Sunday, December 8, 2013

Why Detroit Will Remain A 3rd-World Country

In the early 1980's the Chinese government, mostly because of citizens starving to death, decided to liberalize their economy.  They did this by opening some "Special Economic Zones" on their east coast.  These would be places where businesses and individuals would be left the hell alone to make money and provide for themselves as best they could (relative to the rest of China, of course). 

The experiment was a huge success, and has changed the world. 

Here's Wikipedia:

Special Economic Zones of the People's Republic of China (SEZs) are special economic zones located in mainland China. The government of the People's Republic of China gives SEZs special (more free market-oriented) economic policies and flexible governmental measures. This allows SEZs to utilize an economic management system that is more conducive to doing business than in the rest of mainland China.
Since 1980, the PRC has established special economic zones in Shenzhen, Zhuhai and Shantou in Guangdong Province and Xiamen in Fujian Province, and designated the entire province of Hainan a special economic zone.

Here's a chart showing the changes in GDP in each economic zone. 

Xiamen is where I used to go as a Quality Control supervisor, and is probably the most hog-stomping example of free-market capitalism I've ever seen.  The government doesn't care how rich you get, as long as you don't get too powerful.  Therefore people are clawing all over each other to get in. 

This is what Shenzen looked like before the government got out of the way, circa 1978.  The main industries were fishing and harvesting bamboo.  The city had 30,000 people and not a single traffic light:

This is Shenzen now.  There's a good chance that the device you're using to read this was partially manufactured in Shenzen. 
(Some of you may be offended by this picture, as there is now more income inequality in Shenzen than 30 years ago.  Despite pulling millions and millions of people out of bone-grinding poverty, the people who accomplished this miracle are condemned by many because they are now filthy, stinkin' rich.)

So what's the difference between the SEZ's and the rest of China?   Back to Wikipedia:
  1. Special tax incentives for foreign investments in the SEZs.
  2. Greater independence on international trade activities.
  3. Economic characteristics are represented as "4 principles"  (See 4-7)
  4. Construction primarily relies on attracting and utilizing foreign capital
  5. Primary economic forms are Sino-foreign joint ventures and partnerships as well as wholly foreign-owned enterprises
  6. Products are primarily export-oriented
  7. Economic activities are primarily driven by market forces
SEZs are listed separately in the national planning (including financial planning) and have province-level authority on economic administration. SEZs local congress and government have legislation authority.
Leong (2012) investigates the role of special economic zones in liberalizing the Chinese and Indian economies and their impact on economic growth..... The presence of SEZs increases regional growth but increasing the number of SEZs has negligible effect on growth. The key to faster economic growth appears to be a greater pace of liberalization.

Liberalization, of course, is being used in the old-school sense of the word, meaning "leave people the hell alone".  The American sense of liberalization means "how many ways can the government f**k with your life".   

You have no idea how much better off the Chinese are in these SEZ's.  It's a brand new world for them. 

Meanwhile, on the other side of the world, in a city that's just as screwed up as pre-reform China:

This week, Senator Rand Paul, who is likely running for president, suggested that Congress act to pass legislation which would declare Detroit an economic “freedom zone.” That is to lower taxes in Detroit to near 0% levels, spurring business activity and development.

We at "Against Crony Capitalism" wholeheartedly agree with this idea. We even called for something similar last year. Unleash the market in Detroit and the city will bloom.
Few cities have been as ravaged by inept governing and crony capitalism as Detroit has. Because of decades of mismanagement and neglect, what was once one of the great cities of the world is now a rusting heap. But it need not remain so.
Detroiters are now presented with an incredible opportunity in the proposed Freedom Zone. In the face of despair and economic ruin, they can show that the city which spawned Joe Lewis can become a contender on the world stage – again.
Seems a bit optimistic given where Detroit is now to imagine the city solvent, never mind thriving. But if the power of the market were unleashed in the city, if Detroiters and entrepreneurs from across the country and around the world could realize the simple benefit of keeping almost all of the fruits of their labor in the city, Detroit would roar back to life.
Michigan would see massive wealth inflows. The young and ambitious would come from the coasts instead of the other way around. People would actually WANT to buy homes in the city. If Detroit truly became a nearly tax fee zone, with services engineered through the market, the ambitious and smart, not to mention moneyed, of the world will come.
Here's why Detroit won't see these simple, common sense reforms take place in my lifetime.

1.  The current president of the United States is a class warrior.  He has persuaded a majority of us that it's better to keep everyone down than to allow entrepreneurs to get rich  (and in the process make all of us better off).  They'll never to allow an entrepreneur to increase his wealth by 10,000% if it increases the well-being of the rest of us by only 10%.  We now have a zero-sum mindset. 

2.  Detroit's government is full of bureaucratic parasites, goldbrickers and featherbedders.  Worse than most.  The city has 40 people who do nothing all day but write checks by hand.  They still have a blacksmith on staff, just in case departments that haven't had a horse in 50 years need to have a horse shoed / shod / given new horseshoes.  (Sorry.  I don't know the tenses of the verb "to shoe). 
Chinese bureaucrats are some of the worst people in the world, but they could easily be commanded by decrees from Beijing.  If they resisted, they were propped against a wall and shot.  Detroit's parasites have more autonomy than China's. 

3.  Any possible improvements to Detroit will be burdened with race-based set-asides. 

4.  Detroit hasn't hit rock bottom yet.  The city is still getting money from Uncle Sugar without having to change anything. 

Great idea, Mr. Paul.  But they'll never do it.



MingoV said...

"... suggested that Congress act to pass legislation which would declare Detroit an economic “freedom zone.” That is to lower taxes in Detroit to near 0% levels, spurring business activity and development."

Dear Congress:
Please substitute 'the United States of America' for 'Detroit'.

Unknown said...

That isn't Shenzen. That's a picture of the Hong Kong waterfront.

Anonymous said...

No. 1 reason: Detroit is populated by underclass Blacks who do not have the intellectual capacity to compete in a 21st century economy.

Why can't you make your lyin' eyes accept the reality?

PS I'm no socialist but it seems like much of Western Europe is quite socialist (as is Portland or SF or Boston)... and they manage to live a decent lifestyle, so your class warfare etc arguments don't play...

The Whited Sepulchre said...

If the EU were a state, it would be in our bottom 5.
If all of Europe were a state, it would be in last place.