Tuesday, Oct 25, 2016
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More lessons from Detroit

For nearly a century, Detroit depended almost exclusively on the auto industry, ignoring warnings that the city needed to diversify its economy. That made Detroit very rich at first, then nearly killed it when the auto industry started moving away from Motown. The industry went through a crash that nearly destroyed the no-longer-so-Big Three automakers, and left them permanently shrunken.

Today, as Detroit struggles to emerge from bankruptcy, it seems to be pinning its hopes on a new Big Two: billionaire Dan Gilbert, the mortgage king, and the Ilitch family of Little Caesars pizza fame. Mr. Gilbert, a newer player in Detroit, has been a mostly benign influence, buying up and refurbishing scores of downtown properties, some for his expanding Quicken Loans empire.

Mike and Marian Ilitch have been primarily investing in sports teams and stadiums in Detroit. They have made it clear that their help comes with a big price: Essentially, they have wanted the city and state to foot a big part of the bill for developments that enrich their family.

Even now, the city and state seem ready to do their bidding. Detroit’s Downtown Development Authority has agreed to pay more than half the bill for a new $450 million entertainment center where the Detroit Red Wings hockey team will play. The city gave the Ilitch family nearly all of the land for free.

Yet Detroit will not get a penny in return. Those who expect the new arena to spark massive investment in the surrounding area of the city are likely to be disappointed.

Studying the effect of stadiums on cities, University of Chicago economist Allan Sanderson concluded: “If you want to inject money into the local economy, it would be better to drop it from a helicopter than invest it in a new ball park.”

Almost any kind of investment in Detroit is welcome these days. But you might think the city would be cautious about using its scarce capital to enrich further a couple of billionaires.

Wayne State University law professor John Mogk notes that when the Carnegies and Mellons were enriching themselves in Pittsburgh, they contributed generously to civic projects and founded libraries. So far, the Ilitch and Gilbert empires have not made equivalent contributions to Detroit.

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