Dean Barber

A Time of Reckoning

In Economic Development, Places on July 21, 2013 at 6:48 am

So on Tuesday, I got this email from a young and no doubt industrious economic developer from the Detroit Regional Chamber touting her region’s aerospace and defense cluster.

Then on Wednesday, she sent me another email, informing me of how important the automotive industry is to the local economy.

At that point, I could not resist. I playfully responded, saying that I had no idea that the automotive industry was so important to Detroit. Then I told her that I had met with Michael Finney, president and CEO of the Michigan Economic Development Corp. when he and members of his team had visited Dallas not long ago.

“I am glad to see the industry make such a good comeback and Michigan’s effort to be more business friendly and competitive,” I wrote. I told her that I had written about Michigan in this blog. (See “Blessed Are the Peacemakers” and “The Wave Will Spread.”)

She wrote back asking that “Maybe Detroit can get a shout out” in a future blog.

The next day (Thursday), Detroit filed for the largest municipal bankruptcy in U.S. history. So the remainder of this blog is my shout out to Detroit.

Berlin, 1945

The last time I was in Detroit was a couple of years ago and I remember driving through certain areas and thinking, “This looks like Berlin 1945.”

For youngsters who do not know their history, Berlin was a bombed out shell by then, Germany’s Third Reich having fallen short of its intended 1,000-year reign. Many of the B-24 Liberator bombers that rained hell on the German city during World War II were made in Detroit.

But here I was looking at sections of Detroit that looked like it had been laid to waste. Had Canada, our stalwart neighbor to the North, launched an attack? It was obvious that something very wrong had happened here. I was literally looking at ruins.

A Cornerstone of Industrial Might

How could this happen? Detroit, once the nation’s fourth largest city, was the cornerstone of our industrial might. This was ground central for the American Dream.

Southerners, black and white, flocked here to get good paying jobs in the automotive plants. Home ownership was not only possible but expected. Detroit became our Mecca for the middle class.

But things started to unravel, and many chose not to notice. Those who did were voices in the wilderness.

The automotive industry, the King Cotton to our nation’s industrial heartland, started showing signs of vulnerability. There were the Japanese with their toy cars, not real cars, mind you. But people are starting to buy them. Can you believe it? And what the hell is this Volkswagen Beetle thing? Didn’t we just beat the Germans and the Japanese in a war?

Why wouldn’t someone buy a Packard, an Edsel, a Pontiac or an Oldsmobile? Now those are real cars.

So Detroit was centered on an arrogant industry that proved to be none too brainy about being competitive. Witness the market share declines of the Big Three and the eventual bankruptcy filings of General Motors and Chrysler. It was only because of federal intervention that they remain today.

There is prophetic statement that comes to mind when it comes to any community too dependent on a single industry: “You live by the sword, you die by the sword.”

Five Days in July

Then there is this matter of race, which is inexorably linked to how things evolved in Detroit. In the early morning heat of July 23, 1967, a police raid on an after-hours bar popular with blacks touched off one of the deadliest and most destructive riots in U.S. history. It lasted five days and required military intervention.

The riots became a watershed moment, accelerating a massive white flight to the suburbs that began in the 1950s. In 1950, when Detroit’s population had swelled to 1.85 million, about 82 percent of the population was white. Today, the city’s population has dwindled to 700,000, and about 82 percent of those who remain (black middle class families left, too) are black.

Upon leaving office in 1994, long-time Mayor Coleman Young, the city’s first black mayor, wrote this in his memoir:

“The riot put Detroit on the fast track to economic desolation, mugging the city and making off with incalculable value in jobs, earnings taxes, corporate taxes, retail dollars, sales taxes, mortgages, interest, property taxes, development dollars, investment dollars, tourism dollars, and plain damn money.”

Plain damn money is right. Most Detroiters don’t have any or at least not enough, with a median household income of $28,000 a year. That compares to about $46,000 for Michigan as a whole. The city’s unemployment rate stands at 16 percent and is probably well higher than that.

Dysfunction and Corruption

A loss of population has hampered Detroit’s efforts expand its tax base, much less manage the city government’s health care and pension costs. Annual deficits in the city’s operating budget have been climbing since 2008, and city services crippled by an aged computer system, poor record-keeping and widespread dysfunction have declined dramatically.

A culture and history of embezzlement and malfeasance in office has been sadly evident. Mayor Kwame Kilpatrick resigned in 2008 after pleading guilty to obstruction of justice. Earlier this year, Kilpatrick was convicted of running a racket while in office to enrich himself, friends, and family by shaking down city contractors.

Today, nearly 80,000 buildings are abandoned or seriously blighted and 40 percent of the street lights don’t work and 66 percent of ambulances are out of service. The average age of a fire station in Detroit is 80 years, which means most modern fire trucks could never fit inside.

The average police call response time in Detroit is 58 minutes, compared to the national average of 11 minutes. Keep in mind that Detroit historically has had among the highest homicides rates in America. So there will be blood.

And let me tell you that matters of quality of life, such as crime, and the proficiency of local government, such as garbage pickup and fire response time, do factor in corporate site selection. Government services are simply expected.

Kicking the Can Down the Road

Detroit is not unique in the sense that other cities have grappled with loss of industry, declining populations and mismanaged government finances. New York City in the 1970s came close to filing for bankruptcy.

But leadership matters. In Detroit, a political class arose that refused to see the writing on the wall and take their medicine by cutting costs. They kept spending, borrowing, making promises and kicking the can down the road, hoping the debt problem would somehow solve itself.

The result – obligations of between $18 billion and $20 billion among 100,000 creditors, according to the Chapter 9 bankruptcy filing on Thursday.

Pension debt makes up half of the shortfall, so it doesn’t take a great mind to realize that retirees on a fixed income will be taking a haircut. That may not be fair, but it’s going to happen. Just you wait.

A Time of Reckoning

But I believe this historic filing for bankruptcy should be viewed as an opportunity, but only if the city follows through. With the permission and guidance from the court, Detroit can take its medicine and then build upon a doable future. So this is a time of reckoning.

In the end, the city must reinvent itself. Pittsburgh might be worth studying. Leveraging its universities, Pittsburgh transformed itself as a biotech/health sciences hub after its steel industry collapsed.

I am not saying that biotech is the answer for Detroit. It probably is not. What I am suggesting is that there are likely existing ingredients present for a reinvention to be acted upon. This will be a long if not painful journey. Certainly, it was for Pittsburgh.

And because I want to see Detroit stop this downward slide into oblivion, I will pledge 20 hours of my consulting time gratis – no charge – to the proper economic development authorities. You should know how to reach me if so interested.

Positive Signs

But we are seeing some positive signs. While I have seen no definitive numbers, I hear that young people are moving to Detroit, largely because of cheap real estate.

 Dan Gilbert, chairman and founder of Quicken Loans Inc., has been steadily buying up downtown buildings and making large investments in mixed use development and quality of life improvements for the nearly 10,000 people employed by his portfolio of companies who live and work downtown.

So there is hope and proof that Detroit can work. But first this debt issue has to be resolved, a repayment plan has to be negotiated and enacted, and city government has to prove itself as viable and responsible.

Leaders Must Lead

Mayor Dave Bing, Gov. Rick Snyder and Detroit’s emergency manager, Kevyn Orr are intelligent men. But now they have got to come together and lead because those before them simply refused to make the needed tough decisions.

Gov. Snyder in particular impresses me as a man who wants to get stuff done. It may cost him his job (Snyder has an approval rating of less than 40 percent) should he seek re-election, but I believe he is trying to do what is right by his state and by Detroit.

Detroit remains the elephant in the room. You cannot divorce Michigan’s future prosperity from that of its largest city. Trying to do so would be a big mistake.

I have noticed that a culture of economic development really starts at the top. If a governor has a keen interest in economic development, a positive, can-do attitude is typically displayed, one that is infectious within the ranks of state and local economic organizations.

When a governor doesn’t show much interest in economic development, well, that too usually becomes quite evident and I’ve seen morale actually suffer within economic development communities.

I sense positive vibes coming from Michigan, now a right-to-work state. I cannot say with certainty that these positive vibes are because of Gov. Snyder, but he has not been shy about making changes.

Detroit cannot be shy about making changes either. This bankruptcy filing can be the beginning of a long journey, no doubt a tough one, in which the city can be reinvented and renewed.

Again, if I can help, well, I am here to help.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm in Plano, Texas —http://www.barberadvisors.com Telephone: 972-767-9518 Email:dbarber@barberadvisors.com

If your company needs an optimal location for future operations due to expansion or consolidation, we can help. If your community needs to improve its competitive standing by leveraging strengths and addressing weaknesses, we can help. All requests for information are considered confidential.

© Unauthorized use of this blog is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Dean Barber and Barberbiz with specific direction to the original content.

 

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  1. Very good thoughts this morning.

    Sent from my iPhone

  2. Detroit needs to accept that “motor city” is its past not future. Only then can leadership create a viable vision to revitalize the city. Pittsburgh successfully made the transition from over dependence on the steel industry. So, there is hope Detroit can do it as well. But, first it needs to let go of the past so it can wholeheartedly embrace the future.

  3. Dean- thanks as always for your insight. I’ll be in touch on those 20 hours ;-).

    Until then, I wanted to share a recent post from Forbes from Josh Linkner, a VC partner of Dan Gilbert’s – echoes some of the thoughts shared in your post, and also the comments above: http://www.forbes.com/sites/joshlinkner/2013/07/18/detroits-bankruptcy-paves-the-way-for-reinvention/

    And in case anyone else has questions on what exactly the bankruptcy means for Detroit, please feel free to see the following FAQ’s: http://blog.michiganadvantage.org/economic-development/get-the-facts-27-faqs-about-detroits-bankruptcy/

    Dusty Duistermars
    Manager, Site Location Services
    State of Michigan/MEDC

  4. Thanks Dean … glad you recognize the great strides Michigan has, and will continue to take!

  5. A tough love article. I will stand with Dean and donate 20 hours of my consulting time for what I can do from Texas also. I hope we get some Michiganites to help too.

  6. Thanks, Tim! You and Dean are both pulling at my heart strings… I may be a State of Michigan guy, but for seven years, I was a Detroit guy (still am at heart). As a broker a few years back I was doing my part to “save” the city: http://www.crainsdetroit.com/apps/pbcs.dll/dcce?Site=CD&Date=20080331&Module=10&Category=twenties08&Class=101&Type=2008Winners&ID=1024136&Selected=7

    We’ll be following up with you on your offer- Dean and I are connecting later today on how to “spend” his 20!

    Thanks- Dusty

  7. It is hardly surprising that politicians, bureaucrats and business gurus all blame each other however their misconceptions matter because they seldom if ever produce sensible policies. While not fancy, Investing and supporting public education along with removing barriers to entry (crime in particular) are important policies that actually help economic development. Policymakers who want to create the next Silicon Valley do more harm than good. Detroit instead of falling for another asinine business geek wonkish consultant needs to welcome more rules-breaking entrepreneurs that find worth in the worthless, possibility in the impossible and economic value where others see nothing.

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