Why the Economic Scars of Rioting Will Haunt Minneapolis for Decades

By Brad Polumbo

Friday, September 04, 2020

 

The current period of national unrest and racial turmoil began in Minnesota.

 

It was in Minneapolis that George Floyd died in police custody, sparking protests and a renewed emphasis on criminal-justice reform nationwide. It was in Minneapolis that protests first descended into riots, with other cities soon following suit. Yet while most of the country will eventually move on from this turmoil, Minneapolis will be among the cities facing the greatest difficulty in recovering from the financial devastation that the riots left behind.  The economic fallout will haunt it for decades to come.

 

To understand why, it’s worth revisiting just how much damage was done to the Twin Cities after Floyd’s death.

 

“In the first few days after George Floyd was killed by Minneapolis police, rioters tore through dense stretches of Minneapolis, St. Paul and other metro communities in retaliation, causing millions in property damage,” the Star Tribune summarizes. “In their wake, vandals left a trail of smashed doors and windows, covered hundreds of boarded-up businesses with graffiti and set fire to nearly 150 buildings, with dozens burned to the ground.”

 

“Pharmacies, groceries, liquor stores, tobacco shops and cell phone stores were ransacked, losing thousands of dollars in stolen merchandise,” the report continues. “Many were looted repeatedly over consecutive nights. Other property — like gas stations, restaurants and even parked cars — was set on fire, with much of it completely destroyed.”

 

Then, last week, rioting broke out in Minneapolis once again.

 

This time the outbreak of violence followed not a genuine injustice but false social-media rumors suggesting that police had killed an unarmed black teenager. In reality, an adult murder suspect had committed suicide when police attempted to arrest him. Nonetheless, looters ransacked businesses and started fires in several more nights of unrest.

 

All told, at least 1,500 businesses have been damaged in the greater Twin Cities area, a list of victimized properties that includes mom-and-pop restaurants, minority-owned small businesses, hospitals, and even churches.

 

The full extent of the damage is more than financial: Many business owners are struggling to find the words to describe what they’ve experienced.

 

“I would speak for a lot of the business owners downtown that we’re battle-weary,” one restaurateur whose property was looted last week told local news station CBS Minnesota. “I’m not stressed or even upset. I’m numb at this point.”

 

It’s no surprise that many of these business owners are packing their bags and moving on to greener, or at least safer, pastures.

 

“This was it for us,” medical supply store owner Lisa Steffes told CBS Minnesota. “We are a family-owned business. It’s just not worth it anymore being downtown.”

 

In another example, the Star Tribune reports that a manufacturing company, 7-Sigma Inc., is leaving the city after burning in the riots, and taking 50 jobs with it.

 

“They don’t care about my business,” owner Kris Wyrobek said of city officials. “They didn’t protect our people. We were all on our own.”

 

An exodus of businesses is exactly what economists would expect to see in an area ravaged by rioting. The underlying reason is not hard to understand: Property rights are the foundation of any market-based economy. There is a long and clearly observed correlation between the strength of property rights and economic growth.

 

Why? Well, private enterprise can only function so long as entrepreneurs know they will be reasonably secure in their property. When entire city blocks are destroyed by wanton rioting while local officials sit on their hands, it sends the message that even an otherwise-profitable investment might not pay off. Investors in such cities must now price in economic risk and insecurity that makes it much less competitive compared to its neighbors. And safety considerations also will come into play.

 

As a result, jobs and economic opportunity are likely to dry up. Property values fall, and the area slips into decline. What’s more, higher insurance rates will make doing business more expensive and leave locals facing higher prices. Does that sound like progress to you?

 

Thanks to rioters who wrap themselves in the rhetoric of “social justice,” this fate may await Minneapolis, or at least some of it. This isn’t mere speculation: We’ve seen this scenario play out before in parts of Los Angeles, and in cities such as Detroit and Newark.

 

One study examining the aftermath of the Rodney King riots found that extensive economic fallout haunted Los Angeles. The original $1 billion in property damage was eclipsed by a nearly $4 billion drop in economic activity over the long run, reducing tax revenue by $125 million.

 

Other research into the 1960s civil rights era riots found similar consequences, in particular, “negative, persistent, and economically significant effects of riots on the value of black-owned housing” and “a 10 percent decline in the total value of black-owned property in cities.”

 

So, yes, the agitators torching businesses and ransacking storefronts in Minneapolis may say they are doing so in the name of justice. But the evidence suggests that all they’re really doing is threatening the community with the prospect of stagnation and decline.