Detroit Sinks to Bankruptcy
In a move that underlines just how damaging the most recent recession was to local economies, the city of Detroit (Michigan), once a model city, is well on its way to bankruptcy.
For Detroit, which was built on the fiscal and infrastructure plans of “Big Unit America (i.e., corporations too big to fail”) – and carried out without citizen representation – is now merely a model of how not to run a town, its bankruptcy stats as overwhelming as the national deficit ($16.7 trillion) or the distance to the nearest star (93 million miles).
Who shaped this city? In the years after World War II, most of the planning was at the behest of the nation’s three major automobile manufacturers, formerly if not fondly known as the “Detroit Three”: Ford, General Motors and Chrysler. It was this triune which formed the backbone of what one writer has called “Big Unit America” – a place where big business, big government and big labor come together to shape the fortunes not only of America’s fifth biggest city, but the futures of its inhabitants as well.
Detroit and Unions
Few analysts of what went wrong with Detroit mention the unions, which had one of the biggest hands in this fantastically large failure. Some called it a stranglehold, which almost perfectly described the hold said unions had on city government and, by extension, corporate viability. For a shorter version of this fox guarding the henhouse behavior, consider the fact that the president of the United Automobile Workers (UAW), Douglas Fraser, was in 1980 appointed to a seat on Chrysler’s board of directors.
The Detroit Three may have made some unfortunate fiscal decisions, but the funding for them came primarily from the wages of auto workers, which continued to rise under union representation, until, in 1980, Big Unit America showed its darker face and the federal government was forced to provide enough funds for troubled Chrysler to continue operating.
The source of the failure was a disastrous stock split/merger between the company and Japanese auto maker Mitsubishi with the intent of branching off into smaller, more fuel-efficient cars. The net result was the $1.5 billion loan package from the federal government – engineered by none-other-than Chrysler President Douglas Fraser – and a measure that cut wages for the company’s auto workers, from a mildly painful $3 to an excruciating $17 for workers at the top. Even so, most workers – coming up from t he Deep South after the war – stayed on, largely because they did not have the advantage of a high-school education.
Early Austerity Measures
Chrysler’s restructuring was blue-collar America’s first lesson in austerity. Lee Iacocca, who was CEO at the time, reasoned quite correctly that the government would not let Chrysler go into bankruptcy given the nation’s dismal economy. He was right in the short term. In the longer term, however, if Chrysler’s financial structure and octopus-like reach into every corner of Detroit city government had been unmasked, it might have staved off the wounds inflicted on the city’s budget and the auto company’s final failure, in 2009, alongside its biggest competitor, General Motors.
Motown’s failure is perhaps the most perfect example of a financial/political cascade failure leading to ultimate breakdown. In the four-plus years since the worst recession in recent history, the collapse of the U.S. auto industry (Detroit’s largest job mill), has aptly demonstrated the deep interdependence between a city and its largest employer(s) – a rule of thumb that city managers would do well to remember.
Besides the depletion of its workforce, Detroit is failing in other ways. The visible clues include potholed streets and roads, unlighted signage, nonexistent or hasty summer street- cleaning and winter plowing, apparently abandoned cars and – even more clearly – abandoned neighborhoods. The most subtle clues include a gradual diaspora of the city’s young and the pall that hangs over hopeless places. In spite of this, Detroit – whose felony manslaughter rate is higher than that of the South American nation, Colombia – receives far less aide. Colombia is slated to get $323 million in 2014. Detroit may get slightly more than $108 million.
What Bankruptcy Means to Motown
Detroit expects to file a bankruptcy plan by year’s end to adjust its debt. Further, a retiree committee will help the beleaguered city fashion a new pension benefit payout plan. Even under best-case plans, Detroit’s 23,000 former employees can expect to see diminished payouts.
Hearings are expected to begin Oct. 23, provided the legwork regarding a host of preliminary issues is resolved. Meanwhile, those who love Detroit enough to see it without its model cities makeup are hanging in there and proposing startups as a method to rescue it.
The proposals range far and wide, from a neighborhood garden/farmer’s market to a pre-event electronic calendar/posting site that allows users to talk about what they will be doing rather than what they are doing (as on Twitter). Another rescue plan uses (electronic) game-playing architecture to teach and inspire the sales forces of large and small companies.
Detroit has also been chosen as one of seven cities where 501 (c) nonprofit Venture for America plans to airlift in (virtually speaking) young, Ivy-leaguers who will form and/or work at start-up companies. Describing themselves as boots-on-the-ground types, these over-achievers like to imagine they are in the trenches, deep behind enemy lines, so watch out Microsoft!
Back to the original question: can startups save Detroit? But let’s reframe that to: what else, other than startups, can rescue Detroit? Because in fact the city is a microcosm of America, where for the last 40 years corporations have been busy outsourcing the entire manufacturing, IT and customer service portions of their business, keeping only corporate headquarters to pacify U.S. lawmakers and statutes.
These were the jobs that made the U.S. rich and famous, and they are not coming back – or at least not until American workers have been degraded into accepting $7.75 per hour. Considering that fact, the recent recession should come as no surprise, nor should the idea that we Americans have made a country, and lost it by not minding the store (repealing Glass-Steagall in 1999, and degrading the 14th Amendment to protect corporations but not people).
So now we must make it again.
[author] [author_image timthumb=’on’][/author_image] [author_info]Andrew Miller is an experienced Social Media expert and author. He has worked in marketing for over a decade and finds his passion in bringing concepts to life for the world to enjoy. He is a true Socialpreneur and finds that his goal in life is to be an agent for positive social change through both his writing and business endeavors.[/author_info] [/author]
