Desolate neighborhoods and darkened streets. Hordes of unemployed. Tens of thousands of vacant buildings. No emergency services, but an “emergency manager” with dictatorial powers. This isn’t a post-apocalyptic scenario or even the burnt out shell of the Chernobyl Nuclear Power Plant. It’s Detroit, separated by only a few decades from its heyday as the center of American automobile manufacturing. Detroit’s economic crisis is a result of economic forces, but its creditors are making Detroiters pay.
For anyone who thinks that the Chernobyl-Detroit comparison is too hyperbolic, pictures and statistics of Detroit reveal a decaying metropolis. The city has become a decrepit shell of its former self, caused largely by the deindustrialization of the Rust Belt. As free trade was lauded as the hallmark of the new global economy, corporations outsourced to countries with nearly nonexistent labor laws. Meanwhile, many companies moved their headquarters out of Detroit to avoid paying taxes to the municipality, while those with means moved to the suburbs. Left with only the desperately poor within the city limits, Detroit’s tax base shriveled.
At the same time, expenses are large enough to bleed the city dry. Pension obligations total about $3.5 billion out of the $14 to $18 billion that Detroit owes to its creditors. Pundits portray these pensions as unsustainable – and they’re right, as the pensions are currently funded.
But all these expenses, the bulk of which are entirely reasonable for running a city, pale in comparison to the massive economic prowess of Detroit, dwindled though it may be. There are billionaires that are active in Detroit, including Dan Gilbert of Quicken Loans, who are buying up city blocks “as if they’re Monopoly properties,” according to The New York Times.
And the auto companies are still reaping profits: Chrysler’s Jefferson North Assembly Plant recently rolled out its five millionth Jeep Grand Cherokee, and the plant has only been running since 1991. In those 21 years, that and other plants have been highly profitable. But instead of using those profits to pay off Detroit’s debt or provide a high standard of living for employees, the money has gone to executives saved from annihilation only by a taxpayer-funded bailout.
One of Chrysler’s legal representatives during its bankruptcy trial has been appointed by Michigan Gov. Rick Snyder to navigate Detroit’s dire financial straits. Emergency Financial Manager Kevyn Orr was appointed using a controversial law that essentially cedes all financial power from Detroit’s municipal government to him.
Orr labeled Detroit as “dumb, lazy, happy and rich” in an interview with the Wall Street Journal and on July 18 filed for Chapter 9 bankruptcy. Bankruptcy will give him the legal authority to reduce pensions, fire workers and ensure that those bankrolling Detroit’s debt receive a return on their investment. Yet Michigan’s state constitution prohibits infringing on the vested pensions of public workers, and this issue may make Orr’s job difficult.
Detroit is just the first massive American city to file for bankruptcy. Business Insider reports San Diego, Los Angeles, Honolulu, New York and Newark, N.J., as approaching bankruptcy, and federal and state governments are unlikely to grant aid, leaving cities – and their workers and retirees – in the lurch. While Detroit is the largest municipal bankruptcy in American history, it might not remain so for long.u