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Thoughts on Cleveland

by Roger Bourke White Jr., copyright March 2010

Introduction

This essay was inspired by watching a video produced by Reason TV -- Reason Saves Cleveland With Drew Carey. In it Drew Carey, a Cleveland native, hosts a discussion of what's wrong with Cleveland today.

Cleveland has come a long way... the wrong way. In the 1950's it was the sixth largest city in the US with almost a million people and self-styled The Best Location in the Nation. Now in the 2010's, it is half that size, 41st largest city, and derided by wags as The Mistake on the Lake.

The video centers on two issues: poor schools which lower Cleveland's attractiveness to families, and expensive and meddlesome city government which sours the business climate.

I was born and raised on Cleveland's east side in the 50's and 60's, so I too am familiar with Cleveland in its boom time, and I'm another one of those best and brightest who left -- in my case in 1966 as I graduated from high school and started college.

I will add my thoughts to this issue.

 

The Boom Town

First off, Cleveland in the 1930's through the 1960's was a boom town writ large. The core of the boom was steel. Cleveland was situated within easy shipping range of iron ore, coal, and limestone -- the three bulky ingredients for steel making. Surrounding that steel making core were lots of other industries and jobs that were steel-related -- shipping, manufacturing, engineering, designing, and so on. Cleveland was the center of the Steel Belt, but steel was only the beginning, this area could just as easily have been nicknamed the Manufacturing Belt because all the fine finished products that steel was transformed into were made in this area as well -- the most famous of these being cars, which gave Detroit its nickname, The Motor City, often shortened to MoTown.

Steel making is what the Koreans call a 3D job -- difficult, dirty and dangerous. In Cleveland's boom time it was also a P job -- profitable! -- and that's why Cleveland boomed. In that era it was also high technology, only a few people around the world knew how to do it well. And in any era, steel making is capital intensive and polluting, it always takes a lot of money and infrastructure to make steel and there's always a lot of waste that must be dealt with.

So the Cleveland business climate boomed in a 3D+P, capital intensive, climate. This climate meant there were a lot of labor relations and land use issues, so unions and government thrived as referees. One early example of this city government protecting the people from price-gouging business profiteers was Mayor Tom L. Johnson building an electric power plant in 1907 -- Muni Light -- to compete with the private providers. The city took on many other tasks as well, such as running food markets and golf courses. As long as there were lots of profits to throw around, this situation of having the unions and the city government act as workers' protectors worked well.

Then in the middle and late 60's the US steel making and manufacturing booms sputtered and in the 70's the steel part imploded. Cleveland lost 14% of its population between the 1960 and 1970 census. The once profitable Steel Belt was renicknamed the Rust Belt, and things there haven't boomed ever since.

The question is: Why not? Why haven't Cleveland, Detroit, and other Rust Belt cities been able to reinvent themselves and thrive in the 21st century? This is a deep mystery because Cleveland had lots of business talent, lots of skilled workers, and certainly a lot of money to throw at the problem, and it's not that cities can't reinvent themselves -- New York City and London are two examples of cities that have done it many times.

So, why did New York City successfully reinvent, but Cleveland dropped the ball? That's what this essay is about, and here are my ideas.

 

The different nature of Information Age business

The 60's and 70's were a time of enormous change in America. The Baby Boom was in teenagehood then young adulthood, Civil Rights and Vietnam loomed large, and there was a swirl of other changes around these things.

One of the less noticed changes was that America's pioneer buyers' attention switched from manufactured goods to electronics. In the 50's adventurous Amercian consumers talked endlessly about the cars, TV's and household appliances they owned. In the 70's the adventurous Americans talked endlessly about the audio and TV systems they owned and in the 80's they talked about their personal computers. The Information Age grew upon us.

This same change was happening in business -- high technology was switching from meaning manufacturing to meaning electronics. And electronics businesses are quite different in their operating parameters from manufacturing businesses. Here are a few of the significant differences:

o They are not location dependent. They can set up shop pretty much anywhere.

o They are clean and comfortable, not 3D.

o They don't require a lot of capital -- they are light and medium industry, not heavy industry.

The consequences of these differences are enormous, and one big change is they change the definition of a favorable business climate.

For instance, when dealing with heavy industry, it's location, location, location. Once you put up a steel plant, and all the roads, railroads, docks, power lines and so on, that serve it, it's difficult and expensive to say, "Ummm... this location is no good anymore, let's move on."

So during 30 years of boom, all members of the Cleveland business community adapted to these successful heavy industry parameters and took them to be givens of how to do business. These included things such as strong unions, detailed work rules, detailed land use rules, and high taxes.

This is why Clevelanders in general were blindsided and dumbfounded when Information Age business people said, "The business climate here sucks eggs. Sorry, I'm setting up shop elsewhere." Not all Clevelanders were, but those who weren't were the best and brightest, who left to set up shop elsewhere.

A bit of personal experience here: I left Cleveland and ended up settling in Utah when I found Utah roads to be less crowded, the stores to open for longer hours, the people to be more friendly, and the woman and scenery to be unmatched! ...Oh and when I set up my computer retail store in 1977 (4th in the state) that was easy to do, too.

 

The role of the suburbs

Cleveland is ringed with large suburbs filled with prosperous people. This became even more so in the sixties and seventies when race riots, school bussing, and other civil rights issues soured the perception of livability in the city proper. Cleveland suffered from "white flight" as it was then called.

Two of the unfavorable consequences of this, as far as business climate was concerned, were the loss of taxpayers and the loss of profession class voters. The professionals could have provided a reality check when Cleveland politicians were making business-related choices on how to conduct their governing. Instead of voters providing the harsh reality check for politicians, it was new businesses not coming to Cleveland that did -- which left the politicians and citizens scratching their heads... even to this day.

In the late sixties many people in the Cleveland area recognized this as a problem. For a couple years there was support for a movement to grow Cleveland by annexing the surrounding suburbs. But the effort was fitful, and failed to even annex Linndale -- a two street-by-four street suburb that surrounded a railroad stop. It could have been successful. Columbus, the second largest city in Ohio, followed this annexing path and was much more successful.

Instead, as far as politicians were concerned, Cleveland remained a workers paradise.

 

Believing in government

More than most places the people of Cleveland believe that businesses live to screw people over. The city voters have a long history of supporting politicians who campaign by saying they are protecting working people from the abuses of business practices.

When a lot of the business is 3D+P, and you're living in the right location, there is justification for this attitude, and the profits of the businesses make this attitude sustainable.

But when the Information Age transition began, and a lot of other places in the world learned how to make steel as well as Clevelanders did, this way of thinking became expensively anachronistic.

It was a crisis time, and there was panic thinking, and there were blunders. For Cleveland the symbolic highlight of this anachronism came in the 1977-79 timeframe when then 31 year-old Dennis Kucinich was voted in as mayor on a populist platform. The symbol of harsh reality striking came when scared bankers pulled the plug on loans made to the above-mentioned Muni Light and forced the city into default.

But to this day there is a lot of legend swirling around Kucinich and his time as mayor of Cleveland. For many, he is still a hero and a government man who protects working people from business abuse. He's enough of one that he's still in office, now in Congress.

Protecting the working people is a nice idea... expensive, but nice... as long as location, location, location counts. But it's not an idea that holds up well when business can thumb its nose at all the protection by simply going elsewhere.

 

Conclusion

In the 30's-60's Cleveland had location going for it, and it boomed. In the 60-70's conditions changed, but the people of Cleveland were not light on their feet and they got blind-sided.

Cleveland had a lot going for it in that crisis period -- established businesses, skilled workers, and lots of money. But in the process of adapting well to the 3D+P environment of steel making and heavy manufacturing, the community lost flexibility. When the circumstances that brought the boom times changed, the social structures of the Cleveland area were too rigid to change into something new that would grow in the new environment.

So the Cleveland community split in two -- half stayed and half left. Those people who who stayed behind have been building an environment adapted to a 3D-lowP circumstance, and they've done pretty well at that. These were the people who wanted to keep seeing business as not trustworthy and wanted to count on government and unions to protect them. Those who left moved to various climates, many of which were better suited to the Information Age business climate, a climate in which things change around a lot more quickly, and workers do not feel that unions and governments offer as much protection.

Another way of saying this is that those who stayed wanted to keep living in a worker's paradise, and those who left wanted to be living in some other kind of paradise.

Update: this 17 Mar 12 Economist Shumpeter article, The View from Liverpool, talks about Liverpool experiencing the same problem. From the article.

"The first is that entrepreneurial economies can be destroyed by ill winds or bad policies. The second is that the cost of such destruction is high, especially because decline becomes self-reinforcing. The third is that the flame of enterprise is hard to rekindle when it has been snuffed out.

Liverpool was once one of the most enterprising cities in Britain, a shipping superpower with a thriving network of insurers and trading houses. Liverpool invented financial derivatives, in the form of cotton futures. It created Britain’s first underwriters’ association, its first accountants’ institute, and its first intercity railway (to Manchester). In 1800 two-fifths of the world’s trade passed through the city. At various points over the next century the empire’s second city was wealthier than its first, London.

But in the 20th century, as Britain’s trade swung away from the Atlantic towards Europe, the city got into the habit of resisting innovation rather than embracing it. Liverpool became a hotbed of militant trade unions, which hastened the decline of the shipping industry (by striking against containerisation, for example) and almost wrecked the municipal government. It also lost most of its best and brightest: the Beatles may have revolutionised the music business with the Mersey sound but they soon migrated to London. Liverpool’s story has been repeated endlessly across the world: think of Detroit or Buffalo or Cleveland in the United States. And there is no reason to think that it will not be repeated again in the information age."

Update: This 5 Sep 12 Forbes article, Broken California: Wasting Money and Hurting Business by Gary Shapiro, talks more about how California is following the Midwest into making life expensive for business by building up taxes, entitlements, rules and regulations. And the effects are starting show up. But California citizens, like those of Cleveland, Detroit and Liverpool before them, are paying little attention to the stampede of innovators headed for the exits. Instead of seeing crisis that needs to be corrected in the city bankruptcies of Stockton, Vallejo, Mammoth Lakes and San Bernardino they see the glory of reviving San Fransisco and are complacent.

From the article, "California workers might find it harder to find jobs because so many businesses are fleeing the state to find more economic stability. California ranks as the third worst state in the country in terms of job migration with a net outflow of jobs that is one percentage point greater than the flow of jobs into the state. When comparing the ratio of jobs created by new businesses compared to jobs eliminated by firms going under, California ranks 34th."

Update: The Detroit bankruptcy of 2013 shows the Midwest Disease is still stalking the Midwest. This 23 July 13 Reason article, Why Detroit Won't Have a Second Act: Crony capitalism and crushing regulations kill entrepreneurs by Shikha Dalmia, indicates that powers-that-be in Detroit still have a blind spot for the basic problem: Too much emphasis on prescriptionism. "Until the city’s politicos treat its humble entrepreneurs with the same respect they show big investors, Motown’s second act will never arrive."

Update: Some further thoughts of mine on this issue: In a surprising twist, how widespread home ownership has made the crisis worse.

 

-- The End --

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