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  • Killing Cities: Indiana versus Texas

    Posted by Shannon Love on May 6th, 2009 (All posts by )

    As I mentioned in my last post, my son and I watch “Life After People” on The History Channel. In the last episode, “Outbreak,” the show used the abandoned buildings of the downtown of a major American city as real-world examples of how quickly abandoned buildings fall into decay. 

    No, the abandoned buildings were not in Detroit, they were in downtown Gary, Indiana. 

    How many of these abandoned areas are there in the Great Lakes region? Most people point the finger at the auto industry to explain the fall of Detroit, but what explains the fall of Gary? 

    Steel. Gary was founded in 1907 by U.S. Steel as a company town. U.S. Steel built Gary because it was a great place to make steel in 1907. Gary grew because for the next 60 years it was a great place to make steel. Then suddenly Gary stopped being a competitive place to make steel. Why?

    More importantly, why don’t all regions that lose a major industry suffer the same decay?

    Part of the fall of Gary results from a natural and universal processes of the evolution of technology.  Even if Gary still produced the same percentage of American steel that it did in its heyday, it would have seen an economic decline. 

    However, that’s not the main story. A lot of regions have faced the collapse of their primary industry and not only survived but thrived. The end of the “energy crisis” in the mid-’80s came with a massive collapse of oil prices that devastated the economies of Texas and the other oil-field states. The states entered a five year recession so severe that some economists classified it as an actual depression.  

    The region was even more proportionately dependent on gas and oil than either Detroit or Gary were on their principle industries. Yet the oil field states, especially Texas, not only recovered but created new industries and boomed. Why could the cities of Texas reinvent themselves while the cities of the Great Lakes still cannot? 

    I think the answer lies in the differences in political culture between the two regions. We Texans still think of ourselves as rugged, independent, frontier people even if we’re standing in line at Starbucks for a latte. This self-conception in turn leads to a political culture in which people do not default to government coercion to solve economic problems. We prefer to think of ourselves as people who individually create our own solutions.

    The end of Gary began in 1959 with a six-month-long nationwide steel strike. The Union’s primary goal in the strike was to prevent the steel industry from modernizing plants built during the ’30s and WWII. Like all modernizations, the new steel-making technology would allow the companies to make more steel with less manpower. In order for the steel industry to adapt and remain competitive, it had to make do with a smaller workforce. The unions, interested in nothing but controlling the maximum number of workers, said no. In the end, they got new contracts blocking modernization. 

    The six-month-long strike caused all major consumers of steel to start buying steel outside America for the first time, even though foreign steel cost more and was of inferior quality. Steel consumers knew that expensive inferior steel was better than no steel at all, and the unions had made it very clear that they were willing to put everyone else out of job to keep their privileged economic position.  

    Most people who blame foreign competition for the decline of American steel blame the low labor cost of developing countries for foreign producers’ competitive advantage. But low labor costs were ultimately a minor component of the foreign advantage. The real advantage came from modern factories. While unions trapped American producers with 1940s-era plants, foreign competitors could build plants with 1960-1970s-era technology. Even if labor costs had been perfectly equal, the union-driven technological stasis doomed American steel. 

    Gary was ultimately destroyed by unions and the penumbra of political policies accompanying the political culture that creates unions. Worse, that same political culture kept Gary from attracting or generating new industries.

    When oil failed in Texas, the state’s political culture did not impede the development of new industries. In the Great Lakes region, business people are treated like criminals who steal from working people. In Texas, they’re treated like heros who create jobs and wealth. Texas culture allowed new industries to arise to take the place of oil. Well-paying jobs in the oil fields were replaced by well-paying jobs in manufacturing, high tech, finance and a plethora of small businesses. Gary’s political culture prevented a similar adaptive change. 

    Frankly, I don’t see any hope for major change in Gary or similar communities in the Great Lakes region. Fish are not aware of water and the people of the Great Lakes region do not seem to be aware of the destructive effects of the political culture they are immersed in. High taxes, invasive regulation and runaway unions are simply so common that people think of them as the natural, default condition and therefore not conceivably responsible for any negative change. 

    The eerie abandoned buildings of Gary are towering moments to statist political culture. Gary failed because people couldn’t accept the inevitability of change and embrace it for the opportunities it offered. The city and region will never recover until they do. 

     

    16 Responses to “Killing Cities: Indiana versus Texas”

    1. jimbino Says:

      Shannon,

      I would e-mail you this instead of posting a comment, but I couldn’t see how.

      You must be dyslexic. That’s OK, but you need an editor! I just can’t get through reading your posts without LOL.

      Besides misspelling “competitive,” you said “penumbra” when you meant “plethora,” but did it right in the following paragraph.

      What really upset me was to refer to the “erie abandoned buildings” of Gary. Gary is not on Lake Erie. What you probably meant to say is “eerie.”

      A Chicago Boy myself, I would take more care in my OPs.

    2. Shannon Love Says:

      Jimbino,

      Sorry about the low quality of the proofreading. I did misspell both “competitive” as “competative” and “eerie” as “erie” like the lake.

      I’ll edit those.

      However, I did not accidentally use “penumbra” for “plethora”. A penumbra is the partially shaded outer region of the shadow cast by an opaque object. In this case I intended that the political culture was the shadow and that the actual policies where the half shadows surround it. Perhaps a clumsy metaphor but I got the right word.

    3. router Says:

      i hear on the radio ads by the USW telling what great green jobs are in the future if “cap and trade” is enacted. daily i see evidence of the USW handiwork:

      most of this stuff is gone

    4. Shannon Love Says:

      Router,

      The USW is concerned about jobs. Unfortunately, they prefer quantity over quality and they will gladly sacrifice the jobs of people outside the union for their own benefit.

    5. karrde Says:

      [Grammar-nazi mode]
      There is also a misuse of the word “due”, when used in the phrase it had to make due with a smaller workforce.

      Unless something was owed to someone (a due), they most likely event was make do with a smaller workforce
      [/Grammar-nazi mode]

      This misconception seems to apply in more ways than one to the Great Lakes region and its industries.

      I have seen the small towns that are the remnant of the glory days of lumber and Iron/Copper mining in northern Michigan. Several locations on the Lakes were once busy seaports, in part because of the iron and copper.

      Now, all that wealth has faded. Did the people think that it would last forever? It is not clear whether or not the new business of manufacturing cars was enticed into the area, or grew naturally…but the assumption that the car business would never enter a period of slimming profits and smaller workforces stands opposite the witness that other large businesses hit the same problems.

    6. router Says:

      Proposed Coke Plant in Hazelwood

      Sun Coke proposes to build a new coke plant in Hazelwood where the LTV Coke Works used to operate. Is this the best development for Hazelwood and the Pittsburgh community?

      ?

      the proggs don’t like progression. luddites all of them

    7. Shannon Love Says:

      Karrde,

      Now, all that wealth has faded. Did the people think that it would last forever?

      They might have. It was common idea among those on the left from roughly 1930-1980 that large corporations faced no market competition and that they could set prices as they wished. John Kenneth Gailbraith was a major proponent of the idea. A lot of the unions bargained for wages, work rules, technology restrictions, health benefits and pensions based on the idea that major corporations could just snap their fingers get any price for their products they wished.

      It might have looked that way to a naive observer in the twenty years after WWII when American industry didn’t have any significant foreign competition. The idea that car, steel and other companies refused to give workers more out of greed and meanness might have seem plausible to the economically illiterate. People like Gailbraith would have found the idea an easy sell.

      Most people think of matters like economics in terms of human motivation instead of impersonal forces of the market. Their conception has more to do with Shakespeare than Newton. This makes it hard for them to adapt to broad changes in the economy or technology. They want to change the behavior of other humans instead of trying to change systems.

    8. Rob Says:

      What does this mean for GM and Chrysler??
      Taxpayer meet rathole!

    9. D. Yaros Says:

      Being a former resident of Gary, and also a former steelworker, I do see hints of some merit in the remarks and views expressed. Technology would, and did, catch up witht he U.S. Steel workforce. The fact is, in terms of production, the Gary Works output is far higher today than it was in 1959. It just takes far less manpower to produce that output.

      Gary business and government were not able to see the need to diversify. They were too busy filling their pockets from the U.S. Steel cash cow.

      For my perspective on the Gary, IN of old, & now, visit the Dave’s Den web site at http://GDYNets.WebNG.com. You are certain to find it of interest.

    10. Mrs. Davis Says:

      After you’ve gone and left me crying
      After you’ve gone there’s no denying
      You’ll feel blue you’ll feel sad
      You’ll miss the dearest pal you’ve ever had
      There’ll come a time don’t forget it
      There’ll come a time when you’ll regret it
      Some day when you’ll grow lonely
      Your heart will break like mine
      And you’ll want me only
      After you’ve gone after you’ve gone
      Away

      Excelsior, you fathead.

    11. Jim Bennett Says:

      I grew up in a steel town in western Pennsylvania in the Fifties. Gritty and unpolished, but actually a widespread prosperity prevailed and people enjoyed life after suffering through the Depression and the War. My father was then working as a metallurgist for one of the steel companies in town. I was in junior high school, so it was probably 1960 or 61; I had just read a good article in Scientific American about new steelmaking technologies — electric furnaces, Kaldo furnaces, that sort of thing. I had this conversation with him about it one morning; I remember we were sitting outside of my school with some time to kill before I could go in. I asked him which of those new technologies his company was going to use. He answered, none of them. No new technology was planned. I asked, what about the other companies in the country. Same answer; nobody was going to use them. These were all going into foreign plants. I aksed him what future the US steel industry was going to have in that case. He said, probably it would have no future in the long run, but it would take a while to collapse. I said, I had better not plan on going into the industry. He said that would be a good idea. He himself was planning on getting out when he had the opportunity, which he did a few years later.

      I always remember that conversation. He was right; he was right about most of the things we discussed, I realize now. Smart people could see this coming, but nothing was ever done. Now it’s the turn of the auto industry.

    12. Brett_McS Says:

      Great article, and comments above, also. It would be interesting to compare to the towns in which Toyota and Honda have set up plants in the South. What are the attitudes there like? I’m guessing more like those in Texas than in the Great Lake region.

      Most people learn by doing, rather than by thinking/reading. If a new, efficient, non-union business moves into town the work ethic and world view usually changes accordingly, over time – and usually not much time, either.

    13. TMLutas Says:

      Smart people could see it coming but there was never any uniform way to report that sort of thing. There could be and it would be a game changer. The problem is that non-diversified municipalities suffer badly when their mainstay missteps. If such vulnerabilities were priced into the municipal tax base via the housing market, you’d get a lot better results from local government.

    14. Shannon Love Says:

      Jim Bennet,

      Smart people could see this coming, but nothing was ever done. Now it’s the turn of the auto industry.

      Yes, the steel industry’s management as well as outsides such as academics warned the unions that by suppressing technology they doomed their futures but people simply weren’t willing to trade short-term benefits for long term security.

      The basic problem is that as union’s institutional power and income depends on the sheer number of people in the union. A union would prefer to control a factory in which 1,000 people earn sweatshop wages doing repetitive low skill work than they would the same factory in which 100 people use new technology to perform highly productive high skilled labor. Unions won’t accept reduction in workforce anymore than a company would accept a reduction in profits.

      The democratic/committee based governance of unions also makes it hard for them to accept job loss. Essentially, some members of the union have to vote to lose their jobs for the good of those who keep theirs. Most people don’t have that much self-sacrifice in them.

    15. Jim Bennett Says:

      There was plenty of blame all around; management, labor, government. Job reduction could have been done by attrition, for instance, which over the long run would probably have been adequate to save the industry, combined with technology investment. I tend to think that the biggest single problem was the job category system, which robbed the managment of any flexibility. There were so many interlocking problems, however. The mid-twentieth-century industrial system — railroads, steel, cars, and all the rest — had been created by a heroic effort. It was an amazing success, and had a great deal to do with the Allied victory in WWII. The politicians, labor leaders, and corporate managers then spent fifty years running it into the ground. A great deal of it was due to bad public policy — antitrust, labor law, urban policy, protectionism, over-regulation. And now we have an administration that thinks all of those bad polcies are just what we need more of. We will be getting all the bad economic policies of the 1930s plus the bad social policies of teh sixties and seventies.

      Groovy.

    16. sol vason Says:

      Once layoffs began, a trickle of people began to leave Gary for new jobs elsewhere. Gary city hall responded with welfare program funded by increased property taxes. More people left Gary either to get new jobs or to escape rising taxes.

      Faced with a shrinking tax base, Gary city hall kept revenues unchanged by raising the property taxes on those who remained. More people left town. Small business left town. Gary raised property taxes. More people and small businesses left. No new businesses came to town because taxes were high.

      Welfare costs grew larger and larger. Landlords abandoned their properties. Thus we have Gary, a city killed by good intentions. Laws should punish evil. They should not promote goodness.