Detroit Failed Because It Didn't Do What Cities Do
Detroit's city government filed today for Chapter 9 bankruptcy after years of financial trouble and industrial contraction. It's easy to think that the city's fault was going all in on auto manufacturing. Detroit made a bet, and the bet went bad. No surprise, then, that Detroit went bad, too. Including, in this case, its municipal debts.
Detroit's dependence on cars, though, wasn't exactly the problem. It was dependence itself. Cities should never go all in on any industry, cars or otherwise. It didn't realize that until it was too late.
Detroit forgot the economic case for cities: When you put different industries and different people with different ideas in close contact with another, magical things happen.
"Magical things" is, of course, the technical term economists use for a number of spillover benefits created by urban areas. Their work suggests that the magic happens mainly from the mix of ideas.
And for economists and historians, the irony is rich: Detroit was the textbook example of these urban spillovers before World War II. The textbook was Jane Jacobs's, an urban sociologist who rose to fame in the 1960s.
Jacobs observed that Detroit's shipbuilding industry, prosperous in the 1800s, fertilized the development of its auto industry. It was a creative application of industrial know-how, and it saved the city as its original geographic advantage withered.
Diverse cities, as subsequent research confirmed, really do outperform ones like Detroit. They create more jobs and faster increases in wages.
Other evidence comes from inventors who file for U.S. patents. If inventors live in the same city, they are two to six times more likely to cite each other's patents than if they didn't rub elbows. This interaction in patents, too, tends to happen between fields. The key to urban success lies in putting brains in the same place but on different projects.
Detroit will have a hard time turning itself around. It faces a tough chicken-or-egg problem: How does it attract talent, when it doesn't have any? The only way back is to rediscover the industrial diversity that built the city and, economists think, sustains all cities.
(Evan Soltas is a contributor to the Ticker. Follow him on Twitter.)