Henry Precht

By Henry Precht

BN Columnist

Detroit — First in the American League, Central Division. First in major city bankruptcy.

I visited Detroit briefly about 20 years ago, driving through the city to its world-class art museum. I say city — it was more like an immense, rubble-strewn meadow with occasional structures left standing and a skyline of modern office buildings. It very much resembled Pompeii, which has more contiguous buildings and far more people on the streets. Both of them equally dead. Pompeii better managed albeit in part still buried in ashes and mud; Detroit bereft of smart management and deeply buried in debt.

Detroit owes some $18 billion without the income to cover it. An appointed manager will propose a plan of how to deal with this burden. Among the proposals: get help from the state or federal governments; sell off the museum and other assets; reduce worker pensions and health care; or make the bond-holding creditors suffer.

Old timers among you will remember when Detroit was synonymous with automobile manufacture. The car factories and other manufacturers — as in other rust-belt cities — are mostly gone now, fled south and overseas. The population, once America’s fifth largest city when it totaled 1.85 million, now reaches 700,000.

Unlike Detroit, Pittsburgh, the former steel metropolis, successfully weaned itself off dependency on steel; it imported modern industry, technology, arts, education, health industry, thereby escaping bankruptcy. Certainly, Pittsburgh also had better management, less corruption.

Detroit’s history is that of many older American cities: A thriving manufacturing sector pulls in immigrants from overseas and gives them a good living without worrying about a college or even high school degree. Some make it upward; others are content to stay put.

Demand for labor persists after each of our World Wars. Blacks from the south — poorly equipped for northern urban life — move in. Whites flee to the suburbs. Racial strife in the 1960s. The suburbs assume no responsibility for the city’s finances. They flourish; Detroit decays. Crime increases; police protection fades; more people move out.

What are Detroit’s options now? Don’t count on a state or federal bailout. First, tight-fisted Republicans hold the purses in both places. Second, helping Detroit would create a precedent; how many other Detroits are apt to stretch out their begging hands in the tough months to come?

Should the city sell off its priceless art for the best price offered? Not if the city intends to remain a city. Those works are its heritage, they help to create and preserve its identity, its soul. Sell, but only if the city is to be plowed under.

How about putting the squeeze on the benefits promised police, firemen and other city workers? Not unless contracts lose their meaning in the modern American economy. Those men and women worked for the assurance that they would have (none too generous) pensions after retirement; the city can’t retroactively cut the pay they’ve already worked for.

That leaves one source of funds: The banks and bond holders who knew they were buying into risk and for which they were compensated by higher than market interest payments and profits on derivatives. They made a bet that they would not loose. They lost. They will have to pay up.

Detroit’s baseball team may go on to capture the American League and World Series. The municipality, however, may see its status as the top national bankruptcy threatened by cities and states, which owe much more than they can cover. (The unfunded liabilities of Illinois’s three largest state-run pension plans may be $133 billion.)

The harsh reality of Detroit is not a local problem, but a national one. The budget struggles in Augusta certainly make it seem so. We really must reorganize our national priorities. Can Medicare and other entitlements be reshaped for greater efficiency without hurting the needy? Shouldn’t our tax structure be made simpler, more progressive, more rational? Can’t we divert huge military/intelligence expenditures to more constructive purposes – education, infrastructure, aid to cities and states?

Isn’t it time that our legislators spend more time raising funds for the nation rather than for their own campaigns?

Henry Precht is a retired Foreign Service Officer.