Make no mistake, the fall of Detroit is a great American tragedy. Once a cultural hub, with a booming auto-industry that produced the highest per-capita income in the U.S, and the second fastest growing city from 1900 to 1930. It was a center of commerce, a hub for innovation, a haven for the wealthy and a gathering place for diversity.
But now it is a ghost town. As National Review’s Mark Steyn writes,
“By the time Detroit declared bankruotcy, Americans were so inured to the throbbing dirge of Motown’s Greatest Hits – 40 percent of its streetlamps don’t work; 201 of its 317 public parks have been permanently closed; it takes an hour for police to respond to a 9-1-1 call; only a third of its ambulances are drivable; one-third of the city has been abandoned; the local realtor offers houses on sale for a buck and still finds no takers; etc., etc. – Americans were so inured that the formal confirmation of a great city’s downfall was greeted with little more than a fatalistic shrug.”
The city’s downfall was tied to the fates of the Big Three motor-companies that were choked into near-bankruptcy by sclerotic labor unions. The United Auto Workers, and other powerful labor groups, had incredible power over Detroit’s labor force. But as Megan McCardle writes, their demands stretched beyond better working conditions and adequate pay to the point where they became “a shadow management that had to sign off on every production decision the company made.”
This slowed progress and innovation to a near halt. Just as the economy increasingly demanded a nimble governance structure to adapt to quick-changing consumer tastes, Detroit was growing more sluggish. And as the Big Three’s fortunes waned and market share decreased, unions continued to demand increased wages, maintaining surplus workers and making no concessions on their pension and health care plans.
The slow demise of the auto companies was an eerie parallel to the city itself. Detroit was dominated by massive public employee unions, emboldened by Democratic office holders, who were simply unable or unwilling to face financial reality. As the Big Three foundered, the middle class left the inner-city and began to spread, which stretched the limits of the city’s services and diminished the city’s tax base.
Nevertheless, huge public employee contracts and pension promises have left the city with a staggering debt. Although there are varying estimates of how much the city owes, Kevyn Orr, Detroit’s emergency manager, places the figure around $18 to $20 billion.
The plan submitted by Orr to right the ship called for reducing $11.5 billion in unsecured debt – mostly pensions, health care obligations and loans – down to $2 billion. The Detroit News reports:
The filing also is a stunning rebuke of the city’s political class and 50 years of control by a co-dependent alliance of the Democratic Party and public-sector unions whose leaders fueled their campaigns and political needs with public dollars. In the end, their circular self-dealing and refusal to act to avert collapse exposed the people they claim to represent.
Likely losers in the case, filed just 17 minutes before unions persuaded an Ingham County judge to issue a temporary restraining order to block the governor, include some 20,000 city retirees. They stand to lose most of their health care coverage and a portion of their pensions as part of a difficult restructuring.
Public-sector unions could see a cornerstone of their reason for being — the defined-benefit pension — eroded by rulings that could pierce the constitutional protection of pensions as a contractual right. And general obligation bond holders could be treated as unsecured creditors, overturning the assumption that a cash-strapped city can meet its obligations simply by raising taxes.
Just as Detroit’s fate has paralleled the auto-industry, the fiscal lessons also apply to the nation at large. Without substantial, quick-footed change, the nation’s entitlements (the equivalent of Detroit’s pension and health care promises) could quickly throw the nation into de facto bankruptcy. The end result would be the complete unraveling of Medicare, Medicaid, Social Security – the very programs Democrats say they wish to protect.
If the United States wishes to avoid a similar fate they must watch and learn from Detroit’s downfall. Increased tax revenues are not enough to save a creaky, arthritic government from it’s own inability to say “no.” Incremental reforms must be made to entitlements before unsustainable finances force us to eliminate them altogether, a future that would be an American tragedy to dwarf all others.