The Detroit debacle
As I See It
The city of Detroit’s recent filing for bankruptcy is the largest municipal bankruptcy in our nation’s history, but it is not the first, and will probably not be the last.
The first important city to gain that notoriety was Bridgeport, Connecticut’s largest city (pop. 142,000), which went into bankruptcy in 1991. In retrospect, that was insignificant compared with some bankruptcies that followed. The two largest prior to Detroit were Orange County, Calif., in 1994, and Jefferson County (Birmingham), Ala., in 2011. (New York City came close to default on its $14 billion debt in 1975, but by some heroic measures was able to bail itself out.) The Orange County (population 2.7 million) $1.64 billion bankruptcy was created by inept financial management and a speculative venture that went sour. The Jefferson County (population 700,000) $4 billion bankruptcy resulted from high level corruption in connection with a major sewer system bond issue.
Detroit’s bankruptcy is both much larger ($18 billion) and far more deep-seated than any of the above. Paramount in its financial straits is its population decline from the fifth largest U.S. city in 1950 with a population of 1.8 million, to 18th place, with a current population of just 700,000 — a 61 percent decrease.
But other major industrial cities have also experienced population declines exceeding 50 percent since 1950 without facing bankruptcy: St Louis, 63 percent; Cleveland, 57 percent; and Pittsburgh, 54 percent. Why aren’t they also facing bankruptcy?
A trend that nearly all large cities experienced soon after World War II was the outward movement of people from high density areas seeking more open space. In the eastern half of the U.S., cities were surrounded by suburbs, so city populations shrank as people became suburban commuters. In the West, where younger cities had room to grow, they were able to expand their borders and retain their populations. Consequently, all 21 of the 100 largest U.S. cities, whose populations declined between 1950 and 2010, were in the eastern half of the country. In most cases, however, those people continued to be part of the cities’ economies, and populations of the cities’ metropolitan districts kept increasing.
That was not the case, however, in Detroit, Cleveland and Pittsburgh. So why are the latter two cities not facing the same crisis as Detroit? All three were heavily dependent on a single industry, automobiles in Detroit, and steel in the other two. But both Cleveland and Pittsburgh had a variety of manufacturing as well, and had proactive management so were able to recover from the loss of their steel industry.
Detroit, on the other hand was almost exclusively “Motown.” In the post-World War II decades, both the auto industry and the city were fat, dumb and happy, and their management was asleep at the switch. The economy was healthy, Detroit was the world’s auto capital, and profits were robust. So they both caved in to union demands for ever higher wages and generous pensions, without properly evaluating the long-term financial consequences.
Detroit’s problems started with the white flight to the suburbs that followed the week of rioting and destruction in 1967 in which 43 died and 2,000 were injured. Then in response to the Japanese penetration of the U.S. and world automobile market starting in 1980, U.S. auto-makers turned to exporting jobs overseas, and at home replacing workers with automation to again become competitive, resulting in the loss of hundreds of thousands of jobs. Detroit’s tax revenues plunged, forcing the city ever deeper into debt and requiring cutbacks in police and fire protection services, which produced a mass exodus of middle-class blacks and a cultural breakdown, leaving much of the city impoverished and lawless, with block after block of vacant and deteriorating residential and business areas.
The final blow was the 2008 recession, which accelerated the city’s downward spiral into bankruptcy. The federal government rescued the auto industry, which is once again prospering, but Detroit remains in free-fall as an example of a city that let a single industry determine its economic future.
Will Detroit ever recover from its current demise? It probably will, but it is going to take a long time and a lot of money, and it will be an entirely different city. Will other troubled cities be able to avert a similar fate? Only time will tell.
— “As I See It” appears on the first and third Thursdays of the month. Hal Sundin lives in Glenwood Springs and is a retired environmental and structural engineer. Contact him at email@example.com.
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