Language : English 简体 繁體

Spending and Pretending: Detroit’s Lessons for China

Sep 18 , 2013

Denial has never solved a problem. 

China should send an anthropologist or archeologist to Detroit to dig through the rubble that has accumulated after decades of neglect, corruption, arrogance, influence peddling and lack of sound decision-making. The result of which is Detroit’s sinking and filing for bankruptcy. 

Tom Watkins

A once proud city has been knocked down by lack of leadership, neglect and corruption. Intervention could and should have come much earlier—but leaders looked the other way. 

The mess in Detroit today was at least six decades in the making. China’s leaders should carefully study Detroit and the decisions that led the city to its current state. If changes are not made now in governance of China’s many of megacities, Detroit might well be an accurate mirror into which China might gaze. 

Detroit declined in the six decades that China has risen.  There is nothing to prevent the reverse from happening over the next six decades The greatness Detroit once had is now gone. What we see today is its new reality. What Detroit makes of their current situation rests on the city’s residents’ shoulders. 

China Knows Humiliation 

China can and should learn from Detroit’s demise. 

Chinese scholar Wei Yuan (1794 – 1857) attempted to combine traditional scholarly knowledge with practical experience in order to find workable solutions to problems of his day. In his book, Records of the Conquest, Wei wrote: “Humiliation stimulates effort; when a country (city) is humiliated, its spirit will be aroused …  “To feel shame is to approach courage.” 

Clearly, Detroit, once the “Arsenal of Democracy”, a city that put the world on wheels, has been humbled. 

August 11, 1842—during the Qing Dynasty—is the date China began its march toward modernity by signing the Treaty of Nanjing, which conveyed land to Great Britain in exchange for the end of the devastating First Opium War (1839-42). Things have taken a hard turn for the better in China since that century of humiliation. 

In the 21st century, China has again regained its ” fuqiang” – wealth and power. 

Seek Truth From Facts 

If a city or nation is going to obtain and retain its fuqiang, it must follow Deng Xiaoping’s famous line of thinking, “Seek truth from facts.” 

Mounting cash deficits and long-term debt stripped Detroit of the cash it needed for basic government services, safe and secure neighborhoods, and a thriving economy. Poor decision-making and graft in the past haunts neighborhoods and residents today. 

Michigan Governor Rick Snyder has declared the least best kept secret in the state: Detroit is in dire financial straits and requires emergency help. Long past denial – spending and pretending – got the city to its current point. The situation goes back decades, but the current crop of locally elected leaders has not moved with either urgency or purpose to clean it up. 

The Emergency Manager for Detroit now has the power that Governor Snyder had been hesitant to give. It was his hope that dictatorial powers would not be needed to clean up the city’s mess. But the unwillingness and inability of the Mayor and City Council to lead, ultimately forced his hand. It has been painful to watch Governor Snyder this past year as he pleaded with the Mayor and City Council to act so that he would not have to hire an Emergency Manager. He made it clear that he wanted Mayor Dave Bing and the City Council to fix the city’s short and long-term fiscal issues. 

Yet even as Detroit deteriorated, some local leaders continued corrupt, inept and failed to act. This situation somewhat parallels the issues that leaders of some of China’s cities are facing today. Problems have mounted and the unsustainable, structural fiscal issues have been ignored. 

In fact, the Detroit’s short-term cash flow problems and its historical structural imbalances—in the billions—went virtually unaddressed, glossed over by local, state and national leaders. Is China facing similar situations? Many believe so. 

Kill The Chickens To Scare The Monkeys 

Those who opposed drastic measures to correct Detroit’s issues offered no realistic alternatives to the problems. Worse, while the issues continued to be debated, city residents went without basic services like streetlights, clean parks, fire and police protection. The political dance between the state and Detroit as they attempted to implement the Consent Agreement was farcical. 

It soon became obvious that the Governor was foreshadowing “death” in the form of an EM for over a year if local officials failed to act. One would think the mere threat of an all-powerful czar capable of making painful economic decisions would bring recalcitrant people to a solution-seeking table. Instead, the foot dragging continued, often becoming more pronounced as city leaders either couldn’t or wouldn’t act. 

The Governor did. Bankruptcy may be painful, but like General Motors and Chrysler, Detroit will emerge stronger. 

One thing remains clear: Detroit cannot simply cut its way to solvency and renewal. A detailed plan must be structured to stem the bleeding and grow the city using the “Six R’s”: Restructure, Reform, Re-imagine, Reinvent and Rebuild with Results. 

Detroit needs these six R’s if they are to row in harmony and deal with the reality of the situation. Which brings us back to the original idea: “Detroit, what you once had is now gone. This is your new reality. What you make of it is up to you.” 

Stein’s Law 

Detroit and leaders in China need to grasp Herbert Stein’s law. The noted economist and chairman of the Council of Economic Advisers under Presidents Richard Nixon and Gerald Ford said: “If something cannot go on forever, it will stop.” 

Pretending and spending cannot go on forever. If you have a hole in your roof, pretending to fix it does not keep the rain out. 

There are both lessons to be learned from Detroit’s demise and investment opportunities for savvy investors. 

China: Come to Detroit to seek truth from facts. 

Tom Watkins has been working for more than 3 decades to build economic, educational and cultural ties between the US and China.  He is a U.S.-China business and educational consultant and advisor to the University of Michigan Confucius Institute and Detroit Chinese Business Association.   Follow him on twitter @tdwatkins88

You might also like
Back to Top