How America can have more Seattles and fewer Detroits

By James Pethokoukis

How can American cities be more like vibrant Seattle and less like moribund Detroit? Certainly not by offering them government-backed green jobs programs. Instead, says Ed Glaeser, unleash the entrepreneurs. And here is how:

How can more cities become centers of skilled invention and entrepreneurship?
Entrepreneurship doesn’t happen overnight, and it’s rarely the direct creation of government. Bureaucrats aren’t experts in finding unexpected market niches, so politicians are prone to throwing money at the fad of the moment, like “green jobs.” Also unhelpful are policies that privilege older, big-firm industries. My research with William Kerr has found that places blessed—or cursed—with natural resources, such as coal or iron mines, 100 years ago still have larger firms today, across all their industries, and that the employment picture there is correspondingly bleaker than in cities with fewer natural resources. So we should worry about policies like auto bailouts, which are the artificial equivalent of coal mines, encouraging big, stagnant companies at the expense of job-creating start-ups.
Still, certain policies can help entrepreneurs and boost American employment. Since an educated workforce is so important to urban success, America needs better schools, especially in its dense urban areas. Perhaps the most hopeful development on this front is the emergence of charter schools. Since entry to the most successful of these schools is typically by lottery, social scientists can compare the test scores of those who won and got in with the test scores of those who didn’t. A significant number of papers now show the remarkable long-run effects that getting in can have on children’s academic outcomes.
Another badly needed reform that would help unleash entrepreneurs: every level of government needs to rethink and reduce its regulations, which have grown excessive and stifle innovation (see “The Regulatory Thicket”). The federal government could lead the way by establishing a federally funded independent body, perhaps attached to the Congressional Budget Office, to analyze state and local regulations. Localities that instituted entrepreneurship-killing regulations would lose their power to issue federal-tax-exempt bonds.
In general, we should never use public dollars to bribe people to remain in dead-end jobs. We should place far less emphasis on the industries of the past and more on those of the future. Federal policies that bail out auto companies and subsidize agriculture aren’t merely expensive; they also encourage people to stay in declining industries rather than strike out on their own.