Around Detroit, the bankruptcy last weekend of giant auto parts maker Delphi Corp. is being seen as a precursor of what’s in store for the American auto industry as a whole. More fundamentally it confirms the bankruptcy of the industrial welfare state.

The powers of denial being what they are, of course, it may be some time before our politicians, unions and even many corporate leaders catch up to that fact. Exhibit A was the knee-jerk rant issued by Governor Jennifer Granholm of Michigan, who pronounced herself “angry” at Delphi, and then went on to blame the usual catalogue of left-wing villains: “globalization,” “outsourcing,” “upper management,” “lack of support from Washington for the industries that made our country great” and “so-called free trade.”

Oh yes, and not enough government spending on health care.

But no amount of foot-stamping is likely to change some basic facts. Among them: Delphi’s 33,000 unionized workers in the United States, like those of General Motors, Ford and Chrysler, are still earning far above the national average in wages and benefits long after it was clear to everybody that this was no longer sustainable. Delphi said that to reach profitability, wages would have to be cut a stunning 63 percent.

Yes, management must share some of the blame. And yes, America’s image of itself, indeed its very fabric of life, is so tightly bound to the automobile that the coming reorganization of the industry is likely to be even more painful than the traumas already suffered by such “legacy” industries as steel and airlines. Henry Ford’s famous $5-day brought cars within reach of his workers. Delphi’s proposal for a $10-hour wage – an $80 day – suggests the end of the American dream for autoworkers.

But it’s only the end of the dream if you think there can’t be anything better out there, including a thoroughly modernized American auto industry. That’s one reason a savvy investor like Kirk Kerkorian bought into General Motors recently. He is betting that a way will be found to unlock the value that still exists in Detroit.

Besides, Detroit long lived in a bit of a dream world anyway. In the 1950s and 1960s, when the rest of the industrial world was still emerging from the rubble of World War II, Detroit could sell practically every car it turned out – and congratulate itself for its brilliance in passing along premium wage and benefit costs to the buyer. Pretty soon, though, competitive shadows began to appear on this pretty picture – first the VW Beatle, then the Datsun, then the Corolla, and so on.

Detroit laughed at the upstarts, but now General Motors’ market share has shrunk to 26 percent of the U.S. market from well over 50 percent. The ranks of the United Auto Workers have plunged from 1.5 million in the late 1970s to 654,000 last year. Profits have been replaced by staggering losses, even amidst a robust economic recovery nationally.

Yet still the game went on. When GM managers finally mustered the courage to demand changes in work rules a few years back, the result were wildcat strikes that threatened an even bigger loss of market share. The company quickly retreated. Delphi, formed in 1999 out of GM’s parts operations, managed to wangle an agreement allowing it to pay a lower wage to new employees, but it made little difference: Delphi was mostly in the business of laying off employees, not hiring new ones.

National health care isn’t an answer. If it were, Europe would be No. 1. But so costly have Europe’s welfare states become that unemployment is far higher than in the United States. Nor is pulling up the drawbridge against foreign autos an option, as Governor Granholm seems to imply.

The foreign “transplants” in the United States are already well established (with non-unionized American workers), and American auto companies are heavily invested abroad (most of Delphi’s total workforce of 185,000 is in other countries). Besides, a fit of protectionism would simply crater the broader economy on which Detroit depends.

Globalization isn’t the enemy. It’s simply the messenger, exposing the rotten structure of the industrial welfare state for what it is, a lumbering dinosaur that can’t see 20 feet ahead of itself. Like the broader welfare state, to which it is so closely tied through labor, tax and other laws, the industrial welfare state of the 20th century is badly overdue for a rethinking.

Mr. Bray is a Detroit News columnist.