Fifty years of Democrats running the city of Detroit led to it filing for bankruptcy last week. Unsustainable demands from its 48 unions gradually drove out private industry, as government became the largest employer. Its shrinking tax base can no longer support the massive pension debt obligations and still provide a minimum level of city services. Nearly half of the city’s debt is to underfunded pension plans and retirees.
Mitt Romney presciently warned in 2008 that if the government bailed out the automakers, it would ultimately destroy Detroit. “Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.” Obama and the Democrats in Congress didn’t listen and chose to bail out GM and Chrysler.
Detroit reached its zenith in the 1950s. It was the fourth-largest U.S. city and had one of the country’s highest per capita incomes. A manufacturing capital, the city provided 75 percent of the production for World War II. GM CEO Dan Akerson laments,"If you go back to the early '60s, Detroit was the Silicon Valley of America. If you were an engineer, you wanted to be in Detroit."
Tax revenues began falling as the population decreased from 1.8 million in the 1950s to 700,000 today. Wealthier people moved out of the city and into the suburbs. Conservative states friendlier to business and less subject to burdensome government regulations and union demands, like Alabama and South Carolina, provided incentives for automakers to build factories there instead, and the Big Three started relocating their plants out of Detroit beginning in the late 1960s. The size of the U.S. auto industry shrunk as Japanese cars started dominating the market. GM is the only auto company with headquarters left in Detroit, and its research and testing centers, which provide thousands of jobs, are located outside of the city. GM opened another new plant in Shanghai last month. Ford was never located in Detroit, but in nearby Dearborn. GM and Chrysler filed for bankruptcy in 2009, despite the bailouts. Ford, which refused government bailout funds, did not file for bankruptcy.
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