DETROIT, Michigan (MI): An Abstract

Detroit is a significant case study of urban decline. To understand the fundamental issues in Detroit one

must understand the symptoms of urban decay. Urban Decay is the process in which a functioning city,

falls into disrepair; its major symptoms are de-industrialization, depopulation, restructuring, abandoned

buildings, high local unemployment, fragmented families, political disenfranchisement, crime, and

desolate, inhospitable city landscape.1 Detroits urban decay, (as with many other cities afflicted with

urban decay) has no single cause, rather it was the result of inter-related socio-economic conditions to

include: urban planning decisions, poverty and its causes among local populace, construction of

freeways and rail lines that by-pass afflicted areas, de-population by suburbanization and real estate

neighborhood redlining, among others.1 In addition to these issues, other symptoms unique to Detroit

that further exasperated its urban decay, included: significant and intense racial tensions (including two

race riots 1943, 1967), extreme corruption and mismanagement, and Detroits inability to severe its

economic ties to the auto industry. The decline of Detroit wasnt one thing over another, rather it was a

lethal cocktail that brought the economic powerhouse of a city to its knees.

In examining the City of Detroit during our Field Studies Program, we should: (1) evaluate how enduring

philosophical, historical and contemporary issues contribute to the current state of the city; (2) aim to

understand how the environment presents a strategic challenges to governance and planning for the

city; (3) seek to understand and think critically about how the strategic thinking, planning and decision-

making of federal, state and local leaders in response to the urban crisis affect the lives of its citizens;

and (4) understand how the use of resources and strategic planning will aid in the re-building of a failed

city.

Some of the Field Studies objectives we will explore in Detroit will be:

(1) U.S. Economic System and Government Institutions: The Detroit Economy & Its Economic Stability

(2) Education: Elementary Education in Detroit

(3) The Historical Exposure to Detroits Geographic, Ethnic, Religious and Social Groups

1 http://en.wikipedia.org/wiki/Urban_decay

THE FREE MARKET SYSTEM: For the free market system objective, our goal is to expose you to the success and failure of the U.S. economy due to different reform policies (i.e. the environmental reforms, land use and tax systems reforms among others). We want to show how the encouragement of private enterprise and individual initiative are crucial to maintaining economic success in the free market system. We also want to expose you to the governments efforts to create favorable investment climates, curbing corruption where it exists, and spurring balanced trade. In complement to the strategic planning and ideas of industry and enterprise there exists the workforce, who labors and puts industrys ideas into action. We want to show you the independent roles of labor and management in negotiating pay, working hours and conditions, and other benefits associated with employment. We also want to expose you to the factors underlying industrial and agricultural production, and how environmental protection has altered each; and the role of environmental protection plays in pulling industry and the free market system into a new direction.

Overview of Detroit & the Free Market System: The Auto

Industry Crisis, Policy Reform, Recession, and Rebirth

During the Detroit Field Study we will visit General Motors and Ford; however, prior to our visit the

reference guide will provide you with an opportunity to explore the external and internal factors that

contributed to the American Auto Industry Crisis, to include: global environmental policy initiatives (i.e.

the Kyoto Protocol), the Great Recession, peaks in gas prices resulting from the 2003-2008 Energy Crisis,

and the Subprime Mortgage Crisis. While the environmental initiative propelled the economy forward

into an era of green technology, the culmination of the growing pains and the other external factors

negatively impacted the stability of the marketplace. Many companies and products did not survive this

tough economic environment, including General Motors and Chrysler who eventually filed for

bankruptcy and was later bailed out by the federal government. As events continued to unfold, the City

of Detroit eventually filed for bankruptcy as well (with no bail out by the federal government) with over

$18 billion dollars of debt. Declaring bankruptcy allowed to the fallen city of Detroit to rebuild, and the

reference guide hopes to help you understand how this was possible.

Questions to Consider:

- How do Ford and GM face the economic challenges in the world? - What is the American auto industry strategy for competing with foreign companies? What are

the challenges in the international auto market? - How has the government management of the bailout happened? Has it been an effective

relationship between the auto companies and the government? - How are the auto companies reacting to the demand for cleaner and more affordable energy for

cars in the U.S. / in the world?

The Auto Industry Crisis, Deindustrialization, Unemployment, & the Rise of Crime

The decline of the auto industry and the deindustrialization of Detroit gave way to mass unemployment.

The demand in the labor market also moved from skilled labor, to automated labor, to educated labor,

and from unionized domestic labor to outsourced cheaper labor. These drastic shifts in demands for

talent, severely impacted Detroits minority and industrial workforce, many of which never obtained a

degree because previously education wasnt a requirement to make a decent living. Prior to the 1970s

people working in Detroit were able to obtain middle class status by working in the auto plants, without

ever attending a formal institute of higher education. Now the same groups of people could no longer

compete in the new job market because they lacked the formal education needed to advance

economically. With almost 50% of the population unemployed, the economic vacuum gave way to the

drug economy and a spirit of crime. This rough period of time created a cultural shift within Detroit from

the working class mentality, to the have-not mentality, where crime and poverty became a regular way

of life.

Declaring Bankruptcy, Tackling City Challenges, & Laying Out a Strategy for the Rebirth of Detroit

Bringing in Investors

Detroit once a major industrial city, which has now declared bankruptcy with over $18 billion dollars of

debt, faces the major challenge of trying to cultivate favorable investment climates within the city and

to encourage private enterprise and individual initiatives to create economic opportunities within the

city of Detroit.

Tackling Population Decline and Restoring City Services

Detroit leadership also faces the challenge of trying to grow the population. In the 1950s with the auto

industry booming, Detroit had over 1,800,000 residents, now after the decline of the auto industry and

suburbanization, Detroit now has a population of about 700,000 residents. This means that Detroit

faced a population decline of about 1,100,000; when the residents and businesses began to flee Detroit

they took the tax bases and jobs with them (mostly to the suburbs). This decline in tax revenue and

economic opportunities affected the municipal structure and ability to provide government services. At

some point, 40% of the citys street lights didnt function which lead to an increase in crime rates, and

the average wait time

for police to respond

to a call was 58

minutes in Detroit,

where the national

average was 11

minutes. City

leadership has to

develop a strategy to

regrow the

population, so that it

may increase it tax

base, generate

revenue, and continue

to provide basic city

services and honor its

pension obligations to

its retired population.

Tackling the Challenge of Infrastructure

Additionally, Detroits infrastructure was

built when it had a population of about

1,800,000 people, now the population is

700,000 sprawled across the large city of

Detroit. City leadership is having a hard time

providing city services like public

transportation, street maintenance, trash

collection, street light repair, etc. across

142.9mi2 (370km2) of land with a marginal

tax base and a population of 700,000 (a

significant number of which are

unemployed). In September 2009, 335,231

people were unemployed as of December

2014, the number has dropped to 150,419. In

the city presentations we will hear about

whats next for Detroit.

Mapping Detroit population migration; click the map to go to

Forbes magazines interactive map of American Migration.

Take note how far apart the houses are from one another

and what type of challenges this may present in providing

city services with a poor budget. Does this look like an urban

major city to you?

Detroits Economy in 2008-2010: The Great Recession &

the Automotive Industry Crisis

An Introduction

The American Auto Industry decline

seems to be a repetitive event that

happens over the course of some

years, as its financial stability is so

closely linked to the financial

stability of the banking system, and

its ability to approve loans. In the

1920s, banking failures dotted the

rural landscape of the country as the

new wave of industry and

commerce constricted the

traditional lifeblood of agriculture.

In 1925, 617 banks failed in the

United States, by 1930 the number rose to 1,350, and in 1931 that escalated to 2,293. With each failure

came an obliteration of many people's life savings, which began to spread fear throughout the country

that the banking failure would spread throughout the nation and become unstoppable. Similar to the

conditions of 2008 2010, a combination of events were brewing between the 1920s and 1930s; 1929

saw the great stock market crash, and 1930 brought with it a new tariff and onerous tightening from the

Federal Reserve. After 1929, the sales of the Ford automobile collapsed and with them collapsed the

fortunes of Detroit. In 1932, Ford lost a total of $75 million, which was detrimental to the stability of

Detroits financial institutions. Henry Ford in fear of losing his own personal assets threatened to

withdrawal Fords assets from Detroit banks. His withdrawal alone could have crippled not only Detroits

economy but the national economy, both greatly intertwined with the financial stability of the auto

industry. In an effort to stop Henry Fords withdrawal, the Michigan banks declared a banking holiday

(that spread to 37 other states), which halted banking services, including withdrawals, with no notice.

For 36 days, after the 8 day holiday was first declared, people could not withdrawal money from the

banks, and all because the government and banking officials feared that Fords withdrawal would cripple

the economic system. 2

When looking at the 2008 2010 Auto Industry Crisis, we again see a similar combination of events with

the Great Recession, Sub-prime Mortgage Crisis and the financial debt from the Iraq War. The stability of

the U.S. economy has always been so greatly intertwined with the auto industry, and the auto industry

so greatly intertwined with the U.S. economy, that ones failure over the other could be detrimental for

both. Does this mean the auto industry giants, Ford, General Motors (GM) and Chrysler are Too Big to

Fail?

2 http://www.americanhistoryusa.com/1933-banking-crisis-detroit-collapse-roosevelt-bank-holiday/

Setting the Stage: The Great Recession3

In 2008, the United States was hit by the Great Recession. The Great Recession officially lasted from

December 2007 to June 2009 and began with the bursting of an 8 trillion dollar housing bubble. The

resulting loss of wealth led to sharp cutbacks in consumer spending. This loss of consumption, combined

with the financial market chaos triggered by the bursting of the bubble, also led to a collapse in business

investment. As consumer spending and business investment dried up, massive job loss followed. In

2008 and 2009, the U.S. labor market lost 8.4 million jobs, or 6.1% of all payroll employment. This was

the most dramatic employment contraction of any recession since the Great Depression.

Even after the economy stopped contracting in the summer of 2009, its growth has not been nearly

strong enough to create the jobs needed simply to keep pace with normal population growth, let

alone put back to work the backlog of workers who lost their jobs during the collapse. Thus, the Great

Recession had brought the worst of both worlds: extraordinarily severe job loss, combined with an

extremely sluggish recovery.

The job loss during the Great Recession has meant that family incomes dropped, poverty rose, and

adults as well as children lost health insurance. The bursting of the housing bubble and the drop in the

stock market had meant that family wealth had dropped dramatically, as well. In general, racial and

ethnic minority workers tend to have much higher unemployment rates (usually twice a high) than

white non-Hispanic workers (regardless of whether the economy is in expansion or a recession), which

meant that Detroit with an African American population over 80% of the overall population was not

exempt. The black unemployment rate is generally around twice as high as the white unemployment

rate, regardless of whether the economy is in an expansion or a recession; this means that during

recessions, black workers experience much larger increases in unemployment. The recession in

combination with the deindustrialization of Detroit and other major cities really impacted the quality of

life for minority populations and industrial workers as more people who once held jobs began to fall into

poverty.

3 http://stateofworkingamerica.org/great-recession/job-loss/

*If reading on your tablet, click the pictures to read the articles the Great Recession: 2009 a Year and Review

and the Economist article on the lagging unemployment rates, post-recession.

The Great Recession of 2008-2009: Protestors vent their outrage over government bailouts for corporations

outside of the offices of American International Group in New York City.

The Automotive Industry Crisis4

During the Detroit Field Study we will visit General Motors and Ford; however, prior to our visit we

explore the U.S. Auto Industry Crisis in the reference guide. The reference guides goal in covering the

auto industry to help you gain an understanding of the external factors that contributed to the Auto

Industry crisis, to include: global environmental policy initiatives (i.e. the Kyoto Protocol), the Great

Recession, peaks in gas prices, and the Subprime Mortgage Crisis. All of these factors negatively

impacted the economic market (some more than others), and many companies and products did not

survive this tough economic environment.

THE EXTERNAL FACTORS CONTRIBUTING TO THE AUTO CRISIS

The automotive industry crisis of 2008-2010 was part of a global financial turndown, the broader U.S.

economy was in a free fall, demand for cars was weak, and the banking systems near-collapse made car

loans scarce.5 In addition to the Great Recession the industry was also faced with environmental politics

(i.e. the Kyoto Protocol) regarding carbon emissions. Additionally, heightened sensitivity to gas mileage

standards and environmental protection worldwide disrupted the established economic market and

created a hyper competitive global market environment, which forced global industry leaders to quickly

develop new affordable, reliable, green technology products (in Detroits case vehicles) that would fit

consumer needs and undercut the global competition.6

2003-2008 ENERGY CRISIS & PEAKS IN GAS PRICES

Additionally, the peak in gas prices linked to the 2003-2008 energy crisis also facilitated this push by

creating economic demand for more affordable, reliant, fuel-efficient vehicles. For American motor

companies, The Big Three Ford, General Motors (GM) and Chrysler, this presented a significant

challenge as the majority of their popular product line consisted of SUVs and pick-up trucks, they did not

have a pre-existing line of gas efficient vehicles to offer consumers.

4 http://en.wikipedia.org/wiki/Automotive_industry_crisis_of_2008%E2%80%9310 5 https://www.economy.com/mark-zandi/documents/2012-02-28-OPED-Bailing-Out-Detroit.pdf 6 http://belfercenter.ksg.harvard.edu/files/Frankel2Web.pdf

THE GREAT RECESSION & THE SUBPRIME MORTGAGE CRISISS EFFECT ON THE ECONOMIC STABILITY

OF THE AUTO INDUSTRY

At the same time the Great Recession had caused mass unemployment and the instability of the job

market and individual consumer finances (with massive foreclosures and loss of assets) discouraged

consumers who already had a working vehicle from taking on a new loan and payment. Additionally, the

sub-prime mortgage crisis made it harder for people with average or poor credit to obtain a bank loan to

buy a car.

ENVIRONMENTAL POLICY REFORM: A FAILURE TO KEEP UP IN A GLOBALIZED MARKET

Car companies from Asia, Europe, North American and elsewhere started implementing creative

marketing strategies to entice reluctant consumers as most experience double-digit declines in sales.

Instead of making the tough choices necessary for them to stay viable in the long run, the Big Three

offered substantial discounts across their line-ups. The Big Three faced criticism for their line-ups, which

were seen to be irresponsible in light of rising fuel prices. North American consumers began turning to

smaller, cheaper, more fuelefficient imports from Japan and Europe. For example, Japan required

autos to achieve 45 miles per US gallon (5.2 L/100 km; 54 mpg-imp) of gasoline and China required

35 mpg-US (6.7 L/100 km; 42 mpg-imp). The European Union required 47 mpg-US (5.0 L/100 km;

56 mpg-imp) by 2012. By comparison, U.S. autos were required to achieve only 25 mpg-

US (9.4 L/100 km; 30 mpg-imp).The Detroit Big Three had been slower to bring new vehicles to the

market compared with foreign competitors, that could catered to new found consumer needs.

While the "Big Three" U.S. market share declined from 70% in 1998 to 53% in 2008, global volume

increased particularly in Asia and Europe. Facing financial losses, the Big Three idled many factories and

drastically reduced employment levels. In order to improve profits, the Detroit automakers made

agreements with unions to reduce wages while making pension and health care commitments. All of

these factors critically impacted the stability of the American auto industry. This new environmental

push in combination with, poor management, and business practices, and the other external factors,

lead to a major decline in American car sells and eventually forced to GM and Chrysler to file for

bankruptcy.

The Bailout7 In 2008, the Big Three asked the government for $50 billion to avoid bankruptcy and ensuing layoffs.

Congress issued a $25 billion government loan from the Department of Energy to help them re-tool their

factories to meet new fuel-efficiency standards of at least 35 mpg by 2020.The loan was authorized by

Congress for automakers to use to "equip or establish facilities to produce advanced technology

vehicles that would meet certain emissions and fuel economy standards; component suppliers could

borrow funds to retool or build facilities to produce parts for such vehicles as well. 8 However, this

massive loan by itself wasnt enough to keep Chrysler and GM from declaring bankruptcy.

This decision was largely determined by these factors: The Big Three U.S. automakers employed about

250,000 workers at the time, but their deep connections throughout the rest of the economy meant

closer to 2.5 million jobs were at risk. A bankruptcy without government support could have cost as

many as a million jobs at a time when we were already losing millions. The economy would have been

shattered in Michigan and in other parts of the Midwest and South that relied heavily on vehicle

manufacturing. And given the likely loss of auto dealerships across the country, nearly every community

in America could have been affected negatively.

The annual capacity of the auto industry is 17 million cars; sales in 2008 dropped to an annual rate of

only 10 million vehicles made in the U.S. and Canada. All the automakers and their vast supplier network

account for 2.3% of the U.S. economic output, down from 3.1% in 2006 and as much as 5% in the 1990s.

Some 20% of the entire national manufacturing sector is still tied to the automobile industry.9

Federal financing helped GM and Chrysler use bankruptcy to restructure without shutting down.

Companies in bankruptcy need credit to pay workers and suppliers while they reorganize. In normal

times, such credit - called "debtor-in-possession financing" - is available at premium interest rates from

banks and other private lenders. But in 2009, the financial system was on life support; no such credit

was available, even to the best of borrowers. If GM and Chrysler had entered bankruptcy without

government support, they may never have come out. While Ford was in better shape, it shared many

7 https://www.economy.com/mark-zandi/documents/2012-02-28-OPED-Bailing-Out-Detroit.pdf 8 http://en.wikipedia.org/wiki/Automotive_industry_crisis_of_2008%E2%80%9310 9 http://www.strategy-business.com/article/re00245?gko=2d5df

suppliers with GM and Chrysler, so their liquidation would have dragged many of those suppliers under,

pulling Ford into bankruptcy too.

The Effects of the Bailout & Recovery of the American Auto Industry10

The restructuring process overseen by the government had profound effects. For example, GMs North

American hourly labor costs declined from $16 billion in 2005 to $5 billion in 2010. This was achieved

through layoffs and a decrease in the hourly wage. Employment at the Detroit Three plunged from

250,639 in 2007 to just under 170,000 in 2009. And negotiations with the United Automobile Workers

union led to the carmakers assuming less liability for retirees healthcare costs and instituting a lower

wage for new hires. As a result, by 2011, average hourly labor costs for Ford ($58), GM ($56), and

Chrysler ($52) were competitive with those of Honda ($50), Toyota ($55), and other foreign-based

carmakers at their U.S. plants. The government-backed bailout of Chrysler and GM fundamentally

altered some crucial characteristics of the U.S. auto industry, helping to bring it in line with foreign

competitors.

The improvement in utilization was largely a reflection of how many plants the Detroit Three closed

during the recession and recovery. Between the end of 2007 and the beginning of 2010, they shut or

planned to shut 16 plants. This rapid reduction in capacity helped the three companies become

profitable while producing fewer vehicles. The restructuring also moved nearly all of the U.S. production

and auto plants from Michigan to the Gulf of Mexico. This is one of the major reasons why the auto

industry survived and Detroit didnt.

A Strategic Look at Detroit Economic Decline: Detroits Reliance on a Single Industry the Auto

Industry & the Auto Industrys Reliance on a Single Product - Cars

In the earlier section discussing the American auto Industry, the Great Depression, World War II and the

banking crisis, we saw how Henry Fords withdrawal of Fords assets from Detroit banks could have not

only crippled Detroits economy but the national economy. When looking at the recent auto crises, we

again see the same thing with General Motors, Chrysler and Ford in the wake of the Great Recession,

Sub-prime Mortgage Crisis and the residual financial effects of the Iraq War. It is important to learn from

the lessons of the past. If city leaders knew that their economys stability was intertwined with stability

of the auto industry and its failure could have also meant city failure, why didnt city leaders make

bringing in alternative investments a priority? If one persons or companys withdrawal from a bank

could cripple a whole citys economic system, alternative investments need to be explored to ensure a

safety net is provided for the city and its people. Did anyone conduct a security and risk analysis?

Additionally, the downfall of the auto industry is cyclical, there are indicators in the strategic

environment like engagement in conflict, the strength of the financial market and unemployment rates,

which lets industry leaders know when hard times may be approaching. So why hadnt industry leaders

diversified their companys financial portfolio to include alternative products and technological

developments that would provide it financial stability outside of auto sales? In a free market system,

entrepreneurial savvy is key and American auto industry leaders did not stepped up to the challenge. In

the section entitled, Too Big to Fail, we may began to see why auto leaders have failed to make hard

decisions that would allow them to stay competitive in a globalized economy.

10 http://www.strategy-business.com/article/re00245?gko=2d5df

Too Big to Fail11

The "too big to fail" theory asserts that certain corporations, particularly financial institutions, are so

large and so interconnected that their failure would be disastrous to the greater economic system, and

they therefore must be supported by government when they face potential failure. The colloquial term

"too big to fail" was popularized by U.S. Congressman Stewart McKinney in a 1984 Congressional

hearing, discussing the Federal Deposit Insurance Corporation's intervention with Continental Illinois.

Opponents believe that one of the problems that arises is moral hazard whereby a company that

benefits from these protective policies will seek to profit by it, deliberately taking positions that are

high-risk high-return, as they are able to leverage these risks based on the policy preference they

receive. The term has emerged as prominent in public discourse since the 20072010 global financial

crisis. Critics see the policy as counterproductive and that large banks or other institutions should be left

to fail if their risk management is not effective.

One of the most vocal opponents in the United States government of the "too big to fail" status of large

American financial institutions has been U.S. Senator from Massachusetts, Elizabeth Warren. At her first

U.S. Senate Banking Committee hearing in 2013, Senator Warren pressed several banking regulators to

answer when they had last taken a Wall Street bank to trial and stated, "I'm really concerned that 'too

big to fail' has become 'too big for trial.'" Videos of Warren's questioning, centering on "too big to fail",

became popular on the internet, amassing more than 1 million views in days. To see the video click here

(see time 1:30:00 to hear Sen Warrens address)12.

11 http://en.wikipedia.org/wiki/Too_big_to_fail 12 https://www.youtube.com/watch?v=9dLALjbP9dM

A month later, United States Attorney General Eric Holder told the Senate Judiciary Committee that the

Justice Department faces difficulty charging large banks with crimes because of the risk to the economy.

A little after that, International Monetary Fund Managing Director Christine Lagarde told the Economic

Club of New York "too big to fail" banks had become "more dangerous than ever" and needed to be

controlled with "comprehensive and clear regulation [and] more intensive and intrusive supervision."

Another argument is that if companies are too big to fail than they are too big to exist, and need to be

fragmented down to a more manageable size to be able to accept accountability.

You can watch the movie, Too Big to Fail, on Netflix or on HBO, to see the trailer click here. Here is a

New York Times review of the film and the book is entitled, Too Big to Fail the Inside Story of How Wall

Street and Washington Fought to Save the Financial System from Crisis and Themselves. The movie is

a brilliantly reported true-life thriller that goes behind the scenes of the financial crisis on Wall Street

and in Washington. Andrew Ross Sorkin - NY Times columnist, delivers the first definitive blow- by-blow

account of the economic crisis that brought the world to the brink. Through unprecedented access to

the players involved, he re-creates all the drama and turmoil of these turbulent days, revealing never-

before-disclosed details and recounting how, motivated as often by ego and greed as by fear and self-

preservation, the most powerful men and women in finance and politics decided the fate of the world's

economy.13

To read more about the why the Big 3 needed a Bailout and What it Cost the Taxpayers, read this article:

http://useconomy.about.com/od/criticalssues/a/auto_bailout.htm

13 http://www.thriftbooks.com/w/too-big-to-fail

United Automobile Workers (UAW) Union

Unions an Overview

A union is an organized group of workers who collectively use their strength to have a voice in their

workplace. Through a union, workers have a right to impact wages, work hours, benefits, workplace

health and safety, job training and other work-related issues. Under U.S. law, workers of all ages have

the right to join a union. People usually unionize so that they may have a voice on the job. If workers are

not organized, management can exploit its workers.

Many of the benefits and protections workers enjoy today was a result of the organized labor

movement in the U.S. These include passing laws ending child labor, establishing the minimum wage,

social security payments, an eight hour day and weekends, overtime pay, the Americans with Disabilities

Act and the Occupational Safety and Health Act.

Union members also earn better wages and benefits than workers who arent represented by a union.

Unions like the UAW in Detroit secured the autoworkers great benefits and high pay rates; the unions

allowed Detroit autoworkers to achieve middle class status, even without a significant education. The

terms were usually obtained by using brilliant collective bargaining and negotiating tactics. The UAW

first president Walter Reuther would pick one of the "Big three" automakers, and if it did not offer

concessions, he would strike it and let the other two absorb its sales.14 Union workers wages tend to be

30% higher than non-union workers and 68% have guaranteed pensions where only 14% of nonunion

workers have guaranteed pensions, over 97% of union workers have jobs that provide health insurance

benefits, where only 85 percent of nonunion workers have them.

How do people form a union? If there is a collective need among workers to improve their working

conditions, traditionally they had to go through an established union for protection, sometimes an

employer would honor the workers request before going that far. If the workers win union

representation, the union would negotiate a contract with the employer that spells out each partys

rights and responsibilities in the workplace.15

14 http://en.wikipedia.org/wiki/United_Automobile_Workers 15 http://launionaflcio.org/what-is-a-union

Compulsory Unionism

Before the Right to Work legislation came about, workers were required to join a union in order to gain

union support. Once contacted union organizers would take control of a group of workers and a

company by using federal law to obtain monopoly bargaining privileges. Then union officials would

demand a contract which requires all of the workers to pay full union dues, along with other demand. 16

Unions had exclusive representation rights, a special coercive privilege, given by federal law that

empowers union officials to represent all employees in a company's bargaining unit. This "compulsory

union representation" deprives employees, even in Right to Work states, of their right to bargain for

themselves. Union officials demand this power, then use it as their excuse to force employees to pay

dues for representation they do not want.17

Compulsory unionism is primarily responsible for the Tax-and-Spend policies of the U.S. Congress. Under

their federally-granted coercive powers, union officials collect around $4.5 billion annually in

compulsory dues and funnel much of it into campaign operations to elect and control democratic

congressional majorities. Unions use their large financial commitment to political activity to achieve in

the political process the gains that have escaped them at the bargaining table.18 This common among

many lobbyist groups, the larger the lobbyist group the more political influence it holds.

Exclusive Representation19

Union officials were able to obtain exclusive representation rights because they would make the

argument that all employees would receive union benefits regardless of their membership status,

therefore as a free rider (a person who benefits from resources services without paying the cost of the

benefit20) they should be compelled to pay for the benefits that they will reap as a result of the unions

efforts. This argument forced workers into unions unwillingly and forced them to pay union dues.

Right to Work Laws: Voluntary Unionism

There has been a push for voluntary unionism. Many find the compulsory unionism impractical and a

violation of peoples rights. This push has turned into the Right to Work legislation; prohibits union

security agreements, or agreements between labor unions and employers, that govern the extent to

which an established union can require employees' membership, payment of union dues, or fees as a

condition of employment, either before or after hiring. Right-to-work laws regulates contractual

agreements between employers and labor unions that prevents them from excluding non-union

workers, or requiring employees to pay a fee to unions that have negotiated the labor contract all the

employees work under. An employees right to work is established under the state Constitution;

currently there are 25 states that have passed Right to Work Laws, Michigan is one of them.

Non-Right to Work states with heavy unionization, tend to drive out industry with high cost and multiple

demands. Companies and investors prefer non-unionized states and as a result, Right to Work

states have greater economic vitality, with faster growth in manufacturing and nonagricultural jobs,

lower unemployment rates and fewer work stoppages.

16 http://nrtwc.org/about-2/the-problem/ 17 http://www.nrtw.org/b/rtw_faq.htm 18 http://www.nrtw.org/b/rtw_faq.htm 19 http://www.nrtw.org/b/rtw_faq.htm 20 http://www.academia.edu/6435040/Free_Rider_Problem_in_Economics

How did the Auto Industry Crisis Affect the UAW Union in Detroit?

The United Auto Workers (UAW) is the primary union representing workers in the auto industry in the

United States. UAW members in the 21st century work in industries as diverse as autos and auto parts,

health care, casino gambling and higher education. Headquartered in Detroit, Michigan, the union has

about 390,000 active members and more than 600,000 retired members in 750 local unions, which

negotiated 2,500 contracts with some 1,700 employers.21 The UAW is especially known for gaining high

wages and pensions for auto workers, but it was unable to unionize auto plants built by foreign-based

car-makers in the South after the 1970s, and went into a steady decline in membership

increased automation, decreased use of labor, movements of manufacturing (including reaction

to NAFTA), and increased globalization all were factors.22

Changes in the global economy, competition from European and Japanese automobile makers, and

management decisions at the U.S. automakers had already started to significantly reduce the profits of

the major auto makers and set the stage for the drastic changes in the 1970s. The arrival of Volkswagen,

Honda and other imports threatened the industry area. When the German and Japanese companies

opened plants in the USA, they headed to the South and operated without unions. The situation for the

automotive industry and UAW members heightened with the 1973 oil embargo. Rising fuel prices

caused the U.S. auto makers to lose market share to foreign manufacturers who placed more emphasis

on fuel efficiency. This started years of layoffs and wage reductions, and the UAW found itself in the

position of giving up many of the benefits it had won for workers over the decades. By the early 1980s,

auto producing states, especially in the Midwestern United States and Canada, had been impacted

economically from losses in jobs and income.

UAW has been credited for aiding in the auto industry rebound in the 21st century and blamed for

seeking generous benefit packages in the past which in part led to the automotive industry crisis of

2008-2009. UAW workers receiving generous benefit packages when compared with those working at

non-union Japanese auto assembly plants in the U.S., had been cited as a primary reason for the cost

differential before the 2009 restructuring. In a November 23, 2008, New York Times editorial, Andrew

Ross Sorkin claimed that the average UAW worker was paid $70 per hour, including health and pension

costs, while Toyota workers in the US receive $10 to $20 less.23 The UAW asserts that most of this labor

cost disparity comes from legacy pension and healthcare benefits to retired members, of which the

Japanese automakers have none. According to the 2007 GM Annual Report, typical autoworkers earn a

base wage of approximately $28 per hour. Following the 2007 National Agreement, the base starting

wage was lowered to about $15 per hour.24 A second-tier wage of $14.50 an hour, which applies only to

newly hired workers, is lower than the average wage in non-union auto companies in the Deep South.25

One of the benefits negotiated by the United Auto Workers was the former jobs bank program, under

which laid-off members once received 95 percent of their take-home pay and benefits. More than

12,000 UAW members were paid this benefit in 2005.[20] In December 2008, the UAW agreed to

suspend the program as a concession to help U.S. automakers during the auto industry crisis.[21]

21 http://www.uaw.org/node/39 22 http://en.wikipedia.org/wiki/United_Automobile_Workers 23 Sorkin, Andrew Ross "A Bridge Loan? U.S. Should Guide G.M. in a Chapter 11" 24 General Motors Corporation 2007 Annual Report 25 Brenner, Mark and Slaughter, Jane "Cutting Wages Won't Solve Detroit 3's Crisis", Detroit News,

EDUCATION: Our goal is to provide exposure to the purpose and range of educational institutions, the value of an educated responsible citizenry, and the educational opportunities available to all citizens.

The Detroit Education System:

Detroits public and charter school system has faced major challenges over the past few decades,

recently scoring among the lowest in the country on national standardized tests. In 2011, only 7% of 8th

graders achieved grade-level proficiency in reading and only 4% in math. The challenges within Detroits

education system are an example of the elementary education challenges faced by many other places in

the U.S. One of the efforts that has produced some success is the charter school system. Charter schools

are different from private schools in that they attended by choice and have a different public funding

structure. Rather than charging tuition, charter schools receive public funding on a per-student basis

(charter schools often receive private donations as well). They also differ from most public schools in

that they have greater flexibility in determining curriculums and often focus education on specific

vocations or specialties. Charter schools tend to hold higher academic standards than public schools,

and often admit students based on a merit or lottery system. While the charter school system has not

guaranteed success (some charter schools perform poorer that public schools), it has brought significant

change is some areas.

On Friday, we will hear from individuals that are involved in trying to turn elementary education around

in Detroit. Watch the documentary film Waiting on Superman, on Netflix.

Questions to Consider:

1. Why has education in Detroit been so poor in recent history? 2. What is happening to improve this situation? 3. What is the overall impact of the charter system on public education? 4. How does elementary education in the U.S. compare to your country? Pros and cons of

each?

Abandoned Detroit School

The Detroit Public School System (DPS)

More than 200,000 Detroit residents, 47% of Motor City adults are functionally illiterate26; this means

1 in 3 people cannot read to understand. A person who has low literacy skills might be able to read some

words, but not enough to understand simple forms or instructions. This means they cannot fill out job

applications, read a training manual, get a drivers license, understand their childs school permission

slip, read the ingredients on a food label (must rely on pictures), read a prescription, or follow a

doctors written instruction, or read a book to their children.27 How are these families getting by? Not

well.

Adults who cant read often live in isolation and poverty 60% of Detroit children are living in poverty.

These children do not do as well in school as children from literacy-rich homes; research shows that one

of the most important factors impacting a childs reading level is his/her mothers level of education28. If

education starts at home, where does this leave the children of Detroit?

Detroits Educational System is Broken

The Detroit Regional Workforce Fund, released a report that showed the staggering degree to which

public education has failed in one of the most economically depressed cities in the United States. Whats

even more shocking is that they somehow half of the illiterate population made it through public school,

they had a high school diploma or General Educational Development (GED). Virtually the entire

illiterate population has completed elementary school, the level at which reading is supposed to be

26 http://theweek.com/articles/484910/detroits-shocking-47-percent-illiteracy-rate 27 http://readingworksdetroit.org/?page_id=63 28 http://readingworksdetroit.org/?page_id=63

taught. Thats seven years of schooling (k-6), at a cost of roughly $100,000, with nothing gained. Per

pupil spending in Detroit as of 2008 was $13,000, which is higher than some people pay for private

schooling in other parts of the country. Clearly, the system has failed and the taxpayers arent getting

their moneys worth. Unfortunately, at least half of them arent able to read the report to figure that

out.29 What does this mean, what are the implications of not having a responsible and educated

citizenry? How could Detroits city and educational leadership fail the city so terribly? The people in

Detroit have been totally left behind, because if they cant read, they cant fill out a job application to try

and improve their lives.26 A major challenge of Detroits leadership is figuring out how to step up to the

plate and reverse this trend.

Did you know that the former president of the Detroit School Board (also a product of the Detroit Public

School System) Otis Mathis, was also functionally illiterate?30 The blind cannot lead the blind; with

previous leadership like this no wonder why Detroit Public School System is in as bad of shape as it is.

Some Major Problems Facing the Detroit School District31

DPS had 200 central administration officers in 2005 when it had 8,149 teachers and 15,693 employees

serving 134,215 students. In 2014, DPS had more administrators 204 for 3,100 teachers and 6,535

employees serving 49,546 students. That's four more administrators than a decade earlier to man the

bureaucracy and oversee 62% fewer teachers and 58 % fewer employees serving 63 % fewer students.

Can you say management problem?

"Unless" business leaders "decide that education is the driver of the economy and educational

achievement is what matters most," said Lou Glazer, CEO of Michigan Future Inc., "we're going to end

up with more of this partisan bickering." Debt service for past operating deficits is estimated to be

$1,200 per student, according to calculation by the finance subcommittee of the Coalition for the Future

of Detroit Schoolchildren. Competition with charters is fueling a counter-productive race for students

and teachers alike.

Like the bankruptcies used to transform General Motors Co., Chrysler Group LLC and Detroit, the

deepening crisis of public education in Detroit is a rare opportunity to forge a new model that would

demand high standards, project transparency and put student achievement ahead of adult

aggrandizement. The truth is that reforming Detroit's broken education system will require a)

cooperation across b) a broad spectrum of political interests, business and philanthropy that is c)

attuned to community sensitivities and d) nominally partisan.

Reforming Detroits education system carries political risk for both sides. A push for common standards

and potential spending would rankle the GOP majority, and a demand for accountability and flexibility

among union teachers would challenge a traditional Democratic constituency. Managing such political

backlash is a prime reason business is more willing to push for increased higher ed funding than back

reform for public education in Detroit. It's safer and less messy.

29 http://www.outsidethebeltway.com/study-finds-47-of-detroit-residents-are-functionally-illiterate/ 30 http://www.detroitnews.com/article/20100304/OPINION03/3040437/ 31 http://www.detroitnews.com/story/business/columnists/daniel-howes/2015/02/27/howes-detroit-school-fix-next-challenge-leaders-business/24101609/

Financial Crisis, Market Share, and Declining Enrollment

In 2011, Detroits school system was facing an unbelievable $327 million budget deficit, and was under

strict orders to deal with the massive debt, so Detroit began selling off Detroits public schools to

privately run charter schools. This has cause the Detroit Public Schools to possess less on the market

share and is contributing to its increasing decline in enrollment numbers. Students are leaving the city,

and the schools are competing with various charter and private school in the city for students and

teachers.

Poverty

Poverty plays a significant role in a students ability to achieve. In 2009, the poverty rate for all children

under 18 was 22.5% statewide and 50.8 % in Detroit. Poverty rates are slightly higher for Detroit

children younger than 12 compared to children 12 and older. From 2000 to 2009, the percent of African

American children and youth under 18 in Detroit living in poverty jumped from 34.7 % to 50.4 %, a

staggering rise. When children succeed in school, it is often a sign their needs are being meet in other

areas of their lives. The shockingly low standardized test scores and graduation rates for students in the

majority of DPS schools are a sign of dysfunction across institutions meant to support children. In the

context of academic literature on the causes of poverty, Detroit students are held back by failures in

both their schools and in their neighborhoods.32

Testing

Only 7% of its public school 8th graders are grade-level proficient or better in reading. Detroit public-

school eighth graders do even worse in math than they do in reading, according to the Department of

Education. While only 7% scored highly enough on the departments National Assessment of

Educational Progress test in 2011 to be rated proficient or better in reading, only 4% scored highly

enough to be rated proficient or better in math. 68% of Michigan public-school eighth graders are not

proficient in reading and 69% are not proficient in math.33

The Drop-Out Crisis

Detroits true graduation rate has been a point of contention for years, a third of its high school students

dont graduate. Regardless of the total, far too few Detroit children leave school prepared to enter the

workforce or attend college.34

The Rebirth of the Detroit Public School System

However, now does not mean forever, what are Detroit leaders doing now to improve the quality of

education for the students? Detroit Public Schools are currently under the leadership of Emergency

Manager Roy Roberts, and he has created a Strategic Planning process to assess current strengths and

weaknesses within the district and has designed a plan that will improve academic performance,

increase market share, and stabilize the annual budget.34 Please take a look at the Detroit Public Schools

Strategic Plan and please ask our panelist questions about the current state of Detroit education.

32 http://reallifemymusic.org/detroit-public-school-statistics/ 33 http://cnsnews.com/news/article/only-7-detroit-public-school-8th-graders-proficient-reading 34 http://detroitk12.org/strategic_planning/

Government Institutions Provide exposure to U.S. institutions of democratic governance, including electoral and legislative

processes and civilian control of the military, and the institution and improvement of public

administration at the national, intergovernmental, State, and local levels.

Detroit Government Institutions, Leadership & Economic

Stability

For the past 15 years, Detroit

has seen serious challenges in

its economy. This was reflected

in 25% population drop from

2000 to 2010 (from the 10th

largest U.S. city to the 18th).

Compared to its economic and

population peak in 1960, the

2010 population of 713,777 was

60% drop. The city also

currently has a $327 million

budget deficit and over $18

billion in long-term debt. The financial problems have also led to underfunding of critical city services

like police and fire departments. Due to Detroits financial decline and economic challenges, the

Governor of Michigan, Rick Snyder, declared a financial emergency in March 2013 and appointed an

emergency manager, Mr. Kevin Orr (a DC based attorney) for the city. This led to Detroit filing for

bankruptcy in July of 2013, the largest municipal bankruptcy filing in American history.

We will receive briefings on Detroits financial situation. Detroits predicament is a culmination of

decades of population decline, overspending, debt-financing, corruption, and ineffective attempts to

reform a broken system all of this compounded by the 2008 global financial meltdown. In response,

the state governor of Michigan has appointed a team of bankruptcy and restructuring experts to put

Detroits finances back on track. Friday afternoon will be an opportunity to meet and interact with

experts and policy-makers on the frontline of this historic nexus of federal, state, and municipal

government working together to work through the bankruptcy of one of Americas largest and most

historic cities. We will go from there on bus tour around Detroit, highlighting the citys history as well

the issues well be discussing in our briefings.

Questions to Consider

What is the right combination of government oversight when a city cannot pay its debts?

How can unions and civil society organizations demand rights and consideration in a government-managed economic restructuring like Detroits?

What is the financial relationship between the private sector, local government, and the federal government when it comes to state of city economic stability?

An Overview of the Past: Ineffective and Imperfect Leadership3536

The financial crisis facing Detroit was decades in the making, caused in part by a trail of missteps,

suspected corruption and inaction. Here is a sampling of some city leaders who trimmed too little, too

late and, rather than tackling problems head on, hoped that deep-rooted structural problems would

turn out to be cyclical downturns.

Charles E. Bowles, backed by the Ku Klux Klan, was in office for seven months in 1930

before 121,000 people demanded his removal (90,000 opposed). His ascension to the

mayor's office was followed by a spike in crime, and he was suspected to be linked to

some of Detroit's underworld figures. With racial tensions heated in Detroit, as more

African Americans came to the city to work in factories, the Republican Bowles rode into

office thanks in part to wide support from the Ku Klux Klan. It didnt help that a majority

of the new recruits to the Detroit police force in the early 1920s were Southern whites

some of whom were Klansmen themselves. But it wasnt racial issues that got him kicked out of office. It

was mostly because he was considered to be breeding a city of vice and corruption. The stories of

gangland feuds and killings were diversions from the deeper agony that spread across Detroit in the

1930s Unemployment was high and deep poverty endemic.

Albert Cobo was considered a candidate of the wealthy and of the white during his

tenure from 1950 to 1957. He ran Detroit at the citys peak population of more than

1.8 million people. His policies helped to set the stage for Detroits decline and the

racial strife that plague the city to this day and set the stage for decades of problems

that would plague the city and lead to the racial upheaval of the 1960s.

Suburbanization: He declined federal money for housing projects and facilitated the

construction of freeways. Instead of making the city more accessible and bringing

folks in, it caused the city to bleed out, both population and businesses. The freeways

simply made it easier for folks to live elsewhere, yet still work downtown;many of his backers were

wealthy white suburbanites. Cobos quest for more and more freeways directly fueled the citys decline

and population shrinkage. When he died in 1957, the city had lost more than 150,000 people, and was

down another 30,000 by 1960 a 10% decrease since Cobo took office.

Cobo often stoked racial tensions. Keep in mind that the city had not fully healed from the race riot of

1943, and tempers had not cooled by the time he took office. Cobo used this sentiment to his advantage

and often played the race card, stoking white peoples fears of the increasingly restive black Detroiters,

hinting that he was the only thing keeping them at bay.

Housing discrimination was rampant in Detroit. And many of Cobos policies had a negative effect on

housing opportunities for African Americans. He planned to demolish the homes of lower-income black

residents and immigrants and pay for it by selling the land to developers. He also was part of the big

push that demolished the center of black life in Detroit. After erasing these neighborhoods from

existence starting in 1950, the land would sit unused and overgrown for some five years. Black

Detroiters watched their community flattened for an overgrown wasteland of nothingness.

35 http://www.freep.com/article/20140723/OPINION/307230054/Meet-5-worst-mayors-Detroit-history 36 http://www.nytimes.com/interactive/2013/08/17/us/detroit-decline.html?_r=0

Cobo also neglected civil-rights initiatives that would have integrated the citys black population. There

were regular police crackdowns that targeted black communities, to include, racial profiling, and

randomly stopping and searching African American walking down the street, yet he did nothing to stop

them. It was not a peaceful time in the city. And it would only get worse. The policies of Cobo and his

successor would eventually boil over into the riot of 1967.

One of the positive things attributed to Cobo his development of the citys Civic Center. Eventhough the

$112-million investment did not bring the renaissance that Cobo promised, it was still the first time

Detroit had really taken advantage of its riverfront and would, decades later, pave the way for the

RiverWalk and other beautification projects.

Coleman A. Young was seen as a divisive figure in the 20 years he served as mayor.

He won his first mayoral election in 1973, largely on the promise to ease tension

between the police and black residents. But while many blacks saw him as a hero who

pledged to fight crime, some whites felt he wasn't looking out for their interests, as

was primarily looking out for the black community. Mr. Young seemingly breezed to

second, third and fourth terms without making the expected bridge-building racial

appeals. Though Mr. Young was credited with revitalizing the waterfront, the rest of

downtown was often compared to a war zone, with neighborhoods crumbling, businesses boarded up

and poverty remaining high.

Kwame M. Kilpatrick, mayor from 2001 to 2008, was nicknamed the "hip-hop mayor"

when first elected at 31, in part for his larger-than-life persona, flashy suits and the

diamond stud in his ear. Kilpatrick brought new attractions to the citys riverfront, but

his administration also orchestrated a disastrous financial deal that cost Detroit

taxpayers $20 million in 2005 to fund Detroit pensions. The deal backfired and helped

drive Detroit into bankruptcy because the city gambled that interest rates would rise, then they fell to

historic lows during the 2008-2009 financial crisis.37 Kilpatrick and other officials were also charged with

operating a criminal enterprise out of the mayors office. Prosecutors also said he illegally used non-

profit funds and state grants for personal expenses.38 After a series of scandals he resigned in 2008 and

later plead guilty to obstruction of justice charges, served 4 months in jail and was ordered to pay $1

million to the city. He was behind bars 2 years later for hiding assets from the court, and was later

sentenced to 28 years in prison after he was found guilty of racketeering, fraud and extortion.

Dave Bing, a former professional basketball star, took office in 2009 pledging to solve

Detroits fiscal problems, which by then were already overwhelming. During his term,

there were numerous announcements of cuts to the citys work force (public services

saw a significant decrease) and he called for the displacement of residents in an

effort to downsize Detroit, among other impractical and uninventive approaches to

cut the city budget deficit. Eventually, the Michigan governor appointed Kevyn D.

Orr, a veteran lawyer, as an emergency manager to oversee the citys operations,

rendering Mr. Bing virtually powerless.

37 http://archive.freep.com/article/20140714/NEWS01/307140094/Detroit-bankruptcy-hedge-funds 38 http://www.nytimes.com/2013/03/12/us/kwame-kilpatrick-ex-mayor-of-detroit-convicted-in-corruption-case.html

28 Dilemmas Detroits Current Leadership Has Had to Face When it Filed for Bankruptcy3940

Detroit became the largest city to file for bankruptcy. Michigan's governor and Detroit's mayor said

Detroit has a chance to emerge stronger from this, but the city still had a number of challenges ahead of

it.

1. Detroit was facing $20 billion in debt and unfunded liabilities; that broken down is more than $25,000 per resident.

2. The city owes money to over 100,000 creditors. 3. Nearly 80,000 homes and buildings have been abandoned in the city and many are unsecured. 4. About one-third of Detroit's 140 square miles is either vacant or derelict. 5. Population of Detroit has fallen from 1.86 million in 1950 to 700,000 today. 6. Detroit was once the fourth-largest city in the United States, but over the past 60 years the

population of Detroit had fallen by 63 %. 7. Some 47% of properties are delinquent in paying taxes. 8. Police have solved only 8.7% of the violent crimes that are committed in Detroit. 9. Detroit has the highest crime rate in the US of large cities; the murder rate in Detroit is 11 times

higher than it is in New York City. 10. Manufacturing jobs in the city have slid from a peak of 296,000 to less than 27,000 today. 11. Only 7% of the citys eight graders are proficient in reading. 12. 60 % of all children in the city of Detroit are living in poverty. 13. An astounding 47 % of the residents of the city of Detroit are functionally illiterate. 14. The city manager says its retirement system is underfunded by $3.5 billion. 15. There are lots of houses available for sale in Detroit right now for $500 or less. 16. The city of Detroit is now very heavily dependent on the tax revenue it pulls in from the casinos in

the city. Right now, Detroit is bringing in about 11 million dollars a month in tax revenue from the casinos.

17. There are 70 "Superfund" hazardous waste sites in Detroit. 18. 40% of the street lights didnt work. 19. Only about a third of the ambulances were running. 20. Two-thirds of the Detroit parks have been permanently closed down since 2008. 21. The size of the Detroit police force had been cut by about 40% over the past decade. 22. It took an average of 58 minutes for police to respond to calls. 23. Due to budget cutbacks, most police stations in Detroit closed to the public for 16 hours a day.

39 http://abcnews.go.com/Business/top-10-dilemmas-facing-detroit/story?id=19710933 40 http://www.zerohedge.com/news/2013-07-21/25-facts-about-fall-detroit-will-leave-you-shaking-your-head

How Does Municipal Bankruptcy Work?41

How is a city going bankrupt different from a company or a person?

Chapter 9 of the federal bankruptcy code, which applies to municipalities, counties, and other public

entities like school districts and utilities, differs from Chapter 11--which applies to corporations--in a few

important ways.

First of all, it's much rarer, with fewer than 700 cases since the provision was created in 1937, and 36

since 2010. For that reason, case law is still being settled--although Chapter 9 gives a municipality much

broader authority to rewrite union contracts, only after the bankruptcy of Central Falls, R.I. did it

become clear that cities would have the ability to escape their pension obligations.

It's clear, however, that Chapter 9 forbids debtors from simply dissolving to pay creditors, as a company

might. Also, courts tend to have a less active role in the restructuring process, limited to approving a

plan and making sure it's followed; the debtor doesn't need court approval to dispose of its assets as it

pleases in the meantime.

Is it possible to emerge successfully from bankruptcy?

Yes. A conscious, deliberate, enforceable reconstruction plan can actually put a municipality on a much

firmer footing than any other process. Orange County, for example, emerged from its 1994 bankruptcy

within a year, and nine years later had a triple-A bond rating.

Is there any way that Detroit could have avoided this one?

Probably not. Michigan Gov. Rick Snyder had been pushing for it for months, passing a revised version of

an emergency manager law that voters had rejected. Detroit's appointed manager, Kevyn Orr, had only

managed to work out deals with two large banks out of the city's tens of thousands of creditors. Its

public employees unions, having already offered large concessions, were unwilling to lose as much as

Orr says is necessary. With a tax base that's been cut in half over the last half-century, there's simply not

enough money to satisfy everyone voluntarily.

I understand why Detroit had to file for bankruptcy. Why would it want to?

Along with gaining the ability to re-shape its contracts with creditors and public employees, bankruptcy

grants cities a stay of all collection actions, buying them time to closely analyze their finances and put

together a plan. Kevyn Orr sees it as a tool, a way of turning the city around.

Who gets hurt most?

Detroit is about $18 billion in debt, and will only be able to pay out a fraction of that in the short term.

The two main groups of creditors arguing they're entitled to that money are public employees and

retirees, and bond holders. The investors are likely to make out better, since more of that debt is

secured; the city will continue to pay water and sewer bondholders. Most of the pension debt has no

similar backstop.

41 http://www.washingtonpost.com/blogs/wonkblog/wp/2013/07/19/detroit-is-bankrupt-heres-what-comes-next/

City residents will likely suffer a lack of anything other than the most rudimentary public services for a

long time, but the impact is likely to be felt most keenly by those who lost a large chunk of the

retirement they were counting on.

What are unions saying?

They're livid about the likelihood of restructured pensions and health benefits, having already offered

large concessions, and say they were trying to come to a solution before Orr raced to the courthouse to

file the bankruptcy petition Thursday. And they've vowed to fight any default of the city's obligations

("It's war," says the head of the police and fire pension fund). So far, though, there's been no talk of

work stoppages; city services will continue as normal.

What will the city have to do to work this out?

Just because you petition for bankruptcy protection, and even get approved by the governor, doesn't

mean you'll be able to go through with it.

Detroit will first have to prove that it is fiscally insolvent and filed the petition in good faith, which many

of its creditors will dispute in a series of hearings. If a to-be-appointed judge grants the petition, the city

manager will put together a reorganization plan, including cuts to services, the sale of assets, and

reductions in what it plans to pay pensioners and bondholders. Then, according to the Detroit Free

Press, it will have to put the plan to a vote of creditors. If not enough of them agree, the city manager

could pursue a "cram down" procedure, asking a judge to rule that the dissatisfied creditors are not

being reasonable. Orr has said he's aiming to bring the city out of bankruptcy by the end of next year,

which most analysts view as very optimistic.

If he manages to put together a package of funds for reinvestment, Detroit may manage to become

healthy again, but it will require more than just financial restructuring: The whole city needs to be

reorganized into a smaller space, because it can't go on serving 40 percent of its former population over

the same 140-square-mile footprint.

Will the state or federal government have to get involved?

Steve Rattner, who oversaw the bankruptcies of General Motors and Chrysler, says Detroit's process will

be much harder, since the city can't bank on rising revenues like the auto companies could. For that

reason, it may have to seek financial assistance from the state just to keep city services running, and

Rattner figures the Obama administration won't be interested in helping out. Gov. Rick Snyder, having

pushed for the filing, may feel pressure to come through.

What effect will this have on other cities?

The inevitable downside of municipal bankruptcies is that they make cities a riskier bet for investors, so

they'll have a harder time raising money for public works like utility systems and bridges. But the stigma

of bankruptcy has been fading as more cities go through it, and as the problem of out-of-control pension

systems becomes more pervasive. And it's likely that Detroit, with its death spiral of disinvestment and

mismanagement, will be considered sui generis--other cities around the country are doing much better,

and bondholders may evaluate each on the merits.

Detroits Rebirth

Detroit's situation is extremely dire right now, and it will require great leadership and shared sacrifice in

order to turn things around. Fortunately, there are already some glimmers of hope.

The big three auto companies, for example, are now profitable again after having experienced extreme

difficulties in 2008 and 2009. GM and Chrysler still have a significant presence in the city, while Ford is

based in nearby Dearborn. Both GM and Ford have seen their share prices rise by 29% so far in 2013.

Also, Detroit's downtown is reviving with Quicken Loans founder Dan Gilbert having invested more than

$1 billion. Warren Buffett is a huge fan of Gilbert, and was recently very complimentary of the latter's

efforts on behalf of Detroit.

Finally, Detroit has a new mayor, Mike Duggan, who appears to possess the kinds of skills that will be

essential for turning the city around. The path ahead will be difficult, but at least one great investor is

hopeful. At a recent event for small businesses in Detroit, Warren Buffett said that he has a "real love

for the city, and the potential is huge." He also said, "The United States with a flourishing Detroit is going

to be a lot better than without one." I think all Americans would agree with that.

How Detroit was reborn?

To understand how Detroit was reborn, would be a small booklet in itself. However for an excellent

article to understand the rebirth of Detroit, please read this 15 Chapter report: How Detroit was Reborn:

The Inside Story of Detroits Historic Bankruptcy Case, published by the Detroit Free Press. A copy of this

report is also saved on Google Drive.

Diversity & American Life How the United States fosters political, economic, and social pluralism; the geographic, religious, and

social diversity of American life; progress in applying American ideals to ethnic minorities and women,

including how they address gender based violence. How American families live and work in cities, towns,

and rural areas; how Americans function in communities, worship, work together in organizations, and

participate in and support cultural and historical events; the role of volunteerism in American life.

History of and Exposure to Geographic, Ethnic, Religious, and

Social Groups in the U.S.

As we have learned throughout the trips this year, the US is rich with diversity. We will explore how the

governments treatment of minority populations had lasting effects on the socio-economic standing of

minorities today, and how discriminatory policies lead to a series of riots across the country, but more

specifically how Detroits race riots and racial tensions also lead to the decline and downfall of the city.

Question to Consider:

What new policies have replaced the discriminatory ones in the past to ensure that even one has equal access to economic opportunity?

How has the past influenced the present?

The Urban Decline of Detroit

When you visit Detroit you will see the residual effects of the three race riots that destroyed the

infrastructure of the city of Detroit. It is the hope that providing you with context and background

information on the conditions that lead up to the devastation of the urban inner city of Detroit you will

begin to understand and fully appreciate some of the things that you are seeing. The Race riots are a

major part of Detroit history, and have left their crushing mark on the economy of the city (along with

other factors). In this next section, we will explore some other socio-economic factors and policies that

are more consistently in-line with the urban decline of major cities overall. You will also learn about

some discriminatory policies that helped to shape the urban landscape and mold the urban community

into what it is today.

Urban Decay42

As mentioned in the abstract of Detroit, urban decay (also known as urban blight) is the process

whereby a previously functioning city, or part of a city, falls into disrepair and decrepitude. It may

feature deindustrialization, depopulation or changing population, restructuring, abandoned buildings,

high local unemployment, fragmented families, political disenfranchisement, crime and desolate,

inhospitable city landscape.

Since the 1970s and 1980s, major structural changes in global economies, transportation, and

government policy has created the economic and social conditions that have resulted in urban decay.

Urban decay is manifested in the peripheral slums at the outer skirts of a metropolis, while the city

center and the inner city retain high real estate values and sustain a steadily increasing populace. At

other times, some major cities in contrast may experience population flight to the suburbs and exurb

commuter towns, this is known as white flight. Another characteristic of urban decay is blight, this is

the visual, psychological, and physical effects of living among empty lots, building and condemned

houses. These desolate properties are socially dangerous to the community because they attract

criminals and street gangs, contributing to the volume of inner city violence and crime.

42 http://en.wikipedia.org/wiki/Urban_decay

Image of Urban Blight in Bronx, New York.

Urban decay has no single cause; it is the result of a combination of inter-related socio-economic

conditions, including the citys urban planning decisions, tight rent control, the poverty of the local

populace, the construction of freeway roads and railroad lines that bypass these areas, depopulation by

suburbanization of peripheral lands, real estate neighborhood redlining, and immigration restrictions.

We will explore some of these issues, such as: depopulation by suburbanization, de-industrialization,

disinvestment, political disenfranchisement, unemployment and crime as it pertains to Detroit.

Depopulation by Suburbanization43

Suburbanization is the growth of areas on the fringes of the cities; it is one of the many causes that

increases urban sprawl (see the definition below). In Detroit, like many other cities, urban residents

began to see the cities as too dangerous and crime-infested (in Detroit this was marked by the period of

riots, fights for civil rights, and not-so-civil disobedience22), so they began seeking out residential

property in suburban neighborhoods as a safe place to live and raise a family.

Urban Sprawl is when people move away from urban areas into previously remote and rural areas,

which often results in communities reliant on heavy automobile usage.44 If urban sprawl is not contained

it will lead to urban decay and a concentration of lower income residents in the inner city. Some social

scientist suggest that the historical process of suburbanization and decentralization are instances of

white privilege that have contributed to contemporary patterns of environmental racism.45

When white residents living in racially diverse communities began to sell or walk away from their

homes, their moves were often born out of fear and sometimes outright racial prejudice as the city of

Detroit began to deteriorate.22 In Detroit, this initial large-scale migration of white residents from

racially mixed urban areas to the more racially homogenous suburbs became known as white flight.

When white residents fled from Detroit to the suburbs by the thousands, it affected the municipal

structures, tax bases and jobs. It set the stage for similar urban race-related exoduses around the

43 http://en.wikipedia.org/wiki/Suburbanization 44 http://en.wikipedia.org/wiki/Urban_sprawl 45 Rethinking Environmental Racism: White Privilege and Urban Development in Southern California Laura Pulido Annals of the Association of American Geographers, Vol. 90, No. 1 (Mar., 2000), pp. 12-40

country.46 As thousands of white residents left urban Detroit for the suburbs minorities began to move

in, now Detroits population has moved from being about 20 percent African-American to being about

84 percent in 2010, making it the largest African-American populated city in the United States.

Eventually with the increase in crime, the remaining Detroits black middle class population started to

flee to the suburbs looking for better governance, better education systems, and better economic

opportunity. In the last decade (since 2011), Detroits population has plunged by 25%. In fact, twice as

many people left Detroit than the number of people who left New Orleans after Hurricane Katrina. It

was the largest percentage drop in history for any American city with more than 100,000 residents,

apart from the unique situation in New Orleans. The number of people who vanished from Detroit was

237,500 and the number of people that left New Orleans post Hurricane Katrina was 140,000.47

Deindustrialization

Designed by Albert Kahn and built on almost 40 acres, the Packard Plant was one of the largest and most

advanced automotive factories in the world when it opened in 1903. Eleven-thousand workers used to

build cars there. The Packard was the best-selling luxury car in America, outselling Cadillac, Lincoln,

Peerless and Pierce-Arrow combined. Now the factory, is the most expansive abandoned industrial site

in the country.48

In 1965, manufacturing was 50 percent of Michigans economy and by 1973, it had dropped to down to

33 percent. In 1951, there were 148 permits for new factories in Detroit, by 1963 there were only 14.

The industrial end in Detroit lead to a pool of unemployed men to populate the streets. At lease 1/3 of

Detroits inner city was unemployed. In 1947, manufacturing jobs in Detroit were 338,800 and by 1972,

they had dropped to 180,400. Between 1950 and 1963 the East Side of Detroit alone had lost 71,000 out

of 102,000 industrial jobs. Men were coming home from the war and there werent any jobs. All of the

46 http://www.washingtonpost.com/opinions/marilyn-salenger-white-flight-and-detroits-decline/2013/07/21/7903e888-f24a-11e2-bdae-0d1f78989e8a_story.html 47 http://affordablehousinginstitute.org/blogs/us/2011/04/fleeing-the-city.html 48 http://nighttraintodetroit.com/2010/01/13/giants/

The Detroit Packard Automotive Plant in full swing.

auto jobs people were moving to Detroit for were rapidly disappearing. In 1960, the percent of adults

not working was 25.7 percent, by 1970 it was 32.6 percent, and then by 1980 the percent of adults not

working rose to 45.1 percent. By 1980, almost half of Detroits population was unemployed and this

economic vacuum was filled with a spirit of crime.49

Unemployment and the Rise of Crime22

The decline and removal of the auto industry in Detroit caused mass unemployment, and as the auto

industry began to crumble the city began to evolve around the drug economy and the illegal drug

distribution. Between 1965 and 1970 violent crimes in Detroit more than doubled and the number of

people addicted to drugs increased significantly as well. People (lacking a moral compass) looking for

income in a jobless market and others looking to fund their drug habit, began breaking into houses and

snatching gold chains and earrings. Detroits drug scene was further enhanced by a crooked cop turned

drug kingpin by the name of Henry Marzette Jr. who introduced heroine into the streets of Detroit; this

introduction further destroyed the social structure and integrity of the once middle class city. Marzette

was once an undercover cop hired to take down the citys top heroine dealers, in the process he began

to play both sides. Since he knew the legal system well, it made it even harder for the DEA to take him

down. Drug wars began to take over the city, and by 1971 Detroit had become the murder capital of the

United States with over 601 Homicides in 1972 alone.

49 Detroit bankruptcy documentary on Crime: Gangs, Drug Dealers, Decline of the Economy - documentary

The Detroit Packard Automotive Plant Today, closed 1965

The children of Detroit had grown up in the shadows of the worlds largest corporations, and were ready

to graduate from petty crime to the world of big time drug dealing. The jobless rate of black teens

became twice that of the adults at the time. This rough period created a cultural shift within Detroit

from the working class mentality, to the have-not mentality, where crime became a regular way of life.

In 1980, the DEA estimated that drug sales in Detroit exceeded the revenue of Chrysler Motors and

Downtown Detroit became a hotbed of drug activity as many urban neighborhoods began selling drugs.

A gang of young teens alone sold an estimated $300,000 worth of heroin and cocaine a day at their

peak. With this type of income they began purchasing clothes and fancy cars and became criminal

celebrities in their neighborhood which started the glorification of this type of lifestyle. The drug

economy created a space for economic opportunity where industry failed to, further perpetuating the

downfall of Detroit.

Urban Blight Leads to Disinvestment in Detroit

Abandoned Infrastructure, Impaired Property Values, and Increased Crime Rates led to disinvestment in

Detroit. One of the citys new challenges is managing the vast landscape after flight and decay.

Image of Urban Blight in Detroit, Michigan

Reviewing Historical Events & Their Lasting Impacts

The Great Migration 1915-1960

Between 1915 and 1960 there was a Great Migration of about 5 million southern blacks moving north

and west looking for job opportunities. The motivations for this migration was economic; a number of

African-Americans wanted to escape the oppressive socio-economic conditions in the south and the

north held a promise of greater economic prosperity. There was mass unemployment of blacks in

southern cities due to discriminatory laws that prevented them from being gainfully employed and there

was also unequal access to education. These persistent social inequalities prevented blacks from using

education and employment as alternative vehicles for racial advancement in the south. However, in the

north, companies were hiring job recruiters to tour the south to recruit workers to fill jobs in the newly

established war factories and to replace the loss of 5 million men who left to serve in the armed forces.

Recruiters offered incentives like free transportation or wage advances to cover the cost of the

migration. During the initial wave, the majority of migrants moved to major northern cities such as

Chicago, Detroit, Pittsburg, and New York City.50

During the Great Migration, the African-American population in Detroit grew significantly. In 1910, the

black population of Detroit numbered only 5,741, a mere one percent of the population. By 1920, the

number of African-American residents had grown to 40,838 and before the end of the decade, the

African-Americans came to comprise 7.7 percent of the entire Detroit population.51

When recruiters marketed economic opportunities in the south they advertised to blacks and whites

alike. However, during the migration southern whites brought n