It comes up in every argument about Washington bailing out Detroit: Don't you heartless market fundamentalists realize what would happen to the Rust Belt if we subjected the Big Three to "uncontrolled bankruptcy"? "Had General Motors and Chrysler been allowed to go into bankruptcy last fall," the lefty economist Dean Baker wrote in a debate with me at the Los Angeles Times website in April, "it would have quickly led to a chain of bankruptcies by a whole set of parts suppliers.…This would have meant almost a complete shutdown of the auto industry in the states of Michigan, Indiana and Ohio."
Aside from the popular yet false notion that "bankruptcy" is synonymous with "liquidation" (tell that to the former employees of bankrupt WorldCom who now work for WorldCom's new owner Verizon, or indeed to the employees of the currently bankrupt Los Angeles Times), this line of discourse is interesting for the implied real-world critique. As in, you wouldn't possibly think that way if you realized what effects these abstract ideas would have on living, breathing communities.
As it happens, I know all too intimately how industrial collapse can affect a neighborhood and city, and that experience helped convince, not dissuade, me that few kisses are more deadly than a government giving artificial respiration to private business.
I grew up less than one mile from what was once the biggest aircraft manufacturer in the United States: McDonnell Douglas, in Long Beach, California. At its height during World War II, Douglas was cranking out one airplane in those huge hangars down the street every two hours, using a work force that peaked at more than 150,000. As recently as the late 1980s, employment was in the 80,000s, allowing many a high school grad to earn an upper-middle-class wage with generous benefits for twisting lug nuts on an assembly line. It was a dream set-up, and like most dreams it came to an abrupt end.
The collapse of the Cold War, and the defense-related contracting that came with it, hammered Southern California, particularly the Long Beach/South Bay aerospace belt. An estimated 200,000 good jobs went poof, not counting the 25,000 or so associated with the shuttered Long Beach Naval Shipyard, laying waste to what had been a seemingly limitless real estate boom. I recall visiting home in 1991 and seeing "For Sale" signs on every third or fourth house on the block. Even before the more notorious riots-fire-earthquake-O.J. quadrophenia that rocked Southern California in the early 1990s, the region was bleeding asset value, population, and hope.
The popular debates at the time are worth remembering. On the populist right, there was a lot of dystopian chatter about how we had irreversibly traded our taxpaying (and patriotic!) industrial base for a tax-gobbling (and possibly treasonous!) wave of Mexican immigrants. On the populist left, it was all about the unstoppable, inscrutable Japanese (who were, as our cover story "Turning Japanese" on page 20 details, on the precipice of their own decade-long funk). Feminist thinker Susan Faludi used the emasculation of McDonnell Douglas as a set piece in Stiffed: The Betrayal of the American Man. In The New Yorker, Joan Didion portrayed the legacy culture left behind after aerospace's highwater mark as a suburban carnival of unknowing grotesques. The one thing that everyone seemed to agree on was that Long Beach would never regain its lost glory.
Everyone turned out to be wrong. As the market for war making collapsed, the market for peaceful global trade exploded, turning the twin ports of Long Beach and Los Angeles into the largest commercial port complex in the Western Hemisphere. Commercial airplane manufacturing and shipbuilding gave way to warehousing and tourism. A housing market that had looked so hopeless to homeowners was reheating by the second half of the decade. And in arguably the most telling statistic about a city's health, the population of Long Beach actually grew by 7.5 percent in the 1990s.
Government policy, and lack thereof, played an important role in the speedy recovery and economic transformation of my hometown. Though the Naval Shipyard closure was widely seen as a grievous blow, federal rules forbade the expenditure of municipal funds to keep the base on life support, and so the city set about selling off (and even donating) all the property to private interests who have made more efficient use of the land and equipment. Meanwhile, McDonnell Douglas (which Boeing bought in 1997) was allowed to suffer for its many missteps in the commercial airline market rather than receive a series of bailouts. Although the defense contracting side of Boeing is still the city's largest employer, and thus subject to unreliable political appetites for C-17 cargo planes, the municipal economy is now almost unrecognizably diversified.
None of which is to deny the powerful sense of loss in the face of a once-proud culture shriveling into the void. I visited that impossibly vast hangar back in 2006 to pay my respects to the last 717 being prepped in the structure's lone illuminated corner. A football field or two away, on an elaborate platform in the yawning darkness, hung a bell that the workers used to ring whenever a new order was placed. As my then-colleague and airplane aficionado Paul Thornton, who was with me, noted in the Los Angeles Times, the bell "has been silent since 2004." When we went across the street to the Flite Room, long the McDonnell Douglas worker's dive bar of choice, the new owners had only the dimmest of memories of assembly line grunts taking the edge off at the end of the day.
Yet the neighborhood also has changed for the better. Across the street from the Flite Room sits the niftiest Spanish-English bookstore I have ever seen. The nearby strip club and X-rated theater were long ago replaced by a dental clinic and restaurant row. A culture that had been virtually monochromatic during my childhood, with overt tinges of racism, is exponentially more diverse and tolerant. And the economy is more resilient, even with the recent rough times. Boeing has razed one hangar to make way for a residential/retail complex, and future plans for the one I visited ranged from Amazon.com to a Hollywood studio. The fundamental condition of Southern California is constant dynamic change, not industrial nostalgia, and the area has responded accordingly.
Would my old neighborhood be better off if the local plant had 80,000 workers instead of the current 5,500? Yes, if those jobs were sustained by meeting the needs of private customers in a competitive marketplace. But clustering employees to serve government tastes, no matter how lucrative it can be for long stretches, is ultimately as unstable and dangerous as an economic bubble in real estate, stocks, or tulips. When unplanned events change your chief customer's preferences overnight, just as when a bull market suddenly runs out of buyers, there are too many human beings left stranded, sending ripple effects throughout an economy. The policy question then shifts to cleanup.
Detroit's auto industry now answers to one main customer: the United States government. The Obama administration is setting contract terms for shareholders and creditors, firing CEOs, delivering stern lectures from the bully pulpit about consolidating brands, and forcing the already unprofitable companies to produce even more unprofitable hybrid cars. With each step away from the customer and toward the government, the Big Three become less competitive and less likely to be sold off to profitable companies that might have some use for the legacy plants, workers, and brands. By "saving" the U.S. auto industry, Obama stands to lose a once-great city.
Matt Welch (email@example.com) is editor in chief of reason.