Municipal Bankruptcies, Pensions, and New Dimensions of Class Struggle in the United States


The news that Detroit has declared bankruptcy, the largest North American city to do so thus far, foreshadows an extension of the social crisis currently afflicting the centers of capitalism.  As some observers have noted, Detroit is just the tip of the iceberg in what is sure to be a procession of indebted municipalities looking to discharge debt through bankruptcy.  The invariable result will be an extension of the undeclared campaign of austerity already forced upon the masses of North American workers.

The particular drama unfolding in Detroit has brought the questions of pension funds and race to the forefront.  In the media, a disingenuous and pernicious ideological offensive is being carried out in which public pensions are being presented as a major contributing factor in the indebtedness of cities like Detroit.  The implication is that the approximately 20,000 retired municipal employees, mostly police and firemen, somehow caused the bankruptcy of a city that from the 1930s until the mid-seventies maintained a population of over 1.5 million.  A simultaneous campaign rooted in racism is being waged to justify the lack of public policy response to the crisis.  What the media outlets will never admit is that the decline of Detroit is rooted in the particular form of capitalist growth, which manifests itself as a dynamic juxtaposition of development and underdevelopment at the international level as well as within a given country.  Under capitalism, the creation of wealth is always accompanied by impoverishment while the economic growth of particular sectors as well as geographic areas, once beyond a certain point, invariably transforms into decay.

The Contradictions of Capitalist Development and Detroit

The enormous accumulation of capital in the automobile industry during the better part of the 20th century resulted in the much-heralded emergence of Detroit as the center of production for US auto companies.  However, it was the very same massive investment in factories, machines, new technologies, etc. by automakers in pursuit of profits that under conditions of increased international competition during the 60s and 70s invariably resulted in a concomitant profit squeeze for these same companies.  As a result, US automakers pursued the only set of survival strategies possible under conditions of generalized commodity production: shift productive investment to lower-wage areas while simultaneously attempting to increase the exploitation of the labor that remained; reorganize factories for efficiency primarily through the introduction of technological innovations; and extract subsidies from the state.  These strategies, though key to the recent reemergence of US automakers, were never intended to safeguard the interest of Detroit’s residents.  Indeed, the history of Detroit’s auto industry over the past hundred years is a case study of the tendency of the rate of profit to fall so masterfully explained by Marx in Volume 3 of Capital with all of the accompanying negative social consequences for the residents of the “Motor City.”

Much has been made of Detroit’s overreliance on one industry.  Interestingly, the case of Detroit has remarkable parallels to colonial and neocolonial countries in which imposed economic models rooted in so-called “comparative advantage” resulted in monoculture, leaving whole societies vulnerable to even the slightest variation in world market prices.  For Detroit, there was to be no such comparative advantage.

Indeed, little of the productive apparatus of the US auto industry commonly attributed to Detroit in the popular imagination remains in the city today.  The recent increase in profits that US automakers have seen stems from three decades of restructuring that includes relocating newer assembly plants closer to regional markets and low-wage areas (e.g. Mexico) while extracting more work from the remaining North American labor force through contracts that split workers along generational lines.  In the most recent UAW contract, younger unionized workers were forced to accept a 50% pay reduction ($14 an hour) and reduced benefits as part of a two-tiered system, leaving them unable to lift their families much above the poverty lines without working hundreds of overtime hours annually.  Yet this drastic reduction in wages by US standards still exceeds what is commonly paid in lower-wage areas.  It is also important to highlight that the 2008-2009 bailout of the US auto industry, advertised by many Democrats as necessary to save jobs, was in reality an $80-billion transfer of public funds to the coffers of the Big Three and its affiliates, mediated by the capitalist state, to facilitate an additional reorganization of their operations.  As such, the claim that “Detroit is back” is nothing more than a slick marketing phrase demagogically used to dupe the masses of North Americans.  The profits of US automakers are back as they expand throughout the continent and world in search of more profitable conditions.  But this has no bearing on the everyday realities faced by Detroit’s residents, who are living the consequences of changed investment patterns in the form of a decaying infrastructure, inadequate schools and health facilities, as well as endemic unemployment.

Pensions and Some New Dynamics of Class Struggle

In advanced capitalist countries, the struggle between workers and capitalists takes on a modified form.  In its economic dimensions, this struggle has always consisted of battles over the direct conditions of the labor process (e.g. length of the working day, working conditions, etc.) and wages in the immediate sense.  Wages and working conditions are certainly the focus of labor struggles in less developed countries and continue to be important elements of the conflict between labor and capital even in advanced capitalist countries.  The current strikes among fast-food workers in New York City attest to this.  However, the ruling class in the advanced capitalists countries has historically conceded a portion of surplus profits to important segments of the working class to ensure a relatively higher standard of living.  This should be understood as a result of struggle as well as the need to expand the market in the interest of preserving the system and to attenuate working-class militancy.

The current court proceedings over pensions in Detroit highlight another important dimension of class struggle in advanced capitalist societies.  Pensions are in essence “deferred wages” which ensure that workers are able to maintain themselves and their families once past the age in which they are actively engaged in productive labor.  Pension funds are pools of “deferred wages” that in modern capitalist countries are typically invested in an effort to secure either interest from bonds or dividends from stocks, which in both cases amounts to a share of redistributed surplus value.

A critical question for the working class is who controls these vast sums of money that are combined and for what purpose.  The resolution of this question constitutes an increasingly important indicator of the balance of forces in the class struggle between labor and capital.  As a result, the ideological maturity as well as the militancy of the organized working class is reflected in its attitude to this question.  This is because the struggle over pensions necessarily draws the working class into discussions of long-term planning for society as a whole.  This kind of discussion has serious implications as it opens the real possibility of a working-class vision for the reorganization of society that reflects a different set of priorities than those imposed by capital.

At present, the norm in advanced capitalist countries is that the ruling class controls pension funds through financial institutions.  In the case of both public and private pension schemes, financial institutions administer the funds of workers with the same objectives.  The primary difference between the two consists in the increased oversight of public plans, which are supposed to have a legally sanctioned “defined benefit” as opposed to private plans such as the riskier 401ks that are tied to the ups and downs of the stock market.  While some sectors of the ruling class oppose public pensions on the grounds that state guarantees of a lifetime defined benefit represent a burden on the “public” coffers, from the standpoint of finance capital, there is little difference between the public and private pensions.

For example, in New York State, where the average public-sector retiree receives a pension of about $19,000 annually, there are over $160 billion in assets currently invested from the state’s pension fund.  Literally hundreds of millions of dollars from this fund go to finance capital (e.g. Goldman Sachs, Blackstone Group, etc.) in the form of fees every year.  The sad truth is that finance capital invests the lion’s share of the pension fund in many of the very same companies that exploit workers and sponsor anti-labor public policies.

What emerges is a scenario in which the savings of the working class are appropriated by finance capital.  In addition to the obvious transfer of wealth, this constitutes a powerful ideological weapon used against labor as its future security appears to be tied to the survival of capitalism as a system.  Through these pension funds, workers only appear to assume the role of “investors.”  They obviously hold no real decision-making power with respect to how this capital is invested.  The incredible growth of pension funds, which some calculate to exceed $20 trillion and are considered by many to be the largest institutional investors in the world today, is evidence of the scale of wealth transfer from labor to capital that is taking place.  This wealth, rather than meeting the needs of the vast majority, continues to enrich a minority.

African American Workers Carry the Burden

The racial dimension of the crisis afflicting Detroit cannot go unnoticed.  Approximately 80% of the city’s residents are African American.  The massive migration of blacks from the south to the urban industrial centers of the north, which accelerated in the immediate aftermath of WWII, was met with wide-scale hostility from whites, including significant sectors of the working class.  Segregated neighborhoods and inequalities based on race increasingly characterized Detroit and its growing suburbs.  Racial tensions among white and black members of the working class often resulted in violence, the most noted example of which occurred in 1967 when black youths protesting state repression clashed with police.  The phenomenon of “white flight” created an antagonism between suburban communities and urban centers that has manifested in local politics as an advantage to Republicans at the state level while major cities like Detroit tended to favor Democrats.

Despite these challenges, African Americans came to occupy a critical role in the labor force of one of the most vital industries in the United States.  In some instances, black labor leaders held important positions within the labor movement as a whole that allowed them to move workers beyond internecine racial divisions to increasingly advanced positions with respect to capitalism.  The contributions of socialists like James Boggs are the most outstanding example of this.

Today, the hypocrisy of the political representatives of US capital can be seen at all levels.  Barack Obama, the first African American president of the US, whose two victories in Michigan were due in large part to the electoral support of Detroit’s overwhelmingly black population, declared the crisis faced by the city to be a “local” affair.  Yet, he did not hesitate to extend the policies initiated by Bush, who orchestrated the transfer of at least $17 billion in public money to the Big Three from 2008 to 2009, by handing over an additional $21.6 billion and pardoning at least $14 billion of debt for these now profitable firms.  In a recent article for The Nation, David Zirin, one of the few sports writers with intelligence, points to the hypocrisy of Michigan Governor Rick Snyder, who approved a plan to use $283 million in public money to subsidize the construction of a sports complex for the Detroit Red Wings, a local hockey team, under the pretext that it represents future economic development.1  Within the realm of local politics, much has been made of the political corruption that has plagued the city, most notably reflected in the forced resignation of former mayor Kwame Kilpatrick after being convicted for obstruction of justice.  While this kind of corruption is unacceptable under any circumstances, the insinuation that similar acts only occurred after the ascension of African-American politicians to elected offices or that these practices are not endemic throughout the political structures of the US amounts to base hypocrisy and racism.

Why Detroit Matters

There are thousands of municipalities across the US watching the events in Detroit closely.  Yet, the strategy of discharging municipal debt through bankruptcy proceedings does nothing to address structural problems that residents of towns, cities, and counties in circumstances similar to Detroit will continue to face.  Labor in the US must understand that any legally sanctioned attack on pensions is tantamount to an act of class war with far-reaching social consequences.  The North American working class must prepare to answer this class aggression by moving beyond the current arena of struggle, the courts, where no discussion of the structural crises of capitalism or a socialist alternative will take place, to workplaces, schools, and streets.  These are the arenas where responsible, class-conscious representatives must facilitate the education of the mass of workers and from which the transformative potential of the US working class can begin to be realized.

Despite its waning influence throughout the world, the United States remains a powerful country.  US imperialism continues to exert pressure on the rest of the world through a combination of economic and military strength.  However, pressures from international competitors tend to unleash reactionary forces within the United States.  These forces increasingly use the economic and military strength of the US to pursue wars of pillage abroad while they subvert and repress the exploited at home.  The capacity of the North American working class to engage in a principled struggle in Detroit has the potential to initiate a new wave of progressive struggle to counter the wave of reaction in the center while sending a clear signal to its class brethren to continue the fight abroad.

1  Dave Zirin, “On Vultures and Red Wings: Millionaire Gets New Sports Arena in Bankrupt Detroit,” The Nation (July 29, 2013).

Carlos Borrero is a writer based in New York, New York.  En español: <>

| Print