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What Detroit Should Learn From NYC's Near-Bankruptcy

07/29/2013 02:39 pm ET | Updated Sep 28, 2013

A few years ago Patti Smith, the scion of New York City's downtown arts scene, had a message for today's young artists: New York is dead to you. The chaotic and troubled city that drew her generation to its tough streets seems to now only spread out its welcome mat to bankers or tech impresarios or tech blog editors. Her suggestion? Move to Detroit. She hardly had to shout: Recent years had already seen an influx of bright young things to the Motor City, allured by cheap rents and empty factories in which to realize their artisanal pickle lines. Last week, when Detroit filed for Chapter 9, it cemented a more pressing similarity with the 1970s New York City that drew Patti Smith's cohort. Detroit's bankruptcy, as it has been oft-remarked, is the largest municipal one of its kind. What has been more overlooked, however, is that this is only true because in 1975, New York City very nearly went down the same path, only before it did not.

Is Detroit in 2013 the New York City of 1975? It could be too ridiculous a question to ask. While the differences are many -- a difference in population of several million is the most glaring -- there are several key commonalities. Both cities have experienced job loss due to a declining industrial economy, and the exodus of moneyed whites to their suburbs. In each instance, these larger transitions were compounded by a recession (New York in 1973, Detroit in 2008) that dramatically increased the city's debt liabilities in the face of shrinking revenues. In both fiscal crises, the key point of contention pitted the interests of municipal workers' pensions against those of Wall Street bondholders. Perhaps the most striking similarity, however, is that business and political elites capitalized upon both of these crises for the purpose of remaking cities they saw as inefficient and expensively supportive of unionized middle-class workers.

Historians have suggested that New York City's fiscal crisis set an important precedence in how it was utilized to reform big city Democratic politics, which appealed to social democratic values in order to grow the middle class. Installed in its place was an urban politics that must always conform to the logic of financial markets and whose primarily goal is fostering business growth. What was innovated in New York City has finally arrived at the Motor City in the form of bankruptcy, which offers what Detroit billionaire businessman Dan Gilbert has called a "clean slate." As developers like Gilbert plot how to remake Detroit in their own vision, we should pause for a moment to consider the lessons that New York City's experience from the brink of bankruptcy can offer to Detroit.

In New York City, Wall Street financiers who had long reviled City Hall, with its commitment to the union-majority middle class, seized upon and expedited the city's 1970s fiscal crisis. After several years of generous lending, firms restructured the municipal bond market and offered the city no further loans, this following recessions in the early '70s, which left city finances insolvent. Leaders set up the Municipal Assistance Corporation (MAC), later renamed the Emergency Financial Control Board, and gave it budgetary powers that superseded those of elected officials. Made up of some city and state officials -- but mostly Wall Street figureheads -- and headed by a Rockefeller, MAC was charged with steering the city toward solvency by negotiating debt restructuring between the city's debt holders.

After being threatened with the possibility that their pensions would be totally wiped out by a bankruptcy filing, union leaders took a deal that invested pensions directly in the bond market and led to layoffs, among other concessions. As geographer David Harvey and others have argued, this established a precedence that has been followed globally ever since: "if there is conflict between the financial institutions and the well-being of the people," the financial institutions are prioritized.

In New York City, post-crisis policy helped spell the death of a strong middle class, of which municipal unions had played a large role. The results of this have been the extreme exacerbation of income inequality: in 2012, the wealthiest 1 percent of New Yorkers made 39 percent of the city's income share, this up from 12 percent in 1980. New York currently has a homeless population greater than during the Great Depression, and with an inequality index on par with the African nation of Swaziland.

Both the New York City and Detroit fiscal crises came to hinge on employee pension liabilities. As Detroit's Emergency Manager Kevyn Orr crafts a restructuring of the city's debt he, and the courts, are being asked to pit the interests of the unions and their $19,000-a-year pensions against those of bondholders. Additionally, a key power granted to Orr under Michigan's Emergency Manager law is the ability to tear up contracts with municipal unions and privatize city services, options that Orr has already made moves in the direction of.

While the complex sequence of events leading up to Detroit's very dire financial situation has received heaping amounts of national media attention, what has been less examined is the very particular political process that unfolded to deal with it. Kevyn Orr was appointed as Emergency Manager by Michigan Governor Rick Snyder, a Republican, a role imbuing him with powers that essentially supersede those of all elected local officials. The Emergency Manager law is highly controversial: Michigan voters struck down an earlier version of the same law last fall, and many have challenged its constitutionality. Snyder's pursuit of the Emergency Manager route and his

The real similarity between New York in 1975 and Detroit today must be this: For political and business elites it represents the opportunity to remake a city they find not only inefficient, but also indulgent and unfriendly to business. Writing about New York City's fiscal crisis in The Nation, historian Kim Phillip-Fein argues that it marked the end of the notion of the city as a social democracy that worked to move low-income workers to a vibrant middle class through the joint efforts of business, labor, and government. Conservatives used the fiscal crisis to replace it with "a new era of austerity" and a society which is:

defined by these two poles: the harsh limits of the political sphere and the delusional boundlessness of the market. Although it wasn't solely responsible for bringing the city into this new age, New York's fiscal crisis marks the boundary between the past and the present we still live in today.

Philip-Fein argues that the current nostalgia for the 1970s New York experienced by Patti Smith and others finds its source in how, despite the "literal bankruptcy of the political establishment, there was also a kind of freedom, a political and cultural openness; there was no need to pretend that everything was all right." It was a time of "bleakness" but also of "possibility," and in that sense, the nostalgia offers "a kind of refuge" from our current political state.

What is most sad about Detroit's bankruptcy is that when Dan Gilbert calls it a "clean slate" we know exactly what he means; we know what kind of city he and others are going to build. Yes it will look more like New York City, with its raw food restaurants and its low homicide rates. When we imagine it, however, the people who live there now, living on $19,000-a-year public pensions, don't quite fit in. The trajectory of a divided and sanitized city seems inevitable, and we mourn that lack of possibility.