Detroit's Bankruptcy Highlights the Cruelty of American Capitalism
Jul 25 2013
The Detroit Institute of Arts, Photo by Flickr User Quick fix
Four Van Goghs, one Caravaggio, and enormous Diego Rivera murals celebrating the industrial working class are amongst the estimated $2 billion in Detroit Institute of Art holdings the troubled city's creditors now hope to loot.
The Michigan attorney general contends the works are "held in trust for the public" and protected from sale by state law. But the emergency manager, who runs the city's business by fiat on behalf of Republican Governor Rick Snyder, says that no asset has been taken "off the table." In 2013 Detroit, the public trust trades for cheap. The city is bankrupt, a reality formalized via last week's Chapter 9 filing in federal court. It is the largest municipal bankruptcy in American history. The debt is estimated to total at least $18 billion.
The bankruptcy will ostensibly redirect funds toward long-neglected infrastructure and services which, in a city where 40 percent of residents are profoundly impoverished, are a wreck. The city boasts one of the nation's highest murder rates but has an average police response time of 58 minutes. That's 47 minutes longer than the national average, but who's counting? Public transit has been cut to the bone, forcing the many who don't own cars to undertake epic commutes across the Motor City's often barren 139-square-miles. Schools are deeply underfunded and being shuttered. The population has declined from a 1950 high of 1.85 million to 700,000 today. The tax base continues to get smaller and poorer.
Detroit makes for a vivid tableau of urban decline: revived prairie, burnt-out homes, and empty high rises. Detroit, more than a mere metaphor, is a striking and large-scale instance of something that has become pervasively wrong in America. And make no mistake: this is no plan to save Detroit, where financial troubles are the fruit of an economic crisis decades in the making.
Presidential biographies and hagiographic accounts of the Revolutionary War populate the best seller list. The major political and economic forces that have shaped this country since World War II typically escape notice. Black people arrived by the hundreds of thousands to mid-century Detroit, escaping the Jim Crow South in search of work in a booming war economy. But they were limited to the worst jobs and confined to overpopulated ghettos. White neighborhood associations organized riots and fire bombings against those who tested the northern race line.
Government paid for highways that led to suburban homes paid for with publicly-subsided mortgages. These communities, in metro Detroit and nationwide, were typically reserved exclusively for whites. Business, hunting for cheap and non-union labor, followed suit, leaving for the suburbs or overseas as Democrats and Republicans supported global economic policies that failed to protect American industry while allowing competitors to protect their own. Good jobs vanished, particularly for black Detroiters. Between 1950 and 1960, the city's black unemployment rose from 11.8-percent to 18.2-percent, while the overall unemployment rate held nearly steady at 7.6-percent. Today, far-flung ex-urban office parks and factories make hyper-segregated metro Detroit's rate of "job sprawl" the nation's highest.
Detroit's McDougall-Hunt Neighborhood, Photo by Flickr User JasonParis
Civil rights victories in courts and Congress, and the 1974 election of the first-black mayor, Coleman Young, proved somewhat hollow. For black workers, the right to not be discriminated against on the basis of race provided little succor when there were simply no jobs.
The collapsing New Deal order failed to embrace the sort of economic and industrial planning that fostered growth in competing countries, and a shrinking demand for labor pitted white workers more fiercely against black. In 1972, Democratic presidential candidate and former segregationist Alabama Governor George Wallace won the Michigan primary and carried every single majority-white ward in Detroit.
What was once called the "urban crisis" defined American politics from the 1950s through early 1990s: crime, suburbanization, "white flight," unemployment, civil rights, welfare, and riots. Federal support to urban America evaporated in the 1980s, but the Clinton years' thin economic boom provided a moment of distraction. A McMansion renaissance created exurbs distant from the urban core and gentrification revived choice city neighborhoods from New York's Williamsburg to San Francisco's Mission District.
The fundamentals, however, remained profoundly messed up: an economy dominated by high-end financial services and minimum wage jobs fostered historic levels of income inequality. The Great Recession revealed what was once perceived to be an "urban crisis" as a pervasively American one. America is hollowed out, and the combined employment opportunities at hospitals, universities, McDonald's and Wal-Marts won't save us.
MGM Grand Casino, Photo by Flickr User javYliz
This is clear in metro Detroit, where the decay that white Detroiters and business both set into motion and fled is now spreading to the suburbs—even to the hallowed Grosse Pointe Yacht Club. In 2012, Wayne County, home of Detroit, and two suburban counties levied a property tax increase to secure the newly-imperiled Detroit Institute of Arts. This spirit of regional cooperation will be necessary for the entire area's survival.
American politics is stuck in a stale and bipartisan ideology inherited from the late 1970s: big government can do nothing for big problems. In 1975, the New York Daily News famously surmised the president's hostility to assistance: "Ford to City: Drop Dead." Ford did ultimately extend loans. Today, federal abandonment is normal and does not merit a headline. The death wish is implicit.
Detroit's bankruptcy, whatever its merits and faults, is the most recent in a long line of underwhelming saviors. Urban agriculture is wonderful but woefully insufficient. A sprinkling of hipster gentrification in neighborhoods like Corktown and the Cass Corridor is, likewise, nice but infinitesimally small-scale (immigrants have had a perhaps more significant impact). The auto bailout was critical to warding off disaster but fails to deal with metro Detroit's key structural issues. There is, after all, precisely one auto assembly plant entirely inside city limits.
Scrappers ply abandoned buildings for salable metals across Detroit. In Downtown, the city's three glassy casinos tower above rubble and devastation and lure gamblers with money to spare… or not. The MGM Grand, Greektown, and MotorCity casinos seem like some post-apocalyptic vacuum cleaner sent by global capitalism, extending down from the sky to suck up what little wealth remains behind.
Detroit's largest creditors include Bank of America, Merrill Lynch, and JPMorgan Chase. JPMorgan Chase received $25 billion from the Wall Street bailout, while Bank of America, where profits are now up 60 percent, grabbed more than $45 billion. It also took over Merrill, which made sure to hand out $2.8 billion in bonuses first.
The emergency manager is right to demand that these banks, which declined its offer to take a bus tour of the city, accept enormous losses on their investments.
But the state is wrong to demand that public sector workers and retirees "share" in the sacrifice by wiping out 90 percent of their pension plans.
Downtown Detroit's Renaissance Center, Photo by Flickr User Patricia Drury
Detroit's working class built automobiles, the weapons that defeated fascist Axis armies, and created relatively broad-based affluence. The banks created opaque and highly risky financial instruments that brought the American economy to its knees. Go figure.
"The vast majority of Detroit’s 19,000 or so retirees receive modest monthly stipends derived from decades of public service patrolling streets, putting out fires, running crucial city departments, saving lives," writes Detroit Free Press columnist Susan Tompor. "It might be easy to blame them or say they expected way too much from a city job. But it’s wrong. Really wrong."
The city owes an estimated $3.5 billion to pension funds, plus $5.7 billion to retiree costs like healthcare. But most retirees rake in just $1,600 per month. And Detroit, like most other big cities, would have almost no black middle class without the public sector, which offered decent employment when many private sector companies shut them out. American political life has entered a pugnaciously libertarian phase. Beating up on public employees holds bipartisan appeal. It is likely particularly attractive to Governor Snyder, who has signed legislation making the cradle of the United Auto Workers a so-called "right to work" state.
The pension shortfall is likewise just an individual instance of a national problem: the retirement security created by the New Deal and the labor movement, while always weak compared to that provided in an actual social democracy, is in tatters. Many will now depend on Social Security, puny 401(k)s, or perhaps nothing at all. The Wall Street-created economic crisis wiped out pension funds nationwide, helping to create a shortfall that totals an estimated $1 to $3 trillion.
"If the resolution to the city's bankruptcy is going to be fair and just, we can't simply shred retirees' safety net," says Tom Sugrue, a historian at the University of Pennsylvania and author of the seminal Origins of the Urban Crisis: Race and Inequality in Postwar Detroit. "The costs of a 'haircut' for municipal bondholders would be spread widely, but for Detroit's approximately 20,000 retirees, cuts would be deep and harsh and immediately devastating. It would set a dangerous precedent if bankruptcy releases Detroit from its obligations to those who spent their careers working for the city."
Local incompetence, corruption, and malfeasance are real, but fail to explain the vast majority of the city's problems. Columnist Margaret Wente wants to blame the whole thing on the "corruption, misrule, and Democratic-machine politics" of the city's black political class instead of "Republicans and rapacious corporations." Wente echoes a verdict on urban decline often rendered from white suburbia, which begins with black riots and political rule. But it is an account that denies history and so paves the way for future misery. Detroit and its people have received no bailout. Unlike Wall Street, they have earned one. And so have the rest of us.
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