Aug. 16 (Bloomberg) -- From barnstorming across the country to pitch his economic agenda, President Barack Obama knows that middle-class voters have little appetite for bailing out Detroit, the largest U.S. city to file for bankruptcy.
The Motor City is the poster child for virtually every urban ill that sent middle-class Americans scuttling to the suburbs in the middle of the 20th century: racial animosity, economic collapse, dysfunctional schools, an incompetent and corrupt local government, and the truculent hopelessness of the abandoned poor. The scale of Detroit’s debacle is unique, but you can find alarming similarities in urban areas from Rhode Island to California.
The president is right to argue that creating jobs for skilled workers with wages that put them comfortably in the middle class is the way forward for urban America. But like Detroit, too many cities lack the capital to create such positions. Helping cities raise money and attract a young, intelligent workforce will require governmental activism coupled with extraordinary restraint.
In Detroit, one solution that can be implemented immediately would be the creation of hybrid local-government structures -- perhaps under joint-powers agreements with the state or nearby counties -- that can sidestep the embedded and corrupt bureaucracy that bedevils the city.
Consider a city in which power devolves to neighborhoods or boroughs, relegating decision-making to the community level. In such a system, rather than operating as a centralized city, Detroit would function as a federation of communities in which the greater municipality is responsible for developing neighborhood laboratories of commercial innovation. These experimental neighborhoods would be free to tailor their public services and land-use policies to meet specific needs. Because the communities would be responsible for smaller areas of land, they could more easily deal with the issues that plague Detroit, such as redevelopment, security and road maintenance.
If these communities were properly structured, Detroit would have a recharged tax base, one no longer dependent on a single industry -- automotive -- and its subcontractors. A decentralized system could more effectively use whatever public funds are available to attract employers from different industries. This diversity would generate new revenue that would have to be shared by the existing city administration and the newly created communities, according to a negotiated formula -- a process that would almost certainly require state oversight and mediation.
This is where the government would intervene. Like Detroit, the entire state of Michigan suffers from fleeing capital -- both financial and human. The latter includes graduates of the state’s highly rated universities who leave to seek opportunities elsewhere. One of the things Michigan Governor Rick Snyder -- the former chief executive officer of Gateway Inc. who memorably ran for office as “one tough nerd” -- has done is to establish Develop Michigan, a nonprofit organization that places relatively small amounts of public money into privately managed investment funds.
These small investments by the state have convinced private investors, pension funds and insurance companies to provide the rest of the money for Develop Michigan’s projects. Using this system, which is run by veterans of the Riordan administration in Los Angeles, the state has been able to leverage a few million dollars of public money into a quarter of a billion dollars in private financing. This is money that investors haven’t otherwise been willing to lend, no matter how worthy the project.
Michigan’s investments are also attracting the skilled workforce that mid-sized companies need to fuel the city and the state’s recovery. Young, educated workers have already begun drifting back into parts of Detroit’s urban core over the past few years.
Once the terms of Detroit’s new municipal system are established, it wouldn’t take much reinvestment before decentralized communities can use this funding to develop hubs devoted to technology, business-to-business services or the arts -- cheap rents are the foundation of bohemia. Most plausible would be the advent of new districts that draw on Detroit’s rich history of industrial design. To begin to address Detroit’s chronic unemployment, the central city government could use some of its revived tax revenue to fund retraining programs specifically geared to the needs of whatever new companies take root in the surrounding communities.
The most fruitful innovations will occur in ways we can’t foresee. None of this will happen, though, if reinvestment comes with the usual strings attached. Public financing has a crucial role to play, but the government must also be willing to step out of the way.
Once a model of industrialized efficiency, Detroit is now a tragic example of urban decline. The city has nothing to lose by innovating, and experience elsewhere suggests there is a lot to be gained. If it succeeds, Detroit could soon become the model of post-industrial recovery.
(Richard J. Riordan, a lawyer, investor and philanthropist, was mayor of Los Angeles from 1993 to 2001. Tim Rutten is a columnist for the Los Angeles News Group.)
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