Detroit in the 1800s
In the 19th century, Detroit, like the rest of the United States, was an environment of near complete economic freedom. Detroit had a city government, but it was small and fairly powerless.
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 fare in Detroit without government programs and unions?
Poor immigrants moved to Detroit, and like in other U.S. cities, found opportunities for a far better life than the ones they left behind. They worked hard, started businesses and provided needed goods and services to the community.
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 1850 – 1900 was dramatic, especially for the poorest. Word spread around the world, and in the fifty years from 1850 to 1900, Detroit’s population swelled ten times larger.
The Beginning of Motor City
Henry Ford, born on a farm to a poor Irish immigrant father and orphan mother, started a company to manufacture automobiles at the dawn of the 20th century. 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 dozens of other countries around the globe.
“Voting with One’s Feet”
The phrase “voting with your feet” in a historical sense often refers to people’s tendency to relocate to a new area or country to seek a better life for themselves and their families.
Reality check: If Ford and other Detroit area businesses were truly exploiting workers, then why did so many people pick up and move thousands or tens of thousands of miles to Detroit? Why didn’t they turn around and go back to where they came from?
The truth is that workers came to Detroit and after working in a factory for a period of time, saved enough money to relocate their entire family. 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. The huge growth in population is incontrovertible evidence that Ford and other Detroit-area businesses offered people much better lives than they had previously. To maintain that providing people with a far better quality of life is exploitation renders the term meaningless.
The Richest City in the World
Rising 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 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.
In 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 one wage earner. And it was common for factory workers to afford to buy a family lake cottage for vacations.
Imagine 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, double the average pay for industrial workers. There were no minimum wage laws, union negotiations or strikes. Ford did this not due to coercion, but in order to attract the best workers and build a highly productive and loyal workforce. It’s interesting to note that this wage was higher in today’s dollars than the median salary in the U.S. today.
Stronger government, more regulation, and unions would make life in Detroit even better, right?
It’s undeniable that Detroit-area business owners offered workers far better opportunities than they had elsewhere.
However, some would imagine 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.
What Happened?
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
The massive success of the auto industry attracted people who were not interested in earning money by working hard to provide a valuable product to others, but by parasitically inserting themselves into the cash flow of successful companies and workers by force.
The United Auto Workers Union was formed, and in collusion with Detroit government, worked to gain control of the auto manufacturers’ relationships with their employees, while also fighting to reduce workers’ productivity and value to their employers. After a few decades, semi-skilled UAW members were costing their employers $130,000 per year, including benefits and pensions, for a minimally productive 35 hour workweek.
Frequent strike, causing massive losses, and ever more onerous union rules and regulations decimated auto manufacturers’ profits and resulted in massive increases in labor costs, forcing manufacturers to raise car prices artificially, making it harder for poorer families to afford an automobile, as well as making the U.S. auto industry vulnerable to foreign competition.
As U.S. automakers became bloated and inefficient, less regulated automakers in Japan, Germany and elsewhere were able to easily gain ever greater U.S. market share.
U.S. auto manufacturers, who were previously thriving in the Detroit area, shut down Detroit factories and built new factories in other, less-regulated areas of the U.S., then Canada, Mexico and other countries in their attempt to escape government and union oppression.
After capitalists created 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 ridiculous excess.
The Detroit culture also experienced a sea change. For the past century, Detroit workers were grateful for the opportunities offered to them. But decades of anti-capitalist propaganda by those who profited the most from class envy and warfare — 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.
Government Unemployment Insurance and Workman’s Compensation departments sided overwhelmingly with workers, making it actually 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. Eventually, these efforts resulted in the destruction of the U.S. auto industry.
Detroit 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, but eventually the Curley Effect destroys cities, no matter how prosperous they were in the past.
Post-Capitalist Detroit
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.
Tens 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.
There is an amazing pictorial combining pictures of past and present Detroit here.
Many 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 are areas where a 911 call to police can take hours, and often, police will never show up.
Not surprisingly, even 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.
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 the truth is that the opposite occurred.
What is Detroit Government doing now to reverse course and encourage the kind of entrepreneurship that built the city?
If 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 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 government and union control, teaching us a cautionary and tragic lesson.
The Solution
A few politicians are working to declare parts of Detroit “Opportunity Zones,” with major exemptions from regulation and taxation, to try and help rebuild the local economy, but the resistance to such efforts is massive.
More cities capitalism built and government festroyed
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 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).
Leftist 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 productive businesses and taxpayers are forced to flee, leaving a poorer voting majority without job opportunities and dependent on government, meaning the electorate will continue to vote leftist mayors into office in order to survive, leading to widespread devastation, poverty, hopelessness and government dependence.
In short, the leftist 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.?
Currently, 49.2% of Americans receive some type of government assistance, so we are dangerously close to the tipping point.
Once well over 50% of U.S. voters become dependent on government, the Curley Effect could 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.
Trying to make sense of the obvious 