big bonuses to their executives. And in a final insult to common sense, his department is encouraging the big banks to consider more mergers.

    Weeks later, we learn that the big Wall Street banks plan to pay over $20 billion in executive bonuses to their employees.

    What’s wrong with this picture? The American taxpayers, who are struggling through this economic crisis, are told they have to fork over a pile of money to bailout some big banks, while the big banks are busy calculating their year-end bonus payments — maybe to the same geniuses who built this financial house of cards and were last seen driving the getaway car from the scene of the wreckage.

    I think it’s nuts!

    Should anyone in Washington be surprised that the American people are steamed?

    During the past few decades and especially in recent years, the big financial firms were having a field day trading in complicated derivatives, creating a sub-prime loan scandal and engaging in risky, reckless business practices. All the while, many of the government regulatory agencies were doing their imitation of a potted plant.

    Finally, the speculation bubble burst, some big financial firms failed, and it is causing major damage throughout our economy.

    By contrast, on Main Streets across America, community banks and small businesses were still doing business the old-fashioned way.

    A couple of weeks ago, I was sitting across the table from a North Dakota community banker. I asked him if, in light of the financial crisis, his small-town bank had any money to lend if a business from his town wanted to expand.

    “Oh, sure,” he said. “We didn’t get involved in all of those fancy, risky business practices that the big banks were involved in. We take in deposits, and we make good loans.”

    Good for him. It is the way business is supposed to work.

    We do need to take urgent steps to put our economy back on track, but it needs to be smart, effective action that will work. So far, that hasn’t been the case.

    When Congress is back in session in mid-November, I am going to push the following changes to the misguided policies of recent weeks:

    • Prohibit the payment of big bonuses in the firms that are getting the federal bailout money.

    • Attach conditions to any bailout money to make sure the funds are used for the purpose intended and to prohibit the reckless business practices that created this crisis.

    • Restrict further mergers by big banks. It was many of the big banks that caused this crisis, while the smaller community banks largely steered clear of the reckless behavior in high finance.

    • Immediately create a Federal Investigative Task Force to investigate and establish accountability for this financial crisis. Criminal behavior should be investigated and prosecuted.

    Dorgan, a Democrat, represents North Dakota in the U.S. Senate.

  • Toronto: The Action is Where You Make It

    You get mean-spirited when you feel left out of joy. Somebody else’s joy raises envy when you haven’t had any yourself. Cities are like that, jealously eyeing other cities as if there were more fun and delight and oh, “buzz,” to be had elsewhere.

    In fact it’s an illusion that the party is going on somewhere else. The action is where you make it, and in a city you have lots of help doing it. In fact that’s what justifies city life – the signature of any great city. Self-rejoicing. It’s something more than plain pride, or confidence or superiority, or a call for “buzz,” excitement, or (yech) prosperity.

    Joy is what Toronto hasn’t done too well. But now the New Canadians are it the city along with their spontaneity, a zeal, a natural gusto for life; that is, until they get hooked on the regulation and protocol that define the city’s ethic.

    What makes the new Canadians naturally more joyful? Perhaps it’s because they initially come from less “fortunate” places. Deprivation, (for all its unseemliness in a climate of entitlement) has a way of instructing people in reliance upon family and community. People need each other in dire straits. In their calm affluence, Torontonians seem to not need each other.

    There’s something about having to rub closely against another human being that gets on our nerves and I don’t think that all the talk of “densification” in affluent Toronto will quite manufacture that alchemy of inter-civic dependence. And that’s the challenge for all cities in an atmosphere of globalization. Globalization likes order, efficacy and the robotization of human capital, leading to culture of protocol and calculation – even when it comes to enjoying oneself.

    To be fair, there’s been a steady erosion of the puritan ethic that says “don’t do this” “don’t do that”. But now the caveats and prohibitions come from a more hygenic mentality. There are prohibitions against parking, loitering, lingering, lingering in parks after 11pm., trespassing. We have bylaws for everything; a bureaucratic industry of injunctions and disallowance. Add to that a contemporary feel for the wisdom of surveillance, neighborhood watch and reporting of suspicious behavior, and you have a self-consciousness that is being perfected in Toronto.

    Toronto comes to its love for order from a colonial tradition of shopkeepers, whose ethic was that of good business. Add to that the “family compact”, loyalism, and a legacy of stingy theologies (notions that God totes a ledger instead of a horn of plenty) and this typology becomes a model for Ontario. It’s evident in the dedication of bureaurocrats and civil servants, who seek a sanitized city in place of a creative or playful one. This culture of prudence and circumspection threatens to oppress the lively spirit generated and smuggled here by the new Canadians.

    Proceduralism preempts happenstance encounter. Connectedness is preferred to intimacy. Negotiated space is the means by which we enter the public realm. The city in general is being redefined as a place where you can enjoy yourself without necessarily enjoying others.

    You can slap on all the new urbanism you want, all the new designs, the access paths to waterfronts, the well thought out landscaping but the zeitgeist of civic withdrawal persists. In urban centres, revitalized or not, you will find no one on the streets after 8 pm at night.

    In Toronto, this zeitgeist is abetted by parking police and increased infatuation with bylaws, a lack of leniency and flexibility in regulation – the licensing difficulties for small businesses that force them to use consultancies that conform better to the civic animal.

    Yes there are the usual arts festivals, showcase museums, testaments to corporate architecture, commercial temples, touristic theme-parks, and the downtown is hugely revitalized with condos, bars and art galleries. But like revitalized downtowns throughout North America, ours is, predictably, a playground for the rich and their pampered offspring, while the service workers can’t afford to live there. Let alone the artists who first raised the property values by their ethos of adventure. Bring the artists in, let the neighborhood get trendy, and then make it unaffordable to anyone but the gentrified. At the end of the day, there is nothing casual about what the gentrified city permits.

    In the end, the natural expression of exuberance is left crippled. Spontaneity is the casualty of the global city – scared as it is by security issues, the notion that the next guy is in it for himself, the loss of a general ethic that encourage the citizen to civic sacrifice. In short, in trying to become or remain ‘world class’ we are in danger of being regulated out of life.

    In some ways, Toronto’s fetish for regulation may be the very thing that attracts the global lifestyle pilgrim. It might be why trendy people choose to live in Toronto …because Toronto the good (or the Toronto of protocol) is antidote to the tyranny of origins and the fracas of more bankrupt places.

    In the future, however, this stifling of spirit and resort to regulated celebration could backfire. What will define the successful city of the future will be not adherence to cultural fashion but the nature of its faith, its civic generosity and it’s preservation of civil encounter. Civil encounter is under siege. The public realm is being evacuated of its indigenous spirits, and with it, the delight the manufacture of joy.

    The time must soon come when the “city” as notion will no longer be limited to the “metropole.” The revitalization of downtowns is inevitable but the real urban frontier may lie in those hinterlands snubbed by those cosmopolitan condo dwellers and spuriously dismissed as “suburbs”. This is where the bulk of urban populations – the middle and working classes now reside. The expedience, economy and unimaginativeness with which those areas are being designed is appalling. Toronto’s outer rings cannot be brought to health medication of new urbanism, with no thought to why people don’t use public spaces even when they are adequately designed, even when they pose no threat to personal safety.

    What we need is not so much better design or more control but the cultivation of “urban citizenship”. Urban citizenship is not understood as the key to poorly done infrastructure and municipal alienation; it can not be quantified, or designed into existence. You can not manufacture the notion of loyalty to a neighborhood, municipality or city. Without loyalty, people become mere “services” to each other, networks and not neighborhoods; information replaces knowledge about people. The government ends up knowing more about you than your neighbor does.

    Toronto has arrived as a successful North American city by the standards of a livable city but is it a place where you still have an appetite for life? It is good to consider that though most places seek to be livable cities, they often arrive there without the manufacture of joy.

    Let me tail this piece off with a quote from Walt Whitman: “The greatest city in the world is that place that has the greatest men and women. Though it be a few shacks, it is still the greatest city in the world”. In the wake of a deep recession, that is a perspective urbanists must adopt. Our mutual reliance and ability to create our joy in places we make our own constitutes the infrastructure upon which creating a great city must be based.

    Pier Giorgio Di Cicco is Principal of Municipal Mind, Poet Laureate of The City of Toronto, and Curator of The Toronto Museum Project. He was a team member and co-author of the Imagine Toronto report of the City of Toronto and Province of Ontario. He was official moderator for the 2005 International Metropolis Conference and the Toronto host for the World Association of Major Metropolises. His latest book is Municipal Mind: Manifestos for the Creative City.

  • Will we be over-stimulated?

    Stimulus fever is in the air, and with the election of Sen. Barack Obama to become the 44th US president, it’s now reaching a fever pitch. US automakers have already made the rounds on Washington DC, meeting with Congressional leadership to generate political support for another $25 billion in government subsidy to avoid bankruptcy. Now, congressional leaders and some economists are clamoring for $150 billion to $300 billion in additional stimulus to goose the national economy – all this on top of the $700 billion financial services “rescue package” passed in October.

    Harking back to the days of the Great Depression, many policymakers see transportation spending in roads, highways, and transit as an effective job creation program. Indeed, the American Association of State Highway and Transportation Officials has identified 3,109 “ready to go projects” worth $18.4 billion that could, in theory, produce 644,000 jobs.

    That’s more than double the number of jobs that disappeared in October according to the U.S. Department of Labor. Unemployment edged up to 6.5% in October as the economy shed 240,000 jobs. The number of employed has fallen by 1.2 million workers since the beginning of the year. Meanwhile, wages for those with jobs increased an average of 3.5% over the last year, significantly lagging inflation (for urban consumers) of 5.3% during the same period. More than half of that fall occurred in September, October, and November.

    These numbers embolden economists and pundits alike. Paul Krugman, writing in the New York Times, advises President-elect Obama to be bold and audacious in his fiscal stimulus:

    “My advice to the Obama people is to figure out how much help they think the economy needs, then add 50 percent. It’s much better, in a depressed economy, to err on the side of too much stimulus than on the side of too little. In short, Mr. Obama’s chances of leading a new New Deal depend largely on whether his short-run economic plans are sufficiently bold. Progressives can only hope that he has the necessary audacity.”

    Krugman’s observation is an extraordinary statement because little evidence exists that this kind of discretionary fiscal policy has a meaningful impact on the economy. Alan Aurbach, one of the nation’s leading macroeconomic policy experts and an economist at the University of California at Berkeley, examined fiscal policy during the 1980s, 1990s and early part of 2000s and concluded:

    “There is little evidence that discretionary fiscal policy has played an important stabilization role during recent decades, both because of the potential weakness of its effects and because some of its effects (with respect to investment) have been poorly timed.”

    Where fiscal policy has been effective it’s been through “automatic stabilizers”– programs such as social security and unemployment insurance that maintain income levels regardless of current economic conditions. Of course, these programs are not discretionary—they are ongoing programs resistant to manipulation by politicians responding to the immediate political climate.

    In short, a blanket infusion of cash through a one-time (or two or three) Congressional stimulus package(s) focused on transportation is not likely to be effective. This is true for a number of reasons. The key should not be how many miles of concrete we pour, or even how many jobs we create. Instead the focus should be on how much the investment creates a more productive and globally competitive American economy.

    It’s true transportation spending will ramp up construction jobs, but these are temporary ones that provide little stimulus to the advanced service, information technology, and manufacturing jobs that are critical to the long-term growth of the US economy. In addition, construction jobs tend to be seasonal, hardly the type of job creation that builds long-term economic expansion.

    More substantively, the transportation needs of a globally competitive, service-based economy differ fundamentally from those of the industrial economy that benefited so much from federal highway largess in the 20th century.

    In the 1950s, transportation investment was rather straightforward. Mobility was relatively low and restricted. Most households owned a car, but usually just one. Most households lived close to where they worked and walked to meet their daily needs. Typically, the wife stayed home, dropping the husband off at the train or bus station to take mass transit into work, picking him up at the end of the day. Many families could afford to allow one spouse to stay at home.

    A national transportation infrastructure program was relatively easy to identify during this period (even if it was politically controversial): connect major urban cities to create a unified economy, keep freight moving, and ensure workers could get to their places of employment. An Interstate Highway System linking the Central Business Districts of major cities, complete with beltways to shuttle employees and through traffic around these centers, created a highly efficient hub-and-spoke highway network.

    Today’s travel environment is far more complex, and doesn’t lend itself to the hub-and-spoke system. Current travel patterns point to a transportation network that should focus on improving point-to-point travel in a dynamic economy, more of a spiderweb than a hub-and-spoke network, as Adrian Moore and I point out in our new book Mobility First: A New Vision for Transportation in a Globally Competitive Twenty-first Century.

    In an era of customized travel, massive infusions of funding into a transportation network designed for the industrial era won’t be effective. Moreover, the legislative process is likely to be far less efficient at allocating transportation funds in a meaningful way without a system that allows travelers and highway users to determine what projects get the highest priority. What politicians or even federal planners think is important may not be to travelers. Only by adopting the latest and newest technology to gauge user willingness to pay, most usefully through electronic tolling, can the right projects be put in the right place at the right time while also ensuring a sustainable funding stream for the road network.

    Perhaps not surprisingly, economists Clifford Winston and Chad Shirley, writing in the Journal of Urban Economics, estimate that the return on investment to highway spending has fallen from 15% in the 1960s and 1970s to less than 5% in the 1980s and 1990s. They suggest one reason for the decline in productivity impacts has do with the fact that the highway system is already built out. Another reason is that federal transportation policy often targets unproductive investments – such as “Bridges to Nowhere” – rather than high-priority items, reducing transportation spending’s effectiveness at boosting overall economic growth.

    All this suggests that blanket spending on transportation projects may not have substantive long-run impacts on the economy. In fact, it could work against job creation and productivity if the added spending reinforced a transportation network that is already poorly suited to the needs of a modern, 21st century services-based economy.

    Douglas Elmendorf and Jason Furman, writing for the Brookings Institution, report that infrastructure spending has a lackluster record for boosting short-term economic growth. The focus should be elsewhere. For example, we should look more to the longer-term impacts of investments that actually increase productivity and competitiveness.

    Infrastructure should be seen, then, as a way to boost the speed of information and movement of goods, not as a quickie jobs program. Congressional leaders and urban planners should keep these cautionary points in mind as they ponder the need and efficacy of yet another stimulus package.

    Samuel R. Staley, Ph.D. is director of urban policy at Reason Foundation (www.reason.org) and co-author of Mobility First: A New Vision for Transportation in a Globally Competitive Twenty-first Century (Rowman & Littlefield, 2008).