The recently declared bankruptcy of Detroit City could serve as an epitome of the rise and fall of not just American capitalism, but the capitalist system generally as an historical mode of production. It is a mode of production that is no longer viable as a way of efficiently organizing and sustaining society in the 21st Century. In fact, the system has become the nemesis of American and other societies across the world.
In its earlier glory days, Detroit reflected the awesome productive power of American capitalism and many of the system’s undoubted initially progressive attributes. In the first half of the 20th Century, the northern American city became the centre of the giant US automobile industry. That industry seemed to symbolize all that was positive in American-style capitalism and society at large. It employed millions of workers in modern, clean factories with relatively decent wages. Fordist Production – named after the car manufacturer Henry Ford (1863-1947) – was based on the reasoning that if assembly workers were paid generous wages and benefits, then these workers would in turn be able to buy the cars that the factories were mass producing. It sounded eminently reasonable and for a while it worked admirably.
This social contract appeared to be a win-win formula for the capitalist factory owner and the labor force he employed. It became an accepted model right across the auto industry and many others followed suit, making American society productive, wealthy and seemingly a paragon for the rest of the world. The prodigious social gains made by the American auto workers were not merely a result of unilateral employer enlightenment and generosity. Decades of hard-fought organized labor protest and struggle for better wages and conditions were also a factor in forming this implicit social contract.
For decades the prestige of American capitalism seemed unassailable. In terms of output and quality of product, the US economy was the undisputed world leader. This was due partly to the sheer size of its population and abundance of natural resources, but also to the relatively progressive social pact that lay at the heart of American-style capitalism. Workers and their families benefited enormously from the material gains accrued from “Fordism”. These families were able to afford pleasant homes with white picket fences in congenial suburbs. The American car and its iconic brands – Chevrolet, Buick, T-Bird – symbolized the American Dream of popular wealth and seemingly happy lifestyle. Drive-in movies, drive-in fast-food restaurants, inter-state highways, everything seemed boundless and bountiful and all so egalitarian. It is understandable how the popular American psyche had such an affinity with consumer capitalism. Those halcyon days seemed golden indeed.
Detroit City became affectionately nicked-named Motown in deference to the motor industry. It was the home of American industrial and social prowess in the post Second World War years. The bustling city provided in particular a destination for poor, rural African-Americans to migrate to and escape from the poverty and backward racism of the Deep South. Along with the mass production of the auto industry, Detroit flourished as a cultural centre for modern American music, producing new genres of soul, rock and jazz. Motown was not just a world leader in car and transport industries; it provided the upbeat soundtrack for all that seemed progressive about modern American capitalist society.
But the tide would change dramatically and irreversibly. The material gains that American labor was able to wrest from American capital in the social pact that had made the economic model such a success would soon come under attack. From the 1970s onwards, the American upper class embarked on a nationwide “tax revolt”. With the rise of international industrial competitors in Europe and Japan, the American economy began losing competitiveness and profitability.
However, American capital was unwilling to cut its cloth accordingly. Instead, it saw that concessions would have to be yielded by US workers. This was the beginning of the rise in neo-liberalism, a political trajectory spearheaded by President Ronald Reagan and his financial backers from within the American ruling class. This ideological shift – known as Reaganomics and also Thatcherism in Britain – prevails to this day. All political parties in the US and Europe conform to the neo-liberal agenda. This agenda has and continues to oversee a secular shift in wealth from the working and middle classes to the upper echelon of society. So much so that many commentators note the phenomenon of a disappearing middle class in which society is more characterized by just two classes – the haves and the have-nots. Under neo-liberalism, the prevailing orthodoxy is dominated by relentless tax cuts for rich individuals and companies, deregulation of industries to maximize financial profit, decimation of workforces, pay and conditions, union-busting, and balancing government budgets by slashing public spending and investment.
Some figures help illustrate this historic shift. In the US, some 40 per cent of all income tax derived by central government comes from payrolls, while 9 per cent comes from corporation tax. Six decades ago, the ratio of contributions was reversed, with worker payrolls accounting for 10 per cent of total tax take and corporate tax providing some 33 per cent of government revenues. This trend can be seen in Europe as well. It has become the hallmark of Late Capitalism, whereby the wealth gap between a tiny social elite and the vast majority has become a stark chasm. In the US, the top 400 richest individuals have a combined wealth greater than more than 150 million Americans – half the total population.
Developments in technology along with the freeing of capital under globalization policies also meant that industries could export jobs to cheap labor countries and regions – all under the politically legitimized pursuit of maximizing profit. This has led to deindustrialization of cities across the US and elsewhere, replaced by poorly paid, insecure service jobs or massive unemployment.
Detroit City is a case study of this demise in American industry. In its heyday, during the 1960s, the city was the fourth largest in the US with a population then of some 3 million. Today, the city’s population has dwindled to 700,000, making it now the 18th largest. That demographic collapse is intimately related to the collapse of US industry as dictated by the demands of capitalist logic. Other signs of urban decay are that 60 per cent of Detroit’s children live in poverty, there are more than 70,000 abandoned residences across the city, more than half the municipal parks are closed, and the once salubrious suburbs have degenerated to a state of destitution and crime, or reverted to natural wilderness. Some 40 per cent of the city’s street lighting has been turned off and in many areas vital public services, such as firefighters and ambulances, have ceased operating.
Motown’s workforce has been decimated to number some 10,000, in addition to 20,000 retirees. Those jobs that do exist are now subject to further lay-offs and wage cuts as the city planners rationalize how to pay off up to $20 billion in debts to bondholders and Wall Street banks. The unelected financial controller of Detroit, Kevyn Orr, a Wall Street bankruptcy lawyer who was appointed back in March by Michigan State governor, Rick Snyder, has set the priority of paying off the banks above all other obligations, including public welfare. The city’s bankruptcy status gives the controllers dictatorial powers to tear up statutory employment and pension contracts. As in Europe, public austerity and in effect public embezzlement is to be enforced by unelected technocrats in order to placate the sacrosanct profits of banks and hedge funds.
Detroit City’s debt has been decades in the making. But while the city’s planners, media and Wall Street flunkeys blame the fiscal situation on “onerous” public welfare and pensions, the truth is that, like much of America, the soaring deficits and plummeting social conditions are due to the historic, inexorable shift demanded by capitalism. The social pact that previously worked for Detroit and the US generally was always vulnerable to attack by the rich and powerful. Capitalism is a system whose ineluctable dynamic is to polarize wealth and power, and to shift the burden of costs and losses on to the less powerful. Detroit demonstrates how political constraints on the aggrandizement of wealth and power will eventually be ruptured by the elite and their bought-and-paid-for politicians. Even with the best of intentions, as Detroit proves, capitalism as a system is bound to end in misery for the majority while enriching an elite to ludicrous and obscene levels.
This elite includes the two Big Business political parties of Democrat and Republican and their lobbyists in Congress. Since the financial collapse in 2008, the Washington political establishment has pumped some $3 trillion of taxpayer money into bailing out Wall Street and its banks, the very section of society whose crony capitalism caused the economic collapse. This bailout, given the quaint name of Quantitative Easing, continues at a rate of $85 billion a month under the aegis of the US Federal Reserve. That amounts to four times the debt of Detroit City – paid out to the banks every month. Yet the Obama administration maintains that there is no federal cash to help rescue Detroit. How crassly undemocratic is that? Indeed, some commentators opine that the White House and Congress are setting up Detroit as a precedent case for gutting public funds in other similarly indebted cities across America.
It doesn’t have to be this way. Detroit workers and other citizens are fighting back with lawsuits, strikes and civic disobedience. They say that the city should simply repudiate the debts to Wall Streets and let the already bloated banks take the financial hit. The priority must then be on public investment to regenerate decent jobs, housing, education, healthcare and communities. That is, the economy of the city must be brought under democratic planning to serve public needs, not private elite profits. That is a paradigm shift that the whole of the US (and Europe) needs to adopt. Some may call this socialism. One thing for sure is that such an alternative political program is certainly not capitalism. The story of Detroit shows that whatever progressive aspects capitalism may have had in former times, it is no longer viable for sustaining societies in the 21st Century. Indeed, how could it be? It is a voracious, irrational system that inevitably destroys more than it creates.
[DS added the video.]
Richard Wolff: Detroit a “Spectacular Failure” of System that Redistributes Pay from Bottom to Top
democracynow on Jul 25, 2013
http://www.democracynow.org – Kicking off a series of speeches about the economy, President Obama told a crowd in Illinois on Wednesday that reversing growing inequality and rejuvenating the middle class “has to be Washington’s highest priority.” During his remarks, Obama failed to mention the bankruptcy filing by Detroit, where thousands of public workers are now fighting to protect their pensions and medical benefits as the city threatens massive cuts to overcome an estimated $18 billion in debt. Detroit’s bankruptcy “is an example of a failed economic system,” says economist Richard Wolff, professor emeritus of economics at University of Massachusetts. “There are so many other cities in Detroit’s situation, that if the courts decide that it is legal to take away the pension that has been promised to and paid for by these workers, you have [legalized] theft. It is class war, redistributing income from the bottom to the top.”