DETROIT, Michigan (MI): An Abstract

Detroit is a significant case study of urban decline. To understand the fundamental issues in Detroit one
must understand the symptoms of urban decay. Urban Decay is the process in which a functioning city,
falls into disrepair; its major symptoms are de-industrialization, depopulation, restructuring, abandoned
buildings, high local unemployment, fragmented families, political disenfranchisement, crime, and
desolate, inhospitable city landscape.1 Detroits urban decay, (as with many other cities afflicted with
urban decay) has no single cause, rather it was the result of inter-related socio-economic conditions to
include: urban planning decisions, poverty and its causes among local populace, construction of
freeways and rail lines that by-pass afflicted areas, de-population by suburbanization and real estate
neighborhood redlining, among others.1 In addition to these issues, other symptoms unique to Detroit
that further exasperated its urban decay, included: significant and intense racial tensions (including two
race riots 1943, 1967), extreme corruption and mismanagement, and Detroits inability to severe its
economic ties to the auto industry. The decline of Detroit wasnt one thing over another, rather it was a
lethal cocktail that brought the economic powerhouse of a city to its knees.
In examining the City of Detroit during our Field Studies Program, we should: (1) evaluate how enduring
philosophical, historical and contemporary issues contribute to the current state of the city; (2) aim to
understand how the environment presents a strategic challenges to governance and planning for the
city; (3) seek to understand and think critically about how the strategic thinking, planning and decisionmaking of federal, state and local leaders in response to the urban crisis affect the lives of its citizens;
and (4) understand how the use of resources and strategic planning will aid in the re-building of a failed
city.
Some of the Field Studies objectives we will explore in Detroit will be:
(1) U.S. Economic System and Government Institutions: The Detroit Economy & Its Economic Stability
(2) Education: Elementary Education in Detroit
(3) The Historical Exposure to Detroits Geographic, Ethnic, Religious and Social Groups
1

http://en.wikipedia.org/wiki/Urban_decay

THE FREE MARKET SYSTEM:

For the free market system objective, our goal is to expose you to the success and failure of the U.S.
economy due to different reform policies (i.e. the environmental reforms, land use and tax systems
reforms among others). We want to show how the encouragement of private enterprise and individual
initiative are crucial to maintaining economic success in the free market system. We also want to expose
you to the governments efforts to create favorable investment climates, curbing corruption where it
exists, and spurring balanced trade.
In complement to the strategic planning and ideas of industry and enterprise there exists the workforce,
who labors and puts industrys ideas into action. We want to show you the independent roles of labor
and management in negotiating pay, working hours and conditions, and other benefits associated with
employment. We also want to expose you to the factors underlying industrial and agricultural
production, and how environmental protection has altered each; and the role of environmental
protection plays in pulling industry and the free market system into a new direction.

Overview of Detroit & the Free Market System: The Auto

Industry Crisis, Policy Reform, Recession, and Rebirth
During the Detroit Field Study we will visit General Motors and Ford; however, prior to our visit the
reference guide will provide you with an opportunity to explore the external and internal factors that
contributed to the American Auto Industry Crisis, to include: global environmental policy initiatives (i.e.
the Kyoto Protocol), the Great Recession, peaks in gas prices resulting from the 2003-2008 Energy Crisis,
and the Subprime Mortgage Crisis. While the environmental initiative propelled the economy forward
into an era of green technology, the culmination of the growing pains and the other external factors
negatively impacted the stability of the marketplace. Many companies and products did not survive this
tough economic environment, including General Motors and Chrysler who eventually filed for
bankruptcy and was later bailed out by the federal government. As events continued to unfold, the City
of Detroit eventually filed for bankruptcy as well (with no bail out by the federal government) with over
$18 billion dollars of debt. Declaring bankruptcy allowed to the fallen city of Detroit to rebuild, and the
reference guide hopes to help you understand how this was possible.
Questions to Consider:
-

How do Ford and GM face the economic challenges in the world?

What is the American auto industry strategy for competing with foreign companies? What are
the challenges in the international auto market?
How has the government management of the bailout happened? Has it been an effective
relationship between the auto companies and the government?
How are the auto companies reacting to the demand for cleaner and more affordable energy for
cars in the U.S. / in the world?

The Auto Industry Crisis, Deindustrialization, Unemployment, & the Rise of Crime
The decline of the auto industry and the deindustrialization of Detroit gave way to mass unemployment.
The demand in the labor market also moved from skilled labor, to automated labor, to educated labor,
and from unionized domestic labor to outsourced cheaper labor. These drastic shifts in demands for
talent, severely impacted Detroits minority and industrial workforce, many of which never obtained a
degree because previously education wasnt a requirement to make a decent living. Prior to the 1970s
people working in Detroit were able to obtain middle class status by working in the auto plants, without
ever attending a formal institute of higher education. Now the same groups of people could no longer
compete in the new job market because they lacked the formal education needed to advance
economically. With almost 50% of the population unemployed, the economic vacuum gave way to the
drug economy and a spirit of crime. This rough period of time created a cultural shift within Detroit from
the working class mentality, to the have-not mentality, where crime and poverty became a regular way
of life.

Declaring Bankruptcy, Tackling City Challenges, & Laying Out a Strategy for the Rebirth of Detroit
Bringing in Investors
Detroit once a major industrial city, which has now declared bankruptcy with over $18 billion dollars of
debt, faces the major challenge of trying to cultivate favorable investment climates within the city and
to encourage private enterprise and individual initiatives to create economic opportunities within the
city of Detroit.
Tackling Population Decline and Restoring City Services
Detroit leadership also faces the challenge of trying to grow the population. In the 1950s with the auto
industry booming, Detroit had over 1,800,000 residents, now after the decline of the auto industry and
suburbanization, Detroit now has a population of about 700,000 residents. This means that Detroit
faced a population decline of about 1,100,000; when the residents and businesses began to flee Detroit
they took the tax bases and jobs with them (mostly to the suburbs). This decline in tax revenue and
economic opportunities affected the municipal structure and ability to provide government services. At
some point, 40% of the citys street lights didnt function which lead to an increase in crime rates, and

the average wait time

for police to respond
to a call was 58
minutes in Detroit,
where the national
average was 11
minutes. City
leadership has to
develop a strategy to
regrow the
population, so that it
may increase it tax
base, generate
revenue, and continue
to provide basic city
services and honor its
pension obligations to
its retired population.

Mapping Detroit population migration; click the map to go to

Forbes magazines interactive map of American Migration.

Tackling the Challenge of Infrastructure

Additionally, Detroits infrastructure was
built when it had a population of about
1,800,000 people, now the population is
700,000 sprawled across the large city of
Detroit. City leadership is having a hard time
providing city services like public
transportation, street maintenance, trash
collection, street light repair, etc. across
142.9mi2 (370km2) of land with a marginal
tax base and a population of 700,000 (a
significant number of which are
unemployed). In September 2009, 335,231
people were unemployed as of December
2014, the number has dropped to 150,419. In
the city presentations we will hear about
whats next for Detroit.

Take note how far apart the houses are from one another
and what type of challenges this may present in providing
city services with a poor budget. Does this look like an urban
major city to you?

Detroits Economy in 2008-2010: The Great Recession &

the Automotive Industry Crisis
An Introduction
The American Auto Industry decline
seems to be a repetitive event that
happens over the course of some
years, as its financial stability is so
closely linked to the financial
stability of the banking system, and
its ability to approve loans. In the
1920s, banking failures dotted the
rural landscape of the country as the
new wave of industry and
commerce constricted the
traditional lifeblood of agriculture.
In 1925, 617 banks failed in the
United States, by 1930 the number rose to 1,350, and in 1931 that escalated to 2,293. With each failure
came an obliteration of many people's life savings, which began to spread fear throughout the country
that the banking failure would spread throughout the nation and become unstoppable. Similar to the
conditions of 2008 2010, a combination of events were brewing between the 1920s and 1930s; 1929
saw the great stock market crash, and 1930 brought with it a new tariff and onerous tightening from the
Federal Reserve. After 1929, the sales of the Ford automobile collapsed and with them collapsed the
fortunes of Detroit. In 1932, Ford lost a total of $75 million, which was detrimental to the stability of
Detroits financial institutions. Henry Ford in fear of losing his own personal assets threatened to
withdrawal Fords assets from Detroit banks. His withdrawal alone could have crippled not only Detroits
economy but the national economy, both greatly intertwined with the financial stability of the auto
industry. In an effort to stop Henry Fords withdrawal, the Michigan banks declared a banking holiday
(that spread to 37 other states), which halted banking services, including withdrawals, with no notice.
For 36 days, after the 8 day holiday was first declared, people could not withdrawal money from the
banks, and all because the government and banking officials feared that Fords withdrawal would cripple
the economic system. 2
When looking at the 2008 2010 Auto Industry Crisis, we again see a similar combination of events with
the Great Recession, Sub-prime Mortgage Crisis and the financial debt from the Iraq War. The stability of
the U.S. economy has always been so greatly intertwined with the auto industry, and the auto industry
so greatly intertwined with the U.S. economy, that ones failure over the other could be detrimental for
both. Does this mean the auto industry giants, Ford, General Motors (GM) and Chrysler are Too Big to
Fail?

http://www.americanhistoryusa.com/1933-banking-crisis-detroit-collapse-roosevelt-bank-holiday/

The Great Recession of 2008-2009: Protestors vent their outrage over government bailouts for corporations
outside of the offices of American International Group in New York City.
*If reading on your tablet, click the pictures to read the articles the Great Recession: 2009 a Year and Review
and the Economist article on the lagging unemployment rates, post-recession.

Setting the Stage: The Great Recession3

In 2008, the United States was hit by the Great Recession. The Great Recession officially lasted from
December 2007 to June 2009 and began with the bursting of an 8 trillion dollar housing bubble. The
resulting loss of wealth led to sharp cutbacks in consumer spending. This loss of consumption, combined
with the financial market chaos triggered by the bursting of the bubble, also led to a collapse in business
investment. As consumer spending and business investment dried up, massive job loss followed. In
2008 and 2009, the U.S. labor market lost 8.4 million jobs, or 6.1% of all payroll employment. This was
the most dramatic employment contraction of any recession since the Great Depression.
Even after the economy stopped contracting in the summer of 2009, its growth has not been nearly
strong enough to create the jobs needed simply to keep pace with normal population growth, let
alone put back to work the backlog of workers who lost their jobs during the collapse. Thus, the Great
Recession had brought the worst of both worlds: extraordinarily severe job loss, combined with an
extremely sluggish recovery.
The job loss during the Great Recession has meant that family incomes dropped, poverty rose, and
adults as well as children lost health insurance. The bursting of the housing bubble and the drop in the
stock market had meant that family wealth had dropped dramatically, as well. In general, racial and
ethnic minority workers tend to have much higher unemployment rates (usually twice a high) than
white non-Hispanic workers (regardless of whether the economy is in expansion or a recession), which
meant that Detroit with an African American population over 80% of the overall population was not
exempt. The black unemployment rate is generally around twice as high as the white unemployment
rate, regardless of whether the economy is in an expansion or a recession; this means that during
recessions, black workers experience much larger increases in unemployment. The recession in
combination with the deindustrialization of Detroit and other major cities really impacted the quality of
life for minority populations and industrial workers as more people who once held jobs began to fall into
poverty.
3

http://stateofworkingamerica.org/great-recession/job-loss/

The Automotive Industry Crisis4

During the Detroit Field Study we will visit General Motors and Ford; however, prior to our visit we
explore the U.S. Auto Industry Crisis in the reference guide. The reference guides goal in covering the
auto industry to help you gain an understanding of the external factors that contributed to the Auto
Industry crisis, to include: global environmental policy initiatives (i.e. the Kyoto Protocol), the Great
Recession, peaks in gas prices, and the Subprime Mortgage Crisis. All of these factors negatively
impacted the economic market (some more than others), and many companies and products did not
survive this tough economic environment.
THE EXTERNAL FACTORS CONTRIBUTING TO THE AUTO CRISIS
The automotive industry crisis of 2008-2010 was part of a global financial turndown, the broader U.S.
economy was in a free fall, demand for cars was weak, and the banking systems near-collapse made car
loans scarce.5 In addition to the Great Recession the industry was also faced with environmental politics
(i.e. the Kyoto Protocol) regarding carbon emissions. Additionally, heightened sensitivity to gas mileage
standards and environmental protection worldwide disrupted the established economic market and
created a hyper competitive global market environment, which forced global industry leaders to quickly
develop new affordable, reliable, green technology products (in Detroits case vehicles) that would fit
consumer needs and undercut the global competition.6
2003-2008 ENERGY CRISIS & PEAKS IN GAS PRICES
Additionally, the peak in gas prices linked to the 2003-2008 energy crisis also facilitated this push by
creating economic demand for more affordable, reliant, fuel-efficient vehicles. For American motor
companies, The Big Three Ford, General Motors (GM) and Chrysler, this presented a significant
challenge as the majority of their popular product line consisted of SUVs and pick-up trucks, they did not
have a pre-existing line of gas efficient vehicles to offer consumers.

http://en.wikipedia.org/wiki/Automotive_industry_crisis_of_2008%E2%80%9310
https://www.economy.com/mark-zandi/documents/2012-02-28-OPED-Bailing-Out-Detroit.pdf
6
http://belfercenter.ksg.harvard.edu/files/Frankel2Web.pdf
5

THE GREAT RECESSION & THE SUBPRIME MORTGAGE CRISISS EFFECT ON THE ECONOMIC STABILITY
OF THE AUTO INDUSTRY
At the same time the Great Recession had caused mass unemployment and the instability of the job
market and individual consumer finances (with massive foreclosures and loss of assets) discouraged
consumers who already had a working vehicle from taking on a new loan and payment. Additionally, the
sub-prime mortgage crisis made it harder for people with average or poor credit to obtain a bank loan to
buy a car.
ENVIRONMENTAL POLICY REFORM: A FAILURE TO KEEP UP IN A GLOBALIZED MARKET
Car companies from Asia, Europe, North American and elsewhere started implementing creative
marketing strategies to entice reluctant consumers as most experience double-digit declines in sales.
Instead of making the tough choices necessary for them to stay viable in the long run, the Big Three
offered substantial discounts across their line-ups. The Big Three faced criticism for their line-ups, which
were seen to be irresponsible in light of rising fuel prices. North American consumers began turning to
smaller, cheaper, more fuelefficient imports from Japan and Europe. For example, Japan required
autos to achieve 45 miles per US gallon (5.2 L/100 km; 54 mpg-imp) of gasoline and China required
35 mpg-US (6.7 L/100 km; 42 mpg-imp). The European Union required 47 mpg-US (5.0 L/100 km;
56 mpg-imp) by 2012. By comparison, U.S. autos were required to achieve only 25 mpgUS (9.4 L/100 km; 30 mpg-imp).The Detroit Big Three had been slower to bring new vehicles to the
market compared with foreign competitors, that could catered to new found consumer needs.
While the "Big Three" U.S. market share declined from 70% in 1998 to 53% in 2008, global volume
increased particularly in Asia and Europe. Facing financial losses, the Big Three idled many factories and
drastically reduced employment levels. In order to improve profits, the Detroit automakers made
agreements with unions to reduce wages while making pension and health care commitments. All of
these factors critically impacted the stability of the American auto industry. This new environmental
push in combination with, poor management, and business practices, and the other external factors,
lead to a major decline in American car sells and eventually forced to GM and Chrysler to file for
bankruptcy.

The Bailout7
In 2008, the Big Three asked the government for $50 billion to avoid bankruptcy and ensuing layoffs.
Congress issued a $25 billion government loan from the Department of Energy to help them re-tool their
factories to meet new fuel-efficiency standards of at least 35 mpg by 2020.The loan was authorized by
Congress for automakers to use to "equip or establish facilities to produce advanced technology
vehicles that would meet certain emissions and fuel economy standards; component suppliers could
borrow funds to retool or build facilities to produce parts for such vehicles as well. 8 However, this
massive loan by itself wasnt enough to keep Chrysler and GM from declaring bankruptcy.
This decision was largely determined by these factors: The Big Three U.S. automakers employed about
250,000 workers at the time, but their deep connections throughout the rest of the economy meant
closer to 2.5 million jobs were at risk. A bankruptcy without government support could have cost as
many as a million jobs at a time when we were already losing millions. The economy would have been
shattered in Michigan and in other parts of the Midwest and South that relied heavily on vehicle
manufacturing. And given the likely loss of auto dealerships across the country, nearly every community
in America could have been affected negatively.
The annual capacity of the auto industry is 17 million cars; sales in 2008 dropped to an annual rate of
only 10 million vehicles made in the U.S. and Canada. All the automakers and their vast supplier network
account for 2.3% of the U.S. economic output, down from 3.1% in 2006 and as much as 5% in the 1990s.
Some 20% of the entire national manufacturing sector is still tied to the automobile industry.9
Federal financing helped GM and Chrysler use bankruptcy to restructure without shutting down.
Companies in bankruptcy need credit to pay workers and suppliers while they reorganize. In normal
times, such credit - called "debtor-in-possession financing" - is available at premium interest rates from
banks and other private lenders. But in 2009, the financial system was on life support; no such credit
was available, even to the best of borrowers. If GM and Chrysler had entered bankruptcy without
government support, they may never have come out. While Ford was in better shape, it shared many

https://www.economy.com/mark-zandi/documents/2012-02-28-OPED-Bailing-Out-Detroit.pdf
http://en.wikipedia.org/wiki/Automotive_industry_crisis_of_2008%E2%80%9310
9
http://www.strategy-business.com/article/re00245?gko=2d5df
8

suppliers with GM and Chrysler, so their liquidation would have dragged many of those suppliers under,
pulling Ford into bankruptcy too.
The Effects of the Bailout & Recovery of the American Auto Industry10
The restructuring process overseen by the government had profound effects. For example, GMs North
American hourly labor costs declined from $16 billion in 2005 to $5 billion in 2010. This was achieved
through layoffs and a decrease in the hourly wage. Employment at the Detroit Three plunged from
250,639 in 2007 to just under 170,000 in 2009. And negotiations with the United Automobile Workers
union led to the carmakers assuming less liability for retirees healthcare costs and instituting a lower
wage for new hires. As a result, by 2011, average hourly labor costs for Ford ($58), GM ($56), and
Chrysler ($52) were competitive with those of Honda ($50), Toyota ($55), and other foreign-based
carmakers at their U.S. plants. The government-backed bailout of Chrysler and GM fundamentally
altered some crucial characteristics of the U.S. auto industry, helping to bring it in line with foreign
competitors.
The improvement in utilization was largely a reflection of how many plants the Detroit Three closed
during the recession and recovery. Between the end of 2007 and the beginning of 2010, they shut or
planned to shut 16 plants. This rapid reduction in capacity helped the three companies become
profitable while producing fewer vehicles. The restructuring also moved nearly all of the U.S. production
and auto plants from Michigan to the Gulf of Mexico. This is one of the major reasons why the auto
industry survived and Detroit didnt.
A Strategic Look at Detroit Economic Decline: Detroits Reliance on a Single Industry the Auto
Industry & the Auto Industrys Reliance on a Single Product - Cars
In the earlier section discussing the American auto Industry, the Great Depression, World War II and the
banking crisis, we saw how Henry Fords withdrawal of Fords assets from Detroit banks could have not
only crippled Detroits economy but the national economy. When looking at the recent auto crises, we
again see the same thing with General Motors, Chrysler and Ford in the wake of the Great Recession,
Sub-prime Mortgage Crisis and the residual financial effects of the Iraq War. It is important to learn from
the lessons of the past. If city leaders knew that their economys stability was intertwined with stability
of the auto industry and its failure could have also meant city failure, why didnt city leaders make
bringing in alternative investments a priority? If one persons or companys withdrawal from a bank
could cripple a whole citys economic system, alternative investments need to be explored to ensure a
safety net is provided for the city and its people. Did anyone conduct a security and risk analysis?
Additionally, the downfall of the auto industry is cyclical, there are indicators in the strategic
environment like engagement in conflict, the strength of the financial market and unemployment rates,
which lets industry leaders know when hard times may be approaching. So why hadnt industry leaders
diversified their companys financial portfolio to include alternative products and technological
developments that would provide it financial stability outside of auto sales? In a free market system,
entrepreneurial savvy is key and American auto industry leaders did not stepped up to the challenge. In
the section entitled, Too Big to Fail, we may began to see why auto leaders have failed to make hard
decisions that would allow them to stay competitive in a globalized economy.

10

http://www.strategy-business.com/article/re00245?gko=2d5df

Too Big to Fail11

The "too big to fail" theory asserts that certain corporations, particularly financial institutions, are so
large and so interconnected that their failure would be disastrous to the greater economic system, and
they therefore must be supported by government when they face potential failure. The colloquial term
"too big to fail" was popularized by U.S. Congressman Stewart McKinney in a 1984 Congressional
hearing, discussing the Federal Deposit Insurance Corporation's intervention with Continental Illinois.
Opponents believe that one of the problems that arises is moral hazard whereby a company that
benefits from these protective policies will seek to profit by it, deliberately taking positions that are
high-risk high-return, as they are able to leverage these risks based on the policy preference they
receive. The term has emerged as prominent in public discourse since the 20072010 global financial
crisis. Critics see the policy as counterproductive and that large banks or other institutions should be left
to fail if their risk management is not effective.
One of the most vocal opponents in the United States government of the "too big to fail" status of large
American financial institutions has been U.S. Senator from Massachusetts, Elizabeth Warren. At her first
U.S. Senate Banking Committee hearing in 2013, Senator Warren pressed several banking regulators to
answer when they had last taken a Wall Street bank to trial and stated, "I'm really concerned that 'too
big to fail' has become 'too big for trial.'" Videos of Warren's questioning, centering on "too big to fail",
became popular on the internet, amassing more than 1 million views in days. To see the video click here
(see time 1:30:00 to hear Sen Warrens address)12.

11
12

http://en.wikipedia.org/wiki/Too_big_to_fail
https://www.youtube.com/watch?v=9dLALjbP9dM

A month later, United States Attorney General Eric Holder told the Senate Judiciary Committee that the
Justice Department faces difficulty charging large banks with crimes because of the risk to the economy.
A little after that, International Monetary Fund Managing Director Christine Lagarde told the Economic
Club of New York "too big to fail" banks had become "more dangerous than ever" and needed to be
controlled with "comprehensive and clear regulation [and] more intensive and intrusive supervision."
Another argument is that if companies are too big to fail than they are too big to exist, and need to be
fragmented down to a more manageable size to be able to accept accountability.
You can watch the movie, Too Big to Fail, on Netflix or on HBO, to see the trailer click here. Here is a
New York Times review of the film and the book is entitled, Too Big to Fail the Inside Story of How Wall
Street and Washington Fought to Save the Financial System from Crisis and Themselves. The movie is
a brilliantly reported true-life thriller that goes behind the scenes of the financial crisis on Wall Street
and in Washington. Andrew Ross Sorkin - NY Times columnist, delivers the first definitive blow- by-blow
account of the economic crisis that brought the world to the brink. Through unprecedented access to
the players involved, he re-creates all the drama and turmoil of these turbulent days, revealing neverbefore-disclosed details and recounting how, motivated as often by ego and greed as by fear and selfpreservation, the most powerful men and women in finance and politics decided the fate of the world's
economy.13

To read more about the why the Big 3 needed a Bailout and What it Cost the Taxpayers, read this article:
http://useconomy.about.com/od/criticalssues/a/auto_bailout.htm

13

http://www.thriftbooks.com/w/too-big-to-fail

United Automobile Workers (UAW) Union

Unions an Overview
A union is an organized group of workers who collectively use their strength to have a voice in their
workplace. Through a union, workers have a right to impact wages, work hours, benefits, workplace
health and safety, job training and other work-related issues. Under U.S. law, workers of all ages have
the right to join a union. People usually unionize so that they may have a voice on the job. If workers are
not organized, management can exploit its workers.
Many of the benefits and protections workers enjoy today was a result of the organized labor
movement in the U.S. These include passing laws ending child labor, establishing the minimum wage,
social security payments, an eight hour day and weekends, overtime pay, the Americans with Disabilities
Act and the Occupational Safety and Health Act.
Union members also earn better wages and benefits than workers who arent represented by a union.
Unions like the UAW in Detroit secured the autoworkers great benefits and high pay rates; the unions
allowed Detroit autoworkers to achieve middle class status, even without a significant education. The
terms were usually obtained by using brilliant collective bargaining and negotiating tactics. The UAW
first president Walter Reuther would pick one of the "Big three" automakers, and if it did not offer
concessions, he would strike it and let the other two absorb its sales.14 Union workers wages tend to be
30% higher than non-union workers and 68% have guaranteed pensions where only 14% of nonunion
workers have guaranteed pensions, over 97% of union workers have jobs that provide health insurance
benefits, where only 85 percent of nonunion workers have them.
How do people form a union? If there is a collective need among workers to improve their working
conditions, traditionally they had to go through an established union for protection, sometimes an
employer would honor the workers request before going that far. If the workers win union
representation, the union would negotiate a contract with the employer that spells out each partys
rights and responsibilities in the workplace.15

14
15

http://en.wikipedia.org/wiki/United_Automobile_Workers
http://launionaflcio.org/what-is-a-union

Compulsory Unionism
Before the Right to Work legislation came about, workers were required to join a union in order to gain
union support. Once contacted union organizers would take control of a group of workers and a
company by using federal law to obtain monopoly bargaining privileges. Then union officials would
demand a contract which requires all of the workers to pay full union dues, along with other demand. 16
Unions had exclusive representation rights, a special coercive privilege, given by federal law that
empowers union officials to represent all employees in a company's bargaining unit. This "compulsory
union representation" deprives employees, even in Right to Work states, of their right to bargain for
themselves. Union officials demand this power, then use it as their excuse to force employees to pay
dues for representation they do not want.17
Compulsory unionism is primarily responsible for the Tax-and-Spend policies of the U.S. Congress. Under
their federally-granted coercive powers, union officials collect around $4.5 billion annually in
compulsory dues and funnel much of it into campaign operations to elect and control democratic
congressional majorities. Unions use their large financial commitment to political activity to achieve in
the political process the gains that have escaped them at the bargaining table.18 This common among
many lobbyist groups, the larger the lobbyist group the more political influence it holds.
Exclusive Representation19
Union officials were able to obtain exclusive representation rights because they would make the
argument that all employees would receive union benefits regardless of their membership status,
therefore as a free rider (a person who benefits from resources services without paying the cost of the
benefit20) they should be compelled to pay for the benefits that they will reap as a result of the unions
efforts. This argument forced workers into unions unwillingly and forced them to pay union dues.
Right to Work Laws: Voluntary Unionism
There has been a push for voluntary unionism. Many find the compulsory unionism impractical and a
violation of peoples rights. This push has turned into the Right to Work legislation; prohibits union
security agreements, or agreements between labor unions and employers, that govern the extent to
which an established union can require employees' membership, payment of union dues, or fees as a
condition of employment, either before or after hiring. Right-to-work laws regulates contractual
agreements between employers and labor unions that prevents them from excluding non-union
workers, or requiring employees to pay a fee to unions that have negotiated the labor contract all the
employees work under. An employees right to work is established under the state Constitution;
currently there are 25 states that have passed Right to Work Laws, Michigan is one of them.
Non-Right to Work states with heavy unionization, tend to drive out industry with high cost and multiple
demands. Companies and investors prefer non-unionized states and as a result, Right to Work
states have greater economic vitality, with faster growth in manufacturing and nonagricultural jobs,
lower unemployment rates and fewer work stoppages.
16

http://nrtwc.org/about-2/the-problem/
http://www.nrtw.org/b/rtw_faq.htm
18
http://www.nrtw.org/b/rtw_faq.htm
19
http://www.nrtw.org/b/rtw_faq.htm
20
http://www.academia.edu/6435040/Free_Rider_Problem_in_Economics
17

How did the Auto Industry Crisis Affect the UAW Union in Detroit?
The United Auto Workers (UAW) is the primary union representing workers in the auto industry in the
United States. UAW members in the 21st century work in industries as diverse as autos and auto parts,
health care, casino gambling and higher education. Headquartered in Detroit, Michigan, the union has
about 390,000 active members and more than 600,000 retired members in 750 local unions, which
negotiated 2,500 contracts with some 1,700 employers.21 The UAW is especially known for gaining high
wages and pensions for auto workers, but it was unable to unionize auto plants built by foreign-based
car-makers in the South after the 1970s, and went into a steady decline in membership
increased automation, decreased use of labor, movements of manufacturing (including reaction
to NAFTA), and increased globalization all were factors.22
Changes in the global economy, competition from European and Japanese automobile makers, and
management decisions at the U.S. automakers had already started to significantly reduce the profits of
the major auto makers and set the stage for the drastic changes in the 1970s. The arrival of Volkswagen,
Honda and other imports threatened the industry area. When the German and Japanese companies
opened plants in the USA, they headed to the South and operated without unions. The situation for the
automotive industry and UAW members heightened with the 1973 oil embargo. Rising fuel prices
caused the U.S. auto makers to lose market share to foreign manufacturers who placed more emphasis
on fuel efficiency. This started years of layoffs and wage reductions, and the UAW found itself in the
position of giving up many of the benefits it had won for workers over the decades. By the early 1980s,
auto producing states, especially in the Midwestern United States and Canada, had been impacted
economically from losses in jobs and income.
UAW has been credited for aiding in the auto industry rebound in the 21st century and blamed for
seeking generous benefit packages in the past which in part led to the automotive industry crisis of
2008-2009. UAW workers receiving generous benefit packages when compared with those working at
non-union Japanese auto assembly plants in the U.S., had been cited as a primary reason for the cost
differential before the 2009 restructuring. In a November 23, 2008, New York Times editorial, Andrew
Ross Sorkin claimed that the average UAW worker was paid $70 per hour, including health and pension
costs, while Toyota workers in the US receive $10 to $20 less.23 The UAW asserts that most of this labor
cost disparity comes from legacy pension and healthcare benefits to retired members, of which the
Japanese automakers have none. According to the 2007 GM Annual Report, typical autoworkers earn a
base wage of approximately $28 per hour. Following the 2007 National Agreement, the base starting
wage was lowered to about $15 per hour.24 A second-tier wage of $14.50 an hour, which applies only to
newly hired workers, is lower than the average wage in non-union auto companies in the Deep South.25
One of the benefits negotiated by the United Auto Workers was the former jobs bank program, under
which laid-off members once received 95 percent of their take-home pay and benefits. More than
12,000 UAW members were paid this benefit in 2005.[20] In December 2008, the UAW agreed to
suspend the program as a concession to help U.S. automakers during the auto industry crisis.[21]

21

http://www.uaw.org/node/39
http://en.wikipedia.org/wiki/United_Automobile_Workers
23
Sorkin, Andrew Ross "A Bridge Loan? U.S. Should Guide G.M. in a Chapter 11"
24
General Motors Corporation 2007 Annual Report
25
Brenner, Mark and Slaughter, Jane "Cutting Wages Won't Solve Detroit 3's Crisis", Detroit News,
22

EDUCATION:
Our goal is to provide exposure to the purpose and range of educational institutions, the value of an
educated responsible citizenry, and the educational opportunities available to all citizens.

Abandoned Detroit School

The Detroit Education System:

Detroits public and charter school system has faced major challenges over the past few decades,
recently scoring among the lowest in the country on national standardized tests. In 2011, only 7% of 8th
graders achieved grade-level proficiency in reading and only 4% in math. The challenges within Detroits
education system are an example of the elementary education challenges faced by many other places in
the U.S. One of the efforts that has produced some success is the charter school system. Charter schools
are different from private schools in that they attended by choice and have a different public funding
structure. Rather than charging tuition, charter schools receive public funding on a per-student basis
(charter schools often receive private donations as well). They also differ from most public schools in
that they have greater flexibility in determining curriculums and often focus education on specific
vocations or specialties. Charter schools tend to hold higher academic standards than public schools,
and often admit students based on a merit or lottery system. While the charter school system has not
guaranteed success (some charter schools perform poorer that public schools), it has brought significant
change is some areas.
On Friday, we will hear from individuals that are involved in trying to turn elementary education around
in Detroit. Watch the documentary film Waiting on Superman, on Netflix.
Questions to Consider:
1.
2.
3.
4.

Why has education in Detroit been so poor in recent history?

What is happening to improve this situation?
What is the overall impact of the charter system on public education?
How does elementary education in the U.S. compare to your country? Pros and cons of
each?

The Detroit Public School System (DPS)

More than 200,000 Detroit residents, 47% of Motor City adults are functionally illiterate26; this means
1 in 3 people cannot read to understand. A person who has low literacy skills might be able to read some
words, but not enough to understand simple forms or instructions. This means they cannot fill out job
applications, read a training manual, get a drivers license, understand their childs school permission
slip, read the ingredients on a food label (must rely on pictures), read a prescription, or follow a
doctors written instruction, or read a book to their children.27 How are these families getting by? Not
well.
Adults who cant read often live in isolation and poverty 60% of Detroit children are living in poverty.
These children do not do as well in school as children from literacy-rich homes; research shows that one
of the most important factors impacting a childs reading level is his/her mothers level of education28. If
education starts at home, where does this leave the children of Detroit?
Detroits Educational System is Broken
The Detroit Regional Workforce Fund, released a report that showed the staggering degree to which
public education has failed in one of the most economically depressed cities in the United States. Whats
even more shocking is that they somehow half of the illiterate population made it through public school,
they had a high school diploma or General Educational Development (GED). Virtually the entire
illiterate population has completed elementary school, the level at which reading is supposed to be
26

http://theweek.com/articles/484910/detroits-shocking-47-percent-illiteracy-rate
http://readingworksdetroit.org/?page_id=63
28
http://readingworksdetroit.org/?page_id=63
27

taught. Thats seven years of schooling (k-6), at a cost of roughly $100,000, with nothing gained. Per
pupil spending in Detroit as of 2008 was $13,000, which is higher than some people pay for private
schooling in other parts of the country. Clearly, the system has failed and the taxpayers arent getting
their moneys worth. Unfortunately, at least half of them arent able to read the report to figure that
out.29 What does this mean, what are the implications of not having a responsible and educated
citizenry? How could Detroits city and educational leadership fail the city so terribly? The people in
Detroit have been totally left behind, because if they cant read, they cant fill out a job application to try
and improve their lives.26 A major challenge of Detroits leadership is figuring out how to step up to the
plate and reverse this trend.
Did you know that the former president of the Detroit School Board (also a product of the Detroit Public
School System) Otis Mathis, was also functionally illiterate?30 The blind cannot lead the blind; with
previous leadership like this no wonder why Detroit Public School System is in as bad of shape as it is.

Some Major Problems Facing the Detroit School District31

DPS had 200 central administration officers in 2005 when it had 8,149 teachers and 15,693 employees
serving 134,215 students. In 2014, DPS had more administrators 204 for 3,100 teachers and 6,535
employees serving 49,546 students. That's four more administrators than a decade earlier to man the
bureaucracy and oversee 62% fewer teachers and 58 % fewer employees serving 63 % fewer students.
Can you say management problem?
"Unless" business leaders "decide that education is the driver of the economy and educational
achievement is what matters most," said Lou Glazer, CEO of Michigan Future Inc., "we're going to end
up with more of this partisan bickering." Debt service for past operating deficits is estimated to be
$1,200 per student, according to calculation by the finance subcommittee of the Coalition for the Future
of Detroit Schoolchildren. Competition with charters is fueling a counter-productive race for students
and teachers alike.
Like the bankruptcies used to transform General Motors Co., Chrysler Group LLC and Detroit, the
deepening crisis of public education in Detroit is a rare opportunity to forge a new model that would
demand high standards, project transparency and put student achievement ahead of adult
aggrandizement. The truth is that reforming Detroit's broken education system will require a)
cooperation across b) a broad spectrum of political interests, business and philanthropy that is c)
attuned to community sensitivities and d) nominally partisan.
Reforming Detroits education system carries political risk for both sides. A push for common standards
and potential spending would rankle the GOP majority, and a demand for accountability and flexibility
among union teachers would challenge a traditional Democratic constituency. Managing such political
backlash is a prime reason business is more willing to push for increased higher ed funding than back
reform for public education in Detroit. It's safer and less messy.

29

http://www.outsidethebeltway.com/study-finds-47-of-detroit-residents-are-functionally-illiterate/
http://www.detroitnews.com/article/20100304/OPINION03/3040437/
31
http://www.detroitnews.com/story/business/columnists/daniel-howes/2015/02/27/howes-detroit-school-fixnext-challenge-leaders-business/24101609/
30

Financial Crisis, Market Share, and Declining Enrollment

In 2011, Detroits school system was facing an unbelievable $327 million budget deficit, and was under
strict orders to deal with the massive debt, so Detroit began selling off Detroits public schools to
privately run charter schools. This has cause the Detroit Public Schools to possess less on the market
share and is contributing to its increasing decline in enrollment numbers. Students are leaving the city,
and the schools are competing with various charter and private school in the city for students and
teachers.
Poverty
Poverty plays a significant role in a students ability to achieve. In 2009, the poverty rate for all children
under 18 was 22.5% statewide and 50.8 % in Detroit. Poverty rates are slightly higher for Detroit
children younger than 12 compared to children 12 and older. From 2000 to 2009, the percent of African
American children and youth under 18 in Detroit living in poverty jumped from 34.7 % to 50.4 %, a
staggering rise. When children succeed in school, it is often a sign their needs are being meet in other
areas of their lives. The shockingly low standardized test scores and graduation rates for students in the
majority of DPS schools are a sign of dysfunction across institutions meant to support children. In the
context of academic literature on the causes of poverty, Detroit students are held back by failures in
both their schools and in their neighborhoods.32
Testing
Only 7% of its public school 8th graders are grade-level proficient or better in reading. Detroit publicschool eighth graders do even worse in math than they do in reading, according to the Department of
Education. While only 7% scored highly enough on the departments National Assessment of
Educational Progress test in 2011 to be rated proficient or better in reading, only 4% scored highly
enough to be rated proficient or better in math. 68% of Michigan public-school eighth graders are not
proficient in reading and 69% are not proficient in math.33
The Drop-Out Crisis
Detroits true graduation rate has been a point of contention for years, a third of its high school students
dont graduate. Regardless of the total, far too few Detroit children leave school prepared to enter the
workforce or attend college.34
The Rebirth of the Detroit Public School System
However, now does not mean forever, what are Detroit leaders doing now to improve the quality of
education for the students? Detroit Public Schools are currently under the leadership of Emergency
Manager Roy Roberts, and he has created a Strategic Planning process to assess current strengths and
weaknesses within the district and has designed a plan that will improve academic performance,
increase market share, and stabilize the annual budget.34 Please take a look at the Detroit Public Schools
Strategic Plan and please ask our panelist questions about the current state of Detroit education.

32

http://reallifemymusic.org/detroit-public-school-statistics/
http://cnsnews.com/news/article/only-7-detroit-public-school-8th-graders-proficient-reading
34
http://detroitk12.org/strategic_planning/
33

Government Institutions
Provide exposure to U.S. institutions of democratic governance, including electoral and legislative
processes and civilian control of the military, and the institution and improvement of public
administration at the national, intergovernmental, State, and local levels.

Detroit Government Institutions, Leadership & Economic

Stability
For the past 15 years, Detroit
has seen serious challenges in
its economy. This was reflected
in 25% population drop from
2000 to 2010 (from the 10th
largest U.S. city to the 18th).
Compared to its economic and
population peak in 1960, the
2010 population of 713,777 was
60% drop. The city also
currently has a $327 million
budget deficit and over $18
billion in long-term debt. The financial problems have also led to underfunding of critical city services
like police and fire departments. Due to Detroits financial decline and economic challenges, the
Governor of Michigan, Rick Snyder, declared a financial emergency in March 2013 and appointed an
emergency manager, Mr. Kevin Orr (a DC based attorney) for the city. This led to Detroit filing for
bankruptcy in July of 2013, the largest municipal bankruptcy filing in American history.
We will receive briefings on Detroits financial situation. Detroits predicament is a culmination of
decades of population decline, overspending, debt-financing, corruption, and ineffective attempts to
reform a broken system all of this compounded by the 2008 global financial meltdown. In response,
the state governor of Michigan has appointed a team of bankruptcy and restructuring experts to put
Detroits finances back on track. Friday afternoon will be an opportunity to meet and interact with
experts and policy-makers on the frontline of this historic nexus of federal, state, and municipal
government working together to work through the bankruptcy of one of Americas largest and most
historic cities. We will go from there on bus tour around Detroit, highlighting the citys history as well
the issues well be discussing in our briefings.
Questions to Consider

What is the right combination of government oversight when a city cannot pay its debts?
How can unions and civil society organizations demand rights and consideration in a
government-managed economic restructuring like Detroits?
What is the financial relationship between the private sector, local government, and the federal
government when it comes to state of city economic stability?

An Overview of the Past: Ineffective and Imperfect Leadership3536

The financial crisis facing Detroit was decades in the making, caused in part by a trail of missteps,
suspected corruption and inaction. Here is a sampling of some city leaders who trimmed too little, too
late and, rather than tackling problems head on, hoped that deep-rooted structural problems would
turn out to be cyclical downturns.
Charles E. Bowles, backed by the Ku Klux Klan, was in office for seven months in 1930
before 121,000 people demanded his removal (90,000 opposed). His ascension to the
mayor's office was followed by a spike in crime, and he was suspected to be linked to
some of Detroit's underworld figures. With racial tensions heated in Detroit, as more
African Americans came to the city to work in factories, the Republican Bowles rode into
office thanks in part to wide support from the Ku Klux Klan. It didnt help that a majority
of the new recruits to the Detroit police force in the early 1920s were Southern whites
some of whom were Klansmen themselves. But it wasnt racial issues that got him kicked out of office. It
was mostly because he was considered to be breeding a city of vice and corruption. The stories of
gangland feuds and killings were diversions from the deeper agony that spread across Detroit in the
1930s Unemployment was high and deep poverty endemic.
Albert Cobo was considered a candidate of the wealthy and of the white during his
tenure from 1950 to 1957. He ran Detroit at the citys peak population of more than
1.8 million people. His policies helped to set the stage for Detroits decline and the
racial strife that plague the city to this day and set the stage for decades of problems
that would plague the city and lead to the racial upheaval of the 1960s.
Suburbanization: He declined federal money for housing projects and facilitated the
construction of freeways. Instead of making the city more accessible and bringing
folks in, it caused the city to bleed out, both population and businesses. The freeways
simply made it easier for folks to live elsewhere, yet still work downtown;many of his backers were
wealthy white suburbanites. Cobos quest for more and more freeways directly fueled the citys decline
and population shrinkage. When he died in 1957, the city had lost more than 150,000 people, and was
down another 30,000 by 1960 a 10% decrease since Cobo took office.
Cobo often stoked racial tensions. Keep in mind that the city had not fully healed from the race riot of
1943, and tempers had not cooled by the time he took office. Cobo used this sentiment to his advantage
and often played the race card, stoking white peoples fears of the increasingly restive black Detroiters,
hinting that he was the only thing keeping them at bay.
Housing discrimination was rampant in Detroit. And many of Cobos policies had a negative effect on
housing opportunities for African Americans. He planned to demolish the homes of lower-income black
residents and immigrants and pay for it by selling the land to developers. He also was part of the big
push that demolished the center of black life in Detroit. After erasing these neighborhoods from
existence starting in 1950, the land would sit unused and overgrown for some five years. Black
Detroiters watched their community flattened for an overgrown wasteland of nothingness.

35
36

http://www.freep.com/article/20140723/OPINION/307230054/Meet-5-worst-mayors-Detroit-history
http://www.nytimes.com/interactive/2013/08/17/us/detroit-decline.html?_r=0

Cobo also neglected civil-rights initiatives that would have integrated the citys black population. There
were regular police crackdowns that targeted black communities, to include, racial profiling, and
randomly stopping and searching African American walking down the street, yet he did nothing to stop
them. It was not a peaceful time in the city. And it would only get worse. The policies of Cobo and his
successor would eventually boil over into the riot of 1967.
One of the positive things attributed to Cobo his development of the citys Civic Center. Eventhough the
$112-million investment did not bring the renaissance that Cobo promised, it was still the first time
Detroit had really taken advantage of its riverfront and would, decades later, pave the way for the
RiverWalk and other beautification projects.
Coleman A. Young was seen as a divisive figure in the 20 years he served as mayor.
He won his first mayoral election in 1973, largely on the promise to ease tension
between the police and black residents. But while many blacks saw him as a hero who
pledged to fight crime, some whites felt he wasn't looking out for their interests, as
was primarily looking out for the black community. Mr. Young seemingly breezed to
second, third and fourth terms without making the expected bridge-building racial
appeals. Though Mr. Young was credited with revitalizing the waterfront, the rest of
downtown was often compared to a war zone, with neighborhoods crumbling, businesses boarded up
and poverty remaining high.
Kwame M. Kilpatrick, mayor from 2001 to 2008, was nicknamed the "hip-hop mayor"
when first elected at 31, in part for his larger-than-life persona, flashy suits and the
diamond stud in his ear. Kilpatrick brought new attractions to the citys riverfront, but
his administration also orchestrated a disastrous financial deal that cost Detroit
taxpayers $20 million in 2005 to fund Detroit pensions. The deal backfired and helped
drive Detroit into bankruptcy because the city gambled that interest rates would rise, then they fell to
historic lows during the 2008-2009 financial crisis.37 Kilpatrick and other officials were also charged with
operating a criminal enterprise out of the mayors office. Prosecutors also said he illegally used nonprofit funds and state grants for personal expenses.38 After a series of scandals he resigned in 2008 and
later plead guilty to obstruction of justice charges, served 4 months in jail and was ordered to pay $1
million to the city. He was behind bars 2 years later for hiding assets from the court, and was later
sentenced to 28 years in prison after he was found guilty of racketeering, fraud and extortion.
Dave Bing, a former professional basketball star, took office in 2009 pledging to solve
Detroits fiscal problems, which by then were already overwhelming. During his term,
there were numerous announcements of cuts to the citys work force (public services
saw a significant decrease) and he called for the displacement of residents in an
effort to downsize Detroit, among other impractical and uninventive approaches to
cut the city budget deficit. Eventually, the Michigan governor appointed Kevyn D.
Orr, a veteran lawyer, as an emergency manager to oversee the citys operations,
rendering Mr. Bing virtually powerless.

37

http://archive.freep.com/article/20140714/NEWS01/307140094/Detroit-bankruptcy-hedge-funds
http://www.nytimes.com/2013/03/12/us/kwame-kilpatrick-ex-mayor-of-detroit-convicted-in-corruptioncase.html
38

28 Dilemmas Detroits Current Leadership Has Had to Face When it Filed for Bankruptcy3940
Detroit became the largest city to file for bankruptcy. Michigan's governor and Detroit's mayor said
Detroit has a chance to emerge stronger from this, but the city still had a number of challenges ahead of
it.
1. Detroit was facing $20 billion in debt and unfunded liabilities; that broken down is more than
$25,000 per resident.
2. The city owes money to over 100,000 creditors.
3. Nearly 80,000 homes and buildings have been abandoned in the city and many are unsecured.
4. About one-third of Detroit's 140 square miles is either vacant or derelict.
5. Population of Detroit has fallen from 1.86 million in 1950 to 700,000 today.
6. Detroit was once the fourth-largest city in the United States, but over the past 60 years the
population of Detroit had fallen by 63 %.
7. Some 47% of properties are delinquent in paying taxes.
8. Police have solved only 8.7% of the violent crimes that are committed in Detroit.
9. Detroit has the highest crime rate in the US of large cities; the murder rate in Detroit is 11 times
higher than it is in New York City.
10. Manufacturing jobs in the city have slid from a peak of 296,000 to less than 27,000 today.
11. Only 7% of the citys eight graders are proficient in reading.
12. 60 % of all children in the city of Detroit are living in poverty.
13. An astounding 47 % of the residents of the city of Detroit are functionally illiterate.
14. The city manager says its retirement system is underfunded by $3.5 billion.
15. There are lots of houses available for sale in Detroit right now for $500 or less.
16. The city of Detroit is now very heavily dependent on the tax revenue it pulls in from the casinos in
the city. Right now, Detroit is bringing in about 11 million dollars a month in tax revenue from the
casinos.
17. There are 70 "Superfund" hazardous waste sites in Detroit.
18. 40% of the street lights didnt work.
19. Only about a third of the ambulances were running.
20. Two-thirds of the Detroit parks have been permanently closed down since 2008.
21. The size of the Detroit police force had been cut by about 40% over the past decade.
22. It took an average of 58 minutes for police to respond to calls.
23. Due to budget cutbacks, most police stations in Detroit closed to the public for 16 hours a day.

39
40

http://abcnews.go.com/Business/top-10-dilemmas-facing-detroit/story?id=19710933
http://www.zerohedge.com/news/2013-07-21/25-facts-about-fall-detroit-will-leave-you-shaking-your-head

How Does Municipal Bankruptcy Work?41

How is a city going bankrupt different from a company or a person?
Chapter 9 of the federal bankruptcy code, which applies to municipalities, counties, and other public
entities like school districts and utilities, differs from Chapter 11--which applies to corporations--in a few
important ways.
First of all, it's much rarer, with fewer than 700 cases since the provision was created in 1937, and 36
since 2010. For that reason, case law is still being settled--although Chapter 9 gives a municipality much
broader authority to rewrite union contracts, only after the bankruptcy of Central Falls, R.I. did it
become clear that cities would have the ability to escape their pension obligations.
It's clear, however, that Chapter 9 forbids debtors from simply dissolving to pay creditors, as a company
might. Also, courts tend to have a less active role in the restructuring process, limited to approving a
plan and making sure it's followed; the debtor doesn't need court approval to dispose of its assets as it
pleases in the meantime.
Is it possible to emerge successfully from bankruptcy?
Yes. A conscious, deliberate, enforceable reconstruction plan can actually put a municipality on a much
firmer footing than any other process. Orange County, for example, emerged from its 1994 bankruptcy
within a year, and nine years later had a triple-A bond rating.
Is there any way that Detroit could have avoided this one?
Probably not. Michigan Gov. Rick Snyder had been pushing for it for months, passing a revised version of
an emergency manager law that voters had rejected. Detroit's appointed manager, Kevyn Orr, had only
managed to work out deals with two large banks out of the city's tens of thousands of creditors. Its
public employees unions, having already offered large concessions, were unwilling to lose as much as
Orr says is necessary. With a tax base that's been cut in half over the last half-century, there's simply not
enough money to satisfy everyone voluntarily.
I understand why Detroit had to file for bankruptcy. Why would it want to?
Along with gaining the ability to re-shape its contracts with creditors and public employees, bankruptcy
grants cities a stay of all collection actions, buying them time to closely analyze their finances and put
together a plan. Kevyn Orr sees it as a tool, a way of turning the city around.
Who gets hurt most?
Detroit is about $18 billion in debt, and will only be able to pay out a fraction of that in the short term.
The two main groups of creditors arguing they're entitled to that money are public employees and
retirees, and bond holders. The investors are likely to make out better, since more of that debt is
secured; the city will continue to pay water and sewer bondholders. Most of the pension debt has no
similar backstop.

41

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/07/19/detroit-is-bankrupt-heres-what-comes-next/

City residents will likely suffer a lack of anything other than the most rudimentary public services for a
long time, but the impact is likely to be felt most keenly by those who lost a large chunk of the
retirement they were counting on.
What are unions saying?
They're livid about the likelihood of restructured pensions and health benefits, having already offered
large concessions, and say they were trying to come to a solution before Orr raced to the courthouse to
file the bankruptcy petition Thursday. And they've vowed to fight any default of the city's obligations
("It's war," says the head of the police and fire pension fund). So far, though, there's been no talk of
work stoppages; city services will continue as normal.
What will the city have to do to work this out?
Just because you petition for bankruptcy protection, and even get approved by the governor, doesn't
mean you'll be able to go through with it.
Detroit will first have to prove that it is fiscally insolvent and filed the petition in good faith, which many
of its creditors will dispute in a series of hearings. If a to-be-appointed judge grants the petition, the city
manager will put together a reorganization plan, including cuts to services, the sale of assets, and
reductions in what it plans to pay pensioners and bondholders. Then, according to the Detroit Free
Press, it will have to put the plan to a vote of creditors. If not enough of them agree, the city manager
could pursue a "cram down" procedure, asking a judge to rule that the dissatisfied creditors are not
being reasonable. Orr has said he's aiming to bring the city out of bankruptcy by the end of next year,
which most analysts view as very optimistic.
If he manages to put together a package of funds for reinvestment, Detroit may manage to become
healthy again, but it will require more than just financial restructuring: The whole city needs to be
reorganized into a smaller space, because it can't go on serving 40 percent of its former population over
the same 140-square-mile footprint.
Will the state or federal government have to get involved?
Steve Rattner, who oversaw the bankruptcies of General Motors and Chrysler, says Detroit's process will
be much harder, since the city can't bank on rising revenues like the auto companies could. For that
reason, it may have to seek financial assistance from the state just to keep city services running, and
Rattner figures the Obama administration won't be interested in helping out. Gov. Rick Snyder, having
pushed for the filing, may feel pressure to come through.
What effect will this have on other cities?
The inevitable downside of municipal bankruptcies is that they make cities a riskier bet for investors, so
they'll have a harder time raising money for public works like utility systems and bridges. But the stigma
of bankruptcy has been fading as more cities go through it, and as the problem of out-of-control pension
systems becomes more pervasive. And it's likely that Detroit, with its death spiral of disinvestment and
mismanagement, will be considered sui generis--other cities around the country are doing much better,
and bondholders may evaluate each on the merits.

Detroits Rebirth
Detroit's situation is extremely dire right now, and it will require great leadership and shared sacrifice in
order to turn things around. Fortunately, there are already some glimmers of hope.
The big three auto companies, for example, are now profitable again after having experienced extreme
difficulties in 2008 and 2009. GM and Chrysler still have a significant presence in the city, while Ford is
based in nearby Dearborn. Both GM and Ford have seen their share prices rise by 29% so far in 2013.
Also, Detroit's downtown is reviving with Quicken Loans founder Dan Gilbert having invested more than
$1 billion. Warren Buffett is a huge fan of Gilbert, and was recently very complimentary of the latter's
efforts on behalf of Detroit.
Finally, Detroit has a new mayor, Mike Duggan, who appears to possess the kinds of skills that will be
essential for turning the city around. The path ahead will be difficult, but at least one great investor is
hopeful. At a recent event for small businesses in Detroit, Warren Buffett said that he has a "real love
for the city, and the potential is huge." He also said, "The United States with a flourishing Detroit is going
to be a lot better than without one." I think all Americans would agree with that.
How Detroit was reborn?
To understand how Detroit was reborn, would be a small booklet in itself. However for an excellent
article to understand the rebirth of Detroit, please read this 15 Chapter report: How Detroit was Reborn:
The Inside Story of Detroits Historic Bankruptcy Case, published by the Detroit Free Press. A copy of this
report is also saved on Google Drive.

Diversity & American Life

How the United States fosters political, economic, and social pluralism; the geographic, religious, and
social diversity of American life; progress in applying American ideals to ethnic minorities and women,
including how they address gender based violence. How American families live and work in cities, towns,
and rural areas; how Americans function in communities, worship, work together in organizations, and
participate in and support cultural and historical events; the role of volunteerism in American life.

History of and Exposure to Geographic, Ethnic, Religious, and

Social Groups in the U.S.
As we have learned throughout the trips this year, the US is rich with diversity. We will explore how the
governments treatment of minority populations had lasting effects on the socio-economic standing of
minorities today, and how discriminatory policies lead to a series of riots across the country, but more
specifically how Detroits race riots and racial tensions also lead to the decline and downfall of the city.
Question to Consider:

What new policies have replaced the discriminatory ones in the past to ensure that even one
has equal access to economic opportunity?
How has the past influenced the present?

The Urban Decline of Detroit

When you visit Detroit you will see the residual effects of the three race riots that destroyed the
infrastructure of the city of Detroit. It is the hope that providing you with context and background
information on the conditions that lead up to the devastation of the urban inner city of Detroit you will
begin to understand and fully appreciate some of the things that you are seeing. The Race riots are a
major part of Detroit history, and have left their crushing mark on the economy of the city (along with
other factors). In this next section, we will explore some other socio-economic factors and policies that
are more consistently in-line with the urban decline of major cities overall. You will also learn about
some discriminatory policies that helped to shape the urban landscape and mold the urban community
into what it is today.

Image of Urban Blight in Bronx, New York.

Urban Decay42
As mentioned in the abstract of Detroit, urban decay (also known as urban blight) is the process
whereby a previously functioning city, or part of a city, falls into disrepair and decrepitude. It may
feature deindustrialization, depopulation or changing population, restructuring, abandoned buildings,
high local unemployment, fragmented families, political disenfranchisement, crime and desolate,
inhospitable city landscape.
Since the 1970s and 1980s, major structural changes in global economies, transportation, and
government policy has created the economic and social conditions that have resulted in urban decay.
Urban decay is manifested in the peripheral slums at the outer skirts of a metropolis, while the city
center and the inner city retain high real estate values and sustain a steadily increasing populace. At
other times, some major cities in contrast may experience population flight to the suburbs and exurb
commuter towns, this is known as white flight. Another characteristic of urban decay is blight, this is
the visual, psychological, and physical effects of living among empty lots, building and condemned
houses. These desolate properties are socially dangerous to the community because they attract
criminals and street gangs, contributing to the volume of inner city violence and crime.

42

http://en.wikipedia.org/wiki/Urban_decay

Urban decay has no single cause; it is the result of a combination of inter-related socio-economic
conditions, including the citys urban planning decisions, tight rent control, the poverty of the local
populace, the construction of freeway roads and railroad lines that bypass these areas, depopulation by
suburbanization of peripheral lands, real estate neighborhood redlining, and immigration restrictions.
We will explore some of these issues, such as: depopulation by suburbanization, de-industrialization,
disinvestment, political disenfranchisement, unemployment and crime as it pertains to Detroit.

Depopulation by Suburbanization43
Suburbanization is the growth of areas on the fringes of the cities; it is one of the many causes that
increases urban sprawl (see the definition below). In Detroit, like many other cities, urban residents
began to see the cities as too dangerous and crime-infested (in Detroit this was marked by the period of
riots, fights for civil rights, and not-so-civil disobedience22), so they began seeking out residential
property in suburban neighborhoods as a safe place to live and raise a family.
Urban Sprawl is when people move away from urban areas into previously remote and rural areas,
which often results in communities reliant on heavy automobile usage.44 If urban sprawl is not contained
it will lead to urban decay and a concentration of lower income residents in the inner city. Some social
scientist suggest that the historical process of suburbanization and decentralization are instances of
white privilege that have contributed to contemporary patterns of environmental racism.45
When white residents living in racially diverse communities began to sell or walk away from their
homes, their moves were often born out of fear and sometimes outright racial prejudice as the city of
Detroit began to deteriorate.22 In Detroit, this initial large-scale migration of white residents from
racially mixed urban areas to the more racially homogenous suburbs became known as white flight.
When white residents fled from Detroit to the suburbs by the thousands, it affected the municipal
structures, tax bases and jobs. It set the stage for similar urban race-related exoduses around the
43

http://en.wikipedia.org/wiki/Suburbanization
http://en.wikipedia.org/wiki/Urban_sprawl
45
Rethinking Environmental Racism: White Privilege and Urban Development in Southern California Laura
Pulido Annals of the Association of American Geographers, Vol. 90, No. 1 (Mar., 2000), pp. 12-40
44

country.46 As thousands of white residents left urban Detroit for the suburbs minorities began to move
in, now Detroits population has moved from being about 20 percent African-American to being about
84 percent in 2010, making it the largest African-American populated city in the United States.
Eventually with the increase in crime, the remaining Detroits black middle class population started to
flee to the suburbs looking for better governance, better education systems, and better economic
opportunity. In the last decade (since 2011), Detroits population has plunged by 25%. In fact, twice as
many people left Detroit than the number of people who left New Orleans after Hurricane Katrina. It
was the largest percentage drop in history for any American city with more than 100,000 residents,
apart from the unique situation in New Orleans. The number of people who vanished from Detroit was
237,500 and the number of people that left New Orleans post Hurricane Katrina was 140,000.47

Deindustrialization

The Detroit Packard Automotive Plant in full swing.

Designed by Albert Kahn and built on almost 40 acres, the Packard Plant was one of the largest and most
advanced automotive factories in the world when it opened in 1903. Eleven-thousand workers used to
build cars there. The Packard was the best-selling luxury car in America, outselling Cadillac, Lincoln,
Peerless and Pierce-Arrow combined. Now the factory, is the most expansive abandoned industrial site
in the country.48
In 1965, manufacturing was 50 percent of Michigans economy and by 1973, it had dropped to down to
33 percent. In 1951, there were 148 permits for new factories in Detroit, by 1963 there were only 14.
The industrial end in Detroit lead to a pool of unemployed men to populate the streets. At lease 1/3 of
Detroits inner city was unemployed. In 1947, manufacturing jobs in Detroit were 338,800 and by 1972,
they had dropped to 180,400. Between 1950 and 1963 the East Side of Detroit alone had lost 71,000 out
of 102,000 industrial jobs. Men were coming home from the war and there werent any jobs. All of the
46

http://www.washingtonpost.com/opinions/marilyn-salenger-white-flight-and-detroitsdecline/2013/07/21/7903e888-f24a-11e2-bdae-0d1f78989e8a_story.html
47
http://affordablehousinginstitute.org/blogs/us/2011/04/fleeing-the-city.html
48
http://nighttraintodetroit.com/2010/01/13/giants/

auto jobs people were moving to Detroit for were rapidly disappearing. In 1960, the percent of adults
not working was 25.7 percent, by 1970 it was 32.6 percent, and then by 1980 the percent of adults not
working rose to 45.1 percent. By 1980, almost half of Detroits population was unemployed and this
economic vacuum was filled with a spirit of crime.49

The Detroit Packard Automotive Plant Today, closed 1965

Unemployment and the Rise of Crime22

The decline and removal of the auto industry in Detroit caused mass unemployment, and as the auto
industry began to crumble the city began to evolve around the drug economy and the illegal drug
distribution. Between 1965 and 1970 violent crimes in Detroit more than doubled and the number of
people addicted to drugs increased significantly as well. People (lacking a moral compass) looking for
income in a jobless market and others looking to fund their drug habit, began breaking into houses and
snatching gold chains and earrings. Detroits drug scene was further enhanced by a crooked cop turned
drug kingpin by the name of Henry Marzette Jr. who introduced heroine into the streets of Detroit; this
introduction further destroyed the social structure and integrity of the once middle class city. Marzette
was once an undercover cop hired to take down the citys top heroine dealers, in the process he began
to play both sides. Since he knew the legal system well, it made it even harder for the DEA to take him
down. Drug wars began to take over the city, and by 1971 Detroit had become the murder capital of the
United States with over 601 Homicides in 1972 alone.

49

Detroit bankruptcy documentary on Crime: Gangs, Drug Dealers, Decline of the Economy - documentary

The children of Detroit had grown up in the shadows of the worlds largest corporations, and were ready
to graduate from petty crime to the world of big time drug dealing. The jobless rate of black teens
became twice that of the adults at the time. This rough period created a cultural shift within Detroit
from the working class mentality, to the have-not mentality, where crime became a regular way of life.
In 1980, the DEA estimated that drug sales in Detroit exceeded the revenue of Chrysler Motors and
Downtown Detroit became a hotbed of drug activity as many urban neighborhoods began selling drugs.
A gang of young teens alone sold an estimated $300,000 worth of heroin and cocaine a day at their
peak. With this type of income they began purchasing clothes and fancy cars and became criminal
celebrities in their neighborhood which started the glorification of this type of lifestyle. The drug
economy created a space for economic opportunity where industry failed to, further perpetuating the
downfall of Detroit.

Image of Urban Blight in Detroit, Michigan

Urban Blight Leads to Disinvestment in Detroit

Abandoned Infrastructure, Impaired Property Values, and Increased Crime Rates led to disinvestment in
Detroit. One of the citys new challenges is managing the vast landscape after flight and decay.

Reviewing Historical Events & Their Lasting Impacts

The Great Migration 1915-1960

Between 1915 and 1960 there was a Great Migration of about 5 million southern blacks moving north
and west looking for job opportunities. The motivations for this migration was economic; a number of
African-Americans wanted to escape the oppressive socio-economic conditions in the south and the
north held a promise of greater economic prosperity. There was mass unemployment of blacks in
southern cities due to discriminatory laws that prevented them from being gainfully employed and there
was also unequal access to education. These persistent social inequalities prevented blacks from using
education and employment as alternative vehicles for racial advancement in the south. However, in the
north, companies were hiring job recruiters to tour the south to recruit workers to fill jobs in the newly
established war factories and to replace the loss of 5 million men who left to serve in the armed forces.
Recruiters offered incentives like free transportation or wage advances to cover the cost of the
migration. During the initial wave, the majority of migrants moved to major northern cities such as
Chicago, Detroit, Pittsburg, and New York City.50
During the Great Migration, the African-American population in Detroit grew significantly. In 1910, the
black population of Detroit numbered only 5,741, a mere one percent of the population. By 1920, the
number of African-American residents had grown to 40,838 and before the end of the decade, the
African-Americans came to comprise 7.7 percent of the entire Detroit population.51
When recruiters marketed economic opportunities in the south they advertised to blacks and whites
alike. However, during the migration southern whites brought north with them their own traditional
southern prejudices. African-Americans who believed they were heading north for better economic
opportunity found northern bigotry to be every bit as pervasive and virulent as what they thought they
had left behind in the Deep South.52 In the south, blacks were trying to escape Jim Crow (racial

50 http://www.blackpast.org/aah/great-migration-1915-1960
51 http://bentley.umich.edu/research/publications/migration/ch1.php
52 http://usslave.blogspot.com/2012/03/wartime-riots-detroit-1943.html

segregation state and local laws), and other discriminatory laws that prevented equal socio-economic
opportunities for African-Americans. However, when they reached the north they were also met with a
new set of discriminatory policies to include redlining and housing discrimination among others.
An Invitation without the Accommodations53
Existing racial tensions and the influx of white and black laborers pouring into Detroit during World War
II to man the war factories threatened to turn the city into a domestic battleground. When the migrants
arrived to Detroit that arrived in such numbers that it was impossible to house them all. The influx of
newcomers strained not only housing, but transportation, education, and recreational facilities as well.
Wartime residents of Detroit endured long lines everywhere, at bus stops, and grocery stores. Food and
housing were either rationed or unavailable. Times were tough for everyone, but was significantly
tougher for the African-American community.
Blacks were excluded from all public housing except for one location, Brewster projects. As a result, the
city's 200,000 black residents were cramped into 60 square blocks on the East Side and forced to live
under deplorable sanitary conditions. Many lived in homes without indoor plumbing, but paid rent two
to three times higher than families in white districts. Blacks were also confronted with discrimination in
public accommodations and unfair treatment by police.
Racial Tensions Increase17
Detroits industrial prosperity masked underlying and deeply-rooted racial animosities. The shift in the
city's demographics caused volatile racial tensions which would erupt into one of the bloodiest riots in
the nation's history. By the 1940s Detroit already had a long history of racial conflict. Race riots had
occurred in 1863 and as recently as 1941. By the 1920s the city had become a stronghold of the Ku Klux
Klan, an organization committed to white supremacy.
During the World War II timeframe, there were a number of fights among blacks and whites and protest
by whites for segregating working conditions. Early in June 1943, 25,000 Packard plant workers, who
produced engines for bombers and PT boats, stopped work in protest of the promotion of three blacks.
Whites resentful over working next to blacks caused many stoppages and slowdowns.16
These and numerous other indignities contributed to escalating racial tensions in June of 1943. In many
cities the demands of wartime were manifesting themselves in outbursts of intolerance. Race riots had
already erupted in Los Angeles, as well as Mobile, Alabama, and Beaumont, Texas. In 1943 the National
Association for the Advancement of Colored People (NAACP) held an emergency war conference in
Detroit and accused the nation of its hypocritical commitment to personal freedoms abroad and
discrimination and segregation at home.17
Race Riots of 194354
On June 20, 1943 the Detroit race riots began. The riots and violence became so bad that black leaders
in the community asked Mayor Edward J. Jeffries to call in federal troops to stop the fighting. More than
6,000 federal troops had been strategically stationed throughout the city. Detroit, under armed
occupation, virtually shut down.17 Within 36 hours of rioting, 34 lives were claimed 25 of them black,
53 https://www.mtholyoke.edu/courses/rschwart/clio/detroit_riot/DetroitNewsRiots1943.htm
54

http://www.pbs.org/wgbh/americanexperience/features/general-article/eleanor-riots/

and 9 white. 16 Of the 25 African-Americans killed, 17 had been killed by white policemen.17 The number
injured, including police, approached 700 while the property damage, including looted merchandise,
destroyed stores, and burned automobiles, amounted to $2 million. The riot was another, although
especially violent, manifestation of racism in the city of Detroit. Racial conflicts would not appear on
such a visible and widespread scale again until the Civil Rights movement just one decade later.17

Detroit Race Riots of 196755

During the long, hot summer of 1967, the city of Detroit erupted into
another riot. However, this riot was one of the deadliest and costliest
riots in the history of the U. S. The extensive fires that started during the
riot lasted four terrifying days and nights, left scores dead and hundreds
injured, thousands arrested, untold numbers of businesses looted,
hundreds of buildings utterly destroyed, along with Detroits reputation.
The reasons behind the riot was the minorities frustration with the
constant and relentless social, economic, and racial discrimination which literally set the whole city on
fire. While Detroit in the mid-Sixties had a larger black middle class than most American cities its size
thanks in large part to strong unions, high employment and the thriving, all-powerful auto industry it
was hardly a model of racial harmony.
The 1967 eruption, also known as the 12th Street riot, was remarkable not only for how long it lasted,
but for the force that the city, state and federal authorities brought to bear in an effort to impose order
on a city in flames. Then-governor George Romney sent in 800 State Police and 8,000 National
Guardsmen, while President Lyndon Johnson eventually ordered 4,700 paratroopers from the 82nd
Airborne onto the streets.56 Long before even a semblance of calm was restored, however, chaos
reigned, and horrific tales of assaults, beatings, robberies and killings poured out of the city including
allegations, later reported on by the great journalist John Hersey, that Detroit police officers murdered
three young black men at a Detroit motel in the midst of the riots.
In the five days and nights of violence 33 blacks and 10 whites were killed, 1,189 were injured and over
7,200 people were arrested. Approximately 2,500 stores were looted and the total property damage
was estimated at about $32 million. Until the riots following the death of Dr. Martin Luther King in April
1968, the Detroit Race Riot stood as the largest urban uprising of the 1960s.19

55
56

http://time.com/3638378/detroit-burning-photos-from-the-12th-street-riot-1967/
http://www.blackpast.org/aah/detroit-race-riot-1967

The Undercurrent of the Riots: Discriminatory Policies

Housing Discrimination
Housing segregation in the years 1949-1968 was pervasive in Detroit and its suburbs, where 79% of the
states 4500 blacks of 1950 resided. As Detroits black population increased, housing segregation grew
worst. After conducting housing hearing in several Michigan communities, the Michigan Civil Rights
Commission concluded in 1967 that about 90% of Michigans nonwhites lived in residentially segregated
areas. It also stated that blacks had been forced to live apart in urban ghettos throughout the state of
Michigan. Nonwhites were not only victims of housing discrimination; they also loved in housing inferior
to that of whites and for which they paid disproportionately higher rents as compared to whites.
Segregated housing patterns served to perpetuate and aggravate discriminatory practices and attitudes
in all sections of community life including schools, churches and public facilities.

Redlining
One of the most heinous discriminatory policies was introduced
by the creation of the Federal Housing Administration (FHA) in
1934, and lasted until 1968. This policy wan enacted to make
homeownership accessible to white people by guaranteeing their
loans, but the FHA explicitly refused to back loans to black people
or even other people who lived near black people. Redlining
destroyed the possibility of investment wherever black people
lived. 57
Officially, redlining is defined as the unethical practice whereby
financial institutions make it extremely difficult or impossible for
residents of poor inner-city neighborhoods to borrow money,
gain approval for a mortgage, take out insurance or gain access
to other financial services because of a history of high default

57

http://www.theatlantic.com/business/archive/2014/05/the-racist-housing-policy-that-made-yourneighborhood/371439/

rates. In this case, the rejection does not take the individual's qualifications and creditworthiness into
account.
In some cases of redlining, financial institutions would literally draw a red line on a map around the
neighborhoods in which they did not want to offer financial services, giving the term its name. Although
the Community Reinvestment Act was passed in 1977 to put an end to all redlining practices, critics say
the discrimination still occurs.58 These discriminatory practices along with others lead to the race riots in
Detroit and Detroit had a hard time bouncing back.

58

http://www.investopedia.com/terms/r/redlining.asp