US cities have a choice - pull together or go bust Business and labour united to save New York from its 1970s debt crisis, writes Felix Rohatyn Stockton, California, is bankrupt. In Detroit, a bankruptcy lawyer serving as emergency manager is trying to save the city from financial collapse. Chicago plans to close more than 50 schools to help with a $1bn education budget deficit. These and many other cities confront financial crises similar to that faced by New York four decades ago. In the summer of 1975, I was invited by the governor of New York to join a team to help the city avoid bankruptcy. I put my investment banking career on hold and ended up serving as chairman of New York's Municipal Assistance Corporation for more than a decade. As a result, I found myself sitting across the table from tough, determined leaders from a world unknown to me: the world of trade unions. They included Victor Gotbaum, who led a huge municipal hospital union. We engaged in gruelling negotiations and in the process became close friends. They also included Albert Shanker, the president of the New York City teachers" union who - an hour before the city was to file for bankruptcy - agreed to his union's purchase of MAC bonds, which kept the city solvent. And there was Jack Bigel, a pugnacious and brilliant labour adviser who distrusted bankers but knew the city must avoid default and that we had to work together. The bankers at the table - among them David Rockefeller of Chase, Walter Wriston of National City and Lewis Preston of JP Morgan - felt the same; with the unions, they would collaborate to help save the city, and provide the time and capital for a long-term solution. Once again, business and labour share a huge stake in our cities" fortunes, and the consequences for both if we fail to stabilise our finances and set a course for growth will be devastating. Yet amid the solutions proposed, no one argues that the two sides must work together to restructure the finances of troubled states and cities. Decades of bitter politics, which gave us the Tea Party and hardened the positions of opposing Democrats, also shaped business and labour. For the most part, they inhabit separate, deeply divided political camps. This reflects our growing polarisation, and government gridlock at all levels. Meanwhile, unions have suffered a fall in membership; according to the Bureau of Labor Statistics, members now make up just 11.3 per cent of the workforce. At the same time, the Congressional Budget Office reports that the wealth of the top 1 per cent of earners grew 275 per cent between 1979 and 2007, while the incomes of all others increased slightly, stagnated or lost ground. The 2012 census reported that more than 16m American children were living in poverty. This is bad for our country. A shrinking middle class, a nation where average households have less and less to spend and a workforce without bargaining power are not a formula for national prosperity. That is not to say that unions can ignore the fiscal pressures that mayors and governors must shoulder, including the inability of many cities and states to finance the promises made to their pensioners. We can assign blame for these problems but it will do little good. The recent report of the State Budget Crisis Task Force, convened by Paul Volcker, president of the New York Federal Reserve during the 1970s crisis, and Richard Ravitch, a business leader who also worked with the city during the crisis, notes that "pension funds for state and local government workers are underfunded by approximately $1tn according to their actuaries and by as much as $3tn" if more conservative estimates are used. It is time we moved on. In New York, business and labour united to save the city as a matter of mutual survival. The conditions of modern cities are different and in some ways harder. The big banks now are multinationals and the federal government is less able to provide financing to strapped localities. But it is still about survival. A wise man once advised me: "Never take a risk you can't afford to lose." We take such a risk when we speculate rather than invest; we take such a risk when we fail to maintain our public infrastructure and when we fail to make first-rate education available to our children, especially in communities that have been left behind. Business and labour take such a risk when each fails to see that the other's security and progress are essential to its own. If the nation is to enter a new era of opportunity and growth, our government, company executives, labour leaders and employees have to co-operate on matters of common interest. They need not abandon their principles, but they must create a climate where dialogue and compromise are possible, and mutual sacrifice may be negotiated. One thing is certain: the path of stalemate leads nowhere. We need to take a new direction now. The writer is special adviser to the chairman of Lazard and former US ambassador to France