The depression didn't start on Wall Street; it started in Flint, Michigan several decades ago. Thirty years ago, city elders in the Rust Belt announced their plan to rescue economic elites from the sinking ship of car manufacture. Ominously dubbed "Shrinking Cities," the plan evicted tax-delinquent working-class people from their homes and resold the remaining houses on double-wide lots.
The Shrinking Cities plan did two things. First, it created a class of former-homeowners desperate to own property again. Second, wherever poor homeowners were evicted, mortgages weren't being paid. The plan broke thousands of mortgages and made far-off banks hungry for capital. Between 1975 and 2002, Rust-belt city leaders put into motion the two demographics responsible for the present crisis.
The story begins with what appeared to be a cure for deindustrialization. As early as the late 1970s, economists already were warning that America's industrial jobs would never come back. Across the Rust Belt, 10% to 25% declines in population signaled a problem. In 1986, one third of Cleveland residents lived below the poverty line. American cars, competing against cheaper state-protected industries in Japan and Korea, were already losing the domestic market.
Rust-belt politicians proposed a cure that depended upon removing poor homeowners and aggressively subsidizing new construction in their wake. Shrinking Cities policy would scale back city services in peripheral neighborhoods, allowing the city to continue spending on concentrated development downtown. The project's authors explained the trends in migration from the city. They would tear down abandoned and neglected homes. They would replace eyesores with community gardens and double-wide lots. They would court hospitals and universities, breathing new life into the graveyards of the industrial past.
Few of those promises came to fruition. Among its few successes were the urban clearances of delinquent taxpayers in poor neighborhoods.
In Michigan, politicians passed legislation to streamlined evictions in the 1970s. After only two delinquent payments, the city evicted householders and called in bulldozers. Cleveland used foundation funding to clear properties in the predominantly black neighborhood of Hough by 1986. By the late 1990s, the Cleveland Land Bank seized properties in the black and white working-class enclave of Slavic Village, the neighborhood that would later become the epicenter of foreclosure policy. In 2002, Detroit promised to raze 5,000 houses.
A diaspora of tens of thousands of homeless individuals resulted. All were former Rust-belt homeowners who were desperate for the chance to own homes again.
While homeowners were forced from their houses, stadiums and towers sprouted nearby. In the 1980s, cities like Fort Wayne and Detroit issued trillions of bonds for new construction projects. In 1981, Cleveland was one of the few cities in the nation building, with a new skyscraper for Standard Oil. Cleveland's Beacon Place condos went up in 1995 atop 10 acres of land donated free of cost by the city council. In 2002, Pittsburgh dedicated $522 million to tearing down buildings and replacing them with shopping malls, condos, and a baseball stadium. Detroit's Renaissance Center towers were renovated in 2003, and the city's riverfront developed in 2004.
The idea of providing for growth by merely replacing poor people with rich people reflect the urban planning of an older generation. From the 1880s to the 1970s, urban planners had combated blight by clear-cutting established working-class neighborhoods in London and Paris. In New York and Boston, they targeted ethnic neighborhoods of Italians and Irishmen. After 1950, even broader schemes clear-cut the neighborhoods of middle-class and working-class blacks, a policy now understood to have torpedoed the economic rights of black families at the very moment when they achieved nominal equality under the 1965 Civil Rights Act.
Like the advocates of these earlier schemes, Rust-belt politicians targeted poor and ethnic populations. Their reports identified working-class people with the source of crime, not a resource for development. They plotted a way of moving them along and turned to bulldozers as a cure.
By the year 2000, city leaders in Cleveland, Youngstown, and Pittsburgh saw Shrinking Cities as a chance to take development into their own hands. Land Banks began tear-downs in Youngstown, Baltimore, Memphis, Pittsburgh, and Philadelphia. Razed houses meant doubling the size of every remaining lot on the block. Old houses could be resold to younger, whiter populations. Meanwhile, subsidies flowed to sports stadiums and medical research facilities designed to lure young PhDs away from San Francisco and New York. The Rust Belt would be saved by the inflow of capital, but the first step was to do away with poor people.
The policy created an expensive problem for the banks: the bank lost the mortgage on bulldozed lots and frequently gained a bill from the city for the cost of bulldozing. Shrinking Cities Policy created a pool of hungry mortgage officers desperate to make up their losses.
Shrinking Cities Policy did not create the hoped-for gentrification of former working-class neighborhoods in Flint, Cleveland, and Pittsburgh. Nor did it float those cities to safety atop a post-industrial economy built upon tourism, sports, and medical technology.
Instead, Shrinking Cities Policy directly contributed to the nation-wide financial crisis. In 2008, when the entire nation examined the mortgage crisis for the first time, researchers began to understand exactly how the calamity unfolded. In cities like Cleveland, analysts compiled a database of properties "flipped," or turned around on one to three months, too short a period for repairs. The properties' cost had been inflated, often ten times their original amount. The properties were almost entirely located in Slavic Village, the epicenter of land bank foreclosure policy. A handful of real-estate retailers handled the vast majority of homes, selling overvalued houses to the victims of Shrinking Cities policy, almost all of whom were members of the local African-American community.
Valdis Krebs, the analyst who followed the trail of Cleveland mortgages all the way to the bank that bought them in San Diego, explained his conclusion: "The conspiracy was local."
Through the 1990s and into the 2000s, Shrinking Cities created an expanding swath of desperate, former homeowners and ravenous, cheated national banks, both manipulated by local government. Fully mobilized by 2006, those two populations played starring roles in the crisis that followed.
The rest of the story is now familiar. Risky mortgages produced unprecedented rates of foreclosure among high-risk clients, and bankruptcy then spiraled from portfolio to portfolio through the whole of the international financial system, which teetered on the verge of total collapse before President Obama's $3 trillion bailout saved it. The national debt doubled, the dollar hung on a thread, and unemployment doubled, while foreclosure victims flooded homeless shelters.
It's comfortable to believe that the foreclosure crisis began three years ago on Wall Street with faulty mortgages, corporate greed, and tricky mathematics. Unfortunately, that's not how it happened. The real problem happened thirty years ago, when America accepted a vision of an economy that saved the rich alone.
Who got jobs from Shrinking Cities? Only the bulldozer operators and their bosses. The policy did nothing to foster native entrepreneurship in the Rust Belt. When Flint's City Council ordered working-class men to clear city lots, it ordered them to dig the region's economic grave.
Even as it failed to produce jobs, Shrinking Cities Policy was expensive: Flint, Cleveland, and Baltimore used city tax dollars and federal housing funds to bulldoze city lots, approximately 6,000 lots in each. Buffalo paid $100 million in demolishing vacant structures. New York spent $5 million and New Jersey $20 million to pay wrecking crews in 1999 alone. Some of these debts were paid out of federal funds, some by the city, and some split between city and bank. The federal housing funds earmarked for demolition were funds that another generation had spent on swimming pools, schools, and public housing.
City elders drafted a plan that required the exodus of thousands of families for economic indicators to improve. They would secure the economic recovery of the construction industry, floated upon property stolen from homeowners in the poorer half of their own cities. That was bad enough, but ultimately their project destabilized the rest of the nation's economy as well.
To understand the crisis, we must embrace the fact that the "experts" behind Shrinking Cities never offered a roadmap to prosperity; what they designed was a plan for development's opposite.
Rust-belt politicians funded short-term city tax revenues at the cost of long-term regional development. They expropriated the resources of ordinary people, permanently setting back decades of national investment in education and housing.
Across the Rust Belt, Americans with money misunderstood the nature of development. Dystopian city planners believed that in economic collapse, only the elite would survive. They betted on an economy in which their best possible strategy was to convince working-class people to move away. Their vision was short-sighted and their sense of justice clouded.
Economic policy is not only a matter of the developer and the dollar. It is also a matter of participation in a market where ordinary people have a chance at employment.
The culprits for the current depression are more numerous than the mortgage vendors and Wall Street bankers who profited from it. The deeper culprits are the economists and politicians who sold a plan for fake development to city governments across the nation. Rust Belt cities fueled the cycle of expropriation that spiraled last year into an economic crisis of unprecedented proportions. Where those experts failed in the Rust Belt, little now grows. We need a change of guard, and we need it now.
Shrinking Cities Policy is directly standing in the way of more progressive solutions. In 2007, as mortgages crashed, the Washington Post lauded Dan Kildee, founder of Flint's Land Bank and evangelist of the Shrinking Cities plan. In June of this year in the New York Times, Harvard economist Ed Glaeser urged the Obama administration to take on Shrinking Cities as national policy. Trusted experts propounded their projects without countenancing the cost of the broached property rights and forced migration.
When we construct stadiums atop bulldozed slums, boost medical technology, and bail out Wall Street, we create jobs for the few. It may be a plan, but it's not a solution for the macro-economy as a whole.
We must demand an actual plan for economic development, one that takes advantage of Adam Smith's insight that connecting the entire nation actually builds the economy for all. When we pool our money to modernize public transportation and extend existing lines to outlying communities, we employ thousands locally and raise the quality of life for all their members. We need economists, investors, and community leaders who will seek out development.
We need to define development again in terms of access to the market and secure property rights irrespective of class or color.
Here are six points to push forward development and eliminate the mountebanks who curtailed its chances:
- Banish eminent domain. It is too often applied to destroy the neighborhood organizations and homeownership of poor communities of color, the most fragile of homeowners.
- Ban the use of federal grants-in-aid for demolition projects. Funds earmarked for sustainable housing, homeless shelters, swimming pools, and schools should pay for those things, not for some developer's new hotel.
- As individuals, we should invest in local startups designed to survive deindustrialization. We should contribute to and visit working-class projects where local adults train local teenagers in organic agricultural production, skills that will appreciate as health and nutrition become more important. In the Adamah Project in Detroit, locals train high school students in farming and architectural students help design working structures; at the Chicory Center in Michigan, families displaced from the wreckage of Chicago's Robert Taylor Homes teach each other to farm the land.
- Throughout the Rust Belt, constituents should elect decision-makers who will act in the community's interest. In Chicago, the Daley administration, in Philadelphia, Mayor Street; in Michigan, Dan Kildee, and in Ohio, Rep. Voinovich have orchestrated the expansion of Shrinking Cities. The entire country suffers from the Rust Belt's misguided politics, and locals must react.
- On the current terrain of politics, all the rest of us can do is talk back: in a web 2.0 world, readers must demand an economic policy that actually explains development and ask questions about who gets jobs.
- Pay working-class people to dig the roads of the future, not their own graves.
We should invest in faster transport, not reduplicating old systems. We'd extend trains to ethnic suburbs and working-class communities, and we'd install broadband so that people without jobs could market their talents to the online global community. Cities such as Portland and Arlington, VA that followed transit-oriented development actually recovered after the 1970s. Infrastructure alone can offer a bridge for the people left behind by fake development.
Fake development doesn't make jobs grow. Fake development only weaves a life raft for the few out of the shredded hopes of the many. We must distinguish between grave-digging and plans that insure development for all.
This Christmas, we must look at the big picture. First, we should dismiss the experts who brought us here. Then, as investors and entrepreneurs and neighbors and voters and readers, we must begin to reconstruct an economy that connects all our human resources.
Follow Jo Guldi on Twitter: www.twitter.com/joguldi