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Section One
Lessons from Detroit
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TWO
Detroitâs bankruptcy: treating the symptom, not the cause
George Galster
We begin with George Galsterâs examination of the long-term trends in Detroit, how they led to its bankruptcy, and the role of politics, policy, and structural forces in Southeast Michigan. This chapter also provides a detailed contextualization of Detroitâs economic, social, and regional geographies, which will be invaluable for understanding many other chapters throughout this book. For Galster, Detroitâs decline is not a recent phenomenon; he argues that the structural forces that led to the cityâs decline were entrenched as far back as the 1950s, when the city began losing population and jobs. In some cases, he even traces the cityâs decline to its heyday in the 1920s, when auto companies built multi-storey plants in Detroit that would become obsolete as larger suburban factories built on one-level made these older plants uncompetitive. He also argues that in order to understand the City of Detroitâs decline, you need to put it into a wider regional context; while the cityâs population fell, developers constructed thousands of extra homes surplus to the regionâs needs on its periphery, a trend that continues to this day. Despite posing some insightful solutions, Galster remains pessimistic as to the long-term political feasibility of genuine structural solutions to the cityâs problems.
George Galster is the Clarence Hilberry Professor of Urban Affairs at the Department of Urban Studies and Planning, Wayne State University. He earned his PhD in Economics from the Massachusetts Institute of Technology (MIT). He has published over 150 scholarly articles and seven books, and is a leading expert on metropolitan housing markets, racial discrimination and segregation, neighborhood dynamics, residential reinvestment, community lending and insurance patterns, and urban poverty. His latest book, Driving Detroit: The Quest for Respect in the Motor City (Galster, 2012), examines the long-term transformations to Detroitâs economic, cultural, commercial, and physical landscapes. He is the fifth consecutive generation of George Galster to live in the City of Detroit.
Introduction
In July 2013, the City of Detroit became the largest municipality by far in US history to declare Chapter 9 bankruptcy (Davey, 2013). Although Detroitâs leaders and citizenry are now breathing more easily since the city emerged from the bankruptcy courts relatively unscathed in November 2014, a key question remains to be answered. Will Detroit become a viable financial entity now that it has shed its debt obligations and elected (in November 2013) what, by all accounts, appears to be a fiscally prudent and managerially astute Mayor, Mike Duggan? Unfortunately, I fear that the answer will be âno.â Shedding debt through bankruptcy and enhancing efficiencies in city government and service delivery may be necessary conditions for future financial stability, but they are not sufficient. They treat only symptoms; they do not treat the long-term, structural causes of Detroitâs financial crisis. These causes are the ongoing fiscal death spiral triggered by net losses of the industrial, commercial, and residential tax base starting in the 1950s, abetted by the retrenchment of state and federal revenue sharing over the last four decades and pervasive racial segregation dynamics.
In this chapter, I first briefly survey the theories that scholars have advanced to explain urban decline so that the case of Detroit can be placed into a broader context. Next, I turn to documenting the structural causes of Detroitâs loss of tax base that have played out since the end of the Second World War, emphasizing that these forces were fundamentally beyond the control of the City of Detroit. I then explain how Detroitâs attempts to retain solvency by generating more revenue through new forms of taxation and reducing expenditures by reducing public service quality proved self-defeating over the long term by creating a downward fiscal spiral. I argue that this spiral was exaggerated by the destructive segregationist dynamics operating in the region. I show that much of Detroitâs fiscal difficulties could have been forestalled had US and Michigan revenue-sharing programs been funded more generously. I speculate about whether the nascent redevelopment actions visible in parts of Detroit are likely to overcome the ongoing structural forces of financial ruin. Finally, I advance a multifaceted strategy for changing these forces threatening the financial stability of Detroit.
The origins of decline: theoretical overview
Shrinking, fiscally distressed cities have been, of course, a long-standing feature of the international urban landscape (Richardson and Nam, 2014). Several, not-mutually exclusive arguments have been advanced by scholars to explain this phenomenon (Sassen, 2000; Mallach, 2012). At its root, a cityâs decline is seen as emanating from a fundamental restructuring of its current economic (export) base: the industrial sector(s) that primarily sell their products and services to the world outside of the city. When the baseâs employment and/or earnings provided to the local populace (both directly to those working in the base sector and those who indirectly depend on it through the base multiplier effect) drops for an extended period, impoverishment and, eventually, net out-migration will yield urban decline.
The prosperity-generating capacity of the local economic base can change for reasons both external and internal to the city. Externally, technological progress can render outdated the output, process, or local attributes employed by the economic base. Thus, the advent of land-based oil-drilling techniques eliminated the need for whaling fleets and triggered the decline of places like New Bedford, MA. The birth of railroads broke the monopoly of cities on navigable waterways, spurring, for example, the industrial growth of the food-processing and trans-shipment sectors in places like Chicago. Coal-fired steam engines eroded the comparative advantage of cities located on fast-flowing waterways. The invention of air conditioning and water pumps reduced a constraint on the growth of the tourism industry in the American South and Southwest. Competition can be another powerful external force. If competitors in another region or part of the world produce higher-quality, more innovative, or lower-cost substitutes for the cityâs predominant goods and services, the cityâs economic base will wither. This dynamic has been more visibly demonstrated in the product cycles of manufactured goods, wherein a new good typically begins to be produced in the city where it was invented, but inexorably production gravitates to regions where production costs are lower due to cheaper labor (possibly due to different regulatory and union environments), raw materials, and energy. So, the decline of textile production in New England and its migration first to the American South and then overseas provides a clear example of the urban impacts of this competitive pressure, as does the shift of steel production from Pittsburgh to cities in Korea and China.
The internal forces of decline work to erode the competitiveness of a cityâs existing economic base and deter the development or in-migration of alternative industrial bases. Cities can, for example, simply run out of natural resources that once made them prosperous. Such was the fate of many mining towns in the American West, or port cities whose harbors become unusable due to sedimentation. Cities in the Central Valley of California are now starting to feel such a resource depletion pressure as water for agricultural irrigation becomes increasingly scarce. Urban public policies related to business taxes and regulations, infrastructure, and workforce development can also prove instrumental to decline. Cities with limited, crumbling transportation, energy, and communication infrastructure, draconian tax and regulatory regimes, and poorly educated populations are in an inferior position to compete with other locales in the retention, development, and attraction of economic base industries. Finally, a cityâs internal social structure may influence its future trajectories. Places that hold on to rigid hierarchies of race and class, are intolerant of new groups or ways of social or economic organization, and are characterized by social strife and lack of cohesion are more likely to see an erosion of their economic fortunes (Florida, 2002).
How does the case of Detroit fit within this theoretical framework of urban decline? Certainly, the dominant economic base for the city for more than a century has been the auto industry (Babson, 1986; Farley et al, 2000). Like most manufacturers of a durable good, the geography of auto production has inexorably shifted from Southeast Michigan, where the domestic industry initially consolidated in the first three decades of the 20th century, to lower-cost regions of the US and then abroad, particularly Mexico, Canada, and, most recently, China (Sugrue, 1996; Silver, 2003). As I will demonstrate in the following, however, it was manufacturing and transportation technological changes that first propelled the post-war auto industry to shift production outside of Detroit into its hinterland, not the quest for lower labor costs. Certainly, competition played a huge role in the saga of the US-bred auto industry as it morphed from supplying virtually all the vehicles to the domestic market after the Second World War to now only about half. Yet, even as its market share has dwindled, the financial impact on the City of Detroit would have been minimal had the Big Threeâs production remained within the municipal boundary. The role of urban public policy is certainly paramount in the Detroit case. As I explain later, the cityâs seemingly prudent actions to raise tax rates and institute new taxes proved unwittingly to hasten its decline since it further rendered it an uncompetitive alternative for business and residential location. Finally, the role of social tensions, especially along racial lines, is undoubtedly crucial in abetting Detroitâs dynamics of decline and fiscal distress, as I amplify later.
Structural forces eroding Detroitâs tax base
Through no fault of its own, Detroit was dealt a staggering, seemingly endless series of oneâtwoâthree punches beginning in the 1950s that set in motion the inexorable erosion of its tax base. The first punch came from manufacturers who abandoned older factories in the city in favor of suburban locations (Babson, 1986; Sugrue, 1996, McDonald, 2014). In the 1950s, Detroitâs auto companies built 25 new plants in South-East Michigan; none were in the City of Detroit. From 1950 to 1956, 124 other manufacturing firms located in the suburbs; 55 moved out of Detroit to do so. Even greater dispersion followed as firms increasingly switched to trucks as their dominant distribution mode, freed as they were from inner-city congestion by the regionâs burgeoning network of limited access, high-speed expressways.
Transportation infrastructure alone did not drive manufacturing dispersal, however. Land-extensive production processes were also a prime driver. Within the first decade of mass auto production, industrial engineers discovered that assembly line processes could be much more efficient if raw materials, parts, and semi-finished products were all on the same floor. Moving from multi-storey to single-storey auto plants meant that a given amount of factory floor area would now require more land: a shift from the intensive to the extensive use of land (Galster, 2012).
Unfortunately, by the end of the auto industryâs 1920sâ heyday, few factories had been built in this new, land-extensive style. Then came the Great Depression, with little motivation to build new facilities. Then came the Second World War, with no opportunity to build new auto plants. Not surprisingly, the pent-up post-war boom in land-extensive auto factory construction occurred at the fringes of metropolitan Detroit, where large tracts of land could be inexpensively assembled. The new suburban factories consumed three times as much land per worker as the older, land-intensive plants. Indeed, to accommodate the City of Detroitâs existing manufacturing employees at the density of the newer, land-extensive factories would have absorbed almost half of the cityâs land area! This new suburban construction put older Detroit plants at a competitive disadvantage. During the 1950s alone, 840 manufacturing plants in the city closed (Hyde, 1980). This loss of city employment has continued unabated.
The magnitude of this dispersal of employment from Detroit to its suburbs is nothing short of staggering (McDonald, 2014). In every 20-year period since the end of the Second World War, the city lost roughly half of its remaining manufacturing jobs, according to periodic manufacturing censuses. This meant that of the 333,000 manufacturing jobs located in the city in 1947, less than 10%âonly 23,000â remained by 2007, the peak of the last business cycle. By contrast, the suburbs of metropolitan Detroit had 189,000 manufacturing jobs in 2007.
The second fiscal punch was thrown by the housing development industry, abetted by the federal government, whose guarantees for inexpensive Federal Housing Administration and Veteranâs Administration (FHA-VA) mortgages and subsidies for expressway construction spurred massive suburbanization of Detroitâs (overwhelmingly white) middle class (Freund, 2007). Since reaching its 1950 census peak of 1.8 million, two thirds of the cityâs population has systematically been siphoned off by the regionâs perpetual production of more houses than there were households to occupy them. This process of regional population redistribution has been highly selective in terms of income: suburbanization out of Detroit has overwhelmingly been driven by middle- and upper-income households, those with the financial wherewithal. As a result, the concentration of the poor has intensified in the City of Detroit. According to the 2014 Current Population Survey, Detroitâs poverty rate was 38%, the highest among large cities.
During every decade from 1950 to 2010, the tri-county Detroit regionâs developers built many more dwellingsâan average of over 10,000 per yearâthan the net growth in households required (Galster, 2012, ch 9). Developers built this excess supply because they could make a profit; their new suburban subdivisions could typically win the competition for middle- and (increasingly) upper-income occupants when pitted against most of the older housing stock. As the regionâs number of households grew more slowly than the number of new dwellings produced, some of these new homes were inevitably occupied by residents previously housed in older housing. As they moved out, their dwellings were occupied by other households who perceived the recently available units as preferable to the ones they currently occupied. As this process proceeded, it inevitably resulted in households moving out of the least competitive dwellings in the metropolitan area, with literally no one left to occupy them, at any price. In this fashion, this âchain of movesâ linked new construction in the suburbs to the vacating of inferior dwellings located in the most dangerous and deteriorated neighborhoods, which were overwhelmingly located within the City of Detroit. This excess housing supply rendered redundant almost an equivalent number of dwellings, minus those relatively few lost due to highway construction or retail and industrial development. Some of these redundant dwellings were converted to non-residential uses, but the bulk remained vacant, under-maintained, and eventually abandoned by their owners. Typically, after years of increasing deterioration, many of these abandoned dwellings were demolished...
