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A Surprise Twist of Home Ownership: Discouraging Progress

by Roger Bourke White Jr., copyright November 2014

Introduction

This is one of those cases where good intentions have gone seriously bad. It's a surprising one, too. Since the turn 20th century one of the basic assumptions of both communities and governments is that widespread home ownership is good for America. Basically, a home owner is going to have more vested interest in supporting America than a non-home owner, and be happier at being one. For these reasons home ownership has been constantly encouraged over the last hundred years by numerous government programs.

But, it turns out there is a dark side to widespread home ownership. That dark side is resisting disruptive changes that would make the community a better place. This dark side is at the root of the Midwest Disease that I have written about extensively.

The Details

This editorial was inspired by a book I read for my history class this year, "The Origins of the Urban Crisis" Race and Inequality in Postwar Detroit by Thomas J. Sugrue. The thesis of this book is that racial discrimination in Detroit lead to both a housing crisis and a jobs crisis. In the case of housing a collusion of federal and state regulators, bankers, real estate agents and white-based community organizations kept blacks housed in small, poor, segregated neighborhoods. In the case of jobs, it was the result of racially-sensitive employers and unions. The result was only a few companies in the Detroit area hired blacks, and when they did they put them in low-paying, dirty service jobs, such as janitorial work. They did not advance them into better paying, higher skilled occupations and few got the benefits of seniority.

When Sugrue talks about Detroit's deindustrialization, the first on his list of causes is automation. He argues that automation sucked jobs out of Detroit and put them elsewhere, and in the process also sucked power out of the unions. This combination sucked earning power out of Detroit's inhabitants and that was the root of the decades-long crisis.

What he doesn't talk about is the harsh reality that, overall, automation made production faster, better and cheaper. He actually implies in some places that this was not the case -- instead, he implies, that the biggest benefit company managements saw in automation was union busting.

This is a fine set of theories if you want to complain about "The Man" being the cause of Detroit's problems. I disagree with his thesis, but reading this did lead to some interesting new insights.

What I think really happened

The urban crisis was not that automation happened, but that the Detroit environment was so toxic to having it happen in Detroit. This is what needs to be examined in detail: Why couldn't Detroit's city fathers and the people living in the various neighborhoods accept and wrestle with the challenge of making Detroit automation friendly, and thus keeping jobs in the area?

On this issue Sugrue and many Detroiters have a blind-spot in their thinking. Their feeling is that business owes them jobs, that when businesses leave they are betraying Detroit. What they don't see is that businesses are "grief sensitive" (my term) -- if you give the owners and managers lots of grief, they will vigorously look for places to set up that are giving them less grief. This is what happened in Detroit and other Midwest inner cities. The city fathers, unions and residential neighbors made conducting business in Detroit a grief-filled process. So... the businesses went elsewhere. This is a race issue only where race affects the grief level.

And this grief level is where technology makes a difference. The technology available for manufacturers to use makes a big difference in what locations are attractive for doing business. Detroit and the huge River Rouge auto plant boomed when it was difficult and expensive to move bulky raw materials and finished goods over roads or to distant places. (as it was in the 1940's and 50's) In such an environment centralization and localized vertical integration paid big benefits. Example: Bulky raw materials such as coal, steel and fresh water were easily moved to River Rouge using shipping on the Great Lakes, and finished automobiles were easily moved out using railroads. The surrounding localities (Detroit and its neighborhoods) supported the numerous smaller factories and services that supported this flow.

When global transportation got quicker and more reliable, (thanks to better ships, ports and airports) and local trucking got faster and cheaper, (thanks to freeways and interstates) companies had the option of decentralizing and taking advantage of local specialties in distant locations. (and they could effectively search for lower grief levels in these distant locations). In the 50's and 60's this killed the River Rouge advantage, and in so doing threatened all the relatively high paying black jobs that existed there. Detroit could have reinvented itself, as New York City did in the 1970's, but the people and communities of Detroit chose not to. They liked prescription (my term for status quo) and so they stuck with steel and auto making until the factories shut their doors because they couldn't make money. And when that happened Detroiters blamed all sorts of external problems for it happening.

...Those who stayed, that is. The more ambitious people got frustrated, cut bait, voted with their feet, and set up thriving businesses elsewhere. By the 1980's this was a whole lot of Detroiters. It became a flood, and as they left the total population of the city declined steadily. And it wasn't just manufacturing industries that suffered. Even things as home-oriented as innovative retail suffered -- consider how long it has taken shopping malls and Walmarts to establish in inner cities.

In sum, this technological and business practice crisis was what killed the Detroit boom, not race or housing.

The key role of home owning

Late in the book Sugrue talks about the feelings of home owners. This gave me another insight. Widespread urban home ownership has been an aspiration for many Americans and American leaders since the turn of the century. The bright side of this is seen as being a way to support the American dream, and the home owners have a deeply vested interest in being American.

The dark side, not seen by these enthusiasts, is that home ownership strongly supports status quo and prescriptionism -- if a person owns a home, they become deeply concerned about property values. If they are deeply concerned about property values, they are deeply concerned with what their neighbors are doing. They don't want neighbors doing things which will damage property values. Top of this don't-do-it list is experimenting, as in, doing things differently. This is a surprise dark side to the aspiration for widespread home ownership. It stifles innovation and entrepreneurship, and without them growth is stifled as well.

This widespread home ownership is the root of the Midwest Disease. It is a good intention gone bad.

The Dan Gilbert Solution

It's not that these cities never try anything to solve this problem. It is that because they aren't understanding the problem well, they are trying to solve these problems the wrong way. The most common wrong way is to build some kind of high-profile edifice to build city pride in hopes that the rising pride will bring business back. The 2010's high-profile person doing this in Detroit (and Cleveland) is Dan Gilbert, billionaire head of Quicken Loans. He is supporting professional sports teams, buying up inner city distressed real estate, and getting various governments to finance high-profile edifices such as sports arenas, convention centers and casinos. He is also trying to get gentrifying to become more widespread.

This kind of activity makes for producing good news items, but it doesn't solve the underlying main problem: the high grief level experienced by many nameless aspiring business people. To make them more interested in setting up shop in city center, things such as restrictive zoning laws, status quo-loving neighborhood associations, and capricious city officials and union leaders have to be dealt with. All of the above need to have less power over how business is conducted. The business environment needs to become, flexible, transparent, and simple.

The solutions promoted by Dan Gilberts sound good to city fathers, but they don't address the real problems. They are, instead, works of "urban art" constructed by the Gilberts that city fathers can take pride in.

Update: This 31 Oct 14 WSJ Saturday Interview, The Maestro of Midwest Revival The billionaire who brought LeBron James back to Cleveland talks about his business bet on the big cities of the former Rust Belt. by Matthew Kaminski, talks about what Gilbert has accomplished.

From the article, "At 52, Mr. Gilbert has accomplished a few things beyond reeling in LeBron. The son of a Detroit bar owner, Mr. Gilbert started a mortgage business that he turned into Quicken Loans, amassing a fortune of $4 billion. He owns about 100 companies, multiple casinos and hotels, and much of downtown Detroit. Yet here’s what comes up first about him on Google: the 434 splenetic words he wrote four years ago in “The Letter.”"

Update: This 3 Oct 15 Economist article, Elephantine delusions Africa’s last absolute monarch has some wild ambitions for his country, describes the Dan Gilbert solution being liberally applied in Swaziland, a country located in South Africa.

From the article, "Building a white elephant or two is normal for autocracies. Swaziland, however, is going for a herd. Construction has started on a sprawling convention centre, paired with a luxury 500-room hotel. Along with the airport, they are part of the king’s Millennium Project, a plan for turning Swaziland into “a first-world nation” by 2022. Next on the list are a theme park, a trade centre, a sporting complex and an amusement park."

Conclusion

Widespread home ownership has a surprising dark side. Because of the deep concern about sustaining property values, home owners can get prescriptive, and put a lot of teeth in their prescription. When this happens innovation is stifled, and with it progress.

This is a dark side of a good intention. It is also a blind spot. Many inner city Midwesterners think the loss of jobs and population happened because of greedy businessmen being evil. As a result these people can't fix the problem, even today. Not recognizing that the root problem is too much grief in conducting business in inner cities is what has kept Midwest urban centers constantly declining for the last sixty years.

--The End--

 

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