What can we learn from the bankruptcy in Detroit? E-mail
Opinion
Thursday, 25 July 2013 15:27

By L&T Publisher Earl Watt

Not long ago, then Liberal City Commissioner Charles Craig suggested that Liberal should consider filing bankruptcy since Trailmobile left the city with near $20 million of debt.

Instead of choosing that option, the voters opted for a four-tenths of a cent sales tax, and in a few short years the Trailmobile debt was retired, the building was sold, and the thoughts of bankruptcy faded into history.

That’s not the case for Detroit.

The Motor City has taken the tough road to bankruptcy court, a move that will be another major financial burden to a city that has such a massive debt load that no one knows exactly how much the city owes.

Estimates have the number at around $23 billion for a city that has 713,777 residents according to the Census Bureau.

Detroit has seen its population steadily decline for 63 years from its height of 1.8 million in 1950.

By the 1970s, Detroit shrank to 1.5 million and is now half the city it was 40 years ago.

How can other cities, or even states, learn some lessons from Detroit so that their fate will not be shared by others?

Here are a few lessons we should all take from Detroit:

1. Pie in the sky retirement plans will crush you.

The City of Detroit, like many across the United States, offered benefits worthy of Pharoahs at the height of the Egyptian empire.

Once a public employee qualified for retirement, the unions and politicians made sure they were set for life.

With health benefits and pensions that few, if any, public businesses could match, Detroit retirees lived in a lap of luxury, receiving their regular paychecks along with the rest of the workforce.

Here is the problem: Detroit has 10,000 public employees, but 20,000 retired employees.

How can the taxpayers ever support twice as many retirees as regular workers?

Take any other business in America and imagine what it would cost if that business had to support a workforce three times the size of what it actually took to produce the product.

But public entities don’t have to worry about that because those pensions are tax-funded. All it takes is a few more mills on the levy, and the golden pension plans get paid.

Eventually, however, the taxpayers can no longer support the massive retirement burden.

Detroit isn’t alone in this make-believe retirement system.

The Kansas Public Employee Retirement System, or KPERS, is exactly the same thing. Public employees in Kansas receive extremely disproportionate retirement plans funded by the taxpayers.

As people live longer, but the retirement age stays the same, more and more retirees are being funded a paycheck for the rest of their life at the cost of the rest of the workers.

Much like Detroit, it is a system that will collapse the entire state if changes aren’t made with new employees receiving a contribution toward a retirement plan, but the state’s obligation ending when employment is over.

2. Don’t put all your economic eggs in one basket.

Detroit was completely committed to the auto industry, and when foreign competition started to hone in on the auto market, the city was doomed.

It took six decades before bankruptcy, but the city never made an attempt to diversify beyond the auto makers.

Perhaps the lobby was powerful, and the people fearful that suggesting other industries might cause the auto industry to move, but when it benefited the auto industry, they moved, anyway.

That’s the way it works.

Industries will go to where benefits for the company are the best. That opportunity came with the North American Free Trade Agreement (NAFTA).

With cheaper labor in Mexico and Canada, auto makers abandoned Detroit, and its high-priced labor unions, and the Motor City had nothing to fill the void.

Having a less diversified economy is great when that industry is booming, but when it struggles, the entire city struggles, or dies. Make no mistake, industries will leave at the drop of a hat if they can save money by doing so.

3. Unions can crush a city.

From the labor unions in the automotive industry to unionized public employees, Detroit was a city that catered to their every whim.

Now the world can see the result of that commitment.

The union did not exist for the best interests of Detroit, but for its own self interests. Asking for higher wages, easier working conditions, golden retirement plans and an almost lock-tight system on being able to fire mediocre employees, the unions kept the public salaries high while the city suffered.

They didn’t care.

Still, the unions are trying to blame the banks for financing Detroit’s debt rather than owning up to the truth about unions — they only exist for their own benefit.

Unions who try to protect working conditions are beneficial. Those that try to dig into the pocket of the owners and cause an entire industry, and even a major city, to collapse, are thieves.

There is one truth, Detroit was an experiment in public-side economics, and it failed miserably.

The solution is private-side economics. Run Detroit like a business without union interference, provide contributions toward pension plans, and allow competition to diversify the economy. Hopefully, the rest of us will learn from Detroit’s mistakes and make some changes.

Otherwise, the next time bankruptcy is suggested in Kansas, it just might happen.

 

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The High Plains Daily Leader and Southwest Daily Times are published Sunday through Friday and reaches homes throughout the Liberal, Kansas retail trade zone. The Leader & Times is the official newspaper of Seward County, USD No. 480, USD No. 483 and the cities of Liberal and Kismet.  The Leader & Times is a member of the Liberal Chamber of Commerce, the Kansas Press Association, the National Newspaper Association and the Associated Press.

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