Category Archives: Business and Economy

Is Political Ideology Responsible for Detroit’s Woes?

Despite the attempts in last night’s GOP debate in Detroit to politicize Detroit’s problems, the history is quite diferent. Detroit’s decline was the result of business decisions going back to the 1950’s. A utomakers ignored threats on the horizon and continued business as usual. Japan climbed from the ashes partly by applying Edward Deming’s quality concepts. By the 1980’s, Detroit woke up, but its market share had already plummeted. During part of that time, Michigan had a solid conservative Governor, George Romney. Add to that the fact that Detroit never fully recovered from race riots following the assasination of Martin Luther King Jr. and the impact of Ralph Nader, who pointed out that some of the cars being produced were “not safe at any speed,” and it becomes clear that much more is at work than political ideology. This ideological obsession really keeps us in the dark as far as solving the problems American cities face. That’s my opinion. What do you think?

Financial Crisis in Illinois: Any Precedents?

With State of Illinois finances at a new level of dysfunction, I’m re-publishing this post from August of 2009. Unfortunately, not much has changed.

The current financial crisis in Illinois is multifaceted and obviously connected to national and international trends. Nonetheless, the state has faced at least one occasion where it had promised more than it could deliver financially.

The year was 1837. The nation was involved in a mania of internal improvements inspired by the huge success of New York’s Erie Canal. Illinois was no exception to this fever.
Led by the “Long Nine” (a group of very tall Illinois legislators including Abraham Lincoln), the state committed itself to a large vision of internal improvements. This included moving the capital to Springfield (more centrally located) along with building railroads and canals to be greatly subsidized by the state treasury.

There was only one small problem. The proposed expenditures would have run the state’s debt way up beyond the state’s ability to pay.
Sound familiar? We face a similar crisis now. The state’s obligations have expanded beyond the state’s current ability to pay.

The national panic of 1837 soon made it clear that the vision could not be fulfilled unless one of two things or took place. The state could raise revenue to pay for its plans or not carry through on the program of internal improvements. If the state carried through with all of its proposals, it would face bankruptcy (which did happen to other states).

Illinois faces the same kind of choice today that it faced in 1837. Then, the state’s leaders elected to not carry through on most of the internal improvements. The capital was moved. However, only one railroad was completed and it had to be auctioned off within a relatively short time at a huge loss. The Illinois and Michigan Canal was not completed until 1848 and never achieved the lofty goals set for it mainly because of the development of vastly improved transportation technology—the railroad. The state did avoid bankruptcy—barely.

Today, the state can either scale back its budgetary commitments or raise taxes or opt for some combination of both. There isn’t any other long term choice. What should the state do? I look forward to receiving your comments.