Bankruptcy of Detroit: The Symbol of American Power is Gone

Detroit, once the richest city in the U.S. and the symbol of American industrial power, declared bankruptcy on Thursday. It is the biggest event of this kind in the history of the country. Bleak as it seems, many economists perceive it as an opportunity for a new start.

“It was bound to happen. This city is bigger than San Francisco, Miami and Boston put together. When all our companies began to go down, and we ceased manufacturing refrigerators, TV sets and cars, which are now produced in Asia, decades of slow decline logically followed,” said Ford Motor Company economist Waldek Raczkowski.

A bankruptcy petition was submitted on Thursday by emergency manager Kevyn Orr, appointed in March by Michigan Governor Rick Snyder, in order to restructure the $20 billion city debt. Unfortunately, Orr failed to strike an agreement with creditors. Once the declaration of bankruptcy is approved by the federal court, it is the court that will decide how much of the debt will be remitted, and what the extent of creditors’ losses will be.

Detroit’s financial problems have been mounting for decades. In the 50s, Detroit was one of the wealthiest cities in the U.S. Its power was mainly attributed to car giants such as Ford, General Motors and Chrysler. The city was also a site of airplane, tank and ammunition production, which played a large part in beating Nazi Germany in WWII by the Allies.

Along with the collapse of the industry, which was accompanied by a decrease in the value of real estate, the city was gradually losing its income. On top of that, there were fewer taxes from richer citizens who decided to move out to the suburbs as a result of an increase in crime. The population of Detroit, which worked out at 1.8 million in the 50s, stands at 700,000 today. This, however, does not mean that city expenditures lowered as well. Since 2008, Detroit has spent about $100 million more than it earns. As part of a savings plan, 40 percent of street lights has been shut off, and city parks are being closed on a daily basis. The time you have to wait for the police after a call has reached 58 minutes this year.

Nearly 80,000 empty factories and houses have resulted in a crime increase. Detroit comfortably sits at the top spot in terms of the number of murders in U.S. cities.

Nowadays, 83 percent of citizens of Detroit are African American, 36 percent of whom lives below the poverty line. Polish Americans, who were Detroit’s biggest ethnic minority in the first half of the previous century, moved out, just as have other white ethnic groups.

“African Americans living in Detroit would like to change their place of residence as it is they who suffer the most from a constantly increasing crime rate. Sadly, they simply cannot afford it,” said third generation Pole Frank Dmuchowski, a senior citizen writing as a volunteer for Tygodnik Polski, a Polish weekly magazine. In his opinion, Detroit will be back on its feet, but not sooner than in 50 to 100 years.

According to its citizens, apart from economic difficulties, another reason for the bankruptcy is the authorities’ ineptitude. Kwame Kilpatrick, mayor of Detroit from 2002 to 2008, is currently doing time in prison for various frauds and corruption. The city has been governed by the Democratic Party for ages. The last white mayor was Polish-rooted Roman Gribbs (1970-1974).

Governor Snyder has already accepted Detroit’s declaration of bankruptcy. “Detroit cannot raise enough revenue to meet its current obligations, and that is a situation that is only projected to get worse absent a bankruptcy filing.” It was Snyder who appointed Orr, a lawyer and expert on bankruptcy law, as emergency manager, giving him almost unlimited freedom to find a solution for the city’s financial problems. Searching for a way of decreasing debts, Orr considered selling the works of arts from the Detroit Institute of Art, including Van Gogh, Matisse or Bruegel. Now this option will be reevaluated, but this time the court will have the final say.

Undoubtedly, the most difficult negotiations are going to be those with the pension funds that invested in the city shares and determine pensions for city employees. Orr offered 10 cents for each dollar, which would mean that pensioners could expect only 10 percent of the original deal.

Many economists are optimistic about the bankruptcy petition. “It should have happened a year ago. The sooner the city’s finances are in order, the better,” said Raczkowski. He believes that Detroit will do better than Greece, especially since there have been some signs of revival. The car sector is bringing in income again, and many young people, including artists, have moved into the city center.

“Americans are more inventive than Europeans. If they let us be creative and build, Detroit will return to its heyday,” concluded Raczkowski.