We Lost Detroit - America's Banana Republic

Gil Scott Heron called this one. 

Bridges and Breeders

The original 1977 track appeared on Heron's Bridges album, a nod to the 1975 novel of the same name, by John G. Fuller. But rather than the 800 lb. public finance gorilla in the room, the culprit 28 years ago was nuclear energy production.

Breeder reactors

The breeder reactor debuted in Detroit to improve upon existing nuclear energy efficiency. The day it was invented in Idaho in 1951, it could power four light bulbs. The following day, it could power the whole building. That's efficient.

The first commercial version broke ground in Lagoona Beach, Michigan in 1956 and went into operation in 1963. It shutdown three years later because the core was overheating and melting stuff that wasn't supposed to be melting. Nuclear meltdown pending until the operating license was denied in 1972. America never went that route again. The costs of a potential meltdown, not to mention the actual costs of disposing of nuclear waste and the money spent training and retaining employees in a high stakes environment far outweigh the benefits of nuclear production.

Well, we had "the big one" this week. From an economic standpoint, Detroit is gone. It is not productive. It spends way more than it generates. The city can only "come back" if it's bailed out to the tune of around $19 billion. The largest municipal bankruptcy filing. Ever. This is a rare event in America.

But if Detroit can't produce energy, it can certainly produce its complement: cars. Or at least it used to. Detroit is home to our nation's beloved automotive industry - also a controversial debtor in recent history - a former testament to the might of American capitalism. Detroit was a natural hub for the burgeoning car manufacturers since commodities such as copper, iron and coal were easily shipped there by water or land. Henry Ford gave the city its economic advantage with the founding of the Ford Motor Company in 1903 and the innovative assembly line that standardized car production forever. Creative destruction, technological progress, division of labor and economies of scale are just a few of those 'advantages.' Ford also paid relatively high wages, and by the 1940s had realized overt racial discrimination meant less profit, hiring more African Americans than most private firms in the nation at the time.

Well people haven't stopped driving cars yet, so what how did we lose the city?

Population flight is one reason. In 1950 the city had 1.8 million residents. That's declined to about 700,000 today. Back in 2010 I was working for the Census Bureau, and the big story surrounding the decennial survey was that Detroit's population decline averaged out to one person leaving the city every 22 minutes since the previous census in 2000. Wow. Some cities we expect to shrink. Like New Orleans. Or Chicago. In recent years, life hasn't been easy there. But Detroit has been shrinking for six decades. There are larger issues at play here.

The Banana Republic of Detroit

Motor vehicle sales are a key economic indicator of growth and have been since Ford and Olds established their empires, informally christening Detroit as the "Motor City." Car sales are directly related to attitudes and ability to spend money. When we feel optimistic about the economy we spend money. When we worry the economy is in free fall, we hold on to our cash. More car sales means Americans have more disposable income and - if considered a luxury purchase - indicates we're better off. When Ford and Olds would rev up their production lines, resources like people and machinery were instantly employed. Jobs were advertised and filled. Productivity and incomes rose and people started demanding things like better roads and bridges, more telephones and more cars.

Motor vehicle sales boomed from 1905 until World War I, when production decisions focused on war goods: tanks, planes and jeeps. By the 1920s most Americans had seen a car, and the market for first-time buyers was shrinking. Now we needed another one, indicating a shift in consumer tastes and preferences: a second car was a luxury purchase and meant that the household was allocating more time to leisure (road trips) or work (women employed outside the home). By 1929, GM, Ford and Chrysler - Michigan's Big Three - represented 75% of yearly auto sales in the United States. Traffic congestion grew and municipalities had to charge higher taxes to finance better infrastructure. Businesses and household moved to the relatively cheaper suburbs. Tourism exploded as cities vied to entertain the passing motorist.

The Great Depression hit the Detroit metropolitan area hard; so hard the unions took a firm foothold at the bargaining table for fair wages, hours and pensions for an out of work industry. Consumers weren't buying cars anymore. The auto industry in Michigan had grown too large to simply shut down. People's lives were at stake. The United Auto Workers fought for the survival of the Motor City's backbone.

World War II slowed auto sales as during its predecessor, but rebounded after the war ended. Beginning in the 1950s, environmental concerns began to gather steam. Seat belt laws and vehicle emissions regulations meant going back to the drawing board for the Big Three. In 1975, the fuel crisis necessitated legislation and more fuel-efficient production, particularly of smaller cars. In the 1980s, competition arose and foreign manufacturers introduced smaller Toyotas, Volkswagens and Mercedes. Union demands meant the cost of producing a small car simply wasn't worth it, so the Big Three threw their weight behind the intensely profitable SUV / light truck market in the 1990s.

a Ford SUV

We all know how that one ends. Foreign competition, eco-friendly consumer trends and the decline of unionism meant that SUV production was ultimately, a losing investment. All the eggs were loaded into the SUV basket and it couldn't combat the lower-priced shiny goodness coming out of Japan and Germany and South Korea. Foreign car manufacturers brought us compact, incredibly efficient vehicles that often run on alternative fuels. The Big Three were too big to pivot and follow suit; and too big to fail.

I think that auto sales were the harbinger of Detroit's financial collapse. We don't want to believe that the city  is a homegrown banana republic; only suited for producing cars. A 97% occupancy rate in the downtown/midtown area sways our emotions. But how to bring the people home? What will persuade them spend money in the business districts, pay taxes and, start new firms and demand jobs?

We lost Detroit.



dls