CAN ENTREPRENEURSHIP POWER DETROIT?

The Motor City looks to startups.

No city is testing the economic and civic potential of entrepreneurship like Detroit. America’s greatest urban failure is pinning its hopes on new businesses and new approaches. There are definite signs of recovery, but the amount of work yet to be done is staggering. The Economist periodically checks in on the city to see how matters are progressing. The article below ran in mid-March.

The Economist

Under Diego Rivera’s murals of “Industry”, at a dinner for supporters of the Detroit Institute of Arts, Anne Parsons, who runs the Detroit Symphony Orchestra, remarks how much the mood in the city has changed. “A few years ago, everyone would have been pessimistic at a similar gathering,” says Ms Parsons. Today the happily chatting visitors seem to feel the worst is behind them.

Signs suggest that Michigan’s biggest city, having endured America’s biggest municipal bankruptcy, is getting on the right track. In his first state-of-the-city address last month, Mike Duggan, the mayor, announced that the city will balance its budget this year for the first time since 2002. City services are improving: the number of ambulances has doubled and their response time has dropped from 18 minutes to an average of 11 (the national target time is eight). More than 220 parks have reopened with the help of churches and community groups. The rates of murders, robberies and carjackings are falling (though last year’s 300 murders still make Detroit one of America’s most dangerous cities). More than 35,000 broken streetlights have been replaced. The city is demolishing 200 derelict houses every week.

It is a good start for Mr Duggan, a former turnaround expert, but he knows that much more needs to be done. So far the recovery is mainly confined to “greater downtown”, an area of 7.2 square miles in a city almost 20 times that size. Public schools are in even poorer shape than in other big cities. The patchy public-transport system is a joke. Most alarmingly, people continue to leave a city that has shrunk from 1.8 million inhabitants in 1950 to 680,000 today.

To reverse this trend, Detroit and the state of Michigan are pinning their hopes on entrepreneurs. In his address the mayor announced the creation of “Motor City Match”, a new program funded by foundations and the federal government that will provide $500,000 every quarter for the next five years as seed money for people wanting to start a business. He recently appointed Jill Ford as special adviser for entrepreneurship, a new job. One of her tasks is to oversee the “innovation district” in midtown and downtown, an area modeled on similar projects in Boston and Atlanta, which encourage budding entrepreneurs by providing workspace and money.

Ms Ford says she decided to move to Detroit, after nine years in Silicon Valley, because the city offers such opportunities for go-getters. Property is cheap; talent is abundant, with the University of Michigan, Lawrence Technological University and Michigan State University on the doorstep; and it is conveniently close to Canada and big waterways.

Ted Serbinski is the sort of person Detroit would like more of. He moved there three years ago from San Francisco, thinking the city might become a midwestern Silicon Valley and wondering how it could use its special position so close to the three big carmakers. He is now the managing director of Techstars Mobility, which launched in December in partnership with Ford, Verizon, a telecoms company, and Magna International, a car-parts supplier. The new company is an incubator: it will invest in ten startup companies each year that link up technology and cars. The first ten companies will be announced in June. The hope is that one of them may prove as successful (though maybe not as controversial) as Uber, which links taxi passengers to drivers through a smartphone app.

The Madison building, one of many in downtown Detroit owned by Dan Gilbert, a billionaire businessman and fervent advocate of the city’s renaissance, is one of the epicenters of the budding technology scene. There very new tech companies (some of them short-lived) rent space and work side by side in a bright, open-plan area with a red popcorn maker and a gleaming coffee machine. This is also the home of Detroit Venture Partners (DVP), Mr Gilbert’s technology-investment fund. “At first it was the wild-eyed risk-takers who came here, but now we have more sedate and even some foreign investors,” says Gabe Karp, one of the partners at DVP, who sits on the board of six startup tech firms that DVP invests in.

The big question is whether the energy and enthusiasm that is palpable in downtown and midtown can trickle through to the rest of the city. Property developers are still mainly focused on the centre of the city, where prices have tripled and even quadrupled in the past few years. In 2012 Jordan Wolfe and a partner bought Claridge House, an apartment building downtown, for $750,000 and renovated it. Today, he says, it would cost $2m-3m. All its 45 apartments are rented out, and there is demand for more. For the first time ever, Detroit has waiting lists for residential space downtown.

Property investors are slowly branching out into districts such as Eastern Market, an area bordering on midtown with a huge outdoor flower-and-food market, and Corktown, just west of the centre. Yet large parts of the city remain a wasteland. That is why Mr Duggan is so keen to remove the more than 80,000 derelict buildings which the Blight Removal Task Force, a public-private partnership, wants to demolish. “Though stable neighbourhoods still exist, they are overshadowed by the city’s blighted areas. This negative perception…has been a factor in hindering the city’s growth,” said the Federal Reserve Bank of Chicago in a recent report.

What to do with the land once the abandoned houses have gone is challenging everyone’s creativity. Hantz Woodlands, which bills itself as the world’s largest planned urban farm, wants to plant at least 15,000 trees in eastern Detroit. Others say the city should create big fruit and vegetable farms and become a gastronomic hub such as Traverse City in Michigan, which successfully markets itself as farm-to-table foodie heaven. Detroit is frequently described as a “food desert” where people cannot shop for fresh, wholesome food. Urban farms could change that within a couple of years.

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