Lack of Industrial Restructuring Caused Detroit's Bankruptcy
Published in The China Times
(China) on 23 July 2013
by Editorial (link to original)
A perpetually prosperous world is very difficult achieve, so though it was alarming to see Detroit declare bankruptcy, it also serves as a reminder to Taiwan to stay alert.
In the past, Detroit was internationally known as the Motor City. In its heyday, car factory production lines worked day and night to constantly spit out brand new cars to be shipped worldwide. The automotive industry not only brought profit and revenue for the government, but also provided employment to large numbers of people.
But in today’s Detroit, the factories are shut down and migration has caused the city to have nearly 80,000 abandoned, empty houses, just like a depression-era ghost town. Its former glory cannot be found and now it cannot afford any more debt; it will become the largest city in American history to go bankrupt. Detroit has actually been on the decline for the past six decades, but in such a long time, there should have been plenty of opportunities to restore this downward spiral. However, Detroit was never able to fix itself for three reasons: failed industrial restructuring, poor governance and heavy fiscal burden.
First of all, the Motor City became too dependent on a single industry and ended up losing in this respect. In the domestic market, American automobiles have suffered fierce competition from Japanese automakers and were gradually defeated by these foreign competitors. Because of the United Automobile Workers union’s strong influence, good benefits and generous retirement conditions created a heavy cost for the industry to bear.
Detroit put all of its eggs in this one basket and did not try to diversify and restructure to create more industrial activity. Thus, when the American auto industry began to shrink, the economic benefits of automobile production for the city began to wilt as well. The last straw for this American stronghold was the financial crisis.
Detroit’s population was nearly 2 million in the ‘50s, but it started to decline in the ‘60s. The automotive industry was becoming more automated, which led to outsourcing and layoffs. That, coupled with ethnic conflicts, led to migration out of the city. Detroit lost its sole breadwinner when firms had to move, which reduced job opportunities as well as local government tax revenue. Detroit’s decline intensified, and now, with a population less than 700,000, over 80 percent of which is black, it is rated third in poverty, with an unemployment rate of about 20 percent.
Another issue in Detroit was governance. Lack of encouragement for industrial restructuring early on affected the foundation for the development of Detroit. The reduction in revenue resulted in a decline in the quality of public services, which led to crime and corruption. Its elite population fled and the flight of industry led to even less tax revenue, making it that much harder to break this vicious cycle.
The fiscal deterioration is what led to Detroit’s bankruptcy. For decades, the Detroit government was borrowing to meet expenditures and the elected officials were starting indiscriminate welfare programs, leading to ever-expanding debt. When the housing market collapsed, the financial crisis further shattered the Detroit economy, causing Detroit to go $380 million in debt with long-term liabilities amounting to $20 billion. Looking at the future, it is doubtful that Detroit will garner momentum for development and growth.
As can be seen from Detroit, urban development must be a timely transformation in which you cannot always rely on one single industry. Global competition is fierce, and resilience must be cultivated as well as a number of competitive industries which are less likely to decline because of transfer opportunities.
Taiwan also faces this issue in this era of globalization. There is no longer such a thing as the Centennial Science and Technology City. The former Kaohsiung Export Processing Zone is no longer its once glorious self. With the new Science Park, who dares to say what it will be like in 10 years? Manufacturing-based cities that do not know how to transform themselves will be crushed and enter into a depression.
The short life cycle of electronic products, like Taiwan’s key industries today, may soon appear tired. If you cannot grasp the trends early and actively develop other suitable industries, you may find that Taiwan’s rocket fuel will burn off too quickly if Taiwan’s economy is not restructured.
Industrial transformation requires a forward-looking view of overall government planning. In addition to making the right choice, you must also have the drive to continue going. This work may not have short-term political gains. However, if it does not happen today, then we may regret it tomorrow and 10 years from now it will be too late. Taiwan may become Detroit in 20 years if it does not begin to support a new major industry. If we do not transform ourselves, then we also may soon begin to wither.
In the past, Detroit was internationally known as the Motor City. In its heyday, car factory production lines worked day and night to constantly spit out brand new cars to be shipped worldwide. The automotive industry not only brought profit and revenue for the government, but also provided employment to large numbers of people.
But in today’s Detroit, the factories are shut down and migration has caused the city to have nearly 80,000 abandoned, empty houses, just like a depression-era ghost town. Its former glory cannot be found and now it cannot afford any more debt; it will become the largest city in American history to go bankrupt. Detroit has actually been on the decline for the past six decades, but in such a long time, there should have been plenty of opportunities to restore this downward spiral. However, Detroit was never able to fix itself for three reasons: failed industrial restructuring, poor governance and heavy fiscal burden.
First of all, the Motor City became too dependent on a single industry and ended up losing in this respect. In the domestic market, American automobiles have suffered fierce competition from Japanese automakers and were gradually defeated by these foreign competitors. Because of the United Automobile Workers union’s strong influence, good benefits and generous retirement conditions created a heavy cost for the industry to bear.
Detroit put all of its eggs in this one basket and did not try to diversify and restructure to create more industrial activity. Thus, when the American auto industry began to shrink, the economic benefits of automobile production for the city began to wilt as well. The last straw for this American stronghold was the financial crisis.
Detroit’s population was nearly 2 million in the ‘50s, but it started to decline in the ‘60s. The automotive industry was becoming more automated, which led to outsourcing and layoffs. That, coupled with ethnic conflicts, led to migration out of the city. Detroit lost its sole breadwinner when firms had to move, which reduced job opportunities as well as local government tax revenue. Detroit’s decline intensified, and now, with a population less than 700,000, over 80 percent of which is black, it is rated third in poverty, with an unemployment rate of about 20 percent.
Another issue in Detroit was governance. Lack of encouragement for industrial restructuring early on affected the foundation for the development of Detroit. The reduction in revenue resulted in a decline in the quality of public services, which led to crime and corruption. Its elite population fled and the flight of industry led to even less tax revenue, making it that much harder to break this vicious cycle.
The fiscal deterioration is what led to Detroit’s bankruptcy. For decades, the Detroit government was borrowing to meet expenditures and the elected officials were starting indiscriminate welfare programs, leading to ever-expanding debt. When the housing market collapsed, the financial crisis further shattered the Detroit economy, causing Detroit to go $380 million in debt with long-term liabilities amounting to $20 billion. Looking at the future, it is doubtful that Detroit will garner momentum for development and growth.
As can be seen from Detroit, urban development must be a timely transformation in which you cannot always rely on one single industry. Global competition is fierce, and resilience must be cultivated as well as a number of competitive industries which are less likely to decline because of transfer opportunities.
Taiwan also faces this issue in this era of globalization. There is no longer such a thing as the Centennial Science and Technology City. The former Kaohsiung Export Processing Zone is no longer its once glorious self. With the new Science Park, who dares to say what it will be like in 10 years? Manufacturing-based cities that do not know how to transform themselves will be crushed and enter into a depression.
The short life cycle of electronic products, like Taiwan’s key industries today, may soon appear tired. If you cannot grasp the trends early and actively develop other suitable industries, you may find that Taiwan’s rocket fuel will burn off too quickly if Taiwan’s economy is not restructured.
Industrial transformation requires a forward-looking view of overall government planning. In addition to making the right choice, you must also have the drive to continue going. This work may not have short-term political gains. However, if it does not happen today, then we may regret it tomorrow and 10 years from now it will be too late. Taiwan may become Detroit in 20 years if it does not begin to support a new major industry. If we do not transform ourselves, then we also may soon begin to wither.