New Geography

Tag: Detroit

  • The 10 Percent Solution to Urban Growth

    What if we achieved the urbanist dream, with people deciding en masse to move back to the city? Well, that would create a big problem, since there would be no place to put them. Many cities hit their peak population in 1950, when the US total was 150 million. Today it is over 300 million, with virtually all the growth taking place in the suburbs.

    So where would these new urbanites reside? With the enormous losses in our urban housing stock, our cities lack the residences to hold even their 1950 population. A recent survey found that one third of all the lots in Detroit are now vacant, for example. And even if all the old housing was rebuilt, declines in household sizes, particularly in urban areas, has reduced the effective carrying capacity of the old urban fabric even at historic densities.

    But there’s an even bigger challenge to wholesale urbanization from future population growth. The Census Bureau estimates that the US will add nearly 100 million more new people by 2050. If you look at the few cities in the country that have large inhabited urban cores, they hold a relatively small percentage of the current population. New York City, Los Angeles, Chicago, Philadelphia, San Francisco, Boston, Seattle and Washington, DC combined barely hold 20 million people. Even if all these cities doubled in population by 2050, they would only be able to hold 20% of the net new growth expected over the next four decades.

    And achieving even that level of urban growth is simply not realistic. Most of the existing highly urbanized cities are already largely full of buildings. Even where land is available, zoning restricts what can be built there, and increasing densities is politically difficult. New York City has been the most aggressive on the growth front, rezoning 20% of the city under the Bloomberg administration, although many sections have actually been downzoned.

    But even this effort could accommodate a projected one million new residents by 2030. Chicago is going the other direction. When it introduced new zoning under the Daley administration, permitted densities were actually reduced in most cases, though Chicago remains perhaps the only truly urban city with large amount of vacant or underutilized land for redevelopment. Ed Glaeser calls for building skyscrapers in California, but San Francisco residents are imbued with a strong anti-development mindset and have long railed against the “Manhattanization” of their city.

    America could not be reshaped from a primarily suburban to a city-centric country without a massive shift in local political mind-sets. Rather than attempting that exercise in futility, urban advocates should adopt much more modest goals that, although limited, could be completely transformational for our cities.

    There’s been much made of the return to the city. Indeed, large tracts of the urban cores of many places have been utterly remade. But most of the cities where this has happened have been America’s largest tier one cities – New York, Chicago, Boston, etc. They have achieved the point of self-sustaining urban growth, and are well positioned to attract more residents, particularly the upscale and childless, young singles and students and recent immigrants.

    In contrast, smaller cities have seen a few hundred downtown condos and such, but not a real urban renaissance. There is still a lot of work to do in those places.

    The way to do this is to adopt the “10 percent solution”. That is, for most cities, they should develop a strategy that tries to capture somewhere between 5 and 15 percent of the net new growth in their metro areas. If a city can get more, great. But for any growing region, even 10 percent would create a dynamic of massive change in the urban core.

    Consider Indianapolis, a region with healthy regional growth that is above average but not among the nation’s leaders. The Indianapolis metro area is adding people at a rate of about 200,000 people per decade. Center Township, which is the urban core of the city, peaked in population in 1950 at 337,000 people. Today it is at 167,000, a decline of 50%, on par with America’s greatest urban collapses

    But what if the urban core managed to capture 10% of that new growth? That’s 20,000 new residents, very easy to physically accommodate within a decade. What would 20,000 new residents do to central Indianapolis? What would it do to the entire dynamic of the city? It could be completely transformational.

    Such a modest capture of new population would catapult central Indianapolis into one of the absolute top growth areas in the region. Only one suburb is on track to add that many or more people during the 2000s. Many other suburbs are considered prosperous and fast growing despite adding only a few thousand people. Even that limited influx creates a pattern of growth vs. stagnation and decline. That’s where urban Indianapolis needs to get.

    One of the great advantages of targeting 10% market share in new growth is that it frees the city to pursue a market segmentation strategy. It doesn’t have to try to convince vast numbers of suburbanites – the vast majority of whom are likely to stay in place – to make a radical lifestyle change. Rather, the core can market to specific segments that it is best positioned to attract, and put together the most compelling and differentiated product to attract them.

    One potential market is those who want an urban environment but can’t afford to live in one of the expensive tier one cities. They could market themselves to people who find themselves priced out of the biggest cities, but would settle in a smaller, but still vibrant urban environment.

    Can Indianapolis do it? As with many cities, there is already some evidence that it could. In the 2000s, decades of population decline came to an end in 2006, and Center Township started adding an estimated 400 people per year. The jury is still out on whether the estimates are confirmed by the census count and whether it can be sustained, but it still amounts to 4,000 people per decade, showing that the city is already starting to make progress.

    Cincinnati provides another example. It is a metro growing a bit less than the national average, but still adding people at a rate of about 150,000 per decade. The city of Cincinnati declined from a peak of 503,998 in 1950 to 333,336 today, a loss of 170,000 people. Again, if the city captured 100% of just regional growth, in little more than a decade it would be back to a record high population. That’s not realistic of course, but 10% of that total, or 15,000 people, would still make a tremendous impact on the city. Like Indianapolis, there’s already some sign of an inflection point, as the city population began growing again in the 2000s.

    Can this 10% solution really happen? The answer is a resounding Yes, because it is already happening in Atlanta. Its reputation as a sprawlburg overshadows the fact that it is experiencing one of America’s most impressive urban core booms. The city of Atlanta has added almost 120,000 new residents since 2000, an increase of 28%. This is a mere 10.5% of the metro area’s growth during that time – but it has totally changed the city. Atlanta lost over 100,000 people from its 1970 peak, but is now at an all time high.

    Viewed in this realistic light, there is huge reason for optimism about rebuilding the urban cores of even our Rust Belt cities. Frankly, with the required market share of growth to get there so low, there’s no excuse for not making it happen. If city leaders can’t figure out how to attract even 10% of the market, they deserve to lose. If they can do better, great. And once they’ve captured that 10% base, and restarted a growth pattern, they can figure out how to get more ambitious and expand market share.

    For regions with population decline, like Detroit and Cleveland, there’s a different and much more challenging dynamic. But for cities with even modest regional population growth, there’s all the opportunity in the world to attract new urban residents and completely change the game for their urban cores.

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

    Photo: Carl Van Rooy (vanrooy_13)

  • The Fate of Detroit – Revisited Green Shoots? The Changing Landscape of America

    During the first ten days of October 2008, the Dow Jones dropped 2,399.47 points, losing 22.11% of its value and trillions of investor equity. The Federal Government pushed a $700 billion bail-out through Congress to rescue the beleaguered financial institutions. The collapse of the financial system in the fall of 2008 was likened to an earthquake. In reality, what happened was more like a shift of tectonic plates.

    *******************************************************

    By May of last year, when the first of this series appeared, it was clear that the American auto industry was about to fundamentally change. It has been just eight months and the changes have already been monumental. In 2009, China overtook America as the largest market for automobiles in the world. Sadly, America will never see that title again.

    Industry CEOs flew into Washington, DC on their private jets asking for billions in federal hand-outs. They were chastised and embarrassed for their greed and insensitivity by politicians who have mastered that fine art of public outrage. GM’s CEO Rick Wagoner was publicly fired. The next day, GM put all eleven corporate jets on the market causing the resale market for G-5s to collapse overnight.

    Since then, GM has entered and exited bankruptcy and senior debt holders were wiped out so the government could give ownership of GM to the UAW, in contravention of all existing bankruptcy laws. A thousand dealers were summarily terminated without compensation, or a hearing. The Saturn brand was snuffed out and the Saab brand will follow unless a miracle occurs – an unlikely prospect. Pontiac and Hummer have already been terminated.

    Chysler is now owned by Fiat, the government and the UAW. It too wiped out 1,000 loyal dealers without compensation, or a hearing. Chrysler sales, down 36%, were the worst since 1962. The company is on life support. The Italians will attempt to resuscitate the ailing brand with a fuel efficient Fiat 500 and curvaceous Alfa-Romero. Chrylser called on Lee Iacocca to help them recover in the 1980s. This time, they may need Sophia Loren to coax buyers back into the showroom.

    Ford did not take TARP bail out money and the public responded by buying Ford products. While their sales were down 15%, they gained market share because GM and Chrysler sales were down 30% and 36% respectively. Sales in December were actually up 33% from a year ago. Ford dumped loser Volvo to the Chinese automaker, Geely, who coveted the domestic dealer network. Expect to see Chinese cars in an auto mall near you sooner rather than later.

    Clunkers
    Government showed its ignorance of the automible industry by sponsoring a Cash for Clunkers program. They will claim it was a great success, selling 677,842 new cars, but critics will remind that it cost $3 billion dollars. Edmunds.com reports that all but 125,000 sales would have taken place anyway. So taxpayers forked over about $24,000 per car for 125,000 sales. The National Highway Transportation Board reported that 20,000,000 barrels of oil will be saved over 20 years but critics will remind that we import that much in just two days. In addition, the cost to administer a program that lasted just six months was $100,000,000. The government was loathe to mention the top two brands purchased in the Cash for Clunkers progran were Honda and Toyota, not American brands.

    Electrics
    As promised, the government supported the move to electric vehicles. The U.S Department of Energy gave Tesla Motors a loan of $465 million to build the $87,900 electric Karma in California. Tesla claims it has sold 1,000 cars. That means Tesla sales represent a little over one hundredth of one percent of the domestic car business. The financial wisdom of such a loan would be questionable if it were not for the equally stunning announcement that Fisker would receive $529 million from the DOE to build its $100,000 electric car – in Finland. Al Gore is a shareholder of Fisker. Honda, which sells the $20,000 Insight hybrid vehicle and achieved just 25% of forecasted sales. If Honda has trouble selling a $20,000 electric hybrid, one wonders how many $100,000 electrics Fisker and Tesla models must be sold to repay our billion dollar loan.

    Winners
    The surprise winner of the last year was Korean car manufacturer, Hyundai. With a potent combo of great styling, affordable pricing on its Kia brand and new upscale products, Hyundai sales increased a surprising 10%. They project a 17% increase in 2010. Hyundai is doing so well it may spin off its own luxury brand, Genesis, as Toyota did so successfully with Lexus. The new Equus luxury sedan is about the same size as a large Mercedes, BMW or Lexus but $25,000 less. This basic formula worked to establish the Lexus and Infiniti brands in 1989. Expect it to be repeated by Hyundai in the near future.

    Green shoots
    Even though it has relinquished its title as top dog to the Chinese, there are signs of life in the American automobile industry. Buick is the top brand in China and is resurgent in our domestic market. The new Buick Lacrosse and Regal are superb automobiles. Chevy rests its hopes on a trio of new attractive products like an all electric Volt, a retro-styled Camaro and the 40 MPG Cruze. Cadillac released a new fleet of gorgeous CTS and SRX models and announced a new full-size XTS is on the way. Cadillac will get its own stunning version of the Volt called the Converj. And Government Motors (GM) announced it will invest a billion dollars to create the fuel efficient trucks of the future in time for the economic recovery.

    At Ford, they hope the 2011 Ford Focus will be a huge success. This small car is a move upscale for Ford. It has great styling and amenities, a higher price tag and therefore higher profits. Will Ford be able to sell an expensive small car to replace the profitable SUVs like the Explorer and Expedition?

    Chrysler’s future is much murkier. A mini Fiat 500 is coming but the Alfa-Romeros have been delayed. The new Jeep Grand Cherokee and the Chrysler 300 are attractive, but the Chysler Lancia is simply weird. Chrysler revealed a new 200C EV, a surprise all electric concept. Will these models be enough to save Chrysler? We will see.

    The car business is changing. Green Shoots, as our president likes to muse. We hope he is correct.

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    This is the seventh in a series on the Changing Landscape of America.

    Robert J. Cristiano PhD is a successful real estate developer and the Real Estate Professional in Residence at Chapman University in Orange, CA.

    PART ONE – THE AUTOMOBILE INDUSTRY (May 2009)
    PART TWO – THE HOME BUILDING INDUSTRY (June 2009)
    PART THREE – THE ENERGY INDUSTRY (July 2009)
    PART FOUR – THE ROLLER COASTER RECESSION (September 2009)
    PART FIVE – THE STATE OF COMMERCIAL REAL ESTATE (October 2009)
    PART SIX – WHEN GRANNY COMES MARCHING HOME – MULTI-GENERATIONAL HOUSING (November 2009)

  • The Limits Of Politics

    Reversing the general course of history, economics or demography is never easy, despite even the most dogged efforts of the best-connected political operatives working today.

    Since the 2006 elections – and even more so after 2008 – blue-state politicians have enjoyed a monopoly of power unprecedented in recent history. Hardcore blue staters control virtually every major Congressional committee, as well as the House Speakership and the White House. Yet they still have proved incapable of reversing the demographic and economic decline in the nation’s most “progressive” cities and states.

    Obama and his congressional allies have worked overtime in favor of urban blue-state constituencies in everything from transportation funding and energy policies to the Wall Street bailouts and massive transfers of private wealth to powerful public-employee unions. Yet these areas continue suffering from net outmigration and stubbornly high job losses – as well as from some of the most severe fiscal imbalances in the nation.

    Nowhere is this more evident than in the president’s hometown of Chicago. The Windy City has suffered a very bad recession and may have fallen to its worst relative position since the Daley reconquista in 1989. As Chicago blogger Steve Bartin points out, even the presence of a Daley operative in the White House has failed to prevent the city from falling “in a funk.” He writes that even a reliable booster, columnist Mary Schmich of the Chicago Tribune, has lately described the city “as edgy, a little sullen and scared, verging on depressed.”

    There’s plenty reason for feeling low, well beyond the humiliating loss of the Obama-backed Olympics bid last year. For example, Oprah Winfrey, the city’s one bona fide A-list celebrity, is retiring her talk show in 2011. She is also reportedly shifting much of her media empire to Southern California, which, for all its admitted problems, has gads of celebrities and much better weather.

    Chicago’s most serious concern, however, revolves around the economy. In June, its unemployment rate peaked at 11.3%, far outpacing the national unemployment rate of 10%. Since 2007, the region has lost more jobs than Detroit, and more than twice as many as New York. Chicago’s total loss over the entire decade is greater than any region outside Detroit: about 250,000 positions, which is about the amount its emerging mid-American rival Houston has gained. In hard times businesses tend to look for places with a friendly environment for their enterprise. They avoid high taxes, political payoffs and inflated public employee salaries – all well-known Chicago specialties. These costs are undermining the city’s competitive position in, for example, the convention business, among others.

    Other key sectors are also flailing. Political influence in Washington will not stem the flow of high-wage trading jobs away from the Mercantile Exchange to decentralized electronic exchanges. Nor can it reverse the deteriorating state fiscal crisis caused by weak economies and exacerbated by insanely high pensions and out of control spending policies. Late last month Moody’s and S&P downgraded the debt ranking for the State of Illinois. Of course, such fiscal malaise is not limited to Chicago or Illinois. True blue California has an even worse debt rating. New York, another blue bastion, is also just about out of cash.

    To be sure, the recession has not hurt New York as much as Chicago, but the Big Apple has lost heavily , including 50,000 financial sector jobs since 2007. The outrageous bonuses to a few well-placed financial types will cushion but not deflect the influence of declining high-wage jobs. This can be seen in the striking weakness in the once seemingly unstoppable high-end condominium market. Particularly hard hit have been recent gentrified neighborhoods like Williamsburg in Brooklyn, N.Y., much like the hard-hit, newly developed areas along the Chicago lakefront.

    Other blue bastions have been shedding jobs as well, both during the recession and over the whole decade. Beyond Chicago and Detroit, the biggest losses among the mega-regions have taken place in the San Francisco Bay Area, Los Angeles-Long Beach and Boston. Big money can still be made in Silicon Valley, Hollywood or around the academic economy of Boston, but in terms of overall jobs, the past decade has been dismal for these regions. Meanwhile, the consistent big gainers have been – besides Houston – Dallas and Washington, D.C., the one place money really does seem to grow on trees. Even Miami, Phoenix and San Bernardino-Riverside, in California, boast more jobs today than in 2000, despite significant setbacks in the recent recession.

    These trends coincide with continuing shifts in demographics. The recession may have slowed the pace of net migration, but the essential pattern has remained in place. People continue to leave places like New York, Chicago, San Francisco and Los Angeles for more affordable, economically viable regions like Houston, Dallas, Austin and San Antonio. Overall, the big winners in net migration have been predominately conservative states like Texas – with over 800,000 net new migrants – notes demographer Wendell Cox. In what Cox calls “the decade of the South,” 90% of all net migration went to southern states.

    Utah, Colorado and the Pacific Northwest have also experienced positive flows – but perhaps most striking have been the migration gains, albeit modest, in Great Plains states such as Oklahoma and South Dakota as well as Appalachian Kentucky and West Virginia. Historically these places shipped many of their people to cities of the industrial Midwest, the eastern seaboard and California; that is no longer the case.

    Ultimately these shifts could undermine the true blue political strategy, perhaps as early as the 2010 congressional and state elections, and certainly after reapportionment. By 2012, the census will likely take seats from New York, Michigan, Pennsylvania and Ohio, handing them over to Texas, North Carolina, Georgia and Utah. Perhaps nothing will epitomize the new reality more than the fact that California, now among the most extreme blue states in terms of governance, will not gain a Congressional seat for the first time since the 1860s.

    These trends suggest that the current administration and the majority party in Congress must adjust their strategy. Further attempts to push a radical “progressive” agenda – expansive public employee bailouts, higher taxes and radical measures to combat “climate change” and suburban development – might please their current core constituencies, but they have the perverse effect of driving even more people and jobs out of these regions.

    All these underlying trends appear a boon to Republicans. But Democrats could counter the emerging GOP edge by appealing to the needs of these ascendant regions. By their very nature, growth states have the most urgent need for government investments in basic infrastructure, something traditional Democrats long have espoused. Moreover, such areas tend to become more tolerant as they welcome outsiders, and could be turned off to excessive Republican social conservatism.

    For any of this to work, however, Democrats must first abandon their current narrow, urban-centric blue-state strategy. They must learn to adjust their appeal to regions on the upswing, or things could turn out very badly for them very soon.

    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.

  • 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.

  • 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.

  • Detroit: Urban Laboratory and the New American Frontier

    The troubles of Detroit are well-publicized. Its economy is in free fall, people are streaming for the exits, it has the worst racial polarization and city-suburb divide in America, its government is feckless and corrupt (though I should hasten to add that new Mayor Bing seems like a basically good guy and we ought to give him a chance), and its civic boosters, even ones that are extremely knowledgeable, refuse to acknowledge the depth of the problems, instead ginning up stats and anecdotes to prove all is not so bad.

    But as with Youngstown, one thing this massive failure has made possible is ability to come up with radical ideas for the city, and potentially to even implement some of them. Places like Flint and Youngstown might be attracting new ideas and moving forward, but it is big cities that inspire the big, audacious dreams. And that is Detroit. Its size, scale, and powerful brand image are attracting not just the region’s but the world’s attention. It may just be that some of the most important urban innovations in 21st century America end up coming not from Portland or New York, but places like Youngstown and, yes, Detroit.

    Let’s refresh with this image showing the scale of the challenge in the city of Detroit proper:


    There are zillions of pictures to illustrate the vast emptiness in Detroit. Kaid Benfield at NRDC posted these:


    This phenomenon prompted someone to coin the term “urban prairie” to capture the idea of vast tracts of formerly urbanized land returning to nature. The folks at Detroit’s best discussion site, DetroitYES, posted this before and after of the St. Cyril neighborhood. Before:


    After:


    A site named “Sweet Juniper” recently had a fantastic photo of the spontaneous creation of “desire line” paths across all this vacant land. You should click to enlarge this photo.


    One natural response is the “shrinking cities” movement. While this has gotten traction in Youngstown and Flint, as well as in places like Germany, it is Detroit that provides the most large scale canvas on which to see this play out, as well as the place where some of the most comprehensive and radical thinking is taking place. For example, the American Institute of Architects produced a study that called for Detroit to shrink back to its urban core and a selection of urban villages, surrounded by greenbelts and banked land. Here’s a picture of their concept:


    It seems likely that this will get some form of traction from officialdom, as this article suggests, though implementation is likely to be difficult.

    Detroit is also attracting dreams of large scale renewal through agriculture, as Mark Dowie writes in Guernica (hat tip @archizoo).

    Were I an aspiring farmer in search of fertile land to buy and plow, I would seriously consider moving to Detroit. There is open land, fertile soil, ample water, willing labor, and a desperate demand for decent food. And there is plenty of community will behind the idea of turning the capital of American industry into an agrarian paradise. In fact, of all the cities in the world, Detroit may be best positioned to become the world’s first one hundred percent food self-sufficient city.

    This isn’t just a crazy idea from some guy who lives in California. He documents several examples of people right now, today growing food in Detroit. It wouldn’t surprise me, frankly, if Detroit produces more food inside its borders today than any other traditional American city.

    About five hundred small plots have been created by an international organization called Urban Farming, founded by acclaimed songwriter Taja Sevelle. Realizing that Detroit was the most agriculturally promising of the fourteen cities in five countries where Urban Farming now exists, Sevelle moved herself and her organization’s headquarters there last year. Her goal is to triple the amount of land under cultivation in Detroit every year. All food grown by Urban Farming is given free to the poor. According to Urban Farming’s Detroit manager, Michael Travis, that won’t change.

    The fact that Urban Farming moved to Detroit is exactly the effect I’m talking about. To anyone with aspirations in this area, it is Detroit that offers the greatest opportunity to make your mark. It is the ultimate blank canvas. For urban agriculture and many other alternative urban dreams, it is Detroit, not New York City that is the ultimate arena in which to prove yourself.

    It’s not just farmers; intellectuals and artists of various types are drawn to Detroit, both to study it and pursue ideas about the remaking of the city:

    Detroit has achieved something unique. It has become the test case for all sorts of theories on urban decay and all sorts of promising ideas about reviving shrinking cities.

    “It’s unbelievable,” said Sue Mosey, president of the University Cultural Center Association, who has been interviewed recently by two separate PBS crews and an Austrian journalist writing about Detroit.

    “All of us have been inundated with all of these people who somehow think that because we’re so bottomed out and so weak-market, that this is this incredible opportunity,” Mosey said.

    Robin Boyle, a professor of urban planning at Wayne State University who has been interviewed by numerous visitors, echoed that sentiment.

    “They realize that there is an interesting story to tell, that has real characters, but even more, they discover a place that is simply not like everywhere else,” he said.

    Toby Barlow wrote in the New York Times about out of towners buying up $100 houses, moving to Detroit, and doing all sorts of interesting things with them:

    Recently, at a dinner party, a friend mentioned that he’d never seen so many outsiders moving into town…Two other guests that night, a couple in from Chicago, had also just invested in some Detroit real estate. That weekend Jon and Sara Brumit bought a house for $100.
    ….
    A local couple, Mitch Cope and Gina Reichert, started the ball rolling. An artist and an architect, they recently became the proud owners of a one-bedroom house in East Detroit for just $1,900. Buying it wasn’t the craziest idea. The neighborhood is almost, sort of, half-decent. Yes, the occasional crack addict still commutes in from the suburbs but a large, stable Bangladeshi community has also been moving in.

    So what did $1,900 buy? The run-down bungalow had already been stripped of its appliances and wiring by the city’s voracious scrappers. But for Mitch that only added to its appeal, because he now had the opportunity to renovate it with solar heating, solar electricity and low-cost, high-efficiency appliances.

    Buying that first house had a snowball effect. Almost immediately, Mitch and Gina bought two adjacent lots for even less and, with the help of friends and local youngsters, dug in a garden. Then they bought the house next door for $500, reselling it to a pair of local artists for a $50 profit. When they heard about the $100 place down the street, they called their friends Jon and Sarah.
    ….

    But the city offers a much greater attraction for artists than $100 houses. Detroit right now is just this vast, enormous canvas where anything imaginable can be accomplished. From Tyree Guyton’s Heidelberg Project (think of a neighborhood covered in shoes and stuffed animals and you’re close) to Matthew Barney’s “Ancient Evenings” project (think Egyptian gods reincarnated as Ford Mustangs and you’re kind of close), local and international artists are already leveraging Detroit’s complex textures and landscapes to their own surreal ends.

    In a way, a strange, new American dream can be found here, amid the crumbling, semi-majestic ruins of a half-century’s industrial decline. The good news is that, almost magically, dreamers are already showing up. Mitch and Gina have already been approached by some Germans who want to build a giant two-story-tall beehive. Mitch thinks he knows just the spot for it.

    It’s what Jim Russell likes to call “Rust Belt chic”, and Detroit has it in spades.

    This piece also highlights the absolutely crucial advantage of Detroit. It’s possible to do things there. In Detroit, the incapacity of the government is actually an advantage in many cases. There’s not much chance a strong city government could really turn the place around, but it could stop the grass roots revival in its tracks.

    Can you imagine a two-story beehive in Chicago? In many cities where strong city government still functions effectively, citizens are tied down by an array of regulations and permits that are actually enforced in most cases. Much of the South Side of Chicago has Detroit like characteristics, but the techniques of renewal in Detroit won’t work because they are likely against code and would be shut down the minute someone complained. Just as one quick example, my corner ice cream stand dared to put out a few chairs for patrons to sit on while enjoying a frozen treat on a hot day. The city cited them for not having a license. So they took them away and put up a “bring your own chair” sign. The city then cited them for that too. You can’t do anything in Chicago without a Byzantine array of licenses, permits, and inspections.

    In central Indianapolis, which is in desperate need of investment, where the city can’t fill the potholes in the street, etc., the minute a few yuppies buy houses in an area and fix them up, they immediately petition for a historic district, a request that has never been refused, ensuring that anyone who ever wants to do anything will be forced to run a costly and grueling gauntlet of variances, permits, hearings, etc. Only the most determined are willing to put up with that.

    In most cities, municipal government can’t stop drug dealing and violence, but it can keep people with creative ideas out. Not in Detroit. In Detroit, if you want to do something, you just go do it. Maybe someone will eventually get around to shutting you down, or maybe not. It’s a sort of anarchy in a good way as well as a bad one. Perhaps that overstates the case. You can’t do anything, but it is certainly easier to make things happen there than in most places because the hand of government weighs less heavily.

    What’s more, the fact that government is so weak has provoked some amazing reactions from the people who live there. In Chicago, every day there is some protest at City Hall by a group from some area of the city demanding something. Not in Detroit. The people in Detroit know that they are on their own, and if they want something done they have to do it themselves. Nobody from the city is coming to help them. And they’ve found some very creative ways to deal with the challenges that result. Consider this from the Dowie piece:

    About 80 percent of the residents of Detroit buy their food at the one thousand convenience stores, party stores, liquor stores, and gas stations in the city. There is such a dire shortage of protein in the city that Glemie Dean Beasley, a seventy-year-old retired truck driver, is able to augment his Social Security by selling raccoon carcasses (twelve dollars a piece, serves a family of four) from animals he has treed and shot at undisclosed hunting grounds around the city. Pelts are ten dollars each. Pheasants are also abundant in the city and are occasionally harvested for dinner.

    This might sound awful, and indeed it is. But it is also an inspiration and a testament to the human spirit and defiant self-reliance of the American people. I grew up in a poor rural area where, while hunting is primarily recreational, there are still many people supplementing their family diet with wild game. Many a freezer is full of deer meat, for example. And of course, rural residents have long gardened, freezing and canning the results to help get them through the winter. So this doesn’t sound quite so strange to me as it might to you. The fate of the urban poor and the rural poor are more similar than is often credited. And contrary to stereotypes the urban poor often display amazing grit and ingenuity, and perform amazing feats to sustain themselves, their families and communities.

    As the focus on agriculture and even hunting show, in Detroit people are almost literally hearkening back to the formative days of the Midwest frontier, when pioneer settlers faced horrible conditions, tough odds, and often severe deprivation, but nevertheless built the foundation of the Midwest we know, and the culture that powered the industrial age. No doubt in the 19th century many of those sitting secure in their eastern citadels thought these homesteaders, hustlers, and fortune seekers crazy for leaving the comforts of civilization to head to places like Iowa and Chicago. But some saw the possibilities of what could be and heeded the call to “Go West, young man.” We’ve come full circle.

    More Detroit

    Detroit: Do the Collapse
    Detroit: Not the Future of the American City
    For talent – good jobs, cools places, new narrative (Crain’s Detroit Business – featuring Yours Truly)

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

  • Pittsburgh Renaissance?

    In the third of a three part New Geography series on Pittsburgh for the G-20 summit, Aaron Renn assesses Pittsburgh’s value as a model region for other cities suffering decline.

    As the G-20 leaders prepare to convene in Pittsburgh, expect the recent chorus of praise for that city’s transformation to reach a crescendo. Pittsburgh, once the poster child for industrial decline and devastation, is now the media darling as an exemplar of how to turn it around. The New York Times talks about how “Pittsburgh Thrives After Casting Steel Aside” while the New York Post informs us that “Summer in Pittsburgh Rocks”. The Economist named Pittsburgh America’s most livable city. This emerging reputation for cracking the code on revitalization is prompting struggling burgs like Cleveland and Detroit to ask what lessons the Steel City holds for them.

    But does reality live up to the hype? Has Pittsburgh really turned the corner? For the most part, a look at the data suggests otherwise:

    1. Population Is Shrinking. The city of Pittsburgh has lost over 50% of its population since its peak and it is still declining. Just since the 2000 census Pittsburgh has lost nearly 25,000 people – over 7% of its population. The metro area is shrinking too, making Pittsburgh one of only a handful of large metro areas with the dubious distinction of population decline. Others on that list: Buffalo, Cleveland, Detroit, and New Orleans. Since 2000, metro Pittsburgh has actually lost a greater percentage of its population than metro Detroit.
    2. People Are Leaving. Part of Pittsburgh’s population loss is a result of a rare case of more deaths than births. But the region has net outmigration too. Few other stats are so telling about a city. Is this a place people are voting with their feet to move to or leave from? They may come to school or an internship at a local hospital, but, more often than not, they are not putting down roots. With more people moving out than moving in, Pittsburgh is clearly not a destination city
    3. International Immigrants Are Staying Away. Metro Pittsburgh’s foreign born population percentage was 2.6% in 2000 – very low. The Pittsburgh Technology Council summed it up best when it said, “Our region has negligibly grown its foreign born population.” Contrast Pittsburgh with the national average for foreign born population of 5.7%, and regions like Boston (11.2%), Denver (9.3%), and even Detroit (6.1%).
    4. Poverty Is High. Pittsburgh’s economic area poverty rate is worse than all cities benchmarked against it by Pittsburgh Today at 11.6% versus 9.3% in Milwaukee, 9.9% in Cincinnati, and 10.5% in Cleveland among 14 comparison cities.
    5. The City Is in Debt – Bigtime. Pittsburgh is buried under a mountain of liabilities. Its unfunded pension liability is over $1 billion. Its annual interest on its debt is $352 per capita, far higher than peer cities. Pittsburgh Quarterly is very direct: “Put simply, compared with all the benchmark regions, Pittsburghers have been saddled by their governments with relatively huge amounts of public debt.”

    Still, by other measures Pittsburgh is, if not thriving, certainly outperforming both the Rust Belt and the nation as a whole. Its July metro unemployment rate of 7.8% is well below the national average. In the last 12 months, Pittsburgh lost 2.8% of its jobs, which is a much better performance than regions like Chicago (-4.5%), Atlanta (-4.9%), and Portland (-5.8%). Its housing market, having never boomed to begin with, has not experienced the declines of most of the rest of the country, making it a Rust Belt outpost of the “zone of sanity”.

    Pittsburgh has a large “eds and meds” sector, led by the University of Pittsburgh, whose medical center employs over 25,000 people, and Carnegie-Mellon University. Pittsburgh was early to the game in this approach, with steel fortunes powering the development of these institutions starting in the 1950s. There are now seven universities within a five mile radius of downtown.

    Eds and meds employment is quasi-public sector. It can be a source of stability, but it’s not proved to be the source of dynamism that you see in Silicon Valley, around Boston or even Madison. Sure, there have been some high tech successes in Pittsburgh, but the city is far from a hub of the innovation economy.

    Pittsburgh’s downtown remains an employment center with a density uncommon in a Rust Belt full of cores defined more by parking lots than vital streetscapes. Pittsburgh has long had a rich fabric of dense, urban neighborhoods, and many of those are strengthening. The city’s geography retains its charm, and a lot of former industrial areas along the three rivers have been repurposed for recreational use.

    The truth is that the Pittsburgh story is still being written. It’s still more “green shoots” than a true renaissance so far. Until its migration statistics change course, and it demonstrates sustained and growing economic dynamism, the city cannot claim to have truly turned itself around. Still, the signs of progress are better than in places like Cleveland and Detroit.

    What accounts for this? A few success factors come to mind:

    1. Passion for the City. Older river cities like Cincinnati and New Orleans tend to have strong provincial cultures, with all the good and bad that implies. You see this in Pittsburgh in the unique local “yinzer” dialect, traditions like the cookie table at weddings, and of course the Steeler Nation. There’s a strong attachment to the native soil in Pittsburgh, even for those who left.
    2. Starting Early Into the Cycle. Jane Jacobs pegged Pittsburgh’s economic stagnation to 1910. The steel industry collapsed decades ago. Pittsburgh had troubles before other cities, so it is figuring out how to deal with them before other cities. It takes a long time to recover from a hundred years of status quo thinking.
    3. Shrinkage. There’s no longer a need for a Fort Pitt to project military power. The steel industry is gone and with it the need for thousands of steelworkers. Part of the issue in the Rust Belt is that there is no longer any economic raison d’etre for some of these big cities. Pittsburgh long was too big for its role in today’s economy, so shrinkage was good. This also created the rather unique institution of the Pittsburgh diaspora, best known through the Steeler Nation. Like the Indian and Chinese diasporas, it’s a network of people who went out, made connections in the world, built new skills, etc. that Pittsburgh can now tap into, as tirelessly documented by Jim Russell.
    4. The Totality of the Collapse. On Wall Street they call it “capitulation”, where the markets hit bottom and there is no positive sentiment. You have to hit that bottom to start back up. Pittsburgh went through a civic devastation when the steel industry collapsed the likes of which few American cities have seen. This shock to the system created the conditions necessary for change that a more gradual decline would not have.
    5. Dramatic Educational Improvements. The Chicago Fed reported that Pittsburgh’s national rank for percentage of adults who were high school grads went from 55th to 3rd. And for college grads it went from 69 to 37. These are amazing numbers.

    Is the Pittsburgh model transplantable elsewhere in the Rust Belt? In the short term, no. Pittsburgh’s successes of today are rooted in 30 years of steel industry collapse, shrinkage, and boosting its brain power. The auto industry restructuring eventually might bring a needed jolt to Detroit and other Rust Belt cities, but recovery is a long term game that requires sustained commitment over many years to things like education. Pittsburgh has achieved some of this, perhaps not as spectacularly as the media suggests, but in ways that are still useful for other Rust Belt cities to ponder.

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

  • Baseball Goes For Broke

    Other than the banking business, is there an industry more dependent on government handouts, sweetheart tax breaks, and accounting gimmicks than major league baseball?

    What other than a baseball depletion allowance explains the economics of a team like the New York Yankees, which is paying Alex Rodriguez $275 million over ten years while building a new $1.3 billion stadium and charging front row season tickets holders $800,000 for a box of four seats?

    If the rules of baseball included free enterprise, the Yankees would be playing on a diamond in Central Park, and skyboxes (which would not be deductible business expenses) would be limited to nearby apartment buildings.

    What accounts for all the growth in baseball economics — the salaries, the extortionate ticket prices, the new stadiums — is that the game varies little from some nineteenth century oligopoly trust, not unlike J.P. Morgan’s railroads or Andrew Carnegie’s steel mills.

    Let’s start with the basics: Since 1922, baseball has enjoyed anti-trust exemption, which means that league owners (best understood as robber barons) cannot move teams about willy-nilly. At the same time, the law makes it nearly impossible for competitors to establish rival competing franchises.

    The Yankees coughed up $1.3 billion for their new Yankee Stadium (of which local and state government are in for about $520 million) with the knowledge that neither the Royals nor the Pirates are allowed to move their home games to the Bronx or Brooklyn.

    The reason state and municipal governments — not just in New York, but all over the country — put taxpayer money into stadium white elephants is because voters identify more passionately with their professional teams than they do with their local politicians. Imagine the vote in New York if the choice was between Derek Jeter and Governor David Patterson?

    Just because modern baseball is fixed with more precision than the 1919 World Series was does not mean that the game (or at least a number of its teams) will not someday go bankrupt.

    Anti-trust exemptions, Tammany Hall municipal bond financings, and incestuous cable franchise awards may explain why teams like the New York Mets feel that they can spend $12 million a year on pitcher Oliver Perez. But it does not mean that they will be able to cover their obligations when the economy goes O-for-August (as once happened to Darryl Strawberry).

    To best understand baseball economics, think of the sport as similar to the investment banking business: a few large market firms (that have monopoly pricing power and cozy government relations) and then a lot of boutique establishments betting the franchise on some out-of-the-money option (Milton Bradley, Alfonso Soriano, and Alex Rios come to mind). The 2009 payroll for the Yankees is $201 million; for the Florida Marlins, it’s $36 million.

    To close the gap between rich and poor teams, municipalities from Philadelphia ($173 million) to Seattle ($392 million) have subsidized new stadiums, on the hope that sky-boxed, sellout crowds will allow team owners, usually mayoral pals, to pay for free agents. In turn, winning teams are to do for the local economy what the stimulus money may fail to achieve, namely, provide faith in the political system and interest cover for outstanding municipal bonds.

    Keep in mind that the baseball season is shorter than that for gladiolas. Many teams are out of the playoffs by July 4th, which means that the big, revenue-paying crowds must be attracted in the first three months of the season…when Kansas City fans still believe that they have a chance. Not long ago a double header between the Reds and Pirates started and ended with about seventy-five, yes that’s 75, fans in the stadium.

    Is it any wonder that the players union and many team managements, the Yankees included, turned a blind eye to steroids in order to pump up their products? In banking, executives went into sub-prime, hedge funds, and pyramid schemes to cover their bonuses. In baseball, the clear and the cream explain how the owners figured they would be able to afford the likes of Manny Ramirez.

    No one quite knows the precise debt figures of major league baseball, but the liability side of the balance sheet looks something like this: the league itself funds money-losing teams with a revolving line of credit, drawn against anticipated television rights. That’s like borrowing against next year’s equity in a house that has yet to be built.

    As for team debts, some franchises backload free agent contracts in order to defer liabilities until a new general manager may be on the job or the team has won a wild card game. Plus many teams have huge debts on new stadiums and skyrocketing payrolls. Even the Detroit Tigers, who play in a ghost town, run up $115 million per year.

    By my calculations, the Tigers would have to attract an average of about 40,000 fans per game, paying $35 a ticket, just to break even. In 2008, they averaged 25,000 fans a game, and I bet a lot of the unemployed autoworkers who attended didn’t pay $35 a ticket. Some of the debt service for the new Detroit stadium needs to be covered with casino money from an Indian reservation. (Pete Rose’s problem was that he played in casinos but did not own one.)

    To be sure, the plug figures in major league baseball’s finances are the local and national television contracts, not to mention the intramural luxury tax that has rich teams helping out the poor. National television revenue amounts to about $400 million per year, much of which is shared with the teams. That’s another attraction of anti-trust exemption; it limits supply. Why share the pie with, say, a hundred owners?

    Total revenue in the sport is about $6 billion, or an average of $200 million per major league team. Overall, baseball economics would work only if fans were prepared to spend $200 per game on warm beer and cold hot dogs, and renew cable television subscriptions to get games that have little meaning after July.

    The model is also predicated on the assumption that corporations can write off $800,000 in season ticket subscriptions, that the Internet does not blow away TV ads, and that Mariners fans will show up in September to watch their $99 million team wallow 10 games out of first place.

    If I had to bet on an MLB franchise going broke, my action would be on the Mets, who after all play in the House That Sub-prime Built, “Citi Field.”

    Not only did the owners, the Wilpon family, bet the ranch with Bernie Madoff, but they also spent $850 million on the new ballpark, and $25 million (over four years) on the likes of second baseman Luis Castillo. Attendance is down about 20 percent from 2008, and that’s before the team collapsed in the standings or bankrupt ex-Met Lenny Dykstra started sleeping in his car.

    Of course, baseball is no more exposed to the vagaries of the free market than is the banking business. Federally-funded banks, for example, can discount government-granted cable contracts, and pump money into the sport. Or a city like Washington can bailout another failing franchise, as it did with the Expos, and tax dollars can build a second $611 million stadium near the Potomac.

    Anti-trust exempted owners can even mothball a few teams (as they tried to do to the Twins a few years back), and boost the revenue share in that manner. Think of Commissioner Bud Selig’s office as a variant on the Texas Railroad Commission.

    Nevertheless, financial failure is nothing for baseball to dread. The only reason the Yankees could acquire Babe Ruth from the Red Sox in 1919 is because the Boston owner needed cash to invest in the Broadway show, “No, No, Nanette.” Maybe if they are squeezed, the Wilpons can swap Oliver Perez for some of their Madoff paper? At the very least they could get behind the sure hit, “Bye, Bye, Bernie.”

    Matthew Stevenson was born in New York, but has lived in Switzerland since 1991. He is the author of, among other books, Letters of Transit: Essays on Travel, History, Politics, and Family Life Abroad. His most recent book is An April Across America. In addition to their availability on Amazon, they can be ordered at Odysseus Books, or located toll-free at 1-800-345-6665. He may be contacted at matthewstevenson@sunrise.ch.

  • Tracking Business Services: Best And Worst Cities For High-Paying Jobs

    Media coverage of America’s best jobs usually focuses on blue-collar sectors, like manufacturing, or elite ones, such as finance or technology. But if you’re seeking high-wage employment, your best bet lies in the massive “business and professional services” sector.

    This unsung division of the economy is basically a mirror of any and all productive industry. It includes everything from human resources and administration to technical and scientific positions, as well as accounting, legal and architectural firms.

    Overall there are roughly 17 million professional and business services jobs, 4 million more than manufacturing. This makes it twice as big as the finance sector and five times the size of the much-ballyhooed tech sector. While its average salary – roughly $55,000 a year – is somewhat lower than in those other elite sectors, its wages are still higher than those in all the other large sectors, like health. The sector’s $1 trillion in total pay per year accounts for nearly 20% of all wages paid in the nation; finance and tech together only account for $812 billion.

    More than that, the business and professional services sector has encompassed the fastest-growing part of the high-wage economy. Employment in lower-wage sectors like education has also grown quickly. But employment in other sectors that pay their employees well, such as technology, has remained stagnant; jobs in some, such as manufacturing, have fallen sharply. Critically, the business services sector – particularly at the better-paying end – seems to have weathered the current recession better than these other high-wage sectors.

    The crucial question remains: In what regions is this critical economic cog booming? In a new analysis with my colleagues at the Praxis Strategy Group, we examined Bureau of Labor Statistics employment data for this sector, keeping an eye on trends over both the last year and the last decade. Some of the metropolitan areas that boasted short-term growth in this sector also maintained steady employment success over the long-term, which suggests that these particular cities have sturdy economies that aren’t as prone to intense boom-bust cycles.

    At the top of our list of best places is greater Washington, D.C., and its surrounding suburbs in Virginia and Maryland. Government jobs may drive that economy, but it is the lawyers, consultants and technical services firms who harvest the richest benefits. As New York University public policy professor Mitchell Moss observes, Washington has emerged as the “real winner” in the recession – not just for public-sector workers but private-sector ones too.

    Fastest Growing Professional and Business Services Sectors
    Area Name Jobs in Sector 2009
    (thousands)    		 Sector Share of Jobs 2009
    (percent of total)    		 Growth 2008 – 2009
    (percent growth)    		 Cumulative Growth 2001 – 2009
    (percent growth)    		 2001-2009 Job Change (thousands) 2008-2009 Job Change (thousands)
    Northern Virginia, VA 355.2 27.2% 1.5% 22.4% 65.0 5.2
    Washington-Arlington-Alexandria, DC-VA-MD-WV 558.7 23.0% 0.9% 22.8% 103.6 5.1
    Austin-Round Rock, TX 112.4 14.4% 3.3% 18.7% 17.7 3.6
    Houston-Sugar Land-Baytown, TX 382.3 14.7% 0.9% 19.2% 61.5 3.2
    Virginia Beach-Norfolk-Newport News, VA-NC 106.6 14.0% 2.8% 8.0% 7.9 2.9
    Bethesda-Frederick-Rockville, MD 125.7 21.9% 2.1% 9.0% 10.4 2.6
    Wichita, KS 31.5 10.1% 3.5% 16.4% 4.4 1.1
    Chattanooga, TN-GA 25.9 10.6% 4.3% 11.8% 2.7 1.1
    Peoria, IL 23.0 12.1% 4.5% 43.2% 6.9 1.0
    Rochester, NY 61.8 11.9% 1.5% 1.9% 1.1 0.9
    Augusta-Richmond County, GA-SC 31.0 14.5% 3.0% 7.5% 2.2 0.9
    Mansfield, OH 5.1 9.1% 19.4% 4.1% 0.2 0.8
    Kennewick-Pasco-Richland, WA 20.8 22.2% 4.2% 20.2% 3.5 0.8
    St. Louis, MO-IL 195.4 14.6% 0.4% 3.9% 7.4 0.8
    Fayetteville-Springdale-Rogers, AR-MO 33.5 16.2% 2.2% 34.2% 8.5 0.7
    Macon, GA 12.1 11.9% 5.5% 31.2% 2.9 0.6
    Pittsburgh, PA 158.9 13.9% 0.4% 14.5% 20.1 0.6
    Fresno, CA 30.7 10.3% 1.9% 23.3% 5.8 0.6
    Provo-Orem, UT 23.3 12.4% 2.5% 16.7% 3.3 0.6
    Charleston-North Charleston-Summerville, SC 42.2 14.3% 1.3% 31.1% 10.0 0.5

    Over the past year, parts of northern Virginia – ground zero for the so-called “beltway bandits” who work in industries the government depends on to do its job – have enjoyed the fastest growth in business and professional services, adding over 5,200 jobs despite the current downturn.

    Other areas around the nation’s capital have also seen strong growth. The Washington D.C.-Arlington-Alexandria area, for example, came in second on our list, gaining nearly 5,100 positions, while No. 6 the Bethesda-Frederick-Rockville, Md., metro area added 2,600. In addition, yet another Virginia area – No. 5-ranked Virginia Beach-Norfolk-Newport News, a center for military-related industries – gained nearly 2,900 jobs in this sector.

    It’s far too early to thank the free-spending ways of Barack Obama’s administration for all this growth. As anyone can tell you, the Bush White House and its Republican Congress were not exactly models of fiscal restraint. Plus, Washington and Northern Virginia have seen growth in their business services sectors over the last several years, in the period stretching from 2001 to 2009. Together those two metros added over 165,000 new jobs in this critical, high-wage sector.

    Of course, you don’t have to head to Washington to find a high-paying job – although you might not be able to escape unpleasant summer weather. The other major group of business-services hot spots includes Austin, Texas, at No. 3, and Houston, at No. 4. These Lone Star local economies have continued to thrive not only during the current recession but also over the last decade.

    The others winners include farther-afield locales in Kansas, Tennessee, Illinois and New York. These areas could be gaining both from companies seeking to lower costs and from the new capabilities for remote work due to the Internet. Even though they didn’t make our list, a host of smaller communities – like Mansfield, Ohio; Provo, Utah; and Charleston, S.C. – also enjoyed significant growth in the business services sector over the past year.

    So if these are the places where this segment of the economy is growing and high-paying jobs are easier to come by, where is the opposite true? The worst cities on our list span three archetypes: Rust Belt basket cases, Sunbelt flame-outs and expensive big cities. Perhaps the toughest losses were in Michigan: Detroit and the Warren-Troy metro area suffered big setbacks both in the last year and over the last decade.

    Fastest Declining Professional and Business Services Sectors
    Area Name Jobs in Sector 2009
    (thousands)    		 Sector Share of Jobs 2009
    (percent of total)    		 Growth 2008 – 2009
    (percent growth)    		 Cumulative Growth 2001 – 2009
    (percent growth)    		 2001-2009 Job Change (thousands) 2008-2009 Job Change (thousands)
    Phoenix-Mesa-Scottsdale, AZ 289.2 16.0% -10.8% 7.9% 21.2 -35.1
    Warren-Troy-Farmington Hills, MI 202.5 18.5% -12.0% -21.2% -54.4 -27.7
    Chicago-Naperville-Joliet, IL 633.6 16.8% -4.1% -2.9% -19.0 -27.0
    Los Angeles-Long Beach-Glendale, CA 574.7 14.3% -4.2% -3.4% -20.4 -25.2
    Atlanta-Sandy Springs-Marietta, GA 390.3 16.4% -5.9% -1.3% -5.1 -24.4
    Orlando-Kissimmee, FL 170.9 16.2% -8.5% 7.7% 12.3 -16.0
    Santa Ana-Anaheim-Irvine, CA 261.9 18.0% -4.7% 4.0% 10.2 -12.8
    Minneapolis-St. Paul-Bloomington, MN-WI 253.4 14.4% -4.6% -4.6% -12.2 -12.3
    Edison-New Brunswick, NJ 164.5 16.3% -6.7% -2.6% -4.4 -11.9
    Detroit-Livonia-Dearborn, MI 108.9 14.7% -9.5% -20.9% -28.8 -11.4
    Indianapolis-Carmel, IN 120.3 13.4% -8.3% 13.6% 14.4 -10.8
    Riverside-San Bernardino-Ontario, CA 133.7 11.2% -6.5% 36.0% 35.4 -9.2
    Tampa-St. Petersburg-Clearwater, FL 223.2 18.5% -3.7% 12.3% 24.5 -8.6
    New York City, NY 595.7 15.8% -1.4% -0.8% -5.1 -8.4
    Newark-Union, NJ-PA 163.5 16.0% -4.7% -0.5% -0.8 -8.0
    Bergen-Hudson-Passaic, NJ 130.6 14.6% -5.8% -9.1% -13.0 -8.0
    Milwaukee-Waukesha-West Allis, WI 107.6 12.9% -6.6% -1.7% -1.8 -7.6
    Miami-Miami Beach-Kendall, FL 139.1 13.4% -4.7% 2.2% 3.0 -6.8
    Oakland-Fremont-Hayward, CA 158.0 15.6% -4.0% -7.1% -12.2 -6.7
    Las Vegas-Paradise, NV 108.2 12.1% -5.8% 38.1% 29.9 -6.6
    Boston-Cambridge-Quincy, MA 308.8 18.2% -2.0% -6.8% -22.5 -6.4
    Sacramento–Arden-Arcade–Roseville, CA 106.1 12.3% -5.6% -1.8% -1.9 -6.3
    Cleveland-Elyria-Mentor, OH 137.8 13.3% -4.3% -5.2% -7.6 -6.1
    Denver-Aurora-Broomfield, CO 207.0 16.9% -2.9% 4.0% 8.0 -6.1

    Consistent job losses in business services in these areas – some 54,000 in the Troy area since 2001 – reveal the clear connection between employment in business services and in the region’s fundamental auto industry. It turns out that elite services often prove dependent on basic industry. When industrial plants shut down, it’s not just blue-collar workers and company executives that suffer; as a result, these firms will use fewer lawyers, accountants, architects and technical consultants.

    A similar picture emerges in cities like Phoenix, which lost about 35,000 business-services jobs in just one year. This loss stems from the collapse of the housing bubble, which powered the rest of the regional economy. The same meltdown caused smaller but still significant reversals in one-time boomtowns like Orlando, Fla., Atlanta and Southern California’s Santa Ana region, which encompasses Orange County, where business service employment dropped by double-digit rates over the past year.

    Yet these same areas should see some recovery, perhaps more so than the traditional auto manufacturing-focused towns. Phoenix, Orlando and other Sun Belt locations – including a host of other areas in Florida – all saw increasing employment in business services over the past decade. If the economy comes back, along with a stabilization of the residential real estate market, business-services job growth will likely begin to take off again. After all, the fundamental reasons for the success of these areas, such as warm weather, lower costs and the need to serve a growing population, have not fundamentally changed.

    Perhaps most perplexing is the fate of some of the other places on our worst cities list, particularly the biggest metropolitan areas. The professional and business services sector is widely considered ideal for large, cosmopolitan centers, since lots of industries require support. But Chicago experienced a huge chunk of job losses – almost 25% – in this sector during the last year. Other big cities, including Los Angeles, Minneapolis and New York, also suffered.

    This is not a new phenomenon. These and other big cities, like Boston and San Jose, San Francisco and Oakland in California, have been shedding these types of jobs since 2001. These losses, however, have been concentrated at the lower-wage end of the business service pyramid, in areas like human resources and administration. These are the positions that companies can fill more easily and cheaply using the Internet or by hiring in less expensive outposts.

    That’s why Washington and its environs, which has seen across-the-board business growth, remain the great exception. Many business-services jobs outside the beltway appear to be becoming more nomadic, based in places where firms face lower costs and where workers can afford to live well on middle-income salaries. Even the long-term resiliency of higher-wage employment like law and accounting in traditional business hubs like New York could be at risk over time, with some jobs shifting to less expensive locales or even overseas.

    The changing nature of business services presents a boon to some communities and a challenge to others as they seek to survive and thrive in spite of the current recession. How some cities manage to grow this segment of their economies may well presage which parts of the country will thrive best during the years of recovery – and beyond.

    This article originally appeared at Forbes.

    Joel Kotkin is executive editor of NewGeography.com and is a 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 early next year.

  • The Changing Landscape of America: The Fate of Detroit

    INTRODUCTION

    During the first ten days of October 2008, the Dow Jones dropped 2399.47 points, losing 22.11% of its value and trillions of investor equity. The Federal Government pushed a $700 billion bail-out through Congress to rescue the beleaguered financial institutions. The collapse of the financial system in the fall of 2008 was likened to an earthquake. In reality, what happened was more like a shift of tectonic plates.

    In 1912 a German scientist, Alfred Wegener, proposed that the continents were once joined together as one giant land mass called Pangea.

    About 200 million years ago the continents began to drift apart as the globe separated into eight distinct tectonic plates. History will record that the financial tectonic plates of our world began to drift apart in the fall of 2008. They have not stopped moving and the outcome of where they will end up remains uncertain.

    PART ONE – THE AUTOMOBILE INDUSTRY

    Edsel, Packer, Studebaker, Hudson, Nash, AMC – the demise of these brands may have seemed tragic at the time, but were actually a sign of industrial health. In contrast, for the last fifty years the American automobile industry has been static. Despite the proliferation of Japanese, Korean and German imports, General Motors, Ford and Chrysler managed to hold on to a majority of the domestic market, with a dizzying stable of makes and models that grew to near 17 million new car sales in 2007. That epoch is now over. The tectonic plates have shifted under the automotive business and a year from now, the industry will bear little resemblance to the static structure of the last fifty years.

    Fifty years ago General Motors owned more than 50% of the American market and automobile jobs made up one seventh of the US workforce. It was said that when GM sneezed the US economy caught a cold. GM shares now sell for less than a cup of coffee at Starbucks. Now GM is about to enter bankruptcy.

    The brands are dissolving, Oldsmobile was the first casualty. Pontiac and Hummer have been discontinued. When they reorganize, eleven hundred dealers will be terminated. General Motors will close all its plants for three months this summer. Many will never reopen. The New GM, to be known as Government Motors, will be owned by the UAW (20%) and the Federal Government (70%). Twenty billion of tax-payer loans will be converted to ownership to make the UAW pensions liquid. The debt holders will see their senior $27 billion investment converted into just 10% of stock. The shareholders will be wiped out.

    The New GM will become the platform for small fuel efficient cars, hybrids, electric vehicles and experimental technologies mandated by an ever demanding government. Its shareholders vanquished, The New GM will bear no resemblance to the car company that we have known for the last 50 years. Can the Chevy Volt rescue GM? The answer is no.

    GM will continue to shrink as their SAAB and Saturn franchises are sold off to the Chinese. China’s automobile sales are up 10% this year versus declines of 23% in the US and 15% in Europe. Chinese automobile manufacturers are grabbing market share, 30% this year versus 26% in 2008, while their competitors are distracted. Chinese companies unknown to Americans like Geely Motors, Chery Automobiles or BYD Co. will buy SAAB or Saturn for their dealer network. Warren Buffett invested $230 million into BYD, a firm that has been manufacturing cars for just six years. They already provide batteries to Ford and GM and soon will be building the world’s least expensive mass produced hybrid and electric vehicles. Geely plans to triple its domestic sales to 700,000 by 2015 and Chery plans to introduce 36 new models over the next two years.

    Chrysler is in far worse shape and will likely never recover. The Federal Government already forced it into bankruptcy. Seven hundred and eighty nine dealers have been told that their franchises are terminated. Its shotgun marriage to Fiat will look more like a surgical amputation of unnecessary body parts than a marriage. If Fiat remains in the game, they will do so for the Jeep brand and a portion of the dealer network. Like Oldsmobile and Pontiac, Plymouth and Dodge brands are doomed as well as most of the Chrysler line. No one will mourn the demise of the Crossfire, Pacifica, Sebring, or the PT Cruiser. Fiat should keep the new Chrysler 300, a beautiful design that deserves to be built. Chrysler has not produced many stars in the last few decades. The trail blazing design of the 300 brought the full size sedan back from the dead.

    Chrysler will jettison the weakest of its dealers in bankruptcy. Fiat will retain the big dealers in the network. They will bring the stunning and iconic Fiat 500 to America, a fuel efficient small car that will enjoy the same success as Volkswagen’s retro Beetle. Fiat will also use the dealer network to bring the Alfa-Romeo back to America. The Fiat-Jeep-Alfa dealer of the future will bear no resemblance to the staid Chrysler-Dodge-Plymouth dealer of today.

    The surprising winner among the American troika of manufacturers is the Ford Motor Company. Ford and Lincoln will survive because they took no government bail-out money. Mercury may not survive but Ford and Lincoln should make it through the transition. The new Ford-Lincoln will be the refuge for auto enthusiasts who want attractive fast and powerful cars. Ford will become the Apple of the auto business, doing its own thing and flaunting political correctness and conventional wisdom. Ford’s namesake CEO has been an environmentalist for many years so Ford was well into fuel economy and hybrids before the tectonic plates began to move last fall. At just $5.00 per share, Ford is a tantalizing buy for the long term.

    One can no longer call Mercedes, BMW, Toyota and Honda imports as many of their cars are made entirely in the U.S. The Japanese system is different than the American counterpart although we are drifting toward their model. The Japanese government plays a heavy hand in their industry, subsidizing the encroachment into new markets until the brands have stabilized market share. But they are not immune. Toyota lost $7.7 billion in the last quarter – even more than GM.

    True imports like Volkswagen will weather the storm because they were well positioned with small fuel efficient cars long before the tectonic plates began to shift. VW is making a huge bet that oil will top $100/barrel again soon and their fuel efficient and clean diesels will be accepted by American drivers.

    The biggest winner is obviously the UAW and their pensions which have been bailed out with tax payer money by an administration beholden to its labor supporters. Who will be the biggest loser? Clearly, it will be America’s small towns. Our small towns will lose their local dealer and their choice in automobiles. They will be forced to buy the brand that remains in town or drive scores of miles to the next closest dealer for service. Most small town auto dealers were also the most generous members of the community. Charitable giving and support will wither as will local sales tax revenues when the big ticket automobile sales tax revenues disappear. Ironically, as the plates continue to shift, America’s small towns could be decimated by the changes in the automobile industry as they were one hundred years ago when the automobile shifted millions from rural communities to the cities.

    A year from now the landscape of America will be forever changed but the plates will continue to shift. Five years from now, will American ingenuity bring about a renaissance of the American automobile industry? Or, will what is left of this industry be gobbled up by the Chinese and the Korean manufacturers as the Japanese did in the 70s and 80s? The key issue may be what role the government will play. Will Americans buy cars designed by government bureaucrats and built by the unions that own the factories? Will an administration devoted to “coercing” Americans out of their cars be able to simultaneously save the auto industry?

    ***********************************

    This is the first in a series on the Changing Landscape of America. Future articles will discuss real estate, politics, healthcare and other aspects of our economy and our society. Robert J. Cristiano PhD is a successful real estate developer and the Real Estate Professional in Residence at Chapman University in Orange, CA.