The Detroit skyline this summer as seen from Grand River. Detroit filed for bankruptcy on July 18 after years of painful decline.
Carlos Osorio • Associated Press,
About the author Fred Zimmerman is a professor emeritus of engineering and management at the University of St. Thomas who has served on the boards of directors of several companies. His e-mail is email@example.com.
Business Forum: Could a Detroit-style fall happen to MSP?
- Article by: FRED ZIMMERMAN
- July 29, 2013 - 3:23 PM
In her thoughtful book, “The March of Folly,” Pulitzer Prize-winning historian Barbara Tuchman skillfully describes the long-term catastrophic consequences for societies that follow irrational strategies and fail to take corrective action on problems when needed.
The bad part about folly is that it affects everyone: the teacher, the worker, the merchant, the churchgoer and CEO. Folly, like rain, falls on both the just and the unjust.
But, in an encouraging way, Tuchman points out that folly, or the perversity of reason, seldom occurs in the absence of thoughtful consideration. In all the cases she cites, caution was advised, reform was sought, remedial actions were proposed, but never implemented.
Within that framework, it is worthwhile to evaluate the recent financial problems of important public entities such as Harrisburg, the capital of Pennsylvania, the Chicago School District, and the city of Detroit — all within a two-hour flight from the Twin Cities. The question is: Could the foibles that led to the decline of these once-major entities be subtly beginning here?
Detroit manufacturing prowess was crucial to Allied success in World War II and the city emerged from the war with strong competitive industry. Nearly 350,000 manufacturing jobs existed within the city in 1947.
But competitive pressures and high costs took its toll on Detroit and by 2002, manufacturing employment was down to 38,000 — a decline of nearly 90 percent even before the most recent recession. Retail employment declined by 87 percent.
Declining industry always spills over to other industries. Tax receipts plummet, stores go out of business, buildings are abandoned, churches cease operating, city services worsen, hope disintegrates, crime increases and a difficult-to-reverse decline is set in motion.
Meanwhile, city debts accumulate and underfunded pension benefits consume much of the available money. With so much money owed, schools, social programs, all major city functions and public pension funds are jeopardized. Everyone is affected.
The question for Minnesota is could it happen here? Of course it could. It may not and we would all pray to avoid such a catastrophe. But, let’s be practical. Detroit had its General Motors, Packard, Hudson, and many others.
Minnesota had its Control Data, Unisys, Honeywell, Ford plant, Northwest Airlines, Lockheed Martin, and a premier-but-now-shrinking IBM plant in Rochester.
Remnants remain of our once-formidable industrial sector, but it is not nearly what it was when so many industrial companies employed thousands on lucrative payrolls with good benefits.
Declines are nearly always a combination of both private and public foibles and it is rarely fruitful to identify which is the principal cause. The competitive decline of some auto companies combined with shortsighted public policies to make Detroit an impractical place to operate.
Meanwhile, Minnesota’s once-stellar performance in key economic statistics began the state’s long gradual trend toward the less distinctive. Manufacturing payroll has been increasing more rapidly in every neighboring state than it has in Minnesota and unemployment rates are mostly lower. To be sure, many states are worse, but we are less distinctive than we were.
Minnesota’s trend toward mediocrity can be found elsewhere. In 1988, the Minnesota Legislative Auditor produced a report saying “we found strong evidence that Minnesota’s reputation [for exceptional education] is overstated and out of date.” Things have worsened since.
Minnesota’s K-12 system compares favorably to a few states but ranks well below those in many developed and developing countries. For instance, Korea’s school year is 240 days long, 48 percent longer than Minnesota’s, and much more intense.
Minnesota has 665 units of government per million people. Virginia has 64. Too many units of government creates extensive duplication and makes permitting a nightmare for most companies.
Minnesota public pension funds need both updating and increased scrutiny. When two new accounting standards take hold within a year, Minnesota’s unfunded liability will probably be around $20 billion.
Many responsible officials, legislators, and students of policy can no doubt create a more extensive list of redesigns to consider. But, shouldn’t we do something? In view of the pressures we face, would it not be “folly” to avoid making improvements where we can?
Working together to sustain a strong industrial economy is in everyone’s interest. We are all in this together.
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