The One Building that Explains How Detroit Could Come Back

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DETROIT AUGUST 28, 2013

The One Building that Explains How Detroit Could Come Back A plan to foster innovation amidst bankruptcy

The old Argonaut Building has a big place in Detroit’s history. From 1936 to 1956, it was the home of the General Motors Research Laboratory, the first in-house research & design studio in the automotive industry. The mass-produced automatic transmission was developed there, and over three decades every GM car was designed and styled in the Argonaut building. From 1956 to 1999, the building housed Argonaut Realty, GM’s real estate arm. But for the next decade, the somber 11-story structure, designed by famed architect Albert Kahn and built to support the weight of new cars on upper floors, was empty. So were many of the other buildings where people made, designed, or sold cars, or prepared legal documents, or saw patients, or did much of the everyday work of Detroit.

For most observers of the city, where an emergency financial manager, Kevyn Orr, filed for bankruptcy on July 18, that’s where the story ends—empty buildings, lost jobs, and a pervasive sense of decay and defeat.

But in reality, the Argonaut building has come back to life, re-imagined and re-named the Taubman Center for Design Education. Today, a small company called Shinola produces watches and bicycles, curiously old-fashioned yet hipster-ready objects, in a 30,000 square foot watch factory and smaller custom bike workshop. The highly regarded College for Creative Studies also uses the building for its graduate and undergraduate programs in advertising and various aspects of design. There is also a charter school on site, promoting arts and design education for 6th through 12th graders.

Like the Argonaut, the core of Detroit, encompassing the Midtown and Downtown neighborhoods are also undergoing a revival. Thirty-seven percent of the jobs (about 120,000) in the city of Detroit are in these neighborhoods, which take up only three percent of the city’s land. Dan Gilbert, the founder of Quicken Loans and various other businesses, has invested $1 billion in downtown office buildings. Approximately 10,000 new jobs have come to downtown in the last two years. While it doesn’t show up in official data, people on the ground suggest that the biggest surge in jobs has been in the last year or so, indicating that the area is only gaining momentum. From 2009 to 2011, the city as a whole lost jobs, but Midtown and Downtown saw a 5 percent jump. Thousands of new workers are now downtown, including companies like Blue Cross and Compuware that relocated from the suburbs.

People also want to live in midtown and downtown: Rental occupancy rates are higher than 90 percent in both neighborhoods and home sale prices are much higher than the rest of the city. Finally, there is new investment from private companies, including Whole Foods, which opened a midtown location in June 2013.

This investment and activity has benefits for Detroit as a whole, by creating jobs, drawing in residents, and generating tax revenue for a city that is greatly in need of all three. For example, almost three-quarters of Whole Foods employees are Detroit residents. And Midtown and Downtown have the potential to do even more for the city, and the wider Detroit region. The metropolitan economy needs to generate new ideas, products, and services that the rest of the country and the rest of the world wants to buy. Midtown and downtown could become the country’s next innovation district, where the density of innovative institutions and companies—hospitals, universities, research centers, clusters of tech and creative firms, plus resources for entrepreneurs and new businesses—begets still more new businesses, new products, new export opportunities, and new jobs.

Over time, this economic activity, and the new apartment buildings and retail strips that it draws, spread into surrounding neighborhoods. This is how the Detroit economy could, slowly but surely, regain traction. Getting the city’s fiscal house in order is only part of the story.

Innovation district is a relatively new term just beginning to gain currency among political, business, and civic leaders. Just a handful of places in the world have used the term to self-consciously describe a concentration of innovative institutions and resources that together create a “more than the sum of their parts” effect. In Barcelona, for example, the new 22@Barcelona innovation district transformed a 494-acre industrial area scarred and separated from the rest of the city by nineteenth-century railroad tracks. In less than a decade, 4,500 firms have located in the area, and there are thousands of housing units, plus university campuses, tech businesses, and new spaces for start-ups.

In turns out that innovation and the density that city neighborhoods provide are a perfect match for each other. According to a study by the British government, “While the marginal cost of transmitting information across geographical space has fallen significantly, the marginal cost of transmitting knowledge still rises with distance. . . . Therefore, the knowledge spillover benefits of clustering in cities can be large for high-value, knowledge intensive sectors.” These knowledge-intensive sectors, including chemicals, biotechnology, telecommunications, and semiconductors have themselves recognized that they have to collaborate to compete. McKinsey & Company, for example, has noticed a move from internal R&D labs to a partnership model with “academic centers, partners, competitors, customers, venture-capital funds, and startups.”

Proximity enables constant interaction and knowledge sharing, and the effects can be staggering.

Researcher Gerry Carlino has found that the number of patents per capita increases, on average, by 20 to 30 percent for every doubling of employment density. Stuart Rosenthal and William Strange find that the intellectual spillovers—what one company or person learns from another company or person—drop off dramatically with distance. At a distance of just over a mile, the power of intellectual ferment to create another new firm or even another new job drops to one-tenth or less of what it is closer in, because “information spillovers that require frequent contact between workers may dissipate over a short distance as walking to a meeting place becomes difficult or as random encounters become rare.” Researchers at Harvard Medical School have found that even working in the same building on an academic medical campus makes a difference for scientific breakthroughs. As one of them explains, “Otherwise it’s really out of sight, out of mind.”

Unlike enterprise zones or other government-led efforts that tried to create economic activity where very little existed, innovation districts are a way to organize economic activity that is already happening. The purpose of an innovation district is to make it easier for all the actors that transform ideas into saleable products and services to connect to each other. The government is one actor in innovation districts. It can designate a district, and create special zoning regulations that make it easier to, for example, create mixed-use developments, or the right kind of flexible commercial space for nascent companies. But it’s even more critical that universities, entrepreneurs, workers, medical institutions, business incubators, and other actors commit to the idea as well, and agree to locate in district and connect to others who are also there.

Downtown and midtown Detroit concentrate a wealth of innovation institutions, including Wayne State University, Henry Ford Health Systems, Detroit Medical Center, the Techtown business incubator, The College for Creative Studies, plus feisty newcomers like Shinola, Detroit Labs, Digerati, Gilbert’s Rock Ventures, and cultural institutions like the Detroit Institute of Art. The new M1 rail line will soon link downtown and midtown, and could serve as the circulatory system for this emerging innovation district. The district could benefit even more from additional high schools that could give inner city students the technical skills and recognized and valued credentials they need to participate in the innovation economy—according to research by our colleague Jonathan Rothwell, half of all of these “STEM” jobs don’t require a bachelor’s degree.

It’s not clear how many jobs Detroit can expect to see from this part of the city, which is already fairly job-dense, in the future. What is clear is that, according to research, the innovation district has the best environment in the city for creating science and technology jobs that in turn lead to the creation of other kinds of jobs (including service jobs for all skill levels, from doctors to retail clerks). The Detroit Future City report, which was based on an exhaustive analysis of the economic strengths of the city’s neighborhoods, identified midtown and downtown as two key neighborhoods for additional job growth.

To truly coalesce into an innovation district, the midtown-downtown zone needs more space for innovation and collaboration. One recent report noted that “There is too little low-cost flex space for creative firms [in Midtown]. Targeted development activity is needed to support small, creative, and IT firms as well as B2B operations that support and serve large local institutions.” Sue Mosey, the head of the Midtown, Inc. development corporation says with a smile that she’s got “no end of potential” in the neighborhood. Mosey also suggests that the big innovation institutions need to do a better job of sharing their innovations with each other and seeing what results—right now, they are still more comfortable operating in silos than in collaborative networks. But the new spaces for collaboration may lead to a new mindset.

Second, existing and potential firms don’t have access to a local workforce with the skills and education they need. With a 20 percent unemployment rate in the city, the potential talent is there—but it is grossly out of line with what employers need.  Existing firms and new companies could create more jobs if they had more tech-adept workers, and that in turn could stimulate the economy even more.

Maybe the best thing the innovation-district-to-be has going for it is, ironically, Detroit itself, despite the bankruptcy. According to a Los Angeles Times story from earlier this spring, when the CEO of Shinola took the watch to a trade show in Basel, Switzerland (where they know about watches), "People responded phenomenally….Detroit as the underdog [and] rebuilding against the odds is a powerful story, and the American story of resilience and triumph over adversity really seemed to resonate internationally.” People want to be part of Detroit’s turnaround, and to reinvent, well, invention in the city.

Detroit is drawing a new geography of innovation. Virtually every major city in this country has a strong central business district (mostly for the congregation of government, corporate headquarters, entertainment venues, and some cultural functions), a strong midtown area (where eds and meds and historic museums tend to concentrate), and a state-of-the-art transit corridor, mostly built within the past twenty years, connecting the two. Each of these discrete building blocks brings particular assets which, in turn, provide a platform for a key element of innovation district growth.

Innovation districts are the successor to the suburban science and research parks  that sprung up in the leafy precincts of Raleigh-Durham, Silicon Valley, and suburban Washington, Boston and Philadelphia. While these science parks seemed like a great idea at the time, when people thought that innovation hubs needed settings that mirrored those of small liberal arts colleges, based on what we now know about proximity, idea sharing, and innovation, and the preferences of young and creative workers, it’s possible, even likely, that more places will designate innovation districts around their own university campuses or tech hubs and seek to infuse them with the benefits of density. One promising sign—as Lydia DePillis reported here a few months ago, Research Triangle Park is rezoning and remaking itself into a denser, mixed use environment. In other words, this quintessential suburban office park wants to be more like a city.

An innovation district is not just a collection of physical assets. What really makes it hum is people, not just those who live and work there, but also networks of leaders in institutions like medical centers, philanthropies, non-profits, zoning departments, and local businesses. These leaders need to be committed to connecting an inventor, an entrepreneur, and a crew of first-rate workers. They need to be knowledgeable about how to make real estate development deals happen in urban areas, using the complex public and private financing mechanisms that are often required before a market fully takes off. Even after losing more than one million residents since its peak, Detroit still has these people, and they are committed to the city’s success, now more than ever. Those networks give its innovation district a good chance of success. Detroit could show cities how to connect old assets to new innovation practices. The Argonaut building, and what surrounds it, could once again symbolize Detroit’s power and preeminence in the world of invention.

Bruce Katz is a vice president at the Brookings Institution and founding director of the Brookings Metropolitan Policy Program, where Jennifer Bradley is a fellow. They are the co-authors of The Metropolitan Revolution: How Cities and Metros are Fixing Our Broken Politics and Fragile Economy. Follow @bruce_katz and @JBradley_DC on Twitter.

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