Detroit is beautiful—though you probably have to be a child of the industrial Midwest, like me, to see it. As you may have heard, the city is in trouble. At the end of the 2013 fiscal year, Detroit had a balance sheet with liabilities of $9.05 billion. The city’s emergency manager, Kevyn Orr, estimates long-term debt at $18 billion.
But I know how to fix Detroit, because it reminds me of another favorite place, Hong Kong—two things so opposite that they evoke each other the way any Kardashian is a reminder that you love home and mother.
Hong Kong’s per capita GDP is among the highest in the world. But it was once a worse mess than Detroit. Devastated by Japanese occupation, the British colony’s population had declined from 1.6 million in 1941 to 600,000 by 1945. Then, after the 1949 communist victory on the mainland, a million refugees arrived. Most of them were penniless. Britain’s Labor government was penniless, too. Maybe Hong Kong could have gone into Chapter 9. But who would have been the bankruptcy judge? Chairman Mao?
Instead Hong Kong had the good fortune to get John (later Sir John) Cowperthwaite, a young official sent out to push the colony’s economy toward recovery. “I did very little,” he once said. “All I did was to try to prevent some of the things that might undo it.”
Such as taxes. Even now, Hong Kong has no sales tax; no VAT; no taxes on capital gains, interest income or earnings outside Hong Kong; no import or export duties; and a top personal income-tax rate of 15%.
Cowperthwaite was financial secretary from 1961 to 1971, Hong Kong’s period of fastest economic growth. Sir John, however, wouldn’t allow collection of economic statistics for fear they’d lead to political meddling. Some statistics nonetheless: During Cowperthwaite’s tenure, Hong Kong’s exports grew by an average of 13.8% a year, industrial wages doubled and the number of households in extreme poverty shrank from half to 16%.
With that in mind, I was talking to a friend in Michigan. We discussed Detroit’s poverty, crime, depopulation and insolvency.
“Make it into Hong Kong,” I said, “with polite Canadians next door instead of a scary Politburo.”
“Someone’s way ahead of you,” he told me.
Real-estate developer Rod Lockwood wants investors to buy Detroit’s derelict 982-acre Belle Isle Park and persuade the U.S. to allow Belle Isle a territorial status like Guam and all the tax benefits of Hong Kong—with easier access to Red Wings games.
Belle Isle has room for only about 50,000 people and just one bridge to the city. It might seem more of a gated community than an overseas possession. So Mr. Lockwood has expanded his proposal to include 15 square miles of Detroit’s distressed east side. I think Mr. Lockwood should try for the city’s entire 143 square miles.
Could it really work? Mr. Lockwood took me on a city tour with Larry Mongo, owner of Café D’Mongo’s Speakeasy, a popular hangout for Detroit’s hipsters. (Hipster scenes tend to spring up anywhere cheap real estate abuts young people, and just up Woodward Avenue, at Wayne State, there are 31,000 of them.)
Detroit’s industrial ruins are picturesque, like crumbling Rome in an 18th-century etching. The tragedy is the desert of blue-collar neighborhoods. Almost every home is burned, a crack house, a cellar hole or stripped of all that’s salvageable.
Hong Kong economics would mean curtailing U.S. welfare and benefit programs, but Detroiters seem to have found the holes in the social safety net already. Forty-four percent are living below poverty level. They could, however, benefit from the jobs and commerce in a vibrant, tax-free Hong Kong economy.
Amid the desolation, we came across a tidy bungalow—lawn mowed, sidewalk swept, flower beds planted, and bars on every downstairs door and window. Mr. Mongo said, “The old folks are still living there.” A lifetime was spent paying the mortgage and making improvements on a place that now isn’t worth the $8,500 it costs to demolish a house in Detroit.
Christopher Brooks, senior pastor at the 1,500-member Evangelical Ministries Church in Detroit, said a concept like Belle Isle “would initially be greeted with hostility because of the widespread suffering in Detroit. A ‘Wealth Haven’ would cause a war on the middle class.” However, he said, “If you’re talking about the whole city…If Belle Isle is the start of a plan, I’d support it. A lot of clergy would get behind it.” Pastor Brooks said, “If there were a real plan to encourage jobs and wealth, the welfare problem would solve itself.”
Granted, turning Detroit into Hong Kong wouldn’t be simple. I talked to Chris Crosby, a municipal bond analyst at Raymond James. He listened patiently as I explained the advantages of a city that would actually be worth something to prospective municipal bondholders. Here is the main part of the rest of our conversation.
Me: “Is this feasible?
Mr. Crosby: “No.”
The political barriers are too high—politicians don’t like to give up power. Of course, politicians also give up power in a bankruptcy, which is why Mr. Crosby likes Detroit’s bankruptcy. It will be so politically painful that other big cities won’t try it.
Detroit’s politics are already painful. Former Mayor Kwame Kilpatrick is serving 28 years in prison. Local joke: “What’s the difference between Chicago and Detroit?”
“Chicago got Michael Corleone. Detroit got Fredo.”
Plus introducing Hong Kong’s sharp-clawed wolverine species of capitalism into the Wolverine State would require a bold stroke from Washington. It’s hard to imagine anything bold from this Congress of head-butting pro-wrestler wannabes.
But something needs to be done. Sen. Rand Paul weighed in with a Dec. 6 speech at the Detroit Economic Club. (The economy may be gone, but we Midwesterners are “joiners,” so there’s still a club.) He said he’d introduce legislation creating “Economic Freedom Zones” with personal and business tax rates of 5%.
Anyway, Detroit is broke. And so was Hong Kong. In 1949 the colony had just one asset. Hong Kong owned Hong Kong—all the land except what was under the Anglican cathedral. Hong Kong sold leaseholds, first for a little, then for a lot.
And Detroit owns Detroit, or a very large chunk of it. In 2011 more than half the owners of Detroit’s 305,000 properties failed to pay property taxes. Detroit has approximately 40 square miles of vacant land.
If people cannot be convinced by reason, maybe they can be convinced by greed. Forty square miles equals 1.1 billion square feet. One recent estimate put Hong Kong land prices at more than $1,300 per square foot. Translated into Detroit, that’s $1.4 trillion.
So my investment advice: go short on Manhattan penthouses and long on empty lots in Detroit.
—Mr. O’Rourke is the author of 16 books, most recently, “The Baby Boom: How It Got That Way…And It Wasn’t My Fault…And I’ll Never Do It Again.”