On the Sunday shows Newt Gingrich made a telling point that Republicans should take to heart. After Robert Reich lamely defended the “War on Poverty” as “successful for a time,” Gingrich observed that “Every major city which is a center of poverty is run by Democrats. Every major city. The policies have failed and the fact is the poor have suffered.”
Republicans must stress this point relentlessly. They can’t let Democrats seize the moral high ground on the issue of poverty, as Mitt Romney did. Not only has Obamanomics failed spectacularly at the national level—with the poverty rate stuck at 15% for an unprecedented three straight years. It has failed in Democratic strongholds like Detroit, Baltimore, Chicago, Philadelphia, Newark, New Orleans and Cleveland. In New York, by contrast, Giuliani and Bloomberg turned around Harlem and Brooklyn, creating economic opportunity for thousands of poor people. Republicans must eschew trite generalities like “free enterprise” and emphasize that where Democrats have full sway their policies fail. And not because of sweeping macro forces such as jobs moving south from the “rust belt.” Many cities in the prosperous Northeast have conspicuously failed the poor.
The Poverty Algorithm: Government of the Public Employees, by the Public Employees and for the Public Employees
Mike Bloomberg calls it the “labor electoral complex.” By squeezing the private sector to benefit public sector unions, big city Democratic machines eventually kill the golden goose. 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.
The Philadelphia Story
The city’s 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. “I once spent a year in Philadelphia, I think it was on a Sunday.” “First prize is a week in Philadelphia. Second prize is two weeks in Philadelphia.” But the city was not always a punch line. In the 18th century it was a boomtown attracting savvy entrepreneurs from around the Atlantic world. From Liverpool, by way of Maryland, came Robert Morris who got rich as a shipping merchant and became America’s “financial czar” during the Revolution. His good friend George Washington lived in Morris’ opulent townhouse during the eventful summer of 1787. 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. When his wife went insane and had to be institutionalized, Girard formed “the acquaintance of a young Quakeress, a tailoress by trade, by whom I amuse myself at very little expense and when I have time.” But the Quaker City was not all business. Benjamin Franklin, Dr. Benjamin Rush, and clock maker David Rittenhouse were among those who made it the center of the enlightenment in America.
Philadelphia’s commercial leadership slipped early in the 19th century as Baltimore and New York seized inland markets, but it remained the financial capital until Andrew Jackson “killed” the Second Bank of the United States in 1836. Though overshadowed by New York, Philly remained a major center of finance, transportation, manufacturing and culture throughout the 19th century. Its principal manufacturing firms were family-owned, producing high quality specialty products such as Stetson hats and Baldwin locomotives. They relied on skilled labor rather than unskilled assembly line workers. 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.
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,
. . . African-Americans were almost completely absent from Philadelphia industry. Major firms in the city, for example, made a practice of not employing black workers and certainly not black youngsters through the 1930s. 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.
Where, then, did black Philadelphians work? In a fascinating 1896 study, The Philadelphia Negro, 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%). About 75% of black female workers were in domestic service.
A Nice Place to Live, but I Can’t Find a Job There
Philadelphia’s fortunes have been sliding since World War II, at an accelerating pace. Since 1970 employment in Boston, New York and Washington DC has increased 5-20% while Philadelphia’s declined more than 20%. Everyone knows why. Taxes are too high. 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%). 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.
For business, the solution is to avoid Philadelphia. If 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. When I worked on Wall Street one of my top Philly clients was located well outside the city’s borders. Not surprisingly, of the top 15 employers in Philadelphia 12 are non-profits (universities and hospitals); the three corporate holdouts are Comcast, U.S. Air, and Allied Barton Security Services.
Despite this fiscal idiocy, Philadelphia is not shriveling up as Detroit did. It is an inexpensive and interesting place to live, and the population has been growing modestly. 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.
Let’s Soak the Poets
Sometimes an anecdote is worth a thousand pictures. In 2007 Pulitzer Prize winner Stephen Dunn gave a poetry reading in Philadelphia, for which he received $2,000. Then in 2011 he received a tax bill from the City of Philadelphia for $10,073. It seems that Mr. Dunn had A) failed to pay the city’s “Business Privilege Tax,” B) failed to obtain a “Business Privilege License,” which you need before you pay the tax, C) failed to file a “change form” 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. 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’ fiscal felons.
Scrounging for School Money
Philadelphia has a long-standing structural problem. Its government is too big for its economy, so it is in chronic fiscal crisis, which prevents rational reform of its tax code. Comcast executive David L. Cohen dryly observes, “If 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.” Mayor Nutter is constantly battling the municipal unions to control costs.
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. Remarkably, they pay nothing toward their health coverage. At the start of the 2013 school year, the city found itself in a cash crunch and needed $50 million to open the schools. Like a home owner scrambling to make the mortgage payment, the city considered all options:
- Dun landlords who were in arrears on property taxes.
- Start taxing non-profit “eds and meds” – the one part of the local economy that is still healthy
- Renege on the aforementioned property tax abatement.
- Get aid from the State of Pennsylvania.
Any business watching this chronic fiscal chaos knows that, whatever tax deal they cut with Philadelphia’s government this year, it may be abrogated next year when the city confronts a new crisis.
Fruits of Failed Liberalism: an Issue for Republicans in 2016
Philadelphia and its suburbs are full of earnest liberals who lament the evils perpetrated by hard-hearted Republicans. But what have these oh-so-virtuous liberals wrought in their own neighborhood? A “state of the city” report from the Pew Foundation reveals that Philly:
- Has “one of the highest poverty rates, 28.4 percent, and one of the lowest household median incomes, $34,027, among all major cities.”
- In 2012 the unemployment rate was 10.7%, 2.6 percentage points above the national level and above all comparable cities except Detroit.
- Philadelphia’s median household income is only half that of the suburban counties.
- In 2012, Philadelphia had the highest homicide rate among the nation’s 10 largest cities at 21.6 per 100,000 residents, although it was lower than Detroit (54.6), Baltimore (35.0) and Cleveland (24.6). 80% of homicide victims were African American, 2007-2011. Fortunately homicides declined in 2013.
- The Philly metro area’s share of U.S. venture capital was only 1.5%, versus 8.8% for New York metro and 2.7% for D.C. metro.
- Educational results are below par. According to Pew, results of the test designed by the National Association of Educational Progress show Philly’s public school students “scoring well below both the national average and the average for large cities in math and reading.” Only 18% of eighth graders were “proficient or advanced” in math versus a big-city average of 26%; in reading 16% were “proficient or advanced” versus a big-city average of 23%.
The media ignores urban poverty perpetuated by Democrats by focusing on the supposed problem of “inequality” at a national level, which is a separate issue having little to do with the plight of the urban poor. Republicans must shift the spotlight to where it belongs—the failure of liberal policies that place the interests of government employees ahead of ordinary citizens who remain mired in poverty due to lack of jobs, failing schools, and overall mismanagement.
Copyright 2013 Thomas Doerflinger. All Rights Reserved
References:
Thomas Doerflinger, A Vigorous Spirit of Enterprise: Merchants and Economic Development in Revolutionary Philadelphia
W.E.B. DuBois, The Philadelphia Negro
Walter Licht, Getting Work: Philadelphia, 1840-1950
Pew Charitable Trusts, Philadelphia 2013: The State of the City
