The Rise and Fall of Detroit – A Valuable and Tragic Lesson

Detroit in the 1800s

detroit_1855_60_jefferson_biddlehouIn the 19th century, Detroit, like the rest of the United States, offered people an environment of almost complete economic freedom. In Detroit, there was a city government, but for all intents and purposes, its only role was to provide police and a court system for criminals.

There were no federal taxes and local taxes were minimal. There were no minimum wage laws, very few regulations on business, no welfare, no unions, no Social Security, no Medicare or Medicaid.

How did people live in Detroit without government programs?

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Poor immigrants moved to Detroit, worked hard, started businesses and provided goods, services and jobs to the community.

For example, in 1881, Joseph Hudson opened a small clothing shop at the Detroit Opera House. In just 10 years he had 8 stores in the midwest and was the most profitable clothing retailer in the country.

Children’s schooling took place in teachers’ homes and parents paid teachers directly. No one expected to be taken care of, and Detroit’s families proved to be quite capable of taking care of themselves. Private charities took care of orphans, the sick and the disabled.

Free from the burdens of government taxation and regulation, the increase in the quality of life in Detroit (along with the rest of the U.S.) from 1800 – 1900 was dramatic, especially for the poorest, who found opportunity in abundance.

Word spread around the world, and in the fifty years from 1850 to 1900, Detroit’s population swelled over ten times larger.

The Beginning of Motor City

Ten Millionth Model T come off the lineIn 1903, a man named Henry Ford, born on a farm to a poor Irish immigrant father and orphan mother, started a company to manufacture automobiles. After failing twice, the third company survived, and thrived.

Today, we would say Ford’s factories fit every classic description of “worker exploitation”– long working hours, working conditions of questionable safety, and while Ford himself became filthy rich (his net worth at death was greater than the three richest people in the world today combined) he paid his workers only a few dollars per day.

Yet the job opportunities Ford offered at the Ford Motor Company drew hundreds of thousands of people to Detroit from from the Midwest and South, from the shipyards of Scotland and England, and from Greece, Italy, Mexico and Lebanon, among many other countries.

Voting with One’s Feet

One crucially important data point when studying history is how people “vote with their feet.” This phrase refers to the obvious fact that people often move from one place to another if the new place offers them a better life.

Reality check: If Ford and other Detroit area businesses were truly exploiting workers, then after finding out how horrible the working conditions were, wouldn’t people have quit and gone back to the better lives that they left?

detroit-statlerbookwashBut this didn’t happen. In fact, workers sent for their whole families, and told their friends to move to Detroit as well. In the fifty years after Ford opened his first factory, Detroit’s population skyrocketed from 285,000 to over 2 million.

The massive influx of people to Detroit, and the theory that Ford exploited his workers, are contradictory. Unless the population stats are wrong, one can only conclude that Ford and other Detroit-area businesses offered people much better lives than they had from whence they came.

Is the fact that Better and Better was not Perfect justify the destruction of a city?

UnionPosterSome progressives might acknowledge that the hard work, innovation and entrepreneurship of Ford and other Detroit-area business owners offered workers far better opportunities than they had elsewhere.

However, some would still contend that the people of Detroit would be even better off, by adopting more government regulations, strong unions, bigger government, higher taxes, and more government programs.

Detroit gives us a perfect, though tragic, laboratory to test this theory.

The Richest City in the World

detroitRising on a tide of free market economics, by the 1920s, Detroit became the richest city in the world. The combination of entrepreneurial innovation, low taxes and minimal regulation had created a thriving economy where even the poorest had a standard of living that was the envy of most of the rest of the world.

For example, almost everyone could afford a car, as the Ford Model A cost only $385 ($7,000 in today’s dollars, about a third of an entry level car today).

Detroit had the highest median income, and highest rate of home ownership, of any major U.S. city. American entrepreneurship, innovation and greedy capitalism had created a fountain of money for all to share.

Bridge in the woods, Belle Isle Park, Detroit, 1900-1906In contrast to the U.S. in 2014, where it is a struggle to raise a family even with two parents working, in early 20th century Detroit, even the lowest paid factory workers could easily support a family with only one wage earner. And it was even common for factory workers to be able to afford to buy a family lake cottage for vacations.

Think about that– exploited factory workers who own lake cottages.

In Ford’s greedy quest for ever higher profits, he decided to offer a $5 daily wage, a substantial increase over the average pay for industrial workers. He did this not due to coercion, but in order to steal the best workers from competitors and build a highly productive and loyal workforce. It was a calculated gamble that paid off. While not an outrageously high income, it’s interesting to note that this wage was higher in today’s dollars than the median salary in the U.S. today.

So What the Heck Happened to Detroit?

Free market advocates believe that laissez-faire economics naturally work to constantly improve the standard of living for everyone, especially the poorest. So, being the bastion of free market capitalism the city was, why did Detroit not continue rising in prosperity throughout the 20th century to become an even richer, even more prosperous 21st century paradise?

What happened?

The Destruction of Detroit Begins

Strike-IIIn short, the leeches smelled blood. The massive success of the auto industry attracted a different type of greed, people who did not want to earn their money by the hard work of free enterprise, but by force, which is far easier.

The United Auto Workers Union was formed, and in collusion with Detroit government, forced auto manufacturers to pay auto workers ever higher salaries, while also fighting to reduce workers’ productivity and value to their employers. After a few decades, UAW members were costing their employers $130,000 per year, including benefits and pensions, for a minimally productive 35.5 hour workweek.

WPR: Marches & PicketsFrequent strikes that caused massive losses, and ever more onerous union rules and regulations decimated auto manufacturers’ profits and resulted in huge increases in labor costs.

Obviously, as a result, U.S. automakers became bloated and inefficient, and were forced to substantially raise car prices to survive, opening up a huge opportunity for automakers in Japan, Germany and elsewhere, who were able to easily gain ever greater U.S. market share.

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U.S. auto manufacturers, who were previously very happy and thriving in the Detroit area, were forced to flee the city, building factories in other, less-unionized areas of the U.S., then Canada, Mexico and other countries in a desperate attempt to survive.

After capitalists worked for a century to create almost a quarter million manufacturing jobs in the Detroit area, government and unions were able to destroy 90% of those jobs in less than 50 years.

The Rise of Detroit Big Government

Not to be outdone by the unions in the destruction of prosperity and standard of living, Detroit’s city government boosted home and commercial property taxes to the highest in the country. City government exploded until over 1 in 15 residents worked for the city. Salaries and benefits for city employees, along with pension contributions and benefit payments, grew to enormous proportions.

Whereas in a past era, Detroit workers may have been grateful for the opportunities offered to them by those willing to take the risk and responsibility of starting businesses, decades of anti-capitalist rhetoric by unions and government created a culture of bitter worker resentment where business owners and managers were viewed as the enemy, exploiters of people instead of inspirations and creators of opportunity for others.

The fact that any employee was free at any time to quit a job and seek better employment, or start a business themselves, became buried in the torrent of propaganda spread by those who profited the most from class envy and warfare– union and government leaders and employees.

Government Unemployment Insurance and Workman’s Compensation departments sided overwhelmingly with workers, as well as juries in discrimination lawsuits, making it more expensive to fire incompetent employees than to simply continue to pay them to do little, leading to ever lower productivity and a unmotivated, lazy workforce. Unions circulated pamphlets warning members against working harder, lest union job losses result. Obviously, these efforts eventually resulted in the total destruction of the U.S. auto industry.

data-driven-detroit-population-chart-of-detroitDetroit taxes per capita, double that of even nearby cities, caused taxpayers to flee the city.

The population of Detroit plunged by two-thirds– by almost a million and a half– since its peak.

The Curley Effect

Most of the credit for the destruction of Detroit goes to what has been called “The Curley Effect.”

Here’s how the Curley effect works (paraphrased from this article):

Let’s say a mayor wants to stay in office and maintain power indefinitely. One very effective plan is to advocate and adopt policies that bestow generous tax-financed favors on unions and the public sector.

Obviously, these beneficiaries then give this mayor their electoral support, that is, votes, campaign contributions, and get-out-the-vote drives.

Meanwhile, the skyrocketing taxes needed to fund the political favors triggers a flight of tax refugees to leave the cities for suburbs or elsewhere. This reduces the number of political opponents on the city’s voter registration rolls, thereby consolidating an electoral majority for the anti-capitalist party. It also shrinks the tax base of the city, even as the city’s budget swells, making the city ever more dependent upon government.

The inevitable bankruptcy that results from expanding expenditures while diminishing revenues can be postponed for decades with the help of state and federal subsidies (“stimulus” in the Obama vernacular) and creative financing, but eventually you end up with cities like Detroit.

Post-Capitalist Detroit

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In Detroit today, called by Harvard scholars Glaeser and Shleifer “the first major Third World city in the United States,” sixty percent of children are living in poverty. Thirty-three percent of Detroit’s 140 square miles is vacant or derelict. Eighteen percent of the population is unemployed, a higher rate than Zambia, Dominican Republic or Libya.

detroit-schoolTens of thousands of buildings– homes, hospitals, schools and businesses, now stand empty, ghosts of a prosperous past when greedy capitalists- not government and unions- ruled the city.

detroitMany neighborhoods are like lawless jungles, ruled by gangs and violence. Four out of the top seven most dangerous U.S. neighborhoods are in Detroit. There is an amazing pictorial combining pictures of past and present Detroit here.

Not surprisingly, with Detroit government-run schools spending thousands more per student than the national average, almost half of Detroit residents are now functionally illiterate.

Detroit has now run up $20 billion in debt and unfunded liabilities, breaking down to over $25,000 per resident. The city declared bankruptcy in 2013 and not many people expect solvency anytime soon… or ever.

(It’s no coincidence that the constant progression towards a centrally-controlled economy has resulted in the richest city in the U.S. becoming Washington, D.C., where politicians and the politically connected live the high life at everyone else’s expense.)

Detroit was certainly not perfect in 1800s and early part of the 20th century. But the constant improvement in quality of life in an environment of economic freedom was undeniable. Life in Detroit was, simply put, continually getting “better and better.”

It is a wonderful fantasy to think that adding powerful government and unions would improve Detroit citizens’ lives further. But it is unarguable that, in fact, the opposite occurred.

What is Detroit Government doing now to encourage the kind of entrepreneurship that built the city?

detroit-8If anyone were to still disbelieve that Detroit’s government is anti-business, anti-entrepreneur, or anti-job, you need look no further than their newest initiative.

Rather than allowing the few hardworking capitalist entrepreneurs left in Detroit to undertake the long, arduous task of rebuilding the local economy, astoundingly, in an area where less than half of the residents over the age of 16 have jobs, the city government’s newest plan is to declare all-out war on any remaining job creators, announcing a new program called “Operation Compliance”– an all-out Soviet-style purge on the type of entrepreneurialism that built the once-great city.

Detroit has announced their intention to shut down 20 businesses each week and more than 900 have either been closed or are in the process so far.

Watch the sad video below to see how the few remaining heroes in Detroit, small businesspeople trying to survive and provide the community with services and jobs, are being systematically persecuted by the all-powerful Detroit government:

The press release announcing the program in January 2013 ridiculously said: “An example of an illegal business is an appliance resale shop operating in an area that is zoned for retail.”

A thorough study of Detroit’s history clearly reveals the vast difference in standard of living between a capitalist free market economy, and one under progressive government and union control, teaching us a cautionary and tragic lesson.

The Solution – A Happy Thought

Despite the horrible and worsening conditions, if I were mayor of Detroit, I know exactly what I would try to do to restore Detroit’s greatness.

I would ask that Detroit and some surrounding suburbs be declared a “Free Zone.” Businesses operating in the Free Zone would pay no taxes and be subject to only the most common sense regulations. Personal income would have reasonable local taxes taken out to fund local infrastructure, police, fire, and education vouchers, but Free Zone residents would be exempt from Federal taxation. Unions, or any kind of collective bargaining, would be illegal.

If people had confidence that the Free Zone would survive, with Detroit commercial and residential property values close to zero, with these tax incentives, there would be a massive influx of capital and entrepreneurship that would rapidly make Detroit a great place to live, and before long, the richest city in the world once again.

More Cities Capitalism Built and Progressivism Destroyed

The ten poorest U.S. cities with a population of at least 250,000 are Detroit, Buffalo, Cincinnati, Cleveland, Miami, St. Louis, El Paso, Milwaukee, Philadelphia, and Newark.

Besides all having poverty rates between 24 percent and 32 percent, these cities share a common political factor: Only two have had a conservative mayor since 1961 (and those two (Cincinnati and Cleveland) haven’t had one since the 1980s).

Union_Poster_Spread_Detroit_xlargeProgressive mayors have successfully been able to maintain a stranglehold on the City Halls of these cities by increasing taxes and regulations to the point where businesses and taxpayers are forced to flee, leaving a poor voting majority without job opportunities and dependent on government, meaning the electorate will continue to vote progressive mayors into office in order to survive, leading to widespread devastation, poverty, hopelessness and government dependence.

In short, the progressive mayors of these cities maintain power by slowly destroying these once-great and prosperous cities.

Could the “Curley Effect” happen to the entire U.S.?

SRindexofdependenceongovernment2013chart3400Currently, 49.2% of Americans receive some type of government assistance, so we are dangerously close to the tipping point.

Once over 50% of U.S. voters become dependent on government, the Curley Effect will rear its ugly head on a national basis, leading to a widespread flight of taxpayers and business owners leaving the U.S. for more business-friendly countries.

Next time you are tempted to vote for a pro-union, pro-big-government politician… think of the devastation and life-destroying results these policies have wrought on the poor men, women and children of Detroit.

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18 thoughts on “The Rise and Fall of Detroit – A Valuable and Tragic Lesson

  1. Josh, this article is probably one of the most concise explanations of what happened in Detroit that I have ever read.
    I wish that you would send this to some publications with a wider audience so that more people could read it and have some understanding of that fact that as goes Detroit, so goes the rest of the country.
    It’s so very frustrating when you understand the concepts of capitalism and can’t understand why progressives are so opposed to it. The only explanation, and the dirty little secret is that progressives aren’t interested in helping the underclass, but in controlling them.
    You have a way of communicating and writing that I truly admire. Well done. I hope you continue to spread the word.

  2. Reblogged this on Foodforthethinkers's Blog and commented:
    My only criticism here is that every major U.S. city is in the hands of progressives. Consider Boston, NY, DC, Chicago, Denver and San Francisco. A conservative can’t be elected dog catcher in any of these places. In Detroit, however, big government and unions just ran wilder than elsewhere.

    In any case, there is much worthwhile reading here.

    • Thanks for your comments and reblogging. In Detroit, I think it was that once Ford and others figured out how to make affordable cars the whole world wanted them, and so it was due to the spectacular success of the auto industry that the sharks smelled blood and attacked there more than elsewhere.

      But you are right, the new Mayor of NY has announced that inequality (not poverty) is the problem. I fear for NY!

  3. This was so informative, so plain and simple to understand, thanks for the history lesson. If only. It’s so interesting to see how governments actually don’t benefit the people. Thanks for your work.

  4. So much useful information – and so well explained. I have been surfing the net to find something about the Rise & Fall of Detroit, but I haven’t found anything as complete as your article.

  5. Josh. I enjoyed reading your article and seeing the photos of a once great city. Having grown up in Detroit during my younger years and seeing what a great city it once was I can speak from sincere experience the downfall of The Motor City is very complex. I also work in the manufacturing community, selling CNC Machinery to what is left of our manufacturing industry in Detroit. Unions had a place and purpose in the early days of manufacturing for many obvious reasons. However, today they are bloated, inefficient, and cost more jobs than they save. I see it first hand as I visit shops that are union versus non-union shops. I would need a lot more space than these few lines to detail what I see first hand.
    However, the biggest cause for the manufacturing base to leave Detroit was the inception of NAFTA. We should have heeded Ross Perot’s words when he stated “That great sucking sound will be the manufacturing jobs leaving America.” He was spot on.
    The sad reality now is that the younger generation does not want to work in the manufacturing industry. They think it is too dirty, too hard, and is rarely even considered amongst these millennials. I know of literally hundreds of small tool and die shops begging for workers, entry level workers, who can start out making $12-14.00/hour and LEARN A TRADE. Rarely do people apply for these jobs, and those that do cannot pass a drug test, or simply don’t show up for work after a few days. The millennials are truly the laziest generation our country will ever see. Their lack of work ethic is simply astounding.
    That being said, I see a great rebirth taking place in Detroit right now. We have begun a process that will allow my children hopefully the opportunity to enjoy a city that I thoroughly enjoyed as a child. We have a long way to go, but we are making steady, consistent improvements and I look forward immensely to the future of Detroit.
    Thanks for a thoughtful and interesting article. Next time you’re in the Motor City and you want see the real manufacturing community first hand look me up.
    Sincerely,
    Dan

    • Thanks for your comments, Dan! Interesting that the tool shops cannot find workers with the unemployment levels.

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