Thursday, February 21, 2008

The Decline of Detroit vs. the Rise of Indianapolis

Fifty years ago, Detroit was the fourth largest city in the United States, with a population of 1.7 million people, and at $8,500 per year, one of the richest cities in terms of per capita income. It was 3.5 times the size of Indianapolis, the 26th largest city, whose income was almost identical on a per capita basis (see population chart above, click to enlarge). Today, Detroit and Indianapolis are the 11th and 12th largest cities, respectively, with Detroit's population cut in half from 50 years ago (and losing 3,000 people per year this decade), while Indianapolis has grown by 70% during the same time frame. Remarkably, Indianapolis now has a per capita income 50% greater than Detroit's.

How did this happen? One answer, according to the Mackinac Center for Public Policy, is that Detroit's city government is far larger, more regulation prone, and more bureaucratic than Indianapolis's city government: the ratio of residents to city employees, a key measure of city government productivity, is 50:1 in Detroit, one of the worst in the United States, but is 203:1 in Indianapolis, one of the best. More broadly, the central issue in political economy concerns the optimal delineation of the sphere of government activity versus that ascribed to markets, and in this essay we examine this question from the vantage point of municipalities.

Another answer: Indianapolis Mayor Stephen Goldsmith took office in 1992, committed to a turnaround based on privatization of city services, and creating a climate more conducive to entrepreneurship. During his eight-year tenure as mayor, the city's population increased by nearly 50,000 residents, induced by a more business-friendly environment and its corollary, smaller government. The Indianapolis turnaround was engendered via a three-part program that included privatization and transparency.

From "
The Privatization of Public Services," by John Chapman of the American Enterprise Institute.


At 2/21/2008 5:59 PM, Blogger juandos said...

To quote Ellis Washington: "Detroit's demise is the triumph of liberalism"...

At 2/22/2008 2:47 AM, Anonymous Anonymous said...

Detroilet (as some natives call it) has been screwed up for a long time.

Even the City of Detroit's pension board has operated without rules since 1938 when it was formed.

At 2/22/2008 9:40 AM, Anonymous Anonymous said...

Take a moment and review the situation in Gary, Indiana. Its population is about 50% less than it was 50 years ago too. Same problem, bloated government and huge consumers of government resources.

At 2/22/2008 1:42 PM, Anonymous Anonymous said...

Maybe Detroit actually subscribes to the idea that businesses are not The High Almighty. At the worst, just enact job/business exit fees that keep them in.

At 2/22/2008 7:51 PM, Blogger juandos said...

Could taxation also be part of the problem?

From the WSJ: An old adage says high taxes don't redistribute income, they redistribute people. For new evidence look no further than migration patterns within the United States, as documented in a new survey by the moving company United Van Lines.

A record eight million Americans -- some 20,000 people every day -- relocated to another state last year. So where are these families headed and why? The general picture is this: Americans are continuing to flee the Northeast and Midwest, while the leading destinations continue to be Southern and Western states

At 11/20/2008 11:55 PM, Blogger ConceptCreature said...

Wait a minute, so they still HAVE government workers, they're just not CLASSIFIED as such since the jobs are privatized!
That's a very misleading statistic, just like Blackwater not being considered part of the military in Iraq. They've got guns, they work for the U.S., but they're not classified as, "American military". This also gives them tons of leeway to do illegal actions that standard U.S. Military cannot.
So it would be interesting to see how much money the city of Indianapolis spends on these private contractors, and compare that number with what Detroit spends on private contractors to get a more representational number.


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