Editor’s note: This article first appeared through the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.
Imagine a city where all the major economic planks of the statist or modern “progressive” platform have been enacted:
A “living wage” ordinance, far above the federal minimum wage, for all public employees and private contractors;
A school system that spends significantly more per pupil than the national average;
A powerful school employee union that militantly defends the exceptional pay, benefits, and job security it has won for its members;
A powerful government employee union that does the same for its members; and
A tax system that aggressively redistributes income from businesses and the wealthy to the poor and to government bureaucracies.
Would this be a “shining city on a hill,” exciting the admiration of all? We don’t have to guess, because there is such a city right here in my own state: Detroit.
Detroit has been dubbed “the most liberal city in America” and each of these “progressive” policies is alive and well there. How have they worked out?
In 1950, Detroit was the wealthiest city in America on a per-capita-income basis. Today, the Census Bureau reports that it is the nation’s 2nd poorest major city, just “edging out” Cleveland.
Could it be pure coincidence that the decline occurred over the same period in which union power, the city government bureaucracy, taxes, and business regulations all multiplied? While correlation is not causation, it is striking that the decline in per-capita income is exactly what classical economists predict to occur when wage controls are imposed and taxes are increased.
Specifically, “price theory” predicts that artificially high business costs caused by excessive regulation and above-market labor compensation rates imposed by so-called “living wages” will lead to an increase in unemployment. Detroit’s minimum wage is a whopping $7.40 an hour, more than $2 above the federal minimum wage when it was enacted; and pressure groups are pushing for more. Additionally, any company contracting with the city must pay its employees $8.23 an hour if it offers benefits or $10.28 an hour if it does not offer benefits.
Such high wage mandates are especially hard on individuals with a poor education and low skills. If struggling and heavily taxed businesses cannot pay such high wages, then they are more selective about the few workers they do hire, or they go out of business altogether. Those who have promulgated these polices may be well intentioned, but mainstream economists have warned for decades that such policies were very likely to bring about the abject poverty and unemployment that characterize Detroit today. The city has the highest unemployment rate among all large U.S. cities.
A similar pattern has played out in public education. It is conventional wisdom among the political class that higher pay for teachers and increased spending per student lead to improvements in teacher quality and student performance. Again, correlation is not causation, but Detroit Public Schools strongly suggests that this theory must be rejected. It has chronically underperformed state averages, yet reforms are vehemently opposed by the system’s powerful school-employee union.
The Detroit Federation of Teachers has won rich salary and benefits packages for its members. Median compensation for a Detroit Public School (DPS) teacher is $76,000 and Detroit spends the third highest amount of money per student among 76 large cities nationwide. By almost any measure, Detroit schools have for decades failed their students: test scores, safety, drop-out rates, etc.
In the private sector, such failure would result in mass firings for unsatisfactory performance.
Speaking of the private sector, in 2003, philanthropist Bob Thompson offered $200 million to build 15 charter public schools in the city, in which he would guarantee a 90 percent graduation rate. In response, the Detroit Federation of Teachers (DFT) balked because charter schools are not unionized.
People vote with their feet, and all the above suggests why, over the past decade, DPS has lost about 10,000 students each year to charter, independent, and suburban schools.
Of course it would be unfair to place all the blame for the city’s decline on public employee unions. Detroit is home to the Big Three, whose contracts with their own powerful unions provided the model for those public-employee arrangements. The UAW successfully extracted wages and benefits estimated at $71 per hour before the recent shake-ups began. This is about $25 more per hour than the amount foreign-owned U.S. auto manufacturing plants pay their non-unionized American workers.
In addition to being a model of progressive economic, labor, and education policy, Detroit is also a case study in welfare statism. Tom Bray, former editorial page editor for The Detroit News, has made the following observation:
“Detroit, remember, was going to be the ‘Model City’ of Lyndon Johnson’s Great Society, the shining example of what the ‘fairness’ of the welfare state can produce. Billions of dollars later, Detroit instead has become the model of everything that can go wrong when you hook people on the idea of something for nothing—a once-middle class city of nearly two million that is now a poverty-stricken city of less than 900,000.”
Progressives will complain that this portrait oversimplifies the factors involved in a great city’s decline. Instead, they ought to ask themselves at what point the weight of evidence and logic make it impossible to avoid concluding that in the case of Detroit, correlation is causation.