And so Detroit has gone bankrupt.
The news of the failure of a (former) major American city, an event of far greater importance than that of the city of San Bernardino (CA), the Boise County (IH) or Jefferson County (AL). The greater severity of the failure of Detroit stems not only from total size of the debt, but also the origin of the structural debt: while in other cases the trigger for the crisis was a limited negative event, such as severe errors in the management of the debt or investment, in the case of Detroit instead the causes are structural and inherent in the evolution of the city itself.
Demographic decline. The city went from having 1,849,000 inhabitants in 1950 to just over 700,000 today. Pretty much the city has had a reduction of two thirds of the inhabitants. Why do people have fallen so substantially?
The City's economy was based on a single industry.
High rate of crime and inefficiency in Public services. The city is the second most dangerous in the United States, with a murder rate of 54 per 100,000 inhabitants. If you call the police in detroit, it takes an average of 58 minutes before seeing a patrol, 11 minutes against the U.S. national average, while the rate of solved crimes in the city is only 8.7%, compared to 30% of the state's Michigan of which it forms part. With a situation of insecurity similar, although slightly improved in recent years, there is no doubt that those who can go away from the city. Next to the police, the other public services are insufficient: only 33% of ambulances in service, while 40% of public lighting is faulty.
Empty buildings. 78,000 buildings are abandoned in the city. There are areas where even more than 50% of the buildings are no longer inhabited. Their prices collapsed, and not inhabited buildings do not generate tax nor wealth.
High unemployment rate. The city has an unemployment rate of 18%. This unemployment is not only due to the crisis in the automotive industry but also to the difficulty of relocation of unemployed people with lower level of education. Without education there is no work.
Investment cuts. When the financial crisis started to hit, investment expenditures, rather than unproductive expenditure, have been cut. This has meant that public services were less efficient and more expensive than the average American city. A wrong policy of cuts leads to disaster in the medium term.
Number of pensioners. In the USA, public pension funds are paid by the cities themselves. In this case the pensions of former employees of the city of Detroit are paid by the city itself. The demographic crisis has made these transfers intolerable. It is no coincidence that the first two creditors of the city are the pension funds of civil servants and police. Despite the appointment of a Commissioner ad hoc has not been able to reach an agreement with the managers of these pension funds to reduce transfers, for which the city went bankrupt, a procedure which allows to re-examine the transfers. It is no coincidence that the pension fund managers were opposed to the declaration of insolvency, which would significantly reduce the transfers and thus the benefits for retirees. This shows that any social security benefit it needs the support of the production system and consistency with demographic trends.
Ethical decline. The city has also had episodes of blatant corruption and embezzlement. Suffice it to recall that the previous mayor was arrested in March for 24 federal crimes, including racketeering, extortion, tax evasion and corruption. Already in 2008 the mayor had been convicted of other criminal charges.
Empty buildings. 78,000 buildings are abandoned in the city. There are areas where even more than 50% of the buildings are no longer inhabited. Their prices collapsed, and not inhabited buildings do not generate tax nor wealth.
High unemployment rate. The city has an unemployment rate of 18%. This unemployment is not only due to the crisis in the automotive industry but also to the difficulty of relocation of unemployed people with lower level of education. Without education there is no work.
Investment cuts. When the financial crisis started to hit, investment expenditures, rather than unproductive expenditure, have been cut. This has meant that public services were less efficient and more expensive than the average American city. A wrong policy of cuts leads to disaster in the medium term.
Number of pensioners. In the USA, public pension funds are paid by the cities themselves. In this case the pensions of former employees of the city of Detroit are paid by the city itself. The demographic crisis has made these transfers intolerable. It is no coincidence that the first two creditors of the city are the pension funds of civil servants and police. Despite the appointment of a Commissioner ad hoc has not been able to reach an agreement with the managers of these pension funds to reduce transfers, for which the city went bankrupt, a procedure which allows to re-examine the transfers. It is no coincidence that the pension fund managers were opposed to the declaration of insolvency, which would significantly reduce the transfers and thus the benefits for retirees. This shows that any social security benefit it needs the support of the production system and consistency with demographic trends.
Ethical decline. The city has also had episodes of blatant corruption and embezzlement. Suffice it to recall that the previous mayor was arrested in March for 24 federal crimes, including racketeering, extortion, tax evasion and corruption. Already in 2008 the mayor had been convicted of other criminal charges.
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