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Capitalism and City Bankruptcy

In a television appearance on Sunday Morning with George Stephanopoulos in July 2013, Republican George Will clearly articulated the conservative view of Detroit’s condition during a discussion of possible federal intervention in Detroit’s bankruptcy. Will suggested that “cultural problems,” including unwed mothers, were to blame for Detroit’s financial collapse. In response to Steve Rattner, who argued, “Eighty percent of the pain in this restructuring is being borne by the workers and the retirees if this plan goes through. Detroit needs investment, and that’s where the federal government and the state, particularly, can and should help,” Will responded, “You can’t solve their problems because their problems are cultural. You have a city, 139 square miles, you can graze cattle in vast portions of it. Dangerous herds of feral dogs roam in there. You have 3 percent of fourth graders reading at the national math standards. Forty-seven percent of Detroit residents are functionally illiterate. Seventy-nine percent of Detroit children are born to unmarried mothers. They don’t have a fiscal problem, Steve, they have a cultural collapse.” Katrina vanden Heuvel said, “I find that really insulting to the people of Detroit. There is a serious discussion about the future of cities in a time of deindustrialization, but in many ways, Detroit has been a victim of market forces. I think that what Steve said is so critical, that retirees and workers should not bear this. This story should not be hijacked as one of about greedy, fiscal public unions.” Will replied, “What Steve said in his op-ed was that the people in Detroit are no more to blame than the victims of Hurricane Sandy because apart from voting—well, what did they vote for ? For sixty years they voted for incompetents, malcontents, and in some cases criminals.”1 By construing Detroit as a city whose problems can’t be solved because they are “cultural”—meaning that the population is poor and black—Will not only absolves the real agents of decline, the corporations and their political spokesmen, but also justifies harsh fiscal austerities imposed on the city and paves the way for such austerities to be imposed on other cities once the precedent has been established in Detroit.

Since the 1970s, following the policies of Chicago School economist Milton Friedman, capitalism has taken a turn toward what has become best known as neoliberalism (but is also known as free trade and globalization). Neoliberal capitalism focuses on advancing corporate goals by seeking to privatize government services, deregulate corporate industries, and deeply cut social services and social spending. These measures, including massive assaults on privacy, democratic rights, and unions and labor rights are not limited to the efforts of Republicans or Tea Partyers. Measures such as the “free trade” NAFTA agreement in 1994, established by the Clinton administration, played an important role in exacerbating the effects of disaster capitalism, impoverishing much of the Mexican population and causing a huge agricultural crisis as the United States exported tons of corn to Mexico. At the same time, it moved manufacturing plants from the United States to Mexico, where resources and labor are cheaper and more easily exploited for higher profits. The AFL-CIO estimates that plant closures in the United States caused the loss of seven hundred thousand American manufacturing jobs.2 Neoliberal policies also compromise the environment through lack of oversight as exemplified by the faulty safeguards on nuclear power plants that led to the Fukushima Daiichi meltdowns in Japan in 2011 and the ongoing problems with inadequate radiation containment; genetically modified organisms, pesticides, and other agribusiness practices; or the significant soil and water pollution often left behind when companies abandon factories. The ongoing rebellions against entrenched repressive regimes across North Africa and against austerity measures across Europe, the United States, and Brazil are responses to “free market reforms.” In reality, these are austerity measures and the results of deregulation and globalization that have led to an onslaught of human, economic, and environmental disasters, including the 2008 global financial collapse, as well as the acceleration of deindustrialization in the traditional manufacturing centers.3

Because the vast majority of people derive no benefit from the transfers of wealth from the public coffers of the government to private corporate hands, the spreading discontent, opposition, and protest also have produced an increased need for aggressive domestic surveillance and bottomless spending on security as well as mass incarceration, shrinking civil liberties, and a liberal use of torture, all veiled in secrecy and resistance to accountability. At the same time, the practices of neoliberal capitalism support financial elites on the grounds that banks are “too big to fail” and that the duty of state power is to protect financial institutions at all costs and provide a good business climate. “Only now,” writes social theorist David Harvey, “as the state steps in to bail out the financiers, has it become clear to all that the state and capital are more tightly intertwined than ever, both institutionally and personally. The ruling class, rather than the political class that acts as its surrogate, is now actually seen to rule.”4

The effects of neoliberal practices, especially state support of corporations over the poor and working population, are all too evident in Detroit, now the largest municipality in the country to file for Chapter 9 bankruptcy (on June 18, 2013). Detroit was placed under state control by Michigan Republican governor Rick Snyder in March 2013, when Snyder turned over management of all city resources and finances to an emergency manager (EM), the bankruptcy lawyer Kevyn D. Orr, whose sweeping powers included the ability to privatize city services, sell off municipal assets, and alter collective bargaining agreements with public sector unions. Although Michigan voters repealed the emergency manager law in a ballot referendum in 2012, Snyder forced through a new version in a lame-duck session of the Republican- controlled State Legislature in order to install the EM in the majority black city—effectively a coup against the elected city government. By the very fact of selecting a bankruptcy lawyer as EM, Snyder signaled his agenda of taking the city through bankruptcy.

In one of Orr’s first political acts as EM, following a long history of city corruption, he hired his own former law firm, Jones Day, to help restructure

Detroit’s long-term debt, despite the fact that Jones Day already represented some of the very banks holding this debt, including JPMorgan Chase and Bank of America.5 Such an act clearly demonstrates that the banks always come first in the current capitalist order. The banks, however, are not hurting; on the contrary, they continue to show fat profits as the leveraging and speculation in derivatives using taxpayers’ money in unregulated markets, which produced the financial crisis of 2008, continues apace as if nothing happened. The banks know they will be protected, encouraging further greed and recklessness.

Although the state blames municipal budget problems primarily on public employees’ retirement benefits, the pension fund monies often have been used to enact expensive tax cuts or provide corporate subsidies. Public employees, whose pensions average just $19,200 per year ($1,600 per month), strenuously opposed Orr’s demand to further cut their retirement benefits, which are firmly protected in the Michigan state constitution, and filed suit against the city. When state attorneys filed for Detroit bankruptcy, however, they used a deceptive stratagem to outmaneuver the pensioners and derail their lawsuit. As the Detroit Free Press reported, “An attorney for the pension funds who was seeking a temporary restraining order in Ingham County to block the historic bankruptcy filing said he felt blindsided because he agreed to delay an emergency hearing by five minutes at the request of attorneys for Snyder. During those five minutes, he said, attorneys filed the bankruptcy petition in Detroit, which generally results in a stay in all other pending lawsuits involving the city.”6 In December 2013 bankruptcy judge Steven W. Rhodes of the United States Bankruptcy Court ruled that the pension checks of retirees could be reduced even though they were protected by the state constitution.

More than thirty-two thousand active and retired Detroit city employees face a pension rip-off, which must be understood as the theft of workers’ earnings as well as a harbinger of what lies in store for public workers across the nation. Known as the “grand bargain” and largely crafted by federal mediators, the bargain involves sweetheart deals for the banks and a battering for the workers who could either vote for major give-backs or else be subject to a “cram down” by Judge Rhodes on whatever terms he decided. This was a “lose-lose” situation for city workers. The grand bargain would result in a 4.5 percent cut to most pension checks (exempting police and firefighters) and also calls for a “claw back” of “overly generous” interest earned in pensioners’ retirement accounts, in effect doubling or tripling the actual reduction in monthly pension payments. Cost-of-living increases would be reduced and retiree health care coverage eliminated. For the seventy-five hundred retirees too young for Medicare, this would be a major blow. The city would jettison a $4.3 billion liability in return for setting up a $450 million health care trust that would offer Detroit retirees a mere $175 per month to help buy insurance under the Affordable Health Care Act (also known as “Obamacare”) that can cost around $5,000 per year for mid-range coverage and includes hefty out- of-pocket expenses. The imagery of city ruination thus may be understood as the visual expression of the financial ruination of unionized workers, which leads to the physical ruination of the body, the home, and hopes for a peaceful old age.

To ensure that the devastating effects of the grand bargain are not undone, unelected authorities vested with special powers will oversee the slashing of benefits and wages for at least the next thirteen years. State lawmakers approved a legislative package that subjects the city to an oversight committee, composed mainly of state officials or people appointed by Governor Snyder. Modeled on a board that controlled New York City following a 1975 municipal fiscal crisis, the commission will have control over labor contracts and will exert authority over elected city officials. Meanwhile, the EM and Judge Rhodes made a deal with Bank of America and UBS Investment Bank that granted them $85 million to settle claims stemming from wildly speculative financial “swaps” from which the banks have already profited. Ironically, the city made these transactions in the mid-2000s to shore up the pension plans, which went bust in the 2008 financial crisis.

Also linked to the bankruptcy are plans to privatize the Detroit Water and Sewerage Department (DWSD), another attack on a unionized workforce. In addition, starting in the spring of 2014, the DWSD sent out work crews, under orders from Kevyn Orr, to shut off water in up to three thousand homes each week that are behind in their bill payments. Between March and June 2014, service was cut off to more than fifteen thousand households and small businesses. Two-thirds of the water cutoffs involved homes with children, so that in some cases child welfare authorities took action to remove children from their homes since working utilities are legally required in all homes with children. People were given no warning and had no time to fill bathtubs and buckets, leaving everyone, include sick people, without water to drink, without toilets, without the ability to bathe or cook.7 No such threats to cut off water service were made to the large corporations and institutions, such as the Red Wings’ hockey arena or the Ford football stadium, that are also delinquent on their bills, and thousands of vacant and abandoned buildings in Detroit still have running water, often gushing through broken pipes.8

How could this happen? As the population has declined, water bills have risen 119 percent in a decade in a city with already high rates of unemployment and poverty. Moreover, as one report notes, “As a cost-cutting measure, the DWSD stopped sending bills, expecting residents to just figure out their own bills. ‘Smart meters’ were then installed that read backwards and many families were hit with bills in the thousands of dollars. Many of these bills were from former tenants, and many included water bills from nearby abandoned houses. But that didn’t matter to the authorities.”9 As more than a thousand demonstrators marched in a downtown protest organized by National Nurses United, the largest labor union of registered nurses in the country, a report from Demos, a public policy organization, characterized the shutoff program as “mass enforcement to discipline the people” and a “misuse of the right to deny service.” Amnesty International asserted, “Access to water is a human right for all people without discrimination,” and a United Nations team of experts determined that “disconnection of water services because of failure to pay due to lack of means constitutes a violation of the human right to water and other international human rights.”10

Amid growing anger in the city and international concern, Judge Rhodes admonished Orr to limit the damage to the city’s reputation. But the EM asserted that his approach was “necessary” and claimed that of the fifteen thousand suspended accounts, half were made current within twenty-four hours and service was restored. Many of the people who settled up after being cut off, however, were able to do so only after receiving emergency cash from churches, charities, or friends, or by raiding funds set aside for such things as prescriptions for their elderly parents.n Yet even as another ninety-two thousand customers remained at risk for service cutoffs, Orr maintained that the city debt of $5.4 billion related to water and sewer bonds would be paid in full to creditors.

Opponents claim that Orr is simply cleaning up the DWSD’s account books to prepare for privatization, which could push water rates even higher. Indeed, turning off the water of thousands of Detroit households seems designed to drive out the city’s remaining poor residents not only to make the sale of the city’s water system to a private company more attractive but also to help facilitate what has been called “hyper-gentrification”—a deliberate and strategic plan to “take back” urban areas/2 As John Russo and Sherry Lee Linkon, authors of “The Social Costs of Deindustrialization,” point out, “Over time, a struggling community may become divided, as those who promote a new vision of the city blame displaced workers for the area’s problems” and come to regard them as “useless to the future of the town.”1* In other words, conservatives blame the city’s failure on its own struggling residents, denying the effects of plant shutdowns and the resulting dissolution of the city’s social fabric. This is true not just for Detroit but all deindustrialized cities.

In June 2014 the Detroit City Council approved yet another 8.7 percent increase on water prices, pushing household bills to almost twice the national average. The abrupt service shutoffs disproportionately affect African Americans in a city with a long history of racial discrimination, and, as activist groups assert, the exorbitant water rates place the burden of the city’s fleeing tax base on the shoulders of its poorest citizens. In the rush to enforce austerity, no payment assistance programs were put in place and publicized before the shutoffs began, and a hastily established program set criteria for assistance that is difficult for many poor families to meet. As environmental writer Martin Lukacs observes:

The official rationale for the water shut-downs—the Detroit Water Department’s need to recoup millions—collapses on inspection. Detroit’s high-end golf club, the Red Wings’ hockey arena, the Ford football stadium, and more than half of the city’s commercial and industrial users are also owing—a sum totaling $30 million. But no contractors have showed up on their doorstep.

The targeting of Detroit families is about something else. It is a ruthless case of the shock doctrine—the exploitation of natural or unnatural shocks of crisis to push through pro-corporate policies that couldn’t happen in any other circumstance.14

In response to growing national pressure over the mounting water crisis, full- scale media coverage, and a series of protest actions, Orr finally announced a moratorium on shutoffs and relinquished control over the DWSD to the city’s mayor, Mike Duggan/5 By October, 350 to 400 residents were again losing water service daily under Duggan’s watch after Judge Rhodes ruled that there is no “enforceable right” to water, renewing the humanitarian crisis/6

But even as the hockey arena and football stadium are in arrears on their water bills, Snyder plans to spend $283 million of taxpayer money to help subsidize a new hockey stadium for the Detroit Red Wings as the centerpiece of a proposed downtown development project. This project is led by Olympia Development, which is owned by the billionaire founder of Little Caesars Pizza, Mike Ilitch, who also owns the Red Wings hockey team and the Tigers baseball team. City taxpayer funds were previously used to support the new baseball and football stadiums of Comerica Park and Ford Field, part of a longstanding pattern of granting corporate subsidies while cutting services and tax credits to low-income families/7

Critics noted more than a decade ago that such sports stadiums as well as gambling casinos are primarily meant to serve the suburban population “by recasting the redundant city as an a-historical destination theme park banking on Detroit’s historical name brand.”i8 As one television commercial for the Motor City Casinos has it, “a million miles away and just down the road.” Moreover, tourist attractions such as sports stadiums or convention centers (Youngstown’s Chevrolet Center or Detroit’s Cobo Center), amusement parks (Flint’s Auto World), casinos (Detroit and Gary), golf courses (Anaconda, Montana), shopping malls (Homestead, Pennsylvania), or historic sites built on abandoned industrial sites (Bethlehem, Pennsylvania) rarely bring high quality jobs after the initial construction jobs/9

Although about 40 percent of Detroiters live in poverty (more than 2.5 times the national rate), city bankruptcy enriches the bankers while further impoverishing the resident population not only by cutting pensions for city workers but also by privatizing city services. In addition to water, these services include trash pickup, electricity, and bus services, inevitably resulting in decreased quality and higher rates as well as lower wages and benefits for privatized workers. Privatizing bus operations, for example, will raise bus fares for residents who depend on the system as their primary mode of transportation. In his June 14, 2013, restructuring proposal to creditors, Orr asserted that Detroit’s bus fares are “relatively low” and explicitly suggested hiking them to generate revenue while ignoring the impact this will have on the city’s poorest residents, who are the most reliant on public transport. Although Detroit was once the global capital of car manufacturing, more than a fifth of households in the city today are unable to afford a car. As to quality, privatized services are primarily interested in making profits, not serving the public interest.20

Yet downtown and midtown investment in a 7.2-mile slice down Woodward Avenue is booming, with rental and commercial space nearing full occupancy. Even as Detroit’s population shrank by 25 percent in the course of the last decade, downtown saw a 59 percent increase in the number of college- educated residents under the age of thirty-five.21 This disparity suggests the creation of two different cities within Detroit, one a tiny thriving gentrified area of millennials and the other the devastated neighborhoods in most of the rest of Detroit, in a microcosm of the chasm of inequality nationwide.

A major player in this gentrification is multibillionaire Dan Gilbert of Quicken Loans, now the nation’s largest online mortgage lender and third- largest residential mortgage lender. Although Gilbert has sought to distance Quicken Loans from predatory lending practices, the company was accused in a court suit by a group of former employees and customers of aggressive and improper sales tactics.22 In a separate lawsuit in Ohio, Quicken was ordered by the state supreme court to pay $3.5 million to a defrauded homeowner.23 Gilbert has bought up the equivalent of two square miles of downtown Detroit to sell to a variety of corporations for retail stores and cafes in the area. Buying skyscrapers to build a real estate empire, Gilbert and Rock Ventures, the umbrella group for more than eighty of his companies, currently own sixty properties that cover nine million square feet of real estate in downtown Detroit, including architectural treasures by Daniel Burnham, Minoru Yamasaki, and several by Albert KahnQ Speculative entrepreneurs such as Gilbert seek monopoly rents, defined by David Harvey as monopoly claims based on criteria of “specialty, uniqueness, originality, and authenticity.’^5 These qualities create a collective symbolic capital through branding, and the branding of cities has become big business even as their success, if they achieve it, leads to forms of homogenization and commercialization that undermine and erase originality and uniqueness. Collective symbolic capital in Detroit is built on its industrial and historic heritage and the vitality and aesthetics of its cultural production, including its distinctive music scene, food, arts institutions, sports teams, and signature downtown architecture (and even, ironically, its ruins, such as the Packard Plant and Michigan Central Station, which visitors to the city regularly drive by as part of their Detroit experience). Gilbert’s monopoly rents attempt to control the commercial business corridor that capitalizes on the branding of the city.

The influx of coffee shops, bistros, art galleries, and upscale boutiques make parts of many cities increasingly appealing for young professionals (although many of these upstarts are still struggling and waiting for the revival to arrive), but they do not alter the everyday misery of working-class and poor urban neighborhoods. In cities across the nation, gentrification has raised property taxes, threatening working- and lower-middle-class homeowners. Newcomers to working-class areas such as the Mission District in San Francisco or the Shaw neighborhood in Washington, D.C., often do not plan to stay long and tend to move into new condos and lofts rather than existing houses, which is even more disruptive.26 The cities of Boston, Philadelphia, Washington, D.C., and Pittsburgh have attempted to ameliorate the destructive process by introducing initiatives to reduce or freeze property taxes for threatened homeowners in order to stabilize neighborhoods and “provide a dividend of sorts to those who have stayed through years of high crime, population loss, and declining property values.”*7 Even Mike Duggan announced plans to reduce property taxes in Detroit in order to more accurately reflect the value of homes in the city, which would encourage more home buyers and help reduce foreclosures. To reclaim our cities, however, these and other more far-reaching solutions must address the needs of the collective population and not just the interests of a small elite.

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