The Decline and Fall of Detroit

The bankruptcy filing and underlying train wreck of the once prosperous city of Detroit carries so much symbolic and practical baggage as to be beyond the scope of a single post. So rather than attempt to do a deep dive, particularly since the media and various experts are still weighing in, I thought I’d offer some high level observations and let readers provide more information, observations, and links.

The wreck that Detroit has become was long in the making. Even when I was a kid living in the Upper Peninsula of Michigan in the early 1970s, Detroit was in bad shape. Like many major cities, it had an advanced case of white flight. The inner metro area was seen as dangerous, decaying, and probably beyond rescuing. But it was hardly the only major city to be under stress then New York teetered on the verge of default during the 1970s recession. While the Big Apple restructured its finances, the fight over the city’s budget was an early taste of the thinking that would become more entrenched in the Reagan era: the financial markets would have a major say over what solutions were up for consideration.

Dan Hopkins at the Monkey Cage flags Thomas’ Sugrue’s pathbreaking work, The Origins of the Urban Crisis: Race and Inequality in Postwar Detroit, as the key reference in understanding what went wrong with Detroit and other major cities. In an interview in the Globe and Mail, Sugrue sketches the major factors in Motown’s decline:

What are the most important factors that contributed to Detroit’s current mess?

The first is long-term disinvestment from the city, meaning the flight of capital and jobs from Detroit beginning in the 1950s. It is employers and employees that provide the bulk of the funds for a city’s tax base. Secondly, intense hostility between the city and the rest of the state, which has a very strong racial dimension. Detroit has a long and painful history of racial conflict in local and state politics. That has contributed to the third major factor: the collapse of state and federal support for the city, which was crucial to its survival – and indeed to other cities’ survival – for a lot of the difficult times from the 1950s on forward. As a quick aside, when New York went through its fiscal crisis in the 1970s, it was bailed out by the federal government. There’s no bailout in place for Detroit today.

Who’s to blame here?

There is policy and political blame aplenty to go around. That is, officials in Detroit kept a large city government that was not proportionate to the city’s shrinking population in place. The state cut funding for infrastructure, education and transit. And the federal government steadily withdrew urban support beginning in the 1980s. The folk wisdom in Detroit is, ‘Oh, it’s mismanagement in city hall that caused the city’s problems.’ City hall is a player for sure, but the causes of this were far deeper. It had to do with macroeconomic and macro-political problems that were well beyond the boundaries of the city.

Sugrue also stresses that Detroit was a one-industry city. And as much as the entire Midwest has been hit hard by America’s industrial decline, Detroit rose further and fell harder. Grosse Point was once one of the wealthiest communities in the US. Well paid auto company jobs lifted all boats in the surrounding area. Yet by the 1970s, the auto industry was becoming the symbol of sclerotic American management. The auto industry fought more stringent pollution and fuel efficiency standards. Their political victories accelerated their decline, as carmakers in countries that adopted tougher rules (and had higher fuel costs) made lighter, cleaner, lower cost cars for their home market, and those cars took share in international markets, and increasingly in the US, from the heavy, bulky American models.

But it wasn’t just the auto industry’s famed “what is good for General Motors is good for America” attitude that contributed to their decline. Big auto companies were increasingly just plain poorly managed. I recall when I was in business school (late 1970s), there was a great deal of soul-searching in the business media regarding the decline of American manufacturing. The two most commonly cited factors: Germans and Japanese had newer factories, which gave them a cost advantage, and they were much better at managing factory workers. The proof of the latter came through Nummi factory, a joint venture between GM and Toyota, which was launched in 1984 using a factory that GM had shuttered in 1982. From Wikipedia:

GM saw the joint venture as an opportunity to learn about lean manufacturing from the Japanese company, while Toyota gained its first manufacturing base in North America and a chance to implement its production system in an American labor environment…

The choice of the Fremont plant and its workers was unusual. At the time of its closure, the Fremont employees were “considered the worst workforce in the automobile industry in the United States”, according to the United Auto Workers. Employees drank alcohol on the job, were frequently absent (enough so that the production line couldn’t be started), and even committed petty acts of sabotage such as putting “Coke bottles inside the door panels, so they’d rattle and annoy the customer.” In spite of the history and reputation, when NUMMI reopened the factory for production in 1984, most of the troublesome GM workforce was rehired, with some sent to Japan to learn the Toyota Production System. Workers who made the transition identified the emphasis on quality and teamwork by Toyota management as what motivated a change in work ethic.

By December 1984, the first car, a yellow Chevrolet Nova rolled off the assembly line. And almost right away, the NUMMI factory was producing cars with as few defects per 100 vehicles as those produced in Japan. But 15 years later, GM had still not been able to implement lean manufacturing in the rest of the United States, though GM managers trained at NUMMI were successful in introducing the approach to its unionized factories in Brazil.

Big Auto played a strong hand in the erosion of industry employment in Michigan, first embracing the use of maquiladoras, plants built initially just over the Mexican border to produce for the US market. The later variant was the Sunbelt strategy of locating non-union plants in the South and getting states and municipalities in bidding wars to see who would provide the juiciest subsidies.

Another development that didn’t help Detroit was the stranglehold that Manuel Moroun obtained over the Ambassador bridge which connects Detroit to Windsor, Canada. It is the biggest single border crossing into America, and handles 25% of merchandise trade between the US and Canada. The owners of the bridge took it public in 1979 and Mouron eventually obtained control. The tolls are set far higher than at other border crossings, discouraging casual crossings between Windsor and Detroit and thus leading them to be less integrated and diverse economically than they would otherwise be (see Jane Jacobs on the importance of diversity for urban vitality).

This is hardly a complete story of why Detroit got to be in such deep trouble. But the critical part to underscore is that its terrible condition was not the result of incompetent and self-serving city leadership (although it’s had a lot of that too) but has much deeper roots.

And rest assured it is in deep trouble, as this Bloomberg clip helps explain:

I don’t have any personal attachment to Detroit, but I lived in another midwestern city, Dayton, which had suffered a large, albeit not as catastrophic, decline. What bothers me is the nagging sense that this wasn’t necessary, that there were paths that would have alleviated the damage. But part of the American history of being a rich country is we’ve always been casual about waste, and that includes being willing to treat cities as disposables.

Picture source: Book review Tuesday: Detroit, An American Autopsy, by Charlie LeDuff