Company Towns

A “company town” is a town that was built by a company and in which all of the town’s businesses, residences, and civic institutions are owned and operated by the company. The classic company town is Pullman, Illinois, pictured at left at its height. Pullman was built, owned, and operated by the company that manufactured Pullman railway cars and for practical purposes everyone who lived in Pullman worked for the company. At the peak of the movement there were thousands of company towns of this sort and 3% of Americans lived in them.

There is another sort of company town, too. A town can be so dominated by a single company or even a single industry that its economy becomes dependent on the company or industry. Gary, Indiana or Pittsburg, Pennsylvania were dominated in that way by the steel industry. The fortunes of these towns have risen and fallen with those of the steel industry. In 1960 Gary’s population was nearly 180,000. Now it’s around 90,000.

The largest and most prominent of this other sort of company town is Detroit, Michigan. Home to GM, Ford, and Chrysler, once the “Big Three” automakers, it was once one of the largest and most prosperous American cities. In 1950 its population was almost that of Chicago; now it’s less than half that and continues to fall. The burned-out shell of a house pictured at right is in one of Detroit’s “ghost town”areas: areas in which nobody lives and which have simply fallen into ruin.

If this report is true, the last quarter of the twentieth century may have seen a new sort of company town emerge:

Not surprisingly, home prices decline sharply in markets that suffer substantial and persistent decreases in population or employment. Such decreases in population and employment trigger declines in the demand for housing, and because people are more mobile than houses, it takes many years for supply and demand to become balanced again and for house prices to return to prior levels. This finding is supported by strong narrative and empirical evidence: home prices decline to a much greater extent when population falls than home prices increase when population grows. Of course, a substantial and persistent decline in housing demand can be driven by factors other than population. If these other factors are not persistently in decline, then house price declines in these areas need not be persistent either. Hence, the key to any forecast of house prices in many markets today depends upon future housing demand in these markets relative to that reached prior to the Great Recession. For those markets in which housing demand seems likely to remain below previous peak levels, recovery in their real estate markets will be long in coming. For example, Stockton, California, which is a key case study in this paper, may become a new type of declining city born of the Great Recession and the housing boom and bust of the 2000s.

What is the primary industry of cities like Stockton, California, Miami, Florida, and Phoenix, Arizona? It may be that residential construction has become their primary industry and, like Detroit or Gary, their fortunes will rise and fall with those of that industry. This is the economic equivalent of the inexplicable celebrity—somebody who is famous for being famous. Growing because they are growing.

10 comments… add one
  • john personna Link

    I would say residential construction “had” become their growth industry. Whether it can begin again depends on supply, and mobility.

    I’m still watching Bend Oregon, and while a lot of houses are turning over, a tremendous number of foreclosures are showing up. It’s a place that fits your profile.

  • john personna Link

    Another story of the same, here. They call our Ladera Ranch “zombieland”

    I had some friends out there. They greatly upgraded what most of the country would consider a very small house. Perhaps they were in the demographic. I hope the upgrades were not home equity withdrawal.

  • Brett Link

    The classic company town is Pullman, Illinois, pictured at left at its height. Pullman was built, owned, and operated by the company that manufactured Pullman railway cars and for practical purposes everyone who lived in Pullman worked for the company.

    Did they pay in Company Scrip instead of money? I’ve heard that a lot of the coal company towns in West Virginia used to do that.

  • Did they pay in Company Scrip instead of money?

    Pullman certainly did. The collapse of the town of Pullman (it was declared unconstitutional) and the collapse of the company town movement, generally, can possibly traced to Pullman’s raising prices in the town without raising wages during the Depression of 1893.

  • Drew Link

    The concept you raise is no different than what is taught in any competant “101” investment class: diversification.

    I share the sorrow over the human costs, but observe that unidimentional local economies have always, and will always, suffer this fate.

    Buyer beware. Or said another way: know that the braggart at the cocktail party who cites his/her oh-so-savvy risky investment gains may soon be licking his/her wounds when the music stops.

  • The collapse of the town of Pullman (it was declared unconstitutional)

    How exactly does that work? I don’t know the detailed history but what’s unconstitutional about owning property and renting it out?

  • PD Shaw Link

    Here is the Illinois Supreme Court on Pullman: “Our interpretation of the law, as applied to facts appearing from the averment of the pleas, is, that the appellee corporation, at and before the time of the filing of the information, was exercising powers and performing acts not authorized either by the express grant of the charter or any implication of law; and further, that by some of such unauthorized acts the corporation assumes and exercises powers and functions which the general law of the State contemplates shall be possessed and exercised only by municipal authorities of cities or towns and the public school authorities, and that other of its unauthorized acts tend to restrain competition in various branches of trade, to remove real estate from the operation of our Statute of Descent and place the title thereto in a corporation having perpetual succession and unending existence, and thereby withdraw it from the channel of trade and commerce; to create monopolies in the business of selling the necessaries and comforts of life, and that its acts and doings are opposed to good public policy.”

  • Walt Disney World in Florida has managed to thread the needle just fine in that they got a state charter, they control a municipality and they actually have a few token people living in their two towns.

    That’s interesting reasoning about creating a monopoly dealing with the consumer marketing of necessities of life. The town residents always had the option to buy their necessities elsewhere, I assume, but it would be very inconvenient to have to travel to another town to buy their coffee and bread.

    I’m still not seeing the legal merit in the ruling which made Pullman town an illegal venture. Did the Pullman company force people to shop at the stores and force them to rent homes as a condition of employment?

  • PD Shaw Link

    There was a shift in corporate law/philosophy sometime during Pullman’s tenure. Unlike Disney, I believe, Pullman was chartered as a special or limited corporation. Think East India Tea Company. Such a corporation had all of the authority granted in the individual charter granted by the legislature; sometimes this meant a monopoly or powers customarily invoked only by the government (police power).

    This type of corporation helped seed the American Revolution and was never popular. The Courts looked closely at the enabling charter and did not read them broadly, thinking if the legislature disagreed they could reissue the charter. In 1870 (after Pullman received it’s special charter), the Illinois Constitution outlawed such special corporations.

    Today, we have general business corporations, authorized to do whatever is legal business. I assume that is what Disney is. The corruption of the legislature picking investment groups to award special charters is no longer present.

    I am struck revising this issue, that the concern over 100 years ago was animated by the death of George Pullman and how the estate will pass the lands to the next of kin, using the corporate entity to bypass the laws of testate. = MERS

  • PD Shaw Link

    Reminder to self, don’t comment while on second martini; this is why you don’t get invited to many parties any more.

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