Comparing Big D to the Motor City - A look at the history of two industries and two cities shows protectionism doesn't work
Soaring gas prices. Credit crunch. Rising unemployment. Every day, major American newspapers devote vast resources to examining the biggest challenges facing our economy. In the more pessimistic circles, worls like "recession" and even "depression" are being used to describe the immediate economic outlook. While much of this concern is rooted in economic reality, I am far more optimistic about Dallas' and America's future than most of the doom and gloom being broadcast today.
Why? Because the American system works. The American economy will prevail by doing what we've always done: change, adapt and employ our resources to lead the world in innovation. More specifically, our current challenges can be addressed by our nation's continued development and deployment of new technologies, which, combined with increased flexibility, provide a solution for global competitiveness and a formula for continued economic growth in Dallas.
How? Consider the history of two industries, cars and computers, and two cities, Detroit and Dallas.
A cursory glance at the auto manufacturing industry reveals a reflexive historical reliance on federal protections like import quotas and on labor relations controlled through mandatory union representation, creating a "can't do" culture within the auto industry.
Detroit's story reveals the consequences of a union-controlled business model, most notably showcased in the city's auto industry. Since 1950, its population has shrunk by more than a million residents, and it's poverty rate of 28.5% leads the nation. A quarter of the lots within Detroit's city limits are vacant, and its municipal government is trying to determine how to "shrink," including a proposal to sell 90 city parks.
In contrast, the computer industry has minimal trade protection, remains largely unorganized by labor unions and enjoys growing innovation that adapts to current market demands.
To complete the comparison, Dallas is home to the fourth largest semiconductor firm in the world, boasts a highly-skilled labor force steeped in experience in digital-based industries like telecommunications, and was recently selected for a new plant for one of the world's leading ultra-mobile device manufacturers.
Employment Trends
Unconvinced? Just compare the employment trends in both industries. Today, more employees work for IBM than for General Motors (355,000 compared to 280,000). HP and Intel (employing 172,000 and 94,000 respectively) have more employees between them than Ford (fewer than 220,000 after the 54,000 jobs cuts announced last month). Dell alone employs twice the number of employees as union workers on the payroll at Chrysler.
It's no surprise that while unemployment in Detroit continues to rise, the national unemployment rate for skilled IT professionals hovers around 2%, which equals roughly the number of workers in transition between jobs.
And this tale of two cities tells us what?
First, protectionism that leads to complacency doesn't work. As shown by the failed efforts to protect the auto industry from foreign competition, protectionist measures fossilized U.S. auto firms, making them late-adopters of important innovations implemented by foreign car manufacturers and delivering a false sense of "job security." Competition is and will remain an increasing challenge to American companies, despite laws designed to "protect" them.
Second, taxes matter. High tax rates discourage flexibility, investment and job creation just as quickly as low taxation encourages them. Is it any wonder that Michigan has one of the higest unemployment rates today when it levies the fifth highest payroll taxes in the nation?
Constant growth and improvement is a difficult challenge for any institution, be it a company, industry or nation. But global competition has made it inevitable.
As a nation, we have the skills, resources and manpower to create new technologies that will propel America into a competitive future. But this success hinges on our ability to recognize the policies that determine whether American industries will become like Dallas or Detroit.
The choice for Congress and our nation is whether to embrace pro-growth policies that can lift up Detroit's fortunes or obsolete economic protectionism that will force Dallas down to detroit's level, producing nothing bur rising joblessness.
This current political struggle will be the measure for our economic policy's success for generations to come. The cost of choosing incorrectly is a consequence we dare not leave to chance.