Help Distressed People, Not Distressed Cities

Help Distressed People, Not Distressed Cities
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Many cities and towns around the United States are struggling mightily. Perhaps former employers have relocated or shut down, public pensions are wrecking municipal finances, or local officials are unwilling or unable to make the tough financial decisions required to pull out of a downward spiral. Yet residents are told that their cities, from Buffalo, N.Y., to Birmingham, Ala., can regain their former glory if they can just attract the right company or win that next government grant.

The hard truth is that for most of these cities, a return to past glory is unlikely — and cities that do make it back will do so by embracing the future, not recreating the past. Boston, for example, went through hard times in the 1980s but bounced back by transforming itself from an industrial city into a city built around the information economy.

Not all cities can do what Boston did, however, because population growth is almost a zero-sum game in the U.S. today. Recent U.S. Census projections predict that the country's population will grow by just 0.6 percent per year until 2060. At that rate, it would take over 135 years for Buffalo to return to its 1950 population. Many other cities — e.g., Cleveland; Scranton, Pa.; Trenton, N.J.; and Gary, Ind. — face a similar reality. Unless these cities can attract a substantial number of people away from growing cities such as Charlotte and San Diego, it will be impossible to achieve any significant growth.

In many ways, a declining city is similar to a declining company. The competitive advantage a company has — a better production process, a proprietary design, or an advantageous location — can be rendered obsolete by an innovative entrepreneur with a new and better product who locates in a new and better location. The original company must adapt to this new reality or fail. History is littered with companies that were unable to adapt — American Motors, Collins Radio, Zenith Electronics — and failed as a result.

Cities and towns throughout history have followed a similar path. Abandoned mining towns that were once bustling with people and commerce are scattered throughout the West. Once the mines were no longer profitable, everyone moved on to something else. This was a painful process for those who made their homes there, but the alternative was worse — remaining in a place with little economic opportunity and little reason to expect that to change.

Like mining towns, many older cities grew up around businesses that were attracted to an area by some geographic advantage, often a port or river that made it cheaper to transport manufactured goods. Buffalo, New Orleans, Cincinnati, Boston, and New York are a few examples of such cities. New York and Boston have been able to adapt and reinvent themselves over time, while others like Buffalo and Cincinnati have found the transition more difficult.

When a company is declining, the usual policy response is to let it fail. This is not because a firm failure is harmless — many people lose their jobs — nor is it because society is callous to the plight of those laid-off workers. We let it fail because that is how the economy grows; new firms that produce better products displace older firms that produce less desirable products.

Most people understand that if we constantly bail out companies, society will never advance. Instead, society expects people to get new (and hopefully better) jobs at different companies, and the economy grows despite the short-term pain and adjustment faced by some workers.

Yet it's difficult and painful to watch a whole city decline. Policymakers and politicians insist that Detroit and similar cities can make a comeback, and journalists fuel these statements with inspiring stories of revitalized neighborhoods and upbeat locals confident about the future. Much of the local confidence is due to the billions of dollars spent building stadiums, developing waterfronts, subsidizing hand-picked businesses, and rehabbing neighborhoods.

Unfortunately, there is little evidence that such expenditures lead to population growth. Detroit, for example, receives hundreds of millions of dollars in federal aid per year, yet the most recent Census projections show that it lost another 8,000 people from 2013 to 2014.

Research shows that a person's immediate surroundings have a large impact on their quality of life, which is why government programs spend so much money trying to improve specific places. But there is an alternative to making ineffective investments in deteriorating places: Policies can help people move to prospering places.

Economists like Cal Berkeley's Enrico Moretti have proposed relocation assistance for years, yet the place-based model still receives most of the government funds.

Decreasing artificial barriers to migration set up by local governments would help, too. Many of the most productive cities, such as New York, San Francisco, and San Jose, have zoning laws and other restrictions on building that artificially increase the price of housing, making it prohibitively expensive for many people to live there. State-level efforts to remove these restrictions would increase the affordability of many areas and encourage additional migration.

Another reform that would facilitate migration is the removal of occupational-licensing laws. Workers who are fully licensed to practice their profession in one state often have to obtain an expensive new license if they move to a different state. This is particularly burdensome for lower-income workers and deters some people from moving to places with more economic opportunities.

Finally, we need to stop encouraging people to stay in declining areas based on stories of false hope. For certain individuals, it may make sense to remain in a depressed area, for either economic or personal reasons, but they should do so without being told that we can save their city. Try as we might, that's not a promise we can honestly make.

Without another major economic shift, people and companies are not going to move from San Diego, Phoenix, and Miami back to Cleveland, Buffalo, and Detroit in large numbers. Moving toward opportunity is a better solution for most Americans than waiting for opportunity to come to them, and they deserve to be told the truth.

Adam A. Millsap is a research fellow for the State and Local Policy Project at the Mercatus Center at George Mason University.

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