“A modest proposal” to reduce the dismay of the denizens of Detroit: Liquidate!
While my area of expertise is organizational failure, and I
have numerous peer reviewed articles on topic, I must
give credit to Jonathan Swift for helpful, though in the
current case, less culinary, ideas on the handling of an
emergency situation like the one Detroit now finds itself.
Like most, even those knowledgeable about bankruptcy,
I am not well versed in Chapter 9 bankruptcy, the section
under which Detroit has filed. Yet, it seems that a more
reasonable choice might well be Chapter 7: liquidation.
Not only does the city owe more than it is likely to be
able to pay, it is also unable to achieve a positive cash
flow it its current operations. Without debt and interest
payments, the city might be in better shape. Yet, such
savings would be eaten up by needed improvements in
services – like having police respond to a call in under 58
minutes or solve more than eight percent of the crimes
committed. Liquidation might make more sense.
No one wants to venture to a place they perceive is on a
downward spiral. For the city to start moving up out of its
current decline, better public services – like police and
fire protection – are needed to attract a tax base. Yet, fire
fighters and the police are a difficult lot. For instance,
they like it when someone has their back. Thus, when the
soon to be deceased city of Detroit eliminates most of the
pensions these civic heroes have earned as part of the
bankruptcy, they may well be so hard to satisfy that these
services will never improve in any ongoing city
government – better to just liquidate the city government.
Financially, as they say, the writing’s on the wall (like
many structures in Detroit itself). Might as well wrap-up
the city’s books. Sell off what can be sold, some art, the
zoo, a whole raft of vacant lots. Collect some cash and
pay off the creditors.
Detroit, sorry, soon to be Newly Unincorporated Wayne
County (NU-WC) will have to look elsewhere to obtain
essential municipal services. Such responsibility would
likely fall to the county. Interestingly, once upon a time,
Detroit had a population about equal to that of all of
Wayne County presently. Increasing the tax base to
include the entire county should provide a sufficient tax
paying population to aid in the rebuilding of the NU-WC.
It certainly would not hurt to have Grosse Pointe, and
Grosse Pointe Shores, Farms, Woods and Park (all are
top 25 income places in Michigan) as part of the tax base
supporting the NU-WC. Such a move may not be popular with some, especially those at the shores, farms, or
woods, but Governor Snyder, I’m sure, is unafraid of
doing the right thing here to support Detroit’s liquidation
and let the tax burden for services fall where it may.
Sure, there may be problems. If there’s no Detroit, what
happens to its sports teams? Oil rich towns still have
money: how about the Tulsa Tigers, the Lubbock Lions?
Pittsburgh has baseball, football and hockey, but no
basketball team. How about the Pittsburgh Pistons? Pistons have nothing to do with Pittsburgh, but if the desert
city of Los Angles can have the Lakers, anything goes.
I have it good authority from some Canadian friends that
the Red Wings can stay close to home. They have little
objection to the Windsor Red Wings. Say that three times
fast – without tying your tongue, or getting queasy.
Long story short, liquidating the city will shorten the long
drawn-out process of bankruptcy, and attempts at
reorganization with an insufficient tax base. Certainly we
must not even contemplate Federal government help.
That is only appropriate for big banks, large auto
companies and foreign governments.
One cannot expect the Federal government (the one by
the people and for the people) to aid an incorporated,
chartered community (established by and for its people).
We can’t expect a Democratic President to help a
Republican Governor rebuild a damaged community.
That only happens in dreams (or New Jersey).
Creditors who supported the city knew the risks when
they invested. They should have had a diversified
portfolio. If those investors are pension fund recipients
who have risked their lives to save others, they should
have had a diversified portfolio of second and third jobs
to provide income and social security benefits instead
depending a risky pension from the city of Detroit. They
should not expect even a partial Federal bailout; these
brave men and women aren’t needy bankers, heads of
large corporations or foreign dignitaries.
We certainly cannot support Stephen Henderson’s big
government notions touted in the Detroit Free Press.
Other than the view from most sane economists, it would
be crazy to think that infrastructure investments, like in
and around Coleman A. Young Municipal Airport, could
drive economic recovery. Who, other than almost all
budget airlines, would use a secondary airport?
Invest in education? The payoff on that would take
decades. That’s too expensive; ignorance and illiteracy
would be way cheaper. Building and staffing prisons for
the products of a failed education system is far surer
thing than some pie-in-the-sky hope of high tech jobs for
those who have come from quality schools. I’m certain
suburban schools see it that way.
Building infrastructure, demolishing or restoring crumbling buildings, building new schools, and staffing them,
provides jobs. But building and staffing new facilities to
attract residents to improve communities is far too big an
investment for any one to make. Though it may cost far
less than the $700 billion the Fed’s threw at the banks to
bail them out, government can no longer afford to help a
great but struggling U.S. city. That money has already
been spent on bailing out banks and fighting two wars.
Come to think of it, Detroit might have been better off
seceding from the U.S. and then immediately surrendering. Victorious troops could then be taken on a tour of the
city and told, “see how you have devastated our fair
town!” This is a thought seen as not too far from the truth
given U.S. trade policies and a parsimonious Congress.
Since a lot of folks already think of parts of Detroit look
like a war zone, visiting dignitaries could told, “Since
you have ruined our city, you should now help us
through reconstruction!” But, it’s not like the U.S.
government could airlift billions in cash to help out the
city. This is in spite of the fact that they did so in Iraq.
No, it’s better to just liquidate. It’s not like there are good
ideas out there that could be instituted with the help of
Federal government or anything like that. So long
Detroit. Welcome to the NU-WC.
Dr. J. Sheppard, Associate Professor of Business Strategy,
Beedie School of Business,
Simon Fraser University, Burnaby B.C.