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Tuesday, July 23rd, 2013

What Detroit’s Bankruptcy Teaches America

As has long been expected, the city of Detroit has officially filed for bankruptcy.  While many will point to the sui generis nature of the city as a one-industry town with extreme racial polarization and other unique problems, Detroit’s bankruptcy in fact offers several lessons for other states and municipalities across America.

The Day of Reckoning Can Take Much Longer Than We Think to Come

What’s most surprising about Detroit’s bankruptcy is not that it happened, but how long it took to get there.  In authorizing the bankruptcy filing Gov. Rick Snyder talked about “60 years of decline.” He’s not joking. It’s been widely known that Detroit has been in trouble for a very long time.

Time Magazine ran a 1961 story called “Decline in Detroit.”  Jane Jacobs described its lack of vitality in her 1961 classic “The Death and Life of Great American Cities”:

Researchers hunting the secrets of the social structure in a dull-gray district of Detroit came to the unexpected conclusion there was no social structure….Virtually all of Detroit is as weak on vitality and diversity as the Bronx. It is ring superimposed upon ring of gray belts. Even Detroit’s downtown itself cannot produce a respectable amount of diversity. It is dispirited and dull, and almost deserted by seven o’clock of an evening….Detroit today is composed of seemingly endless miles of low density failure.

Moving from urban planning to economics. She wrote in 1969’s “The Economy of Cities”:

This was the prosperous and diversifying economy from which the automobile industry emerged two decades later to produce the last of the important Detroit exports and, as it turned out, to bring the city’s economic development to a dead end.

These are both well known, but the record of troubles in Detroit even predates this, going back at least to Life Magazine’s 1942 article “Detroit Is Dynamite” which gave a prescient warning to the city just a year before 1943’s race riot.

For a city as uniquely troubled as Detroit to remain in serious decline for such an extended period of time before going bankrupt is a testament to the sheer resilience of cities. It also suggests that those predicting eminent doom for their own city unless it changes its ways are likely to end up as false prophets.

Indeed, Detroit’s day of reckoning may not even yet be fully here given that various challenges to the bankruptcy filing are expected.  The fact that Detroit has limped along for so long suggests that cities may be able to survive nearly definitely as “zombie municipalities” similar to zombie banks.  Though this may possibly end in a Greek style crisis at some point, a very lengthy existence as the undead would seem to be possible.

Decline Poisons Civic Culture and Sunders the Commonwealth

Detroit also illustrates that once decline starts it sets in motion a toxic civic dynamic that makes the tough choices needed to turn things around nearly impossible. Just as growth begets growth, decline begets decline, and part of the reason is social dynamics.

This comes about because in a city in decline — such as in late imperial Rome — people start thinking only about themselves and no longer come to see themselves as part of a greater enterprise or commonwealth. The city and suburbs, blacks and whites, taxpayers and unions no longer see their fortunes as linked. Rather than rising and falling together, it’s every man for himself.

When the pie is growing, it’s easy to come to an agreement over how to divide it because everybody can get a bigger slice at the same time. But when the pie is stagnant or shrinking, zero-sum thinking takes over.  To make a sacrifice is seen to in effect allow someone else to profit at your expense. Perhaps these dynamics were present latently before, but tough times bring out the real civic character.

In Detroit’s case  everyone from public employee unions who refuse to give up any of their benefits (and will no doubt fight to deny the bankruptcy filing) to suburban towns that would rather pretend the city does not exist have played a role in setting the disaster.   With nobody willing to sacrifice for the greater good, prisoner’s dilemma logic results happen. You can see this playing out in nearly any troubled American city. By contrast, it seems to be healthier places like Denver that have managed to build stronger regional civic consensus. It’s simply easier in those places.

Instead, Detroit chased conventional wisdom approaches and fad of the month type endeavors ranging from constructing the fortress-like Renaissance Center to the People Mover to former Gov. Jennifer Granholm’s “Cool Cities” program, none of which did anything but generate hype. What they all had in common is a transfusion of subsidies to the city (and taking on debt) rather than building a consensus around addressing the real issues.

America Doesn’t Learn Lessons From the Past

The last thing Detroit teaches us is that America too often doesn’t learn from its mistakes.  Detroit’s troubles have been evident for quite some time, yet it’s hard to see that many other post industrial cities have managed to carve out a different path.  Rather, they pretended that Detroit’s fall was somehow unique due to its auto industry dependence – and managed to ignore other failed cities as well – while embarking on the same turnaround strategy via conventional wisdom and silver bullets.

They have even managed to ignore failures much closer to home. Booming new suburbs can look just 5-10 miles down the road to see yesterday’s hot spot now turned into a festering mess of dead and dying malls, declining schools, increasing poverty, and falling home prices. Yet most of them are simply replicating the same pattern that is destined to fail financially over the long term in any region without either severe building restrictions or very high population growth.

Sadly, none of these augur favorably for change.  Detroit may continue to garner special international attention as a train wreck people can’t stop watching, but less spectacular slow motion civic failures seem likely to remain commonplace unless somebody finds a way to overcome these forces.

Further Reading on Detroit

I have been chronicling the story of Detroit for quite a while on this blog and the postings on Detroit have generated more readership than those for any other city. This shows the profound hold the city has on the world’s attention. Here are a few previous articles you might be interested in if you haven’t read them yet:

The Reasons Behind Detroit’s Decline (by Pete Saunders)
Yes There Are Grocery Stores in Detroit (by Jim Griffioen)
Detroit: Urban Laboratory and New American Frontier
The Other Side of Detroit

This post originally appeared in New Geography on July 20, 2013.

16 Comments
Topics: Public Policy, Strategic Planning, Sustainability, Urban Culture
Cities: Detroit

16 Responses to “What Detroit’s Bankruptcy Teaches America”

  1. Thanks. Another great article. I was just discussing the problems with disengagement and a lack of commitment to community with some friends on Facebook who are also from Detroit.

  2. John Morris says:

    Glad I compiled those Jane Jacobs quotes for you. They really are great.

  3. John Morris says:

    Much of Detroit’s post war history coincides with the welfare state. The Time article from 1961 already talks about the percent of people on government assistance and asking the federal government for bailout money.

    This hardly indicates resiliency in a normal sense. The city remained politically important enough to fund a parade of “stimulus” projects like highway expansions and convention centers, which usually weakened the city.

    I wonder what might have been had this supply of free money had not been there. The same supply of money which funded endless sprawl.

    Quite likely, the population would have declined much faster, but those people would have moved to better economic prospects. Leaders might have built a new economy that made better use of available assets. What city before 1957 abandoned a 3.5 million square foot steel frame industrial complex like The Packard plant?

  4. Matthew Hall says:

    If one thing is working against the forces that destroyed Detroit, it’s the fact that metro areas now have to fund their own infrastructure spending. The feds and the big banks will not ride into town to save the day anymore, so the value of knowing how to get your piece of the federal/financial pie for your particular interests is much less valuable. If Detroit failed because the people there thought they didn’t need each other because the money they were going after was coming from outside the metro anyway, the drying up of that stream of money means that those who can show how to benefit from greater regional cooperation will become more important and influential in many metros the years ahead.

  5. Chris Barnett says:

    Matthew, what exactly is going to force competing small suburbs to work together, or with the central city, in a metro?

    What happens when there is significant fiscal benefit for a locality to convince a large enterprise to locate on its side of the street (where the yellow line down the middle is a suburban boundary)? The winner can bond the tax revenue into millions of dollars worth of amenities. The neighboring town gets zippo. When each discrete decision is a win-lose proposition, the bordering suburbs/cities will play to win.

    I’m sorry. I think the system is rigged against intra-local cooperation (and by this I mean there are disincentives to cooperate, so cooperation isn’t necessarily a rational choice for policy-makers). Not least is the individual disincentive for elected officials: voters in Royal Oak don’t elect mayors to cooperate with Warren, Southfield, or Detroit… and this is not peculiar to Detroit.

    Fiscal pressure makes this competition over a shrinking pie worse, not better, as Aaron points out.

  6. John Morris says:

    Just reducing the subsidies for infrastructure in a place like Detroit will radically change the dynamics.

  7. John Morris says:

    Another huge change is that I think the white/black line between city and suburb is much less clear. Haven’t lots of blacks moved to the suburbs? Likewise, the city’s core is starting to attract white hipster creatives and national buzz.

    There are potential win/win synergies between Detroit and some suburbs. The Woodward light rail concept is built around urbanising a rail corridor between Detroit and the northern communities- some of which were built around streetcars.

    Left to the private sector incentives, the project seems plausible to fund through development revenues. An impressive number of powerful business leaders supported it. The problem is that its not politically feasible.

    Politically, what works best is spreading out just enough spending to keep the region on life support. (like the sprawling regional BRT plan) Removing that money, may force people to make intelligent choices.

  8. John Morris says:

    Ooops, it seems like the Streetcars mostly operated in Detroit itself and suburbs were served by something called The Detroit United Railway.

    http://www.chicagorailfan.com/dsmhist.html

    Anyway, it does seem like gradually some type of privately funded system could develop on core routes like Woodward.

    Federal & state infrastructure spending in this region at least seems to have only perpetuated previous mistakes.

  9. Chris Barnett says:

    John, a privately-funded streetcar system by definition doesn’t need much, if any regional cooperation of the sort I imagine Matthew is suggesting as an “outcome”.

    A privately-funded streetcar route needs a right of way license from the jurisdictions it passes through. But the private operator can route a line near or along borders to play jurisdictions off against one another. Winner gets TOD and tax revenues. Loser gets zippo. The incentive for the developer/operator presumably is a low license fee (i.e. little or no ROW cost) for providing the wonderful benefit of transit and TOD to a suburban jurisdiction.

  10. Derek Rutherford says:

    As a corollary to your (correct) rule of “The Day of Reckoning Can Take Much Longer Than We Think to Come”, I would add another:

    “When the Day of Reckoning Finally Does Come, it will be Worse than We Think”

    Everyone should note the numbers being bandied about here: bondholders and pensioners might only get 10% of what they are owed/promised. That’s a huge haircut and will change the lives of pensioners and non-diversified bondholders. Because the “Day of Reckoning” is so easy to push out (by underfunding pensions, fraud, etc.), when the Day finally hits, there is almost nothing left.

    In hindsight, city officials would have been “fairer” to all parties involved had they 10-20 years ago chopped pensions by some lesser amount (say, 10-25%) and borrowed less money. That way, the losses today would be much less severe on everyone.

    Of course, had Detroit had leadership capable of making decisions like that 10-20 years, Detroit wouldn’t be where it is today.

  11. John Morris says:

    @Chris

    I can’t argue with that. All I’m saying is that state & federal money now so often supports projects that undermine urbanism that one almost expects it.

    How did the Tappan Zee Bridge in NY state soak up so many scarce transportation dollars?

    The Woodward route in this case is not something one has much room to play with since many of the core destinations like Royal Oak are anchored along it.

    Even in the case of fully workable TOD, one needs reasonable security that the state doesn’t grab the land later for a highway expansion or some other crazed project.

    In case people are not following it, part of the downtown Las Vegas project Aaron did several posts about is in the right of way of a major highway expansion.

    Woodward demonstrates the conflict between market oriented development and politics. Almost all the major downtown investors support the project and committed money towards it. (The initial plan is for a much shorter route that could be extended) Meanwhile, almost all the major local and state political leaders support something else. Market investors made a guess about future demand. Politicians guessed it was safer to protect the past.

  12. John Morris says:

    Chris,

    I don’t think one can just create great TOD anywhere. Investors probably want good development prospects,proximity, indications of economic strength, current interest in dense mixed use development, land and street grids that fit a usable pattern and assurances of compatible zoning.

    Ferndale & Royal Oak fit with Detroit that way.

    The problem is that surrounding areas without those advantages use politics to undermine the project.

  13. Matthew Hall says:

    My point is that there increasingly isn’t “significant financial benefit” from greenfield projects for local governments. If local governments can’t offer incentives because they can’t afford them, can’t sell bonds or get an interest rate they can repay, and can’t count on getting money from the feds if it all doesn’t work out, they will look elsewhere for money; including next door. This kind of regionalism is beginning to emerge in metro Cincinnati. If it’s happening in a very divided metro like Cincinnati, it must be happening in many places. The costs of giving all that money up front to developers is just getting harder and harder to pull off politically. A new regional ‘port authority’ in Cincinnati and Hamilton County, renewed regional cooperation in sewer and water and the need for a new suburban development to pass on the costs of incentives to those who’ll use its services through a special “users fee” are sure signs to me that the old model is running out of steam.

  14. Rod Stevens says:

    I think the big problem is race. I’m convinced that if Detroit were white, we’d all feel a lot more kinship with the place, to the point that we’d be disgraced with what has happened there.

  15. George V. says:

    The auto industry was both Detroit’s greatest blessing and curse. It was the economic engine that made Detroit possible. But the constant boom-bust cycles in employment created great social instability, with fierce competition for jobs. In this environment, different ethnic groups often found themselves fighting it out for specific factories and neighborhoods, and it’s no surprise that in all of this, the city’s black found themselves at the bottom (in this case, literally, in the Black Bottom neighborhood).

    Detroit’s black population increased by a factor of 24 from 1910 to 1930, and was the fourth highest in number of all US cities, trailing only NYC, Chicago, and Philadelphia. It created a powder keg atmosphere, with race riots in 1943 and 1967. Blacks were naturally upset with Detroit’s rampant job and housing discrimination, while whites deeply resented the increased job competition, especially during the lean years. Detroit’s own economy worked against it socially.

    Over time, in response to the aforementioned stresses, the factories and whites began moving out the suburbs, really as early as the 1940s (though the effect on demographics was offset for awhile by white immigrants to Detroit from the Appalachia mountains). Economically and socially, the suburbs were just too difficult for many blacks to break into giving the harsh restraints of the time, and battle lines and prejudices hardened. When the white powers that be demolished Detroit’s major black neighborhoods for freeways and other urban renewal project, it was the true beginning of the end for Detroit’s white population. The only way to maintain the racial divide at that point was to move to the suburbs.

    I think in a more economically stable/diversified environment (such as seen in NYC, Chicago, and etc.), things wouldn’t have worked out as bad. But in Detroit’s auto-driven economy, it was always a struggle to provide enough jobs long-term for the population once the inevitable busts hit. The end result is that Detroit became a sort of containment zone for the region’s poor, while the affluence clustered in the suburbs. In fact, until about the 1990s, Detroit still had numerous poor white neighborhoods, although now such neighborhoods have largely moved to the inner ring suburbs, as Detroit’s deterioration has simply made human habitation near impossible in many areas.

  16. Nathanael says:

    I saw a very incisive analysis of Detroit which explained that its land use patterns developed in a particularly pernicious way.

    Detroit had a central city. This was *completely* surrounded (except on the Canadian side) by a ring of very dirty heavy industry. When Detroit expanded, the housing “jumped the ring” to the outside and continued. The center city was choked in by the ring of filthy industry.

    Now, this all changed when pollution controls went in the 1970s. But by then it was arguably too late.

    This is not, repeat not, the development pattern of other industrial cities. New York had its “industrial side” (New Jersey’s Chemical Coast) but it wasn’t *ringed* by industry in the same way; going north always took you away from industry. Similarly in Pittsburgh, there were always “residential directions” which took you away from the filth. The same in every single city I can think of except Detroit.

    This had some weird results. I believe the structure of Detroit was sprawl-inducing, and sprawl-preserving in a way which the structure of other industrial cities was not. Moving “back” from the suburbs to downtown wasn’t a matter of moving “one neighborhood in”, as it was in other industrial cities — it was a matter of “jumping” the entire miles-wide industrial belt. This creates a barrier.

    The construction of urban freeways, which we all know are destructive, also went much further in Detroit than anywhere else — the number of freeways is absurd relative to the population and even to the area. I can only attribute this to auto industry dominance… but it didn’t happen in the Canadian auto manufacturing belt, so it may have had other causes as well.

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