Detroit Failed to Adapt to the Major Threats to Cities During the Twentieth Century

During the 1900s, cities dealt with the issues surrounding institutional racism with various degrees of success. In the midst of these internal issues, external threats to survival would emerge that would threaten American cities’ survival. The Great Depression hit America’s capitalist system hard, causing a drastic reset of economic principles that would remain intact for another half century as economic tools for city growth. Many cities used these tools successfully. Some cities, like Detroit, used them to excess.

The civil rights movement of the 1960s would begin a dramatic shift in the hierarchy of needs requirements of cities that would leave those cities failing to adjust with worsening economic consequences. The entirety of the South suffered as boll weevils destroyed their cash crop and investors shunned Southern industrial enterprises during the second reconstruction era.

After the Viet Nam War, business migration and emigration began draining cities of lower skilled jobs and exposed a rust belt as the most visible sign of maladaptation. Some cities reformulated strategies for economic success better than others during the transition.

The latest threat to city survival has been a series of financial boom/busts that created misguided incentives and that misdirected investments into real estate assets rather than productive capabilities. Some cities survived the lure of building excess housing, office, and retail real estate stock better than others in the transition.

Detroit was one of the cities that did not adapt through the maze of external threats as well as some of America’s other major cities. While Detroit prospered initially as a result of the New Deal, unions created excess gains that did not adapt to the external threat of business migration. Detroit’s highly ingrained institutional racism became more militant in response to the militancy of those it oppressed during the civil rights era. And in a desperate attempt to correct for its inability to heal racial tensions, Detroit fell headlong into the temptations of investing in real estate as a cure for lack of productive industry.

Detroit failed to adapt those attributes of a growing, or indeed thriving city that were necessary to overcome both internal and external threats of the last half of the twentieth century.

China May Call EurAmerica’s Bluff and Let the Western Financial System Collapse

Brazil taught the world that what was behind the Wizard of Oz’s curtain was pure smoke and mirrors. When two MBA’s transformed Brazil’s rapidly deteriorating economy by simply creating a second currency and stating that it, unlike its hyper-inflating counterpart, had a constant value, and by sternly imposing political discipline on the new currency, they showed the world that currency is not the purview of international banks that create it from thin air. Currency is the will of a nation to share its productivity on an equitable basis.

China had not learned this lesson at the end of the barrel of EurAmerica’s gunboat diplomacy and suffered millions of casualties in the years after 1840 as a result. But China has learned it since and has taken advantage of her hard won understanding by playing the West’s own mirage of money against its immobile institutions. Through sophisticated manipulation of our businesses, banks, and politicians, China has reaped the rewards of EurAmerican pursuit of maximum quarterly profits and interest rates. The entirety of EurAmerica is now neck deep in its own debt that has provided China with tens of thousands of factories at EurAmerica’s workers’ detriment. Our citizens will languish in decades of debt repayment, wage decline and underemployment as a result.

Now that EurAmerican leadership has transferred massive amounts of real wealth to China’s shores, building the armaments of the world’s next century of commerce, our captains of industry, fathers of finance, and patrons of politics are now asking her to protect the financial instruments that procured those resources. Certainly, after how the West scourged China less than two centuries ago, she owes no allegiance to the West’s economy. In fact, China may already have ascertained that the end game cannot afford a prosperous West in the face of China’s emerging commodity and consumption needs.

If China does not responsibly act to assist the global crisis, she will surely suffer in the short term from it. However, as the Long Depression of 1871 proved, the country emerging from the depression with the abundance of real assets emerges more quickly and with a stronger position to consolidate hegemonic power. And the Great Depression proved that the country holding the world’s financial wealth emerges as the dominant reserve currency. In that case, America held the majority of the world’s gold.

It may be in China’s strategic best interest then to allow the world to financially collapse. China has the productive assets. She has a surplus of fiat money. She has the commodity relationships. She has built a substantial reserve of gold bullion as a backup source to restart her economy. And more importantly, China’s state run bank recognizes that the curtain protecting the Emerald City protects only a fiat monetary system built upon the premise of an existing western caste system commanding allegiance to debt derived money.

If EurAmerica collapses, it will take years for our political system to sort out a restructuring of power and debt obligations. In the meantime, China will surge ahead in re-establishing a world order built on a constructive new monetary and credit system with China at the center. She will then selectively engage with companies and institutions of the West as she strategically sees fit. Our current debt and credit default swap bubble has created dinosaurs of the West walking aimlessly into financial tar pits. It is unfortunately a house of cards that and I am afraid China is going all in to call EurAmerica’s bluff.

Globalization Transfers a Nation’s 70 Year Depression Cycle to the Entire World

The Great Depression of 1929, more than any of America’s depressions before it, showed that although capitalism is the world’s greatest engine of economic progress with no better alternative, it does contain a great flaw that periodically destabilizes the capitalist economy. As each business cycle progresses, wealth and commercial power concentrates in the hands of a few, limiting competition and consumer demand to the extent that the economy and the money supply collapses through nested debt defaults. When this occurs, the overhanging debt and undervalued assets cause a commercial vacuum that is hard to correct.

After, the Great Depression, America instituted controls intended to limit the flaw of capitalism, attempting to limit the concentration of market power in oligarchies and the concentration of wealth in the capitalists, hoping to create a more sustainable balance in the economy. Over time, America’s politicians were lobbied successfully to remove these limiting regulations so that once again concentration was permitted to flourish. However, different from every other concentration cycle, this time concentration was able to effectively cross international borders through globalization.

Having accumulated a concentration of wealth and commercial power needed to seed expansion into globalization, during the last thirty years American businesses have run headlong into the greatest transfer of wealth and capital across international borders ever known. With globalization, America’s nation state has lost much of her ability to regulate what have become multinational corporations for the good of her people.

The result of this loss of power is that similarly to how capitalism’s flaw allows a periodic transfer of wealth from a nation’s workers to its capitalists, indebting the working class until it no longer can support an increase in the economy while servicing its debt, ultimately resulting in the collapse of the nation state’s money volume into 60 to 80 year cyclic depressions, globalization’s flaw will also ultimately prove similar but on a world wide scale. The expansion of the multinational corporation will allow a periodic transfer of the entire world’s wealth from nation states to corporate states ending in a disproportion of wealth that ultimately will cause a worldwide monetary and fiscal collapse.

Prior to the rise of globalization, corporations existed within the laws, regulations, and taxation of single nation-states. They depended on the customer base of single nations and the stability of their nation’s business environment. They also depended on their host country’s mercantilism and military strengths for their relative worldwide trading power. With a prevalence of dependence on their nation states, they negotiated with their stakeholders from a position of relative weakness.

After the Great Depression through the 1970s, corporations contended with the growth of collective bargaining, socialism, environmental regulations, and antitrust interference in their oligarchic profit strategies. With such a lopsided negotiating power structure, corporations were relegated to lobbying behind the scenes for needed legislative and regulatory support as a means to balance their unequal negotiation positions.

Throughout this period, America’s focus on defeating communism through overwhelming military strength had two unintended effects. First, America’s burgeoning military allowed American businesses to expand unopposed into world markets through the bully pulpit of the U.S. military. Second, with the winning of the cold war, the emergence of Eastern markets, and the opening of China creating such immense business opportunity for American businesses, they could now use their legislative relationships they had developed in earlier years to support their participation in the modern gold rush.

American businesses sprinted to these new profit fields in an effort to gain a stake before foreign competitors. To do so, they needed availability of low cost loans and a commitment to open access of American consumer markets. To gain open access to American markets, businesses needed the support of politicians to sell the argument that open trade was a net benefit to the American consumer and that it was essential to America’s success. Winning this public argument then provided cover for politicians, who were beholden to the multinationals and associated banks for campaign funds, to vote for opening America’s markets to foreign manufacturing facilities. This was the beginning of America’s job emigration. We let the job killing Mongols over the wall.

With (a) the debate about open trade behind them, (b) China eager to accept their hard assets and intellectual capital into her country, and (c) banks having maneuvered financial deregulation to extract American capital from consumers, American multinational businesses were now free to expand their direct foreign investments exponentially. As they did, their corporate structures became ever more multinational and their negotiation position with nation-states strengthened considerably.

China, for one, represented negotiations with corporations as between equals. Initial negotiations were win-win and entrepreneurial because expanding corporations and emerging nations wanted separate assets which they valued differently from each other. Corporations wanted and received low cost inputs to production, low cost educated labor, minimal environmental costs, and loose business regulations. China gained access to hard assets, America’s consumer market, trade deficits, American corporate processes and intellectual capital.

Intellectual capital was most important to China so that she could leap frog American know how by creating entire cities to manufacture single products, and providing America’s intellectual capital and business knowhow to the city so that geographically concentrated Americanized core skills could develop. Yet for American multinationals, they valued China’s market potential much more than their own intellectual capital which they believed china could otherwise reverse engineer. They also discounted China’s ability to compete, and felt they could mitigate giving China their secrets by keeping research in America and innovating more rapidly than China.

Once established across multiple countries, multinational corporations now had strengths they never had before. While nation states were able to impose the same wage restrictions, regulations, and taxation as before, multinationals now had mobility to transfer labor, production, distribution, and profits across national borders. Corporations no longer negotiated labor rules and wages from weakness but could now set world wage rates. Through the likes of tiered corporate structures, offshore subsidiaries, multinational accounting, and transfer pricing, corporations could now dictate effective world tax rates. And through multinational diversification, corporations were no longer constrained in size by the whims of any one country’s antitrust laws but were now free to grow unrestrained.

Through globalization, nation states lost the majority of negotiation power they once had. They could no longer command the supply side. Labor could migrate to the nations with lowest overall cost of production and distribution including taxation. Nation states were also forced into political decisions regarding protection of domestic producers that could not compete with foreign costs. And the politicians that would have to enact laws to make domestic goods more attractive could not risk offending their benefactors, the foreign direct investment owners of foreign factories. Nation states could no longer command the demand side either. Their citizens, having tasted the benefits of low cost consumer goods, would not sit idly while prices were increased through substantial tariffs.

With such strengthened negotiating power, multinational corporations ascended to new ranks in the world economy as virtual corporate states, similar in power to nation states yet without the incumbent obligations to citizens’ social welfare. Having loosened the limiting bonds of national antitrust laws, Multinationals could now increase their size without bounds and, as a result, grew to have “economies” that rose above those of most nation states.

The world has yet to fully understand the power of the corporate states, but emerging nation states are embracing multinationals’ newfound power as a means to gain arbitrage power from industrial states. In doing so, they feed and strengthen corporate state power sending the world toward unsustainable wealth concentration. Industrial states have not reacted by collectively attempting to regain a foothold to create regional political regulations but instead are slowly acquiescing to a concentration of corporate state power as all have been left impotent at the direction of their elected officials.

Yet concern for multinational corporation concentration of power is rising amongst western industrial states as all are affected by the corporate state induced economic crisis. Cries for isolationalism, protectionism, and proactive job creation legislation have surfaced once again amongst labor unions and domestic businesses as unemployment has risen, yet their cries come too late for America, having already lost 40,000 factories, 8 million jobs, and trillions of dollars of intellectual capital, core skills, and future development that will never be as a result of these transfers.

The premise of free trade has proven a fallacy. Yet now that globalization is upon us, no country has the power to reverse it. Without collective action to globally regulate multinational corporations, individual industrial nation states will eventually attempt to thrust kamikaze assaults on the power, finance, and asset transfers that have already reduced the future of industrial countries in favor of emerging ones and emerging countries will abandon old world colonialism in favor of new world corporate subjugation. And we will all live through the first experiment of global concentration of wealth and power that promises eventual world collapse. If national capitalism collapse takes 60 years, how long does globalism collapse take?