Detroit Autopsy August 1, 2013
On July 18, 2013, the City of Detroit, Michigan filed for bankruptcy protection, citing billions in bonds and the lack of viable options to service debt.
Detroit’s story is not simply a case of rust belt malaise. Instead, Detroit finds itself in its current position due to decades-long symphony of federal, state, and local policies – each of which exacerbated the problems facing the Motor City. The result has rendered the arsenal of democracy impotent against self-inflicted disadvantages. Detroit’s failure is a testament to policies implemented by the left and right that created the perfect storm to destroy Detroit.
End of industrial subsidy
A unique set of conditions enabled the American industrial city: protectionist policies, infrastructure, and rapid population growth. Each of these ingredients played a critical role in instigating and maintaining American industrialization. As these phenomena dissipated, the industrial city declined. Detroit is the prototypical American industrial city.
Throughout the late nineteenth century, the United States maintained protectionist tariffs for American manufacturing. Lincoln’s 1860 heralded higher tariffs which would accomplish two tasks: protect manufacturing from British competition and fund a transcontinental railroad. Both of these programs led to great prosperity in the northern manufacturing cities. First, protectionist policies limited capital mobility. Only after tax and tariff code realignments could capital move freely across national borders.
Detroit’s geographic position created a natural advantage for manufacturing. Located in the center of the Great Lakes, Detroit had immediate access to all resources in the region. Railroads reshaped the nation’s economic geography, including providing Detroit easy access to resources in the Ohio River valley. Detroit had all of the ingredients necessary for heavy manufacturing within arms’ reach. With protectionist policies in place, industry enjoyed safe harbor from foreign (mainly British) competitors. Transport prices dropped and cities’ access to goods grew; as these raw resources flooded industrial city markets, commodity prices fell enabling industrial competitive advantages. With the help of
The late nineteenth century witnessed a second, sustained wave of immigration to industrial cities. Transnational migration increased, bringing primarily eastern- and southern-Europeans into cities. More importantly to Detroit, the rise of the Jim Crow south instigated many African Americans to travel northward. Similar to previous immigrant groups, ethnic and racial minorities received harsh welcomes to the urban center. Increased immigration led to increased xenophobia; as a result, many ethnic and racial groups moved into segregated enclaves. Detroit’s segregation presents remarkable anecdotes, with whites literally building walls to keep nonwhites out.
Increased immigration affected labor markets. For an early industrial era factory to function, large quantities of labor would be necessary to produce goods and services. With larger populations of unskilled workers, capital could acquire labor for lower prices. Labor unions often organized to protect their industry against incoming ethnic and racial groups. In turn, businesses would use ethnic and racial groups to break strikes. During the industrial city’s heyday manufacturing jobs did not have to move to the periphery for low wage, unskilled labor; peripheral, low wage, unskilled labor moved to the city.
Deindustrialization and the Urban Crisis
A unique set of circumstances enabled the industrial city during the nineteenth; the twentieth century removal of these conditions led to the collapse of the industrial city. Protectionist policies, infrastructure, and rapid population growth all enabled to rise of the American industrial city. Neoliberal trade policies, changing infrastructure, and population shifts led the industrial city’s collapse. Federal urban policy temporarily slowed the industrial city’s decline; electoral realignment led to a policy punctuation that ripped this assistance from manufacturing municipalities. Cities floundered over the next decade, unable to solve crisis after crisis much less right the urban ship.
American economic policy shifted from protectionist tariffs to neoliberal free trade agreements during the twentieth century. After both the 1860 and 1896 party realignments, the dominant Republicans supported high tariffs. Franklin Roosevelt’s presidency marks a change in this strategy. By implementing the Reciprocal Trade Agreements Act (RTAA), Roosevelt pushed American down the free trade agreements. Agrarian interests dissented against protectionism, as trade partners often raised retaliatory tariffs which hurt their exports; non-unionized urban working class interests dissented against protectionism due to inflated prices for manufactured goods. Both elements of the New Deal Democrats found that high tariffs had remained very durable, especially considering the Republican agenda and their inevitable return to power. As a result, the Democrats attempted to create a new institution to leave a compounding force against tariffs. The RTAA and its offspring have exhibited remarkable longevity. The RTAA led to the General Agreement on Tariffs and Trade and the World Trade Organization – the peak organizations for neoliberal trade agreements. By the 1970s, protectionism was all but dead among non-Soviet allies.
The end of protectionism gave industrial capital an exit option from the industrial city. Labor unions were a critical artifact of the industrial city. Labor naturally seeks higher wages and better working conditions for their members. Unfortunately, these demands lead to increased costs for capital. With newfound mobility, businesses began to flee union-heavy industrial cities for unorganized peripheral destinations. After the North American Free Trade Agreement, a wave of manufacturing plants closed in unionized states while new plants opened along the Rio Grande. The removal of institutional barriers helped make capital more footloose.
American infrastructure priorities shifted from single spoke-and-hub railway cities to multi-nodal highway metropolises. Instead of natural resources flowing through central cities’ rail depots, trucks may now transport goods to production centers along the periphery. Central cities’ geographic advantages declined into disadvantages. Further, the geography of factories changed. Automobile assembly lines changed from compact, vertical factories to expansive, horizontal endeavors. Horizontal assembly lines require larger tracts of land, which are expensive in central cities. As a result, many manufacturing plants moved either suburbia or outside the industrial metropolis entirely.
The three strengths that made the industrial city possible fell as the government exposed cities to competitive disadvantages through liberalized trade policy, infrastructure evolved to lessen transportation costs beyond the central city, and the steady flow of inexpensive immigrant urban labor declined. The collapse of the industrial city had profound effects on wages and beleaguered communities.
The Doughnut Metropolis
Detroit is a doughnut metropolis. Upper- and upper-middle class whites live around the edges, while poorer minorities live in the central. The municipality of Detroit boasts the largest minority-majority community in the United States. This development pattern is a result of decades of racist policies that guided residential settlement.
Federal policies meant to maintain the industrial city undermined the American urban environment. Born in the Great Depression’s despair, New Deal programs like FHA fanned the flames of racial intolerance while subsidizing the flight to the suburbs. Great Society programs undermined the process further by fragmenting power and inciting a conservative backlash. Once conservatives ousted the liberal wing, federal subsidies disintegrated – leaving the industrial city without a safety net. Many urban cores collapsed into the urban crisis.
Taken together, the Federal Housing Acts (1934, 1937, 1949) produced an anti-minority housing policy. Professional norms led to the fear of depreciating land value putting mortgages underwater. As a result, the FHA declined backing mortgages near growing “blight”, which roughly meant the presence of non-white residents. Eventually, FHA started to mark out blighted (nonwhite or potentially nonwhite) districts with red lines. Further, the real estate industry “protected” districts from future blight, blacks could not move into white neighborhoods. FHA reinforced segregation with public subsidies.
FHA redlining and urban renewal programs reinforced the ghetto’s ills. In twentieth century America, the most striking difference between the white and black middle class the ability to move away from urban ills, due to the FHA redlining rules. With no way out, African Americans remained in the city while whites held an exit-option to the suburbs. Continued racial discrimination in manufacturing unions and business leaders fostered what Thomas Sugrue describes as a “a seemingly permanent class of underemployed and jobless blacks had emerged, a group that came to be called the ‘long-term unemployed.” (Origins of the Urban Crisis 144) White residents’ associating blacks with the employment line created the shorthand symbol for the “culture of poverty.” As a result, black became associated with urban poverty – a premiere concern in urban spaces. The 1949 Housing Act’s program was simple: construct public housing and level the housing stock occupied by poor blacks. This policy program aimed to displace the (predominantly black) urban poor out of the central cities. By reducing the number of residences available, renewal programs drove rents higher – pinching the beleaguered community’s finances. Public housing remained insufficient and unsafe, becoming themselves a symbol of urban dystopia.
Federal housing policy accelerated white flight to the suburbs. First, the New Deal’s Federal Housing Acts (1934, 1937) enabled the flight to the suburbs by revolutionizing the mortgage industry. Designed to stymie the rapid increase of foreclosures during the Great Depression, the government subsidized mortgages and home ownership. With the city descending into economic failure, resourced families used FHA subsidy to move to the suburbs. On top of the mortgage subsidy, federal spending constructed the infrastructure to enable transit to and from suburban spaces: interstate highways. This transportation infrastructure enabled the next generation of suburbs: the postwar or sitcom suburb. These communities produced socioeconomic homogenous enclaves of middle-class whites, protected from the city’s ills by mortgage laws and a half-hour commute.
Great Society programs undermined the New Deal coalition by instigating a conservative backlash. The Great Society coalition identified racial discrimination as a nation problem, alienating the southern wing of the Democratic party. Lassiter describes the process how Southern (sunbelt) norms merged with the suburban identity to abandon the pro-city coalition. Resource-laden white Americans were unconcerned with urban poverty, because they could leave the city. American population culture soon blamed urban environments for social conflict. Cities soon became a scapegoat for a culture that reinforced socioeconomic discrimination. Using the city as a psychological proxy for poverty, suburbanites dissented against Great Society programs at the ballot box by electing Nixon and Reagan – who dismantled many of the 1960s reforms. The New Deal coalition built the suburbs, and the suburbs killed the New Deal coalition.
Subsidized White Flight
The twentieth century suburb is simultaneously an effect and cause of twentieth century American culture. The increasingly blighted (poor and black) central city served as a push for middle class whites to leave the city. Federal subsidies were the pull toward the suburbs. Exacerbated by domestic and foreign policy interests, American policy accelerated the decentralization of American cities and middle class suburbanization. Rapid suburbanization provided short-run economic profits for several industrial sectors – protecting the policies from left- or right-wing attacks. In the long-run, the rise of suburbs undercut central city interests by providing intra-metropolitan competition, highlighting racial and class dissonance, and undermining the New Deal coalition that funded urban programs.
During the Cold War, American foreign policy concerns prioritized decentralizing American cities. Fearing annihilation from Soviet nuclear weaponry, American military
Strategy became to spread out population centers. Single spoke-and-hub communities were liabilities. Multi-nodal cities spread across larger geographies would be more difficult to destroy.
The interstate highway program unleashed the automobile on metropolitan development. Before the interstate system, the primary suburban transit model included either railways or streetcars. Federal funding set off an infrastructural whirlwind, providing automobile access from the central city to the periphery. Instead of waiting for central cities to coordinate light rail service expansion into the suburbs, residents purchased cars and drove their commutes. This divorced many suburbanites from the interests of the central city.
Automobile-dominated suburban development changed American commutes. First, the automobile rendered old transportation methods practically defunct. Suburbs grew along federally funded highways, with or without rail extensions. Later, when central cities faced budget deficits, mayors often cut public transportation funding, signifying the automobile as the primary method of transportation. Second, automobile-dominated development creates an automobile dependence. Automobile operation can be expensive; reliance on automobile transit places an additional stress on the working-class. As a result, transportation costs to live or work in suburbia are more difficult for the working class living downtown. Unsurprisingly, teenage residents fill many suburban low-wage jobs in order to purchase an automobile – their key to freedom – while working-class residents remain distant in the central city. Detroit’s rivalry between city and suburb has been particularly tenuous.
Federal Housing Administration subsidies afforded white middle-class families the opportunity to own property. FHA and the Veterans Administration insured mortgages, with a preference toward home construction and sale. FHA funding served as a pull families to the suburbs; the rise of a large middle class presence on the urban periphery attracted commerce. Eventually, jobs followed suburbanites, producing a conflict between residents and developers. Over time, suburbs matured from bedroom communities into nodes of commerce and industry, ironically creating urban environments suburbanites attempted to escape.
Suburbanization produced a boon for several business sectors. Real estate developers profited from the increased business thanks to FHA and VA loans to the middle class. Financiers allocated money to safer, more profitable mortgages, earning commissions and interest insurance from the same programs. Building new residential development provided steady employment for the construction industry. Once built, new homes required a complement of durable goods – built by manufacturing interests in central cities for most of the twentieth century. Auto manufacturers and oil interests also profited, due to the suburban reliance on cars. Finally, the suburbanites enjoyed great subsidy for their balloon-framed mansions, protected by concrete and crabgrass moats from the central city, her urban ills, and her working class.
In many cases, the symbiotic relationship between central city and suburb turned parasitic. Many suburbs compete with central cities for business, luring sales tax dollars from downtown. In the pre-suburban era, residents would often commute downtown to shop. After post-war suburbanization, shopping malls challenged the hegemony downtown department stores collapsed. The mall provided a suburban shopping paradise. Unlike houses which were surrounded by lawns, concrete parking lots separated shopping malls from the outside world. Once inside, shoppers could access many merchants under a single roof; effectively, the mall amplified the department store concept in a giant building. Shopping is only a single instance; other suburbs sought to extract jobs from the central city. Eventually, the suburban-central city conflict defined local politics. As the federal government subsidized the middle-class move to the suburbs, popular perception sided with the suburbs.
American politics pivoted from urban-centric to suburban-centric during the most recent realignment. One should note that suburbanites are not truly for less government; rather they only want government services for themselves. Local government provides suburbanites the easiest route to providing themselves public goods, while not footing the bill for the unidentified other in the urban centers. It follows that suburbanites want less federal programs – notorious for redistributive policies– while local governments maximize local utility with minimal funds. Suburbs often tout their superior education systems while scoffing at inner-city schools and construct new parks with weekend festivals while denouncing the central city’s rotting infrastructure.
Suburban geography presents several impediments for the working class. First, most suburbs feature large tracts of light-density residential. Large-lot, light-density zoning induce higher property prices, preventing poorer residents moving into a region. Common interest developments (homeowners associations) place severe restrictions on homeowners; protecting bankers, price stability allows for neighborhoods to retain their land-value-as-a-barrier against working class residents. These barriers create a segregation based on income. Perhaps worst of all for the working-class, suburbanization began to redirect scarce resources from central city coffers to peripheral communities; instead of funding social welfare programs, city leadership had to compete with suburbs. Key players in Detroit’s local politics ignored the exit-option for wealthy Detroiters, creating a doughnut metropolis where wealth exists in a fairly uniform ring around the city’s center.
Local Governance; Too many voices, too few resources
Detroit is synonymous with the automobile manufacturing industry. Housing the big three multinational car corporations, Detroit has always faced the boom-and-bust cycle that drives auto production. The repetition of prosperity and economic problems trained Detroit’s workforce into a Pavlovian response: a plant closing here will precede a plant opening. This assumption is false, but is the pretense of nearly every “do-or-die” union bargaining session.
Detroit is a remarkably key stronghold for labor. Detroit’s United Automobile Workers union lays the foundation for both local solidarity movements and is a key player in the larger American Federation of Labor and Congress of Industrial Organizations. Longstanding union traditions place labor interests before others in Detroit. Mainstream analysis identifies Detroit’s political system as an urban “regime”. Regimes are stable coalitions that use informal networks among elites to effectively govern. Most frequently, regimes feature business leaders collude with politicos to implement pro-growth policies.
Unfortunately, mainstream analysis often misidentifies Detroit’s corporatist governance for a regime. In the wake of 1967’s race riots, a new coalition dubbed “New Detroit” organized African Americans, labor leaders, government and business leaders. An additional coalition and traditional regime called “Detroit Renaissance” emerged in 1971. Yet neither of these groups were effective in capturing the city’s agenda. Detroit’s most remarkable mayor during its decline Coleman Young reconciled the interests of the groups behind these alliances by facilitating a series of compromises. Young governed to three stimuli: labor, business and state (think populist) interests.
After Young’s retirement, Detroit has faced a massive atrophy in local leadership. Since Young, Detroit has witnessed a remarkably unstable group of mayors. Kwame Kilpatrick’s pending prison sentence may be longer than his six year run as mayor; his successor Kenneth Cockrel could not maintain his seat despite an incumbency advantage. Current Mayor Dave Bing appears overwhelmed by Detroit’s situation, taking nearly any advice from a self-proclaimed expert – including (mistakenly) razing his own city.
Detroit has all of the ingredients needed for revitalization – but it must come from within. Instead of local businessmen playing a key role in local politics, governance is left to social and political leaders. Detroit has the huge advantage of still having multinational corporations headquartered in their jurisdiction, but it appears that social leaders and organized labor has crowded out capital at city hall. Neither social nor labor leaders have the ability to raise resources for projects; instead, both groups tend to allocate resources to projects that do not stimulate the local economy. With less money coming into the city coffers due to deindustrialization and suburban competition, Detroit leaders tanked their local budget.
Makings of a Fiscal Crisis
Nearly every American city has seen an industrial sector collapse in the last fifty years. Nearly every other American city recovered to some extent. Detroit has not, not because the circumstances are too difficult, but because of several unintended banes against fiscal stability.
The largest share of Detroit’s budget comes from property taxes. When the housing bubble severely hurt many American families’ savings programs, the recession disproportionately injured Detroit’s budget. If a city is reliant on property taxes to function and property values plummet to near-worthless, then the city’s budget will collapse to nearly-nothing as well. Making matters worse, Detroit cut their property taxes in 2008, leading to a (partially self-inflicted) larger deficit for the local budget.
Like most of the country, Detroit chose austerity over economic stimulus, closing jobs with the city and reducing spending on various programs. Austerity measures along could not keep up with the crash of property values. Even with slashed-and-burnt budgets, Detroit drowned in public debt. As debt increased, the interest payments increased – to the point that a large portion of the Motor City’s annual budget includes debt service.
Other options cannot account for the loss in property tax revenues. The state of Michigan enables cities to levy property and income taxes, but bars cities from imposing sales taxes. Michigan maintains a peculiar income tax policy, providing a fifty percent discount to those living outside of the city’s jurisdiction. Political logic behind the law suggests that those living in a suburb do not fully consume services paid for by taxes; therefore suburbanites should only pay a partial tax bill compared to their city-dwelling counterparts. Unfortunately, this policy has created an unintended subsidy for suburbanization. Commuters from suburbs like Gross Pointe save a few hundred dollars by living in a different jurisdiction. In short, the state of Michigan’s local tax policy services as a “push” from income tax cities like Detroit. With no viable routes to raise revenues, Detroit declared bankruptcy.
The Current Plan
Detroit’s current austerity plan is making its situation worse. Bankruptcy will likely compound the mistaken austerity policy.
Detroit attempted to solve its fiscal crisis by cutting costs. These policies decelerated the economy by increasing local unemployment, taking money out of consumers’ pockets, and reducing readily available services that support business. Although counterintuitive to many economic analysts, mainstream monetarist economics is the incorrect framework to understand regional economics.
This plan is the exact opposite of what needs to be done. First, most monetarist approaches assume that government spending can crowd out investment. This process involves higher taxes stimulating outmigration (these conditions already exists due to the state of Michigan), pressure on the interest rate market which in turn affects the exchange rate. What this viewpoint misses is that local governments in the United States do not have local currencies – which drastically reduce any effect on crowding out. Further, monetarists focus on monetary policy – over which Detroit has exactly no power. The mainstream economist’s view on urban economics is terribly misguided. On the flip side, Keynesian analysis (appropriately) assumes constant monetary policy and exchange rates. While increased taxes provide a lag on the economy, the increased expenditures (preferably on infrastructure which increase the local stock of capital) offset this decrease by returning the money into the market. Taxes do not merely disappear, they pay for things that keep the economy going.
Currently, Detroit’s revitalization plan is to “shrink to greatness” by leveling unused structures. The argument is relatively simple: too much real estate has flooded the market, reducing property values. By eliminating extra residential and retail space, Detroit is attempting to recalibrate the real estate market. Detroit is inadvertently building urban farms while razing its backyard. Instead of building Detroit, we are dismantling it.
Bankruptcy will force Detroit to sell of key assets. Recently, Detroit’s emergency manager asked for appraisals for all city assets, ranging from zoo animals to parkland to museum artifacts to police cars. What Detroit does not destroy will likely be auctioned to the highest bidder.
Opportunities for Revival
Most American cities have witnessed urban renaissances. Upper class families are returning the central city in most urban areas, whether to visit for festivals and events or to build homes. Many cities rebranded themselves as places to play, providing great amenities to their newfound residents. Detroit has built much of the infrastructure, but in a manner that is irrational, underemployed, and unproductive.
Detroit Renaissance and Coleman Young produced the standard canon of projects aimed at downtown redevelopment. Professional sports, casinos, a convention center and the hallmarks of traditional cities litter downtown Detroit. Over six million visitors flock to attractions within half-mile radius, but Detroit fails to capture any additional tax dollars. Detroit does not have a tourism problem; Detroit has a monetizing tourism problem. Figure 1 displays an aerial view of downtown Detroit. Figure 2 amends the map, marking red spaces as anchors and blue spaces as businesses. Note the radii of no commerce that extend from many anchor. Detroit has developed parking where business could thrive, displacing profits from local infrastructure.
Finally, the easiest district to gentrify (downtown and midtown, from Wayne State south to the Cobo east to the RenCen), is one of the most disjointed urban spaces in the country. A small facelift ($5 million) could help provide synergy among residential towers and fledgling entertainment spaces like Greektown.
Bankruptcy presents an opportunity for Detroit. Those willing and able to step up have a perfect opportunity to join the discussion concerning Detroit’s future. The sooner Detroit embraces that the federal political environment is detrimental to manufacturing returning to the Motor City the better. To survive in a post-industrial world, Detroit will need to rebrand itself – likely around a new vision for the downtown core. Instead of building large, expensive infrastructure, downtown Detroit only needs a makeover. (Another advantage to other places.) Small facelifts can improved the space, which should pay great cultural, fiscal, and political dividends.