Detroit’s Gains Should Give Houston Hope
The good news for Houston is that Detroit is getting better. “Population has continued to decline, the cost structure has been reduced, business activity has moved up and our exports to other states have improved,” says David Littman, chief economist of the motor city’s Manufacturers National Bank.
In his economist’s shorthand, Littman is saying a mouthful about the economy of all cities, not only Detroit. And his words contain immediate solace for Houston, the now-despairing energy capital, as well as a lesson or two for the long term.
First of all, when Detroit went through the wringer in the early 1980s, it wasn’t so much that car sales hit a down draft--they had done that before--but that the industry and the city had to finally reduce costs. High wages in the automobile plants had led to a high price level for everything, from getting your teeth fixed to the workers’ compensation insurance that businesses must pay. High costs slow down business activity or drive it away--to plants in the lower-cost South in Detroit’s case.
But now, following years of sharp cost reductions and low or no wage growth in industry, the city is capable of economic health on a lower level of car sales.
160,000 Jobs Lost
Why should that cheer Houston? Because, like Detroit, the energy capital has been getting its costs down in the three-year recession that preceded 1986’s dramatic fall in oil prices. The city’s energy industry has lost 160,000 jobs, people have left town and lower wages in oil-related industries are keeping prices low all over town. So now, even a small upturn in the energy business could restore economic health to the city of 3.6 million.
That’s the simple and immediate lesson. But let’s go beyond it, to deal with that line about Detroit’s “exports to other cities.” In two books, “The Economy of Cities”(1969) and “Cities and the Wealth of Nations” (1984), author Jane Jacobs developed the concept of cities having exports just like countries. As Detroit exports cars, so Los Angeles could be said to export TV shows and movies and New York to export advertising services and money dealing.
Furthermore, wrote Jacobs--who finds that city, and not national, economies are the important engines of society--as one kind of export activity declines, successful cities develop others--and whole new industries are born. The example that Jacobs and everybody else likes to use these days is New England, which developed computer and other science-based industries to replace textile manufacturing. Inspired by that example, 15,000 U.S. communities--including Houston with its Economic Development Council--are out trying to attract new businesses.
Transition Took 40 Years
Obviously, short of a gigantic game of musical chairs, they cannot all be successful. And, in any case, success always takes longer than the stories imply--New England’s transition took four decades. So what can Houston and other cities with declining industries do?
Reduce costs and work to retain the competitive edge in their main export industries. Detroit’s most grievous economic sin was surrendering that edge to Japan. It is still spending billions in an effort to regain it, although it does produce better cars than it used to.
Let Houston, which has no peer in oil field equipment and services, take warning. There is very little market domestically for oil field services today. But a foreign market is growing up as countries such as India, Brazil and China pursue exploration and development of their own energy.
Those countries are the main customers today for Houston’s idled, or repossessed, drilling rigs. And, if Houston’s industry stays awake, they will be customers tomorrow for new technologies. Within 10 years, predicts Chairman George Mitchell of Mitchell Energy & Development, “we’ll have seismic techniques that will discover gas directly”--as opposed to finding geological formations that might contain natural gas.
The challenge to Houston’s industry is to spend on research in these dark days to make sure that it--and not an active energy explorer like Brazil or India--brings such wonders to the world.
For all cities, the lesson is that while new industry undoubtedly will grow--as robotics has grown in Detroit and space services are growing in Houston--a city must not lose sight of the opportunity in its main business.
Finally, a footnote. Reducing urban costs does not necessarily diminish urban life. A city, after all, is people and imagination, not merely industry. In Houston, the symphony was hurting this year because of reduced corporate subscriptions. So it went out and marketed to the masses, offering an evening of romantic composers, plus buffet supper, at $5 a ticket. It sold out the hall. Did music suffer? No. Do people adapt? Yes.
