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Decline of the US : The Detroit Bankruptcy

” You are an old man who thinks in terms of nations and peoples. There are no nations. There are no peoples. There are no Russians. There are no Arabs. There are no third worlds. There is no West. There is only one holistic system of systems, one vast and immane, interwoven, interacting, multivariate, multinational dominion of dollars. Petro-dollars, electro-dollars, multi-dollars, reichmarks, rins, rubles, pounds, and shekels.

It is the international system of currency which determines the totality of life on this planet. That is the natural order of things today. That is the atomic and subatomic and galactic structure of things today! ” Quoted from Network (Movie, 1976).

Perhaps, the statements of this movie come out to be so true these days as we see beyond the maya and notice that there are no more nations, states and cities today. There are just organizations and economies !

The city of Detroit filed for bankruptcy last week, marking the largest municipal bankruptcy filing in US history.  The news raises some troubling questions:  How did it happen?  Will it happen to other major cities?  And can it ever recover from bankruptcy?

 The state governor declared a financial emergency in March 2013, appointing an emergency manager. On July 18, 2013, Detroit filed the largest municipal bankruptcy case in U.S. history.

Although the economic decline was quite in the open , only few would forecast that one of the manufacturing hubs of US would file for a bankruptcy protection someday. Tha fact that Detroit has failed has put new question marks on the US economy. Many beleive that this could mark a beginning and there would me more big cities proceeding in the same direction.

When i hovered over the internet, i found that John Macomber, Sr. Lecturer from Harward quotes, “The demise of Detroit was easy to see and hard to address. Consider the causes: Decline of a major industry, diminution of public revenues, departure of high-impact businesses and high-value taxpayers, disputes over dwindling resources, and disabling levels of obligations to pensioners and other contracts.

Unfortunately, Detroit isn’t alone. Stockton, California, and Jefferson County, Alabama, are other recent municipal bankruptcies. Pundits and politicians point to the burden of pension, health, and union obligations on the cost side. True, but not it’s not sufficient just to cut costs. The real game is about revenues. Municipal revenues come from economic activity, and increased revenues come from increased economic activity—from the income taxes paid by residents with good jobs, from the tolls paid by drivers, from property and sales taxes. Without revenue, costs can’t be covered.” 

Turkish veteran director of Standard & Poor’s (S&P) Erkan Erturk stated US city Detroit’s bankruptcy’s effect would stay limited on US economy.

Many say that it was bound to happen as the city’s population was on decline and migration was a trend. The $18.5 billion long term debt was a big pie to bake and the major chunk of this debt was in the form of pension funds.

However, John Tammy (Forbes) debates that “The Unions Didn’t Bankrupt Detroit, But Great American Cars Did”. 

And this is very must justified if we follow the notion of Michael Porter’s Competitive Advantage theory. Competitive advantage occurs when an organization acquires or develops an attribute or combination of attributes that allows it to outperform its competitors.

Detroit’s biggest employers are car manufacturer’s. The failure of the Detroit’s Car Manufacturer’s to survive the competitive advantages of the Asians which manufacture more fuel efficient  and cheaper cars.

Whether Detroit would be able to recover or not is a different question and a difficult one to answer. However, the road to Hope-Ville is simple. The big-3 of US (Detroit Car Manufacturers) will have to evolve and find out some way to outshine the Asian’s competitive advantages. 

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One thought on “Decline of the US : The Detroit Bankruptcy

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