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Wall Street Journal


Detroit's Decline and The Folly of Light Rail

March 25, 2011

By Edward Glaeser

The country needs to unleash entrepreneurs, who will only be held back by tax-funded make-work projects.

The Census just reported that Detroit’s population dropped by 25% between 2000 and 2010, a stunning fall that is even larger than the 20% drop Detroit experienced during the 1970s. The story of this city’s devastating decline reminds us that urban fortunes depend on entrepreneurial human capital. Failed public policies that tried to fix Detroit with urban renewal and transportation projects stand as stark evidence against the view that our economic woes call for more federal spending on infrastructure.

The White House’s fondness for transportation spending may reflect the fact that projects like the Erie Canal had great value when moving goods was near impossible. In 1816, it cost as much to move goods 30 miles over land as it did to ship them across the Atlantic. Public investments in waterways and railroads created a transportation network that made the natural wealth of the American interior accessible.

Cities like Detroit grew up as entrepreneurs came to the nodes of that network. Hiram Walker moved to Detroit from central Massachusetts in the 1830s and made his fortune shipping Canadian whiskey over the Detroit River. Detroit Dry Dock produced innovative engines and boats that plied the Great Lakes, and in the process, exposed the young Henry Ford to cutting-edge engineering.

A century ago, Detroit was crammed with smart innovators who competed and collaborated in their quest to produce the newest thing. Ford, the Fisher Brothers, the Dodge Brothers, David Dunbar Buick and Billy Durant in nearby Flint were only a few of the automobile entrepreneurs who collectively invented the mass-produced car.

But Ford’s big idea—producing inexpensive cars with moving assembly lines on an immense scale—was better for short-run productivity than long-term urban success. Once Ford moved his operation into the vast River Rouge Plant, that plant no longer needed the interactions that come from cities and no longer generated a stream of new ideas that could be borrowed by its neighbors.

Millions of people throughout the world benefited from inexpensive cars, but there was little reason to keep automobile production in Detroit once unionization pushed up labor costs and access to the Great Lakes became largely irrelevant. The Big Three started moving car production out of greater Detroit long before they started losing market share to Japan.

All of America’s older, colder cities faced de-industrialization crises in the ’70s. Education proved the best source of urban resurgence. The success of Minneapolis and Boston reflects their high numbers of college graduates—43.3% and 42.9%, respectively—and the links between their universities and pioneering firms like Medtronic, the medical device giant based in Minneapolis. In Detroit, only 12% of adults have college degrees.

In other cities, entrepreneurial talent was more important than book learning. New York’s garment industry—America’s largest industrial cluster during the 1950s—was hammered by globalization. But entry into that industry was easy, and it was a training ground for young entrepreneurs. A.E. Lefcourt, who became New York’s biggest skyscraper builder before the Great Depression, started out as a garment producer. The economist Benjamin Chinitz argued that in those days entrepreneurship was taught at the breakfast table, and perhaps former Citigroup chief Sanford Weill picked up a bit from his father, who had worked in the garment industry.

In Detroit, the very success of the Big Three squeezed out the kinds of self-starting entrepreneurs that New York had in scores. And the high wages earned on assembly lines meant that there was little reason for many to pursue higher education.

The city’s big firms, with highly paid but less-educated workers, made urban reinvention difficult enough on their own. Public policies only made things worse. The defining characteristic of declining cities is that they have plenty of infrastructure relative to the level of demand. Detroit didn’t need the People Mover—an expensive monorail that glides over empty streets. And today, a Light Rail project is being pitched by the federal government, which seems to have learned nothing from the failures of past follies.

Neither Detroit nor the U.S. suffer from any profound transportation problem that can only be fixed with vast federal spending. The country doesn’t need more People Movers. It needs unleashed, educated entrepreneurs—and they will only be held back by taxes being funneled into fanciful make-work projects in a futile attempt to fix our economic malaise.

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