Business Columns & Blogs

Detroit and its financial woes serve as cautionary tale for every region

Detroit as a city may no longer work, but “Detroit” as a rhetorical device still has plenty of functionality.

As in, expressing civic pride: “We’re nothing like Detroit.” Or relief: “At least things aren’t as bad here as they are in Detroit.” Or anxiety: “If things keep going like this, we’ll be just like Detroit.”

So for us here in the Puget Sound region, which is it?

In truth, it’s a little of all three.

We may wish to reassure ourselves that the Detroit disaster – not just the municipal bankruptcy but the decades-long slide that culminated in the Chapter 9 filing – is separated from our own condition and experiences by so many differences in history, culture, economics, politics and demographics as to render comparisons meaningless.

You’d have plenty of material to work with in support of that notion. Whatever the economic ills of this region, and reliance on a single dominant industry, this region is still in better shape for diversification of its business base and the abilities and drive of its human capital. Boeing is not the Big Three. The local workforce is not Detroit’s.

Whatever you think about the competence, effectiveness and honesty of the political system here, or race relations, or labor relations, or relations between the big city and the outlying areas in this region, they’re all paradisiacal compared with the misfeasance, malfeasance and intransigence in Detroit’s political system or the toxicity of relations between various entities, organizations and interests.

There’s plenty of evidence that Detroit’s problems and the outcome are unique to the city. Chicago and Pittsburgh are bookends of the same industrial swath that includes Detroit, and they suffer many of the same social and economic ills as Detroit. But no one is writing off either of those cities as so hopeless as to be beyond rescue. If anything, Chicago and Pittsburgh are often cited of as examples of urban areas that can do better than just hang on to a miserable existence and make the transition, however bumpily, to a new economic base.

But don’t get too comfortable in the assumption that the Puget Sound region is insulated from the factors and trends that did in Detroit. There’s also a school of thought, with considerable evidence to back it, that Detroit may have fallen further and harder than any other major American city, but it merely did so first, and it will soon have company.

The most immediate concern is the structure of municipal finance, not just in Detroit but around the country, and it’s one that should cause a few sleepless nights not just for government employees and executives but taxpayers as well. The growing obligations imposed by public-employee pension and retirement benefits were a dicey proposition even before the recession clobbered investment returns expected to pay for some of those benefits. Couple the recession with a long-term erosion of the economic base and what you’ve got is Detroit – and maybe more cities and a state or two.

Given the choice between making even more cuts in services, cutting pensions and other benefits and walking away from debt obligations, government’s response increasingly is “Yes.” That spreads the effect to taxpayers and citizens, public employees and investors, who are going to want a higher risk premium to compensate for the chance for default, which will increase the cost of borrowing even for nominally solvent locales (just as interest rates generally are starting to rise), putting still more budget pressure on government, and one more time around we go again.

One mitigating factor in such an unpleasant scenario is having a viable economic base. Detroit doesn’t have much of one, which is why it’s in such trouble. We do have one, which is why we’re not.

But even here, far from the Rust Belt, the specter of industrial decline triggered by overreliance on one industry has been raised, as far back as 1991, by none other than Boeing. In a now memorable Seattle speech, Boeing Chief Executive Frank Shrontz asked rhetorically, “Could Puget Sound turn into an aerospace rust belt of the 21st century, complete with padlocked factories, unemployment lines and urban blight? It certainly could.”

That was back when Boeing was a Seattle-headquartered company and built all of its passenger jets in Renton and Everett. The headquarters offices are now gone (to the Rust Belt, of all places) and commercial aerospace, in the form of both Boeing and Airbus, is moving into the Sun Belt.

Conjecture as to how much of Boeing’s local operations, and the region’s supporting aerospace industry, will follow is at the moment the region’s favorite sport. Detroit’s example is a reminder of why it’s no idle exercise. To lose so much of the industry that built your economy is debilitating. To have nothing to replace it with is devastating. Ask Detroit.

Or don’t, but don’t presume that by skipping the story you get to skip its implications and ramifications. The city of Detroit is still fixed geographically, but many of the same forces, factors and attitudes that put Detroit in the shape it’s in are quite mobile.