Why Detroit matters: Part 1

Founded in 1701 as a French fur-trading post, Detroit, Michigan, evolved from a port in the 18th century to a major manufacturing centre at the end of the 19th century. At the dawn of the 20th century, the city turned from making wagons and train cars to churning out automobiles and perfecting assembly line production. Detroit became the ‘Arsenal of Democracy’ during the Second World War and reinvented itself as Motown after the war. But, starting in the mid-1950s, after two and a half centuries of continuous expansion, Detroit’s economy was decimated in a mere 65 years by racial tensions, ‘white flight’ — loss of jobs, population, tax base and reputation — and a lack of leadership on the tsunami of debt. While the private sector began reinvesting in downtown in the late 1990s, public-sector debt grew and eventually led to insolvency. US law — unlike that of other industrialised nations — allows municipalities to declare bankruptcy to wipe out most debt. Although there are many financially distressed American cities, few have declared bankruptcy. Detroit is the largest to date and was made more complicated by the involvement of an ‘emergency manager’ — an intervenor appointed by the Governor of Michigan and granted extra-governmental powers. This, the first in a trilogy of papers, provides historical background, describes public-sector bankruptcy and introduces the most important players in the bankruptcy drama — among them three mayors, two judges, the emergency manager and Michigan’s governor. The second paper will outline the legal process of municipal bankruptcy, introduce the creditors who fought to preserve their financial position, discuss the threat to the Detroit Institute of Art’s collection and describe the ‘grand bargain’ without which the bankruptcy would have descended into the mire of endless lawsuits. The final paper will lay out the aftermath of this titanic drama — the effect on reinvestment and the ‘lessons learned’ by the cast of players and the community as a whole — and describe the substantial obstacles that remain to creating a robust and sustainable future for Detroit in the 21st century and beyond.