Creative Destruction in Kansas City?

The prospect for job seekers in America is dismal. The Vice President even said that many of the lost jobs aren't coming back.  But if we ran our enterprises more carefully, the employment situation would be even worse.  There's a lot of "digging holes and filling them back up" going on, which is to say: unproductive activity.  A prime example of this is the case of the West Edge project in Kansas City, Missouri.  Kevin Collison of The Kansas City Star reports:

The Polsinelli Shughart law firm is going to the West Edge, ending one of Kansas City's biggest development fiascos, but at a cost: the demolition of the unique office building designed by Moshe Safdie. The deal to be announced today calls for the nearly completed structure, conceived as the home of the Bernstein-Rein advertising agency, to be dismantled. ... The building's razing punctuates a star-crossed development debacle that personally cost Bernstein at least $20 million and lenders almost $100 million. The Bernstein development entity filed for bankruptcy in 2009. [Emphasis added.]

The Star reported that one real estate professional concluded that: "the market spoke." Yes, but did anyone in K.C. understand what the market said? What the market said is that government should get out of the real estate development business.

In Missouri, many projects, such as the West Edge, are developed with a government incentive called TIF, tax increment financing. But if a development project must secure TIF in order to go forward, then the project isn't responding to market demand. Just as government was mostly responsible for the bubble in the housing market, it also plays a part in commercial real estate bubble.

The process seen in the West Edge project -- of building something and then tearing it down -- can be seen throughout the K.C. metro, on both sides of state line: Shopping malls are remodeled only to get torn down. A local public university leveled an entire neighborhood for a research park. Then the partners backed out and it fizzled.

Nearly all those involved in this building and tearing down -- are employed.  But if K.C. did a few feasibility studies, a lot of projects wouldn't be built and, of course, wouldn't need to be torn down, and unemployment would be even higher.

There's a "if you build it, they will come" spirit in K.C. The same Moshe Safdie who designed the West Edge also designed the soon-to-open Kauffman Center, the new home of the city's opera company. But before building a gleaming new auditorium, the Lyric Opera should have built a bigger audience first. (K.C. had more opera 40 years ago than it does today; we don't have a true opera "season" anymore.) K.C. doesn't have pro basketball and hockey teams, so we built a new state-of-art sports arena. But we still don't have a team.

T. J. Rodgers, CEO of Cypress Semiconductor, brought to mind the West Edge on The Kudlow Report ("Where Are The Jobs?") on Sep. 2 while discussing Solyndra, the failed green energy company:

I said set your watch that company will be out of business in one year. ... And the problem was, of course, the technology was lousy. What they do is they make thin film technology. They have low efficiency and their cost per watt is doubled. They built a palace. The story of Silicon Valley's garage is like Hewlett-Packard. You go in a crappy building and you make something great. They had a palace on the freeway. They did everything wrong. In California, the worst state in the United States to manufacture. They went belly-up because they had a lousy business plan and the government, which knows nothing about solar was the investor. [Emphasis added.]

Rodgers reminds us that great businesses often start humbly. Building a palace to work in, it seems Solyndra worried more about the appearance of enterprise than its reality. And so it is with the admen and lawyers who would occupy the West End. What should concern the rest of us is government's financing of ad agencies and law firms.

The materials and energy expended on the West End were for naught. And there'll be the cost of the precious fossil fuel used in trucking out the demolished new building. Perhaps it can be explained with "creative destruction."

It all seems pretty wasteful, but at least folks will have jobs hauling off the debris.

Jon N. Hall is a programmer/analyst from Kansas City.

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