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America And China: The Eagle And The Dragon Part Two: Requiem For A Dream

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Part 1

America and China: The Eagle and the Dragon Part two: Requiem for a dream

Selected highlights

The birthplace of modern America - one might say the modern world - is a huge disused factory building that stands on a busy six-lane boulevard in a part of Detroit named Highland Park.

Outside, on a scrubby patch of untended grass, is a sign posted by the Michigan Register of Historic Sites stating that this was the factory where, in 1913, Henry Ford began the mass production of automobiles on a moving assembly line. By 1915 Ford had built a million of his Model Ts; by 1925 more than 9,000 were being assembled in a single day.

Mass production, the sign reads, soon moved from here to all places of American industry 'and set the pattern of abundance for 20th-century living'.

It is a wonderfully evocative phrase that stops you in your tracks - the pattern of abundance for 20th-century living. From here came the principles of mass production that provided the goods that fuelled the consumer society; from here, the automobile that begat the roads and the freeways that carried people and goods from sea - as America the Beautiful has it - to shining sea, and then to the world beyond.

The Highland Park factory was known as the Crystal Palace because of the amount of glass used in its construction. But its windows have long been shuttered and boarded. What remains of the plant is now used for warehousing, with one part given over to a retail outlet for a company selling cheap shoes made in China. Highland Park - a city within the city of Detroit - is so economically bereft that it can't even afford its own police department - the county police patrol there instead.


Detroit owed its boom years to Henry Ford's moving assembly line. Between 1910 and 1940 the population of the city swelled with an influx of both blacks and whites from the South to work in the auto factories. During the Second World War, Detroit became 'the armoury of America', churning out vehicles and arms for the war effort.

Then came the long, slow decline. Racial tension had always been part of the city's make-up. Discrimination in housing and a viciously racist police force led to riots in 1943 in which 34 people died and more than 1,800 were arrested. During the 1940s and 1950s white residents erected a concrete wall, 6ft high and a foot thick, along the perimeter of Eight Mile Road to separate themselves from potential black neighbours.

The construction of the Davison Expressway, America's first freeway, which opened in 1944, paved the way for a series of Interstate freeways that carved through and around the city, destroying old residential neighbourhoods and opening up the suburbs to the white middle-classes. In 1967 Detroit exploded in another race riot, in which 43 people died and more than 7,000 were arrested, hastening 'white flight' from the city. In 1950 Detroit was America's fourth largest city, with a population of nearly two million. The population is now less than 900,000, 82 per cent of which is Afro-American.

This exodus of people and commerce to the suburbs resulted in a massive shift of capital, and a declining tax-base in the inner-city. While Oakland County, the wealthy suburb to the north, is one of the most affluent areas in America, Detroit itself is the country's most impoverished city - not only a synonym for urban decay, but a repository of all of America's most intractable problems: the decline of manufacturing and the threat of competition from overseas; racial tensions; a housing market decimated by the subprime mortgage crisis. More than a third of Detroit's residents live at or below the federal poverty line. Ironically, in the city that gave America the automobile, more than a fifth of households do not own a car.

The woes of Detroit have been inextricably linked to the woes of the car industry. Forty years ago, Detroit's 'Big Three' - General Motors, Ford and Chrysler - manufactured 75 per cent of all the cars sold in America. Fifty per cent were built by GM alone; now the Big Three cannot achieve that figure between them. GM has 23.5 per cent of the market, Ford less than 15 per cent. Sales and jobs have, quite literally, gone south - to Toyota, Honda and Hyundai plants in Tennessee, South Carolina, Alabama and elsewhere. Since 1999 Michigan has lost more than 120,000 jobs in the auto industry with manufacturers attempting to 'right-size' (in the preferred euphemism) their workforce and parts suppliers cutting back or going bankrupt.


In this equation between American workers and foreign competition, it is a struggle that America seems doomed to lose.

In the week that I was in Detroit a strike of 3,650 workers at American Axle, which manufactures truck axles, had led to lay-offs at GM and other plants. The workers were being asked to take a pay cut from about $27 an hour to $14, and to surrender future healthcare and pension benefits. The chief executive of American Axle, Richard Dauch, warned that if the company could not be competitive in its US plants, he would be forced to move the work overseas.

Outside the plant, a group of picketing strikers were warming their hands around a brazier, eating cheeseburgers that had been delivered by a passing motorist. A man named Pete Wilson told me that he had been working for American Axle for 13 years and the company had been making a profit every year he had been there. This was not simply about wages and conditions, he said; it was about the future for the working man in America. 'See, this world is like a chess game, and we're just the pawns. The bigger plan is they try to break us down so they can shut down GM, Ford and Chrysler and move the whole thing overseas. They just move on to the next phase, not giving a hell about our welfare and wellbeing, lifestyle and family.'

I asked Pete the question I had been asking everybody in my journeys around America - what did the word 'America' mean to him? He laughed. 'Crooks. They're out to take whatever you have.'

Wherever you go in Detroit, the subtext of race lurks just below the surface of daily discourse, as if even the passing of 30 years had not been enough to heal the wounds that the riots had inflicted on both sides of the racial divide.

In the suburbs, people exercised a reflex denial about having anything to do with Detroit at all. In a bar in Dearborn, I fell into conversation with a woman - white - and asked how long she had lived in Detroit.

'I don't live in Detroit'.

Dearborn isn't part of Detroit?

She gave me a baleful look. 'Am I listening to hip-hop? Are my pants hanging down my ass? Do I kill people?'

Her companion, who was also white, had grown up in the north-west of Detroit in the 1950s, in an area that was then Irish and Polish but was now, he said, 'primarily a minority area'. 'Back then, when you went out into the suburbs, people thought you were a hoodlum because you lived in Detroit.' He laughed. 'Which a lot of us were. There was a lot of pride growing up here.'


The growth of the suburbs was driven by planning laws, designed to eliminate urban overcrowding, that made it illegal to build mixed-use projects of high density - the characteristic of an old-fashioned Main Street - and dictated that development should instead spread ever outwards. The green fields were devoured by ever more housing developments (or subdivisions as they are called) of identikit 'McHouses', linked by anonymous strip-malls, blighted with corporate signage for chain motels, car dealerships and fast-food outlets, off-ramp 'office parks', and 'big-box' stores. The dreamscape has become one huge twilight zone of anonymous sprawl. As the writer Tom Wolfe once observed of the suburbs of Atlanta, the only way you can tell you are leaving one and entering the next is when the fast-food outlets start repeating themselves. And all of it utterly subservient to the automobile, utterly dependent on the readily available supply of cheap fuel. While other developed nations have reduced or held steady on their oil consumption since the oil shocks of the 1970s and 1980s, America's consumption has actually increased by 21 per cent - while domestic oil production has been on a steady downward trajectory since its peak in 1970.

The world burns 85 million barrels of oil a day, and the US alone consumes a quarter of that amount - of which more than half goes to road transport: the US has the least fuel-efficient cars on the roads, the lowest energy taxes, and the longest daily commutes of any industrialised nation.

It is an arrangement that James Howard Kunstler, the author of The Long Emergency: Surviving the End of Oil, Climate Change and Other Converging Catastrophes of the Twenty-First Century, describes as 'the greatest misallocation of resources in the history of the world. America took all of its postwar wealth and invested it in a living arrangement that has no future.' A future imperilled yet further by fuel prices exceeding $4 a gallon - enough to occasion rising panic in a society where cheap fuel has always been regarded as an entitlement.


But if the inexorable rise of fuel prices was one affliction on the suburbs, there was another that struck even deeper into the heart of the suburban dream of home-ownership - the subprime mortgage crisis, which swept across America at the tail-end of last year, shaking the country's economy to its very foundations.

The subprime crisis was largely the consequence of a series of smoke-and-mirror innovations in finance through the 1980s that enabled mortgage lenders to generate more loans by packaging up their debt and selling it on in the form of bonds known as mortgage-backed securities (MBSs), which would, in turn, be repackaged and sold on the financial market as collateralised debt obligations (CDOs). These financial innovations enabled lenders to evade much of the regulatory framework that had been in place since the 1930s when the Roosevelt administration halted bank runs with government guarantees. Passing on the risk meant that lenders could afford to become less cautious about whom they lent money to. Poor or middle-income borrowers - many from ethnic minorities - who would never have previously qualified for a mortgage or would have been regarded as a bad credit risk, suddenly found lenders falling over themselves to offer them loans. These were mostly in the form of adjustable rate mortgages (ARMs), usually offered at deliberately low 'teaser' rates, often as little as two or three per cent, but rising to as much as 15 per cent after two or three years. What this meant in effect was that the most risky loan products were being sold to the least sophisticated borrowers. By dicing and spicing the debt of high-risk borrowers, clever - or naive - financiers were able to sell rubbish as triple-A securities. And some of the world's supposedly most savvy banks - Morgan Stanley and Merrill Lynch included - were among the buyers.

In 1997 subprime mortgages accounted for three per cent of the mortgage debt in the US. By 2006 that figure had risen to more than 20 per cent.

The easy availability of credit helped to fuel a booming house market. Home ownership increased from 64 per cent in 1994 to an all-time high of 69.2 per cent in 2004; in the 10-year period running up to 2006, American houses prices increased by 124 per cent. With house prices soaring, borrowers felt confident in taking out second mortgages or borrowing money against the rising values of their house to buy an SUV or plasma TV - using their property, as the phrase had it, 'as ATM machines'. In short, it was a case of people buying houses they couldn't afford, and using them to spend money they didn't have.

Then the bubble burst. As the cost of their repayments rose, and the value of their houses started to fall, so many subprime borrowers found themselves caught in the squeeze. By the end of 2007 the 'delinquency' rate of subprime mortgages was running at 21 per cent, and some 1.3 million homes in the US were subject to foreclosure filings - an increase of 79 per cent from 2006 - with predictions of a further million expected in 2008.


Three years ago their home had been appraised at $500,000. They refinanced, investing $40,000 to custom tile the hall and kitchen. Then Jodie lost her job - her company, she said, was 'feeling the hurt'. She found another one, and then lost that, too. With homeowners insurance, their mortgage rose to $2,400. A year ago they had put the house on the market for $400,000, but had been unable to sell it. Eventually, they went into foreclosure. They hadn't paid their mortgage for six months, and the house was now listed for a short sale at $179,000. They were living in rented property in the nearby town of Tracy.

'We put a lot of love, a lot of money into this house,' Jodie said. 'If you'd asked me five years ago if I'd have thought we'd ever be in this position, I'd have said no way. But things happen.'

'See my lawn?' Manuel said. 'It was always green.' Now it was overgrown and browned by the sun. 'I shouldn't say the love ran out, but the care ran out.' He shrugged. 'It's like, why try to fight something that you know you can't win?'

They were decent hard-working people, they said, but it was like that counted for nothing. When they started to get in trouble, Jodie told me, they had tried to negotiate with their lenders. 'But they talk to you like you're a piece of crap. They set up a plan to help us out. Next thing you know, they've sold our mortgage on to someone else. And when you talk to the new lenders, its like - we're in charge now...'

And then Bear Stearns collapses, Manuel said, and the federal government bails them out. 'And who do you think is paying for that? He shook his head. 'George Bush has ruined this country. We're the laughing stock of the world. And I hate to say that, because I'm proud to be an American.'

A very long and interesting article.

Although it appears the US public is beginning to get wise to what's going on, however that could be too late.

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wow thats a great article.....

the people will vote against globalisation... the costs are too high

i think we are headed towards nationalism and protection of job/food chain/energy chain

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in the 10-year period running up to 2006, American houses prices increased by 124 per cent.

I am truly shocked, imagine that, houses in the US went up by more than 100% over a ten year period.

Its a good thing our Gordon did not allow our house prices to do the same thing eh?

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Muilticultlisium comeing to you.

if you actually read the history of Detroit, the influx of minorities working in the plants HELPED lead to booming times for everyone.

it's not until you had "white-flight" to the suburbs, and stopping the development of industry in the city that they ran into problems.

it's like they thought they could abandon the heart, and just live in the fingers with no ill effect.

If instead of building their concrete barriers, they had actually developed their industrial and commercial infrastructure more, like many other American cities, Detroit wouldn't be the crap-hole it is today.

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Detroits been a sh1thole for going on 40 years though, long before the emergence of a strong China or other cheap manufacturing. The only difference between here and there is theyve so much land its cheaper to abandon than redevelop, although on a smaller scale i suppose Burnley might be similar.

Still has some amazing architecture downtown though if thats your thing.

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