Michigan and Detroit used “targeted” tax credits and other incentives to lure jobs to their region — more than $3.3 billion over 15 years. The government has often intervened to help favored industries — condemning, for example, 1,300 houses, 140 businesses, 6 churches, and a hospital to make way for a General Motors plant in the early 1980s. City and state taxes are high, and strikes have damaged the school system.
Between 1900 and 1930, Detroit was the fastest growing city in the world. Today, many of its buildings are abandoned. The illegitimacy rate is 80 percent. Half the city’s population is functionally illiterate. During the recent recession, the unemployment rate reached 30 percent. Detroit is one of the most dangerous cities in America.
Houston roared to life as the oil capital of America. But because oil was extracted by hundreds of independent operators, the industry never consolidated as the auto industry had. Producers competed with one another and with the world, rather than colluding to get protection and special breaks from the state.
Houston fell on hard times in the mid-1980s, when oil prices suddenly declined. Rather than intervene to protect the ailing industry, the government did nothing. Layoffs were massive and painful. Unemployment shot up to 9.3 percent. But within a couple of years, employment snapped back. Whereas before the shock, oil had represented 80 percent of Houston’s economy, it dropped to 50 percent after. Left to its own devices, the economy diversified, expanding to include computer makers, airlines, retailers, utilities, food and grocery companies, and medical centers. They were lured not by special tax incentives or breaks from the government but by a low-tax environment, cost-conscious environmental regulation, right-to-work laws, and tort reform.