{"id":562,"date":"2013-12-23T02:33:08","date_gmt":"2013-12-23T02:33:08","guid":{"rendered":"http:\/\/www.wallstreetandkstreet.com\/?p=562"},"modified":"2013-12-24T17:02:58","modified_gmt":"2013-12-24T17:02:58","slug":"shame-of-the-democratic-cities","status":"publish","type":"post","link":"https:\/\/www.wallstreetandkstreet.com\/?p=562","title":{"rendered":"Shame of the (Democratic) Cities"},"content":{"rendered":"

On the Sunday shows Newt Gingrich made a telling point that Republicans should take to heart.\u00a0 After Robert Reich lamely defended the \u201cWar on Poverty\u201d as \u201csuccessful for a time,\u201d Gingrich observed that \u201cEvery major city which is a center of poverty is run by Democrats.\u00a0 Every major city.\u00a0 The policies have failed and the fact is the poor have suffered.\u201d<\/p>\n

Republicans must stress this point relentlessly. They can\u2019t let Democrats seize the moral high ground on the issue of poverty, as Mitt Romney did. \u00a0Not only has Obamanomics failed spectacularly at the national level\u2014with the poverty rate stuck at 15% for an unprecedented three straight years.\u00a0 It has failed in Democratic strongholds like Detroit, Baltimore, Chicago, Philadelphia, Newark, New Orleans and Cleveland.\u00a0 In New York, by contrast, Giuliani and Bloomberg turned around Harlem and Brooklyn, creating economic opportunity for thousands of poor people.\u00a0 Republicans must eschew trite generalities like \u201cfree enterprise\u201d and emphasize that where Democrats have full sway their policies fail.\u00a0 And not<\/b> because of sweeping macro forces such as jobs moving south from the \u201crust belt.\u201d\u00a0 Many cities in the prosperous Northeast have conspicuously failed the poor.<\/p>\n

The Poverty Algorithm: Government of the Public Employees, by the Public Employees and for the Public Employees<\/b><\/p>\n

Mike Bloomberg calls it the \u201clabor electoral complex.\u201d\u00a0 By squeezing the private sector to benefit public sector unions, big city Democratic machines eventually kill the golden goose.\u00a0 They are left with a bloated city government burdened by huge financial obligations (largely pensions and healthcare costs), a shrunken tax base, decrepit infrastructure, decimated job market, ineffective schools, high crime and an impoverished, poorly educated citizenry. But their biggest problems are not financial but intellectual. Virtually no one is left in town who understands how the free market operates to reduce poverty.<\/p>\n

The Philadelphia Story<\/b><\/p>\n

The city\u2019s reputation has been sliding for a while. W.C. Fields, who was born in Philly in 1880, had much to say about his home town, none of it good.\u00a0 \u201cI once spent a year in Philadelphia, I think it was on a Sunday.\u201d\u00a0 \u00a0\u201cFirst prize is a week in Philadelphia. Second prize is two weeks in Philadelphia.\u201d\u00a0 But the city was not always a punch line. \u00a0In the 18th<\/sup> century it was a boomtown attracting savvy entrepreneurs from around the Atlantic world.\u00a0 From Liverpool, by way of Maryland, came Robert Morris who got rich as a shipping merchant and became America\u2019s \u201cfinancial czar\u201d during the Revolution. His good friend George Washington lived in Morris\u2019 opulent townhouse during the eventful summer of 1787.\u00a0 From Bordeaux came the one-eyed ship captain Stephen Girard who managed, year after year, to compound his capital at 30% by trading with the West Indies and Europe. Eventually becoming one of the richest men in America, Girard was not one to waste time or money.\u00a0 When his wife went insane and had to be institutionalized, Girard formed \u201cthe acquaintance of a young Quakeress, a tailoress by trade, by whom I amuse myself at very little expense and when I have time.\u201d\u00a0 But the Quaker City was not all business.\u00a0 Benjamin Franklin, Dr. Benjamin Rush, and clock maker David Rittenhouse were among those who made it the center of the enlightenment in America.<\/p>\n

Philadelphia\u2019s commercial leadership slipped early in the 19th<\/sup> century as Baltimore and New York seized inland markets, but it remained the financial capital until Andrew Jackson \u201ckilled\u201d the Second Bank of the United States in 1836.\u00a0 Though overshadowed by New York, Philly remained a major center of finance, transportation, manufacturing and culture throughout the 19th<\/sup> century.\u00a0 Its principal manufacturing firms were family-owned, producing high quality specialty products such as Stetson hats and Baldwin locomotives.\u00a0 They relied on skilled labor rather than unskilled assembly line workers.\u00a0 Few of these firms, whose red brick carcasses can be seen from Amtrak trains shuttling between New York and Washington, could long survive the shift to cheaper, lower-quality products demanded by mass marketers like Sears and J.C. Penney.<\/p>\n

Although it is commonly believed that blacks in northern cities were hurt by the demise of manufacturing, this is not strictly true because they were rarely employed by industrial firms. (Detroit was an exception.) University of Pennsylvania professor Walter Licht writes,<\/p>\n

. . . African-Americans were almost completely absent from Philadelphia industry.\u00a0 Major firms in the city, for example, made a practice of not employing black workers and certainly not black youngsters through the 1930s.\u00a0 The Budd Company, Bendix, Cramps Shipyard, and Baldwin Locomotive, with combined work forces of over 35,000 employees, hired not a single black (not even in the most menial positions) until the late 1930s.<\/p>\n

Where, then, did black Philadelphians work?\u00a0 In a fascinating 1896 study, The Philadelphia Negro<\/b>, W.E.B. DuBois reported that 45% of black men were laborers, 34% were servants, and the rest were in skilled professions (2%), conducting business on their own account (6.5%), and clerks (7%).\u00a0 About 75% of black female workers were in domestic service.<\/p>\n

A Nice Place to Live, but I Can\u2019t Find a Job There<\/b><\/p>\n

Philadelphia\u2019s fortunes have been sliding since World War II, at an accelerating pace.\u00a0 Since 1970 employment in Boston, New York and Washington DC has increased 5-20% while Philadelphia\u2019s declined more than 20%.\u00a0 Everyone knows why.\u00a0 Taxes are too high<\/b>.\u00a0 The combined state and local tax burden on Philadelphians is 13.7%, just about the highest in the nation and far above Houston (6%), Phoenix (7%) and Indianapolis (8.7%).\u00a0 The chief culprit is the Philadelphia wage tax, a notorious levy on all compensation paid to employees in the city or received by residents who works outside the city.<\/p>\n

For business, the solution is to avoid Philadelphia. \u00a0If you drive down bustling City Line Avenue, which separates city from suburb, it is obvious which side is beyond the reach of the Philadelphia tax man.\u00a0 When I worked on Wall Street one of my top Philly clients was located well outside the city\u2019s borders. Not surprisingly, of the top 15 employers in Philadelphia 12 are non-profits<\/b> (universities and hospitals); the three corporate holdouts are Comcast, U.S. Air, and Allied Barton Security Services.<\/p>\n

Despite this fiscal idiocy, Philadelphia is not shriveling up as Detroit did<\/b>.\u00a0 It is an inexpensive and interesting place to live, and the population has been growing modestly.\u00a0 But to attract residents the city has had to provide juicy 10-year tax abatements to building developers and owners; they are exempt from property taxes on new construction.<\/p>\n

Let\u2019s Soak the Poets<\/b><\/p>\n

Sometimes an anecdote is worth a thousand pictures.\u00a0 In 2007 Pulitzer Prize winner Stephen Dunn gave a poetry reading in Philadelphia, for which he received $2,000. \u00a0Then in 2011 he received a tax bill from the City of Philadelphia for $10,073.\u00a0 It seems that Mr. Dunn had A) failed to pay the city\u2019s \u201cBusiness Privilege Tax,\u201d B) failed to obtain a \u201cBusiness Privilege License,\u201d which you need before you pay the tax, C) failed to file a \u201cchange form\u201d needed if the aforementioned license was only for one day, D) was liable for sundry fines for failure to file, E) owed interest on the unpaid taxes, fees, and fines. Unlike the wage tax, the Business Privilege Tax generates very little revenue.\u00a0 But it does scare off lots of entrepreneurs, who may develop an idea at such universities as Penn and Drexel but elect to build their business beyond the reach of Philly\u2019 fiscal felons.<\/p>\n

Scrounging for School Money<\/b><\/p>\n

Philadelphia has a long-standing structural problem.\u00a0 Its government is too big for its economy, so it is in chronic fiscal crisis, which prevents rational reform of its tax code.\u00a0 Comcast executive David L. Cohen dryly observes, \u201cIf you have to raise taxes five years in a row in order to afford the government, then you better start looking at the government because it is clearly not a government you can afford.\u201d Mayor Nutter is constantly battling the municipal unions to control costs.<\/p>\n

The biggest cost is teachers, who earn $46,000 – $83,000, which is equivalent to $68,000-$124,000 given that they work 67% of the hours of a private worker.\u00a0 Remarkably, they pay nothing toward their health coverage.\u00a0 At the start of the 2013 school year, the city found itself in a cash crunch and needed $50 million to open the schools.\u00a0 Like a home owner scrambling to make the mortgage payment, the city considered all options:<\/p>\n