The Midwesterner: How not to build an economy

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You can bet on it.

Any time a Midwestern company announces it wants to (1) move, (2) stay, (3) grow, (4) shrink, (5) hire, (6) fire, (7) come or (8) go, you just know that some government or governments will throw money at it to persuade it to do what it was going to do anyway.

As I've written before, Midwestern states are doing this more and more in a desperate attempt to hold on to investment and jobs. Cities do it, too, none more vigorously than Chicago, which has just done it again, giving $3.1 million to a steel company which may or may not need the money.

The beneficiary, apart from the company, seems to be a Chicago neighborhood that doesn't need jobs. One loser is a neighborhood, also in Chicago, that really needs jobs. Another loser is another Midwestern city, Cleveland, that also needs jobs.

Does any of this make sense? Only to politicians, like Chicago's new mayor, Rahm Emanuel, who will get his picture taken when the company in question opens its new headquarters, just down the street from City Hall.

The company is JMC Steel Group, a big maker of tubular steel products. JMC is headquartered in Beachwood, part of the Cleveland metro district, and has manufacturing and other facilities around the Midwest. One of locations, called Atlas Tube, is in South Deering, which is a blighted neighborhood on the south side of Chicago, still suffering from the collapse of Chicago's steel industry there 30 years ago.

JMC says it wants to move its headquarters to Chicago's Loop from Cleveland. The state of Illinois already bribed it in January with $2 million in corporate income tax credits over 10 years, if it would open this headquarters in Chicago. Now Chicago's Community Development Commission, traditionally a rubber stamp for whatever the mayor wants to do, has approved an additional $1.12 million in tax increment financing (TIF) funds to help JMC pay for new furniture and other refurbishing of its Chicago digs. The company says this refurbishing will cost it $4.7 million, and it needs help. Read more from the Chicago Tribune.

JMC has promised to invest $10.2 million in Illinois over 10 years. Maybe it will, maybe it won't: we'll come back to this later.

Naturally, JMC and the city are trumpeting the job gains involved, so let's take a look at them.

JMC says the new headquarters will employ about 100 people within four years. About 50 of those people will be relocated from Ohio. The other 50 would move up to the Loop from South Deering.

JMC also has agreed to keep 286 of its Chicago-area workers on the payroll. Would the company have fired all these workers if the state and city hadn't ponied up? We'll never know.

The two bribes — $2 million from Illinois, $1.12 from Chicago — add up to $3.1 million. The governments are trumpeting those 100 jobs, but this is a phony, since 50 of these people were in Chicago anyway, and now will just be commuting in a different direction. So the net gain to Chicago is 50 jobs imported from Ohio, or $62,000 per job.

That's a lot of money for one job, about twice as much as the $33,000 per job that the state just paid Motorola Mobility Holdings Inc. to stay in suburban Libertyville. (This was two months before Motorola Mobility was bought for $12.5 billion by Google.)

OK, that's a plus of 50 jobs for Illinois. But let's think about that. Not one job is added to the overall economy. The national unemployment rate is 9.1 per cent; in Ohio it's 9 percent, in Illinois 9.5 percent. This JMC deal won't move that needle one bit. The people who work for JMC now will still work for JMC. Ohio loses 50 jobs and Illinois gains 50 jobs, but the unemployed in the two states, who presumably need some government help, will be totally unaffected.

Are Illinois taxpayers keeping JMC in business? Not that you'd notice. According to Crain's Cleveland Business magazine, a JMC executive and his family bought a majority stake in the company earlier this year. The new owner, Barry Zekelman, was quoted as saying he plans to grow the company through acquisitions, which is another way of saying that he plans to employ workers who already have a job, not add any new jobs to the economy.

All this happened on the day that the Census Bureau announced that the nation's poverty rate has reached 15.1 percent, the highest in 17 years. Also, we got the news that fully one-fourth of all Chicago homes are underwater, which means they're worth less than their mortgages.

In other words, there would seem to be better targets for government spending than a Cleveland company that plans to buy other companies but can't afford to buy its own furniture.

TIF, that tax increment financing, is a controversial tool in its own right. Its purpose is to invest money in a project, on the assumption that the project will increase the value of a neighborhood and hence increase property taxes there. The investment comes up front, with the increased property taxes (the tax increment) to be collected later.

Theoretically, TIFs are supposed to be used mostly in less-developed or under-developed neighborhoods. During the Richard Daley administration, TIFs were used overwhelmingly to fund projects in the Loop and other upscale neighborhoods; Emanuel apparently is continuing this tradition.

But the city and state can argue that JMC has promised to invest $10.2 million in Illinois. JMC's record here isn't very good. Eight years ago, the city promised JMC's Wheatland Tube subsidiary a total of $1.9 million in TIF financing, after Wheatland promised to redevelop its South Side facility and keep 236 workers there on the job. In the end, Wheatland kept only about 160 of those workers, and the city, which had already paid $590,000, stopped further payments. Under the new deal, JMC will be able to keep this money, raising its total take from the state and the city to some $3.7 million. The city's TIF deal with JMC won't become official under the City Council approves it, as it is expected to do.

All this should provoke thinking on how to spend the taxpayers' money.

Not only is the US in a recession, it is in a transition to a new, post-industrial economy, in which the future belongs to the city, state and nation that invests most wisely in education, infrastructure and the innovative encouragement of new companies and new entrepreneurs.

Steel companies like JMC are important to the Midwestern economy, but they're not exactly the wave of the future. They still turn out steel products but, using automation, do this with an ever-shrinking work force.

The $3.7 million that Illinois and Chicago are giving JMC would have paid for a lot of teachers, an extended school day, miles and miles of fiber-optic cable, or venture capital for new start-up firms.

Instead, the state and the city have chosen to use the money to steal a handful of jobs from another state, impoverishing them both.

This post was originally published at The Midwesterner.

16 September 2011

The Midwesterner: Can British-style rioting happen in America?

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In this tumultuous year, the whole world seems to have taken to the streets, most recently in the seemingly mindless rioting that seized London and other British cities this month. This outpouring of wrath raises the obvious question: can it happen here, in America, or more specifically, in the stricken cities of the Midwest?

We would seem to be ripe for violence, or at least protest. The connecting key to the British demonstrations seems to be a feeling of hopelessness or despair among young people, badly educated and unemployed, who see no future at all in post-industrial cities like London. All older Midwestern cities, even relatively successful ones like Chicago, contain ghettoes of people, both black and white, for whom globalisation and its glitter are rumours at best, obscene jokes at worst.

So the tinder is there. Whether it ignites is less certain. It may be worth our time to compare rioting in England and the conditions that sparked it with the economic and social conditions here.

The similarities are obvious. England, more than any other European country, resembles the United States. Both are former industrial powers where traditional industries, such as manufacturing and mining, once provided a middle-class standard of living and a promise, generation after generation, of steady work. In both, these traditional industries have either gone away or no longer provide the jobs they once did.

In both countries, great wealth exists side by side with poverty and hopelessness. Both have high youth unemployment. Both are plugged into the global economy, with great global opportunities for the well-educated and well-connected, and little opportunity for the rest.

In both countries, race is a factor, but probably not a key one. In both, resentment against immigrants — Mexicans in America, Pakistanis in England — outshouts the old black-white divide.

In both countries, governments faced with deficits and weakened economies are cutting back on spending on social programs that mostly help the poor. In England, the Conservative government wants to undo much of the welfare state, including the previously sacrosanct National Health System. In America, states are leading the attack on programs ranging from health care to senior services to early childhood education.

In England, many people are blaming the riots on the fact that, for most of the participants, the future simply holds no hope. It's not the recession, which will end. It's that, when it ends, the hopelessness won't. For young people with no stake in society, there's nothing to stop them from lashing out.

Anyone who has spent time in the blighted old industrial cities of the Midwest knows the same pathology exists in the US. Can the same kind of rioting erupt here? Sure it can.

Which is not to say that it will. The differences are nearly as striking as the similarities.

For starters, we still don't know why the British cities exploded. Sure, they are plenty of experts to say it's the hopelessness, or the spending cuts, or anti-immigrant anger. But the odd thing is that we haven't heard anything from the rioters yet about why they were rioting. In almost every outbreak of mass protest — from the springtime revolutions in the Middle East back through the riots following the murder of Martin Luther King — there has been an articulated reason, clear if not always persuasive.

The British riots began after the shooting by police of a young black man, but this was the spark, not the reason. I'm sure the reasons are there, but until the participants can tell us what they wanted, perhaps we shouldn't automatically take the word of pundits or sociologists.

In addition, British society is different from American society. Since World War II, the British have had a much more developed welfare state, with services designed to succour the poor and provide social mobility. What this means is that the impoverished in Britain have more to lose when these services are cut and feel the cuts more deeply. Perhaps Americans should be marching against cuts in early childhood education, but we won't.

Some of the protests in Britain seem aimed at the police and, here again, differences are important. Not that relations between the police and public in cities like Chicago are models of social and racial harmony, or that many Chicagoans don't fear the police more than they respect them. But for sheer brutality and racism, most American urban police forces are paragons compared to the legendary Bobbies of Britain. American police have absorbed lessons since the riots of the '60s that the British police, for all their undeserved reputation abroad, have yet to learn. Again, American police forces have their bad apples, but the recent Murdoch scandals there highlighted a top-to-bottom corruption of Scotland Yard that is simply unmatched here.

Another thing: the US has always been more class-ridden than most Americans like to think, but it has never been as defined by class as Britain is. I first lived there in the era when the class system still ruled, and it was ugly. Status was entirely defined by birth. Those born at the bottom stayed at the bottom. My wife taught school on a public housing project in Croydon, a suburb of London that was badly hit by the recent riots. Some of her little students, aged 4 or 5, could read. Others couldn't. Senior teachers took her aside and told her to ignore the slower students "because they're just going to be dustmen [garbage collectors], dear, and they don't need to read."

And then came Margaret Thatcher, who left her permanent imprint on Britain, including the dismantling of the class system. In its place came... well, what? A meritocracy? Social Darwinism? A fairer society? Nothing was more unfair than the class system. But you can't say Britain is a fair society now, not with the poverty, inequality and hopelessness that exist there.

The old class system, for all its cruelty, at least was a structure, a social framework. It promoted noblesse oblige above, obedience and responsibility below. As such, it had some value. As the novelist Robert Ruark once wrote, never destroy something of value unless you have something of equal or greater value to put in its place.

Thatcher herself said, "There is no such thing as society." Perhaps she was right. There might not be rioting in the streets there this summer if there had been something of value to put in the place of the class system.

Does this apply here? Not directly. But the old industrial society that formed the urban Midwest implied a class structure, of owners and managers and workers, an ordering of society, a system of expectations and a promise of stability that it delivered, most of the time. As with the British class system, it's possible to imagine a better society than this old industrial structure — a cleaner and healthier society, more egalitarian and mobile.

When the industrial era passed, if this society had replaced by a better one, we wouldn't have to worry about violence in the streets, because everyone would have a stake in that society. But that hasn't happened. At the top, men and women live better than ever. Below the top, life is worse, more precarious, more unfair.

This is true, if somewhat hidden, in places like Chicago, and all too obvious in other cities — Detroit and Cleveland, certainly, but also in Rockford and South Bend and Mansfield and Buffalo. These cities hold hundreds of thousands of forgotten people — forgotten because they haven't done anything yet, like take to the streets, that would make the rest of us pay attention.

This post was originally published at The Midwesterner.

19 August 2011