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Detroit: A lose-lose situation for all involved

A man walks past a boarded-up home near downtown Detroit, Michigan, on July 19, 2013. Investors dumped Detroit's municipal bonds a day after the city's historic bankruptcy filing even as a ruling in state court raised questions about whether the bankruptcy will stand up to court review.

REBECCA COOK/REUTERS

Once the dynamic heart of automotive America, the city of Detroit took the humbling step of filing for bankruptcy on Thursday – the largest U.S. municipality ever to do so. On Friday, Michigan Governor Rick Snyder defended his decision to authorize the bankruptcy filing.

"People may say this is the lowest point in Detroit's history," he said. "This is the day to stabilize Detroit."

While the local government may seem like the culprit, the city's current predicament is the product of wider, deep-seated problems accumulated over decades.

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The Globe's Joanna Slater spoke with Thomas Sugrue, a historian at the University of Pennsylvania and the author of The Origins of the Urban Crisis: Race and Inequality in Postwar Detroit, an award-winning social history of the once-proud city, about its long decline.

As a Detroit native, how does the bankruptcy filing make you feel?

It's profoundly sad. This is a situation that in the short-to-medium run is not going to have a lot of upsides. We're pitting municipal bondholders against city employees and pensioners. For both sides, it's a lose-lose situation.

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

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

Who's to blame here?

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

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Detroit was obviously a manufacturing powerhouse that saw such businesses disappear.

Detroit was a one-industry town. What has replaced the auto industry has not begun to fill the gap in the city's economy. In the last decade or so, there's been some downtown reinvestment in hotels, casinos and restaurants. But that has not proved to be the generator of reinvestment and renewal. Yes, there are more good restaurants and bars in Detroit than there were 10 years ago, but the benefits of that small-scale gentrification have not trickled down to the rest of the city's population.

Are tensions between the city and the state still pronounced?

Definitely. The governor and state legislature have mostly been elected by voters who are profoundly suspicious of Detroit, who see it as a sinkhole, a corrupt Third-World country, emblem of urban misrule. They believe that if their tax dollars go to the city, the money is going to be wasted on more mismanagement.

What is the long-term implication of this bankruptcy filing?

A lot of people are looking at Detroit with a great deal of fear. Municipal bondholders are saying, "Wait a minute, if Detroit declares bankruptcy, are other municipalities going to follow suit?" Likewise, a lot of public sector workers around the country are looking at Detroit and wondering, "Is my municipality going to declare bankruptcy to get out of its pension obligations?" So there is a lot of trepidation right now and I think it's justifiable. The question is whether Detroit is a one-off catastrophe or whether it portends problems that are going to happen in other places in the not-too-distant future.

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About the Author
U.S. Correspondent

Joanna Slater is an award-winning foreign correspondent for The Globe based in the United States, where her focus is business and economic news and New York City.Her career includes reporting assignments in the U.S., Europe and Asia. In 2015, she was posted in Berlin, Germany, where she covered Europe’s refugee crisis. More

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