Gambling on Gary

If we're going to rescue Wall Street, let's bail out the industrial Midwest, too.
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As I write these words, the U.S. House of Representatives has just rejected a $700 billion plan to rescue the nation's financial system from a Wall Street-devised, government-encouraged, multitrillion-dollar pyramid scheme concocted of low-grade mortgages wrapped into flimsy securities insured by obscure derivatives, known as credit default swaps, that can be reasonably described as radioactive waste in paper form. At this point, it's unclear what type of rescue bill might pass Congress. But I'm hoping one does, even though it will likely give undeserving American financiers a lot of money, take a lot of bad debt off their hands, assume most of the risk accumulated via credit default swaps or, more likely, perform all three of these sordid deeds.

When the world economy is at stake, fairness has to take a back seat to utility. Besides, there will be plenty of time for CEOs to be prosecuted, after the markets are calmed.

Although I don't know what the rescue will ultimately entail, I doubt it will include billions (or even millions) of federal dollars for Hammond, Ind., the focus of a story you can find 30 or so pages into this magazine. After all, Hammond has never threatened to seize up and drag the rest of the economy into a black hole named the Second Great Depression. Over the course of the last 35 years, Hammond has just seized up.

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When one of our contributing editors, Ryan Blitstein, pitched the Hammond story — which centers on an attempt to cope with decades of decline by offering any family owning a home in the city free college tuition for the kids — he did not know that I had grown up there. He just thought its College Bound program made for a good story, in part because Hammond's economic misfortunes provided the kind of gritty atmospherics that are bad for the locals but (as much as journalists don't like admitting it) good for storytelling. Ryan was right; it is a good story, and I needed a column to open the magazine, so I headed to Hammond's next-door neighbor, Gary.

Because I knew that, in terms of gritty atmospherics, Gary makes Hammond look like Mayberry R.F.D.

If we must talk TV, a good analog for Gary's current reality would be the opening of The Sopranos, with upper-middle-class mob boss Tony Soprano driving through a blighted portion of New Jersey to the rhythms of the song "Woke Up This Morning." I'm sure a lot of people liked that introduction's growling, ominous music and crisp video edits. In some back room in my brain, I loved it because Tony was driving his SUV through parts of New Jersey that look just like where I grew up.

As with the Mafia and certain parts of New Jersey, there is something perversely mesmerizing about industrial Northwest Indiana, known sometimes as "the Calumet Region" (it includes the Little Calumet and Grand Calumet rivers) but more often simply as "the Region." When I was growing up in Hammond, the parts of the Region stretching along Lake Michigan to the east were a vision of doom — vast landscapes of smoking and blazing stacks and flares jutting from acres and acres of huge corrugated metal buildings in black, gray and rust. My brothers and I likened it to Mordor, the home of Sauron, Dark Lord of the Rings, and at its industrial height, the Region seems to have made a similarly strong impression on a lot of people. In a 2006 interview, Joseph Stiglitz, the Nobel-winning economist who happened to grow up in Gary, the steel-making heart of the Region, noted that because of the air pollution and the open-hearth furnaces at the steel mills, when he was growing up the city had "its own aurora borealis." And it did; once the sun set, a man-made sunset continued through the night, an orange glow on the horizon that Region natives accepted as a substitute for stars.

But if it was smelly and ugly, this Mordor made money. For the first two-thirds of the 20th century, the Region was at the center of American industrial might, and U.S. Steel was at the center of the Region. With a large South Chicago Works already in operation, U.S. Steel moved east in 1906, across the state line into Indiana, flattening the sand dunes along the lake to build the company's Gary Works and a city for its workers to live in, named after company chairman Elbert H. Gary. Other steel mills — and, eventually, the harbors and rail lines and highways to serve them — lined the lakefront. Major oil refineries were built, as were other company towns, and the need for labor drew workers in waves; first came immigrants from Eastern Europe, and then came an internal migration of poor blacks (and some whites) from the South.

Through the 1960s, almost anyone who was willing to work could get a job in the Region's mills, refineries and factories. The work was often back-breaking, boring and dangerous. Environmental conditions were horrifying, with air that smelled constantly of half-burnt hydrocarbons and God-knows-how-many tons of chemical cocktails dumped into the lake and the wetlands that bordered it. But the pay put people solidly in the middle class. I knew old-timers — Slovaks and Poles without high school diplomas — who retired in my hometown with what they said were net worths of $1 million and more, the result of stock-based profit-sharing plans and decades of tightfistedness. And don't get the idea these were supervisors. They were people whose fingernails never got clean.

Then, starting late in the 1960s, everything changed in a gradual process that wasn't then widely called globalization. The steel mill work force shrank and then shrank again — and again and again and again — as steel companies built overseas mills to take advantage of cheap labor, and those that remained in operation here were automated and computerized. The factories that built things out of American-made steel withered, and over the course of 30 years, the industrial part of the Region that was once such a huge component of America's economic might became what is now known in policy circles as an "older industrial area," encircled by suburbs to which most businesses and white people fled.

I left early for my appointment at Gary City Hall. After driving through some residential neighborhoods as bombed-out and downtrodden as anything I've ever seen — whole blocks with three or four homes, at least half looking to be crack houses, the rest of the lots cleared — I reached Broadway, downtown's main street, with a good 15 minutes to spare. Even so, I was almost late. Once downtown, I had to circle, looking for an attended parking spot where I'd have some assurance of safety for my rental car. Broadway was once a busy commercial strip. Now, it's largely empty, except for loiterers.

As you enter City Hall, directly to one side is the shell of a Sheraton hotel opened in the 1970s (with city help) and then closed again and given back to the city, which has held it for more than 20 years. I wanted to know what was going on with it — after all, there aren't many cities that leave hotel skeletons sitting right next door to City Hall for two decades — but thought it might be indecorous to raise the subject right away.

I shouldn't have worried; Joel Rodriguez, special assistant to the mayor for economic development, brought the hotel up on his own, as part of Gary's master plan for redevelopment. The city had just finished removing asbestos from the building, he explained, and a private developer had contracted to renovate it as an assisted-living facility, with commercial space — perhaps a drugstore and a bank — on the first floor. Between the facility and City Hall would be a park; the rest of downtown was also scheduled for redevelopment, and Rodriguez laid out the plan for me in some detail, complete with computerized architectural drawings.

Over the next hour and a half, Rodriguez displayed a combination of smarts, geniality and openness that, I can attest from experience, citizens seldom enjoy (and journalists almost never encounter) in a local government official. To start, he tacitly acknowledged Gary's sad history of inept governance, noting that the master redevelopment plan he was sharing with me was the first the city had produced since the early 1980s. In doing so, he suggested that things were different now under Mayor Rudy Clay, who has been in office only since 2006.

From there, Rodriguez explained why Gary's infrastructure makes it a great place for business to relocate; Gary's dystopian appearances notwithstanding, it's a reasonably compelling explanation. The city's transportation network — multiple interstate highways, freight and commuter rail lines, an airport that is trying to become the third major air hub in the Chicago area, access to harbors that serve Lake Michigan freighters — is truly world-class, and there is plenty of low-cost land for new business and commercial enterprise. Downtown Chicago is just 40 minutes away by the South Shore commuter train; homes in the beautiful beachfront neighborhood of Miller can be had for a song.

Rodriguez went on to explain the city's plans for rebuilding downtown, lengthening the airport's runways and putting together packages of land ready to become commercial parks, intermodal freight yards, retail centers and even museums. His eyes flashed with excitement when he described ongoing discussions about a museum that would center on the lives of Michael Jackson and his musical siblings, who grew up in Gary.

As I shook hands with Rodriguez, I told him I looked forward to meeting again in four or five years, when downtown Gary had been redeveloped into the alluring, walkable, urban streetscape of his pastel, computerized architectural drawings and I could take him out to have a drink. And I hope that rosy future arrives, but I'm not expecting it soon, because Gary isn't just any older industrial area struggling to redevelop. It is a poster child for why these areas have tended not to come back.

I have not done the reporting necessary to know whether Gary's current mayor, Rudy Clay, has been a good, a bad or an indifferent one. But leaving Mayor Clay's two years in office entirely out of the analysis, there is simply no denying that over much of the last 40 years, Gary, Ind., has suffered from incompetent and often corrupt local government. Many millions of federal redevelopment dollars have flowed into Gary over the decades to remarkably little positive effect. Drugs are omnipresent, the schools are generally poor and the crime problem has been a constant: According to The Associated Press, in 2004 Gary recorded the nation's highest per-capita homicide rate for the ninth straight year.

Clearly, the people of Gary have been ill-served by their local leaders.

All the same, Gary, Hammond and many other manufacturing centers of the Midwest Rust Belt have faced national and global economic trends that no city government, on its own, could weather. Gary hasn't just suffered industrial decline; it's an example of industrial collapse fueled by the decisions of multinational companies, the policies of governments around the world and wholesale changes in global commerce patterns. Thirty to 40 years ago, U.S. Steel's Gary Works employed 30,000 people, give or take; now it employs somewhere between 6,000 and 8,000, depending on whose numbers you use. Other nearby mills have had similar employment reductions. When steel was king, Gary had a population of almost 200,000; today, it's about half that number. And when you talk about Gary, you don't talk about white flight; you talk about white abandonment. As Robert Catlin notes in his 1993 book, Racial Politics and Urban Planning, when Richard Hatcher became the city's first black mayor in 1967, white businessmen essentially moved Gary's entire downtown business establishment, lock, stock and barrel, to white suburbs. It never came back.

Over the last three decades, the Rust Belt cities that once were the foundation of America's economic primacy have shriveled and been largely ignored at the national level — except when there is a presidential election. Every four years, some of the least prosperous of the Midwest states become so-called battlegrounds, where candidates go to drink shots and beers and pretend that they care about the problems of blue-collar workers. Usually, Indiana misses out on most of the pandering because it has been solidly Republican for presidential purposes.

But this year, as part of their drawn-out primary battle, Sens. Obama and Clinton campaigned hard in the state's Democratic primary, especially in the Region. Barack drank Budweiser, Hillary a shot of Crown Royal with a beer chaser.

The contest was hard fought all the way to the end. Hours after ballots in the state's other 91 counties had been counted, votes from Lake County — home to Hammond, Gary and what remains of the industrial core of the Region — were outstanding. The nation's lonely eyes turned to Indiana, as Mayor Thomas McDermott of majority-white Hammond, a Clinton supporter, accused election officials of wanting to play "games" with the ballots in an attempt to put Obama over the top and suggested that Mayor Clay of majority-black Gary, an Obama supporter who heads the county's Democratic committee, might be involved. The election officials and Clay said the slow vote was due to high turnout. In the end, Obama took Lake County, but Clinton won a narrow victory in the state — so narrow, in fact, that many saw it as a moral victory for Obama.

And then the nation's eyes turned away, because the Region isn't Sarah Palin, and neither McDermott nor Clay shoots moose.

Sucked into enormous economic whirlpools, the Midwest manufacturing centers hollowed out by globalization have grasped for anything that looks like a lifeline. Sometimes the results are jarring, as in the "older industrial areas" of the Region, where they have grabbed onto casino gambling.

There are gambling boats on Lake Michigan in Hammond, East Chicago, Gary and Michigan City. Recently spruced up by a reported $485 million investment from Harrah's, the Hammond casino does a decent job of luring people who are visiting Chicago across the state line and then separating them from their money, even though it's located behind a soap factory and between an oil refinery and a power plant.

The East Chicago and Gary casinos bookend a bay in the lake, and there's even a beach that's being restored between them. At Gary's end, known as Buffington Harbor, there are now two casino boats, a hotel and a city marina, and a redevelopment plan includes a lakefront promenade, a retail district and residential buildings with some first-story commercial opportunities.

If you forget that the area is surrounded by railroad lines and current and former steel mills that could stand in for Mordor (from the beach, I can see the mill I worked in while saving for college), this could be a regular Atlantic City on Lake Michigan. The gambling boats don't make anything that anyone needs, and they suck money from the pockets of locals way too poor to be gambling, but there is something perversely alluring about the juxtaposition of sparkly casinos and grimy steelworks. Who knows? Someone might make a TV show out of it sometime.

Late in September, I asked Mayor Clay what he thought of the outlines of the Wall Street bailout plan, as they were known then. "Well, you know, the most puzzling thing to me is you're going to take and spend billions of dollars to give to some people ... to make them more billions," he said. "And the people who really need the money, it don't trickle down to them. I want to save the (country) and all.

"But the people who can't pay the mortgage, who get foreclosed on, they'll never see the money."

The bailout is necessary to quell panic and save the FIRE (that is, finance, insurance and real estate) sector that the Bush administration has foolishly bloated and put at the center of the U.S. economy. Once it becomes clear that the fire in FIRE has been extinguished, though, it's going to be time for the U.S. to rebalance.

Markets are necessary to provide capital to a 21st-century economy, but paper-swapping isn't a substitute for an economy. The industrial revolution is over, of course, and Elbert Gary isn't going to rise from the grave and rebuild his namesake city. Still, even to begin addressing the shocking current account and budget deficits the U.S. is running, America needs to begin making things — not derivatives and lattes but tangible, saleable things like electric cars and wind turbines — again. As troubled and poorly run as they may have been, Gary and its brethren cities still know how to make an industrial thing or two, and they can't be any worse of a place to substantially increase federal investment — of both money and expertise — than an investment bank that can't tell the difference between insurance and radioactive waste.

Miller-McCune welcomes letters to the editor, sent via e-mail to theeditor@miller-mccune.com; via the comment sections of our Web site, Miller-McCune.com; or by standard mail to The Editor, 804 Anacapa St., Santa Barbara, CA 93101.

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