JOSEPH ARVAI

This Canadian city could be the next Detroit

Contributed to The Globe and Mail

A man bikes past graffiti in Detroit on Dec. 3, 2013. Detroit is eligible for the biggest municipal bankruptcy in U.S. history because the city is broke and negotiations with its thousands of creditors were unfeasible, a federal judge said in a wide-ranging ruling that also said the city could cut retiree pensions. (JOSHUA LOTT/REUTERS)

A U.S. federal judge issued a ruling last week allowing the city of Detroit to formally enter bankruptcy. The ruling gives the city – and the state – the authority to withdraw from its full obligations to recipients of pensions and health care. So, it’s no surprise that the ruling is already being questioned on constitutional grounds in Michigan and elsewhere in the United States.

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The Detroit bankruptcy also poses a different, but critically important important question for Canadians: Can it happen here?

The answer may lie in an analysis of what led to the Detroit bankruptcy in the first place. A full Detroit post-mortem reveals a complex set of factors – all tied to poor decision making – which led to the bankruptcy filing. However, the Coles Notes version is this:

High demand for industrial products – linked mainly to automobile production – from Detroit starting in the 1950s contributed to both rapid economic growth regionally, and a burgeoning tax base. This tax base was used to justify massive investments city infrastructure, as well as legacy obligations to residents living in the vicinity. But, just as the city’s most upwardly mobile residents began to populate Detroit’s ritzier suburbs, more desirable alternatives to Detroit-made goods and services started to become available. Detroit’s industrial base failed to innovate quickly enough, and the city’s economic engine began to sputter. In an effort to cut costs, key industry players began to leave the city, or closed their doors entirely. Residents of the city and the suburbs quickly followed suit, and Detroit’s once mighty tax base collapsed. At this point, the amount of money coming in to the city’s coffers was no longer enough to cover its costs and, well, the rest is history.

As a former resident of nearby central Michigan, I witnessed the tail-end of Detroit’s decline in-person. It wasn’t pretty. Worse, it was – and remains – painful to the legions of Detroit residents that are left behind.

This brings me to my new home: Calgary. Frighteningly, I see many of the symptoms that led to Detroit’s collapse slowly emerging here. Local wealth, and with it suburban growth, is on the rise. Investments in city and regional infrastructure are also increasing in order to support Calgary’s rapidly growing population. The local service economy is also growing, and property values – already staggeringly high – are skyrocketing. All signs point to Calgary as the place to be in Canada.

But, just like in Detroit, much of Calgary’s current growth is built on an industrial base that is at the mercy of fickle consumers, and is increasingly under siege from competitors. The trials and tribulations of Alberta’s oil and gas industry have been well documented; not only can consumers get their oil and gas from other suppliers, demand for renewable sources of energy is rising to the point that supply can no longer keep up. Even if industry’s and government’s much-hyped pipelines are built, it’s only a matter of time before alternatives to energy from Alberta dominate the global marketplace.

If the city stays on its current industrial and economic trajectory, Calgary’s fate – like that of Detroit before it – will be sealed when (not if) a downward shift in demand for current, made-in-Alberta industrial products occurs. Without rapid innovation and diversification from Calgary’s – and let’s face it, Alberta’s and Canada’s – corporate and political stars, a fate similar to Detroit’s is just over the horizon. And without rapid innovation and diversification, well, the rest will be history.

Joseph Arvai is former resident of Michigan, and is a current resident of Calgary. He is the Svare Chair in Applied Decision Research in the Department of Geography, as well as the Institute for Sustainable Energy, Environment, & Economy at the University of Calgary. He can be reached on Twitter at @DecisionLab.