Detroit’s local city officials sat in stunned silence. They were looking at recent Census reports stating that Detroit’s city population has declined by 25% in the last ten years due to factors such as the decline in the American auto industry and the middle class’ exodus to the suburbs. To put that in perspective, Hurricane Katrina-stricken New Orleans had only a slightly higher rate of population loss at 29%. Facing this unprecedented crisis, these officials will probably like to know: what have they and their predecessors done wrong, and how can they correct the course?

Just as every smart investor knows to diversify his or her stock, every city needs to make sure they’re not a one-industry pony. However, judging by Detroit’s “Motor City” moniker, they haven’t done a great job at it. The city simply has been too reliant on three employers: GM, Ford, and Chrysler of Fiat. Once they packed their bags and sent the jobs overseas to cut labor costs, it was only inevitable that mass unemployment ensued. This problem was only exacerbated when recent bankruptcies forced GM and Chrysler to cut costs and downsize. To Detroit, that can only mean more auto plant closings and mass layoffs. Meanwhile, there is no other major industry in the city that can support such a large amount of workers, who are mostly untrained and, thanks to unions, have come to expect above average industry salaries and benefits.

As nobody expects the U.S. auto industry to return to its former glory, Detroit will have to develop an expertise at something else in order to revive its moribund economy and entice people to come. Fortunately, they have one big advantage in doing so in a top public university close by- the University of Michigan, Ann Arbor. Detroit should provide targeted incentives for U of M graduates to start businesses there and create jobs in the city. For example, knowing that Michigan has a highly ranked business school, they can use tax breaks to create a financial district. Or Detroit can offer medical training in community colleges to attract people to build hospitals there. The point is that the city must leverage its and the state’s advantages to create new strengths for the city to market itself to prospective residents. The only problem will be finding the funds to accomplish such an initiative.

Reinventing a city is going to be unbelievably hard. However, it has been done once, and recently- Pittsburgh, once left for dead after the collapse of the U.S. steel industry, has found steelworking niches and diversified its economy into sectors such as health care, resulting in its being better able to weather the recession. With a little luck and a lot of initiative, Detroit can do the same and create an economic revival that will entice people to return and move in. Its survival as a major U.S. city depends on it.


(Photo: GoTRISI)