Will Detroit recover like Pittsburgh did?

Interesting blog post on the question of the day: Will you be Detroit or Pittsburgh? 

The analogy has been made a bunch of times, notably by the New York Times in November. The analogy goes something like this: The steel industry is another heavy capital-intensive business with little room for change and only once they faced complete bankruptcy were they able to restructure and run profitably. 

This blog post describes how Pittsburgh moved from 10% to less than 1% of the workforce in the steel industry:

“Detroit should take a page out of Pittsburgh’s playbook. In the 1980s, the state used local universities to pour funds into technology research. What blossomed was a thriving entrepreneurial community. The largest industries? Computer software, biotechnology, education and health care, all of which have held up well of late.

To be sure, Pittsburgh reinvented itself during a run of prosperity. It didn’t happen overnight and it didn’t happen without a tremendous amount of federal, state and local support and vision. Skilled workers who couldn’t make a living in Pittsburgh moved elsewhere, to thriving cities like Phoenix and Vegas.”

All good things to do for any city and Ann Arbor is the most likely place for this to succeed. However, there is a big difference between the steel and auto industries: cars are not commodities. To make a car, you need many more skilled creative and technical workers to design, architect, and sell the cars. It’s a different industry and other than the big decline and the high capital required, it’s quite different. 

The big advantage that Detroit has is an abundance of these skilled technical workers who are now likely to work for a lot less money in a place with a pretty low cost of living already, laying fertile ground for Detroit to become the next cleantech hub. 

Some argue, like the WSJ that there isn’t any inherent need for an American auto industry, which is a fair criticism. However, if the auto industry goes down, the effects will be felt throughout the country and would prove disastrous for our economy largely. Which is not to say it’s okay to bail them out (I’m on the fence on this issue), but rather the consequences of failure are pretty drastic.

The City Where the Sirens Never Sleep

Article from the Weekly Standard on the slow death of Detroit. My favorite excerpt:

But with millions of jobs on the line, including their own, the Detroit Three honchos went to Washington to endure the kabuki theater, first in their private jets, then in their sad little hybrids. All to get their slats kicked in by Congress (and who has been more profligate than they) in order to secure a bridge loan to withstand an economy wrecked by others who’d secured no-strings bailouts before them. The absurdist spectacle was best summed up by car aficionado Jay Leno: “People who are trillions of dollars in debt, yelling at people who are billions of dollars in debt.”

Looks like Jay Leno can be witty afterall. 

 

EDIT: Also this fun view into the long roots of the auto industry

Like many Detroiters (he lives in a posh suburb, where houses on his block have remained unsold for six years), he’s bracing for one or all of the Big Three going down. He predicts millions will be thrown out of work, right down to the diner owner in Utah who serves lunch to the people who produce the screws which are bought by the widget manufacturers who produce a component that goes into a seat of a Ford automobile. The diner owner thought he wasn’t in the auto business. “But he was,” says Vines. “He just didn’t know it.”

http://www.weeklystandard.com/content/public/articles/000/000/015/945aynyk.asp?pg=1

The Lions: The final straw in the decline of Detroit (2008- Kwame, Bailout, Lions)

Okay, let me say something up front. I am not a blogger, but I have a blog. I am a Detroit fan born and raised in The D, but I don’t live in Detroit now. I’m a walking contradiction who shouldn’t be believed or have any credibility, but I have something to say and I don’t care who hears it.  

After the historic election of Barack Obama, I didn’t write an effusive note about how happy I was, even though it gave me hope that my children would live in an amazing country with leaders we can be proud of for a change. When the economy nosedived in the scariest way possible, I wasn’t that compelled to say anything publicly although it is tearing my hometown to the ground and putting friends and familiy out of work all over the world. But now that the Lions have gone 0-16, and have failed to win a game for the entire season, I think it’s time to speak. 

Detroit, this is the lowest moment in our history. This is worse than the next three worst moments, two of which occurred this year: the race riots in 1968, the Big Three automakers getting bailed out, and Mayor Kwame Kilpatrick going to jail. 

Think about that – the worst moment until this year was the city erupting in hateful race-fueled riots ending in beatings, death, and uncontrolled fires. And now, after years of neglect, horrible leadership, economic decline at the hands of a slowing ancient industry, we’ve scored a hat trick. Kwame, Bailout, Lions. That’s what 2008 will be remembered for in the future – a terrible year for the country, but felt so much worse in Michigan.

Kwame – this goes beyond words – Detroit suffered under one of the worst mayors in history, running the city for his own personal purposes, holding down economic development, the education systems, and running a “machine” style council filled with cronies and supporters. He did nothing about police brutality, fathered children out of wedlock, and was the subject of FBI scrutiny for kickbacks. And his name was Coleman A. Young. And he left office in 1993. And we elected someone worse than him. WORSE. So much worse that we jailed him while he was in office, something which hasn’t happened to a sitting major American mayor as far as I can find. 

Bailout – The industry which had long supported our metropolis rode high after the war and excess drove the big three to become enormous, bloated dinosaurs trying to compete in a world in which they no longer belonged. Jobs declined, communities suffered, and blame was attached to the Unions. Guess what? The Big Three were quite cozy with the Unions and ran shitty companies with products no one wanted to buy (Pontiac Aztek? Really?) with no sense of innovation, connection to customers, or foresight (hybrids considered for production only after the Japanese found success – how did you not see this coming?) doesn’t help either. 

These are terrible companies in a mediocre industry with almost exclusively fixed costs. The general auto decline can only shoulder about 10% of the problems. For all of that, you grew into a massive presence tied entirely to one community and now are tipping over to be crushed under your own weight. It is the most irresponsible and shitty thing any one industry can do to a town. These are lives, families, and hopes all drowned in bad business. 

To be clear, government did little to try to manage this impending doom (we all saw it coming, let’s be honest). Blame would lay at the feet of the Mayor if he were not so inept, the governor if she weren’t so interested in being governor, and at the representatives/senators if they weren’t so cozily in bed with Big Auto [Debbie Dingell, wife of US-Rep John Dingell (Who owns $1m of GM stock) is an employee of General Motors].

We should have been diversifying the industries which fed our tax base, doing something real about building a creative economy, an IT base of innovation, or the absolutely most logical eventuality, a Green Engineering center to rival all others in the world (come on – we have the most engineers and technical workers per square mile. We should be building the majority of green cars, solar panels, and windmills)

And once the real catastrophy hit, the answer was to go to the government hat in hand and beg for help, perhaps during the period when it was least responsible to do so, and when the taxpayers could least afford to shoulder the burden. Embarassing. 

Our city had no real chance. 

Lions – But here is the representation of all of the worst parts of the city’s history. The Lions. The Detroit Lions. The team which some refer to as one of the most storied in NFL history, one of two teams guaranteed to play a game on Thanksgiving on a national stage. One of the Original Six of the NFL, if such a thing existed. 

They had one of the most explosive running backs in history and mismanaged him so badly, he chose to retire early, shy of NFL records he could have easily broken, and give back millions of dollars rather than play for the Detroit Lions organization. Think carefully about that. A player on track to be the greatest throws away everything because your boss is that shitty. How badly must he have been treated to quit before training camp and leave us in the lurch with no offense in 1998? 

They are a joke in 2008 – having not won a game all season. A feat not accomplished, ever. Last year the Patriots won all their games and were lauded as geniuses, and athletes for all ages. This makes our team the inverse of that. 

They have a terrible owner whose single biggest failure is the lack of performance management (if you do your job well, we’ll take care of you. If you don’t, we’ll find someone else). But its even worse than that. He’s from an automotive family where performance management, efficiency, strategy, or foresight are as foreign a language as Esperanto or Klingon. 

The Lions are bad for the same reasons the auto industry doesn’t run well in Detroit. Bad executives who fail to listen to critics, experts, and customers/fans and see the landscape for what it really is. 

And remember, this is in the salary cap era. The NFL has grown and been successful because for the most part, each team spends the same amount of money on players which gives an even playing field, parity of teams, and basically puts success at the price of hard work, good coaching, and smart players. Given the same resources as other teams, the Lions have failed to win a game for an entire season. 

So 2008 is undenyably the worst year yet for Detroit. There is much work to do and many ways to take advantage of the regional strengths to turn the economy around, but its hard to keep hope in a time filled with it. I just hope we can forget this year and make 2009 at least a one-win year and work towards rebuilding my town.