Subtracted cities -- the art of falling gracefully

A few years ago, I was doing some work for a young company that had developed a reputation as a growth stock. As I became privy to more of the company's long-term plans, I started to wonder about the sustainability of its strategy. The company seemed to be counting on sustaining growth rates that would soon put us over 100% of the market.

I once mentioned this to a colleague who had drank deeply of the Kool-aid. I expected one of two responses: either he would find this troubling or he would point out a flaw in my argument. He did neither. Instead he just shrugged and smiled and assured me that when we reached that point the people who ran the company would simply find a way to "innovate out of the problem."

It's easy to understand the appeal of growth but good planning and management also have to be able to handle plateaus and even declines. This is true for industries like the newspaper business. It's also true for cities.

From Deborah Potter via Richard Green by way of Mark Thoma:

Detroit stands as the ultimate expression of industrial depopulation. The Motor City offers traffic-free streets, burned-out skyscrapers, open-prairie neighborhoods, nesting pheasants, an ornate-trashed former railroad station, vast closed factories, and signs urging "Fists, Not Guns." A third of its 139 square miles lie vacant. In the 2010 census it lost a national-record-setting quarter of the people it had at the millennium: a huge dip not just to its people, but to anxious potential private- and public-sector investors.

Is Detroit an epic outlier, a spectacular aberration or is it a fractured finger pointing at a horrific future for other large shrinking cities? Cleveland lost 17 percent of its population in the census, Birmingham 13 percent, Buffalo 11 percent, and the special case of post-Katrina New Orleans 29 percent. The losses in such places and smaller ones like Braddock, Penn.; Cairo, Ill.; or Flint, Mich., go well beyond population. In every recent decade, houses, businesses, jobs, schools, entire neighborhoods -- and hope -- keep getting removed.

The subtractions have occurred without plan, intention or control of any sort and so pose daunting challenges. In contrast, population growth or stability is much more manageable and politically palatable. Subtraction is haphazard, volatile, unexpected, risky. No American city plan, zoning law or environmental regulation anticipates it. In principle, a city can buy a deserted house, store or factory and return it to use. Yet which use? If the city cannot find or decide on one, how long should the property stay idle before the city razes it? How prevalent must abandonment become before it demands systematic neighborhood or citywide solutions instead of lot-by-lot ones?

Subtracted cities can rely on no standard approaches. Such places have struggled for at least two generations, since the peak of the postwar consumer boom. Thousands of neighborhoods in hundreds of cities have lost their grip on the American dream. As a nation, we have little idea how to respond. The frustratingly slow national economic recovery only makes conditions worse by suggesting that they may become permanent.

Subtracted cities rarely begin even fitful action until perhaps half the population has left. Thus generations can pass between first big loss and substantial action. Usually the local leadership must change before the city's hopes for growth subside to allow the new leadership to work with or around loss instead of directly against it. By then, the tax base, public services, budget troubles, labor forces, morale and spirit have predictably become dismal. To reverse the momentum of the long-established downward spiral requires extraordinary effort. Fatalism is no option: Subtracted cities must try to reclaim control of their destinies. ...

The lessons of Motown

Michael Winerip is a much better than average education reporter. He doesn't have a great grasp of the numbers or of the implications of the policies, limitations which have kept him from getting a jump on the story the way, say, This American Life did with the financial crisis, but he has kept up with it while most of his colleagues are still reporting discredited narratives from interested parties.

This article on Detroit is a good example. He doesn't connect some important dots but he does a good job reporting what he sees. (you'll find my comments in brackets):

In 2009, Detroit public schools had the lowest scores ever recorded in the 21-year history of the national math proficiency test.

The district had a budget deficit of $200 million.

About 8,000 students were leaving Detroit schools each year.

Political leaders had to do something, so they rounded up the usual whipping boys:

Wasteful bureaucrats. In 2009, the governor appointed an emergency financial manager, Robert Bobb, a former president of the Washington school board, to run the Detroit district. Mr. Bobb is known nationally for his work in school finance, and recruiting him took a big salary, $425,000 a year. He has spent millions more on financial consultants to clean up the fiscal mess left by previous superintendents.

[A large number of people are acquiring a great deal of money and power through the reform movement. This doesn't mean that these people don't have good intentions or that they are not worth the money they're being paid but it does mean that this group, which includes high profile figures like Joel Klein and Michele Rhee, has a vested interest in these policies. It also means that when Michele Rhee brags about being a counterbalance to the special interests, she's not being entirely honest.]

Greedy unions. Though Detroit teachers make considerably less than nearby suburban teachers (a $73,700 maximum versus $97,700 in Troy), Mr. Bobb pressed for concessions. He got teachers to defer $5,000 a year in pay and contribute more for their health insurance. Last week, the Republican-controlled Legislature approved a bill to give emergency managers power to void public workers’ contracts. If signed by the governor, Mr. Bobb could terminate the Detroit teachers’ union contract.

Traditional public schools full of incompetent veteran teachers. Michigan was one of the first states to embrace charter schools, 15 years ago. Currently there are as many Detroit children in charters — 71,000 — as in district schools. Now there is talk of converting the entire Detroit district (which is 95 percent African-American) to charters. Supporters say this could generate significant savings, since charters are typically nonunion and can hire young teachers, pay them less and give them no pensions.

[Before we go on, this would seem to be an almost perfect test of the large-scale charter school model (as compared to the more limited role I've advocated). Charter schools have been put forward as the solution for this very kind of troubled urban district.]

So now, two years later, how are the so-called reforms coming along?

Not great.

Since Mr. Bobb arrived, the $200 million deficit has risen to $327 million. While he has made substantial cuts to save money — including $16 million by firing hundreds of administrators [Of course, he's spent millions making those cuts] — any gains have been overshadowed by the exodus of the 8,000 students a year. For each student who departs, $7,300 in state money gets subtracted from the Detroit budget — an annual loss of $58.4 million.

[Economic conditions and demographic shifts still trump any educational reform proposed so far. People need to remember this.]

Nor have charters been the answer. Charter school students score about the same on state tests as Detroit district students, even though charters have fewer special education students (8 percent versus 17 percent in the district) and fewer poor children (65 percent get subsidized lunches versus 82 percent at district schools). It’s hard to know whether children are better off under these “reforms” or they’re just being moved around more.

[As mentioned before, there are a number of possible biasing effects (peer, placebo, Hawthorne, selective attrition, etc.) that may be inflating the charter's scores. In other words, they are not outperforming the public schools and they may be doing much worse.]

Steve Wasko, public relations director for Mr. Bobb and the Detroit schools, did not respond to a dozen voice mails and e-mails seeking comment. Those who know Mr. Wasko say he cares about Detroit and is sick of the national media portraying the city as hopeless.

[You have a public relations director who can't work a talk with the New York Times into his schedule. This alone raises questions about the Bobb administration. It also suggests some other options for cost cutting (who do you think makes more, a starting teacher or a public relations director?)]

...

Last spring, Mr. Bobb had planned to close 50 schools with dwindling enrollment. But his list was reduced to 30 after several public meetings at which parents and staff members pleaded their school’s case before the all-powerful Mr. Bobb.

In June, Mr. Bobb held a news conference at Carstens Elementary — one of the schools spared — to announce the 30 closings.

One reason Carstens survived was an article in The Detroit Free Press last March headlined “Carstens Elementary on DPS closing list is a beacon of hope.”

The school, surrounded by vacant lots and abandoned houses, serves some of the city’s poorest children. Thieves who broke into the school last year escaped by disappearing into what the police call “the woods” — the blocks and blocks of vacant houses.

Yet Carstens students perform well on state tests, repeatedly meeting the federal standard for adequate yearly progress.

[As seen before, good teachers and schools often end up bearing the brunt of our current crop of reforms.]

“We try to fill in the holes in our children’s lives,” said Rebecca Kelly-Gavrilovich, a Carstens teacher with 25 years’ experience. Students get free breakfast, lunch and — if they attend the after-school program — dinner.

To have more money for instruction, teachers sit with students at lunch, saving the school from having to hire lunchroom aides. Teachers hold jacket and shoe drives for children who have no winter coats and come to school in slippers. At Thanksgiving every child goes home with a frozen turkey donated by a local businessman. Twice a year a bus carrying a portable dentist’s office arrives, and a clinic is set up at the school so children can get their teeth checked.

Despite all this, teachers worry that Carstens’s appearance on Mr. Bobb’s closing list — even though it was brief — means the end is near. Anticipating the worst, several parents have taken their children out of Carstens, enrolling them elsewhere, including at charters and suburban schools.

Carstens’s enrollment is half of what it was a few years ago. Every hallway has empty classrooms, giving the school a desolate feeling.

Mr. Bobb has set off a vicious cycle undermining even good schools. The more schools he closes to save money, the more parents grow discouraged and pull their children out. The fewer the children, the less the state aid, so Mr. Bobb closes more schools.

[This is a pattern we're seen before. Check Ravitch for specifics.]

Carstens has also been harmed by poor personnel decisions made by the district. Last year, 1,200 teachers took the retirement buyout, and Mr. Bobb laid off 2,000 others in the spring. Then in the fall, he realized he needed to hire the 2,000 back, and chaos ensued.

[Also something we've been warning about.]

At Carstens, a kindergarten class of 30 had no teacher until October; teachers at the school took turns supervising the class. “How do you think parents feel when there’s a different teacher every day?” said Mike Fesik, the current teacher.

It’s hard to understand why any teacher who could leave Detroit stays, but they do. Kim Kyff, with 22 years’ experience, is one of the lead teachers at Palmer Park, the elementary and middle school that opened last fall. In 2007 she was the Michigan teacher of the year. She has had offers from suburban schools, but stays because she believes that in Detroit, she has a better shot at being a beacon of hope.

[I should say more but it's late and I'm already depressed as hell. It's times like these when I have trouble not believing that, not only do we not care about children, we actually go out of our way to screw over those who do care. (yes, that's a lot of 'not's but given the hour what do you expect?)]

This round just might go to Eminem

Edward L. Glaeser has been tough on Detroit and the auto industry. Here's how he opened a column last week:

During the Super Bowl, Chrysler and Eminem gave us a chest-thumping, soul-lifting vision of Detroit as a city of character, competence and style. But the Census tells us that per-capita incomes in Detroit are barely half the national average and that one-third of the city lives in poverty.

Michigan was the only state that lost people from 2000 to 2010, and the state’s unemployment rate remains near 12 percent. Is it possible that Detroit will turn the corner despite decades of decline?

It's safe to assume that the answer Glaeser had in mind for his rhetorical question didn't rely too much on the Big Three. Back in June, 2009, here's what he had to say about the bailouts:

Since the collapse of Lehman Brothers, the public sector has spent billions saving the banks. While these decisions are certainly debatable, they are understandable. The US financial industry misbehaved badly,... but it is still a sector with a future. ... After all, every other sector in the economy depends on banks for their financing.

But what about cars? ... Does anyone, other than GM's management, believe that this company can come back? The current treatment, cash infusion and a reduction in corporate liabilities, provides a solution for a company that is broke, not for one that is broken.

Given that analysis, it might be interesting to get his take on this item from the New York Times:

General Motors, which nearly collapsed from the weight of its debts two years ago before reorganizing in a government-sponsored bankruptcy, said Thursday that it earned $4.7 billion in 2010, the most in more than a decade.

It was the first profitable year since 2004 for G.M., which became publicly traded in November, ending a streak of losses totaling about $90 billion.

In addition, G.M. said 45,000 union workers would receive profit-sharing checks averaging $4,300, the most in the company’s history. ...

Globally, G.M.’s sales rose 12.2 percent in 2010, to 8.39 million, coming within about 30,000 vehicles of retaking the title of world’s largest automaker from Toyota. For the first time, it sold more cars and trucks in China, where its sales rose 28.8 percent from 2009, than in the United States, where sales were up 6.3 percent.

Or to see what he had to say about Jonathan Cohn's reaction to the news:

Seriously, though, this is another important milestone for GM. Profits for the final quarter were actually lower than initial expectations. But the company attributed that, in part, to heavy investment in the development of new products, which is a sign of company health. “Their recovery has been fueled by significant cost-cutting, arrival of new products that consumers were seeking along with better management of incentives and supply,” Jesse Toprak, vice president of industry trends and insight at TrueCar.com, told the Times. “The sky is the limit for G.M. after becoming profitable at this low of a sales pace.”

Of course, the usual caveats apply: The two companies could still stumble and Chrysler, in particular, still needs to prove they can cars as good as their television commercials. And it's not as if workers in the auto industry didn't take a huge hit anyway: Many did lose their jobs and new employees are making a lot less money than old ones do.

Still, it looks increasingly like the rescue of the auto industry was an overall success, saving hundreds of thousands (if not millions) of jobs and bolstering the country's manufacturing base for years (if not decades) to come. Maybe it's time to start giving President Obama some credit for it--and recognizing that, when properly managed, the federal government can do a lot of good.