The funeral procession passed through Flint, Michigan yesterday, The city imploded between 1965 when General Motors possessed 55% of the North American motor vehicle market and the year 2009 when General Motors declared bankruptcy.
The actual decline was more precipitous than that. 2009 is when Flint threw in the towel, like a drunk pawning his last neck-tie to buy another drink. Flint's death-throes were fully visible by 1990.
You would have been declared insane if you had suggested in 1965 that Flint would be well on its way to a ghost town in less than thirty years. But that is pretty much what happened.
Looking out the window as I drove the only businesses that were open were tittie-bars, pawn shops, cannabis dispensaries and salvage yards for scrap metal.
Many books have been written documenting GM's fall from the pinnacle of industrial and financial might. But that was not Flint's fatal flaw. Flint's weakness was its dependance on a single industry to bring in the vast majority of outside money.
Cities are like countries. They have their own, internal economy and they have a balance-of-trade. If the balance-of-trade is positive the city generates jobs and more people move there. The dollar that comes in bounces around as the factory worker buys gas, cigarettes and a sandwich at the convenience store. The person who made the sandwich gets paid and he pays rent. The landlord pays taxes and pays a kid to mow his lawn and so on.
The guns-or-butter dilemma results in cities doubling down on what works. Businesses supporting the main exporter pop up. Shops that make machine tools, shops that supply the machine tool makers with carbide bits, shops that maintain fork-trucks, warehouses, stamping plants and so on.
The lily-pad with the fastest growth rate soon covers the pond.
Seattle, Washington and Mountain View, California
What happened to General Motors will happen to Microsoft and Alphabet (aka, Google). It is not a matter of "if" it is a matter of "when".
From our island in time, the proposition seems ludicrous just like proposing that GM and Flint would ever tank.
Naysayers will point out that Seattle is "diversified", that it has Amazon. OK, I will grant the naysayers that. But will Amazon's headquarters support any more of the economy than the economy of Bentonville, Arkansas (population 54,000)? That leaves a lot of unsupported overhang.
Mountain View? Actually most of Silicon Valley is at risk. Much of the fixed cost of their industry is in developing the customer base. It is not a big deal to create similar, slightly less feature-rich me-too packages for a penny-on-the-dollar. Software is like that.
The data mining is self-limiting. You can only squeeze so much blood out of a turnip. The fatal flaw of data mining is that it is asymmetric. The profits to the miner are a very small fraction of the all-in costs to the creator of the data. Data mining is analogous to shooting bison for their hides. It is very inefficient and those inefficiencies become more apparent as data mining becomes a larger part of the business plan.
Storing data on the cloud? The cloud can be everywhere or anywhere. Why does the money have to flow through Mountain View or Seattle? Data storage is a commodity. If the cost becomes too large then firms that can run with less data or more condensed data will be more successful and will squeeze out the ones that are less disciplined. Once again, the business is self-limiting; with the caveat that government regulations can FORCE firms and individuals to store data.
---Today will be another day out-of-the-pocket---
ERJ - I cannot speak definitively about Flint or Seattle, but I know a little bit about Mountain View and the larger Bay Area, and you are correct. High Tech has effectively created its own ecosystem (biopharmaceuticals to a lesser extent, I grant) and most things that are not directly related to that industry are dependent upon it: restaurants, services, entertainment, even the various local and county services themselves. If that industry were to dissolve and go away to another place, there is nothing local that would replace it.
ReplyDeleteAnd the cost of living is a thing - and at some point, given the current run rate of inflation (and California prices), investors and stockholders will start demanding more accountability instead of just "we need to be here".
I have never been to Flint, but I have been to smaller towns like Flint, and it always makes me sad. We glory in the the wonders of modern civilization, but unlike the remains of the Greeks and Romans, our remains are much more of a pathetic backwash that is neither elegant nor memorable.
Big companies are already moving much of their operations out of Silicon Valley, NYC, Chicago, and other expensive "magnet" areas.
DeleteThe biggest winners have been Texas and Tennessee, so far.
Seattle is different; it has LOTS besides Amazon and Microsoft, from the port to military bases to ag processing, Boeing factories, and much more.
But the city council seems bent on pushing big companies out, so they might strangle themselves ling term.
All towns and businesses will fall long term. Governments too...
Houston was like this in the severe oil crunch of the early 80's. The office buildings downtown became 'See-Through' as the bankrupt tenants moved out. Rush hour traffic eased notably - a one-hour commute might become 15 minutes. Once the tide turned, Houston drastically diversified their economy by attracting other industries. Philadelphia did the same thing, once a rust-belt derelict, it's now a great city again.
ReplyDeleteMost of the CEOs don't think long term, they are just there for the money/prestige/what 'they' can push through. Microsoft, Apple, Amazon, et al are already starting to decline since the 'founders' have left. That will only accelerate.
ReplyDeleteNice picture of a Kmart.
ReplyDelete