The Motor City meltdown
Detroit filed for bankruptcy this week after its negotiators failed to win concessions from public service unions and bondholders, who will now be forced to take whatever a bankruptcy judge decides is fair. A large part of the blame for the sad state of once proud Motor City can be laid at the door of organized labor.
The city owes about $20 billion and has no hope of paying off that debt because of rapidly dwindling population and employment. A large chunk of that is owed for unionized city worker pensions.
The decline in the city’s population and employment is directly linked to the declining fortunes of the Detroit region’s major employers in the automotive industry, the Big Three of General Motors, Ford and Chrysler.
Big Three employment peaked in the late 1970s and has been on a downward spiral since. Just four years ago General Motors and Chrysler survived only by receiving a massive federal bailout while shedding burdensome union contracts.
Ironically, the excessive gains the United Auto Workers union won for its members between 1950 and the late 1970s led in the period from 1980s to the present to steadily decreasing employment in the Detroit region. In the years following the rise of the Southern auto industry, Rust Belt automotive industries lost over 90,000 jobs, while the South gained even more, most of them non-union jobs.
The rise of automobile manufacturing in the South cut sharply into Detroit auto sales and jobs. Southern automakers succeeded in large part because they were not burdened by unions and their excessive workplace rules and pension costs.
It was this drain of jobs that eventually doomed Detroit to its present insolvency. So when union propagandists say there is a new war between the states with the South as the aggressor, they have a point. Detroit resembles a war zone.
But its sad fate can be laid squarely at the feet of aggressive but unwise union leaders and auto company management that went along to avoid union strife. The city’s woes also reflect the expenses imposed by public service unions, and its shrinking ability to pay their freight.
Detroit is the victim of a self-inflicted wound.
And while Uncle Sam still owns a majority of GM stock, don’t count on him to bail out Detroit.