Scott Sumner  

Two Michigan cities

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Tyler Cowen recently quoted from a paper by Ed Glaeser and Wentao Xiong:

"In 1961, Benjamin Chinitz argued that New York City was more resilient than Pittsburgh during the 1950s, because New York City had a culture of entrepreneurship that meant that its business leaders were good at adapting to industrial decline. In modern language, we might describe New York as having a healthy endowment of entrepreneurial capital because its dominant industry, garment production, had limited-scale economies and few barriers to entry. In contrast, Pittsburgh had U.S. Steel, and the steel industry had large-scale economies, which meant that Pittsburgh trained company men instead of entrepreneurs."
This reminded me of a very interesting study that compared two cities in Michigan, Flint and Grand Rapids:
In 1946, sociologist C. Wright Mills and economist Melville Ulmer concluded the fortunes of two of Michigan's largest cities, Flint and Grand Rapids, were headed in opposite directions.

Seventy years later, their predictions are getting new notice from academics.

The researchers warned Flint was overly dependent on its big employers even though its workers made 37 percent more than the national average at the time.

The warning seemed out of place. By 1950, Flint was labeled "the happiest city in Michigan" and the "epicenter of the American Dream," thanks to its thriving auto industry.

Grand Rapids, whose economy was defined by its numerous small businesses, was less flashy. But it offered its citizens more mobility and opportunity for its middle class that would help it survive tough times, the researchers concluded.

Flint was still booming in the late 1960s, so it looked like this 1946 prediction was wrong. But then the prediction suddenly came true. Flint's metro population fell from 445,589 in 1970 to 410,849 in 2015. In contrast, Grand Rapids has been booming, with its metro population soaring from 539,225 in 1970 to 1,038,583 in 2015. And both of these places are in the rustbelt state of Michigan.

A 2016 paper by Michael DeWilde has lots of interesting things to say about this study, and the subsequent evolution of these two Michigan cities. Here's one example, which reminded me of Tyler's recent discussion of Utah:

If the Weberians are right and social capital comes first, where does it come from specifically? We can report that 90% of the business leaders we interviewed in West Michigan spoke, unprompted (though occasionally apologetically), about religion as the source for much of what was "uniquely good" about living in and doing business in the region. There was an understanding that, as one person put it, "maybe West Michigan isn't for everybody and maybe that isn't a bad thing." What he meant was that it was alright with him that people self-selected to be here on the basis of shared values with roots in particular religious traditions. The cultural norms that expressed themselves in West Michigan because of those traditions were responsible, to some large degree, for our economic and civic success. This was a widely shared view, even if put more inclusively in other interviews. And there is a shared concern that as religion qua religion becomes less important to younger generations, much of what is uniquely good about the Grand Rapids area will ultimately be lost--work ethic, fair dealings without the added cost of legal oversight, stewardship, philanthropic spirit, and so on. Eighty percent of those same business leaders expressed this concern. As one CEO lamented, "The values that made West Michigan successful are in decline." Interestingly, in his new book, Our Kids, Robert Putnam echoes this observation, citing declining church attendance and the diminished community role of churches as a factor in our collective decreasing social capital (affecting us all, but disproportionally hitting poor communities). The evidence suggests conservatives and fair-minded liberals are right to point out that there is a connection between religion and social capital (i.e., religious traditions are one source of social capital, an important though sometimes ambiguous one given temptations to exclusivity), but as formal religious institutions become less important to Americans, the question for many becomes: what might take those institutions' places as it relates to the formation and extension of social capital?
Don't take this the wrong way; I'm not suggesting that "religion" is good for growth. It may be in some cases, but there are many types of religious culture. I'd guess that Pakistan is more religious than San Jose, California, but that doesn't make it more prosperous.

DeWilde's report is not too long, and well worth reading if you want to know more about what's going on in different parts of America.

Flint's downtown is little changed from the 1960s:

Screen Shot 2017-03-30 at 10.34.40 PM.png
While Grand Rapids is booming:

Screen Shot 2017-03-30 at 10.37.30 PM.png
Other growing midwestern cities like Columbus, Madison and the Twin Cities tend to be state capitals and/or homes to major universities. Grand Rapids is probably the most successful midwestern city that is neither.

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CATEGORIES: Entrepreneurialism

COMMENTS (16 to date)
Hazel Meade writes:

I would go back to the original analysis and point to the fact that Grand Rapids (and New York) had diversified economies, while Pittsburgh/Flint relied heavily on a single industry.

I don't see a connection to religion there. I see the idea that a diverse economy with many small businesses makes for better long term economic growth, because it cultivates an entrepreneurial culture.

bill writes:

I hate to wade into any religious discussions. I'll just say I'm an atheist and I've worked very hard my whole life. And I've negotiated dozens of partnership agreements and mortgage documents as a principal - none of which needed to be read after the closing (ie, "fair dealings without the added cost of legal oversight") and all disputes have been quickly and amicably concluded without ever having a lawsuit.

AlanG writes:

It's also worth noting that Grand Rapids was the center of the Michigan furniture industry in the early part of the 20th century. It came to an abrupt end when the industry moved to southern Virginia and western North Carolina in the 1930s (well documented in Beth Macy's wonderful book "Factory Man". Perhaps this is another reason for diversification, something that didn't happen in Flint.

I think the more interesting comparison with Utah is the southern regions, including Appalanchia, that are all very religious yet there is no economic growth at all. Let's not forget the Provo valley software developers that gave us Novell and Word Perfect in the early PC days.

Below Potential writes:

"I don't see a connection to religion there. I see the idea that a diverse economy with many small businesses makes for better long term economic growth, because it cultivates an entrepreneurial culture. "

Scott Sumner didn't say that the difference in economic development between Flint and Grand Rapids had something to do with religion (after all both cities are in the same state as he pointed out).

What the first two excerpts quoted suggest is that "Social Capital" is an extremely important determinant of economic development. New York/Grand Rapids differed from Pittsburgh/Flint" in its "Social Capital" insofar as having a larger "endowment of entrepreneurial capital".

The most important determinant of Social Capital in a given area is in my opinion - and apparently also in the opinions of most business leaders in West Michigan - the religious background in the respective area.

It's relatively easy to see why: "Social Capital" is determined by the culture and culture is mainly determined by religion.

You don't have to be religious yourself in order to profit from and be heavily influenced by traditions in your "habitat" that are conducive to economic development and whose roots trace back to the prevailing religion in your respective area.

Xenophon writes:

I don’t know about Flint, but Pittsburgh certainly went through a very rough couple of decades after the steel industry collapsed in the late-70s-early-80s. That said, the economy was more diversified than most folks thought. Still dominated by large companies where economies of scale played a big role, though. Most of those big companies also died or moved by the turn of the century. The only really big survivor that’s still there is PPG.

On the other hand, having two major universities producing spin-offs meant that high-tech companies of various sizes eventually took up the slack. High-tech payrolls exceeded the steel industry’s peak in the Pittsburgh metro area by the mid-90s (inflation adjusted!); high-tech employment passed up the steel industry’s peak just before 2000.

It was still a really lousy 20 years while the changeover happened.

Scott Sumner writes:

I think people misread the comments about religion. Neither the author nor I was arguing that religion is good for growth. (I happen to be an atheist.)

Reread my comparison between Pakistan and San Jose.

bill writes:

Scott, I didn't think you were arguing for religion. But you don't think the quote from Michael DeWilde was highly suggestive that religion plays a role?

E. Harding writes:

Here is the FRED graph for the data I could find on Flint and Grand Rapids:

Flint peaked in terms of jobs relative to the nation in 1965, 19 years after the "Small Business and Civic Welfare" report. However, it permanently fell below Grand Rapids in per capita income only in 1987. Those GM layoffs Michael Moore talks about were devastating.

As a rule of thumb, fast-growing counties today tend to be filled with college graduates and #NeverTrump Republicans. No surprise there. Meanwhile, Flint and especially its Whiter suburbs (Burton City, Montrose, Thetford) swung massively to Trump.

Miguel Madeira writes:

I wonder if the causal relation between religion and entrepreneurship is in the opposite direction - small businesses means greater families, with father and son, brother and brother, working together in the family business, and this favors religiosity (and specially children following the religion of parents); in contrast, working for big companies favors more a nuclear family model,where children become independent of their parents when they get a job and the family life is husband+wife+small children (without much interference of grandparents, cousins, something-in-laws, etc.), who could favor a more secular lifestyle (but, also, more occasional conversions to bizarre "cults").

Iberian Peninsula is a kind of natural experiment - the rural zones of the North (where most people are traditionally small owners) is a deeply religious region, and where extended family is much important; in contrast, the South (organized, at least since the Reconquista, in big landholdings, being most peasants wage workers) is a less religious region (in "good old days", with the occasional peasants' revolt killing the priest and burning the church), and more centered in nuclear family, one one hand, and neighborhood, one the other, instead of extended family.

Ted Craig writes:

I have lived my entire life in Michigan, several of those years in Grand Rapids. There is a massive cultural difference between Flint and Grand Rapids. The culture in Grand Rapids is formed by the Christian Reform Church and the city's Dutch heritage. The culture in Flint is formed by the UAW.
The economic diversification in Grand Rapids is, in part, a result of that CRC/Dutch culture.
It's not entirely that they believe in God or how they believe in God, although that does play a part. It is also a matter of trust between people with a shared heritage, just as it is for Jews, Mormons and Hindus.

Slugger writes:

A sample of two cities might be too small to make for generalizable extrapolation. Also, the choice of these two cities is obviously arbitrary. If I chose to compare Paris to Berlin starting in 750 C.E. I might conclude that cities have organic growth cycles that are hard to predict on purely economic grounds.

Dave writes:

I almost got into a fight with a progressive in North Carolina when I asserted that the reason Detroit was failing was because if it's progressive politics/politicians. I then cited the example of Grand Rapids (this was ten years ago, GR was not as developed as today) and the fact it has conservative leadership. He took great umbrage to this.
One of my good customers had a building right on the Grand River that was used for industrial purposes. In Detroit, they would have condemned the building and taken it. In Grand Rapids, they even-traded them for a better building in an industrial park and then developed the riverfront building for residential use. That's how it should be done.

Scott Sumner writes:

Bill, I think he was saying that social capital is what matters, and that religion can lead to more social capital, but that it is an "ambiguous" indicator. I think if you read him again you'll see that his view is more nuanced than you might have assumed.

Harding, Interesting.

Miguel, I'm no expert, but I could imagine causation going both ways. Good point.

Ted, That's right, and it relates to my comment to Bill (above).

BTW, I was born halfway between those cities (in Lansing) but grew up in Wisconsin.

Slugger, Agree about the small sample size. I had just read a Tyler Cowen post on Utah, and the Grand Rapids description reminded me of that post. So I think of this as sort of an interesting followup to the discussion of Utah.

And as I said above, "religion" can mean many things in different settings, and people should not generalize too much from this example.

Dave, Good point. In the Utah article that Tyler linked to there was discussion of how bureaucrats in Utah seemed much more cooperative with the public they regulated, not so adversarial.

Hazel Meade writes:

It's relatively easy to see why: "Social Capital" is determined by the culture and culture is mainly determined by religion.

I'm not sure I believe that at all.
I'm thinking that the economy itself drives culture and creates it's own social capital. Maybe it even drives religion. Why did some places remain Catholic and other places become protestant? Perhaps different economic styles cultivate different thought patterns that lend themselves to different religious philosophies.

Why did Flint become a Union town and Grand Rapid not? Presumably, Flint (and the Detroit area in general( wasn't always a union town. The presence of the auto industry drove it in that direction. If the auto industry had located itself in Grand Rapids instead, would the Dutch/CRC culture have prevented it from becoming a UAW town?

Matt Raft writes:

Ted Craig got it right: "It is also a matter of trust between people with a shared heritage, just as it is for Jews, Mormons and Hindus."

To the extent greater religiosity is relevant in economic growth, it pertains to greater trust within communities and therefore fewer needs for potentially "siphoning" and establishment-favoring industries such as lawyers. In short, greater trust leads to a more hospitable environment for newcomers.

Fred_PA_2000 writes:

An amateur's observation. (From an amateur in Pittsburgh these last 40 years.)

Perhaps hard times (e.g., the collapse of the furniture industry in Grand Rapids or the steel industry in Pittsburgh) leads to both;
(a) getting religion (say a prayer; nothin' else is working!) and
(b) greater entrepreneurial-ism (gotta feed the kids somehow).

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