Forbes Magazine named Detroit America’s “most miserable city.” Two Detroit suburbs, Flint and Warren also made the “most miserable” list. At one time Michigan and the city of Detroit were among the most prosperous places in the entire country.
Thanks to de-industrialization, Michigan is becoming the Mississippi of the Midwest and Detroit is, well, Detroit is what it is.
Contrary to common perception, the economic backbone of Michigan was never the Big Three domestic auto makers. Small business was the engine that drove Michigan’s economy. Small businesses employed more people in Michigan than Ford, GM and Chrysler combined.
According to the definition of small business under Michigan law (less than 250 employees), approximately 96% of firms in Michigan are small. Government is now Michigan’s biggest employer but that’s a topic for another day.
Mom 'n pop shops
Small industrial businesses in Michigan consisted of thousands of small mom ‘n pop shops that manufactured everything from turbine blades to bearings to nuts and bolts to screwdrivers to worm gears.
Some of these mom ‘n pop shops employed up to 250 people but most were small - 10 or 30 or 50 people. They were located in Detroit and suburbs with names like Ferndale, Royal Oak, Warren, Berkley, Monroe, Hazel Park, East Detroit and Livonia.
Most of those places are gone. They closed or they moved to southern states to escape high taxes, regulations and a militant labor force. This has left Michigan with a unique problem: a largely unskilled workforce that used to be highly paid. These people were earning $30.00/hr with full medical and a defined benefit pension. Now the lucky ones are getting $12.00/hr to $14.00/hr stocking shelves in a retail store or working in a fast food joint 32 hours per week. Can you blame them?
Hostile business climate
Running a small business in Michigan is difficult and it is even more difficult in Detroit. My father tried it when he bought a small hard chrome shop after he retired from Ford.
He learned that dealing with city and county government was more difficult than getting business from new customers. Inspectors from Wayne county and Detroit came to the shop on a regular bases to write up code violations. One week it was an air compressor that didn’t have a permit. Another time it was a valve on a pipe that could only be repaired by a certain plumber. Paying these fines was a cost of doing business in Detroit and it cut into the plant’s profits. Inspectors don’t harass the big three like that.
Crime always a problem
Taxes and regulations were onerous but crime was a constant problem. One day my father brought a lawn mower to the chrome shop in the trunk of his car. He set it on the lawn in front of the shop and went inside to use the bathroom. When he came out the mower was gone.
Thieves broke in so often that my father – always thinking - started leaving “decoys” for thieves to take: expensive looking but worthless mechanical adding machines and typewriters he got as surplus from Ford. The idea was the thieves would take those and not steal valuable tools or tear copper pipe and wiring out of the walls.
Here’s how the de-industrialization process works: Ex-Cell-O Corporation, a now-defunct maker of machine tools used in manufacturing was a major customer of the chrome shop. Ford, GM and Chrysler lost market share and so they cut back on machine tool orders from Ex-Cell-O. Ex-Cell-O had to lay off employees and cut orders for chrome. The chrome shop was barely profitable to begin with.
New environmental regulations came into effect and a city inspector came once per month to test the water going from the plant into the city sewer. The plant was always clean but each month the plant got a bill for the tests.
Coming to a town near you
Eventually Ex-Cell-O closed their plant because of a lack of business. This put some 4,000 workers on the street. After years of barely breaking even, paying constant fines to various inspectors, Michigan’s single business tax and workers comp claims, the chrome shop’s furnace broke down. City inspectors red tagged the furnace. There wasn’t enough money to buy a new furnace and so the chrome plant closed. And so it goes.
Multiply that scenario several thousand times and that’s how 800,000 jobs can disappear from Michigan and make Detroit, Flint and Warren winners in the most miserable city competition.
De-industrialization: coming soon to a town near you.