Detroit’s Bankruptcy

On January 19th I found myself standing on a street in the downtown of one of America’s most troubled cities: Detroit, Michigan. My father and I were entering the Cobo Center for the Detroit Auto Show (or as it is formally known, the North American International Auto Show). The Cobo Center harkens back to a time when Detroit was in much better shape than the sorry state in which it exists today. It gets its name from Albert Cobo, a man who ran Detroit during an era when it was among the wealthiest big cities in America. During the 1950s (when Cobo ran the city) and the 1960s, the auto industry that was based in Detroit was booming as well. Ford, GM, and Chrysler were on the forefront of the global automotive industry, producing cars that consumers desired from the moment they saw them.

Detroit and the auto industry lost its way in the years after. In the case of the automobile business’ decline, a look at any brand will demonstrate this downward spiral. In 1959, Cadillac was producing an eye-catching (and today highly collectable) range of cars that were seen as dream cars to many Americans. By the early 1980s, the same GM division was peddling such disasters as the Cimarron, which shared an uncomfortably high percentage of components with the Chevrolet Cavalier. Pontiac, which in the 1960s had seen huge success with the GTO, in the early 2000s was producing such monstrosities as the hideously ugly Aztek – which was an uneasy mix between a people carrier and an SUV.

However, the lengthy walk I took through the Cobo Center demonstrated that the US automobile business is returning to the glory days of its past. Ford had on display a range of cars that once again can take the fight to the imports and win. Lincoln’s new lineup shook off the “old man’s car” image that is too closely associated with the once prestigious brand. Chevrolet introduced their new Silverado and Corvette, both of which were greeted with strong reviews.

Detroit’s comeback happened because the auto industry was run by people who understood that offering a good product will turn around a business. Alan Mulally and Bob Lutz are two of the recent leaders of the automobile industry who understand this. Lutz’s book Car Guys vs. Bean Counters is an excellent read that explains how he led a turnaround at General Motors. That turnaround and the similar one Mulally led at Ford are success stories our whole country should be proud of. One would expect that the fortunes of Detroit, the city so closely tied with the fortunes of the auto industry, would be on the upswing as well. This fairly reasonable inference is very far from the reality.

The drive back to Cleveland revealed the extent of Detroit’s peril. The Michigan Central Station, a colossal 500,000 square foot beaux arts tower, stood in decay with its windows broken and its rooms long vacant. A mile or two down the freeway showed bridges with the homeless living under them and rows of abandoned homes.

Shortly after my brief visit to the Motor City, Michigan Governor Rick Snyder announced that the city was to be temporarily taken over by the State to fix the financial disaster facing the city. Despite this, on July 19, 2013, Detroit declared bankruptcy. Dave Bing, the city’s mayor, introduced a plan that would, as Reuters put it, to salvage what remained rather than launch a comeback. The unemployment rate in Detroit is 16%, nearly double that of Michigan as a whole. The dire seriousness of this situation becomes clear when Detroit’s unemployment rate is compared to other major cities:

 

Seattle                        4.0

Salt Lake City            4.1

Austin                        4.8

Columbus                  5.7

Boston                       5.9

Fort Worth                 6.0

Orlando                     6.5

Dallas                        6.6

St. Petersburg           6.8

New York                  7.7

Indianapolis              8.4

Washington DC        8.5

Cleveland                 8.7

Detroit                      16.0

 

 Large swaths of Detroit are simply abandoned. What was once the heart of America’s industrial might is crippled by abandonment, financial difficulties, and a population less than half of what it was in 1950. Services are suffering as well. It takes the police an average of 58 minutes to respond to a call.

The same idea that turned around big three has the potential to turn around Detroit: If you want people and businesses to come to your city or state, offer them a good product. In Detroit, high crime, substandard education, and high taxes were not a compelling product to either businesses or prospective residents. Elsewhere in the US business is booming and unemployment is down. In Florida the once bleak real estate market is on the upswing. Texas has a firm hold on two of the new century’s most important industries: wind energy and private spaceflight. The spaceflight company X-Cor moved from California to Midland, TX in the past year and Texas now produces the most wind power of any US state. In North Dakota and Nebraska, the unemployment rate is under 4%. As the above graphic shows, a city can have a strong economy as well. Seattle, Columbus, Boston, Orlando, and many others are big cities with an unemployment rate less than half of Detroit’s miserable 16%.

The bankruptcy may be a blessing in disguise. It will give the city a chance at a fresh start. A good first act of this new beginning would be to remake the city as a business friendly one. Encourage businesses to move to the city, and they will bring people with them. More demand for housing (which would be aided by the demolition of abandoned homes) would not only solve some of the vacancy problem but it would also bring in new construction jobs and drive up home values. A broader tax base would give the city money for police, fire, and utilities as well as helping the city to pay down its debt.

This may be the end of an era for Detroit, and it is a sobering one at that. But it could be the rise of a new beginning for the motor city. It’s up to City Manager Kevyn Orr, Mayor Dave Bing, and Governor Rick Snyder to make this happen.

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The Quiet Ohio Revolution

The rest of America should take a look at Ohio.

Currently our nation is faced with debt problems and a far to high unemployment rate. We do not need to look to other countries for solutions. A success story in dealing with similar problems exists in our own country.

In 2010 Ohio was at a low-point. The state’s job creation ranking was hovering around 47th place and the state had 89 cents in the bank. As then candidate for governor John Kasich pointed out, most toddlers have more than 89 cents in their piggy banks. In 2010, incumbent governor Ted Strickland lost in a close race to Kasich in a year marked by a resurgent GOP.

This new conservative leadership didn’t start off terribly well. On early issue was Senate Bill 5, a law restricting collective bargaining rights. It went down in flames during a special election.

It was not long after this defeat that Kasich and his allies began to resurrect their administration and their credibility. Kasich, who was a leader of the Clinton era balanced budget effort, balanced the state’s budget and lowered the income taxes. By the end of 2012 Ohio was 4th in the country in job creation and first in the Midwest. There has been bipartisanship in this effort as well. The governor partnered with Democratic Cleveland mayor Frank Jackson to spur redevelopment in the city. Today the state unemployment is well below the national average.

Kasich has also shown the willingness to compromise on certain issues, especially the Medicaid expansion that has irritated the state legislature. This combination of conservatism and compromise has done well for the former Fox News host. He now has a 54% approval rating including an impressive 63% rating among the lucrative 18-29 group (source: Quinnipiac University Polling, June 24, 2013).

For all the failures of the Republican Party at the national level, strong leadership exists at the state level. It’s not just in Ohio. Rick Snyder brought Michigan back from the brink and Chris Christie has done great things for New Jersey.

The problems of the United States today looks remarkably like those faced by Ohio in 2011. The president and the congress could learn a lot from the quiet revolution that has occurred in Ohio in recent years.