Unions and the decline of U.S. cities.

• Author: Walters, Stephen J.K.
• Position: Report

The usual suspects in the tragic demise of many of America's core cities are well known. For decades, scholars, politicians, and pundits have condemned the racism that led whites to flee diverse urban populations after World War II, sneered at Americans' vulgar affection for cars and expansive lawns, criticized policies that encouraged us to indulge these tastes, and blamed capitalist greed and unwholesome technological change for the deindustrialization that has wrecked urban labor markets.

There is, of course, some explanatory power in these familiar stories. But they leave much unexplained, and in some cases merely describe symptoms of urban dysfunction rather than identify root causes of decline. For example, race-bias-based theories seemed quite powerful during the well-documented white flight of the 1950s through the 1970s, but less so as middle- and working-class blacks exited many core cities in recent years. Preference-based theories have a tough time explaining the enduring popularity of high-density enclaves such as Manhattan, or why cities like San Francisco and Boston depopulated and decayed for about three decades after WWII--but then revived, while others simply continued to slide downhill. If our theories need to be discarded at various times or in different places, perhaps we need new ones.

In this article, I argue that a more useful and general theory about the fate of American cities in the last half of the 20th century must begin with a discussion of the treatment of capital and the security of property rights within their borders. In particular, I will focus on the powerful influence of labor institutions in reducing the returns to capital in many American cities, thus contributing to their transformation from engines of prosperity into areas afflicted by economic stagnation, chronic poverty, and all the social problems that metastasize in such circumstances.

We tend to think of cities as dense concentrations of people living within a given land area, but it would be more fruitful to think of them as dense concentrations of capital that attract people to a certain locale. Physical capital some of it in the form of natural endowments such as a deep-water harbor, much of it the product of human investment in dwellings, factories, offices, and infrastructure--is, of course, a profoundly valuable partner in both our work and play. The greater the quantity and quality of such capital (all else the same), the higher will be our productivity and wages and the more stimulating, satisfying, and comfortable will be our leisure hours.

Such capital will, however, always be a tempting target for interest groups seeking to redistribute some of its returns from its owners to themselves. Since physical capital is immobile, it can be "taken hostage" by opportunistic actors and its value appropriated in ways that will soon be described. And since it is durable, the ill effects of such actions will generally be disguised for years or decades.

Accordingly, to develop an understanding of the nature and consequences of such behavior for the vast and varied concentrations of capital that we call cities we must take the long view but should not overlook the individuals and actions that have shaped real urban environments. What follows, then, combines standard economic and quantitative analysis with case evidence from what was America's first great high-tech industrial center and what is now its most destitute, violent, and politically dysfunctional major city: Detroit. Its rise and fall can tell us a great deal about the nature of industrial cities and about the way that labor institutions can affect their economies. The next section describes Detroit's "golden age" and the sources of its success. Succeeding sections discuss union behavior in general terms, illustrate this behavior in the context of Detroit's auto industry and the cartelization of its labor force, and enumerate the consequences of this behavior; a concluding section contains both pessimistic and optimistic speculations about the future and some policy recommendations.

A Target of Opportunity

To call Detroit a boom town during the first third of the 20th century would be to damn it by faint praise. Blessed with natural capital in the form of proximity to water transportation (eventually augmented with man-made capital in the form of rail lines) that provided low-cost access to nearby hardwood forests and mineral deposits that fueled the growth of carriage-makers, tool works, and other manufacturing enterprises, by 1900 the city was the 13th most populous in the United States--just behind New Orleans and ahead of Milwaukee. By 1930, however, Detroit was home to over 1.5 million and America's 4th largest city, its 450 percent population growth rate more than four times that of New York and Chicago and nine times that of Philadelphia over the same period)

The reason, of course, was Detroit's status as the nation's center of innovation and production in the nascent automobile industry. But this was not just a happy, accidental result of the fact that many of this industry's founding figures had grown up or begun careers nearby--including Henry Ford in Dearborn, William Durant in Flint, Ransom Olds in Lansing, and the Dodge brothers and David Buick in Detroit. Rather, this "entrepreneurial duster" (to use the phrase of Glaeser, Kerr, and Ponzetto 2009) built on a foundation of industrial, intellectual, and financial capital that was especially well-suited to working out the engineering and production problems associated with this new and rapidly evolving product. What better place to make horseless carriages than in a city where coach and tool-and-die manufacturing already were well established?

The success of the early automotive innovators in Detroit attracted more, in a dramatic illustration of Alfred Marshall's (1920) description of the economies of industrial agglomeration. Auto production in the industry's early days was not exclusive to Detroit, but it became more and more concentrated there because agglomeration economies gave Detroit firms a competitive advantage: low-cost links to suppliers of raw materials and components, access to a larger and deeper pool of labor (including managers and engineers) with specialized skills, and--perhaps most important--the technological spillovers resulting from proximity to talented minds grappling with similar problems. As Marshall (1920: 271) noted,

When an industry has thus chosen a locality for itself, it is likely to stay there long: so great are the advantages which people following the same skilled trade get from near neighbourhood to one another. The mysteries of the trade become no mysteries; but are as it were in the air, mad children learn many of them unconsciously. Good work is tightly appreciated, inventions and improvements in machinery, in processes and the general organization of the business have their merits promptly discussed: if one man starts a new idea, it is taken up by others and combined with suggestions of their own; and thus it becomes the source of further new ideas. And presently subsidiary trades grow up in the neighbourhood, supplying it with implements and materials, organizing its traffic, and in many ways conducing to the economy of its material. A serious disadvantage of this co-location soon became obvious, however. The factories, offices, warehouses, and transportation links necessary for the design, production, and distribution of autos and related goods were installed and augmented at an incredible rate, attracting not just laborers but those who would unionize them. In effect, agglomeration economies reduce firms' production costs and accelerate innovation, but the concentration they beget also reduces the cost of organizing and enforcing cartels of labor. To employ a military analogy, automakers had concentrated their assets and made them vulnerable to a siege by those who sought to capture them, and who could focus their forces on this task rather than divide them among many targets spread more widely.

Automakers were not unaware of this vulnerability. In 1901, for example, some workers at an Olds factory in Detroit joined a national strike for higher wages and shorter workdays. When nonunion workers kept the plant running, the strikers and about 500 sympathizers tried to occupy it, and three people were injured in the brawl that ensued. Olds soon built a new facility 90 miles away in Lansing--perhaps the first example of union-related flight of capital and jobs from Detroit. As historian James Rubenstein (1992: 234) observed, "avoiding concentrations of militant workers influenced location decisions even in the early days of the automotive industry." But agglomeration economies were too important to ignore, and, overall, the labor climate in Detroit was benign; the city was regarded as a nonunion town, and Michigan was an "open shop" state. And in 1902 the city's leading industrialists had formed the Employers' Association of Detroit, which worked to eliminate any "closed shop" agreements between member employers and unions, supplied members with substitute nonunion workers if and when a strike occurred, and marshaled legal resources to obtain...