The free market didn’t kill Detroit: blame bad managers and worse unions

One of the best articles I ever commissioned as an editor was an account by James Doran of a road trip from the steps of the New York Stock Exchange to the back streets of Detroit in October 2008, at the nadir of the financial crisis. At his destination, Doran found a shocking vista of empty, vandalised factories, all once ‘bit-part players in the now dying auto industry… The desolation was so complete that it hardly seemed real.’ Five years on, the city of Detroit is bankrupt with $18 billion of debts, its population has shrunk to 700,000 from a peak of more than two million, leaving mostly the poor, black and unemployed behind, its public services have disintegrated, and the count of abandoned homes and buildings has risen to 78,000.

Like post-Katrina New Orleans, which I visited last year, Detroit is now being held up as an example of the free-market US economy’s capacity for ‘creative destruction’ and optimism — the belief that something better will always arise from the rubble. But what it really reflects is the opposite of true free markets at work: the highly protected, union-dominated and sclerotically managed nature of the ‘Big Three’ car makers, General Motors, Chrysler and Ford, on which the city’s former prosperity was built.

Saddled with huge burdens of pension and healthcare costs negotiated in better times with the United Auto Workers union, the manufacturers responded by outsourcing as many jobs as possible to China and Mexico. Resting on the laurels of a long post-war boom, they failed decade after decade to design cars that could compete for style with the Germans or for cost with the Japanese and Koreans — resorting instead to the jingoism of Lee Iacocca, Chrysler’s battling 1980s boss, who likened himself to Paul Revere as ‘the only guy on a goddamn horse saying “The Japanese are coming”’ and declared his industry’s problems to be ‘the fault of the dumb sonofabitch who allowed them into our market’.