someday incorporating lower-wage nations such as India andrnChina with their several billion inhabitants.rnWhat is to become of the Motor Cit)’, tlie once-great Arsenalrnof Democracy, the industrial titan that defeated the Nazis inrnWorld War II?rnWhat occurred in Detroit during World War II was remarkable,rnalthough it has been largely forgotten today by the youngerrngeneration. In December 1940, President Franklin DelanornRoosevelt declared in a fireside chat that America “must be therngreat Arsenal of Democracy.” At the time, FDR was talkingrnaboutplanes, boats, arms, and munitions. War. And it was war,rnnot FDR’s New Deal or Keynesian economics, that brought anrnend to the Great Depression.rnWhen the war began, Detroit’s auto companies, in alliancernwith the IIAW, converted their peacetime plants into war-timernfactories that churned out tanks, aircraft engines, boats, cannons,rneven airplane tires. At its height. Ford’s Willow Run Plantrnnear Ypsilanti produced one twin-tailed B-24 Liberator airplanernevery hour. Women played a key role in war-time production;rnRosie the Riveter filled Detroit’s defense plants. Michigan hadrnoirly two percent of the U.S. population but was producingrnmore than ten percent of the nation’s war goods. If the Nazisrncould have bombed Detroit, thev would have. “Detroit,”rnJoseph Stalin once quipped to FDR, was “winning the war.”rnThose glory days are gone. A three-tier economic system isrnbeing created today in Detroit, although the process isrnslow and not easily discernible.rnFirst, there is the white-collar suburban entrepreneurial andrnmanagerial class, including high-tech engineers, computerrncode writers, and those of us who live by words, symbols, andrnimages in the Information Age. Second, there is the urban underclass,rnsituated primarily in Detroit itself Then there is thernthird group: the invisible blue-collar workers whose familiesrnwere the main beneficiaries of the social contract between thernauto companies and the UAW. For most of the 20th century,rntheir manufacturing jobs brought the promise of a modestrnhouse, a car or two, braces, and maybe college someday for thernkids, along with a small cottage on a lake “up north.” Real perrncapita income has grown in recent }’ears for the first group butrnfallen for the latter hvo. The underclass never had a middleclassrnlifestyle; the invisible third group is losing it. Increasinglyrnit is difficult, if not impossible, to achieve middle-class statusrnwithout significant personal debt. Many families in this grouprnare not living beyond their means because they want to; they arernassuming large debt burdens to survive.rnFree-market conservatives and libertarians contend that internationalrnfree trade leads to greater economic efiFiciencies andrnconsumer choice. At their basest level, free traders resort to SocialrnDarwinism. “If some autoworker in his 40’s with a wife andrnthree kids is laid off,” a 20-something New York neoconservativerntold me recently, “thaf s his problem, not the country’s. Hernshould learn how to use the computer!” Sawier free traders acknowledgernthe social cost of middle-age families surviving onrnthree or four service-sector jobs after downsizing. “It’s a ver}’rnreal problem,” a conservative ex-Federal Reserve economistrnconfided. But they offer few answers other than job retrainingrnand more education. Nor do they need to. The free traders arernwinning the public-policy debate; Bill Clinton, a Democrat,rnsigned NAFTA, and more international free-trade agreementsrnare likely to occur.rnThe U.S. economy is about to set a record for consecutivernmonths of economic expansion. There is talk on Wall Street ofrna “New Economic Paradigm” that has repealed the business cycle.rnBut surface appearances can be deceiving. The auto industryrnis cyclical by nature, as those of us who grew up with itrnknow. (My father worked 43 years building engines atrnChrysler.) Eventually a recession will occur, and Detroit willrnlose more manufacturing jobs. The dynamic of capitalism isrnmore powerful than commonly understood. Joseph Schumpeterrncalled it “creative destruction.” One could also describe itrnas the “downsized autoworker’s lament.”rnPolitics has its limits. In the 1995-96 session of the MichiganrnHouse of Representatives, I served as Republican chair of thernUrban Policy Committee. “Don’t take it,” a senior colleaguernfrom a rural Republican district told me when I was offered thernpost. “They [the leadership] want you to fiiil.” This paranoiarnwas matched by the cynicism of a Democrahc colleague. “Republicanrnurban policy,” he told me, “is a contradiction inrnterms.” Despite the challenges, we were able to forge a bipartisanrncoalihon and approve an interesting piece of Republicanrnlegislation creating tax-free “Renaissance Zones” in depressedrnurban areas of Detroit.rnNow Detroit provides two contrasting political urban policies:rnGovernor Engler’s Renaissance Zones and federal EmpowermentrnZones, championed by President Clinton and VicernPresident Al Gore. “By creating . . . new zones in America’s urbanrnand rural communities,” Gore declared in April, “we willrnbring the spark of private investment to the communities thatrnneed them the most—and we will spread the lessons of communityrnempowerment across the country.” EmpowermentrnZones allow distressed communities like Detroit to use “targetedrnfederal benefits as part of a strategic rcvitalization plan to encouragernsignificant new private investment and job creating opportunitiesrnwithin these areas.” In Detroit, more than twornbillion dollars in private-sector financial and technical assistancerncommitments have been pledged. But serious problemsrnhave emerged. Last November, federal auditors found thernagency in charge of Detroit’s Empowerment Zone had overstatedrnits accomplishments and failed to notice when tax dollarsrnwere incorrectly spent outside the district. Anyone with therntime to dig deeper will find that a majorih’ of the top “economicrndevelopment” projects in Detroit are not legitimate privatesectorrninvestments but government action that tries to leveragerntaxpayer money, including $172 million for “demolition andrnrenovation” work by the Detroit Housing Council at two governmentrnhousing projects.rnDetroit’s failing public schools, taken over by the state earlierrnthis year, provide one more ironic twist. In recent decades, evenrnmilitant free traders have been forced to acknowledge that therndistribution of earnings reflects the distribution of formal education.rnThe gap between the well-educated and the not-so-welledncatedrnis growing. Real median family income in the UnitedrnStates doubled from the end of World War II to the recessionrnof the mid-1970’s. But the real standard of living for those withoutrna college degree has steadily and sharply declined since thatrntime. The picture is even bleaker for those without a highschoolrndiploma. A lifetime of economic desperaHon is all butrncertain for those dropping out of Detroit’s public schools. It hasrnnot always been this way. For much of the post-World War IIrnera, high-school graduates and even dropouts were able to findrnthe unskilled auto and steel jobs that provided a middle-classrnlifest’le. The irony? Today, their unskilled counterparts inrnMexico, Brazil, and Asia still can. crn20/CHRONICLESrnrnrn