Detroit has a serious problem, and it is not alone in having it. In many cities across the nation, money is being spent frivolously on high risk, low reward projects meant for the wealthy while the actual residents suffer in poverty. The new Detroit Redwings arena development encapsulates this problem. To put things into perspective, this is the dynamic: the city is funding a for-profit business to build an arena, gentrify the areas around it, shut down the businesses around the old arena, and drive out small businesses by building corporate chains in the new area - all the while the city is letting Mike Ilitch’s business keep the profits. The city, on the other hand, very likely faces a loss of jobs, no effective way to pay off the bonds, and a diversion of money away from the people who really need it – namely those of lower socioeconomic status, police departments, and schoolchildren. Yes, money for the public school system is being directly diverted for the project, and the schools are in terrible condition as they are. There is a lot to unpack here, so I’m going to explain the problem simply, and then propose my solution step by step.
Let me start off by saying that protesting these government actions is nothing less than futile. We have bad people in the city government, and therefore, we have these troubling policies. Many would stop there, but we must go deeper to ask why it is that we have structured a municipality that tends to act in this way again and again. It is a feature of our government to act, not in the best interest of the people, but rather, in the best interest of the politicians and the wealthy within (some) reason. The plan is obviously a terrible deal for the city when studied, but from a glance, the average voter will notice how nicely dressed-up it is, and how great it is that the city council has formulated a new comeback plan for the city. The principal-agent problem is dreadfully apparent. When the city can barely afford basic services for its citizens, should it really be spending money on things like this? How can we solve this?
We must first look at the desired outcomes. For one, we need the city to be frugal with its spending. It is absolutely necessary that it spend its money wisely, especially after its bankruptcy a few years ago. Secondly, we must ensure that the city is able to pay back the bonds it binds itself to. More debt is the last thing the city needs. Thirdly, we must incentivize the city council to negotiate legitimately fair deals for the city. Lastly, these conditions cannot inhibit or replace the democratic functions of the municipal institutions. With these criteria, we can look to the words of John Stuart Mill to help guide us towards an acceptable solution.
“When all have votes, it will be both just in principle and necessary in fact, that some mode be adopted of giving greater weight to the valuable member of society, the one who is more capable, more competent for the general affairs of life, and possesses more of the knowledge applicable to the management of the affairs of the community, should, as far as practicable, be singled out, and allowed a superiority of influence proportioned to his higher qualifications.” (Mill, pg. 324).
To be clear, the solution I propose does not involve giving more voting power to one group, rather, it involves giving a more educated group, with more stake, influence over the boundaries of municipal government spending. The average person doesn’t read the plans that the council puts forth, so we need a group that is incentivized to read the plans and act accordingly with the city’s interests in mind. I believe these people to be the bondholders – the people investing in the future of Detroit. To see this as a working possibility, we must first limit the ability of municipal governments to work with private companies. In making development plans, the municipal government should only be able to work with non-profit forms of businesses. Many might think that this alone would solve the problem, but it still doesn’t address the obvious lack of responsibility in the government’s spending. This is why I propose that the bondholders have oversight over the city’s budget – to a point.
The bondholders (regardless of type or purpose) would have a vote proportional to their investment, and would vote for a group of representatives to evaluate the budget. These representatives would then review a basic version of the budget (expected revenue, expected cost, risk etc.), and make sure that their investment is guaranteed a return. The bondholders would only have the power to veto the budget as a whole. Beyond this point, the bondholders would have no power over what the council chooses to do with its excess revenue. This incentivizes the council to be smart with its money, to pay back the city’s investors, and to be wary of bad deals for the city where the bondholders might not get their money back. The bondholders further don’t have an incentive to make the most money – all they care about is getting their promised return, so it preserves the democratic institutions only after the city is able to fulfill its most basic responsibilities. Once the city stops losing money on crony-capitalist schemes and is forced to be responsible, there should be more money than there otherwise would be on the table for use in areas where the residents need it the most. Essentially what we’d see is less pretend innovation and more actual innovation. Further, the city council would be wary of offering too many bonds, but when they do offer them, they’ll be wary of who they sell those bonds to, as selling bonds would equate to reducing the city counsel’s flexibility. Additionally, if you've wondered about a corporation buying up 51% of all of the bonds, which would cost a whole lot of money, they would still be investing in the city (possibly more so than they would currently due to the many different kinds of bonds issued), and they would still care about the city paying them back. For these reasons, a malicious actor blocking the budget would be extremely costly and public. All in all, the bondholders would not be able to legislate or veto legislation, but they would be able to effectively limit the spending of an irresponsible government.
By giving veto power to educated people with a vested interest in the city doing well, and banning deals with for-profit businesses, the city gains both financial responsibility and accountability, all the while eliminating much of the incentive for corporations and private businesses to take advantage of the system. Detroit is a strong city with hard-working people. It deserves a government that works for them, and not private businesses that would bankrupt the city for personal gain. We should celebrate all of the people investing their money in Detroit legitimately, and reward them with a way to ensure the safety of their investment. Surely with this mindset of developing a more common-sense oriented government, Detroit can finally have its comeback.
No comments:
Post a Comment