There has been a lot of discussion recently about the bankruptcy proceeding that Detroit is going through. There are a lot of angles on this that are of interest to an urban/economic geographer. There is the story about globalization and foreign competition in the automobile market. There is the story about right-to-work rules and the eroding competitiveness of union employment in northern states. There is even the story about how the elimination of the gold standard killed Detroit. And, of course, the story most people seem to be writing about of late is the one about retirement benefits and public workers.
The question about financial stability seems to have struck a chord, in part, because it ties into a larger discourse about the financial stability of pension systems in the United States. And while I would argue that the concern over Social Security has been overblown, largely for political purposes, the issue of state and local pensions is another matter (the Pew Center has done an excellent job tracking this issue for those that are interested).
However, all that aside, I think the biggest lesson of Detroit may not be the one that most people are writing about. Instead, I think the biggest take away from Detroit stems from the basic geographic concept of scale. For, despite the problems with global competitiveness, the growth of the Sunbelt and the burden of public pensions, it just so happens that the economy of the Detroit Metropolitan region is growing.
Let me repeat: the economy of Metropolitan Detroit is growing! While the Detroit Metro Area took a hit in 2009, just like the rest of the country, it rebounded in 201o and 2011 (the last years for which we have data). The regional GDP of Detroit went from from $179 billion in 2009 to $189 billion in 2010 and $199 billion in 2011.
It turns out many of the problems Detroit is experiencing have to do with how the “tax pie” is being split. The growth of suburban Detroit and the establishment of separate districts for purposes ranging from schools to water to fire, is strangling Detroit of regional tax revenues. The inability to share resources across the metropolitan region is at the heart of Detroit’s problems. The growing disparity in services across the city mirrors the growing disparity in wealth that we’re seeing in the United States and elsewhere. We have seen the fruition of suburban haves and urban have-nots. Thus, if one were just to simply change the nature of political and taxing districts in Detroit, problem solved.
However, dividing up the pie in more equitable ways is no easy matter and I don’t think that reconfiguring urban districts is likely to happen any time soon. In the meantime, the problems that Detroit is facing may well be coming to other cities in the not-too-distant future. If the numbers from the Pew Center are any indication, look out New Orleans and Chicago!
And while this is nothing new for anyone who studies urban economics, it seems that much of the press has failed to connect the dots. Of course, not everyone has missed this story. Paul Krugman has rightly noted that, while Detroit may have had some political problems, it’s fiscal problems have little to do with mismanagement of funds (and the numbers from the Pew Center back this up). Even more to the point, Robert Reich writes forcefully on the issue of scale and seems to have hit the nail on the head on this one – as he does on a lot of things for that matter.