Why Detroit Won't Have a Second Act

Crony capitalism and crushing regulations kill entrepreneurs

"I once thought that there were no second acts in American lives, but there was certainly to be a second act to New York's boom days," F. Scott Fitzgerald once wrote. It's a good thing he wasn't talking about Detroit.

Until the city's politicos treat its humble entrepreneurs with the same respect they show big investors, Motown's second act will never arrive.

Detroit has become the biggest city to file for bankruptcy in America. Many people are hoping that bankruptcy, the largest ever in the history of the republic, will give Detroit a fresh start, another chance.

But that'll remain wishful thinking until Detroit reverses its backward economic strategy.

Every mayor for the last two decades has tried to jump-start Detroit by reviving its crumbling downtown. In the 1990s, Dennis Archer erected stadiums and casinos. His successor, Kwame Kilpatrick  (who was convicted on federal extortion and racketeering charges) hosted mega events.

The current mayor, Dave Bing, has been too bogged down in Detroit's fiscal quagmire to propose anything grand. But a group of rich investors led by Dan Gilbert, owner of Quicken Loans, is spearheading a massive effort to bring businesses, hotels and residents into the city.

Gilbert has pumped close to $1 billion to relocate his headquarters in Detroit and scoop up real estate for stores, hotels and apartment buildings. Whole Foods recently followed suit as did Moosejaw, a retailer for outdoor apparel. But these ventures have been seduced by massive subsidies. Whole Foods' local partner received $5.8 million in state and local grants as well as sizable tax credits.

Still, the business editor of Forbes Joann Muller declared two years ago that, thanks to Gilbert, green shoots were beginning to sprout in Detroit.

Since then, however, things have only gotten worse as more residents have fled and city services have deteriorated. Why? Because these shoots were Astroturf, not a spontaneous response to actual need.  Worse, they were a wealth transfer from the average taxpayers to the rich who patronize these high-end stores.

Indeed, even as Forbes was praising Detroit's artificial green shoots, city regulations were busy nipping the real ones like Pink FlamInGo, a Latin-fusion food vendor responding to real market demand.

These regulations barred street vendors from selling any hot fare except hotdogs (but without sauerkraut) and that too only in 16 approved locations. Pink FlamInGo built a roaring business by ignoring these rules '" until the city shut it down.

The stink Pink FlamInGo raised forced the city to eventually reform its regulations. Even now, however, food trucks are required to maintain a 500-foot distance from restaurants and close before 11 p.m.

But this year Mayor Bing made Pink FlamInGo-style harassment his official policy by launching Operation Compliance.

The program seeks to cure the city's blight by shutting Detroit's 1,500 "illegal" businesses '" tire shops operating from backyards, second-hand appliance stores perched in abandoned warehouses '" if they fail to comply with city regulations. But worrying about blight in a city fast returning to the wild is insanity.

Moreover, University of Buffalo's urban studies professor Henry Louis Taylor told Black Detroit, a local magazine, these establishments might constitute only about 10 percent of the city's businesses '" but they serve about 70 percent of residents.

A few of them might pose genuine public health issues. But the vast majority are being cited for technical violations like not having the proper zoning clearances or licenses or being behind on their taxes.

So a mayor who pleads he doesn't have the resources to: provide street lights to half the city or arrange timely trash pickup or control Detroit's soaring murder rate nevertheless has enough inspectors to unleash on poor residents trying to eke out a living.

"They're all worried about what's going on in the front of our stores," fumed a business owner who found puppy-sized rats in her back alley to Black Detroit. "But the city needs to maintain its own business by keeping the public streets safe and clean."

Amen!

A city that showers subsidies on well-connected businesses while thwarting individual entrepreneurs and ignoring basic services is writing its obituary '" not its second act.

This column originally appeared in the Washington Examiner.

Watch Shikha Dalmia discuss Detroit's bankruptcy with WSJ's Mary Kissel.