Category: Economics

The Football Franchise Hustle: Financing the NFL

The economics of professional football bring more than a few words to mind: scam, hoax, boondoggle, rip-off, racket, con, scheme, fix, subsidy, loophole, ruse, handout, set up, monopoly, and — well, why not — Jimmy Hoffa who, according to urban legend, was interred in the end zone in Giants Stadium.

An insider trading scheme dressed up as a professional sport, pro football finance incorporates everything fishy in the worlds of municipal finance, urban planning, government subsidies, cable television, and, even sometimes, sports.

Let’s move past the idea that professional football is a game played between rival clubs, to test which team is the best over the course of a season. Football may have been that in the 1930s when the Decatur Staleys (later known as the Chicago Bears) were playing the Dayton Triangles. But more recently it has become a hostage to the fortunes of the advertising and investment banking industries, a spectacle put together to sell beer on television or to justify bogus adventures in the bond business.

The evolution from sandlot sport to price-rigged contracts began roughly when its team owners figured out that they all had shares in what Theodore Roosevelt would have called “the football trust.”

Under this cozy arrangement, and with a 1960s anti-trust exemption from the Congress (as if football were as vital to the national interest as bomber production), football owners have parlayed collective television contracts into billions. The next goal was to dress up their new stadiums, largely paid for with public money, as civic virtues.

For a league that prides itself on competition, there is little rivalry tolerated when it comes passing around the money, which amounts to about $8 billion in annual sales. About seventy percent of the television revenue, which amounts to about $4 billion annually, is doled out equally among the thirty-two professional teams, which are best understood as a medieval guild.

In theory, revenue sharing allows the NFL to maintain its competitive balance, so that “on any given Sunday,” one team is capable of beating any other.

Yes, occasionally the Raiders beat the Patriots, but the real advantage of revenue sharing is that it funds an oligopoly of like-minded and greedy owners, who would become small-time operators “on any given Sunday,” were there free enterprise.

If football games were really a sport, and thus closer to a news event, any network with a camera would be allowed to cover any game. The government would be out of the business of regulating sports broadcasts, where permission to broadcast has become simply one more license to be auctioned to congressional and state legislature cronies.

Television revenue also allows team owners to borrow money to build Nuremberg-like stadiums, which can now be seen looming over the warehouse districts in many cities, gothic reminders that team owners are not like you and me.

The boondoggle begins when the franchise owner, protected by his anti-trust herald, says to the city where the team plays that unless he gets a new stadium, the franchise will move elsewhere. Terrified about losing a team more popular than any mayor or council member, the city then condemns prime land for the new construction and authorizes the team’s owner to issue municipal bonds to pay for the new arena.

Many new stadiums, like the retractable-roof mausoleum built near Dallas, cost more than $1 billion, figures that equate professional football economics to the oil depletion allowance, if not the Texas Railroad Commission. On average, taxpayers fund 60 percent of new stadium costs. In the last twenty years, the NFL’s take of taxpayer subsidies has amounted to $17 billion.

Bonds for new stadiums are given tax-exempt status, a folly based on the false premise that these new ballparks are “good for local business.” In truth, they bring in little more than sweetheart construction contracts and the revenue from nearby parking lots. Have a look at what Detroit got for the Silverdome. Hint: it was sold at auction for $583,000, after Detroit dropped in about $200 million in present-value dollars.) The real money goes to the team owner, that beacon of urban renewal.

In some cases, local sales taxes are increased so that stadiums can be financed. But that doesn’t mean consumers get to share in skybox revenues, which the owner keeps for himself and his uptown pals.

Skyboxes, which can cost up to $500,000 per season, are rented to corporations, who use them for tax-deductible wining and dining. “Lucky” fans get to subscribe to “personal seat licenses,” which cost anywhere from $4,000 to $30,000 per seat so that fans then have the “right” to buy season tickets, which might cost another $500 a game.

Given all the money washing around the closed-shop of the NFL, it is little wonder that the value of most franchises is approaching $1 billion, even for hopeless teams like the Tampa Bay Buccaneers. Forbes estimates their worth at $1.1 billion, about four times their revenue, and a nearly infinite multiple of their recent wins.

What do the players get from these financial bubbles? To be sure, some of the stars get millions in guaranteed money on multi-year contracts. The rest can be cut at the whim of the owners (“to clear cap space”), with little to show for their prime-time performances except crippling injuries, addiction to pain killers, and very possibly early dementia.

Thanks to a $127 million salary cap (dressed up to trumpet “fair competition”), player salaries will never be more than shared TV revenues. This arrangement makes the league immune from team failures and gives teams like the Buffalo Bills an incentive to lose gracefully and cheaply.

In 2008, Buffalo earned $40 million, while the Dallas Cowboys reported only $9 million. Average team revenue in the league was $237 million, and average net profit was $32 million per team.

Will professional football’s wheel of fortune spin forever? Will someday soon every team have a billion dollar stadium, upholstered skyboxes, fat television revenue sharing, tax-exempt debt, and fixed costs for its players, who stay on the job for less time than migrant workers?

Maybe, but here’s how I think the free market will take “the football trust” to the house, if not the cleaners.

One of these days television revenue will decline, when networks can no longer afford the billion dollar contracts; their advertisers will have departed to other fields of plenty. Would you want CBS and NBC as your biggest source of revenue? At the same time, voters will wake up to find that their municipalities have gone broke and that much local interest is due on behalf of behemoth stadiums — often named after get-out-of-town-quick companies, like Enron — that most voters cannot afford to visit.

Like a number of monopolies, the NFL might find itself under pressure in the courts, and the league could lose some of the pricing power that comes from the protectionism that is courtesy of the cable owners, the municipal bond fixers, and the Congress.

If any city in the country could field a professional team, and if any broadcaster was free to show the games, would cities be building new stadiums that cost $1 billion and would the woeful Washington Redskins be worth $1.5 billion? I don’t think so. But right now the NFL is the only game in town.

Matthew Stevenson is author of An April Across America and the soon to be published Remembering the Twentieth Century Limited.

January 2, 2010
New Geography Top Stories of 2009

As we bring to a close our first full calendar year at NewGeography.com, we thought readers may be interested in which articles out of more than 350 published enjoyed the widest readership. It’s been a solid year of growth for the site; visits to the site over the past six months have more than tripled over last year and subscribers have increased by a factor of six. The list of popular articles is based both on.readership online and via RSS.

15. Joel Kotkin’s piece, Numbers Don’t Support Migration Exodus to “Cool Cities”, makes the case that places considered “cool” by many in media and economic development circles are actually losing net migrants to other U.S. regions. In almost every case, he argues, your local resources are better spent focused on skills upgrades for your local residents or hard and soft infrastructure upgrades for industries already successful in your region. This article originally appeared on Forbes.com

14. The British Labour Party is no example for American Progressives. Legatum Institute Senior Fellow Ryan Streeter’s piece just in time for the 4th of July, View from the UK: The Progressive’s Dilemma, dissects Britain’s high social spending, increasing debt load. Streeter contends that the UK is danger of mortgaging its future.

13. Breaking down Obama’s first year and looking forward. In two equally popular pieces from this fall, Joel Kotkin outlines a five point plan to improve Obama’s presidency (Obama Still Can Save His Presidency which originally appeared in Forbes.com. In the second piece he takes encouragement from signs that the President may be retuning his policy back towards America – “a big, amazingly diverse country with an expanding population” – and away from the “Scandinavian Consensus” model (Is Obama Separating from His Scandinavian Muse?) . This article originally appeared on Politico.com.

12. State of the economy June 2009. Susanne Trimbath says it may be a while before the average citizen will actually see tangible improvements in the economy. As is often the case, Susanne’s predictions have turned out so far to be all too accurate.

11. Questioning the stimulus plan. In February’sStimulus Plan Caters to the Privileged Public Sector, Joel Kotkin calls the stimulus plan “a massive bailout and expansion of the public-sector workforce as well as quasi-government workers in fields like health and education” yet “as little as 5% of the money is going toward making the country more productive in the longer run – toward such things as new roads, bridges, improved rail and significant new electrical generation.” This article originally appeared in Forbes.com

10. Is California’s economic malaise leaking into Oregon? After years of strong migration flows of former Californians heading to Oregon, Joel Kotkin and California Lutheran University economist Bill Watkins point out that the state’s oppressive tax policies and red tape may be leaking into Oregon as well in California Disease: Oregon at Risk of Economic Malady. The article originally appeared in The Portland Oregonian.

9. Tracking housing decline. Wendell Cox broke down the comparative national housing market in two widely read pieces. In the first he points out that the downturn can be broken into two phases, one mirroring the explosive growth in many overvalued markets, and another second phase were markets are declining across the board: Housing Downturn Moves Into Phase II. In the second, Wendell uses his median multiple calculation for the 49 largest metropolitan regions to show that prices in many place still have much farther to fall to reach historic norms: Housing Downturn Update: We May Have Reached Bottom, But Not Everywhere.

8. Public debt is looming. Susanne Trimbath lists public debt levels of the most highly leveraged sovereign nations and explains why this debt and the credit default swaps purchased against it could create a looming public catastrophe: The Next Global Financial Crisis: Public Debt.

7. Washington, DC is flourishing in the recession. NYU Professor and urban commentator Mitchell Moss explains how Washington is the one city benefiting from the government stimulus. He argues this is stimulating the DC economy, from increased lobbyist activity to web designers benefiting from the government’s new interest in digital communications: Washington, DC: The Real Winner in this Recession.

6. Californa’s Decline. Three equally widely read pieces track the drastic shift in California from economic vibrancy to stagnancy: Kotkin’s “Death of the California Dream which ran first in Newsweek and The Decline of Los Angeles from February on Forbes.com. The third piece by economist Bill Watkins examines California’s domestic migration net losses using an old coal mining metaphor: In California, the Canary is Dead.

5. Housing Affordability Rankings. The most read housing piece this year was Wendell Cox’s release of his annual housing affordability rankings based on median multiple calculations (ratio of median housing price to median household income in a given market). “Housing Prices Will Continue to Fall, Especially in California” lists median multiple calculations for each metropolitan region in the U.S. of more than 1,000,000 population.

4. Detroit as a model for urban renewal. In a widely linked piece across the blogosphere, Aaron Renn points out that the decline in Detroit could be a platform for residents to get creative with urban re-development. This piece is full of stunning imagery of formerly dense neighborhoods now full of greenspace that sent me on a two hour Google Earth binge exploring the area. Detroit: Urban Laboratory and the New American Frontier.

3. ”Alternative” Geography. New Geography publisher Delore Zimmerman’s run down of odd and quirky maps that redefine borders of the U.S. proved very popular on social bookmarking sites. “Borderline Reality”: “Sometimes maps can inspire and motivate us by helping to more fully understand the geography of our economic and demographic challenges and opportunities. Perhaps most importantly thematic maps tell a story about places.”

2. Portland isn’t a model for every community. Easily our most widely discussed, shared, and linked piece this year was Aaron Renn’s “The White City.” The piece sparked a fair amount of criticism with some looking to poke holes in the racial breakdowns and others taking the piece as an affront to liberal politics instead of an examination of urban planning policy. Many of the most vehement critics failed to address the central point of the piece: Portland is a unique place with a unique disposition and composition, yet it is held up by many community leaders in other regions as the ultimate in public policy. Instead of holding up Portland as a model, cities and regions need to do a better job of looking at themselves and defining policy based upon local community identity. Be who you are.

1. Best Cities Rankings. Overall, our most read content at New Geography this year was the Best Cities Rankings, released in April with Forbes. Our rankings are purposefully focused just on a combination of measures of one metric, employment change. We leave out all of the more qualitative measures thinking that all contribute to the output of a shifting employment landscape.

Where are the Best Cities for Job Growth? (Summary Piece)
2009 How We Pick the Best Cities for Job Growth
All Cities Rankings – 2009 New Geography Best Cities for Job Growth

It’s been a good year at New Geography, one of steady growth and, we believe, increased influence. We welcome your comments, participation, and submissions. Thanks for reading.

January 1, 2010
How California Went From Top of the Class to the Bottom

California was once the world’s leading economy. People came here even during the depression and in the recession after World War II. In bad times, California’s economy provided a safe haven, hope, more opportunity than anywhere else. In good times, California was spectacular. Its economy was vibrant and growing. Opportunity was abundant. Housing was affordable. The state’s schools, K through Ph.D., were the envy of the world. A family could thrive for generations.

Californians did big things back then. The Golden State built the world’s most productive agricultural sector. It built unprecedented highway systems. It built universities that nurtured technologies that have changed the way people interact and created entire new industries. It built a water system on a scale never before attempted. It built magnificent cities. California had the audacity to build a subway under San Francisco Bay, one of the world’s most active earthquake zones. The Golden State was a fount of opportunities.

Things are different today.

Today, California’s economy is not vibrant and growing. Housing is not affordable. There is little opportunity. Inequality is increasing. The state’s schools, including the once-mighty University of California, are declining. The agricultural sector is threatened by water shortages and regulation. Its aging, cracking, highways are unable to handle today’s demands. California’s power system is archaic and expensive. The entire state infrastructure is out of date, in decline, and unable to meet the demands of a 21st century economy.

Indications of California’s decline are everywhere. California’s share of United States jobs peaked at 11.4 percent in 1990. Today, it is down to 10.9 percent. In this recession, California has been losing jobs at a faster pace than most of the United States. Domestic migration has been negative in 10 of the past 15 years. People are leaving California for places like Texas, places with opportunity and affordable family housing.

California’s economy is declining. Those of us who live here can all see it. Yet, Californians don’t have the will to make the necessary changes. Like a punch-drunk fighter, sitting helpless in the corner, California is unable to answer the bell for a new round.

Pat Brown’s California – between 1958 and 1966 – crafted the Master Plan for Higher Education, guaranteeing every Californian the right to a college education, a plan that has served the state very well. That system is threatened by today’s budget crisis and may be on the verge of a long-term secular decline. California was a state where people said yes, a state where businesses could be created, grow, and prosper. Some of these businesses were run by Democrats, others Republicans but all celebrated a culture of growth and achievement.

Today’s California is a state where building a home requires charrettes with the neighbors, years in the planning department, architects, engineers, and environmental impact studies – we built the transcontinental railroad in three years, faster than a builder can get a building permit in many California communities. People here dream of a green future but plan and build nothing. There’s big talk about the future, but California now turns more and more of our children away from college, and too many of our least advantaged children don’t even make it through high school.

Once, California was a political model of enlightened government. Now it’s a chaotic place where everyone has a veto on everything; a state where people say no; a state where business is wrapped up in bureaucracy and red tape; a state our children leave, searching for opportunity; a state with more of a past than a future.

Some things have not changed. California’s physical endowment is still wonderful. The state is blessed with broad oak-studded valleys, incredible deserts, magnificent mountains, hundreds of miles of seashore, and an optimal climate. California’s location on the Pacific Rim situates the state to profit from growing international trade with the dynamic Asian economies. California didn’t change, Californians changed. Californians have forgotten basics that Pat Brown knew instinctively.

How did California get to this point? How did it move from Pat Brown’s aspirational California to today’s sad-sack version? What did Pat Brown know in 1960 that Californians now forget?

First thing: Pat Brown knew that quality of life begins with a job, opportunity, and an affordable home. Other Californians in Pat Brown’s time knew that too. His achievements weren’t his alone. They were California’s achievements.

It seems that California has forgotten the fundamentals of quality of life. Instead, the state has embraced a cynical philosophy of consumption and denial. The state’s affluent citizens celebrate their enjoyment of California’s pleasures while denying access to those less fortunate, denying not only the ticket, but the opportunity to earn the ticket. At best California offers elaborate social services in place of opportunity.

Today, too many Californians don’t rely on the local economy for their income. For them, quality of life has nothing to do with jobs, opportunity, or affordable homes. Many see the creation of new jobs as bad, something to be avoided. They see no virtue in opportunity. They have theirs, after all. It is their attitude that if someone else needs a job, let them go to Texas; if people are leaving California, so much the better.

They see someone else’s opportunity as a threat to them. Perhaps the upstarts will want a house, which might obstruct their view. They see economic growth as a zero sum game. Someone wins. Someone loses.

This type of thinking is unsustainable. Opportunity is not a zero sum game. It may be a cliché, but it is true, that if something is not growing it is dying. Many of the things that make California the place it is are not part of our natural endowment. The Yosemite Valley is part of the state’s natural endowment, but the Ahwahnee Hotel is not. Monterey, Santa Barbara, San Francisco, the wine countries, and California’s many other destinations were made possible and built because of economic growth. Will California add to this impressive list in the 21st century?

Not likely. Today, we are not even maintaining our infrastructure. Infrastructure investment’s share of California’s budget has declined for decades. In Pat Brown’s day California often spent over 20 percent of its budget on capital items. Today, that number is less than seven percent. It shows.

Pat Brown also knew that with California’s natural endowment, all he had to do was build the public infrastructure and welcome business, business will come. Too many today act as if they believe that business will come, even without the infrastructure or a welcoming business climate. Indeed, many Californians – particularly in the leadership in Sacramento – seem to think that business will come no matter how difficult or expensive the state makes doing business in California. This is just not true.

California needs to embrace opportunity and economic growth. It is necessary if California is to achieve its potential. It is necessary if California is to avoid a stagnant future characterized by a bi-modal population of consuming haves and an underclass with little hope or opportunity and few choices, except to leave.

Bill Watkins is a professor at California Lutheran University and runs the Center for Economic Research and Forecasting, which can be found at clucerf.org.

December 31, 2009
The Crisis Next Time: Public Finance

The financial crisis of 2008 paved the way for the employment crisis of 2009, which has now paved the way for the upcoming public finance crisis of 2010. Most federal, state and municipal budgets are strained to the breaking point while the economy still has not found its footing. Meanwhile our national politics is obsessed with expensive overhauls of environmental policy and healthcare reform. Our latest policy strategy is an attempt to borrow and spend our way to prosperity, ala Japan of the past twenty years.

It’s tempting to point to a few simple causes of these economic misfortunes, such as mortgage subsidies, loose credit standards, or excess financial leverage, but the truth is that we are experiencing the fallout of a failed policy paradigm.

This paradigm was rooted in the past century with the creation of the Federal Reserve in 1913, the Employment Act of 1946 and the Humphrey-Hawkins Full Employment and Stabilization Act of 1978. It’s a paradigm dependent on many admittedly useful policy tools, including both Keynesian demand stimulus and the Austrian school’s theory of money and credit, the monetarism of Friedman, as well as the supply-siders of the 1980s.

So, in what ways have these approaches failed?

The policy goals are clearly stated: stable GDP growth and full employment. But the economic results have been decidedly mixed: the growth of real incomes laden with an exploding entitlement state, structural budget crises, widening wealth disparities, a catastrophe-prone banking system, and volatile asset markets. We’ve heard the term “systemic risk” bandied about the recent financial crisis, but this report card captures the true risks of the system we’ve created.

Politically and socially, Americans clearly want a society where a growing middle class thrives, opportunity exists for individual success and advancement, and a prosperous elite accepts the responsibilities of power not to exploit the weak and disadvantaged. Instead, our political economy is hollowing out the middle class, creating more dependency among the poor, and fostering a culture of corruption and irresponsibility among the elites. Elsewhere I’ve characterized this current state of affairs as Casino Capitalism and Crapshoot Politics.

Second question: why has our democratic politics failed to deliver? The short answer: Our government is doing too much of what it shouldn’t be doing and not enough of what it should.

Free market economies are very good at producing wealth by harnessing the incentives of market participants. Market prices are valuable information signals that tell everyone how much of each good to produce. Governments, however, no matter how enlightened, cannot attain this efficiency. But, due to the political imperative to “do something” in response to countless demands, they feel compelled to try. Thus the focus on “growing the economy” and “creating jobs.”

Unfortunately, these goals often demand incompatible policies, highlighting the differences between the private and public sectors. Private firms earn profits (i.e., create wealth) by increasing productivity, often by reducing labor costs. However, the public sector follows no profit criteria, so the government increases employment without attention to productivity. Thus, with more public sector jobs we create more employment while producing less. At the same time, the growth of the public sector empowers a politically powerful public union interest in its continued expansion. This is no way for a nation to grow rich.

When we peel away the logic we find the true goal of public sector job creation: political redistribution of the economy’s wealth-creating capacity in order to mitigate the effects of markets. This is not an unworthy societal goal, but our public policies adopt counterproductive means to achieve it.

To be fair, the political problem arises because private markets are agnostic towards the distributional effects of their success. Inequality, poverty, pollution, environmental degradation, the concentration of economic and political power – all these are unfavorable distributional effects of markets that give rise to political demands. The question is over how government should meet these demands.

The 20th century attempt to tax and redistribute wealth has landed the modern welfare state in a cul-de-sac of exploding budgets, rising costs of living, slower economic growth and structural unemployment. We’re robbing Peter to pay Paul and neither – except for a relative handful of bureaucrats and rent-seeking capitalists – is better off for it. This adds up to less opportunity all around. Again, the problem is with our failed paradigm. We need to align our policies with behavioral incentives without surrendering our policy goals to an agnostic market mechanism.

To construct a new paradigm we might do best to return to first principles of what Americans want: freedom, opportunity and justice. In order to enjoy these principles, citizens need to be empowered with choice, autonomy, and protection from unmanageable risks. Only functioning free and competitive markets can provide the necessary resources.

So, what should be the proper role for government?

The maldistribution of resources can be mitigated if citizens participate in the wealth creating process as more than an input labor cost. Public policy should cease deficit spending to promote employment and instead look to creating the necessary environment for private risk-taking, saving, investment, and production. This includes insuring market competition and mitigating the effects of economic risk and uncertainty. Tax and regulatory policies should promote the widespread accumulation, diversification, and access to capital to empower individuals and families with the necessary resources to build wealth and insure themselves against uncertainty. Where private insurance markets are incomplete, there is a role for limited social insurance to fill the gap.

Numerous specific policies flow from this general paradigm shift, for example, we can stop penalizing savings through overly loose credit and onerous tax policies on interest and dividend income. There is no reason not to have a tax-free threshold for capital income that reflects the desired savings level of the median annual income household.

Why have we stuck with a failed policy paradigm? Part of the answer is the Kuhnian nature of scientific revolutions, but the pursuit of power and influence by narrow interests is certainly a determinant factor. Economically and socially, we know where we need to go. Getting there politically is another matter. Our present political leadership (of both parties) certainly is not taking us in that direction.

Michael Harrington is a policy analyst and writer with a multidisciplinary background in economics, finance and political science. His specialties are international capital markets, trade, and social insurance. He has taught political science at UCLA and conducted economic research for The Reason Foundation, The Milken Institute and the US Chamber of Commerce. His published writings and opinions have appeared in numerous business journals, including the Wall Street Journal, Barron’s, BusinessWeek, the Economist, the Christian Science Monitor and the Los Angeles Times.

December 30, 2009
Don’t Give Up On The U.S.

If the U.S. were a stock, it would be trading at historic lows. The budget deficit is out of control, the economy is anemic and the political system is controlled by academic ideologues and Chicago hacks. Opposing them is a force largely comprised of know-nothings–to call them Neanderthals would be too complimentary.

Not surprisingly, many Americans have become pessimistic. Two in three adults now fear their children will be worse off than they are. Nearly 40% think China will become the world’s dominant power in the next 20 years, as indicated by a recent survey.

Yet, in spite of everything, I would still place my long-term bets on the U.S. Here’s why:

1. The U.S. is the only advanced country in the world with viable demographics. By 2030, all our major rivals, save India, will be declining, with ever-larger numbers of retirees and a shrinking labor force. By 2050 Germany, Japan and South Korea could approach having twice as many people over 65 per capita as the U.S. By then, the U.S. will have 400 million people, which may be more than the entire EU and three times the population of our former archrival Russia.

2. In terms of energy resources, the U.S., combined with Canada, is the second richest region in the world after the Middle East. The country possesses vast resources of natural gas, about 90 years’ worth, as well as strong areas for wind power. Given America’s past profligacy, the country could derive considerable savings with even modest conservation efforts.

3. America remains the world’s agricultural superpower, with the most arable land on the planet. With another 3 billion people expected on the planet by 2050, the U.S. should enjoy a continuing boom in food exports.

4. Military power matters now and in the future. We are not living in a Star Trek future of earthly harmony. The U.S. leads in military technology and, yes, our martial spirit remains a positive factor, despite the portrayals from Hollywood. For all its missteps, the U.S. military has achieved its strictly war-fighting missions–in Iraq and Afghanistan, as well as a host of smaller conflicts–over the past 20 years. Meanwhile, Europe and Japan have taken themselves out of the military game, and it will be decades before China will be ready for a head-to-head challenge.

5. There is no large country that comes close to the U.S. as an entrepreneurial hotbed (Taiwan, Israel and Hong Kong come close but are far smaller). The recent Legatum Prosperity Index showed the U.S. remains by far the largest generator of new ideas and companies on the planet.

Of course, all these critical advantages could be squandered by fecklessness. The empowered American left–in sharp contrast to the tradition that runs from Franklin Roosevelt and Harry Truman all the way to Bill Clinton–often envisions the U.S. as a country headed into the dustbin of history, and deservedly so.

Leftist historian Immanuel Wallerstein, for example, asserts that the U.S. has been “a fading global power” since the 1970s. The only question now, he suggests, is “whether the United States can devise a way to descend gradually, with minimum damage to the world, and to itself.” Another leading liberal analyst, Parag Khanna, envisions a “shrunken” America that is lucky to eke out a meager existence between a “triumphant China” and a “retooled Europe.”

The traditionally pro-American right increasingly shares this pessimism, albeit for different reasons. With Obama and the Democrats in power, many conservatives, including such keen observers as Charles Krauthammer and Victor Davis Hanson, believe the country has hit the historical skids.

Yet declinism is often overstated. Today, only someone delusional would suggest that once widely feared Japan, soon to fall to third place (behind China) as an economic power, constitutes a serious threat to American preeminence. However, the fantasy of a European resurgence remains deeply embedded among American policy wonks and academics. It is a firmly held belief despite the continent’s decades of slow growth, demilitarization, disastrous demographics and mounting budget woes, particularly on its southern and eastern fringes.

On the other hand, China and India represent true ascendant economies of the next decade and beyond. China’s rise has led one writer, the Guardian’s Martin Jacques, author of When China Rules the World, to suggest that America must “learn to bow” before the great power of the 21st century.

Yet for all their impressive growth, neither China nor India possesses either the institutional strengths or natural resources of the U.S. China’s current boom has much to do with an orgy of money-printing that would make Barack Obama blush. Real estate in some places is turning bubblish. There are reports of vacancy rates as high as 50% in Shanghai’s commercial market.

India, as anyone who has spent time there knows, remains a highly fragmented and largely impoverished country. It will be a great power of the future, but a very poor one, which will take many decades, even a century, to approach even a decent fraction of America’s current per capita income.

Often overlooked as well is America’s unique advantage as an inclusive multiracial society. Over the past decade America has produced two African-American Secretaries of State and one President. America remains unique in its ability to absorb different races, religions and cultures, an increasingly critical factor in maintaining global preeminence.

What Americans need most now is to develop policies that build on our essential strengths. Some tech enthusiasts and members of the Obama Administration claim that “the age of infrastructure is over.” However, in reality there is no way to assure a decent future for the next 100 million Americans without a major investment in everything from roads and broadband to transmission lines, water systems and basic skills training

Some conservatives may oppose such a domestic surge, but the investment reflects a strong American tradition. The critical issue will be to make sure a commitment to infrastructure does not morph into a Washington-led industrial policy that would inevitably reward the well connected and stunt our innovative edge.

In the end, Americans must remain true to our individualist traditions. Compared with Europeans, who instinctively look to government for guidance, the vast majority of Americans still believe that hard work is the key to self-improvement. Our primary economic asset continues to lie with entrepreneurial spirit and adaptability.

In the coming decade, American success will require precisely this blend of public support and private initiative. If the U.S. stays true to its unique traditions, it will remain the world’s best investment for decades to come.

This article originally appeared at Forbes.com.

Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University. He is author of The City: A Global History. His next book, The Next Hundred Million: America in 2050, will be published by Penguin Press early next year.

December 29, 2009
The Good News in Florida’s Bad Times

By Richard Reep

2009 was ugly. A swirl of dispiriting events stalled over much of the world this year, and Florida was no exception: state depopulation and tourism decline hit the state’s only two legitimate growth industries.

Yet the bad times contain within them some good news. This end of an era meant that economic planners might finally turn to productive industries to generate jobs and revenue, just like the rest of the nation.

First the bad news. For the first time since Florida became a state in 1845, more people moved out of the state than in, as reported by the University of Florida Bureau of Economic Research in August. In other states, this might not be news, but in Florida this has been viewed as nothing short of catastrophic. Growth is one of the state’s two primary industries, and with the last 163 years, growth was taken for granted (1945 saw depopulation as military personnel went home).

Florida’s other traditional support, tourism, collapsed in 2009, as jittery tourists stayed close to home or went elsewhere in search of vacation. Since growth and tourism were the state’s only economic activity, this pretty much tanked it for the year; without a state income tax, the government is starved for tax money and is taking a hatchet to basic services in an effort to stay afloat. Meanwhile, it’s easy to get a parking space at the beach, hotel rooms are cheap and plentiful for a change, and the weather is as beautiful as ever.

With private development dead, government desperate for income, and the professional class seeking jobs elsewhere, it will be easy for outsiders to write off the future prospects for the Sunshine State’s towns and cities. On the ground, however, a slightly different story emerges, a stoic sort of acceptance and the glimmerings of a change or two in the individual outlooks of citizens who stay. A few foreboding trends also cloud the horizon.

Miami, a city not known to shy away from risks, this year replaced its Euclidean zoning code with a form-based code in a grand experiment with the public process. Voters who had enough of corruption and greed decided to endorse a visually appealing future of their city. Whether or not the outcome produces a better city, the 500+ public meetings did spark a badly needed public/private dialogue that should help Miami reshape itself into its new vision.

Those who do stay in Florida and stick it out are getting more involved. As the outside world stopped supplying capital and residents, a sense of new localism sprang up almost overnight, with people gravitating away from the big brands and status symbols of a once-proud consumerist lifestyle. Sure, many turned to global brands like Wal-mart, but many more are supporting local food co-ops, farmer’s markets, independent eateries, and home industries in an effort to beat the system.

If restlessness and discontent are the first necessities of progress (as stated by Thomas Edison), citizens of Florida cities like Tampa, Jacksonville, Orlando and Miami are ripe for progress. Consumer culture took a pause, but people still need to eat. Like the rest of the nation, this rediscovery of local goods and services has flowered, upon which a newfound sense of identity is being built through face-to-face exchange without the invisible army of middlemen that our commercial culture has spawned.

With earnest public debate about the urban future in one of our nation’s largest cities, we can be assured that Florida citizens do care about the quality of life in their community. With neighborhoods spawning local markets and co-ops, we can be assured that urbanites do care about their local producers – and know a bargain when they see one. Both factors will contribute to a citizenry emerging stronger out of the state’s economic turmoil.

Left to its own devices, Florida may sort itself out. Agriculture and manufacturing, two key industries faintly alive in Florida, have a chance to come back. Affordability and quality of life could lure the right kind of talent and encourage local entrepreneurs. Florida is poised to develop industries with health research and digital media where our lower costs and attractive climate could prove decisive.

Yet this localist trend and greater attention to fundamentals could be altered by more meddling from Washington. The state returned Washington’s check for a train set not once, but twice, causing a concerned Secretary Ray LaHood to make a personal visit to see what was wrong. After some gentle persuasion – after all, Obama’s nationwide high speed rail vision could easily bypass this state with jobs and cash – Florida’s elected officials quickly jumped back to the politically correct side of the fence, and passed a bill to bring commuter rail to Central Florida. Now LaHood must deliver on the promise to prioritize Florida’s high speed rail construction.

For the future, if the past is any guide, the upcoming war with Afghanistan could prove a boon to Florida. World War 2 saw an influx of servicemen and women, and the opening of multiple military bases, supply depots, and runways, partly due to its mild weather and partly due to its political stature. By adding this industry to offset its growth and tourism losses, Florida can benefit from the fulfillment of arguably President Obama’s most dangerous campaign promise.

Doubts about these guns and trains leave more than a few Floridians worried about the strings attached to big brother’s largesse. It would be far more constructive to place more faith on the citizen’s renewed interest in the public process and the individual’s support of localism, two trends that seem destined to stay and become ingrained in our lifestyles. If Florida must accept Washington’s command economy for now, then at least the state will be left with increased transportation options and more exposure to service personnel who just might want to come back to stay after the war is over.

But the more important work will, in the end, be done locally. If Floridians can capitalize on genuine public/private dialogue, such as happened in Miami 21, then there is a chance the state can pull from behind and surge ahead as a place where the future can still be sunny.

Richard Reep is an Architect and artist living in Winter Park, Florida. His practice has centered around hospitality-driven mixed use, and has contributed in various capacities to urban mixed-use projects, both nationally and internationally, for the last 25 years.

Photo:

http://www.flickr.com/photos/anonymonk/ / CC BY-NC-SA 2.0

December 28, 2009
The Economic Fallout of the Chicago Way

Many large American cities are hurting from the recent recession. Unrealistic revenue assumptions based on ever higher real estate prices and sales tax receipts have left cities unable to pay their basic bills. As asset and consumer prices deflate, from a lack of demand, those cities with “sticky” costs – the result of overly powerful unions and excessive business regulations – are stuck in an economic quagmire.

Chicago has become a leading poster child for recent urban economic malaise. With the election of Barack Obama, 2009 was supposed to be a year in which the Windy City basked in glory. The world was supposed to see the benefits of an administration run by Chicago Machine operatives such as David Axelrod, Rahm Emanuel, Valeria Jarret and Desiree Rogers.

Yet despite the new power in Washington, the Chicago Way has not turned out well back home. A series of events has put Chicago in a funk, along with structural economic problems. In June, Chicago’s unemployment rate peaked at 11.3%, far outpacing the national unemployment rate.

Since 2007 the region has lost more jobs than Detroit, and more than twice as many as New York. Over the decade that is about to end Chicagoland’s total loss was greater than any region outside Detroit. It has lost about as many jobs – 250,000 – as up and comer Houston has gained.

Columnist Mary Schmich of the Chicago Tribune, usually a reliable booster, has described the situation:

Chicago has a mood problem.

It seems edgy lately, a little sullen and scared, verging on depressed. Some days, it feels more like the angry, confused place I moved to in 1985 than the exuberant city that has swaggered through the past two decades.

One can question Schmich’s past description of Chicago as “exuberant”. But recently there’s been many Chicago problems.

Chicago’s bid for the 2016 Olympics failed. Even with Chicago’s most prominent citizens, President Obama and Oprah Winfrey, making a pitch to the International Olympic Committee, the Windy City came up short, behind all the finalists.

Oprah’s recent announcement that she’s ending her long run talk show will end Chicago’s most visible export. It appears much of the Oprah’s empire is moving to California to be closer to America’s entertainment capital, more celebrities and, of course, better weather.

On a more serious note, Chicago also has had to deal with two high profile political suicides. Chicago Board of Education President Michael Scott committed suicide in November. Scott was subpoenaed before a federal grand jury that was investigating the sale of admissions to magnet schools.

In September, a prolific Chicago fundraiser, Chris Kelley, committed suicide after pleading guilty to felony charges concerning the Blagojevich federal case. Kelly’s death was another reminder of the fallout of Chicago corruption.

But it’s just the top of the social heap that’s hurting. The national recession also has been particularly harsh for union-dominated Chicago. The loss of employment has put pressure on Chicago’s politicians to allow Wal-Mart to expand their number of stores in the city. With only one Wal-Mart store in the city, the thousands of potential new jobs could be just what Chicago needs right now. Mayor Daley wants to let Wal-Mart open several more stores but faces stiff opposition in City Council. Alderman Burke, the Chairman of the Finance Committee, is the key decision maker concerning Wal-Mart, whose local expansion is anathema to the unions. Mayor Daley said this concerning when Alderman Burke is going to hold hearings on Wal-Mart:

“That’s up to him. He could have had it six months ago or two months ago.”

The other big union problem can be found in Chicago’s fast-eroding convention business. The union run McCormick Place has been making big news lately because of its loss of three major conventions. In November when two major conventions announced they were leaving Chicago, Crain’s Chicago Business made this stunning indictment:

The chief executive officer won his post after raising campaign cash for disgraced Gov. Rod Blagojevich. The just-departed human resources director owed her job to a powerful state senator. Other top executives have long ties to Mayor Richard M. Daley’s political machine.

That’s what clout looks like at the Metropolitan Pier and Exposition Authority, known as McPier, a little-understood government entity that operates the city’s primary convention venue, the vast McCormick Place complex; the adjacent McCormick Hyatt Regency Hotel, and the lakefront tourist center Navy Pier.

The loss of two major trade shows this month and a deepening financial crisis raise questions of how the Chicago Way can compete with more efficient, warm-weather convention centers such as Orlando, Fla., and Las Vegas.

With labor costs much cheaper in other venues, competing becomes very difficult, particularly in tough times.

Fiscal incompetence has made the problems worse. To help with Chicago’s downturn a “rainy day” fund was set up by leasing major city assets. Chicago leased its parking meters to a private company. This controversial move was supposed to yield generous revenue up front. When Chicago recently passed the new city budget, the Chicago Sun-Times reported:

Chicago’s 75-year, $1.15 billion parking meter windfall would be nearly drained in just one year to provide token property tax relief and stave off tax increases, thanks to a $6.1 billion 2010 budget approved Wednesday.

Despite complaints that Chicago’s future was being mortgaged, the City Council voted 38-to-12 to approve Mayor Daley’s plan to drain reserves generated by asset sales to solve the city’s worst budget crisis in modern history.

Chicago’s recent economic decline is also affecting the state of Illinois’ budget. It may be unfair to blame the Chicago Machine for Illinois’ budget situation, but they certainly have played their role. Just days ago Moody’s and S&P downgraded the state of Illinois debt. Only California now has a lower debt rating.

Worse may be in the offing. Chicago’s recent economic malaise has been revealed in the stunning new documentary on the coming elimination of futures floor trading:

The exchange, a critical element of Chicago’s economy, may be on the way to downsizing if not oblivion. That’s more bad news for a city that seems to be falling apart even as its operatives try to run the country.

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.

December 23, 2009
The Green Movement’s People Problem

The once unstoppable green machine lost its mojo at the Climate Change Conference in Copenhagen. After all its laboring and cajoling, the movement at the end resembled not a powerful juggernaut but a forlorn lover wondering why his date never showed up.

One problem is that the people of earth and their representatives don’t much fancy the notion of a centrally dictated, slow-growth world. They proved unwilling to abandon either national interest or material aspirations for promises of a greener world.

The other problem is that divisions are now developing within the green camp. There are members, like Michael Shellenger and Ted Nordhaus, who recognize the serious fall out from the “Climategate” scandal, while others, including large parts of the media claque, dismiss any such possibility. There are the corporatists aligned with big business–who will live with any agreement that allows them to exact monopoly profits–and the zealots–like Greenpeace, Friends of the Earth and Bill McKibben–who see Copenhagen as an affront to themselves and to our endangered planet.

But the main, fundamental problem facing the movement after Copenhagen–which none of the green factions have yet addressed–is its people problem. The movement needs to break with the deep-seated misanthropy that dominates green politics and has brought it to this woeful state. Its leaders have defined our species as everything from a “cancer” to the “AIDs of the earth.” They wail in horror at the thought that by the year 2050 there will likely be another 2 or 3 billion of these inconvenient bipeds. Leading green figures such as Britain’s Jonathan Porritt, Richard Attenborough and Lester Brown even consider baby-making a grievous carbon crime–especially, notes Australian activist Robert Short, in those “highly consumptive, greenhouse-producing nations.”

Yet a slower population growth–while beneficial for poor, developing countries–can lead to a dismal, geriatric future in already low-birthrate nations like Germany, Italy, Spain, Japan, South Korea and Russia. And although birth rates are dropping in most developing countries, particularly those experiencing rapid economic growth, it will likely be decades before population stops increasing in most of the developing world.

Besides, people in developing countries have much more important things to worry about–such as earning a living and getting ahead. Fighting climate change ranks low on the list of Third World priorities. The sprawling slums of Mumbai need more energy, not less; they want better roads, not fewer. More economic development would produce the money to help clean the now foul water and air, but also provide access to better education, one of the best ways to assure more manageable birth rates.

Instead of looking to make developing countries even more dependent on Western largesse, greens should focus on ways to help improve the day-to-day lives of their people. Rather than prattle on about the coming apocalypse, they could work to replace treeless, dense slums with shaded low-lying clean houses that are easier to heat or cool. Those interested in nature might purchase land and rebuild natural areas. The children of cities like Mumbai should have the opportunity to experience wildlife other than crows, pigeons and rats.

The environmental movement also might as well forget fighting the aspirations of the burgeoning middle class in India, or other developing countries. No developing world politician, whether from democratic India or Brazil or authoritarian China will embrace an agenda that stifles such aspirations.

Post-Copenhagen greens need to reassess their relations with people in the developed countries as well. The popular call to transfer hundreds of billions of dollars from the so-called “rich” countries to combat the potential effects of climate change will not be very popular with the vast majority of the middle or working classes in these places.

Much of the problem revolves around the loaded term “rich.” To be sure, many top climate-change scolds–Richard Branson, Al Gore, Arnold Schwarzenegger, Michael Bloomberg and, of course, his royal highness, Prince Charles–qualify easily. After all, no sweat off their well-massaged backs. The rock stars of the green millennium can buy their environmental indulgences so they can gorge good conscience on their carbon-rich world of private jets and lush estates.

For them, going green means minimal sacrifice.

Instead, the “rich” who will suffer the most will be the middle and working class of the developed countries. For them, carbon “sacrifice” may mean more than giving up needless luxuries like gas-guzzlers or monster plasma televisions. A green regime of enforced slow growth and ever greater regulation over carbon could threaten whole industries while environmental-planning policies will make purchasing a decent suburban house even more difficult.

Such calls for sacrifice seem particularly ill-timed when 4 in 10 U.S. residents fear they could lose their jobs, with many rightly worried about holding onto their homes. With unemployment at 10%, few may be willing to wait around until the promised “green jobs” miraculously appear to save both them and the planet.

But there’s an obvious way out of this dilemma: Start shifting away from fear-mongering and look to ways to achieve green goals without catastrophic economic losses. One clear way to start this process is through land-use policy. Right now many activists and their allies in the climate-industrial complex–which includes urban land interests–want to force suburban home dwellers into dense urban areas. They also want to coerce people to give up their individual mobility for trains, even if this means longer commutes and less convenience.

Proposing a radical re-engineering of society does not constitute a winning political program. Environmentalists would do better to embrace a vision of “greenurbia,” allowing for dispersed living but in a environmentally responsible way. This could be done with practical steps–increased telecommuting, more tree-planting and flexible work arrangements–that would enhance not only the environment but also day-to-day life for hundreds of millions of people.

Similarly, environmentalists should redouble their efforts to provide more access to open space for millions of people through expanded purchases of land throughout the country. America’s highly productive agricultural sector has jettisoned millions of acres of land from cultivation, providing an excellent opportunity for purchases for public use. In some areas, abandoned industrial or mining properties could be rehabilitated as natural areas.

Such changes, however, require a re-evaluation of the values that now drive the green movement. Whether in California or Calcutta, it boils down to the existential question: Do humans matter?

Frederick Law Olmsted explained his plan for New York’s Central as an attempt “to supply to the hundreds of thousands of tired workers … a specimen of God’s handiwork.” This represents the kind of sensibility that could transform the green movement from an obstacle to people’s aspiration to a force for greater human happiness.

This article originally appeared at Forbes.com.

Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University. He is author of The City: A Global History. His next book, The Next Hundred Million: America in 2050, will be published by Penguin Press early next year.

December 22, 2009

The Urbanophile Plan for Detroit

If Brookings’ plan for Detroit isn’t enough to get the job done, what is?

Turning around Detroit means facing head on the core problems that hobble the region, notably:

• America’s worst big city race relations
• A population that is too big for current economic reality
• A management and labor culture rooted in an era that no longer exists and is unsuited to the modern economy
• A tax, regulatory, and political system toxic to business

A robust plan for renewal in Detroit will tackle these problems, recognizing that matters like improving race relations and cultural change need indigenous solutions from courageous local leaders. Then mix this with best practices from elsewhere and innovative, unique to Detroit solutions. And be patient, knowing the turnaround won’t be a short journey.

1. Repair race relations. The city-suburb divide in Detroit, to an extent far greater than elsewhere, is a matter of black and white. Bringing racial rapprochement won’t be easy, but it is an absolute imperative for future regional success. Perhaps a newly shared sense of economic pain can foster this, along with grass roots connections such as white urban gardeners making common cause with black ones seeking better access to fresh foods.

2. Active shrinkage. Many recognize the need for Detroit to “right size” to its reduced population and for federal help doing so. But beyond adjusting to the city’s decline, the region remains too big. Detroit no longer needs large armies of unskilled and even skilled laborers in its factories. There is simply no economic raison d’etre for a region the size of Detroit in that location today. A lot more people need to leave Detroit. Many already would like to but can’t because they can’t sell their house or afford to move. Serious consideration should be given to a federally assisted voluntary relocation program when the national economy recovers to help Detroiters move to Texas or other places with strong jobs growth if they want to. Detroit should also engage with those who did move away to create an urban alumni network. In a globalized economy, those Michigan expatriates can serve as a sort of field sales force for the city.

3. Improve the Business Climate. Michigan’s government needs to be downsized to match a downsized state. Dubious programs of all types, from film industry subsidies to “cool cities” initiatives need to be scaled back or eliminated. The criminal justice system should be reformed to stop over-incarcerating non-violent offenders. Streamline or eliminate regulation wherever possible, and make those that remain operate swiftly and predictably. Eliminate or merge overlapping jurisdictions, and especially non-general purpose entities that are too often patronage dumps operating out of the public eye. Reduce taxes on business, especially small business.

4. Change the culture. Michigan’s social and business approach, its labor and management culture and business practices were designed for a stable industrial age dominated by a limited number of large and vertically integrated corporations. Today’s economy is based around smaller, more innovative, nimble firms, virtual networks of people and collaborative business relationships, rapid change, and a competitive global environment. This sort of change has to come from the inside. No one can just tell Detroit how to do it.

5. Renew Brand Detroit. How does Detroit want to be known in the world and how can it make itself known? Within a framework of shrinkage, Detroit needs to become attractive to the right new talent and new businesses. It needs an aspirational narrative that is authentically Detroit in a way “cool cities” will never be. Cool, No – but edgy? Definitely. Think of Detroit as the new American frontier, a blank canvas where anything is possible, and the ultimate arena in which to pursue alternative visions of urban life. A place where you can pursue a personal urban vision without getting tortured by a Byzantine blizzard of bureaucracy. This should be nourished – and preserved – by maintaining a “light touch” approach to regulation in the city proper. The region is well positioned to attract new urban pioneers and homesteaders, and to leverage its reputation as both a black city and large Arab population center. Detroit should stand proud as “Detroit”. It shouldn’t hide behind euphemisms like “Southeastern Michigan” or “The Big D” – as if that fools anybody. Detroit is a name with international recognition and resonance. Wear it with pride.

6. Pursue Targeted Industry Clusters. The auto industry will remain a mainstay in Detroit, particularly management and R&D, though a lot smaller after a federally assisted restructuring. But the city should be wary of overly pursuing “me-too” industries like life sciences without distinctive advantages. Instead, Detroit should look to get its “fair share” of those, then look for where it is positioned to uniquely excel and try to create the environment favorable for investment. Potential targets include:

A lead role in international trade with Canada.
Dominating and expanding non-energy/non-financial trade and relations with the Middle East and Muslim world. With America’s largest Arab population, Detroit is positioned to be the American gateway to that ever more important part of the globe the way Miami is to Latin America.
Music. Detroit has one of America’s richest and most innovative musical legacies, from Motown to electronica to hip hop. But it hasn’t profited from it. Detroit needs to take a page from Nashville and figure out how.
Realize the Detroit Aerotropolis plan.
Alternative urban visions. The recipe for grass roots neighborhood renewal in the city, and a potential innovation cluster for any new Detroit ideas that gain widespread adoption.

7. Rationalize Regional Governance and Infrastructure Investment. Detroit should seriously question any expansion of infrastructure when shrinking in regional population. All subsidized infrastructure expansion outside of currently fully urbanized areas should be terminated. It makes no sense to be widening streets on the fringes when you are ripping them out in the city. In this context, the kind of fixed rail investments advocated by Brookings and other “me too” urban boosters should be avoided in this highly decentralized region. Rather, the central city should start with a quality bus network, with rail added later if and only if existing ridership justifies it.

8. Secure Irreplaceable Assets. Detroit built amazing treasures during its golden age, many of them lost or threatened. Detroit has one of the largest collection of pre-War high rises in America. Yet many of them stand vacant. Another gem, the Lafayette Building, is about to be demolished because it is so badly deteriorated, with trees growing on the roof. Some funds need to be earmarked for securing and and supporting basic maintenance such as roof integrity. While there may not be demand to reuse these structures now, they are irreplaceable and should be saved for future generations. On the cultural side, Detroit needs to ask itself tough questions about institutions like the Detroit Institute of the Arts and the Detroit Symphony Orchestra that are bleeding red ink.

The road back for Detroit won’t be short or easy. It will certainly not be back as the colossus of its past. But Detroit can grasp a more successful future if it finds the courage and the leadership to change, and to find a unique path forward for a city that is simply not like anyplace else in the world. Conventional wisdom solutions are just not enough. It will take radical change, new attitudes and an ability to think independently about what’s best for the region.

	The Brookings Plan	The Urbanophile Plan
Race Relations	Segregation is acknowledged	Improving race relations is a top imperative
Regional Governance	Strong Regionalism Featuring: – Council of Mayors – Regional transportation and land use management – Potential tax sharing – Receivership for failed government entities	Adopt Brookings Plan
Brand Positioning	N/A	– “The New American Frontier”, the land of possibility, a blank canvas, and the ultimate arena in which to realize alternative and new visions of urban life. – “Detroit”, NOT “Southeast Michigan”, “The D”, etc.
Economic Development Paradigm	Government industrial policy	Improve the business climate
Fiscal Policy	N/A	– Downsize all level of government to match a downsized Michigan and Detroit – Eliminate dubious programs (e.g., film industry subsidies and “cool cities” initiatives) – Merge or eliminate overlapping obsolete jurisdictions – Cut taxes on business, especially small businesses
Regulatory Reform	N/A	– Seek out and eliminate rules without a clear rationale and net benefits, esp. ones that negatively affect the business climate – Make remaining regulations operate swiftly and predictably – Reform a criminal justice system that over-incarcerates for non-violent offenses – Maintain “Light Touch” Regulation in the City of Detroit to Sustain Frontier Appeal
Target Economic Sectors	– Advanced Manufacturing / Auto-Related R&D – Green Industry – Life Sciences – University Spin-Offs	– Advanced Manufacturing / Auto-Related R&D – International Trade with Canada – Non-Energy/Non-Financial Trade with the Arab and Muslim World. – Music-Related Development – Aerotropolis Industry – Alternative Urban Visions (e.g., urban agriculture, urban decay tourism) – “Fair Share” of Green Industry, Life Sciences, and University Spin-Offs
Auto Industry Future	Federally assisted restructuring	Adopt Brookings Plan
Management & Labor Culture; Regional Business Practices	N/A	Urgent change is prerequisite to success
Human Capital Targets	N/A	– New Urban Pioneers – African Americans – People of Middle Eastern or Muslim Origin – Musicians and Musical Acts
Adjusting to Population Loss	– Government sponsored footprint shrinkage – Brownfield remediation	Adopt Brookings Plan and Supplement With – A federally-assisted voluntary relocation program – Creation of a “Detroit Alumni Network”
Transportation	Rail transit	– Terminate highway and other infrastructure expansion outside of fully developed areas – Build privately funded Woodward light rail, then avoid further rail investments – Improve the urban bus network – Build new bridge crossings to Canada – Support improvements to entire 401/I-75 corridor for freight growth
Historic Preservation	N/A	– Inventory and invest to secure and “mothball” key historic structures, esp. pre-War downtown high rises

Aaron M. Renn is an independent writer on urban affairs based in the Midwest. His writings appear at The Urbanophile.

December 18, 2009

Detroit Needs a Bolder Plan

The Brookings Institution recently unveiled “The Detroit Project”, a plan to revive Detroit, in the New Republic. Brookings’ plan has good elements and recognizes some important realities, but also has key gaps. It relies excessively on industrial policy and conventional approaches that are unlikely to drive a real turnaround in America’s most troubled big city.

On the plus side, Brookings does a great job stating why Detroit’s fortunes will take a long time to reverse, possibly a generation or more. As they note, “Detroit’s leaders must manage expectations. It took half a century for the city to get this low. It won’t turn around in a four-year political cycle.” Authors as prescient as Jane Jacobs and as conventional as Time were talking about Detroit’s decline as far back as the early 60s. Turnaround won’t happen in six months or even six years. Given the political preference for election-cycle results, this means strong and courageous leadership will be needed, a point they also stress. Sadly, that’s a commodity that has long been in short supply in Detroit.

Brookings is known for their promotion of regionalism, and this plan predictably follows that prescription. Clearly, rationalization of investment policy on a regional basis is needed. The Detroit region is losing population, yet the long range transportation plan calls for huge amounts of spending to widen roads on the fringes. That makes no sense. People and businesses in Detroit keep moving out as the cities and suburbs they once inhabited fall into ruin under a regime of failed stewardship and the endless search for new greenfields to exploit. It’s like prospectors skipping from one clapped out mining town to the next. If they want to do that, they shouldn’t expect the rest of us to pay for it via federal funds – either to build the new or to clean up the mess in the ghost towns they leave behind.

They also recognize the need for improved governance, including potentially state receivership for failed institutions. (They did not, however, give due credit to new Mayor Bing for the change and new leadership attitude he has already brought to the table). Suggestions like a focus on brownfield remediation and managed shrinkage were on point, as was the recognition that significant federal assistance will be required. Given the depths of the problems in Detroit and Michigan, the city and state are not going to be able to do it alone.

The plan also rightly notes that “Detroit will have to become a different kind of city, one that challenges our idea of what a city is supposed to look like, and what happens within its boundaries.” Very true. Unfortunately, much of the rest of the Brookings prescription failed to meet that challenge.

Brookings’ plan relies heavily on analogy to other post-industrial cities, especially in Europe, which makes it difficult to be sure exactly what they are recommending at times. Even to casual observers, these cities are far different from Detroit. For one thing, Detroit is huge. The region, if one includes Ann Arbor and Windsor, Canada, is over five million in population – more than double the size of Brookings comparison areas.

Places like Turin and Bilbao also have radically different built forms, history, culture, and are virtually racially and ethnically homogeneous compared to Detroit. Even the measurements of European success need to be redone. Neither Italy nor Spain represent role models since both have fared worse than America in the current downturn. These countries (and cities) are aging rapidly, with some of the world’s lowest birthrates.

Their US examples of Toledo and Akron (i.e., greater Cleveland) are hardly bright and shining lights of economic or demographic success. Since 2000, Akron has lost nearly 10,000 people and Toledo over 20,000. Toledo’s 11.4% unemployment rate exceeds the nation’s. These aren’t even Ohio’s biggest cities, much less dominating the state’s economy the way Detroit does Michigan.

Brookings also all but ignores a lot of the root issues of Detroit’s problem. Firstly, they fail to make a point about healing America’s most poisoned race relations, arguably the signature issue of Detroit. Racial tensions and inequity have perpetually bedeviled America. Making progress in Detroit won’t be easy, but is an absolute prerequisite to progress. Perhaps shared economic struggles will finally provide a common interest around which to build some form of racial rapprochement.

Most glaringly, Brookings has nothing at all to say about Detroit and Michigan’s tax and regulatory regime, its failed management and labor cultures, or its dysfunctional state politics. Brookings’ desire to stay on good terms with the establishment might inhibit their ability to speak freely, but these problems must be confronted.

It is impossible to ignore this witch’s brew of policies and attitudes that is totally toxic to economic development. It’s a classic case of ignoring the elephant in the room. Until these blocking and tackling matters are addressed, Detroit is going to remain kryptonite to business expansion. In Forbes 2009 list of the best states for business, Michigan ranked 49th.

Instead of improving the terrible business climate, Brookings proposes a top-down industrial policy, explicitly stating “local government (or NGOs, even) can play the role of industrial planner. That is, they can look across the map and find instances where research institutions and manufacturers should collaborate on new ventures.” And they say “public money” is needed to retool old industries and advance new ones. The government in Detroit can’t even manage the delivery of basic city services. None of the region’s levels of government have performed well on their core competency, so why would we believe these entities would be effective venture capitalists or industrial planners? This is a recipe for epic rent seeking and an economic Waterloo on a grand scale.

Their suggested industries for Detroit are a tired looking roster of the same ones everyplace else is chasing: green industry, life sciences, advanced manufacturing, and university technology spin-offs. With such a crowded playing field – 49 out of 50 states are chasing life sciences, for example – it is hard to discern the Detroit region’s distinctive capabilities in any of these areas apart from automotive related R&D and manufacturing. Sure, they’ll get some slice of the pie in these growing markets, but unlikely enough to turn the ship around or create a true innovation cluster.

Public-private partnerships do have a strong role to play in Detroit’s economic development. This includes looking for sectors where it can realistically compete and win, and looking to create the infrastructure and conditions necessary for them to flourish in terms of facilities, talent attraction, legal and regulatory frameworks, regional business culture and practices, and more. It’s about creating fertile soil, not picking winners.

However, assistance to the restructuring auto industry was clearly required. Without federal aid, GM and Chrysler would have been liquidated. They still might, but given the importance of that industry to our economy, it is probably worth doing what we have to do for now. But we should recognize that getting in was a lot easier than getting out will be, and that the end result might still be failure or Soviet style zombie companies that survive only as wards of the state.

Lastly, the praise of rail transit by Brookings – the cook book solution du jour for cities – is puzzling. Again, Detroit is shrinking and needs to shrink more. Trains work best when people are commuting to a central point, but jobs have been disappearing from the core of Detroit for generations. Today barely 4.5 percent of area employment takes place in the urban core, among the lowest percentages among the nation’s top 50 cities.

As with fringe highway expansion, the last thing Detroit needs is even more infrastructure. It has too much already that it can’t afford to maintain. Taking on a costly new rail transit system with both high capital expenditures and significant ongoing operations and maintenance costs is a dubious proposition – particularly when the existing bus network is on the verge of a near shutdown. The biggest game changer from an infrastructure perspective – new highway crossings to Canada to strengthen Detroit as the premier gateway to Canadian international trade – is not mentioned.

So while Brookings gets a few key pieces of the puzzle right, ultimately their solution is too standard issue and lacks the boldness and innovative thinking needed to tackle the core problems and create a realistic prospect for renewal.

In the next installment tomorrow: a better plan for Detroit.

Aaron M. Renn is an independent writer on urban affairs based in the Midwest. His writings appear at The Urbanophile.

December 17, 2009