Urban Reinvention: New York Since 1970
As recently as the 1970s, pretty much every older industrial city seemed similarly doomed. Both New York and Detroit were reeling from the decline of their core industries, and if anything, New York seemed worse off because the car industry remained more tightly tied to Motown than the garment sector did to Gotham. In 1977, workers in Wayne County, Michigan, which includes Detroit, were paid more than workers in Manhattan. New York City’s government didn’t seem any better than Detroit’s. In 1975, New York State established the Municipal Assistance Corporation to take over the city’s finances and stop it from falling into bankruptcy, despite having some of the nation’s highest taxes.
But while Detroit has continued to decline, New York came back.
There’s no shortage of explanations for New York’s rebirth. Some Yankee fans think that Reggie Jackson’s home runs brought back the city’s mojo. Hipper urbanists look to Andy Warhol and the arts. Mayor Giuliani credits himself. There is a bit of truth to all of these views, but New York’s resurrection was primarily tied to an explosion of entrepreneurship, much of which was in financial services. In 2008, more than $78.6 billion was paid to employees in the sector that the U.S. Census Bureau quaintly calls Securities, Commodity Contracts, and Other Financial Investments and Related Activities. And that doesn’t even include all the really big payouts to the people who own financial firms.
Sixty years ago, New York’s resilience was already something of a puzzle, and the economist Benjamin Chinitz then argued that the city owed its strength to a tradition of entrepreneurship, which the small firms of the apparel industry had encouraged. Chinitz suggested that the salaried employees of large steel companies in Pittsburgh taught their children to obey their boss and keep their noses clean, but the garment manufacturers of New York taught their kids to take risks. Certainly, financial billionaire Sandy Weill’s father, who started as a dressmaker and then switched to importing steel, produced a son who was more comfortable running a company than working for someone else.
Cities have long created intellectual explosions, in which one smart idea generates others. The artistic renaissance in Florence was one such explosion; the industrial revolution in Birmingham and Manchester was another. The growth of finance in late-twentieth-century New York was encouraged by just such an innovation, the ability to quantify the trade-off between risk and return, which made it easier to sell investors riskier assets, from junk bonds to mortgage-backed securities, which in turn enabled riskier, high-return activities, like leveraged buyouts of underperforming companies such as RJR/ Nabisco. Today’s hedge-fund billionaires are only the latest links in a long chain of connected innovators.
For the millions worldwide who look askance at all of New York’s financial innovation, Michael Bloomberg’s story, in which a smart trader became an entrepreneur in another sector, might be easier to embrace. In the 1970s, Bloomberg had been riding high at Salomon Brothers, running the firm’s trading floor, until he was exiled into the geeky world of systems development before being fired in 1981. Bloomberg then got into information technology, and over the next three decades he grew his company into a behemoth by supplying exactly what increasingly quantitative Wall Street traders wanted—jargon-free keyboards and a vast stream of information that was updated constantly.
But while Bloomberg made his fortune moving information electronically, he knows the value of working face-to-face. He set up his offices in an “open plan,” which followed the pattern of Wall Street trading floors like the one he’d run at Salomon, and the unimpeded flow of information within the firm helped his success. In most of the world, rich people surround themselves with big offices and decorated walls, but on trading floors, some of the world’s wealthiest people work right on top of each other. Rich traders are forgoing privacy for the knowledge that comes from proximity to other people. In a sense, trading floors are just the city writ small. When Bloomberg switched careers yet again in 2002 to become mayor of New York, he took the open plan with him to City Hall.
While New York was rising as a financial phoenix, Detroit continued its inexorable decline. The Motor City’s failure was, in many ways, the legacy of Henry Ford’s success. Urban reinvention is made possible by the traditional urban virtues that were to be found in nineteenth-century Detroit: educated workers, small entrepreneurs, and a creative interplay among different industries. Late-twentieth-century Detroit was dominated by a single industry that employed hundreds of thousands of less-skilled workers in three vast vertically integrated firms. What a toxic mixture!
Cities like Detroit with big firms have suffered weaker employment growth than cities with more and smaller employers. In metropolitan areas, a 10 percent increase in the number of firms per worker in 1977 is associated with 9 percent more employment growth between 1977 and 2000. This relationship holds, no matter what types of industries are involved, how old the companies are, or how big the cities are.
Big, vertically integrated firms may be productive in the short run, but they don’t create the energetic competition and new ideas that are so necessary for long-term urban success. No small entrepreneur, even with the experience and panache of John DeLorean, could successfully compete with the Big Three. Detroit had stifled the diversity and competition that encourage growth. Moreover, the city of the assembly line had never invested in the educational institutions that enabled more diverse places, like Boston, Milan, and New York, to come back.
Meanwhile, declining transportation costs made it easier for European and Japanese competitors to sell cars in the U.S. market. While Detroit’s Big Three had long lost their appetite for radical risk, Soichiro Honda was building fuel-efficient little cars. Detroit’s automobile industry stayed afloat with occasional innovations like the minivan and the SUV, but its days of dominance were over. In the 1970s, as high gas prices dampened Americans’ appetites for Cadillac Eldorados and Chrysler Imperials, Detroit had nowhere else to go. As the car industry declined, Detroit fell further and further. The age of the industrial city—with its vast factories and powerful unions—was over.
The Righteous Rage of Coleman Young
Detroit’s fall has more to do with economics than politics, but the political response to the city’s decline only made things worse. New York responded to the crisis of the 1970s by giving up the dream of ending social injustice at the local level and instead electing centrist, workmanlike mayors—Koch, Dinkins, Giuliani, Bloomberg—who were determined to make the city as attractive as possible to employers and middle-class residents. Detroit was led by a passionate crusader whose anger was understandable but unhelpful.
Coleman Young’s family had moved from Alabama to Detroit in the 1920s. He got a job working for Henry Ford but was ultimately blacklisted from the auto industry because of his involvement with labor and civil rights issues. In World War II, Young joined the Tuskegee Airmen as a bombardier. This all-black unit gave African Americans their first opportunity to fly for their country. In 1943, Detroit’s simmering racial antipathies exploded in a massive riot, which seems to have started when white youths began attacking blacks in the parks of Belle Isle. White police officers responded by shooting and killing seventeen blacks and no whites. The federal government thought it wise to move Young’s all-black bombing outfit, which had been outside Detroit, first to Kentucky and then to Freeman Field in Indiana.
Freeman Field had two officers’ clubs, separate but not equal, for the white instructors and the black trainees. Young put his skills as a labor organizer, learned on the streets of Detroit, to work integrating these clubs. En masse, the black officers entered the white club and were arrested. Eventually, after pressure from African-American groups, they were released and transferred back to Kentucky, where the officers’ club was open to all but where the white officers could also use another club at Fort Knox.
For eighteen years after the war, Young worked his way up Detroit’s political ladder. In 1951 he founded the National Neg
ro Labor Council, whose radicalism attracted the scrutiny of the House Un-American Activities Committee during the McCarthy era. When questioned about his associates, Young refused to answer, explaining that “I am not here as a stool pigeon.” Finally in 1963, the times had begun to catch up with his radicalism, and he was elected to the state senate. Three years later, he became the senate minority leader. He pushed through open-housing laws that limited segregation, and he also helped pass Detroit’s first income tax.
Local income taxes illustrate the problem of trying to create a just society city by city. The direct effect of Young’s income tax was to take money from the rich to fund services that helped the poor. The indirect effect of a local income tax is to encourage richer citizens and businesses to leave. Research by four economists found that in three out of four large cities, higher tax rates barely increase tax revenues because economic activity dissipates so quickly in response to higher tax rates. In a declining place like Detroit, well-meaning attempts at local redistribution can easily backfire by speeding the exodus of wealthier businesses and people, which only further isolates the poor.
After the riot destroyed Jerome Cavanagh’s career, he retired, and finally, in 1973, as the black share of Detroit’s population continued to rise, Young was elected mayor. His outspoken views gave voice to the long frustrated hopes of Detroit’s black community, and he went on to win his next four mayoral elections easily, as Detroit changed from a city that was 55.5 percent white in 1970 to a city that was 11.1 percent white in 2008.
Young’s brash style dominated headlines during his twenty years in office. He thought profanity was useful: “You can express yourself much more directly, much more exactly, much more succinctly, with properly used curse words.” He argued that whites didn’t even know the extent of their racism: “The victim of racism is in a much better position to tell you whether or not you’re a racist than you are.” Some people thought that Young was urging criminals to suburbanize when he invited them “to leave Detroit” and “hit the eight-mile road,” the highway that separates Detroit from its northern suburbs. The mayor certainly had no time for his enemies and was happy to see them leave the city.
Young’s bellicosity gave his many supporters the sense that they had a fearless champion fighting for them in City Hall. After years of being treated as second-class citizens, Detroit’s African Americans could hold their heads up. Young’s bitter experience with racial injustice made him unwilling to whisper sweetly to the city’s white population. Moreover, his political interests were only helped by the continuing exodus of Detroit’s whites.
The Curley Effect
Economists have long argued that the ability of citizens to “vote with their feet” creates competition among local governments that provides some of the same benefits as competition among companies. But there are real limits to that rosy picture. Sometimes, as the story of Coleman Young and Detroit shows, the possible flight of voters can create perverse political incentives that make government worse. I’ve named this phenomenon the Curley Effect, after Boston’s colorful mayor James Michael Curley.
Curley had much in common with Young, and if anything, he was even more argumentative. Curley cast himself as the champion of a poor ethnic minority (the Irish) and rode to victory promising to right old wrongs. Curley frequently made pronouncements that infuriated Boston Brahmins, like calling Anglo-Saxons “a strange and stupid race.” He was elected mayor of Boston four times, not quite Young’s five terms, but Curley also won a term as governor. Also unlike Young, Curley spent two terms in jail, serving sentences for mail fraud and for taking a Civil Service exam for someone else.
One day in 1916, during Curley’s first term as mayor, a British recruiting officer had asked the mayor whether he could invite Bostonians of British extraction to fight on Britain’s side during the Great War. Curley replied: “Go ahead, Colonel. Take every damn one of them.” After all, Protestant Bostonians of English descent overwhelmingly opposed Curley. The more Boston became a city of poor Irishmen, the more likely it was to reelect James Michael Curley.
The Curley Effect illustrates the danger of ethnic politics, especially in cities where exit is easy. Boston’s economy would have benefited if wealthier Yankees had stayed in the city, but Curley did all he could to get rid of them. Likewise, Detroit’s economy was hurt by the vast exodus of wealthier whites. Young may never have explicitly told them to leave, but he did little that encouraged them to stay. It’s hard not to empathize with the mayor’s anger, given the injustices he’d suffered, but righteous anger rarely leads to wise policy.
The mobility of the prosperous limits the ability of any city government to play Robin Hood. The well-off can, with relative ease, walk away from a depressed and declining city. Detroit’s middle class escaped Coleman Young by moving to the suburbs.
The Edifice Complex
Young did have an economic strategy for Detroit, but it pursued the wrong objective. Instead of trying to attract smart, wealthy entrepreneurial people, he built structures—making the same error as Jerome Cavanagh, mistaking the built city for the real city. For centuries, leaders have used new buildings to present an image of urban success. The Emperor Vespasian, who ruled Rome in the first century, created an aura of legitimacy with vast construction projects like the Colosseum. Seventeen hundred years later, according to legend, General Grigory Potemkin created a prosperous-looking fake village to impress Empress Catherine the Great. Today urban leaders love to pose at the opening of big buildings that seem to prove that their municipality has either arrived or come back. For decades, the federal government has only exacerbated this tendency by offering billions for structures and transportation and far less for schools or safety.
The tendency to think that a city can build itself out of decline is an example of the edifice error, the tendency to think that abundant new building leads to urban success. Successful cities typically do build, because economic vitality makes people willing to pay for space and builders are happy to accommodate. But building is the result, not the cause, of success. Overbuilding a declining city that already has more structures than it needs is nothing but folly.
In the 1970s, the Detroit Red Wings hockey team threatened to leave for the suburbs. Young responded by building the Joe Louis Arena for $57 million ($205 million in 2010 dollars) and renting it to the Red Wings at bargain rates. The city kept its sports team—but at an enormous cost. In 1987, Detroit opened a monorail system, the People Mover, at a cost of over $200 million (more than $425 million in 2010 dollars). The three-mile system carries about 6,500 people each day and requires about $8.5 million a year in subsidies to operate. It is perhaps the single most absurd public transit project in the country. While it was sold to the public with wildly optimistic ridership projections, it fills only a tiny fraction of its seats. Detroit never needed a new public transit system. The streets below the People Mover are generally empty and could accommodate fleets of buses.
The great hope of the 1970s was the Renaissance Center. The center did receive tax breaks, as well as the enthusiastic support of both Cavanagh and Young, but it was really an example of private rather than public folly. Henry Ford II somehow thought that Detroit could be saved by a vast structure with millions of square feet of new office space. Unfortunately, new space was not what Detroit needed in those years. The Center cost $350 million to build but was sold to General Motors for less than $100 million in 1996. General Motors now occupies Henry Ford II’s giant white elephant.
In 1981, Coleman Young and General Motors teamed up for yet another construction project. Young used eminent domain to destroy 1,400 homes in the ethnic neighborhood of Poletown. Activists protested and took the case to the Michigan Supreme Court, but Young still got the land and gave it to General Motors to build a new, high-tech factory inside the city limits. The plant still functions, employing about 1,300 people on its 465 acres, but it’s hard to see the benefit of moving more than 4,000 people to create such a landin
tensive enterprise within city borders.
Detroit’s construction projects certainly changed the look of the city. The Renaissance Center dominates the skyline. Riding on the People Mover feels like a trip to Disney World, if Disney World were in the middle of a desperate city. But as in other declining places, billions were spent on infrastructure that the city didn’t need. Unsurprisingly, providing more real estate in a place that was already full of unused real estate was no help at all. The failures of urban renewal reflect a failure at all levels of government to realize that people, not structures, really determine a city’s success.
Could an alternative public policy have saved Detroit? By the time Young was elected, Detroit was far gone, and I suspect that even the best policies could only have eased the city’s suffering. But it is possible to imagine a different path, if it was taken during earlier decades, when the city was far richer. Perhaps if the city had used its wealth and political muscle, starting in the 1920s, to invest in education at all levels, it could have developed the human capital that has been the source of survival for postindustrial cities.
Remaining in the Rust Belt
That harsh reality of industrial decline and political failures meant that by 2008 Detroit’s per capita income was $14,976, only 54.3 percent of the U.S. average. Even before the recession hit, in 2006, Detroit’s unemployment rate was 13.7 percent, which was far higher than that of the next largest city. The city’s winters are cruel—January temperatures average 24.7 degrees—and Americans do seem to love warm weather. Over the last century, no variable has been a better predictor of urban growth than temperate winters. Given these fundamentals of cold and poverty, perhaps we shouldn’t be asking why Detroit declined. Perhaps we should be asking why 777,000 people remain as of 2008.
Triumph of the City Page 8