Detroit Bankruptcy

The city that was once a world-renowned hub of automobile manufacturing is now not just a pale shadow of itself but its reputation is in tatters. The city where Henry Ford etched his placed under the sun as a marketer and businessperson par excellence finds itself in the midst of a Chapter 9 municipal bankruptcy under the US federal law. Detroit's emergency manager Kevyn Orr and its Governor Rick Snyder first filed for bankruptcy in July, 2013. This was the final blow for a city that was once hailed as a top-notch industrial city. Detroit was not in a position to repay its $18 billion debt, nor could it pay for the basic amenities for the city residents. Pension payouts will also take a hit as Detroit needs $3.5 billion to fund the pension as per the provisions for pension in the city of Detroit before it was hit by bankruptcy. Pensioners were not ready to give up easily on this. In December, 2013, a US court ruled that Detroit should be allowed to enter bankruptcy under Chapter 9. The ruling also made it clear that even though Michigan does protect the rights of pensioners, the federal law does not provide for such protection and hence pension rights were not unassailable. Nearly 23,000 of Detroit's population of 700,000 depend on pension.

Reasons for Detroit's decline

1. Single-minded focus on the auto industry

 Detroit's auto industry declined over the years in the face of competition from across the globe. Many of the manufacturing jobs in the US auto industry were also moved to other cities. This remained true even at the time when bailout packages were extended to Chrysler and General Motors. Pension demands on the city's coffers did not adjust in accordance, thereby reaching a point where a third of the city's finances were going towards meeting its pension obligations and the city increasingly remained dependent on the state of Michigan for managing its finances.

2. Racial issues

Law and order situation in the city has been on the decline since 1960's with the city having witnessed instances of rioting and rampant looting. The city's population got segregated along racial lines and politics could do little to blur those lines. Whites and middle class blacks left the city over the years. The city that had a population of more than 1.5 million once, now has about 700,000 residents. The city's mayor in the period 1974-1994, Coleman Young, has often been blamed for polarizing the police force along racial lines. This gave a further push to exodus of Whites from the city and Detroit deteriorated to being one of the most violent cities in United States of America.