NRPLUS MEMBER ARTICLE D etroit’s success was a very complicated story. Its failure is a simpler one.
How did Detroit become the “Motor City” at the center of the U.S. automotive business? It wasn’t obvious that it would be: At the end of the 19th century, more than 100 automobile companies were organized in the United States, most of them in New England and Ohio. But Michigan won out because it had a hugely important advantage in one natural resource: smart people.
Ask a half-dozen car guys why Detroit beat out the rest, and you’ll get a half-dozen answers: Maybe because Henry Ford and Ransom Olds lived in Michigan, or maybe because Standard Oil helped to lift the gasoline-powered Michigan manufacturers over competitors in Cleveland and Boston, which leaned toward steam and electric power. (Electric cars — imagine that.) But one of the main reasons Detroit became the Motor City is that it already was a motor city: Before it was a powerhouse in the automobile business, it was an important center for manufacturing marine engines (as was Cleveland), and as such was home to a work force with skills relevant to building automobiles — metalworkers, mechanics, engineers, machinists, experienced laborers. The most useful kind of intelligence resides in particular people and in particular intellectual communities, whether those are theoretical physicists or construction workers. That kind of intelligence cannot be boxed up and redistributed like surplus cheese. It is where it is, and it is there because of organic developments that cannot be managed.
Henry Ford offered good wages and an intelligently organized production process, but he didn’t exnihilate those skilled workers into existence; he just hired them. The larger and more complex the intellectual ecosystem of Detroit became, the greater the advantage provided by its workforce was — and the more it became a magnet for the best workers.
And Henry Ford wouldn’t have got very far without them.
(I will here offer the obligatory periodic reminder that the story about Henry Ford’s bootstrapping the automobile market into existence by paying his workers enough to afford his products is a myth, pure folk economics.)
Henry Ford’s problems are our problems still. North Carolina is the Detroit of the American upholstered-furniture industry, and its biggest problem right now is finding skilled workers to man the industry’s factories. A program set up by furniture manufacturers and a local community college is training up new workers as fast as it can, but that is not fast enough: “The good news is we can graduate 150 people a year,” one furniture executive told the Wall Street Journal. “The bad news is that the industry needs 800 to 1,000 people.” Another recruiter described hiring an upholsterer through a temp agency as “winning the lottery.”
And yet millions of Americans somehow manage to languish in persistent joblessness.
The story is familiar, with businesses ranging from the literally old-timey (mechanical-watch manufacturers) to the high-tech (chemical companies) complaining loud and long that they cannot fill their openings, that highly skilled, reliable labor is impossible to find. Old-fashioned business strategies such as (radical idea!) substantially raising wages are not always effective. (Keep trying, guys; it worked for Henry Ford — eventually.) Industry groups have put together training and apprenticeship programs such as the one for furniture-makers in North Carolina, where a $600, eleven-month course prepares workers for jobs that can pay in excess of $75,000 a year. The Institute of Swiss Watchmaking operates training programs in Fort Worth, Texas, along with Hong Kong and Shanghai. For those on shorter timelines, there are still a bunch of oil-and-gas companies that will pay you to get a commercial driver’s license and then hire you when you do.
If the demand-side story is familiar, then so are the excuses from the potential supply side. If you’ve followed the intramural debate on the right between the classical free-market conservatives and the new right-wing anti-capitalists, then you’ve heard this before: “I want a good job, but I don’t want to move to one of those awful, expensive, godless coastal metros to get it.” “Okay, but there are lots of jobs to be had in lots of other places that aren’t Palo Alto.” “But I don’t want to invest four years in college and go into debt to do it.” “Okay, there are jobs to be had in West Texas gas fields and North Carolina furniture factories and all sorts of other places that don’t require a four-year degree.” “But. . . .”
There’s always another “but.”
Furniture-factory recruiters tell the Wall Street Journal that potential workers sometimes turn their noses up at their training programs because there is no guarantee that demand for workers will be as strong years in the future as it is today. Factories trying to recruit Millennials also have discovered that starting the workday at 6:30 a.m. is an obstacle. The usual thumbsuckers offer the usual thumbsucking excuses. A cynical man might wonder what exactly would get these folks to take the job — an iron rice bowl?
There’s a reason so many of the complaints we hear about China are characterized not by horror at the brutality of the Chinese regime but by frank envy of its command-and-control powers.
Tom Friedman calls it being “China for a day.” Marco Rubio calls it “industrial policy.”
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If you are willing to consider the full, mind-bending complexity of the U.S. economy, then Elizabeth Warren’s “You Didn’t Build That!” argument becomes, in a sense, Leonard Read’s argument in “I, Pencil.” Everything touches everything else, and burdens are shared in complicated ways. Senator Warren’s story is an attempt to create a compelling moral narrative for managerial progressivism, the dusty intellectual antique installed firmly in the center of her brain. But while her political conclusions do not necessarily follow from the facts, she isn’t wrong about the facts themselves. Entrepreneurship does not happen in a vacuum, and nobody seriously thinks it does.
(Senator Warren leans heavily on an old politician’s trick: Arguing with positions that nobody really supports; in this, she is a lot like our friends on the new anti-capitalist right, who believe they have a patent on the idea that there is life beyond the market.)
Consider the early days of the automotive industry: When Alexander Winton drove from Cleveland to New York City to promote his new automobile, the trip took nine days and was thought to be such a feat that he was greeted by a million people upon arriving in Manhattan. The roads were, as Winton put it, “outrageous.” A few years later, an enthusiast in another Winton automobile made the first coast-to-coast automobile road trip in the United States, from San Francisco to New York. As Ken Burns tells the story:
At the time, there were only 150 miles of paved roads in the entire U.S., all of them within city limits. There were no gas stations (although general stores in some towns sold gasoline for farm equipment) and no road maps as we know them today. Most Americans doubted that the automobile had much of a future except as a rich man’s toy for driving around town.
Libertarians have two good jokes, the first of which is the lamentation, “But who will build the roads?” uttered after anybody suggests the slightest reduction or reform in any government program. (The other one is the Libertarian party.) The actual story of the roads is, as most things are, more complicated than our political discourse allows for. The Constitution invests the federal government with the power to build postal roads, and using core federal obligations as a pretext for road-building and other infrastructure projects is a time-honored American tradition. Alma, Ark., and Tucumcari, N.M., are linked by a gigantic federal freeway thanks to the “Dwight D. Eisenhower National System of Interstate and Defense Highways.”
But the first paved intercity road in the United States was a privately built and privately operated turnpike connecting Philadelphia with Lancaster. (Old-school Gladwyne types still refer to U.S. 30 as “the Pike.”) The vast network of municipal and intercity roads in the United States was in fact built by a very complex combination of public and private efforts: Think about the road-building efforts themselves, but also all the things that went into making them possible. You might have a federal highway project carried out by a private contractor, who buys asphalt from another privately owned firm that relies on engineers and chemists trained at public schools, which were funded by taxes on private businesses, which relied on. . . . You get the picture.
Many of the most effective public-works projects have followed the practice of relying heavily on public funding and administration and private-sector execution of the work itself. That doesn’t always work, and it has obvious drawbacks — the inevitable corruption and waste in the contracting process, one of the seldom-considered scandals of the war mobilization in the 1940s — but it also offers an alternative to the characteristic problems of monopolistic public-sector bureaucracies such as government schools.
The complexity of real-world economic relationships is the point of “I, Pencil,” Read’s famous essay, which illustrates that even something as straightforward, ubiquitous, and cheap as a No. 2 pencil relies on a vast network of industrial processes, specialized knowledge, trade, etc. so vast as to be well beyond the comprehension of any single organization, much less any individual. That’s the miracle: Nobody knows how to make a pencil, but we have plenty of them, anyway. Read took this as an argument against central planning, and he might be reasonably criticized for minimizing the role of the public sector; Senator Warren takes the same entangling relationships as an argument for more central planning, even though she occasionally remembers to make a rhetorical gesture in the direction of capitalism. Read was basically right and Warren is basically wrong, but Warren’s distortion of the underlying principle does not diminish the importance of public-sector and non-market institutions in the ecosystem of Readian economic complexity.
The complicated truth is that Henry Ford (and every other entrepreneur) drafted behind both public-sector and private-sector investments that preceded him and his own innovations. The marine-engine business helped lay the foundations for the subsequent success of Detroit’s automotive industry, but so did roads and schools and the like. There’s a word for that: civilization. Isaac Newton was not the only one who stood on the shoulders of giants. All of us do. (And not just giants: Nobody invented the automobile or the internal-combustion engine. There were thousands and thousands of contributors to that subtle and spectacular evolution.)
If it seems like we have drifted a long way from the original point about the role of the work force in the entrepreneurial process, we haven’t.
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The current argument about the future of capitalism is about a lot of different things, some of which are only tangentially related to one another. Some of these considerations are matters of narrow political self-interest: Senator Rubio et al. have discovered that there is some juice in Trumpian neo-mercantilism and believe, with good reason, that there is even a little cross-partisan appeal to it. They have failed to articulate a set of policies or meaningful principles to go along with that hunch, but if President Trump has shown Republicans anything, it is that policies and principles are optional for a working majority of right-leaning voters, who can be had at the price of some vague grumbling about the national interest and intellectually dishonest claptrap about how “market fundamentalists on the right want more record-setting days in the stock market above all else,” as Senator Rubio put it.
I will reiterate here two things: The first is that Senator Rubio is engaged in a political fight to the death with a straw man, and that so far the fullest expression of his conception of the national interest in economic policy is subsidies for politically connected sugar producers in Florida. In politics, vague principles rarely stand up to specific demands from specific constituents.
On the wider cultural front, the fight about the future of capitalism is in no small part a matter of status competition, less a question of economic development than of how we talk about economic issues. Practitioners of resentment politics wish to reduce the prestige of cultural rivals, and so we have the strange spectacle of our so-called nationalists abominating the actual centers of American power, prestige, and influence: Silicon Valley, Wall Street, the Ivy League, Hollywood, etc.
Both Warren-style progressives and right-wing critics such as my friend Michael Brendan Dougherty seek to undermine the heroic account of entrepreneurship and corporate success traditionally put forward by apologists for capitalism. For these critics, the professional and financial elites represent a morally corrupt class that needs to be taken down a peg — those of you who have followed this conversation for a while will remember that Dougherty’s famous thought experiment about Garbutt, N.Y., had conservatives advancing the interests of “a typical coke-sniffer in Westport” and his in-laws down the road in Darien. Their argument is at heart about social status, holding that the finance workers in Fairfield County and the multinational firms that employ them deserve less admiration, as do the start-up founders and venture capitalists on the opposite coast, which is why it is important that they be cocaine enthusiasts or sexual deviants or whatever for purposes of political narrative if not in real life, where the coastal elites practice the bourgeois values (stable marriages and thrift and relative sobriety and all that) to a remarkable extent.
At the same time, the same critics argue that we should have more sympathy for those who are stuck in economically stagnant and socially backward communities and who do not wish to leave them. Dougherty presents this explicitly as a sympathy deficit on the part of the capitalism camp: “Any investments he made in himself previously are for naught. People rooted in their home towns? That sentimentalism is for effete readers of Edmund Burke. Join the hyper-mobile world.”
Though the protectionism put forward by the likes of Trump and Rubio is couched in the language of national interest, it is the opposite of that: Americans as a whole would be better off with lower food prices, but a small handful of Americans is much better off with higher prices secured by the policies supported by Rubio and other like-minded politicians. Americans as a whole are much better off when markets are allowed to allocate resources efficiently, but there is a vast and politically significant archipelago of communities that would prefer that certain inefficiencies be preserved, because their livings are tied to those inefficiencies and their communities have been built atop them. Detroit in 1960 was on top of the world — it was the highest-income city in the United States. Detroit would have been very comfortable if it could have been frozen in time, economically, in that moment. And a very wide array of politicians and activists, from local union leaders to President Ronald Reagan, took extraordinary steps to try to preserve the position of the U.S. automotive industry, with the disastrous consequences that you can see in front of you in Detroit today.
The things that gave Detroit its critical advantages in the early 20th century were not things that could be planned out in advance by super-intelligent philosopher-kings in the bureaucracies. Creating a marine-engine industry that would help to prepare the workforce for an automotive industry that would not exist until decades in the future is not the kind of plan that mere mortals can conceptualize or execute. If you had tried to explain to the best and most forward-looking thinkers of Detroit’s golden years that China and India would soon enough be significant high-tech competitors, they would have laughed at you. Also, if you’d told them that one of the biggest and most valuable U.S. companies in 2019 would be an electronic bulletin board where you can go to denounce your aunt as a hate-monger, they would have been perplexed, as, indeed, some of us are. Remember that many of the best minds of the time believed that the automobile would be a passing fad.
Conservatives like to laugh at Paul Krugman, revisiting his long-ago prediction that the Internet would prove no more economically significant than the fax machine, but nobody is really very good at predicting the future of economic developments at any meaningful level of detail. Go spend some time around private-equity investors and see how they come by their billions: They are smart, but they are not superhuman, and they do not have any special insight into long-term economic trends — they do a tremendous amount of grunt-work discovering and creating value in ordinary companies and complex deals, inch-worming their way through. That’s how a lot of wealth gets built. That’s the real world. And Senator Rubio scoffs at it as fiddling with “financial flows detached from real production,” as though factories just built themselves.
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You couldn’t have planned Detroit’s success. But you could have avoided its catastrophic failure. Detroit was not done in by lack of clever industrial policy or by shortage of some other species of cleverness. It was done in by corrupt and ineffective government and a local political culture that went from bad to worse to much worse to Coleman Young. They tried to save Detroit with tariffs and failed. They could have saved it with safe streets and functional schools and the hundred thousand other tiny needful things that good governments do well.
Good government — including a steady, stable, predictable policy environment — multiplies the value of labor, just as training and capital do. That is why investment capital around the world for years has flowed largely to well-governed countries, most of them liberal democracies, with the largest recipients of foreign direct investment being the United States and the European Union. (China, the important exception to that rule, is not well-governed; it is governed brutally but predictably, an ugly but useful reminder that stability has economic value, too.) There are many places that businesses could go in search of low wages and a loose regulatory environment, but you aren’t driving a car made in Haiti or using a computer built in Burundi. Investors aren’t putting a lot of money into factories in Yemen or Afghanistan.
And that is what is so irritating about Senator Rubio’s new push for “industrial policy.” Is the U.S. government really performing its core duties so well, so ably, so competently that we need to add to them with additional duties that demand a kind of competence it does not have and cannot acquire?
The truth is something closer to the opposite: The U.S. government is in many cases a force for instability and non-confidence in our national economic life. Peter Navarro’s position as Trump’s China hand is as ridiculously implausible as Hunter Biden’s role on the board of Burisma, but there he is, whispering into the president’s ear. Senator Rubio is no less implausible in his belief that he has eagle eyes to detect subtle national interests in complex economic affairs of which he has no substantial first-hand knowledge. His problem isn’t stupidity — it’s hubris.
A nation as rich as ours can afford a great deal of stupidity, but hubris is expensive.
Senator Rubio represents a government that has shown little competence in the small and ordinary things. It cannot even manage to follow its own ordinary processes for creating budgets or appropriating funds, instead lurching from season to season with a series of “emergency” measures in a state of never-ending crisis. You might think that that would be the cause of some modesty and circumspection in Washington. You would be wrong.
Rather than monkeying around with things that are beyond his ken and outside of the credible operating capacity of the U.S. government, Senator Rubio should be seeing to some of the things that might actually make a difference. The U.S. government is on a catastrophic fiscal course that will, without reform, eventually result in a ruinous debt crisis the likes of which the world has never seen. (We’ve seen fiscal crises in Canada and Argentina, but the U.S. economy represents nearly a quarter of the world’s economic output.) We have entitlement programs that are in need of reform, decaying and archaic infrastructure under federal purview, serious K–12 educational problems entangled with federal policy, a tax code in great need of simplification, a series of worldwide military engagements that have failed or are on the verge of failing, enormous deficits, an out-of-control presidency and administrative state, etc., all of it under the responsibility of a federal apparatus that cannot even produce an accurate count of how many programs it administers. Senator Rubio and his colleagues are like fast-food workers who haven’t yet mastered the drive-thru but demand a seat on the board of the company: They are not doing a very good job with the responsibilities they already have.
And many of those are responsibilities that cannot be taken on by anybody else: If the United States is to have an immigration system characterized by intelligence and decency, or a federal criminal-justice system characterized by justice, then the federal government is the instrument that is going to bring that about. These tasks cannot be delegated to the Chamber of Commerce or the Rotary Club. But rather than see to these, and other authentic federal responsibilities, Senator Rubio would spend his days micromanaging the world’s mining markets lest the sneaky Chi-Comms hoard all the ytterbium.
What was true for Detroit is true for the United States as a whole. The first step toward success in government is avoiding failure, and what emerges from the complicated story of Detroit’s success and the relatively simple story of its failure is not that government must master economic complexity and put it in harness but rather that government must do a lot of relatively simple things well. Detroit did not need a Thomas Jefferson or a Mohandas Gandhi or another great political philosopher with a world-changing idea — it needed someone to fix the potholes, balance the books, keep order on the streets, see to the schools, and keep the city agencies orderly and honest and effective. Without that, all of Detroit’s productive capital — physical, financial, and human — was devalued and ultimately dispersed.
Detroit’s fall happened hard and fast. As the poet said, Goin’ down slow ain’t the only way to go. Deride “financial flows detached from real production” all you like, but if you want workers to have jobs, then you need enterprises to employ them. If you want enterprises to employ them, then you need investment. And if you want investment, then you need good government and a stable, predictable policy environment, not Senator Rubio freelancing around the economy like a kid trying to play chess without even knowing how the horsey-thingies move.
The U.S. economy is a vastly complex system with countless variables. Here’s a puzzle with only three variables: 1. There are about 5.7 million unemployed people in the United States right now. 2. We have thousands and thousands of jobs going unfilled because employers cannot find workers to fill them. 3. We spend about $10 billion a week on unemployment benefits.
Sort that out and the ytterbium will take care of itself.