Forbes: (Metro) Detroit is dying

Important article in Forbes entitled Detroit Is Dying Because GM Stuck Around, New York City Booms Because Nabisco Did Not. Highly recommended!

The article is authored by John Tammy. Tammy asserts that places that have moved away from manufacturing like New York City, Seattle and Los Angeles are prosperous, while those who have stayed concentrated in manufacturing, like Detroit and Flint are poor.

Its a lesson that Michigan––on a bi-partisan basis––is having a hard time learning. But if we are to be prosperous again it is one we must learn. The new reality is what made us prosperous in the past won’t in the future.

Tammy writes:

… What’s perhaps been forgotten is that as recently as the 1920s more manufacturing in total dollar value took place there (New York City) than any other American city. Fast forward to the present, it’s safe to say that next to nothing consumed by New Yorkers is actually manufactured within the city’s limits. This bears repeating: Less than 100 years ago New York was the U.S.’s top manufacturing hub, whereas today manufacturing there is near non-existent. Yet despite the above truth, New York remains the world’s richest city. (Emphasis added.)  

So what replaced all the manufacturing that disappeared? There are so many answers to this question, but the obvious one is that more advanced forms of commerce did. While Google is based in Mountain View, CA, since 2000 it’s come to amass over 3.5 million square feet of space in Manhattan; much of that office space in what is a former Nabisco factory.

Importantly, the Google story is the norm. Former glass factories are now populated by fancy restaurants meant to serve New York’s well-heeled residents, while sugar plants from the early 20 century have been turned into loft space for wealthy residents in the 21st. New Yorkers “import” food, clothing and glassware made around the world, and this gives them time to pursue higher-yielding work in the culinary arts, advertising, and most prominently there, finance.

By comparison he writes:

What about cities like Flint and Detroit? They’re not crumbling monuments to the past because the Big Three automakers aren’t doing well, or because the Big Three are not creating enough factory jobs; rather both cities struggle precisely because the Big Three are doing well enough that they still create jobs in Michigan at all. Counterintuitive as this may seem, the sad fact that local and national politicians have propped up GM and Chrysler in order to “save jobs” explains why Michigan’s once important cities are doing so poorly, all the while driving away their best and brightest. As I write in my upcoming book, “Popular Economics”, to create lots of quality jobs we must constantly be destroying the work of the past.

To understand why, we need only return to New York. Nabisco once again used to have factories in New York, and used to create manufacturing jobs in Manhattan, but those jobs have long since gone elsewhere. Thank goodness. Does anyone want to imagine how much poorer and how much less vibrant New York’s economy would be if it were still a manufacturing hub? If Nabisco’s factories hadn’t been replaced by Google and other futuristic companies? The answer is obvious.  

We are having a hard time learning this lesson, although the data are clear. As Don Grimes and I wrote in our latest report, The New Path to Prosperity:

The lesson Michigan needs to learn is also clear: The places that are doing best today and almost certainly will do the best in the future are those states and regions that are concentrated in knowledge-based services, not factories or any other sectors of the economy.

… Jobs in manufacturing are experiencing a long-term structural decline that almost certainly is irreversible. The sector no longer is the source of mass middle class jobs—because manufacturing wages and benefits no longer carry the premium they did decades ago compared to the rest of the economy, and because the sector will continue to employ a far smaller proportion of the American economy, despite temporary business cycle-related employment gains.

As work done in factories has declined what has grown are services, both in absolute and relative terms. This is particularly true in what we call knowledge-based services: health care and social assistance; information; finance and insurance; professional services, and management of companies.

It is almost certain that—predominantly because of globalization and technology—the path back to a prosperous Michigan depends on growth in knowledge-based services. Those sectors are now, and are likely to be even more so in the future, the core of realizing the more and better jobs Governor Rick Snyder has rightly identified as the state‘s economic goal.

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