Public bears cost of boom bust cycle in Detroit

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It’s hard to picture that London, with its booming industry in professional services, could ever face the same fate as the US city of Detroit. The majority of London’s employed population (82%) works in the professional services (e.g. bankers, solicitors, accountants) and the financial sector employs one in every three such workers. And thankfully the financial sector doesn’t ever collapse.

A former manufacturing hub from the days of its easy access by water and rail in the 1800s, Detroit has filed for ‘Chapter 9 Bankruptcy’ after a sixty-year decline.

As the indebted city struggles to repay loans, the public water utility is undergoing restructuring. During the restructuring debate, a judge allowed it to shut off the water for the indebted, at most 323,000 households.

Water rates were as high as $75 month, and in a city where the median household income is half and poverty rates are double the national average, the rates were unaffordable for many.

Boom and bust cycles are a source of profit for companies with the freedom to move around, chasing market advantage, spurred by technological changes, moving overseas: All changes that cause cities to spring up and then dwindle.

Ghost cities, like Hashima Island, Japan were created when the local coal mining industry came to abrupt end with the defeat of Japan in World War II.

City dwellers, too, may wind up migrating from place to place seeking jobs at these companies, paying for the cost of their own relocation, but the worst case is that they are unable to, and must keep hanging on in worse conditions.

The American federal government allocated taxpayer money to bail out the Detroit-area car manufacturer Chrysler that benefitted from the boom, doling out $12.5 billion in loans, however it denied a request to bail-out the city with an estimated $18–20 billion during the bust.

Detroit’s taxpayers, unable to get away from Detroit so easily, will have to pay for the loss of part ownership in its $6 billion water utility.

They are also paying for Detroit’s urban renewal, $425 million program for knocking down 200 abandoned houses a week, with another $425 million financed in part by venture interests looking to profit.

The public in Detroit is seeing the legal system hold it up ‘at gunpoint’ for the financial burden of changes wrought by market forces.

Chronic unemployment – enter Universal Basic Income

Detroit has the highest unemployment rate of any city in the United States, about 10%.

Detroit has been in economic downturn for at least 50 years. Plans to redevelop it have been in the works for a least that long, without addressing underlying poverty and unemployment.

In 1967, the city’s residents watched Detroit burn as it was torched and looted in the midst of destructive race riots that left 50 dead, mostly African-Americans

At the time of the riot, unemployment among African-American men was 15.9 percent, and only 6 percent among Caucasian men.

One of the goals of Universal Basic income (UBI) is to eliminate the most serious financial effects of unemployment, easing some pressure on those faced with race-based unemployment and poverty.

The universal basis of the funding stands in contrast to more controversial schemes addressing inequality like affirmative action and welfare-to-work.

Apartheid in the US

The city of New Orleans, another US city with a majority African-American population that also had a poverty rate of 18.3% in 2007, apparently faced life-threatening disruptions to basic utilities like water and electricity following the devastation in 2005 of Hurriciane Katrina.

The denial of access to public services to these cities on the basis that no funds are allocated is kind of like national-scale apartheid, the system of government-enforced racial segregation existing within cities in South Africa until 1994.

This system provided black South Africans with public services that were often inferior to those of white South Africans.

One forfeits human rights such as right to electricity, water and shelter simply by being born somewhere with high unemployment in a bust era.

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A flyer by the state-run water utility encourages Detroit households to pay their bills. Source: DWSD

 

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