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Work and prosperity
8 August 2013

Detroit: this is what happens if you lose the global race

David Cameron likes to talk about the ‘global race’ – by which he means the neverending struggle to stay competitive in a globalised world. ‘Oh, but it’s not a race’, certain sniffy commentators reply – making the rather facile observation that economic competition doesn’t have a finishing line.

That much is obvious, but it's missing the point of Cameron’s analogy. As on the track or the turf, the meaning of the global race is that if you don’t keep up you become irrelevant. The amount of financial and human capital in the world may grow over time, but at any one time it is limited, and with more places for it to go than ever before, the greater the likelihood of some places being left behind.

One such place is Detroit, which filed for bankruptcy last month – the largest American city to have done so (thus far).

A few figures, from Justin Fox of the Harvard Business Review, show just how far Detroit has fallen:

  • “In 1950 the city had more than 1.8 million inhabitants; this year the population will probably slip below 700,000. Providing city services like police protection and garbage pickup across 139 ever-emptier square miles keeps getting more expensive and difficult… Just since 2000, the city has lost 26% of its people, with the white flight that began Detroit's decline in the 1950s long since overtaken by an exodus of middle-class African-Americans.”

While the city is getting more expensive to run, its remaining inhabitants are less able to pay for it:

  • “Those left behind are increasingly those who can't get out — with a per capita income of just $15,261 and 36.2% of the population below the poverty line, Detroit is now by most measures the poorest big city in the country.”

This is remarkable because, as Jay Zawatsky notes in the National Interest, “in 1960… Detroit was the wealthiest city per capita in America among cities with more than two hundred thousand residents.”

From richest to poorest in just two generations, how did such a catastrophe happen?

There are obvious industrial explanations – and few cities are as closely identified with one particular industry than Detroit (a.k.a. Motown). The problems of the major US motor manufacturers in adapting to globalisation are well-documented; but, as Justin Fox argues, the blame for Detroit’s decline cannot be confined to local boardrooms:

  • “...the [wider] Detroit area spawned new businesses… [but] they were all creatures of the suburbs. To an extent unparalleled in any other major American metropolis, private economic activity in metro Detroit came to almost completely bypass the actual city.” 

Fox blames this on the city’s divisive racial politics, which produced a “governing class clueless about and to a certain extent disdainful of economic reality and a regional economic elite with few ties and little loyalty to the region's main city.”

Jay Zawatsky, quoting Mark Steyn, has no doubt as to who he blames – the “malign alliance between a corrupt political class, rapacious public-sector unions, and an ever more swollen army of welfare dependents.” He goes on to note that:

  • “...fully half of what the city owes—$9 billion out of Detroit’s unpayable $18 billion—is the unfunded pension liabilities to retired public employees and those still on the city’s payroll.”

So, were does Motown go from here? Michael Bloomberg, the Mayor of New York, has suggested that Congress "pass a law letting immigrants come in as long as they agree to go to Detroit and live there for five or 10 years, start businesses, take jobs, whatever."  Meanwhile, Detroit’s own mayor plans to abandon some of the city’s neighbourhoods in order to save the rest.

These are last ditch measures. But it all goes to show that while you can’t win the global race, you can certainly lose it.


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