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In the aftermath of the Minneapolis riots, the region now risks falling into a perpetual cycle of economic blight similar to comparable urban areas previously scarred by urban mayhem.
In the summer of 1967, violent riots erupted and lasted for five days in Detroit, between the city’s black residents and the local police department after law enforcement raided a bar on the city’s Near West Side. Detroit was still recovering from a previous race riot 24 years prior.
“It stands to reason that businesses will be far less likely to invest in areas where there’s a fear of social unrest. That’s presumably the biggest long-run negative effect, but there will be secondary negative effects such as higher insurance premiums for businesses that do remain, depressed home values for residential property, and things like that,” economist Dan Mitchell told the Washington Examiner.
“None of that detracts from the concerns about police misbehavior, of course, but it underscores that the wrong reaction can mostly hurt the aggrieved community,” Mitchell said.
The economic story to follow the riots in Minneapolis, prompted by the death of George Floyd at the hands of police, has yet to be written. But according to the Star Tribune, dozens of major chain retailers, as well as small mom-and-pop stores, were either destroyed or looted.
And as the country continues to open up from the coronavirus pandemic, fewer local businesses are expected to return among urban blight.
“Riots can have long term negative economic consequences because they disincentivize investment and frighten potential customers — it took decades for many areas affected by widespread rioting in 1968 to see meaningful urban renewal. It’s too early to tell how Minneapolis will fare but the riots will certainly adversely affect how potential investors and proprietors look at the city,” American Commitment President Phil Kerpen told the Washington Examiner.
According to Crains Detroit, U.S. Census showed that the tracts for the 1967 riot regions lost 237,000 residents between 1960 and 1980. The rest of Detroit lost 252,000 people in that same time period. Additionally, 64% of the city’s black residents in 1967 lived in the riot areas.
As a result of the 1967 riots, residents and business owners fought through red tape and faced an uphill battle when it came to insuring their homes and businesses that lost value. Crains put the total losses, adjusted for inflation, at $315 million to $359 million. This does not include missed salaries, lost sales, potential businesses as well as personal taxes Detroit missed out on because the destroyed businesses never returned.
The National Bureau of Economic Research also confirms the race riots of the 1960’s hurt black Americans for decades
“Although the United States has experienced race-related civil disturbances throughout its history, the 1960s events were unprecedented in their frequency and scope. Law enforcement authorities took extraordinary measures to end the riots, sometimes including the mobilization of National Guard units,” NBER said, including the 1967 Detroit riots, 1965 Los Angeles riots, 1967 Newark riot, and the 1968 Washington/Baltimore riots.
NBER researchers found that by 1970, areas in cities that experienced riots in the 1960s saw their insurance premiums rise as well as businesses flee. Middle and higher income residents were likely to move away and taxes were hiked for fire as well as further law enforcement protection.
More recently, the city of Ferguson, Missouri, experienced violent riots in 2014 following the fatal police shooting of a black man, Michael Brown. Although $65 million was invested in the city whose stores were torched by rioters along West Florissant Avenue, the murder rate and black poverty rate have increased, while small business revenues declined five years after the riots erupted.
The 2015 Baltimore riots, triggered by the death of Freddie Grey after he was in police custody in a law enforcement vehicle, caused West Baltimore to remain an economic blight on the city five years later.