7.12.04

MUGGED BY REALITY. The third article in the Milwaukee Journal-Sentinel analysis of the obsolescence of Milwaukee's manufacturing, with particular emphasis on the fate of black migrants from the South, opens with an instructive case study.
The last time Milwaukee launched a conspicuous rescue effort in an economically stricken neighborhood, it spared few expenses and emptied the toolbox of 20th-century urban renewal strategies.

Steeltech Manufacturing Inc. opened in the early 1990s. In Metcalfe Park, one of Milwaukee's poorest neighborhoods, parks and houses were cleared to make way for a gleaming $32 million steel refinishing plant.

Civic and business leaders were hoping to replicate the old model of factory job creation for a Northern industrial city. Steeltech trained the unemployed as welders. Minority managers received majority stakes. The plant began life with a $66 million federal contract, five forms of state and federal funds, loans from six banks, its own special tax district and 42 lawyers.

It failed spectacularly.

Steeltech declared bankruptcy in 1999, eight years after its inception, leaving an empty factory inexplicably riddled with bullet holes and discrediting for many the old urban policy mix.

Steeltech's demise hastened a 180-degree ideological turn among Milwaukee's next generation of civic and business leaders. To plant the seeds of economic rebirth in Milwaukee's urban core, in an age of unprecedented global competition, Milwaukee in the past two years has moved to the forefront in accepting a new paradigm of market-driven urban change.
At least Milwaukee's policymakers used their expensive lesson to rethink some of their prejudices, which some of you might recognize as the old "progressive" nostrums.
"What we've been doing for 50 years isn't working," said Art Smith, who heads the Initiative for a Competitive Milwaukee.

Smith's organization is young, small and upbeat, like the companies it envisions amid the shuttered factories and storefront churches of the urban core. Rather than track the known deficits of the inner city - poverty, drugs and crime - the initiative aims to persuade corporate America that Milwaukee boasts more untapped competitive advantages than many might guess.
This strategy, however, is also available to less blighted quarters.

The initiative highlights an urban nexus of central locations, low transportation costs, cheap land and proximity to universities and the ideas they incubate. Initiative backers scorn zoning red tape and other regulations that handicap the industrial heart of the city in competition with sprawling business parks built on bulldozed farmland.
Interestingly, the end result will be subsidized development, simply in a different location. The Urban Archipelago types don't like the exurbs in part because they perceive them as tax sinks. Consider Stephen at Left2Right. His emphasis is on white flight from failing schools integrated by court order, but his post notes the fiction of the exurbanites living at the expense of everybody else.
The fastest growing county in Michigan, Livingston County, is exurban. It grew approximately 35% between 1990 and 2000, and has grown another 10% since then. Much of this growth has been fueled by ex-suburbanites from Metropolitan Detroit (itself the most residentially segregated area in the country). Although African-Americans represent 14.2% of citizens of Michigan (and a much higher percentage of Metropolitan Detroit), they are only 0.5% of the population of Livingston County.

So far as I can tell, there has been very little discussion of the increasing resegregation of American schools. And from this perspective, a growing exurbia (indirectly public funded by cheap gas, Interstates, and tax incentives for home ownership) seems to be very bad news.
Bad news for whom? To repeat, freedom to associate includes the freedom not to associate. What sort of public policy requires some kids to continue to attend school with other kids, simply to achieve some sort of "diversity?" Uniformity of underachievement appears to be the end result. Furthermore, although public policy research that identifies the hidden subsidies to exurbia is desirable, objectivity requires that the failures of more explicit subsidies to blighted areas also be brought out.

The new thinking about cities, however, is encouraging. Start with Harvard's Michael Porter.
Porter freely admits that crime and unskilled labor throw up big hurdles to growth. Still, he said, "We shouldn't be bashful about profit and the market economy because that's the only sustainable way of addressing most of these problems."

Porter says social safety nets are necessary for individuals but that welfare programs cannot alleviate poverty, create jobs or even stall the city's economic erosion.
Local thinking agrees.
"I just don't think social service programs were doing it," said Margaret Henningsen, co-founder of Legacy Bank, at Fond du Lac and North avenues on the north side, the nation's only fully accredited lending institution owned by African-American women.
There is still some work to be done. The article ends with some additional information about the failure at Steeltech.
Milwaukee's nascent enterprise culture hamstrung Steeltech, which was designed to cultivate minority entrepreneurialism. "What we wanted to do with Steeltech was take them out of the working-for-someone-else routine and make them part owners," said Fred G. Luber,chairman of Supersteel Products Corp., who helped conceive and fund Steeltech with his own capital.

City officials later conceded that Steeltech's inexperienced managers seldom hustled for contracts. Luber said sloppy bookkeeping caused the loss of a major government contract that could have kept it in business. Rather than accept personal financial risk, like most entrepreneurs, Steeltech's managers borrowed funds under a low-risk arrangement that simply let them forfeit shares in a default. The absentee rate for hourly workers at Steeltech ran as high as 12%.

"Our dream of doing something great for Milwaukee ended up crashing," said Luber, 79. His firm, Supersteel, had stood to gain if Steeltech had survived as a qualified minority subcontractor for the larger company's Defense Department contracts. Instead, Supersteel lost $6.5 million in the venture.

"It was a pigsty," said Paul Cadorin, chief executive of Capitol Stamping Corp., which acquired the 190,000-square-foot plant after Steeltech failed.

Shop-floor employees randomly fired guns for reasons that Cadorin cannot guess. After Cadorin purchased the plant in 2001, he hired a crew to patch roof leaks. "They gathered over 200 bullets and patched over 300 bullet holes," Cadorin said. Forklifts on the shop floor had been rammed into the walls and left holes "big enough to poke your head through," he said.
Products of Milwaukee's public schools? Wisconsin's commerce secretary Cory Nettles, fortunately, has learned by the experience.
A stalwart Democrat, Nettles disavows old welfare models as an economic remedy. "The social policy prescriptives have not really helped families break out of poverty," he said. "We should model what has worked for countless other ethnic minorities, which is entrepreneurialism."
You mean there's really more to fixing poverty than throwing money at it? There is room for optimism.

RUNNING EXTRA: Don at Left2Right is still contemplating the old nostrums. Interesting comments.

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