Detroit: how the Motor City was driven to bankruptcy


On 18 July, 2013, Detroit’s Emergency Manager Kevyn Orr declared the city bankrupt. Orr was appointed by Michigan’s Republican Governor Rick Snyder.

According to official accounts, Detroit is 18.5 billion US dollars in the hole, making this the biggest US city or county to ever go bankrupt.

In theory, such a declaration means that all the city’s creditors will suffer, forcing them to accept only a fraction of what they’re owed.

But as a bankruptcy judge will get to decide who has to make the biggest sacrifices, the brunt is most likely to be borne by Detroit’s 9,000 city employees and 21,000 retired ones.

Detroit’s bankruptcy isn’t without precedent. The city of Stockton, California, declared bankruptcy two years ago.

In a court settlement this month, it forced its 1100 retirees to accept a lump sum of 5.1 million US dollars as compensation for cancelling their previously-guaranteed medical insurance. If each retiree gets an equal share amounting to 4636 US dollars, this will only buy health insurance for one or two years. 

While cities like Stockton and Vallejo in California have used bankruptcy law to accomplish the same result, Michigan legislators have gone a step further.

When in 2011, Republicans took control of the Michigan legislature and the governorship, they passed Public Law 4, which gave virtually unlimited powers to emergency managers appointed by the governor.

Those managers could completely displace elected local city councils, mayors, school boards and other public bodies.

Newly-elected Governor Snyder then ended collective bargaining rights and employee status for almost 26,000 childcare workers belonging to the United Auto Workers and the major US trade union, the American Federation of State, County and Municipal Employees (AFSCME).

Schools in the small Michigan cities of Highland Park and Pontiac have had three emergency managers, one of whom was indicted for embezzlement.

In Benton Harbor, also in Michigan, the emergency manager sold off a sports arena built with 55 million US dollars of public funds to a developer for 583,000 US dollars. He even barred the mayor from entering his own office.

Voters rebelled and repealed Public Law 4 in the 2012 election. The legislature grew even more radical, however, passing a law forbidding contracts that require union membership as a condition of employment (a so-called "Right to Work" law).

In March this year, Governor Snyder appointed Orr as Detroit’s Emergency Manager; on 18 July he forced the city into bankruptcy.


History of devastation

Like most other big US cities, Detroit has seen its industrial base devastated over the years. But if Detroit’s cuts go deeper than most, it’s due in part to its history as one of the most heavily-industrialised places on earth.

Detroit was a monoculture growing one crop – cars – and its workers were amongst the most skilled anywhere.

In the 1930s, Ford Motors’ River Rouge plant in nearby Dearborn employed over a 100, 000 workers. Taking their families into account, about 500,000 people were supported by direct employment at that one plant alone. In addition, each assembly plant job produced four or five additional jobs in parts plants or in businesses serving the needs of the workers.

Detroit also grew to be one of the country’s most African-American cities, at one time rivalling Washington DC – aka the “Chocolate City” – in the size and demographic weight of its black community.

That too was a product of the auto industry, which together with the Midwest’s steel mills, drew people from the South in one of the largest internal migrations of modern times.

Today, most of Detroit’s car plants are closed. As car manufacturers moved production to countries with lower costs, jobs that paid a wage that allowed parents to send their children to college disappeared.

By the 1950 census, Detroit’s population had reached its highest point; 1,849, 568 people lived within the city limits, with many more in Flint, Dearborn, and the other satellite auto towns. Today, Detroit’s population is estimated to be 772,419, which is less than half of what it was at its peak.

Between 2000 to 2010, Detroit lost 273,500 people – a quarter of its population. After New Orleans, which lost 29 per cent of its population following Hurricane Katrina, Detroit’s 25 per cent loss is the biggest ever percentage drop for any large American city.


Mapping poverty

As a consequence of this crisis, African-Americans, Mexican-Americans and Arab-Americans were found concentrated in Detroit’s urban core, while the city’s more affluent white residents left for the surrounding suburbs.

Half of Michigan’s black population now lives in the City of Detroit. In the suburbs, only 9.6 per cent of the residents are black.

In October 2009, the Bureau of Labor Statistics found the city’s unemployment rate was 27 per cent. However, Detroit Mayor Dave Bing argued the true figure was closer to 50 per cent as the official statistics didn’t include people who have given up looking for work entirely or those working part-time jobs because they couldn’t find full-time work.

High rates of unemployment, in turn, produce widespread poverty. Michigan itself, even counting communities far from Detroit that aren’t as affected by the decline of the auto industry, has one of the highest poverty rates in the country.

Detroit itself ranks last in median family income, per capita income, and the number of families and individuals living below the poverty line. Over the last decade, median household income dropped by 31 per cent, and the region around the city by 24 per cent.

To a large degree, the public sector became the major employer in the absence of industry. Over a quarter of the city’s workers are employed in health, education and social assistance, more than twice the number in any other cluster of occupations.

Those jobs, however, are heavily dependent on the tax base, and vulnerable to economic downturns that erode tax revenues.

The declining tax base eroded the city’s ability to supply basic services, and it can no longer maintain and manage its public works, its water system, its buses or its parks.

Detroit Public Schools lost half its students over the last decade, a rate even faster than the loss of population generally.

And today, only 65-70 per cent of high school seniors make it to graduation, according to the Detroit Literacy Coalition.

Around 66,000 properties are vacant in Detroit, with 78,000 in foreclosure, amounting to 30 per cent of the city.

So many homes lie vacant that proposals have been made that the city wall off "dead zones" – moving out the residents and demolishing their homes, while supplying city services only in the remaining populated areas.

Meanwhile, Emergency Manager Kevyn Orr has announced plans to sell major Detroit assets, including Belle Isle Park – the largest public park island in the country – and the huge Water and Sewage Department, as well as cutting almost half of the city’s street lighting.

Rumors also has it that Detroit’s world-famous art museum, with murals by Diego Rivera and paintings by Pablo Picasso, is up for sale.

But the citizens of Detroit are fighting back. In addition to challenging these plans in court, demonstrations and civil disobedience are spreading. Four community leaders were arrested as hundreds of others disrupted an April city council meeting, angry at plans to give control of city finances to a law firm tied to the banks holding the city’s loans.

One of those arrested was Detroit School Board member Elena Herrada, a former cafeteria worker union organiser. "We should oppose the emergency manager at every turn," she said.

"We have no-one but ourselves to depend on and our own resources to fight with."