If you've been following the news, you'll know that one of the greatest industrial cities of the world, one that drove a nation, that exemplified human ingenuity, ambition, drive and innovation - a symbol of everything America stood for, the home of the world's greatest car industry, of Motown, now a shadow of it's former self - a ghost town of broken windows and a post-apocalyptic hellhole of decaying neighbourhoods, vandalised homes, abandoned schools and empty factories is facing bankruptcy. (Was that a long sentence or what?)
How did it come to this? Here's what I think:
- Overspending by the US government resulting in debt necessitating higher taxation and more regulation in an effort to shore up government receipts.
- Militant unionisation, leading to higher wages, benefits, and pensions among auto worker leading to foreign outsourcing.
- Shifting of expertise eastwards, a brain drain that killed off innovation in American manufacturing. Not only has there been brain drain from Detroit, but workers have moved as well. What used to be a bustling town of 2 million people, is now a zombie zone of some 700K people.
- Misguided attempts to prop up a failing industry sector with subsidies, which largely due to union pressure did not automate as quickly as the rest of the world, churning out brands with little traction in America and the rest of the world.
- Mindless printing of money, backed by nothing but a paper promise on future growth indicators and no other underlying substance.
- Foreign penetration of American markets, by nimbler, faster and unencumbered international players, notably Japan, Korea, and lately, China resulting in a balance of payments problem.
- Lax corporate governance, mainly due to the knowledge that government - and hence taxpayers - will take the fall should there be one.
- Insane and irrational attempts to revive Detroit through schemes that did nothing to address the above issues, like a mass rapid transport system in a city that produces cars.
Detroit is an indicator of what awaits the rest of the first world's industrial prowess. History will continue to repeat itself unless we learn from it.
In the end Detroit will save itself, but it won't be Robocop or the government that does it. It will be the people, the citizens who will pull together and make it work. I'll report back when that happens. In the meantime, there's the UK and Europe to think about, which are of course going down the same route.
Detroit files for bankruptcy. More details here.