Breaking the Myopic Mold: Q&A with David Egner of Detroit’s New Economy Initiative

4/26/10Follow @wroush

If you ask people who’s lighting the innovation fires around Detroit, pretty soon you get directed to the New Economy Initiative for Southeast Michigan. This coalition of 10 community and philanthropic organizations was formed in 2008 with the goal of pooling resources to “restore southeast Michigan to a position of leadership in the new global economy,” according to the group’s website.

Ambitious seems like the right word for that vision, given the scale of Detroit’s problems.The population has dropped by more than half since 1950, the city budget deficit is likely to hit $450 million by the end of this year, and there are nearly 50 square miles of vacant, abandoned land within the city limits. The area would be lucky to regain a position of leadership in the Midwest, much less top rank on the global stage.

But if you were the type to let the difficulties get you down, you’d never even get started on solving them. And David Egner, the New Economy Initiative’s executive director, is not easily discouraged.

“The uncertainty will eat you alive if you let it,” says Egner, who is also president of the Hudson-Webber Foundation, a legacy of the family that founded Hudson’s department stores. In Detroit, he says, “We have to strike a balance between the comfortable certainty of going in a known direction, even if it is wrong—which is what Detroit has been doing for the last couple of decades—and the fear and uncertainty of limitless possibilities.”

David EgnerOf course, optimism and a tolerance for uncertainty are practically a job requirement for people in Michigan’s non-profit sector. (Before taking the reins at the Hudson-Webber Foundation in 1997, Egner was an executive at Junior Achievement and the W.K. Kellogg Foundation and CEO of the Michigan Nonprofit Association.) In a long conversation with Xconomy, the first part of which is included below, Egner emphasized all the things Detroit has going for it, such as its manufacturing infrastructure and its strategic location as an international port and a hub for rail, truck, and water traffic. Even the city’s empty land can be seen as an opportunity, Egner argues. That’s because it makes business expansion cheaper and creates room for experiments like Hantz Farms, planned to become the world’s largest urban farm.

Egner is realistic, too. He acknowledges that the city is still paying for its history of political discord and the complacency of its anchor employers, the big three automakers. Egner says the regional economy probably hasn’t hit bottom yet, with a new wave of business failures likely among auto suppliers who are slow to adapt to the new patterns of manufacturing. But he thinks the money the New Economy Initiative is committed to spending in Detroit—$100 million over eight years—will go a long way toward accomplishing the group’s three major goals. The initiative is seeking to create a stronger entrepreneurial ecosystem, make better use of the region’s existing industrial assets, and build up a better-educated better-trained workforce.

For the record, the members of the New Economy Initiative are the Community Foundation for Southeast Michigan (based in Detroit), the Max M. and Marjorie S. Fisher Foundation (Southfield, MI), the Ford Foundation (New York), the Hudson-Webber Foundation (Detroit), the W.K. Kellogg Foundation (Battle Creek, MI), the John S. and James L. Knight Foundation (Miami), the Kresge Foundation (Troy, MI), the McGregor Fund (Detroit), the Charles Stewart Mott Foundation (Flint, MI), and the Skillman Foundation (Detroit).

While Egner still runs the Hudson-Webber Foundation, he puts half of his time toward overseeing the New Economy Initiative, which has downtown offices just blocks from Detroit’s landmark Renaissance Center. The coalition has to work fast; barring an extension of the understanding that binds its members together, Egner says, the initiative will run out of money in 2012 and disband by 2015.

Part 1 of my interview with Egner is below. We’ll publish Part 2 later this week.

Xconomy: This question may sound mean or inappropriate, but I mean it in a constructive way. Why is Detroit worth saving?

David Egner: That’s not an inappropriate question at all. Let’s start with the historical aspects. Seventy to 80 years ago, this was Silicon Valley. It was where people came if they wanted to make something and create a business. Today, it’s largely driven by autos.But before that it was stoves, and before that it was lumber. Detroit has always been a town of hard-working innovators.

It really was the institutionalization of the auto industry that led to us becoming complacent, and in some respects, entitled. Whether that was through how union contracts were drawn up, or how executives got compensated, there was this entitlement mentality that because of what Detroit had built, it didn’t matter how we got it, we were entitled to have it.

But all of that DNA, or hard work and creative spirit, is still here in a major way. And we’re seeing it now at TechTown, where Randal Charlton is running the largest accelerator in the world, and receiving 100 inquiries a day from people trying to figure out how to start businesses.

Look at the comparative advantage points of Detroit versus the rest of the world, or the rest of North America. You’ve got the most cross-border international traffic in all of North America. You’ve got more goods coming over the Ambassador Bridge from Windsor than at any other point in the U.S. This is also the only point in the U.S. where you have a tremendous logistics industry, formed by the auto companies. Then you have incredible capacity at the airport. This should be North America’s largest, most vibrant inland port. You can move more goods through here that are large in size, or expensive in cost, or both, than anywhere else in the world.

You then have a state surrounded by 20 percent of the world’s freshwater supply, which is liquid gold. I think we’re going to figure out in time how to take advantage of that resource in new ways. And the world’s greatest manufacturing capacity still exists in this region. The largest minority-owned supply chain in North America is here. We have developed more diverse manufacturing industries than anyplace else. Those are not going to go away, but they must be opened up to diversification in new ways.

So you have all of these comparative advantages that can drive an economy in a major way—and not just the Detroit economy. I think you are looking at a laboratory for how the U.S. economy needs to diversify.

X: But when it comes to rebuilding the economy, it seems that it’s only in the last few years that politicians, industry leaders, and philanthropic leaders in Detroit have been owning up to the scale of the challenge. Why did it take so long?

DE: We’ve been our own worst enemy in that regard. The politics coming out of the 1950s and 1960s created divides across the region. We allowed politicians and some community leaders and business folks to derive their power from keeping us all separate. Whether it was folks in the city saying “We don’t need suburbanites” or suburbanites saying “We don’t care about the city,” whether it was a black-white issue—it’s well documented in Detroit that we allowed a power structure to move in and take root where the power was clearly derived from keeping us a divided place. Now, for the first time in four or five decades, everyone in the region is starting to understand that it is a symbiotic relationship. We need each other.

X: The New Economy Initiative is a coalition of 10 different foundations that focus their philanthropy on Detroit or southeast Michigan. It’s hard enough to get two foundations with their own agendas to work together, let alone 10. How do you do it?

DE: It’s been fascinating and stimulating, to say the least. All of these foundations have one thing in common, and that is that they want to see change in southeast Michigan, whether it’s because they’re a local foundation that’s rooted here, or one of the national foundations that sees Detroit as a great laboratory. The structure of what we put together is what is keeping the 10 players at the table and fully committed. It’s a very interactive group, balanced with eight community leaders and also a council of economic advisers who bring national expertise to help form the direction for the initiative.

I’m not so sure we even could have had a New Economy Initiative five years ago. I don’t think the philanthropic community was ready. I don’t think we had developed thecommon vision, and we had not yet learned how to work together in a way that truly was capturing the notion that one and one could make more than two. So there’s been an evolution in the thinking.

X: What kept the foundations from working together in the past, and what has changed?

DE: I think most of the foundations working in Detroit had a specific mission or group of projects they were working on, and it was difficult for one group to see the connection to the other groups’ work. I think we have reached a point of understanding now that all of this work is interconnected, whether it’s the Skillman Foundation, whose greatest expertise is on the K-12 education system, or the Community Foundation for Southeast Michigan looking broadly at the whole region, or the McGregor Fund looking at human services. They are all connected. For example, economic development in southeast Michigan will be meaningless if we don’t improve the K-12 education system in the City of Detroit. Before, we were very myopic. The Hudson-Webber Foundation, for example, would say that we were only interested in the City of Detroit and its physical rehabilitation and nothing else. But we are starting to understand that we need to think as a group about this agenda and get some good synergy around basic change in the fabric of how Detroit operates.

I would be remiss if I didn’t mention Mayor Bing. I think the Bing Administration has been very open to discussing ideas for how to improve the city, and that is crucial to how philanthropy has played with them. But I also think they’ve not been shy about talking about the tough issues around reinventing Detroit. Land use is the best example of that. When you’ve got a city infrastructure built for over 2 million people and you’ve only got 800,000 or 900,000 residents, you’ve got a problem. 40 percent of the land grid is vacant. And now the city is saying we’ve got to take that on. That sounds logical but from a politician’s point of view it has got to be the most difficult issue in the world to deal with. It’s never been done in the U.S.—we’ve never developed a set of policies for repurposing so much urban land.

X: In a way, doesn’t all that vacant land represent a huge opportunity? You could do a hundred things with it—you could build new factories, neighborhoods, farms, green spaces.

DE: It’s a tremendous opportunity. It’s another one of those competitive advantages. You’ve got low barriers of entry for new businesses and new thinking because of the land. So the city is looking at how it creates systems to manage that land re-use. And that is the difficult part—the whole issue of claiming title and picking some neighborhoods to develop for density purposes while being cautious about neighborhoods that are less dense and still have people living there who have lived there for decades. But the fact that the city is taking that on is a great example of what this administration is doing to make the city more attractive and able to think more creatively.

X: The way I understand it, you’ve been temporarily reassigned by the Hudson-Webber Foundation, where you are the president, to run the New Economy Initiative. Can you put your Hudson-Webber hat on for a minute and fill me in about the focus of that foundation, and talk about what it’s been like for the Hudson-Webber to get so closely involved with the other foundations?

DE: The Hudson-Webber Foundation was founded from the resources put forward by the department store family, the Hudsons. Richard Webber was the second-generation owner and was truly the philanthropist. Webber and his brothers ran the store, and were very liberal in their thinking about how to make Detroit a great place. They actually founded the Thanksgiving Day parade that Macy’s operated, and they founded the modern-day shopping mall. They were tremendous innovators, and they loved the city. The foundation’s purpose is to improve the quality of life in the City of Detroit. We have spent a lot of our time focused on economic development and physical revitalization in the central business district and the mid-town area of the city.

Recently, looking at the data, we had a light bulb go off when we looked at the issue of young talent. We know through a series of studies like the Yankelovich study, looking at the migration patterns of young people, that two-thirds of those graduating college pick a city before they pick a career or a job. For example, some decide that they want to be urban dwellers and have an urban experience. But Detroit is losing a much larger percentage of its young people than other cities. If the city of Detroit had the same proportion of people under-35 population with college degrees as Chicago, there would be 136,000 of that cohort living in the city. If it had the same proportion as Minneapolis-St. Paul, there would be 85,000. In the City of Detroit, there are 15,000 in this cohort. Even the suburban density of young talent is half what it is in Chicago or Minneapolis.

The bottom line for the Hudson-Webber Foundation is that if we don’t develop an urban core that is attractive to young talent, nothing else works. They are the spine of the economy for the next 30 to 40 years. Without them, you don’t have a tax infrastructure, health and human services would collapse, arts and culture would collapse. So, while keeping its general focus, Hudson-Webber is now focused on attracting 15,000 new under-35 college-educated people to the downtown area by 2015. In other words, doubling the current number, which we think is a tipping point. We picked that number because, as I’ve heard it said, “Some is not a number and soon is not a time.” We wanted to lay down a very ambitious goal, with a time frame to keep us on track.

That brings us back to the New Economy Initiative. There’s a direct link to Hudson-Webber’s work. Without young talent, you can’t grow new businesses or support existing businesses. The entire spirit bought by that cohort, if they are densified, should drive the creation of first- and second-tier companies. We have an aging workforce, and if we don’t find a way to get young talent in, and create our own talent through K-12 education, there is no work force to sustain or attract business. All of that lined up to have Hudson-Webber support the New Economy work. It was those very connections that had the Hudson-Webber board, in a sense, loan me to the New Economy Initiative at 50 percent of my time.

X: How does the initiative work? How do you decide what to do?

DE: That is the beauty of the structure. The governing council meets four times a year. That group listens to national experts and then has a spirited discussion about what we need to do in Detroit. If we can’t pound the table and disagree or push the envelope, then there is no reason for any of us to be there. So, four times a year you have the best philanthropic minds sitting at a table with economic experts talking about what matters in this region and how to best leverage it. Once that dialogue started, we were able to narrow down the work into some pretty specific buckets. Keeping everyone together has not been a chore.

The other thing that is unique about the structure is that there is an executive committee that meets every three weeks by phone, so we are never more than three weeks away from a decision on any grant. That is pretty unusual in the foundation world. Not only do we move everything on that three-week cycle, but the staff has worked hard to err on the side of being good rather than perfect. If we want movement, we have to act. If we tinker on the edges of some of this creative work, we will destroy it, or it won’t grow fast enough to matter.

X: It sounds like you have a certain sense of urgency about helping the city.

DE: There is a real sense of urgency. When we started this, we were standing on a burning platform. By the time we were ready to make grants in mid-2008, we were no longer on a burning platform—we were in an inferno. We need to have activity, we need to create hope, and we need to do it in a way that is going to have an impact on the region beyond the dollars we are putting out.

Coming soon in Part 2 of Xconomy’s interview with David Egner: How the New Economy Initiative is working to build bridges between entrepreneurs and investors, how the automotive industry can contribute to Detroit’s rebirth, and exactly where New Economy Initiative is spending its money and why.

Wade Roush is Chief Correspondent and Editor At Large at Xconomy. You can subscribe to his Google Group or e-mail him at wroush@xconomy.com. Follow @wroush

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