Posted by Leonard Steinberg on July 19th, 2013
Detroit filed for the largest municipal bankruptcy in U.S. history yesterday after steep population and tax base declines sent it tumbling toward insolvency. The filing by a state-appointed emergency manager means that if the bankruptcy filing is approved, city assets could be liquidated to satisfy demands for payment. Can we in New York (that was virtually bankrupt in the 70’s, lest we forget or laugh too loudly….)learn anything from Detroit? I think so.
One lesson is that Detroit is experiencing somewhat of a re-birth revolution already, with thousands of young, energized, smart people pouring into the city determined to turn things around. These people are starting up thousands of small businesses, always a key to economic growth and recovery.
The murder rate is the highest in nearly 40 years, only a third of its ambulances were in service in the first quarter of 2013 and nearly 78,000 abandoned buildings create additional public safety problems. Keeping a city safe keeps residents living in that city.
Detroit lost 250,000 residents between 2000 and 2010. A population that in the 1950s reached 1.8 million is struggling to stay above 700,000. Much of the middle-class and scores of businesses also have fled Detroit, taking their tax dollars with them….so let us remember how important job creation, realistic taxes, and especially real estate taxes can be to the welfare of a City. The current building boom in New York bodes well for the tax coffers…..how they spend these tax dollars is also key: some blame bloated government spending on entitlements and rampant government corruption.
Did the Unions destroy manufacturing in Detroit, once the country’s shining star? Some would say yes and a strong argument can be made how so many manufacturers left the area because of escalating costs that made companies less competitive. A far bigger role was played by the major Detroit auto companies — the so called “Big Three” — who failed to innovate enough and improve quality enough to keep their American customers buying American cars, back when Detroit was the auto capital of the world. As they lost market share in the US, the Big Three automakers – led by Ford, and to a lesser extent General Motors — took to opening new automobile plants in foreign countries, especially in Latin America and Asia, where wages were low, labor was plentiful, and potential customer demand from newly emerging middle class consumers was high.
Their heavy overseas investments — based on profits they had first extracted from their Detroit factory employees — are one reason that Ford and GM both have profitable factories operating today in China, as well as in lesser foreign markets (like Mexico). So maybe both the unions and the management of these firms are to blame?
Are the lessons to New York not to rely too heavily on one industry, don’t bloat your promises to gather votes, don’t over-indulge in entitlements, maintain a healthy infrastructure, keep crime down, encourage construction and small business creation and collect taxes that are fair and produce real value to those paying the taxes? You have to love Mayor Bloomberg!