Detroit Must Now Roll Up Her Sleeves and Attack Her Root Problems

City lights continue to be an issue in Detroit. No matter how much effort is seemingly thrown at fixing them, half the city stays in darkness. Yet lighting is only a visible symptom of Detroit’s crumbling infrastructure. The same infrastructure problems that can be seen by Detroit’s citizens in broken lights exist below in the belly of the city’s networks.

Detroit is barely surviving on high cost, obsolete infrastructure that was constructed in its heyday to meet the needs of a million more people. Old infrastructure can be maintained and replaced but at increasing costs as time goes on (compare Detroit’s maintenance to maintaining an old car).

Detroit’s small population cannot continue to indefinitely maintain its large, failing infrastructure without increasing city taxes. Yet, Detroit taxes are already the fourth highest of any city in the nation, and 47% of the population is already not paying their property taxes. Many say they refuse to pay taxes because they are not getting the services that their infrastructure is supposed to support (a catch 22).

Without growing Detroit’s population, the city cannot repair its infrastructure, and infrastructure becomes another cause of spiraling city failure. A minimum population that is growing and paying taxes, therefore, is not only needed to manage growing city pension costs, but also to maintain the city’s infrastructure and to ultimately reduce infrastructure costs through reinvestment.

So, how does Detroit reverse the trend and grow its population? And since the city is already years into deficit spending, how does it accelerate growth to a minimum sustainable population? Millennials have been targeted as a group that will populate the downtown district. They have lost interest in owning homes and gentrification can create livability standards that will attract them. Yet, their increase will not be at a rate great enough to thwart the city’s deficits. Gentrification is not a solution to a citywide problem. Creating an attractive downtown might create a functioning commerce district but it does not impact choices to live in other parts of the city. Downtown reinvestment has been tried now for 40 years in Detroit without success.

Some Detroiters hope that that low cost citywide housing and a recovering America will combine to reverse the city’s exodus. Citywide, housing prices have precipitously dropped to the extent that they have slowed depopulation. Those wanting to leave Detroit cannot sell their houses for enough to leave, and low prices have brought some newcomers to Detroit.

Yet, crashing home prices are a horrible alternative for attracting population back into the city. Besides devastating Detroit’s citizens, falling housing prices devalue the city’s tax base that it needs to increase. While the fire sale of homes has brought balance to the population, the massive difference of home prices between Detroit and its suburbs is still not enough to bring people back.

If Detroit wants to save itself from fiscal suffocation, the city cannot hope that downtown reinvestment or housing price equilibrium will save it. Detroit must finally deal with the root causes that devastated the City’s population. For now that the city sits below a minimum population for recovery, only fixing its root causes of depopulation will help it to repopulate.

Certainly, loss of autos and ammo started the slide, and highways and FHA insurance provided the means of white flight. Detroit was dealt several suffocating blows that would cause its minimal sustainable population to drop from 1.8 million to perhaps 1.2 million from these two factors alone. But Detroit’s depopulation has been unlike any other city.

While Detroit’s suburbs were engaging in economic transformation along with the rest of the country, Detroit missed the opportunity in its midpoint of depopulation to bring in new innovators to change its business profile. Cities like Akron and Pittsburgh stopped their rustbelt bleeding through investment in new, job-based innovation and came back to life. Yet, key investors in the Detroit metro area instead sought reinvestment outside the city proper, choosing instead to invest in entertainment branding within the city. Sports and commerce brands are important to a City’s livability but these investments did not add enough to the city’s tax base to survive without adding businesses that could support a minimum population.

So, part of the city’s fall can be explained by a lack of restructuring the city to attract new business. Yet, other cities that failed in this mission simply stabilized at a smaller size without imploding as Detroit did. Detroit’s white flight, however, was greater than any other city. Detroit’s black population continued to grow from the 1970s until the 2000s, but the city’s white population dropped to 7.8%, leading the city’s drop in population from 1.8 million to 700,000.

Detroit has a unique history of racial prejudice due to its 20th century migration patterns and its development of institutional racism in response to its dramatic increase in Southern migration. Repeated efforts by many thoughtful civic leaders failed to turn the tide of how Detroit would repeatedly manage racial conflict. The result of years of missed opportunities to repair the city’s racial tensions resulted in a Detroit whose negatives now overwhelm its positives.

The average citizen that wants to raise their family in safety, to give their kids a decent education, to see their kids get a decent paying job, and to watch their children then settle down in town to raise their grandchildren, this average citizen simply could not see a way to continue his basic American dream in Detroit, and sought refuge outside the city.

Detroit became overwhelmed with crime. Violent crime expanded and now dots all parts of the city. Detroit’s schools have failed the city miserably. Half the city’s population is functionally illiterate and lacks the skills needed for the types of jobs that some see as the savior to city revitalization. Revitalization cannot ignore the base of Detroit’s citizenry or the root issues of education and crime will remain unresolved.

Jobs that could provide a living wage are not available to current residents. This broken pattern that causes city flight must now be reversed in a city that only graduates 22% of its kids and that has the highest crime in the country. Without vastly reducing crime and undertaking massive restructuring of the city’s schools to create successful outcomes, and without creating livable wages for the city’s high school graduates, no urban planning or investment will reverse the city’s loss of population.

Ok, so let’s get to work. Detroit can be the first city in the nation to reverse such a trend. Detroit MUST be the first city in the nation to reverse such a trend for its own survival. The institutional and structural impediments that have kept the City from struggling back must now be removed. Root causes of Detroit’s plight must now have bold solutions that attack root causes. A system-wide solution that supports all of Detroit’s citizenry must now be employed.

Innovation Built Detroit

Innovation created the car. The car built Detroit. Between 1895 and 1900 when 69 auto companies were started, none were in Detroit. By 1909, 270 auto manufacturers competed in the auto industry, which is really wild. Yet, still only 41 of those were in Detroit in 1909. How then did Detroit come to dominate the auto industry?

Detroit did have some natural benefits of transportation routes and of being close to iron, fuel, wood, and other northern industrial cities. And, Ford and Olds were truly genius innovators. But as or more importantly, Detroit generated a critical mass of innovators. A total of 141 auto companies spun off from parents in Detroit when their founders thought they had better mousetraps.

By 1915, the top selling autos came from Detroit and hundreds of suppliers relocated to Detroit to meet the needs of the largest selling auto manufacturers. This close proximity of cross innovation accelerated Detroit’s growth, and isolated manufacturers could not keep up with the pace of Detroit’s collective innovation.

Eli Whitney’s two innovations changed the world. His first was the assembly line. In 1914, his assembly line became the cotton gin of the north as Ford adapted it to cars and they began flying out the factory doors, driving down costs and price.

By 1929, with over 21 million cars in America, the more continually innovative companies like Ford had absorbed most of the spin off companies, and the Big Three in the Detroit region produced 80% of the cars in America. Detroit owned the market.

With such a prolific production of cars, other industries across America grew rapidly in response. Metal industries, rubber, fuel and fueling stations, highways, the tourist industry, hotels, road construction, and even real estate and construction grew as the car led to an urbanization of America. The Auto industry transformed America.

To fund this transformation, the financial industry also had explosive growth, spiking in the 1920s. The majority of Americans could not afford cars, radios, and homes on America’s average income, so just as we saw a financing bubble in 2008, extraordinary credit was extended in the 1920s, spurring more growth and more consumer debt until it reached its breaking point.

As a result of such credit-driven spending on cars, radios and homes, millionaires were created. By 1929, the top 0.1% of America owned 42% of America’s wealth. By 1929, Ford was one of the richest men in America with an annual income of $14 million compared to his well-paid workers making $750. By 1929, America had expended its credit economy, the bubble popped and the Great Depression hit.

Car production dropped in half, and industries supporting cars fell precipitously. Reduced output brought wage cuts and layoffs in the auto industry, further exacerbating the depression. Reacting to the income disparity that occurred before the depression and sympathetic to the plight of affected workers, Social Democrats passed the Wagner Act of 1935 supporting unions. Immediately upon passage, strikes changed the face of Detroit.

Now, combining a growing, pent up demand for autos after WWII, the need for additional production capacity, the need for land in a landlocked Detroit, continuing innovation leading to new manufacturing techniques, a desire to move away from the increased risk and cost of Detroit’s unions and to create parallel operations to reduce union power, and the change from people to automation driven by excessive labor costs, the auto industry began its migration away from Detroit.

In the next decade, the Big Three built 25 plants, all of which were at least 15 miles out from the city of Detroit. In the following decade with the advent of new highways and FHA housing available mainly to whites, whites migrated out of the city and took small businesses with them. Between 1947 and 1963, 134,000 manufacturing jobs left Detroit, enough for a third of the working population.

In same time period, auto manufacturing in the state of Michigan would drop from 58% of the total to 40%. During the exodus of auto manufacturing and the beginnings of white flight, the U.S. Department of Defense piled on with the decision to diversify armament production away from Detroit.

Within this timeline of the rise and the beginning of the fall, innovation was a key factor that led to accelerated production, which paid for the 300 people per day moving to Detroit. The influx of a million and a half people, paid for by the car, brought in the taxes and built the infrastructure of Detroit that allowed Detroit to annex lands to grow from 39 square miles to 109.

What was left when the majority of companies and people left the city were citizens that stayed, a government that cared to help them, some good assets, some obsolete ones, a considerable amount of empty buildings, a lot of brownfield sites, and a need for a viable plan to use what assets and strengths that were left to turn the city around.

On My Birthday, I Agreed that America is Nowhere near Middle Aged, So She Should Stop Her Midlife Crisis

I celebrated my 51st birthday yesterday surrounded by my 5 kids. They took me out deep sea fishing (caught a 5 foot black tip shark) and made me sweat with a tennis pro before going to the spa, having a terrific dinner out and finishing with a night of gift giving. It was such a great day that I almost forgot I was 51.

When I turned 50, I made believe that it was just one step away from my 40s. At 50, I tried to deny that my vigorous youth was slipping away or that my powerful purchasing parity had peaked its prosperity. I was not ready to accept that from this point on, I would slide ever so slowly down into a slumbering non-existence.

But now at 51, I am squarely surrounded by 50 and 52. I must acquiesce to the fact that my more virile years may be behind me. I must settle down from my midlife crisis, finish my mourning for my hegemonic mid years and begin to accept that where I am at 51 is a new beginning to finding peace, productivity, and prosperity in my last quarter century.

America is but 235 years old, hardly in my position. America is not a nation heading for its golden years as many would have you believe. Why is she acting like me, pouting about her aging features? Why is she accepting her fate as it is being told by those who have hijacked our future? Are we really in our midlife crisis or have we been hypnotized by those who would have us believe we must willingly hand it over to those fledgling industrialists to the East? Who reading this post truly believes that the Chinese are better able to lead the world into the 21st century than America?

If so, state your case. As for me, even if I have but a quarter century left to give to my country, I intend to make it a virile thrust for America. Remember folks, in 235 years, America could only stack a baby born in 1776 on top of a baby born in 1856 on top of a baby born in 1936, just three short lifetimes. America cannot possibly be in our golden years when only three consecutive people have lived their lifes as Americans. So snap out of it. Shake off the psychological bindings that international globalizationists would like you to bound with for their hegemonic slaughter and get back out there and fight for America now!

While The U.S. Invented the Internet; Other Countries Will Use It to Reinvent Themselves

by Al Logiodice

February 15, 2011

I’ve been working in internet-related businesses for more than a decade, and mostly in e-commerce. When we started out, people thought that ecommerce was going to put Walmart out of business. But the real transformative power of the internet isn’t going to be in commerce; it’s going to be in social interaction. To put it bluntly, the internet will be the most important tool that democracy and self-determination has ever found.

Back in the 1930s we did have some social upheaval, and the US was at some risk of becoming socialist. But the primary communication medium of that day (radio) saved democracy in the US. It was also a spoke-and-hub style of communication…one speaker, many listeners. Now the internet allows us (worldwide) the ability to have true peer-to-peer conversation; everyone can talk with anyone.

I think that peer-to-peer conversation (facebook, twitter, etc.) was the turbocharger that Egypt needed to make the changes that they made. Something similar is happening in Bahrain, and probably soon in Saudi Arabia.

In those countries people will figure out how to use the internet as the means to their self-determination. They have no roadmap, no plethora of talking heads like we do, so they can invent something that actually works as they go along. It seems that the older generation use these new media as fluidly as the youth.

And they may invent a self-determination that improves on ours, while we wallow in our old hybrid model; we’re partly stuck in our old world of talking heads telling us what to think. Imagine telling your grandfather that he should be Twittering (“I’ll slappa you face!”). We’re still stuck listening to Beck and Coulter and Maddow and others, telling us what to think, where to look, what’s important, etc., rather than listening to each other, exchanging ideas, and learning from each other. 

While the US may have invented the internet, other countries are going to use the internet to re-invent themselves. The internet is well on it’s way to revolutionizing democracy, but maybe just not ours. We’ll be stuck in our own hole for a long time, while the Egypts, Bahrains, Irans, and maybe even Chinas use the web to come up with entirely new models of governance and society.

In addition to his experience as an E-commerce manager; designing, developing, and operating B2C and B2B websites, contributing to organizational development, corporate strategy, program/project management, Mr. Logiodice is a regular contributer to the White House Group on Linkedin.

Are Americans Entitled to Extended Unemployment?

Tea Partiers are ignited about the idea of abolishing long ago formed agencies that have been cemented in stone buildings along Constitution Avenue. They believe that good government concepts never really die and eventually become entitlements that stymie original intent.  However, once formed, these ideas take hold in the American consciousness and we begin to believe we are entitled to them as unalienable rights.

Take unemployment insurance for example. Like defense, education, and the rule of law, unemployment compensation has its roots in increasing the efficiency of capitalism.  With a temporary stipend, unemployed workers are free to move from businesses that are sliding past their plateau of usefulness to those that are innovating.  Without the fear of losing their homes and other assets, employees move to healthy businesses even during economic downturns.  Because this idea supported the beliefs of both parties of congress, unemployment insurance passed by an overwhelming majority in 1935 as part of the Social Security Act.

In most downturns, the unemployed are able to find jobs within the insured period of 26 weeks. However, an underlying sickness gutted our sustainable job base during the last thirty years as we borrowed our way through successive economic bubbles.  Only after the credit default swap bubble collapsed our economy did we understand that our jobs were gone.  Not only had our manufacturing blue collar jobs been shipped overseas, but our technically skilled jobs were exported as well. Our average period of unemployment has now swelled to 37 weeks.

It was only natural that Congress quickly adjusted the unemployment period as a stop gap measure when faced with the Great Recession.  They rightly protected our longer term unemployed to keep them from losing all they have gained in contributing to our country.  Now that the ranks of the 99ers, those that have fallen past the safety net of extended unemployment, are swelling, America is debating if unemployment benefits should extend further, and whether the unemployed are entitled to a longer benefit period.  

The debate on entitlements needs a paradigm shift.  Instead of discussing whether unemployed should receive more than two years unemployment compensation, we should be creating a process that allows our citizens to quickly re-enter the workforce and once again contribute to America’s success.  

My voucher plan is a paradigm shift.  Instead of paying unemployed to sit on the sidelines of our economy, America instead invests in our future by getting our people back to work.  Small businesses can hire voucher employees at their unemployment rate. In return, Voucher employees can work twenty five hours per week and receive the same pay they would have received through unemployment. The Federal Government can then reimburse employers the employees’ wages without increasing the unemployment budget.

Tea Party members will be concerned that this voucher plan will become yet another entitlement. They can rest assured that the voucher plan will be a relic of the Great Recession, created to automatically expire as the economy improves. Voucher dollars will decrease as the percent of unemployment decreases, requiring employers to cover more of voucher employees’ wages.  As a result, voucher employees in barely sustainable businesses will transfer to healthier ones.

Some claim that the unemployed feel entitled to remain unemployed, collecting extended payments.  While we can all find a few examples of misuse of American altruism, I have found that most people want meaningful employment.  The entitlement argument stems from the disincentive our unemployment system creates for rejoining the workforce.  It’s not unreasonable to compare available jobs with current unemployment payments. When a worker leaves a job that paid $14 per hour, is getting $8 per hour for unemployment, and is faced with a job that pays $9 per hour, their incentive to work is only $1 per hour; substantially less than their former job and only a dollar more than unemployment. Unemployment should not create a re-employment inertia differential.  My job voucher plan creates the largest re-employment incentive because unemployment extension payments end.

Americans might be concerned that my voucher plan would be used to balloon what they believe is already too large a government providing too many entitlements.  They cite previous government programs that raised social benefit costs without creating profit generating, taxable products or services. My job voucher plan, however, grows jobs only in private sector small businesses, and can be supported by existing government agencies without expanding their budgets. 

Others claim that my voucher plan is just an entitlement to small business, creating an inefficient makeshift set of jobs for the unemployed.  While I agree that my plan can rapidly employ all Americans, and as such may create some early, inefficient placement of workers, it nonetheless will also create a micro-venture capitalist function for millions of small businesses.  Some of these ventures will successfully create taxable revenue, and some will be incredibly successful, paying back America’s investment through future taxes on corporate profits and employee compensation.

Finally, concerns have been raised that any program such as this may create an entitlement mindset that all Americans must work.  Government work programs have been abused by some to collect compensation while performing work at subpar levels.  This problem is self correcting in my voucher plan.  Employees would still be governed by private sector principles.  If the job is not a good fit, employees will not find safe harbor in this program. For the program to be successful, government intervention will have to be restricted to current EEO and ADA requirements.  But, in the end, one entitlement should fly true.  America will find it is entitled to renew its future.

Will America’s Lack of a Multinational Corporation Policy Bring a Resurgence of War? (Part 1)

World history has been dominated by trade wars and military interventions to resolve trade conflicts. From the 15^th through the 19^th centuries, shipping merchants became wealthy competing for trade routes and exploiting price differences between nations’ captive markets.  Wealthier nations financed mercantilism to increase their gold coffers at the expense of other nations that lacked merchant ships and navies to protect them.

In the 19^th century, those nations of Europe and America that had accumulated wealth through mercantilism, now invested in the transformative industrial innovations of their time.  For much of the 19^th and 20^th centuries, the industrial revolution compounded the wealth of these nations, and advanced the theoretically achievable wealth of the entire world.  However, a concentration of industrial strength by relatively few countries led to export surpluses that drove countries to compete for trade routes, and that eventually caused an eruption of war. 

In the 20^th century, technology advances supported worldwide business capability, yet wars, government corruption, and misguided trade barriers dissuaded businesses from expanding to other countries. But the wars did temporarily thrust underground the notion that trade differences should be settled through bloodshed.  Nonetheless, the United States pursued military dominance.  As the 20th century ended, the U.S. emerged the sole superpower, creating a unique opportunity.  For the first time in history, the entire world could peacefully pursue economic parity.

The world responded by leveraging wage imbalances between the world’s rich and poor nations.  Entire civilizations altered age-old governance systems so their people could participate in world wealth redistribution.  China created a capitalistic engine to support its socialist goals as the center of the ASEAN economy.  India reduced the pressures of its caste system to benefit from newfound prosperity.  And we are witnessing today the Middle East standing up to dictatorships that have shielded their people from participating in the world’s economy

Europe’s and America’s businesses reacted by aggressively expanding into global markets through direct foreign investments of multinational corporations (MNCs). Their expansion resulted in the transfer of both wealth and jobs to other countries, and created a formidable force that wounded America.  As we face down this force, America should be asking the following questions 1) through our military support of world stability, did we better America’s future?, 2) can we simultaneously innovate to advance our nation’s wealth frontier while supporting the rise of the rest of the world?  And 3) have we determined an economic path forward that will protect the world from a reemergence of military struggles?  The answer to these questions will depend on the ability of United States to develop a coherent policy regarding MNCs.

What is the effect of Economics on the Egyptian Demonstration?

This is a graphical context of middle 60% PPP annual household income for several European, Middle Eastern and Asian countries.   Those countries either involved in direct war with the United States, or that have recent uprising and demonstrations have their annual incomes  boxed in red.

While the issues are so very much more complex than just economics, share of world income  partially explain demonstrations in Tunisia, Jordan, Yemen and much more vigorously, Egypt.  Compared to others in the region that have either created diverse economies like Turkey, or whose populace have benefited from oil revenues like Saudi Arabia, these countries average incomes have lagged well behind, and their citizens sense little say in their futures.

Compared to India and China, they fare better financially, if we look statically at their current purchasing power. However, the latter countries’ citizens look forward to growth through active private and public investment where the former do not.

Additional Data:

Qatar	$          68,600
Switzerland	$          34,600
UAE	$          53,200
U.S.	$          37,100
Kuwait	$          34,000
Israel	$          21,700
Greece	$          24,600
Cypress	$          24,800
Saudi Arabia	$          22,900
Oman	$          22,200
Libya	$          14,400
Turkey	$            9,700
Iran	$            8,200
Lebanon	$            8,100
Tunisia	$            5,900
Egypt	$            4,200
China	$            3,900
Jordon	$            3,800
Syria	$            3,400
India	$            2,100
Yemen	$            1,800
Afghanistan	$            1,500

Bruce Nussbaum’s Blog on HBR

 

Bruce Nussbaum recently posted this blog on Havard Business Review.  His message was spot on.  He heralded the issue with trumpets. Multinationals are not just transferring jobs overseas through direct foreign investments.  To gain access to China’s markets, they must couple DFI with technology transfer.    Here is my short editorial.  Our great American hope for competition, American innovation is being sold to the highest foreign bidder.  The way to compete with this innovation drain is to reseed innovation here in the fertile ground of small domestic American businesses.   Now Bruce’s great article:

What’s Wrong With America’s Innovation Policies

10:12 AM Wednesday January 26, 2011
by Bruce Nussbaum  

President Obama gave a stirring speech last night, saying “We need to out-innovate, out-educate, and out-build the rest of the world.” He used the word “innovate” more times in his State of the Union than any other U.S. president. To those of us who believe the future of the country depends on its innovative capabilities, this was hugely positive. But the obstacles to boosting innovation in the US are far higher than the President acknowledged. Indeed, as CEOs gather at the World Econimic Forum in Davos, they are much greater than most business leaders are willing to say.

Here are some harsh truths that President Obama did not face in his State of the Union speech: there is very little actual innovation taking place within Big Business; Washington innovation policy is placing big bets in the wrong places; China’s innovation policy is superior to America’s.

Let me explain. A devastating National Science Foundation Business R&D and Innovation Survey that generated almost no media discussion when it was released in the fall showed that only 9% of the 1.5 million for-profit public and private companies in the U.S. had any product, service or process innovation between 2006 and 2008. Of manufacturing firms, 22% innovated. In non-manufacturing, a mere 8% innovated. As economist Michael Mandel has observed, “you can’t be an innovation economy if only 9% of your companies are innovating.”

Under both Democratic and Republican administrations, for nearly 20 years, Washington has been placing the wrong bet on R&D. Hundreds of billions in government funding has gone into bio-sciences without any significant return. Genonomics was heralded as the Next Big Thing after silicon, the driver of future economic growth. It isn’t producing results in terms of new companies, jobs, or economic growth in general, yet billions more flow into NIH and universities every year.

China’s brilliant “Fast Follower” innovation policy is generating the biggest transfer of technology in history. A combination of state-driven policies is driving this policy — requiring Western companies to partner with Chinese firms to do business; demanding transfer of the latest technologies in exchange for access to markets; favoring “indigenous innovation” in government purchasing; fencing off green and other industries from foreign competition; offering low-interest state-bank loans to local champions. This industrial policy is at odds with WTO standards, but is a boon to Chinese economic growth and a long-term threat to U.S. global competitiveness.

A realistic American innovation policy will need to take these three harsh truths into account. We need a much more skilled business leadership than we have currently, capable of creating as well as managing. We need to refocus government investment into manufacturing, energy, and materials. And we need much more vigorous global economic policy that meets the challenge of China’s innovation policies.

When President Obama speaks of a “Sputnik moment,” he clearly understands the need for innovation. The next step is crafting policies that deal with the harsh truths of American innovation and move us forward.

Bruce Nussbaum is a member of the Council on Foreign Relations. A former assistant managing editor for Business Week, he is professor of Innovation and Design at Parsons The New School for Design.