Long Before The Icelandic Or Greek Crisis, There Was Detroit
Steve Dibert, MFI-Miami
“We refuse to accept the responsibility for anything that we’ve done. We comforted ourselves in the knowledge that it really wasn’t our fault. You cannot play God then wash your hands of the things that you’ve created. Sooner or later, the day comes when you can’t hide from the things that you’ve done anymore.” -Commander William Adama
The once proud Arsenal of Democracy that reinvented the industrial revolution and spawned the American middle class is now nothing more than 143 square miles empty crumbling shells of turn of the century factories and houses that are routinely gutted by arson that the city can’t afford to battle. Fire fighters are shot battling fires. EMS personnel don’t respond to emergencies. Squatters openly break into homes while the homeowners are away and brag about eating thir food and raiding thier liquor cabinets on local television. Police are so outnumbered by thugs who rob, rape and pillage that they don’t even bother responding to 911 calls. Muggings have become so routine that well paid city elites have become nothing more than apologists for the broken status quo by blaming the victim of a crime instead of tackling the problem of crime.
Detroit 2013 Copyright MFI-Miami
This is not some dystopian future from some science fiction movie like Robocop, Mad Max or even A Clockwork Orange, this is modern day Detroit and this is what the people in Detroit deal with everyday.
The city of Detroit has decayed to the point that middle class African-Americans who once thrived in the city are opting out of the urban squalor and rot of the city to elbow their way into the predominately all-white suburban enclaves usually feared as bastions of racists and bigots jacked up on Starbucks and 5-Hour Energy shots.
This is reflected in the numbers from the U.S. Census Bureau. Since 2009, Detroit’s population has plummeted by over 25% from 911,000 to 706,000 in 2011 with an estimated decline of 680,000 when the numbers become available in June. It is expected Detroit’s population will plummet to 500,000 by the end of 2014.
Declining population isn’t the only problem facing Detroit. According to Chad Selweski of the Macomb Daily, “At the city’s District Court, only 7 percent of the fines and fees imposed by the judges are collected.”
The only residents left in Detroit are the ones who can’t afford to leave or have nowhere else to go. Of these remaining , nearly 50% of them have stopped paying their property taxes, Residents like Fred Phillips who owes more than $2,600 on his home on Detroit’s east side where only five owners in his neighborhood paid their 2011 taxes told the Detroit News, “Why should I send them taxes when they aren’t supplying services? It is sickening. … Every time I see the tax bill come, I think about the times we called and nobody came.”
Last fall, I wrote about how MFI-Miami was helping Detroit homeowner, Kelly Parker, a single mom with terminal cancer to save her home from a tax foreclosure and how the City of Detroit uses grotesquely inflated values that are based on values from the peak of the housing boom to calculate property taxes not the real market values of today. The City of Detroit, which assesses it property tax rates on the value of a property, assessed the value of Kelly Parker’s small 950 square foot house from 2009-2012 at roughly 1000% higher than actual market value.
Michigan Governor Rick Snyder, who as CEO of Gateway Computers presided over the company from the mid-1990s until the dot-com bust and then again during the final years of the company’s decline and eventual sale in 2007 to Taipei computer manufacturer Acer for the fire sale price of $1.90 a share (a mere 2.25% of it’s high of $84.00 prior to the dot-com bust), believes Detroit’s problems are exclusive to Detroit and are planning a state take over of the city under Michigan’s Emergency Financial Manager Law.
Under the law, the Emergency Financial Manager essentially has the powers of a benevolent dictator like Muammar Gaddafi or Kim Jong-un. They have the legal authority to ignore the recommendations of elected officials, break contracts with contractors and unions, slash wages of employees, raid pension funds, increase fees and fines and sell city assets including libraries and parks fire sale prices. Emergency Financial Manager even has the authority to carve up large parcels of land and sell them to the highest bidder.
In 1965, as Detroit Mayor Jerome Cavanaugh and the City of Detroit commissioned this promotional film to bid for the 1968 Summer Olympics, no one could have expected that within the two years the first chapter of Detroit’s dystopian future would be written. On a hot day in July of 1967, one of the worst riots in American history broke out on Detroit’s streets. The second chapter would be written in 1992 when Detroit’s bond rating would be relegated to junk bond status. Now, Detroit is insolvent and is about to be placed on the petri dish of political eugenics by a governor, a state treasurer and a GOP dominated legislature with no practical experience of resurrecting dying corporations let alone a dying metropolis.
“I want you to look at him in all of his glory. The entrepreneur of post-industrial America, playing God with other people’s money. The robber barons of old at least left something tangible in their wake- a coal mine, a railroad, banks. This man leaves nothing. He creates nothing. He builds nothing. He runs nothing. And in his wake lies nothing but a blizzard of paper to cover the pain.” -Andrew Jorgenson, Other Peoples’ Money
Both Snyder and Treasurer Andy Dillon’s only business experience revolves around being second-rate venture capitalists aka the vultures of Wall Street. Venture capitalists make their money by doing mafia style bust outs of businesses and then selling off the remaining carcass of a business to the highest bidder usually for pennies on the dollar leaving only blight and contaminated land for the taxpayers to clean up.
Michigan Governor Rick Snyder
What Snyder and other Michigan politicians fail to understand is that Detroit is a symptom of a much bigger problem facing Michigan. Detroit’s problems go beyond just bad local governing. They are the direct result of 45 years of short-sighted business models created by business executives like Snyder and Dillon, state politicians burying their head in the sand and a populace that let people with power and influence on multiple levels off the hook for their continual political dysfunction.
The Carter-Reagan recession of the late 1970s and early 1980s, brought global competition to the front doorsteps of Ford, Chrysler and General Motors. In response, these companies began opening plants in places like China and Mexico to take advantage of lower wages and virtually no environmental regulations for their factories and thus began exporting hundreds of thousands of jobs with it. The steel industry and the textile industry facing similar competition did the same thing. All for the sole purpose of maximizing shareholder value.
That recession should have served as a wake up call to diversify Michigan’s economy away from relying on the cyclical and short sighted American automobile industry instead local and state leaders prayed for a miracle that never came.
In the late 1980s, Michigan’s leaders hoping divine intervention would be the solution to region’s problems brought in televangelist Robert Schuller from his Crystal Cathedral to pray with the people of Flint in hopes that the 72,000 plus jobs that General Motors shipped overseas from Flint would come back. As you can guess, the jobs never came back, Flint has since gone broke twice and incidentally, so has Robert Schuller’s ministry.
The current financial crisis has caused the cancer affecting Detroit and other factory towns in Michigan to metastasize into their wealthy suburbs. In the Detroit suburb of Oakland County, once the fourth wealthiest in the nation, roads are crumbling and draconian cuts to school funding have forced districts across Michigan to lay off teachers and close schools.
Property values in some Detroit suburbs are 20-30% of their value 10 years ago and it’s only a matter of time before these middle class white suburbanites begin to refuse to pay their taxes or abandon their properties all together like their African-American counterparts south of 8 Mile Road. The boundary between Detroit and most of it’s suburbs made famous by rapper Eminem.
Snyder’s solution for Michigan’s worsening economic problems is everything we’ve come to expect from years of training in Corporate America. It’s myopic, lacks vision, benefits only a few and solves nothing.
Michigan Legislature hiding behind riot police
Aside from replacing elected council people in municipalities across Michigan with a financial dictator, Snyder had another idea. He recruited Speaker of the Michigan House, Jase Bolger, who has a history of being sued for unethical business practices and pyramid marketing scheme pioneer and former Amway Chairman Dick DeVos to help strong arm Republican members of the legislature into passing Right-To-Work (RTW) legislation which restricts the rights of employees in the work place and effectively destroys their collective bargaining rights. The Michigan Legislature passed the legislation in a lame duck session with no debate in under 6 hours (a process that normally takes 8 months) in a locked down building surrounded by riot police.
Snyder and the GOP claim that RTW will make Michigan more competitive and will attract businesses because lower labor costs. True, businesses will benefit in the short term but what happens when they can’t find employees?
How are you going to attract skilled employees to Michigan by offering low wages? If I’m a potential employee and I have a choice of taking a job in Michigan or in another RTW state like Florida which doesn’t have a state income tax for the same wage, guess what? I wouldn’t be picking Michigan.
Michigan has nothing to offer people with the skills it needs to compete against not only other RTW states but countries like China or Canada. Michigan, aside from Ann Arbor, offers nothing young skilled millennials want for a long term residency when compared to Atlanta, Austin, Orlando or Miami. Even non-RTW states like Illinois, Massachusetts or New York with higher wages, higher taxes, better roads and a better education systems make parts of Michigan look like the nether regions of post-communism Romania.
So, if I’m a business owner and I can’t find employees, guess what? I’m not going to spend millions of dollars on training employees in Michigan when I can go to Texas or Florida and not only get lower business taxes but I can tap into a bigger pool of talented potential employees who I don’t have to train.
There is already evidence of this in Michigan that cannot be ignored. Since 1982, Michigan has lost 5 congressional seats because of declining population and in the four counties that make up the Detroit Metropolitan area, building permits for assisted living and nursing homes are up nearly 300% in the past five years.
For nearly a generation, Michigan’s best and brightest have been departing the state in droves leaving only unskilled assembly line workers, farmhands, government workers, welfare recipients and old age pensioners. Michigan’s tax base has shrunk nearly 80% in the past 30 years.
Financial Managers with the powers of a Banana Republic dictator and third world wages are not the answer nor can Michigan afford to have another generation of politicians living in the fantasy world of an America of yesteryear. The reality is Michigan is dying. It’s dying such a slow and agonizing death that if Jack Kevorkian was still alive he would insist on hooking it up to his Death Machine in the back of his Volkswagen van to put it out of it’s misery.
This piece gets it about half right, mostly with regards to history, then it wanders off into the chronic, tired, bromide that it was Detroit’s failure to diversify away from the automobile industry that has led to it’s horrible demise.
First of all, I spent my entire business career in Southeastern Michigan, all of it in the real estate business, most of it in the industrial real estate business, the first 5 or so years in a Detroit office, the balance in Macomb County mostly working Groesbeck Highway and the Mound Road Corridor which arguably was at one time the most productive industrial corridor in world. I had been doing business in the Detroit Metropolitan Area for over twenty years when you opened the door at a mortgage office for the first time, and sold my company 3 years after you blew town.
What led to Detroit’s horrible demise is exactly the opposite of what you, and in your defense about every other dimwitted political type or journalist have identified as the issue. What killed Detroit was greedy union members both within the automobile industry, but also in the public sector, greedy management and political types who got together and as a group and methodically wrung the life out of the “golden goose” that was and should still be the automobile industry in Detroit, Michigan. What killed Detroit is incredibly stupid work rules, legacy costs for retirees who built crappy cars for years and in so doing opened the door for foreign car makers to come in and grab market share away from Detroit, overpaid labor and management and really, really, really, incredibly stupid tax policies in the state of Michigan which were specifically designed to milk manufacturing, all of which made a Big 3 automobile a bad buy compared to about any other vehicle you care to name.
When GM declared bankruptcy, the hue and cry in Detroit was all about saving the Automobile industry in America. The automobile industry in America is alive and well as it now resides down south in Georgia, Tennessee, South Carolina and increasingly Texas. It’s no accident that all of the new automobile plants in the last 25 or so years were built down south, that’s where the skilled, trainable people who want to work at a profitable company building a product that people actually want to drive without having to be shamed or seduced into it with conversations having to do with “buying American”.
What Detroiters should have been doing all these years was stick to their knitting and nurture their livelihood by building great cars for the money rather than wringing every nickel out of the Big 3 they could possibly get their greedy hands on. Had Detroit been smart enough to do that, foreign car companies wouldn’t own the American car market like they do today, and Detroit would still be rich.
WOW So everything in Michigan is the fault of the UAW?
First of all, I grew up in Detroit as well.
The problem that most people in Michigan fail to realize is that GM’s bankruptcy was brought on by GM management and the responsibility of it rests solely on the shoulders of GM Management.
Second, GM forsake consumer’s wants and needs in return for the their bottom line. Not once but multiple times beginning in the 70s. In other words, in the battle for GM’s soul between the car guys and the bean counters, the bean counters won the internal power struggle. Every GM CEO from the mid-70s up until the bankruptcy came from either a finance or accounting background.
Third, GM’s ultimate demise was their involvement in sub-prime residential mortgages and owning what is now taxpayer owned Ally Financial.
Fourth, how is it the UAW’s fault that GM negotiated a bad deal with the unions? The legacy costs that apologists for GM management keep talking about were actually offered to the UAW by GM in 1990s as a way to give them over a competitive edge over Ford and Chrysler. At the time, GM management purposely set themselves up to be a strike target so they could be the first in line to negotiate union contracts. They offered the UAW lifetime employment guarantees, guarantees on overtime, college tuition, etc. because they knew Ford and Chrysler couldn’t match it and would have to cut back in R&D and other area. If your boss came to you and said, “I want to offer you a lifetime contract and free health care and 10% raise.” You honestly believe that you would tell him, “I’m sorry, Boss, I can’t take it because it’s not in the your best interest or the company’s bottom line.”? I doubt it.
This led to another problem and this is what eventually almost brought down the industry. Remember when GM spun off Delphi and other parts divisions? Delphi and other suppliers were obligated under the union contracts that GM negotiated for those legacy costs. GM (as did Ford and Diamler-Chrysler) then started squeezing suppliers for cheaper parts until Delphi’s product became garbage and no one wanted them forcing Delphi to go bankrupt and as of today is still in Chapter 11 bankruptcy and slowly liquidating itself to the Chinese.
Fifth, and this is the point of the piece, is a lack of innovation and creativity in Michigan. As a business owner who does business in multiple states, I can tell you Michigan is far behind the rest of the country when it comes to competitiveness that it’s frightening. In other states and in other countries, the attitude toward business when presented with a problem is “What if we did it this way? in Michigan, the attitude is, “That’s not the way we’ve always done it” and then complain about it for ten years. Until that fundamental change in attitude is made, Michigan will continue to die.
Michigan needs to attract non-manufacturing jobs and it’s needed to do it for 35 years. It needs to attract talented young people who want to raise their families here. The problem is Michigan doesn’t offer anything of any importance or value compared to other RTW states and that’s why RTW won’t work. I have to close my Michigan operations and move everything back to corporate offices in Florida because I can not find qualified people here that want to work.
kaboom…………….ya hit this one right out of the park
Thanks Steve S!