Given the eminent place of Detroit in the history of the United States, the announcement that it had filed for Chapter 9 bankruptcy protection last week did not make the splash that some expected. With debts estimated to be in excess of $18 billion (no one knows the real number for certain,) the city that had once been the heart of American industrial power had been a dead man walking for years.
The news was met by some with resignation, with fear by others, particularly those whose fixed incomes are dependent on Detroit’s catastrophically underfunded pension system. Talk radio echoed with the usual nostrums: lamentations about mismanagement and calls for remedial investment from liberals, finger wagging and demands for austerity and small government from conservatives. But the fate of Detroit, if perhaps not the severity with which it struck, is not an expression the contingencies of day-to-day policy choices but rather of the underlying dynamics of capitalism.
In his now classic Capitalism, Socialism, and Democracy (1942), the economist Joseph Schumpeter coined the term “creative destruction” to characterize the cyclical development of capitalism. Writing in the wake of the most severe economic downturn of the 20th century, Schumpeter characterized capitalism as an economic system in a constant state of revolution. Older, less efficient technologies and modes of organization were subjected to a “perennial gale” in which those unable to adapt were wiped away. It was, so Schumpeter argued, “the essential fact about capitalism.” Somewhat ironically, the broader conclusion of the work was that, pace this dynamic essence, capitalism was doomed to give way to socialism as the productive units became so large as to crowd out those unable to realize economies of scale, or to afford the ballooning costs of cutting edge research. No matter. Creative destruction was picked up, as with so many of Schumpeter’s ideas, by later generations of economists with differing historical experiences and political agendas.
The influence of Schumpeter’s work would hardly be felt in the postwar decades. These were dominated by the thought of his bête noire from the 1930s, the Cambridge economist John Maynard Keynes. In 1939, Schumpeter had published Business Cycles, a two volume work that he intended to be his magnum opus and in which he argued that cyclical downturns were an unavoidable fact of capitalism. But his arguments made little headway against the view that Keynes had expressed three years earlier in his General Theory, that countercyclical fiscal policy was a viable and effective approach. It was this view, inscribed in the institutions of the Breton Woods system, which would underpin the most explosive period of economic development of the 20th century.
In 1950, the year of Schumpeter’s death, Detroit reached its peak population of around 1.8 million. The auto industry had reshaped both the demographic and physical structure of the city. Along with Chicago, Cleveland, and New York, it was one of the great destination points of waves of blacks fleeing the Jim Crow south. Many found economic opportunity in the rapidly expanding industrial centers of the north, none more rapacious in its demand for human capital than Detroit. In 1928, Ford Motors had completed the construction of the massive River Rouge Complex in the Detroit suburb of Dearborn. Comprising at its height 16 million square feet of floor space in 93 buildings and 100 miles of interior railroad track, River Rouge was the St. Peter’s Basilica of industrial capitalism. It employed more than 75,000 workers and at its height could turn out 800 cars in each of its three eight hour shifts. It was the flagship of a broader industry, one which seemed confirm Keynes’s theory of multipliers as it created demand and jobs in a range of secondary industries.
Detroit was also the holy ground of organized labor in the United States. In the 1920s and 1930s, the United Auto Workers had fought bloody battles with management in order to ensconce themselves in the plants. The so-called Battle of the Overpass, in which Walter Reuther and several other UAW organizers were attacked by Ford corporate security outside the River Rouge plant, was one of the signal moments of the wave of strikes and agitation in 1936-7 which resulted in union organization of the auto industry.
In the years following the Second World War, Detroit was the model city of American industrial development. Production expanded as the world economy rebuilt after the war. Reuther’s UAW insured industrial peace through a policy of bread and butter unionism that traded control of the shop floor for regular wage and benefit increases and seniority protection.
Yet even in this eden of modern industrialism the serpent lurked. The city experienced a spatial transformation, driven by both industrial and demographic expansion. The influx of southern blacks had increased racial tension in the city. A race riot in 1943 lasted for three days and resulted in 34 deaths. Housing tracts arose on the edges of the city, expanding its boundaries as the white population sought improved (while still racially segregated) housing stock. This was the precursor to the so-called “white flight” of the 1960s and 1970s, in which the white population abandoned the city limits altogether, moving their residences (and tax dollars) out of the reach of the city government.
The postwar industrial boom began to recede by the late 1960s. Cities across the industrial northeast and Midwest began to experience parallel processes of economic decline population drain. Cities whose industrial base was centered on a single industry, such as Cleveland (steel), Akron (rubber), and Detroit (automobiles) were particularly vulnerable as they lacked secondary industries into which surplus labor could be channeled. Globalization hastened this decline as corporations, abetted by neoliberal government policy, shifted production to lower wage areas, particularly ones in which the local governments had few scruples about how workers were treated. The elimination of controls on the movement of capital and advances in transportation allowed corporations to effect what David Harvey once referred to as “the spatio-temporal fix,” a term that comprises both the problem of sinking capital into relatively immobile productive facilities, and the solution to the problem via increased capital mobility.
All of this was meat and drink to economists in the Austrian tradition who, although they mostly venerated Friedrich Hayek and Ludwig von Mises rather than the idiosyncratic Schumpeter, made creative destruction into a dogma of economic transformation. The creativity and capital unleashed by the process would result in a rising tide that would (eventually) lift all boats. But this approach fails (or refuses) to take into account the human effects of capital mobility. Capital moves much more easily than humans do, flowing smoothly across borders, untrammeled by ties of culture or civility. Capital depreciates (thus it must be allowed such freedom of motion) but it can be recombined in relatively friction free processes that allow multiple rebirths. Human beings are much more closely tied linear time in which skills and capacities decay irreparably.
And so we have Detroit, formerly the heartland of a boom, now a wasteland left over from the bust. Or, more properly, from the process of the boom decamping to some more favorable location. In the narrative of a wide swath of American political opinion, the city’s downfall was brought about by selfish, short-sighted unions bidding up wages and benefits to unsupportable levels. The fatuousness of this idea is made clear by a scene in Heidi Ewing and Rachel Grady’s documentary Detropia in which a union negotiator complains that American Axel is not offering a living wage, only to be told by the company’s representative that she simply doesn’t care. The point is not that union wages were too high. The point is that capital (and the jobs it made) was going anyway, and the only question was how many productive cycles were going to be squeezed out of the existing plant before it did so.
Deindustrialization struck like a tidal wave across what has now come to be known as the Rust Belt, leaving polluted and decaying wreckage in its wake. Some urban centers have managed to repurpose themselves in ways that have allowed some processes of regeneration to take place. Thus Akron, once the former tire and rubber capital of the United States, now features a growing polymer industry, while Cleveland has become a center of medical research and technology. Both still bear the weight of urban decay. Cleveland has, by some estimates, between 10,000 and 12,000 abandoned homes. It’s population has declined from a high in 1950 of over 914,000, to just under 400,000 today.
Detroit has a rather larger problem. Its spatial expansion around mid-century means that its current boundaries encompass an area of roughly 146 square miles, larger than Manhattan, San Francisco, and Austin put together. One immediate consequence of this is that it is much more difficult to economize on city services (like police and fire) than it is in a more compact area. This led the current mayor Dave Bing to suggest a couple of years ago that the residents of sparsely occupied areas be consolidated into the more densely populated parts of the city. This proposal met with little favor among the mostly poor, mostly black Detroiters who would have been the subject of this program of “urban renewal.” This situation has contributed to a self-reinforcing pattern of decay, in which the degradation of the infrastructure parallels the degradation in human capital, further reducing the likelihood that the city can be reinflated to its old dimensions through attracting investment.
The situation of Detroit is emblematic of the consequences of the unfettered movement of capital. Given the ability to shift to whatever location offers the greatest immediate prospect of profit, there is little to no impetus within the system to undertake projects of intensive growth and reinvest in existing foundations. The history of the fall being spun in the media about Detroit employs a common set of tropes: greedy unions, shiftless minorities, poor civic management. But the secret of Detroit is that the system worked. The process of creative destruction is one whose full circuit is only experienced by the owners of capital, decoupled from any particular locality. In the wake of the bankruptcy, there will now be an asymmetric conflict between bondholders and pensioners over who will bear the consequences of the moral hazard implicit in the city’s decline. But the fall of Detroit is the purgatory that awaits a large number other rust belt cities now spiraling toward insolvency. It is the example, the subject of a public punishment beating by capital meted out to those unfortunates who cannot survive the storm that both creates and destroys.