Volume 47, Issue 5: September/October 2013

Pensions and the Detroit Bankruptcy

Detroit from above. Used under creative commons. Photo by y P.S.Lu (flickr.com/photos/thinkdash)

Municipal workers across the United States — and especially those already retired — were dealt a warning shot in mid-July when the city of Detroit filed for bankruptcy. Municipal bankruptcies, which have particularly set their sights on cutting the pensions of public-sector retirees, might become a more favoured tool in imposing austerity and deepening neoliberal attacks on the working class, particularly in what had once been the labourfriendly industrial heartland of the US.

The governor of Michigan appointed Kevyn Orr “emergency manager” with the power to force dramatic restructuring of the former Motor City. Emergency managers can impose cuts and privatize key services. Bankruptcy allows judges to impose further takeaways and void union contracts.

Particularly at risk are the pensions of municipal workers. Although the Michigan state constitution contains an obligation to protect pensions, manager Orr has called for “significant cuts” to pensions of current municipal retirees. There are debates between officials about whether they will give bondholders (large banks and private investors) preference or consider the claims of both retirees and bondholders (and cut payments to both) — a perverse form of the old business slogan “equality of sacrifice.”

Either way, there will be attempts to cut the pension benefits of current or future municipal retired workers. Retirees see this as a clear betrayal: many were drawn to municipal service by the promise of reliable retirement incomes, as they knew that their regular paycheques were extremely modest. Many still pay mortgages on homes that are “underwater” from the crisis of 2008, while others look after sick and dependent relatives, in an environment where services are hard to get and cost more.

Detroit is a shadow of the city once the home of the US auto industry. Its population has dropped from almost 2 million in the 1950s to 714,000 today. Its decline has been dramatic and ugly, with the loss of its manufacturing base and, with it, urban decay and the destruction of schools, hospitals, housing and neighbourhoods. 35 percent of Detroiters are living on food stamps. There used to be 12,000 city workers there as recently as three years ago; today there are 9,500. It was one of the first major cities to experience urban rebellion in the 1960s, an African American majority, and political dominance. Detroit, with an African American population of 80 percent, has since been a target of the racist undercurrent which lurks at the heart of much of American politics. The auto industry’s decline in Detroit didn’t “just happen.” It is the result of many of factors at work in the neoliberal era and the forces driving capitalist globalization. The structural determinants of private capital accumulation — and the search for investment venues where labour is cheap and non-union — have helped to make cities like Detroit hollowed out and unable to provide a livable home for tens of thousands of working people.

Many business-oriented commentators blame urban corruption and incompetence (not coincidentally with a racist tinge), poor investment decisions by auto companies, and pensions cast as “too generous.” While there is always a grain of truth to some of those claims, they have little to do with the underlying causes of the decline of cities like Detroit. The decline has been compounded by seemingly permanent austerity policies at various levels of American government. The federal government reduced aid to the states, and the latter have starved municipalities of resources and purposely cut social spending, attacking the rights and living standings of public-sector workers at all levels.

Detroit Mayor Dave Bing has noted that more than 100 American cities are in financial trouble. Chicago, under Democrat Rahm Emanuel (who fought against the Chicago Teachers’ Union), has called for “pension relief” after a credit downgrade from Moody’s.

What does this mean for public-sector workers in Canadian cities? Clearly, those who target pensions and social service spending as the cause of the financial stress on governments don’t just live in the US. We must support the resistance of American workers in cities like Detroit. But we must learn how to break down the isolation that public-sector workers and unions face.

More challenging is working to address the underlying factors that underpin the loss of urban-based manufacturing capacities, as well as the interests that sell austerity. That requires building political alternatives that don’t exist at the present time.