Government Can’t Do Cool: How Overregulation Kills Cool, Hip Cities

In 1962, the New York City planning commission issued a report on what to do with the area of dilapidated warehouses and industrial lofts lying between Greenwich Village and Wall Street. Entitled "The Wastelands of New York City," the report proposed demolishing the area to make way for the Lower Manhattan Expressway.

Plans for the Lower Manhattan Expressway never came to fruition, and the area of run down lofts and warehouses, once slated for demolition, is now known as SoHo. One of the coolest, hippest places on the planet, SoHo boasts high concentrations of actors, artists, filmmakers and photographers along with renowned art galleries, stylish bars, and trendy restaurants.

In the early 1980’s, the leaders of Flint, Mich. announced plans of their own. They wanted to make downtown Flint into a hip tourist Mecca. Plans called for a new shopping center, a new luxury hotel, and a theme park. After spending over $70 million, that plan today is known simply as the disaster "AutoWorld."

What was the difference that determined success in the one case, and failure in the other? Gov. Jennifer Granholm should ponder the answer to that question. She is creating a "cool cities" advisory panel and calling upon 250 Michigan cities to do the same. She hopes that 251 new government commissions will come up with ideas that can revive depressed urban areas.

Why did SoHo succeed while Flint failed? Did New York’s development bureaucrats figure out a better way to accomplish their goal than did Flint’s? Nope. In fact, SoHo historian Richard Kostelanetz argues that the lack of centralized planning was essential to SoHo’s success. He claims SoHo succeeded because its development flew below the radar screens of control-seeking bureaucrats, politically connected developers, and local zoning bureaucracies. In short, SoHo succeeded because government planning wasn’t involved at all.

In fact, it was openly opposed. Kostelanetz tells the story of a feisty Lithuanian immigrant named Maciunas, who came to New York to study art, but who also had tremendous talent as a real estate developer, and was extraordinarily disdainful of abiding by the law. According to The Village Voice, "By 1968, 10 years before his death, Maciunas had used nearly 17 buildings to create 11 co-ops for artists," around which the SoHo community formed. "He did every transaction in cash, commingled funds, and basically broke every rule in the book. The authorities were after him for years," Kostelanetz told The Voice.

The point is that if governments want "cool cities" to grow up in their midst, government planners will have very little to do with it. The best thing the bureaucrats can do is to perform the core functions of government well — and otherwise get out of the way.

Sadly, the state of Michigan abounds with examples of bureaucratic pipe dreams and overzealous regulation that strangle the life out of our cities at the same time that vital services like infrastructure, schools and police protection are allowed to decay.

Consider the following:

In 1998, Detroit Mayor Dennis Archer announced a plan to demolish the area of old warehouses and industrial lofts along the Detroit River to make way for three permanent casinos. Known as "Rivertown," the area contained some of the city’s most successful bars and restaurants, including a legendary blues club, the Soup Kitchen Saloon. With the area in legal limbo, no development took place in this prime area for years. Then, after spending $140 million taxpayer dollars to acquire land in the area, the City of Detroit abruptly abandoned plans to locate casinos there. Today, the area of once-popular bars and nightclubs is a wasteland.

In 1997, developers in Birmingham began buying lots with small houses on them, tearing them down, and rebuilding larger ones. While some saw this as good news, since it kept developers from building houses further out in the country and contributing to urban sprawl, the Birmingham city council saw it as bad news and passed restrictive zoning laws effectively limiting the construction of houses they considered to be "too big." What’s the answer to "urban sprawl" when the government shuts down the private sector even when it finds areas within cities profitable for development?

With a maze of zoning laws, licenses, regulations, a difficult labor climate and an overall tax burden that is still too high, Michigan is its own worst enemy when it comes to fostering entrepreneurship and attracting the talented and creative.

Our state and its city governments would do better to focus on their more important functions (schools, roads and public safety, for example), which they perform in ways that are anything but cool. In Detroit, for example, an opportunity to accept a free gift of $200 million for 15 new charter schools was actually sabotaged by politicians and unions more interested in power than kids.

If Gov. Granholm is serious about creating cool cities and attracting entrepreneurs, she could start by relying less on fellow politicians and government commissions and implement the following:

1. Encourage open, competitive bidding for many city services. "Cool" cities like Indianapolis and Phoenix do it all the time while "uncool" cities like Detroit and Flint rely too heavily on bloated bureaucracies and costly union work rules.

2. Cut the red tape and excessive licensing that restrict persons from earning a living without explicit state approval. The state regulates an absurd number of professions, including "ginseng growers" and "minnow salesmen."

3. Push for a state constitutional amendment that would allow tax credits for contributions to either public or private schools. Mackinac Center research indicates that nothing could improve inner-city schools more than choice, competition and accountability.

4. Protect property rights by reforming "eminent domain" laws that allow politicians to seize private property for purposes that often look a lot more "private" than they do "public."

5. Get cities like Detroit to lift their stifling rules against home-based businesses.

6. Relax Historic Preservation Laws. Often these laws are so complex and time-consuming, they interfere with renovations and make it harder to preserve historic structures.

7. Keep cutting marginal tax rates. Michigan is still a high-tax state and some of its cities are among the most heavily taxed in the country. This serves as a disincentive for the talented and creative to live and work here. There is nothing cool about Detroit’s per-capita tax burden being several times the average for Michigan municipalities.

Of course, the most difficult step of all is the one government would have to take once all of the above steps are accomplished: Leave things alone. If the story of SoHo is any indication, the private sector will take care of the rest.

(Lance J. Weislak, a graduate of the University of Michigan, is earning his MBA at the University of Chicago Graduate School of Business, and is an adjunct scholar with the Mackinac Center for Public Policy. Michael LaFaive is director of fiscal policy at the Mackinac Center, a research and educational institute headquartered in Midland, Mich. More information is available at www.mackinac.org. Permission to reprint in whole or in part is hereby granted, provided the author and his affiliation are cited.)