Politics & Policy

Capital Matters

Distant view of General Motors headquarters in downtown Detroit, 2010. (Bill Pugliano/Getty)
The seen and the unseen in Detroit

‘What will you do to bring manufacturing jobs back to Detroit?” the Fox News moderator asked the Republican presidential field. In a very, very stupid night, it was the stupidest question.

Sorry, Chris.

In 1950, Detroit’s population was 1.8 million. Since then, all the people to the left of that decimal point — and a goodly chunk to the right of it — did the rational thing and exercised their right of exit, leaving Detroit behind. They are gone, they are better off for having left, and they are not coming back.

Detroit is a big city, or at least the ruins of a big city, but it is economically in much the same situation as the poorest parts of Appalachia: Even if you were inclined to open a factory there and create some jobs in the process, you’d have to bring in workers to fill them. The people in Vance, Ala., like the people in Stuttgart, know that putting Mercedes-Benz automobiles together requires a great deal of high-skill work. The people building Toyotas in Texas know the same thing. Nobody is moving to Detroit, because there are no jobs to be had; good jobs aren’t coming to Detroit, because there aren’t enough good workers to be had. The best you’re going to see in Detroit is Shinola workers shoving Swiss-watch movements into Chinese cases and stamping them “Made in Detroit.” Sentimentality is a form of capital, too, when it can be used for marketing purposes.

But we’re going to have to do better than that.

Detroit is a city in which only one in five black men graduates from high school on time — in a city that is 83 percent African American. You think Google is going to move its headquarters there, or invest in a major facility? Tesla? Apple? Does that sound like a place you would invest in?

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You can call it a chicken-and-egg problem — given its current economic straits, Detroit isn’t going to be doing much to produce world-class workers, or world-class anything — but the fact is that the chicken has been dead for decades, a series of corrupt mayors and officials stole most of the eggs, and the ones that are left are rotten. And despite the best efforts of the city’s spasmodic reformers, the city is ruled by the same party, the same people, and the same poisonous politics that created the mess it is in in the first place.

Capital matters — and capital owners matter, too.

#share#Once upon a time, Detroit was home to a tremendous amount of capital. Contrary to the received version, the automakers did not build Detroit. The city already was a center of manufacturing excellence, with skilled craftsmen and mechanics who had learned their trade in the marine-transit business easily making the transition to the new automotive business. In the early days of the 20th century, dozens and dozens of automobile companies were founded, mostly in the old industrial centers of New England and Ohio. Detroit thrived because of its human capital, and because of the entrepreneurs who made the most of it.

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Like wicked old Samuel Ratchett on the Orient Express, Detroit had a dozen murderers. And an important one — important in that there is in it a lesson for us today — was a defective relationship between capital and politics. Just as short-sightedness leaves Arab oil emirates poorly prepared to weather declines in oil prices, civic and corporate myopia left Detroit dependent upon a handful of firms whose production undergirded the entire economic ecosystem of Detroit. A combination of factors deformed the economic foundations of Detroit, from governmental protectionism (which made managements thick and lazy) to union rapacity (which diverted potential investment capital into inflated pay and benefits, creating a lot of multimillionaire union bosses) to our national unwillingness to deal with the fact that Germany and Japan — smoking ruins at the end of World War II — would eventually rejoin the modern industrial economy. Rather than finding its way to its best uses through Schumpeterian creative destruction, capital was locked up in poorly performing enterprises such as Chrysler (executive hipster Lee Iacocca was into bailouts before bailouts were cool) and in malinvestments such as unsustainable pension funds.

Because most of us lack sufficient imagination, we do not understand what the price of that was. The price isn’t just bailouts and layoffs and factory closings, as painful and convulsive as those have been in Detroit and throughout the industrial communities that inflicted similar problems upon themselves. No, the real cost — the literally incalculable cost — is the lost value that would have been created had all that capital been liberated and put to its best use. We have forgone generations’ worth of compounded returns on investments that we should have made but did not. Another way of putting that: It is far easier to solve the problems of 2016 starting in 1950 than starting in 2016.

Imagine what Henry Ford could have done with the money we’ve pissed away on the incompetents at General Motors.

It matters who owns capital. Go back to 1988 and give young Kevin D. Williamson $10 million, and the only results you’d have seen would be a good year for a Ferrari dealership somewhere in Texas and, a few days later, a nice commission for a Manhattan realtor willing to do business with a 16-year-old. Go back and invest that $10 million with Marc Andreessen and you might have had the great Internet-driven business revolution of the turn of the century a decade earlier, with economic consequences that would have been literally beyond calculation. Go back to the 1970s and invest that money with Julio Palmaz and the history of cardiac care would probably look a good deal different. Imagine what Henry Ford could have done with the money we’ve pissed away on the incompetents at General Motors.

We see dead capital around us all the time: the suburban black holes of derelict shopping malls, failed big-box stores, block after block of abandoned housing in cities such as Philadelphia and Baltimore. Sometimes those facilities are kept dead by conservatives’ favorite villain: regulation, especially overzealous planning-and-zoning regimes that prevent the rehabilitation of commercial and residential properties. Sometimes, we have government outright propping up firms (General Motors, bailed-out banks) or industries (Senator Rubio’s beloved sugar teat) without ever taking account of what the real cost of doing so is: lost investment. Not the ledger cost, but the opportunity cost.

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Detroit is a dramatic example, but every time you write a too-large check to a terrible utility monopoly, the same dynamic is at work. All those people standing in line at the DMV or seeing potentially productive days wasted because our airport authorities are so completely incompetent, all those millions of man-hours wasted during any given work week by the traffic in Houston or Los Angeles — every one of these represents a theft from the future. Every instance of overregulation and political favoritism that keeps capital in the hands of less-able users and away from its best use makes us all — all of us — poorer, even if it is in ways that are not always plainly visible to us.

What’s the plan for Detroit? Politicians and their plans did this to Detroit — and they’ll do it to the rest of us, too, if we let them.


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