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Economic Development Analysis and Proposal Plan For Detroit

Economic Development Analysis and Proposal Plan for Detroit

Abstract

For the better part of the 20th century, manufacturing became the key pillar of the U.S. economy. In particular, vehicle manufacturing enabled the U.S. to rise as one of the greatest economies in the world, surpassing other states such as the Soviet Union. During this period, various vehicle manufacturers emerged to become household names in the U.S. Some of these manufacturers include Ford, General Motors, Levi Strauss, Maytag, and others such as Boeing involved in aircraft manufacturing. The rise of the manufacturing industry brought about the emergence of America’s middle class and the growth of cities. The availability of well-paying manufacturing jobs attracted people in cities where manufacturing industries were located. The influx of a middle class in these cities bolstered growth and development of the economies. Towards the end of the 20th century, however, the U.S. manufacturing industry experienced a significant decline in growth, leading to plummeting of manufacturing jobs. In the first part of the 21st century, the manufacturing industry has continued to experience turmoil as major car manufacturers downsize or close operations in various cities in a bid to survive the harsh economic conditions.

Economic Development Analysis and Proposal Plan

Detroit is a large Midwestern city in Michigan. The city is the most populous in the state of Michigan. During the 19th century, Detroit became a great manufacturing hub within the Great Lakes region. In the first half of the 20th century, Detroit experienced significant growth in its population due to the continued expansion of the motor vehicle industry. By mid-20th century, Detroit was among the top five largest U.S. cities. Towards the end of the 20th century, various forces shaped the vehicle manufacturing industry. The major forces include globalization, suburbanization, and industrial restructuring. These forces significantly affect the auto industry, leading to massive losses of manufacturing jobs. From the late 20th century, Detroit’s population has significantly reduced as jobs in the manufacturing industry decline. The decline in Detroit’s auto industry has had a significant impact on the city’s economy. In 2013, Detroit officially filed for bankruptcy (McDonald, 2014). In the following year, however, Detroit was able to move away from bankruptcy. This paper comprises of an economic development analysis and proposal regarding the city of Detroit.

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Economic Situation Facing Detroit

Detroit is currently facing a serious economic crisis following the decline in auto industry jobs in the region. The region has been the hub of motor vehicle manufacturing in the United States for over a century. Detroit has been home to the three largest automakers in the United States: General Motors, Ford Motor Company, and Chrysler LLC. According to Klier (2009), Detroit automakers had lost about 40 percent of their market share in the U.S. by 2009. The decline in the market share began in the period after the 1950s when the auto industry was at its peak. The U.S. auto industry has lost a large segment of the market share to Toyota, a Japanese automaker (Klier, 2009). Currently, Toyota is the largest automaker in the world, a position that was previously the preserve of General Motors. This decline has significantly affected Detroit’s economy.

The decline of Detroit’s auto industry occurred in several unique phases starting from the 1960s. According to Klier (2009), the first decline in Detroit’s auto market share occurred in the 1960s following increasing imports. Increased important led to a 15 percent decline in auto sales by the three automakers. In the early 1990s, General Motors, Chrysler, and Ford experienced robust growth following the introduction of light trucks (Klier, 2009). In the late 1990s, other automakers had ventured into the manufacture of light trucks, increasing the competition. From 2000 to 2008, there were significant shifts in consumers taste and preferences following the gradual increase in gasoline prices over the period (Klier, 2009). The consumers opted for lighter and more fuel-efficient cars. In 2008, gasoline prices reached the highest price at $4 per gallon. This prompted a shift in consumer preferences to more fuel-efficient car models. The three automakers had failed to develop more fuel-efficient cars thus prompting consumers to shift to rivals and mainly imports.

The decline in the auto industry has had serious economic consequences in the Detroit region. One of the serious consequences is a decline in population. According to Vojnovic et al. (2014), Detroit’s population fell by 25 percent from 2000 to 2010. The population in 2000 was 951,270 compared to 713,777 recorded during the 2010 census. Detroit’s population has declined by over 60 percent since the 1950s (Vojnovic et al., 2014). This has led to an increase in abandoned houses and a decline in tax avenues for the local government. The movement of people from the region has led to a decline in the overall volume of business in the region. As such, few organizations would prefer to commence operations in Detroit region. Due to depopulation, Detroit residents face challenges in accessing basic urban amenities such as schools, stores, supermarkets, and other critical amenities.

The declining population in Detroit is the result of increased migration out of the region due to lack of jobs. Detroit’s economy was heavily dependent on the auto industry. As other cities diversified into other sectors such as insurance, banking, and education, Detroit stuck to the auto industry as the backbone of the region’s economy. The decline in the auto industry over the years has contributed to massive job losses over the years. According to Klier and Rubenstein (2012), vehicles production declined from 10.7 million small cars to 5.6 million cars between 2007 and 2009. Consequently, poverty levels have significantly increased due to rising unemployment. Since Detroit’s economy is predominantly based on the performance of the auto industry, the city has experienced the highest unemployment levels in history.

The high unemployment levels in Detroit has resulted to high poverty levels and related social problems. High poverty levels lead to increase in social ills such as crime, prostitution, illegal drug trade, and other social ills. The city records high levels of violent crime, property crimes, and fatality rates resulting from crime. There is also declining education standards in the region. The loss of jobs among thousands of Detroit residents means that the local government cannot be able to subsidize education or improve the education standards in the region due to unavailability of funds. According to Zernike (2016), most schools in Detroit are experiencing significant academic and financial challenges. Detroit is also facing challenges with public transportation. Over the years, public policies focused on developing a “car culture” (Padnani, 2013, p.1). This led to heavy investments in building of highways at the expense of a public transportation system. This makes it difficult for Detroit inhabitants to move to commute to nearby towns for work.

Detroit’s Response to the Economic Situation

Detroit has made significant efforts to improve the economic conditions in the region. One of the key efforts involved diversification of the economy. The entire Michigan region has experienced cycles of high employment and unemployment occasioned by the fluctuations in vehicle sales. In the late 1980s, the local government made significant efforts to diversify the economic base (Holusha, 1986). This was an attempt to move the economy away from the auto industry as key economic pillar. For instance, the government made efforts to develop the technology industry in order to employ more people in such new service industries. One of the service-based technology company that emerged in this period is the Applied Intelligent Systems Inc., located in Ann Arbor (Holusha, 1986). The efforts to diversify the economy were unsuccessful, as unemployment in the region remains a major challenge facing the local government.

Detroit has implemented a number of initiatives to revive the economic, social, and cultural aspects of the city. One of the major initiatives is attracting businesses to invest in the area and to expand the existing businesses (Helms, 2016). The Michigan government has reduced corporate taxes in the region in order to encourage businesses to move into the area. This will improve economic growth in the region through the creation of more jobs. There are efforts by the local government to encourage major construction projects in the region. An example of such project is the Orleans Landing on Detroit riverfront. This is a planned development featuring residential and retail buildings and commenced in 2015. The project is worth $65 million and is likely to spur growth through creation of jobs in the region (Helms, 2016). This will help in creating jobs both directly and indirectly.

The local government is keen on improving local tourism through the rehabilitation of the Brewster-Wheeler Recreation Center. The $15 million investment aims at promoting local tourism (Helms, 2016). There are efforts to encourage entrepreneurship in the region by linking potential entrepreneurs to property owners in the region. This will ensure that entrepreneurs have access to business premises from which they can commence operations and create employment. The local government has embarked on efforts improve youth employment opportunities in the region by developing youth employment programs. An example of such a program is the Grow Detroit’s Talent (GDYT) program, which is a citywide program that gives youths between ages 14 and 24 summer jobs (Helms, 2016). All these projects seek to revamp Detroit’s economy.

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SWOT

Detroit SWOT Analysis
Strengths

·         Improved tourism in the Detroit region

·         Immense natural resources such as rivers and fossil fuels

·         Detroit holds a celebrated culture across the United States

·         Detroit has a rich manufacturing knowledge and capabilities from years of vehicle manufacturing

·         Detroit is popular in terms of music and art culture

·         Presence of research institutions, large universities, and community colleges

·         Detroit has connections to Windsor, Ontario

·         RiverWalk attraction in the region thus promoting tourism

Weaknesses

·         Low educational attainment levels in the region

·         High unemployment levels due to the collapse of the manufacturing sector

·         An underdeveloped public transportation system

·         Lack of appropriate social infrastructure such as five star hotels and lodgings to bolster tourism

·         Declining population creating the impression of a dying community

·         Inadequate funds by the local government to conduct development agenda

·         Rising debt by the local government leading to bankruptcy in 2013

·         Rise crime levels in the region due to unemployment

Opportunities

·         The opportunity to grow the tourism sector

·         The opportunity to revamp the economy through continued investments

·         Embracing regional cooperation to boost growth and development of industries

·         The opportunity for growth driven by the transportation sector

·         The opportunity to invest in new car manufacturing technologies such as hybrid vehicles

·         Availability of parks, thus possibility for developing tourism

Threats

·         Increasing importation of vehicles into the U.S. market from overseas countries

·         Economic recession such as 2008 recession leading to suppressed global demand

·         Possibility of severe damage from environmental catastrophes such as hurricanes, flooding, earthquakes, and others

·         Fluctuations in gasoline prices which negatively affects production and tourism

·         Increased inflation across the United States

·         High number of retirees leading to crippling of the retirement system

 

Legal and Public Policy Issues

A number of key legal and public policy issues are currently facing Detroit. One of the public policy issue concerns the education sector. There is debate over whether Detroit should consider closing the persistently underperforming schools in the region in order to improve the education sector (DeGrow, 2016). There is a general agreement among various stakeholders including parents about the need to improve the quality of education in the region. Currently, there is a significantly large number of underperforming schools in Detroit (DeGrow, 2016). Another major challenge within the education sector is rampant corruption. This leads to misuse of education funds rather than channeling them directly to the students in the classrooms. There is also the issue of charter schools within Detroit and the larger Michigan area. The most recent report by the NAACP (2017) indicates that there is need to do away with the profit-driven charter schools in the region.

The report by NAACP (2017) cites various issues facing charter schools in Detroit region. The major problems identified include quality issues, access and retention problems, transportation issues, accountability and transparency, and concerns relating to for-profit charters. The major legal issue involves closing the charter schools that record gross underperformance or lack of adherence to rules and regulations. There is a push by some stakeholders to introduce a tougher legislation whereby such schools may face automatic closure (DeGrow, 2016). In the recent past, there have been arguments that some schools were exempt from closure for up to three years. For instance, the new Detroit district had issued briefings that its schools were exempt from closure. The attorney general dismissed this briefing arguing that no school was exempt from closure.

Some stakeholders in the education sector hold the argument that closing schools may not provide the ultimate solution to the various issues in the education sector. There is evidence, however, that closing schools may yield modest benefits in the education sector. The evidence arises from school closures in the New York state, which yielded small benefits in terms of school performance. There is a clarion call for a more pragmatic approach in solving the issues currently facing Detroit’s education sector. Some stakeholders have recommended the formation of a task force that will be responsible for coordination of education across the region. A key role of the task force is to ensure the consolidation of bilingual services and special education. Poverty has been one of the major factors behind the declining education standards in the region. Poverty contributes to great inequalities between schools in the downtown region and those within the outlying neighborhoods. By eradicating poverty, some of the pertinent issues in education will also disappear.

Another public policy issue concerns the application of public funds in the education sector. In 2015, Michigan Governor attempted to introduce radical changes especially with regard to administration of funds in the education sector (Gast, 2016). The major issue involved the allocation of funds to students for servicing debt while denying teachers the funds they need for providing quality education. There have been major concerns over about the poor working conditions that teachers face in the classroom, the major issues being overcrowding and low maintenance of facilities (Gast, 2016). These issues have emerged due to lacks of adequate fund allocation to the education sector by the local government. Debts have crippled Detroit’s education. As such, there have been calls for increased funding from the Legislature to enable it service the accumulating debts.

Michigan Governor developed a proposal that would see the establishment of a second school district within Detroit. The role of the second school district would be to oversee the running of schools in the region. This would enable the Detroit Public School System to acquire the public debt. According to Gast (2016), Detroit school system has over $515 million in debts. While the school system receives allocations of up to $7,400 per student, about $1,200 goes into servicing debts and other legacy costs incurred by schools (Gast, 2016). This means that less money ends up in classrooms where there is a greater need. The new proposal seeks to ensure that the school debt is paid off under the Detroit Public Schools system and using the taxpayers revenue. This would allow the Detroit to use the extra funds into developing the classrooms. Also under the new proposal, more funds will be available for increasing teacher salaries, which have stagnated for a long time.

Governmental Atmosphere

Detroit city has strong mayoral system of governance. This form of government comprises of a mayor at the top level of the hierarchy (“Detroit,” 2012). The mayor serves at the top administrator and works on a full-time basis. In addition, the mayor holds powers to make appointments or make dismissals of the top government officials under the mayoral government system. The mayor draws the powers to make appointments from the City Charter and from various state laws concerning the city. The city council holds the mandate for making budget approvals. Another major role of the council holds the mandate for reviewing and approving city ordinances (“Detroit,” 2012). The city council also approves contracts that have a significant value to the city. Nonetheless, the mayor cannot be compelled to make budget allocations to any particular project or person. A city clerk is responsible for overseeing elections and the safekeeping of municipal records.

Detroit is a highly liberal city, with majority of its residents supporting the liberal candidates. The current mayor, Mike Duggan is a democrat and thus leans on the left wing. Some of the democratic ideals include support for gay rights, favor progressive income tax, universal healthcare, call for decreased spending, and are generally in support of the abortion. The legislators govern focusing on the best interest of the city rather than their personal bias. For instance, the Mike Duggan, the mayor, is currently focusing improving the quality of education in the region after years of deterioration. The Mayor also plans to revamp the city by creating more jobs and improving the standards of living in the region.

The city of Detroit has a hierarchical government structure. The mayor is at the helm of the leadership hierarchy. The mayor holds substantial powers as enumerated in the City Charter and city laws. As such, this is a strong mayoral system of government. The following chart shows Detroit’s government structure in a more simplified manner.

Detroit Government Structure

Figure 1Detroit Government Structure

Figure 1 represents a simplified government structure in Detroit city. The mayor’s office is the highest in the city. The mayor is the city’s chief executive and as such holds the mandate to control the executive arm of the local government (“Detroit,” 2012). The mayor owes the residents accountability. The mayor also holds administrative authority over the region. As such, he is responsible for implementing various programs or activities. The mayor holds the power to appoint directors for various local government departments. The mayor is also charged with maintaining peace in the region. Directly below the mayor is the city council level. The city council acts as a legislative body. The city council holds various responsibilities. One of the major role is voting (“Detroit,” 2012). Another role is to conduct investigations into the affairs of various agencies and individuals. Another important role is to provide ordinance. Other roles include controlling property, confirming authority, and among others.

The city clerk comes third in the structure. The city clerk holds various responsibilities. The first role is filing of important documents concerning the office of the city clerk (“Detroit,” 2012). The second role is to keep custody of the corporation seal. This seal is used to certify copies of important records. The third role is to administer oaths. Other responsibilities include taking affidavits, maintaining voter register, and safekeeping of all records. The fourth level comprises of departments and agencies. The departments and agencies are critical in promoting specific agenda (“Detroit,” 2012). Some of the departments include finance department, budget department, human resources department, and among others. The fifth level comprises of boards. Boards fall under departments are charged with specific roles relating to the particular department they represent. An example is the Board of Police Commissioners whose mandate is oversight of the Police Department (“Detroit,” 2012). The last level comprise of commissions. Commissions discharge specific duties. For instance, the elections commission discharges electoral mandate.

Private business plays does not play a significant role in governing. The government tends to make all decisions with little negotiations with the private sector. Nonetheless, the government is making efforts to revamp the private sector since it is one of the major employers. The mayor’s office works closely with Detroit Regional Chamber of Commerce. In 2016, the mayor’s office sought to have the Detroit’s businesses and foundations to admit over 8,000 youths between ages 14 to 24 in the summer working program. This would be achieved through collaboration with Detroit Regional Chamber of Commerce and other government entities in charge of labor issues.

The government mainly shapes the economic policies. The mayor’s office plays a critical role in shaping the micro- and macro-environments in which business organizations operate. For instance, there are efforts to link potential entrepreneurs with property owners for easy access to business premises. There are public-private partnerships in Detroit region. For instance, the mayor’s office has teamed up with local business groups with an aim of attracting investors in the region, training the workforce (especially youths), and to bring stability into the neighborhoods. This arrangement has significantly reduced unemployment in the region. In 2013, Detroit mayor’s office in collaboration with various local groups and JPMorgan Chase made acquisitions of the National Bank of Detroit with the view of bolstering small local businesses (Arieff, 2017). The effect of this is employment creation and economic recovery.

Action Plan

Detroit holds the potential to improve its economic growth and development and reverse the falling population levels. However, this can only be realized through careful policy implementation by the local government. One way Detroit can improve growth is by developing the small business sector. The region holds immense opportunities for small business enterprises. Small business enterprises hold the potential for transforming the region in a radical manner. By encouraging the development of small businesses in the region, there will be an increase in employment opportunities, while ensuring that residents do not go in other cities for basic goods and services. The current situation in Detroit is dire, with residents having to travel far distances looking for basic commodities and services. According to Farrell, Relihan, & Ward (2017), indicates that Detroit residents have low levels of access to retail due to a lower population density and the economic challenges experienced over the years.

By encouraging the development of small businesses, there will be improvements in the resident access to crucial amenities. The government can encourage the development of small business in various ways. First, there is need to create a suitable environment for thriving of small businesses. The government can achieve this by lowering taxes for establishment of small businesses. For instance, the government should lower the cost of business permits and eliminate any bureaucracies in obtaining permits. The government should develop partnerships with the private sector in order to encourage the growth of small businesses. For instance, through partnership with JPMorgan Chase Institute, the region received over $100 million investments in 2014 alone (Arieff, 2013). These capital injections were utilized in skills training, growing incubators, and supporting local investors. Developing small businesses is a viable plan since it does not demand heavy investments from the cash-strapped city.

There is need to tackle the issue of house abandonment and idle land in Detroit region. There are about 80,000 abandoned houses in the city (Schindler, 2016). The high number of abandoned houses instills a sense of a dying community among city residents. The government can turn this into a fortune for the Detroit community. This can be done by encouraging home ownership and property investment in the region. Local authorities should ensure the transfer of all abandoned homes to the local government to be put in better use. By encouraging home ownership, the local government will be able to encourage people to move into the area. The local authorities should ensure there is an efficient allocation of property among the residents.

In order to encourage settlement in the area, the local government needs to review the current land use practices. Detroit region has vast open spaces due to the depopulation in the region since the 1950s. The government can be able to develop a better land use policy that will attract people into the region. The government should encourage the development of modern residential apartments with futuristic land use planning. Some of the vital elements to consider are developing green spaces, using natural landscapes for air cleaning, boulevards, and restoration of various ecological habitats (Schindler, 2016). Detroit’s land resources hold the capacity for transforming the city into one of America’s sustainable cities. This plan should focus on concentrating the residents in areas that already enjoy higher population densities. By developing a livable city, people will be willing to stay rather than move to new areas (Schindler, 2016). The government can achieve this by working with key partners interested in promoting green infrastructure. There are various interested partners such as Greening of Detroit, Erb Family Foundation, and Southeast Michigan Council of Governments.

Another important issue is for Detroit to develop its transportation network and infrastructure. There is need for Detroit city to improve public transportation system. For instance, there is need for the construction of subways, bus terminals, and a railway network linking the city to other major states. This will improve mobility and the prospects of the residents working in other areas while still living in Detroit (Schindler, 2016). The transportation plans will include plans for encouraging non-motorized transportation in the region. Improving the public transit system will cost the city a significant amount of money. There is need to seek external funding for the development of the city’s public transit system. The government should seek external partners who can finance the development of the transit system at lower interest rates.

In summary, Detroit region is experiencing a serious economic crisis. The economic crisis began in the late 1950s and culminated into a state of bankruptcy in 2013. The economic crisis resulted from the fall of the automobile industry in the region, which reached its peak in the early 1950s. The failure of the city to diversify into other industries meant that the decline of the vehicle manufacturing industry has a serious impact on the economy on the region. With no other profitable industry to opt for, majority of Detroit residents chose to move in other states in search for jobs. The continued migration from the region since the late 1950s has led to a serious depopulation in the region. This has led to numerous abandoned houses and imbued the feeling of a dying community among the residents left behind. The local government has developed various initiatives to reverse the dire situation in Detroit. Some of the responses include diversification efforts, attracting investors, planned development projects, encouraging local tourism, revamping the education sector, focusing on youth development, and other initiatives. The major public policy issue facing the government concerns the application of public funds in the education sector as large amount goes towards servicing debt rather than the classroom. The major recommendation is for the government to encourage the development of small business as the key to revamping the economy.

References

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DeGrow, B. (2016). Here are the issues facing Detroit schools. Retrieved from             https://www.mackinac.org/22826

Detroit. (2012). Charter of the City of Detroit. Retrieved from             http://www.detroitmi.gov/Portals/0/docs/Publications/COD%20Charter/2_29_2012_Char            terDocument_2_1_WITHOUT_COMMENTARY_1.pdf

Farrell, D., Relihan, L., & Ward, M. (2017). Going the distance: big data on resident access to     everyday goods. Retrieved from            https://www.jpmorganchase.com/corporate/institute/document/institute-access-to-        consumption-brief.pdf

Gast, P. (2016). Detroit schools crisis: Fixes needed now, governor says; more sick-outs set.        CNN. Retrieved from http://edition.cnn.com/2016/01/19/us/detroit-public-schools-           michigan-governor/index.html

Helms, M. (2016, Jan. 16). Detroit aims to cut unemployment. Detroit Free Press. Retrieved        from http://www.freep.com/story/news/local/michigan/detroit/2016/01/16/detroit-aims-  cut-unemployment/78858112/

Holusha, J. (1986, Sept. 26). Michigan diversifying its economy. The New York Times. Retrieved            from http://www.nytimes.com/1986/09/27/us/michigan-diversifying-its-economy.html

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McDonald, J. F. (2014). What happened to and in detroit? Urban Studies, 51(16), 3309-3329.             doi:10.1177/0042098013519505

National Association for the Advancement of Colored People (NAACP). (2017). Campaign for   excellence in public education. Retrieved from http://www.naacp.org/wp-            content/uploads/2017/07/Task_ForceReport_final2.pdf

Padnani, A. (2013, Dec. 8). Anatomy of Detroit’s decline. The New York Times. Retrieved from             http://www.nytimes.com/interactive/2013/08/17/us/detroit-decline.html

Schindler, S. (2016). Detroit after bankruptcy: A case of degrowth machine politics. Urban             Studies, 53(4), 818-836. doi:10.1177/0042098014563485

Vojnovic, I., Kotval‐K, Z., Lee, J., Ye, M., Ledoux, T., Varnakovida, P., & Messina, J. (2014).    Urban built environments, accessibility, and travel behavior in a declining urban core: The extreme conditions of disinvestment and suburbanization in the detroit       region. Journal of Urban Affairs, 36(2), 225-255. doi:10.1111/juaf.12031

Zernike, K. (2016, June 28). A sea of charter schools in Detroit leaves students adrift. The New    York Times. Retrieved from https://www.nytimes.com/2016/06/29/us/for-detroits-          children-more-school-choice-but-not-better-schools.html

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