What happened to Detroit? What are the policies that incentivize innovation, collaboration, and competition? And why does the government often ignore them? In this 2013 episode of EconTalk, Edward Glaeser joins host Russ Roberts to discuss the path to economic recovery for Detroit, how Detroit’s socio-economic ills apply to other American cities, and why cities are so important for economic growth. Glaeser is the Fred and Eleanor Glimp Professor of Economics and the Chairman of the Department of Economics at Harvard University, and is the author of Triumph of The City.

 

Glaeser believes cities are humanity’s greatest invention because they encourage great minds to collaborate, experiment, and learn from each other in order to create and innovate. It’s difficult to disagree with Glaeser, as the innovation of cities has contributed significantly to consequent innovations in science, technology, and politics, which might not have been developed otherwise. It is quite remarkable how humanity can create the conditions of prosperity itself with no controlling authority or mechanism ordering people to convene in cities.

When you look at the greatest hits of humanity–almost all of them were largely collaborative. And a large number of them involved people learning from other people within cities, through face-to-face interactions. And that’s why I think of cities as being so important, because they are enabling us to do what we do best, which is to learn from the people around us…I’m thinking of Athenian philosophy, Renaissance art, the mass-produced automobile. All of these things are quintessential urban inventions all of which occurred within clusters of genius, where we have very well documented cases of people connecting with each other and learning from each other, and collaboratively producing something much better than anyone could imagine those people would produce on their own.

Two of the ingredients in creating an environment where inventive people share ideas are globalization and competition. Globalization makes having good ideas more valuable due to the presence of more people to sell it to, and competition creates a larger pool of ideas for inventive entrepreneurs to use in a way that others wouldn’t. Competition creates adaptability, communication between and within companies, and encourages creative destruction. One of America’s shining examples of this model had long been Detroit: an innovative, competitive, productive, and prosperous city.

If you look back 60 years ago, Detroit was among the most productive places on the planet, with the companies that were formed by those automotive geniuses coming to fruition and producing cars that were the technological wonder of the world.

It’s not just Henry Ford; it’s the Dodge brothers, the Fisher brothers, David Dunbar Buick, Billy Durant nearby Flint–all of these men were trying to figure out how to solve this technological problem, making the automobile cost effective…by taking advantage of each other’s ideas, each other supplies, financing that was collaboratively arranged…And together they were able to achieve this remarkable technological feat.

However, Detroit is no longer a hub of innovation and economic development. The city consistently has one of the highest homicide rates in the United States, experienced a 61% population decrease from 1950-2010, and between 2005-2015, one in three Detroit properties has been foreclosed on.

Glaeser adds:

Between 1998 and 2010 the number of paid employees in Wayne County declined from 755,000 to 570,000. So that’s really a massive difference. And the number of manufacturing employees, the traditional heart of the Detroit economy has literally declined by 50%, from about 120,000 to about 60,000.

Detroit’s decline is of more recent heritage, of the past 50 years. And it’s an incredible story, an incredible tragedy. And it tells us a great deal about the way that cities work and the way that local economies function.

Why did this happen? Glaeser believes the problem was copious overspecialization, the lack of a long-term economic vision, monopolization, and vertical integration of large companies creating a lack of adaptable entrepreneurs able to shift the city’s industry to the information economy.

The problem was the big idea was a vast, vertically integrated factory. And that’s a great recipe for short run productivity, but a really bad recipe for long run reinvention…once you’ve got this mass vertically integrated factory, it doesn’t need the city; it doesn’t give to the city. It’s very, very productive but you could move it outside the city, as indeed Ford did when he moved his plant from the central city of Detroit to River Rouge.

So, the seeds of the industrial decline were I think set in this very large firm-intensive industrial monoculture that was very heavily invested in lower-skilled or at least less formally skilled workers. I think it’s not that those Detroit workers weren’t skilled, but they were skilled with very firm- and even task-specific skills that made them particularly bad at adjusting to new things.

It’s a sort of inversion of the natural resource curse, it was precisely because Detroit had these incredibly productive machines that they squeezed out all other sources of invention–rather than having lots of small entrepreneurs you had middle managers for General Motors (GM) and Ford. And those guys were not going to be particularly adept at figuring out some new industry and new activity when the automobile production moved elsewhere or declined. And that’s at least how I think about this–that successful cities today are marked by small firms, smart people, and connections to the outside world. And that was what Detroit was about in 1890 but it’s not what Detroit was about in 1970.

It’s been decades since the peak of Detroit’s economic decline, so why hasn’t Detroit recovered? According to Glaeser the answer lies in the failure of the government. Policy failure, specifically emphasizing infrastructure needs over schooling and safety. This hasn’t solved Detroit’s issues or filled the industrial crater left by the auto industry, it has only caused a perpetuation of Detroit’s socioeconomic destitution.

… you had a number of unwise policies that tended to be very infrastructure- and construction-intensive. And I think this is part of what to think about in terms of what public policy does, particularly in declining cities. It is so natural and so attractive to plunk down a new skyscraper and declare Cleveland as ‘come back.’ Or to build a monorail and pretend you are going to be just as successful as Disney World, for some reason. You get short term headlines even when this infrastructure is just totally ill-suited for the actual needs of the city. The hallmark of declining cities is to have funded structures and infrastructure relative to the level of demand in that city. Like Detroit, more than 90% of the homes in central-city Detroit are valued significantly less than construction costs. It never made sense for the federal government to subsidize the building of new housing there in the form of urban renewal. And it certainly made no sense after the Highway Aid Act of 1973 to spend hundreds of millions of dollars on a monorail that glides over often-empty streets.

What I think Detroit really needed was better investment in its schools and its safety, rather than thinking that you were going to fix everything with a monorail.

Additionally, Glaeser points out that the city’s footprint is massive, and it largely isn’t being used or developed, it’s being demolished. In 2019, 17% of Detroit’s land was vacant; this creates hubs for illegal activity and therefore incentivizes city officials to increase demolition efforts, which isn’t a problem in itself, however it becomes one with the limited, though not nonexistent, development efforts in Detroit. If these policies aren’t successful then why does Detroit continue to keep digging the same hole for fools gold? Self-interested politicians need to focus on public image over constructive policy to secure re-election.

I think the main reason why you don’t see more of this is indeed politics. And for a mayor to admit that he can’t manage part of the city is an admission of failure. I don’t think it’s an admission of failure that Mayor Bing should feel bad about making it because the reasons for the difficulty are not of his doing. But it’s politically very hard to do that, obviously.

The contemporary hub of American innovation is Silicon Valley, just as Detroit’s manufacturing sector was in the late 19th and early 20th centuries. Silicon Valley was built by fierce competition among young, intelligent, and innovative entrepreneurs all seeking to change the world. Small startup firms such as Apple, Meta(Facebook), and Alphabet rose to prominence through experimentation, risk-taking, and bottom-up teamwork through the sharing of ideas. However, Silicon Valley is changing. What once were small startups are now massive multinational companies who are beginning to look more like Ford, GM, and Buick. Glaeser wonders if the limitation of collaboration between companies and the shift towards a more top-down corporate structure is the first step towards history repeating itself in Silicon Valley?

If you think about Google or say, for example, Yahoo’s new policy of requiring people to work from home, these are much more like Detroit’s giants in the sense that they are very large firms. They are firms that are deeply concerned with the exchange of ideas within their companies but much less likely to have the people in those companies connect with people in other companies.

Silicon Valley has lots of skilled workers. That’s good. But what I don’t know is whether Silicon Valley is going to look like it’s dominated by a few large firms, Google playing the role of General Motors. Or whether or not it will continue to have lots of little startups. There’s nothing wrong with big firms in terms of productivity. But they tend to train middle managers, not entrepreneurs.

If the specific technology Silicon Valley is heavily invested in creating does eventually begin to phase out somewhat in the near future, can Silicon Valley survive if there are fewer entrepreneurs being trained? To some extent, the decline of any industry is impossible to stop, almost no product or industry will last forever. Given this reality, how can cities reinvent themselves to not become trapped with industries? Glaeser points out that Detroit definitely isn’t the first city to lose an industry, his main example is the effect of his hometown, New York City, losing the garment industry. As a kid growing up in New York in the 1970’s, he truly believed “the time of the city had come and gone.” So how do cities adapt? Glaeser believes concentrating people with skills, measured education, and human capital is key to being able to shift to progressive industries such as technology and finance.

If we look at other cities which have had comebacks, they typically are also tied to information-intensive industries. You think about Boston’s comeback based on various sciences, biotech as well as finances. Seattle–1971

New York’s resurgence was built on finance. Partially this was a global change to support finance. But I tend to see that more generally as being a global change towards information-intensive industries, part of the general rise in returns to skill. And finance has remained rooted, although there certainly is plenty of suburban finance as well, in cities because cities really do have an advantage connecting smart people and enabling them to learn from one another.

Detroit’s demise is representative of significant problems in America today- a key issue being the unintended consequences of pro-homeownership policies, those being anti-urbanization and urban sprawl “stacking the deck against high rise housing.” This combined with tying schooling to geographic area instead of competition, heavily incentivizing suburbanization and further compounding the problems with already struggling urban schooling.

Still, there is reason for hope. Glaeser advocates for policy innovations such as the privatization of space in Detroit, applying policing ideas from successful cities, promoting competition among public and private schools through school choice and breaking the bond between housing and schooling.

Shrinking space through privatization:

I would be trying to privatize as much of the dysfunctional space in the city as I possibly can.

Restrict the areas in which public services are available, and provide relocation aid for people who are outside those areas…And once you’ve done that you can essentially think about whether you can sell off the space that remains; and sell off in a way that literally shrinking the physical footprint of the administration within the city.

Policing:

In terms of policing, I would be doing more in terms of borrowing from those cities that have had very successful turnarounds in the quality of their policing. So, I know for example there’s a project going on where they are borrowing from New York’s successes. Boston has also had reasonably successful policing–so many cities have. I’m not a police tactics expert, but I’d certainly be borrowing from that.

Education reform through privatization and choice:

If you could imagine moving to a region-wide charter/public school system where you could choose any school anywhere within the region to go to, whether it’s public or charter, that would be a system that would largely break down the incentives to locate in a particular area.

One of the virtues of having a more charter line system is we get more innovation in this system and we get more opportunity for experimentation on it. Certainly in many areas there is lots of popularity of schools that are getting particular skills; we certainly see this in the popularity of many private educational institutions that are delivering hard skills to people. I think that if you have a more competitive system in the public school system in Detroit you will naturally have the delivery of skills that are offering economic value for customers, ex post, for students, after school.

Glaeser believes there is hope for Detroit. If the city’s leaders can commit to scaling back the state the footprint through privatization, work towards educational competition through school choice, and invest in progressive policing and industry, however unlikely that is, then the once-hub of American industry, inventiveness, and urban prosperity can make progress on reclaiming that title.

 

While listening to this episode I had a few questions; we hope you’ll share your thoughts as well!

 

1- Some have argued that the 1967 Detroit riots were the largest cause of economic decline in Detroit as opposed to just a piece of the puzzle. How does destructive social unrest typically affect long term economic output? Are riots comparable to the loss of human life and capital destruction during a natural disaster or nuclear attack, such as in New Orleans after Hurricane Katrina, or Hiroshima and Nagasaki? Is capital destruction or loss of life more an impediment to economic recovery?

 

2- Can over-specialization serve as a de-facto destruction of human capital? To what extent can this principle apply to states in the Middle East such as Saudi Arabia, Qatar, and the United Arab Arab Emirates? Will the investment in tourism and sport from these nations in the effort to avoid Dutch disease adequately diversify the economies of these nations to avoid a collapse akin to Detroit?

 

3- The growth of cities and communities is quite  intertwined with the growth companies. What is the difference between the mechanisms of growth of companies and cities? Do businesses, especially small businesses, stagnate because they don’t collaborate and share ideas with others? What about cities?

 

4- Glaeser states that using eminent domain to level certain neighborhoods as part of a short-term plan to bring Detroit out of destitution is a dangerously slippery slope. Would these efforts be any different from the disaster of urban renewal, which heavily contributed to concentrated poverty among black Americans and the creation of de facto segregation? Is there a way to use eminent domain on a large scale and not create large levels of racial income inequality and economic immobility?

 

5- Urban sprawl and lack of affordable housing is mentioned as a problem. How would solutions such as a limitation or even elimination of citywide zoning laws, such as in Houston, fare in ameliorating housing crises in American cities? Could a loosening in environmental restrictions cause a disease worse than the cure?

 

6- How does removing parts of a city’s cultural backbone impact economic growth? How has urban renewal and the legacy of the highway impacted minority communities in cities such as Detroit, Miami, and Nashville, and consequently long term economic mobility within the city?

 

7- The main contributing factor to the success of cities and areas such as Silicon Valley is the sharing of ideas, according to Glaeser. How would increased restrictions in intellectual property laws regarding software and technology impact the long term growth of Silicon Valley?

 

[Editor’s Note: This Extra was originally published on April 2, 2023.]

Kevin Lavery is a student at Western Carolina University studying economic analysis and political science and a 2023 Summer Scholar at Liberty Fund.