Bailing out Flint, But Not the Big Three

In the latest installment of his column, Metronomics, Andrew Thompson explores the difference between “localization” and “urbanization” economies and explains how stimulus money can be better used to help struggling cities.

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For all his passion in Roger and Me, I never thought Michael Moore really grasped the true problem of his hometown of Flint, Michigan. In the film, Moore portrays a greedy, bottom-line-obsessed General Motors CEO Roger Smith, who moved G.M.’s longstanding manufacturing plant from Flint to Mexico, leaving his company’s loyalty at the town border. A barrage of shots of foreclosed homes and unemployed workers were meant to galvanize viewers to point their fingers at the screen and shout, “Shame on you, G.M.”

I saw an economy beholden to a fickle source of employment and income, whose entire welfare rested on the whims of one industry, which maybe made sense 50 years ago but in hindsight sort of looks like a bad idea. The problem with Flint is the problem of an undiversified stock portfolio: Put all your money in U.S. Steel and you’ll do great when the company booms, but you’re setting yourself up for a hard retirement when the company goes bust.

Economists have come up with various names to describe the binomial nature of urban areas, the ones that place their whole bet on red 42 and the ones that spread their money across the table more evenly. Most differentiate between localization economies – places like Flint that are more reliant on a single industry for employment and growth – and urbanization economies – larger cities that have an assortment of industries. Jane Jacobs respectively refers to them as supply regions and demand regions, hearkening a slightly more neo-Marxist perspective of the core and periphery. Unlike others, though, Jacobs seems to see these supply regions as destined for failure, and there’s no shortage of examples: Think of any Third World country whose economy was based
entirely on a few commodities and what happened when another country found a way to produce them more cheaply, or when those commodities were no longer in demand.

In his recent press conference outlining new steps to save the auto industry and justify the $25 billion already loaned out to the Big Three auto manufacturers, President Obama called carmakers a “pillar of our economy” and said that allowing their failure would be unacceptable. But tucked into his 18-minute-long speech was a brief acknowledgment of tackling a larger issue: “[Newly appointed Auto Recovery Director Ed Montgomery] will direct a comprehensive effort to
lift up the hardest hit areas…to create new manufacturing jobs and new businesses where they’re needed most, and he will also lead an effort to identify new initiatives we may need to help support your community going forward.”

The statement remains ignored, for the most part, but this is what really needs to be done. Perhaps we should just let Japan declare victory in the auto market and work on rebuilding auto towns instead of propping up an industry so many economists view as beyond repair. Many might see revitalizing small economies like Flint, in which the populace remains mostly uneducated and hundreds of small businesses have been displaced with the swift placement of a single Wal-Mart, as impossible without bringing back auto plants. But as long as stimulus strategies remain the preferred solution for our nation’s woes, we can look to them to save smaller towns, too. Here’s how we might do it:

• Encourage borrowers to use the already expanded lines of small business credit to start core businesses in auto towns. This means focusing on businesses that have a high per-capita usage, like cheap restaurants and small farms, instead of a low per-capita usage, like opera houses and wax museums.

• Those businesses won’t survive without customers, so give consumers credit to shop at these small businesses. Injecting plain cash into the accounts of residents might encourage them to further patronize the companies that won’t create local jobs, like Wal-Marts and Safeways.

• Use stimulus funds to renovate the factories into manufacturing plants for new goods bought by the government. Have them build trains or windmills or widgets. I don’t want to advocate a command economy that leads to the production of undesired goods, but there is certainly still a use for these plants.

I’m ignorant of any legal hurdles that would prevent the government from favoring one business over a larger corporation, or whether or not all this is even possible. But it seems like a better strategy to renew dozens of economies than a single industry, and it might by the best way to keep the nation’s Flints from remaining Flints.

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Tags: detroitcarsmanufacturingflintjane jacobs

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