April 18, 2005,
Fifteen years ago the Mackinac Center for Public Policy, a market-based think tank in Michigan, published a book (Michigan: An Agenda For The ’90s) that I co-authored with the center’s president, Lawrence W. Reed. The book’s final section proposed a 20-point agenda for the Great Lakes State. Many of the points including tax cuts, deregulation, privatization of the state accident fund, and welfare reform were enacted under t hen-Gov. John Engler. These were important victories for market advocates in a blue state.
A development last week suggests that market advocates could be on the verge of another victory in Michigan this time in Detroit, the state’s largest city. Faced with big revenue shortfalls, Democratic Mayor Kwame Kilpatrick has proposed government-sector layoffs and pay cuts in America’s tenth most populous city. His budget also suggests ending taxpayer subsidies to the Detroit Zoo and other cultural centers, a move that could lead to privatization a theme of our 1990 book and other work by the Mackinac Center and Chicago’s Heartland Institute.
Detroit’s economic problems are so severe that Mayor Kilpatrick has few options privatization or appealing to an emergency financial manager appointed by Michigan’s governor under terms of a 1990 law. In Michigan, an emergency manager is different than a court-appointed receiver. But the “economic shock treatment” such a manager can deliver can be similar.
Court-appointed receiver Louis Schimmel virtually privatized Ecorse, an industrial suburb of Detroit, a tale retold in our book. Schimmel later served as emergency manager of Hamtramck, a municipal enclave within Detroit, and used privatization to erase red ink. Kilpatrick’s latest proposal places privatization, an option rejected by his predecessors, front-and-center.
Mass privatization would be a big breakthrough in Detroit, which was proclaimed a “model city” by liberals in the 1960s. The typical liberal solution increased government spending fueled by tax increases (including a city income tax) has been reduced in recent decades to a call for more federal and state funding without accountability. Republican-controlled legislative bodies have not considered this an option since taking power in the mid-1990s.
The irony today is that Detroit has come full circle from the straight-talk offered in 1995 by Mackinac researchers Dr. Robert Kleiman, professor Harry Hutchison, and David L. Littmann:
In the short run, there are really only four conceivable approaches to balancing the next city budget: raising taxes, improving the collection of existing taxes, cutting services, or improving efficiency.
Raising taxes and harassing small entrepreneurs has already failed in Detroit. A liberal city council and mayor enacted a city income tax in 1962 that created an incentive for capital to flee to the suburbs. Another liberal solution eminent domain to destroy private homes, businesses, and churches for private use in Poletown was finally declared unconstitutional in 2004 by the Michigan Supreme Court. But greater efficiency in the delivery of services is feasible and overdue. The experience in neighboring Ecorse and Hamtramck is that a service cut from government tends to be picked up by the private sector.
Privatization is the means to the end of efficiency in Detroit, which has already privatized several municipal golf courses, according to the California-based Reason Foundation. Garbage collection, public transit, road maintenance, and the Public Lighting Department are all candidates for privatization.
Regulatory barriers that prevent Detroit’s poor from practicing entrepreneurship should also be abolished. Some Republicans consider this idea radical, but Detroit successfully undertook as dramatic a policy experiment when the House joined the Senate in 1995-96 for Michigan’s first GOP majority in a quarter-century. Mayor Kilpatrick’s predecessors, including Dennis Archer (1994-2001), opposed privatization. Yet Archer, to his credit, backed Gov. Engler’s call for Kempian tax-free Renaissance Zones in depressed urban areas, including Detroit, while Republicans moved enabling legislation for Detroit’s Clintonian Empowerment Zone. Today, these zones co-exist as policy experiments. To his credit, Kilpatrick has proposed expansion of the enterprise-zone concept.
Detroit’s progress toward market solutions has been painfully slow as liberals in Michigan long ago decided that protecting government employees was a higher priority than building internal combustion engines. Citizens who discover the power of ideas sometimes express frustration or drop entirely out of the process when sound policies advance at a tedious pace. They should take heart, and recall that the tortoise ultimately won the race.
Greg Kaza is executive director of the Arkansas Policy Foundation, an economic research organization based in Little Rock. He served three terms in the Michigan House of Representatives and chaired the Urban Policy Committee (1995-96).