Neoliberalism's Deadly Experiment

By Josiah Rector, Jacobin

23 October 16

 

In Michigan, privatization and free-market governance has left 100,000 people without water.

ver the past year, media reports and op-eds have examined the lead poisoning disaster in Flint, Michigan, from a variety of angles. Some focus on Michigan’s emergency manager laws, which the Republican-dominated legislature has used to suspend democracy in majority-African-American cities, including Flint, Detroit, Pontiac, Highland Park, and Benton Harbor.

Others focus on the larger issue of lead pipes and decaying infrastructure, or the criminal negligence of Governor Rick Snyder and his administration. Still others note that the long history of housing discrimination in Flint, and the racist application of emergency manager laws, help explain why the majority of the poisoning victims are African American (although they include many working-class whites).

Corporate media coverage, however, has ignored the relationship between the water crisis in Flint and ongoing mass water shutoffs in Detroit. More broadly, it has obscured the role of neoliberal restructuring in undermining one of the nation’s largest water systems, and in leaving over one hundred thousand people without running water in a state surrounded by the Great Lakes.

Since 2000, state-appointed emergency managers in Detroit, Highland Park, Flint, and Pontiac have outsourced key functions of their water departments to private companies, while ramping up water shutoffs on low-income households. Since 2013, when Republican governor Rick Snyder placed Detroit under an emergency manager, the Detroit Water and Sewage Department (DWSD) has shut off water for over one hundred thousand residents, provoking condemnation from the United Nations Human Rights Council.

Public health experts have also said that the mass shutoffs will increase infectious disease and infant mortality in Detroit. Meanwhile, even after its lead-contaminated water became a national scandal, Flint has continued to shut off water for residents unable or unwilling to pay for poisoned water.

Whether from shutoffs, contamination, or both, so many poor and working-class urban residents in Michigan lack water to properly bathe, clean, or flush their toilets. Why are so many people unable to use tap water in a state bordering the Great Lakes, the largest group of freshwater lakes on earth?

Michigan’s water crisis is rooted in the hollowing out of the public sector over the past three decades, which emergency manager laws have accelerated.

Between 1977 and 2010, DWSD was under an EPA consent decree for Clean Water Act violations. Judge John Feikens, an arrogant racist and longtime opponent of school desegregation, recommended Victor Mercado to head DWSD in 2002. Mercado was a former vice president of Thames North America (an offshoot of Thames Water, privatized by Margaret Thatcher in 1989) and United Water (a subsidiary of the French multinational Suez).

In 2003, United Water took over Atlanta’s water system, with disastrous results. In Detroit, Mercado cut DWSD’s maintenance and repair staff by 13 percent, and accelerated the outsourcing of unionized jobs to private contractors. This process continued under Mercado’s successors, culminating in 2012 when DWSD signed a contract with EMA, Inc. that included plans to lay off 81 percent of DWSD’s staff, leading to a strike by AFSCME Local 207.

While Mercado laid off unionized workers and illegally rigged bids with private contractors, water rates in Detroit more than doubled. At the same time, as a result of welfare reform, the number of recipients of cash assistance in Wayne County fell from 198,000 in 1995–96 to 32,613 in 2003, and to 15,238 by 2013.

As part of welfare reform, Republican governor John Engler eliminated the Vendor Pay program in 2002, which had assisted welfare recipients with water and other utility bills. Overnight, tens of thousands of low-income people enrolled in the Vendor Pay program, many of them disabled and elderly, were at risk for water shutoffs.

This problem was most severe in Highland Park, the birthplace of Ford’s Model T. After Highland Park’s tax base collapsed in the 1990s, following the relocation of Chrysler’s headquarters to suburban Auburn Hills, Governor Engler appointed corporate accountant Ramona Pearson as emergency manager in 2001. To fill gaping budget holes, Pearson closed schools, libraries, and community centers, while jacking up Highland Park’s water rates to three times the national average, even though over half the residents lived below the federal poverty line. (These events are described in the Liz’s Miller’s excellent 2007 documentary The Water Front).

While downsizing the Highland Park Water Plant to four employees, Pearson began negotiations to sell the plant to the Rothchild Wright Group in 2004. Pearson only dropped these proposals under pressure from daily protests organized by the Michigan Welfare Rights Organization and Highland Park Human Rights Coalition, led by veteran activists like Maureen Taylor and the late General Baker.

The water crisis in Michigan is also intertwined with the subprime mortgage meltdown, which is closely related to financial deregulation. In 2005–7, Detroit had the highest rate of subprime mortgage foreclosures in the United States. While increasingly deregulated banks were aggressively marketing adjustable-rate subprime mortgages to working-class African Americans in Detroit, they were also selling risky financial instruments to the city government. The Commodity Futures Modernization Act of 2000 allowed the swaps market to metastasize from $180 billion in 1998 to $6 trillion in 2004 to $57 trillion by the summer of 2008.

In 2005, during this “wild west” period for predatory lenders, Detroit entered into a $1.4 billion dollar deal with UBS AG and Merrill Lynch Capital Services (later acquired by Bank of America). The deal included two layers of speculative financial instruments, one of which was an “interest rate swap” to fund DWSD. The swap deal constituted a bet that interest rates would rise. After interest rates plummeted as a result of the 2008 crash, DWSD was forced to pay $537 million in swap termination payments to banks.

In order to pay the termination fees, DWSD increased water rates, and took out $489 million in further bond debt in 2012. That year, Bloomberg reported that “debt service has climbed to more than 40 percent of revenue” at DWSD. As a result, nearly half of Detroiters’ water payments were going to pay debt service to banks, inflated by the banks’ predatory swap deal. In April 2013, ongoing DWSD rate increases provided a public rationale for Flint’s emergency manager, Ed Kurtz, to switch from DWSD to the Flint River, although the actual reasons remain murky.

Emergency manager legislation has only exacerbated these problems. In 2012, 52 percent of Michigan voters and 82 percent of Detroit voters struck down Public Act 4. This legislation, signed by Governor Snyder in 2011, expanded the authority of emergency managers to unilaterally break public-sector union contracts, and even lock elected officials out of city hall and council chambers and freeze email accounts. Empowered by the new law, Detroit Public Schools emergency manager Robert Bobb laid off all of the district’s unionized teachers in 2011, and proposed to increase class sizes to sixty.

Immediately after voters rejected Public Act 4, Snyder signed a replacement bill, Public Act 436, which included a provision that it could not be overturned by popular referendum. During the same session, Snyder signed Michigan’s first right-to-work law. The primary purpose of Michigan’s emergency manager legislation (drafted with help from the Mackinac Center, a think tank funded by Dick Devos, the Walton Family, the Koch brothers, and other right-wing billionaires) is to break public-sector unions.

In March 2013, Governor Snyder appointed Kevyn Orr as emergency manager for Detroit. Orr, a bankruptcy lawyer from Jones Day (the largest corporate law firm in the United State), placed bids to privatize DWSD, the Detroit Public Lighting Department, and waste collection at the Detroit Public Works Department, while leasing Belle Isle (the largest city-owned island park in the United States) to the state of Michigan for thirty years. Also in 2013, a consortium of local foundations released the Detroit Future City plan, which proposes to “replace, repurpose, decommission” or “reduce and maintain” water and other basic services in nearly half the city of Detroit. The plan also concentrates resources in a gentrifying “digital/creative” zone centered on downtown and the Cass Corridor (recently rebranded as “Midtown Detroit” by developers).

The same year, Mackinac Center board member Rodney Lockwood released a futuristic novel and promotional web site, called Belle Isle: Detroit’s Game Changer, which promoted the idea of turning Belle Isle into an offshore tax haven for thirty-five thousand citizens (membership fee: $300,000), where the official currency would be the Rand, in honor of Ayn Rand. The novel describes a mid-twenty-first-century Detroit with a population of forty-five thousand, where neighborhoods have been cleared of people and replaced with “green zones” where wealthy entrepreneurs operate urban farms.

This scheme closely resembles the Hantz Farms project, led by developer John Hantz (another Ayn Rand devotee with an estimated net worth of $100 million). As geographer Sara Safransky has noted, under this plan Hantz “could potentially own one-fourteenth of Detroit.”

While developers eyed an increasingly indebted Detroit for land grabs and privatization opportunities, Emergency Manager Orr supported the intensification of DWSD’s program of residential water shutoffs. In a city where nearly 40 percent of the residents fall below the federal poverty line, increasing water rates are a formula for default.

The Michigan Welfare Rights Organization and the People’s Water Board (founded in 2007) had long advocated a water affordability plan, which would cap water bills at 2 percent of household income for residents with incomes below 50 percent of the federal poverty line, and 2.5 percent for those at 50-100 percent. The Detroit city council approved a water affordability plan in 2006, but the city never implemented it.

In February 2014, the DWSD customer service department announced that “DWSD is preparing to ramp-up shutoffs. Any account sixty days past due will be subject to shutoff.” According to the Detroit News, roughly half of the city’s water accounts fell into this category as of March 2014.

As a result of this ruthless policy, shutoffs rapidly escalated, as the following table (based on DWSD statistics available here, here, and here) illustrates. Economist Roger Colton, who helped design the Water Affordability Plan passed by the Detroit City Council in 2006, told me in an interview that a “safe” estimate for the number of Detroit residents facing water shutoffs since 2013 was one hundred thousand. Moreover, the shutoffs spiked dramatically under the rule of Emergency Manager Orr, from March 2013 through December 2014.

While this humanitarian crisis unfolded, Orr began seeking bids from private water companies, including American Water, Veolia, and United Water, to take over DWSD. By April 2014, the city had received thirty different proposals. Orr asked companies to come up with binding bids by June. The announcement came during a breakdown in negotiations with suburban municipalities about regionalizing DWSD under a new Great Lakes Water Authority (GLWA).

The GLWA board would be governed by six members, with two appointed by the mayor of Detroit, one appointed by the governor, and one each appointed by Wayne, Macomb, and Oakland counties. In June 2015, the City of Detroit leased DWSD to the GLWA for forty years, in return for $26.2 million per year for use of city assets. For the first time in 180 years, Detroit would lose control of its water system.

GLWA’s Memorandum of Understanding, adopted later that year, listed Veolia, the world’s largest private water company, as a contractor hired to “undertake an assessment of the systems and make recommendations to assist the parties in operating models, capital requirements and saving opportunities.” Veolia was also hired by Flint’s emergency manager in 2015, and deemed the city’s water “safe” despite rapidly rising lead levels.

Beginning in May and June 2014, Detroit activists began a campaign of civil disobedience against the mass shutoffs. In June, protesters began to physically blockade the Homrich dispatch facility at 4660 Grand Boulevard, to prevent trucks from leaving to perform shutoffs. Between July 10 and July 25, police arrested twenty-nine protesters attempting to blockade Homrich trucks, many of them chanting “We Shall Not Be Moved.” On July 18, over one thousand protesters marched in downtown Detroit to protest the shutoffs, in an action called by National Nurses United. Many of the protesters targeted Wall Street banks, both because of their role in the city’s foreclosure crisis and in the predatory swap deal.

Between October 18 and 20, in response to letters from the People’s Water Board, UN Special Rapporteurs Leilani Farha and Catarina de Albuquerque visited Detroit. In a press conference, Leilani Farha, the special rapporteur on the human right to water, called Detroit’s water crisis a “man-made perfect storm” caused by poverty, unaffordable water rates, and DWSD’s draconian shutoff policy. The shutoffs, the UN experts told the press, violated international human rights laws to which “the United States is bound,” both concerning the “right to water” and the “right to nondiscrimination,” because of their disproportionate effect on African-Americans.

However, Mayor Mike Duggan disregarded the United Nations, and has proven equally supportive of mass water shutoffs and the Detroit Future City urban triage plan. The shutoffs have continued, and the GLWA has failed to devote even the paltry $4.5 million it pledged in 2014 to water assistance programs.

The difference in shutoff policies toward low-income households and local corporate interests also provides a revealing window into the GLWA’s priorities. In 2015, while the city officially shut off water service for 23,300 homes, it only shut off 680 businesses, despite the fact that businesses owed $41 million in water bills, compared with $26 million for private homes. Delinquent businesses that have not been shut off (despite enormous water bills) included the Detroit Red Wings stadium and the Palmer Park Golf Course.

During the same period, the Flint water crisis became a national scandal. Few commentators, however, have examined the links between the water crises in Detroit and Flint. As noted previously, the DWSD rate increases provided a public rationale for Flint’s emergency manager, Ed Kurtz, to switch Flint from DWSD to the Flint River in April 2013. His successor, Darnell Early, oversaw the completion of this process.

Disregarding the EPA’s lead and copper rule, Governor Snyder’s appointees at the Michigan Department of Environmental Quality (MDEQ) exempted the Flint water treatment plant from corrosion control. Instead, MDEQ only promised to test Flint water during two six-month trial periods, and institute corrosion control if lead and copper levels exceeded EPA standards. Because the Flint River water was high in corrosive chlorides, the new water supply caused lead and copper to leach from water pipes into the city’s drinking water for over two years.

When technicians discovered elevated lead and copper levels, Governor Snyder’s MDEQ tampered with the test results to conceal the problem. An epidemiological study in 2014–15, led by Dr Mona Hanna-Attisha of Michigan Children’s Hospital, found that the incidence of elevated blood lead levels in Flint children more than doubled after the switch.

Such problems were not isolated to Flint, however. The following year, school officials in Detroit discovered elevated levels of lead and copper in nineteen out of sixty-two schools tested. During the same period, Darnell Early, the emergency manager in Flint during the water crisis, became the emergency manager of the Detroit Public Schools. After the Flint lead poisoning scandal attracted national attention, Early stepped down from his position at DPS.

Following the resignation, Governor Snyder praised Early, saying that he “restructured a heavily bureaucratic central office” and “set in place operating and cost-containment measures” at DPS. However, the lead testing results suggested that such “restructuring” and “cost containment” was as dangerous for children in Detroit as in Flint.

At one Detroit school, Ronald Brown Academy, tests showed lead levels of 1,500 parts per billion, and tests at eight schools found copper levels at 1,300 parts per billion. Similar complaints about black mold, rats, roaches, and leaking roofs contributed to a “sick-out” by teachers that closed eighty-five of one hundred DPS schools in the winter of 2015–16.

After seven years under emergency management, Detroit schools are more hazardous than ever. The water test results, in particular, suggest that a Flint-like poisoning crisis could easily occur in Detroit.

The interconnected water crises in Detroit and Flint demonstrate the massive human costs of destroying the public sector, which antidemocratic emergency manager laws have accelerated. The combination of risky financial deals and privatization is also increasing water rates and shutoffs in other cities. Although population decline and aging infrastructure partially explain water rate increases, neoliberal restructuring is at the heart of the problem. The decimation of the welfare state, which led to the removal of Michigan’s vendor pay program, have also made poor and working-class residents (disproportionately African Americans) more vulnerable to shutoffs.

Addressing this crisis will require a moratorium on residential water shutoffs, and implementing ambitious water affordability programs. The People’s Water Board and other organizations have pushed to get ten water affordability bills before the Michigan house. The People’s Water Board also deserves support.

More generally, we need to fight the multinational corporate drive to commodify and maximize profits from water and other survival necessities. As Martin Luther King Jr pointed out in his speech “Where Do We Go From Here?” in August 1967, almost exactly half a century ago:

Why are there forty million poor people in America?” When you ask that question, you begin to question the capitalistic economy . . . “Who owns the oil?” You begin to ask the question, “Who owns the iron ore?” You begin to ask the question, “Why is it that people have to pay water bills in a world that is two-thirds water?”

In the context of global climate change, and claims that privatization is a solution to growing water scarcity, we need to ask those questions more than ever.