by Roger Bourke White Jr., copyright January 2012
This article was inspired by reading a 7 Jan 12 editorial in The Economist, Global Finance: Save the City, cautioning about London losing "The City" as a prime financial district. Ironically, the threats facing The City sound quite similar to the threats facing Wall Street -- onerous taxes and regulations and immigration policies that discourage the brightest and best from setting up shop in those locations.
Another part of the threat is a community image of "What we are." The editorial states that British politicians and part of the British community want Britain to be a premier manufacturing haven, and to them being a premier financing haven is not nearly as important. This despite the fact that exporting financial services is providing about 3% of the GDP to the UK.
This image of What We Are is important. Over the long term, it's the difference between a community experiencing exceptional progress and stagnation. The example I'm most familiar with concerning this is the economic fate of America's Midwest region over the last seventy years.
I was born and raised in Cleveland, Ohio in the 1950's and early 60's. As I grew up Cleveland was part of the Steel Belt -- a rich and prosperous region that thrived on making steel and steel-related products such as autos and household appliances. The area was experiencing a boom, but it felt like a diversified economy boom because there were so many companies and so many different kinds manufacturing going on -- steel is a versatile material.
And the boom produced substantial material benefit. Cleveland, and the rest of the Midwest, created a lot of money and a lot of talent in the first half of the twentieth century. It was home to the brightest and best of the mid-twentieth century. And I mean this quite literally -- Europe and Japan were recovering from the devastation of World War Two and East Asia had yet to experience its miracle economies.
It was the best, and populated by the brightest, and there was plenty of money sloshing around to invest in the Next Big Thing (NBT) whatever that might turn out to be. Along with the money there was plenty of skilled talent of all sorts that could invent necessary products and infrastructure and then retrain to jump on that next band wagon.
But instead of finding and jumping on that wagon, the region blew it... big time!
Instead of catching the NBT, the core cities of the region steadily declined in both population and wealth. By 2010 Cleveland had declined in population from 5th to 41st in the US and Detroit from 4th to 18th, and they were not exceptions. In the 1980's the nickname for the region changed from Steel Belt to Rust Belt as the steel industry collapsed and nothing replaced it.
What happened?
In a nutshell, the brightest and best left to pursue the NBT in places such as California. (the NBT turned out to be electronics and computers) And the NBT jobs followed them, and the ambitious people of the Midwest followed the jobs. Meanwhile, the people who remained were left scratching their heads. Instead of figuring out how to keep and pull back the ambitious, the city and state leaders of the region have, for fifty years now, backed government-sponsored redevelopment failure after redevelopment failure.
Why was this acceptable? Why didn't the remaining community members call, "Bullshit!" on these serial failures and do what was necessary to turn the tide?
The core problem was a failure of image. A failure to pick the right image of "What we are." The people of the Midwest got distracted from concentrating on what was important to keep building business, and instead they paid their serious attention to other issues. In analogy, much like a child of a rich family, the people of the Midwest took their prosperity for granted and rather than staying focused on growth they became distracted.
The primary distracter was social justice. The people of the Midwest got more concerned with being fair than being prosperous.
To be fair, there were compelling reasons why social justice could become an important topic in the Midwest of that era. Capital intensive industries -- heavy industries -- such as steel making, railroading, mining and construction -- have difficult, dirty and dangerous working environments. It's not easy or fun to do these activities, so making the working environment better was easy to pay attention to. This lead to the rise of unionism, and unionism lead to the rise of elaborate work rules.
Sadly, because of the social conflict that swirled around the establishing of unions and collective bargaining, these rules were easier to establish than to change. As the technology progressed in these industries, the work rules did not keep pace. The growing irrelevance of these work rules was recognized by both workers and management to the point that these irrelevant rules gained nicknames such as featherbedding. But in established industries of the Midwest the fight to get the rules in the first place had been so painful and scarring that neither side wanted to take up the issue again and adjust the rules to current reality.
A side note: A large part of the scarring was the loss of enfranchisement -- the feeling that we are all in this to make things get better. The more business relations became "Us versus Them" (worker versus boss being just one example) the more rigid both sides became on these rules. And disenfranchisement grew. The more the attitude of doing business became, "What's in this for me?" (a feeling of disenfranchisement) the harder these problems became to fix. Part of what made this rigidness sustainable was the capital intensiveness of these industries -- in heavy industries it is easier to give in to the rigidness than move the industry. (Here is an article about disenfranchisement happening in the NYC transit industry.)
Further note: This is a big difference between high tech industries and heavy industries, and this difference is what bit the Midwest, hard.
Back on topic: This habit of elaborate work rules spread to the governments. The community that became used to elaborate work rules became used to governments establishing agencies that imitated elaborate work rules. Agencies such as zoning commissions and inspection departments of all sorts steadily became more common. Sadly, these too became afflicted, first with irrelevance, and then with disenfranchisement.
And then the cancer went a step further. Local politicans and bureaucrats would now envision themselves as mentors who would guide aspiring business people through the intricacies of the elaborate rules and regulations they had established (they would help cut red tape). When they did this they were... government officials picking winners! The Midwest cities transformed into a central planner's wet dream! They are full of social justice! They are full of workers paradise! And they are still this way to this day!
In the Midwest the answer to, "What we are." became, "We are pursuers of social justice." ...That is, when disenfranchisement doesn't muck up the mix with lots of cheap shot abuses and CYA (cover your ass) tactics.
Not everyone was distracted with this search for social justice. But those who weren't, those who were ambitious, those who wanted to exploit the next big thing... left. They went first to places such as California in 70's then to Texas in the 00's -- places where the rigid rules necessary for social justice, as envisioned by those who remained, were not considered necessary. There was more freedom in business thinking and more freedom in how to organize an enterprise.
And this is the moral of the Midwest Story: Social justice is nice, but its foundation, its necessary foundation, is prosperity. Social justice is like the child of rich parents. It must be careful that it doesn't overcook its own goose, because when it does, its shine will be short-lived. And, sadly, those who live with the decline won't see it for what it is. The loss and the reason for it will be a blind spot for them.
This is why the question of "What we are." is so vital. As long as "being prosperous" is high on the list of our community awareness we will be OK. If it moves too far down the list, we will contract Midwest Disease and how much we long for more social justice becomes irrelevant because we can't afford it.
-- The End --