In 1903 Henry Ford founded the Ford Motor Company in the city of Detroit. On Thursday 18, July 2013, the city filed for bankruptcy, becoming the largest city in the United States ever to do so. In 110 years, a blink of an eye in the course of history, Detroit saw the gale of creative destruction come and go.
This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in. . . .
Every piece of business strategy acquires its true significance only against the background of that process and within the situation created by it. It must be seen in its role in the perennial gale of creative destruction (Joseph Schumpeter, “Capitalism, Socialism and Democracy”)
Once the very symbol of American industrial might, Detroit has been the poster child of 20th century industrial society. Ford’s manufacturing—and those of other automotive pioneers William C. Durant, the Dodge brothers, Packard, and Walter Chrysler—reinforced Detroit’s status as the world’s automotive capital. With the factories came high-profile labour unions and with the unions the fight in support of such things as the 8-hour day/40-hour work week, healthcare benefits, pensions, increased wages and improved working conditions.
Today, Detroit is a graveyard of the mass production capitalism which once sustained the United States and Europe. It is a city in the process of ceasing to be a city. The Washington Post explains how the city got there:
- Since 2000, Detroit’s population has declined 26 percent. There are now just 706,000 people in the city, way down from 1.85 million during its industrial heyday in 1950.
- The official unemployment is now 18.6 percent, and fewer than half of the city’s residents over the age of 16 are working. Per capita income is an extremely low $15,261 a year, which means there’s not all that much tax revenue pouring in.
- Low tax revenue, in turn, means that city services are suffering. Detroit has the highest crime rate of any major city, and fewer than 10 percent of crimes get solved. The average response time for an emergency call is 58 minutes. Some 78,000 buildings are abandoned or blighted and there are an estimated 12,000 fires every year. About 40 percent of the city’s street lights don’t work.
- High crime and blight are driving even more residents out of the city. It’s also driving down property values, which means many residents have stopped paying property taxes. The city collected about 68 percent of the property taxes owed in 2011. Both of those things put a further strain on Detroit’s finances.
- Detroit is sagging under decades of bad governance. “The city’s operations have become dysfunctional and wasteful after years of budgetary restrictions, mismanagement, crippling operational practices and, in some cases, indifference or corruption,” Kevyn Orr, a bankruptcy expert hired by the state in March, wrote in May. “Outdated policies, work practices, procedures and systems must be improved consistent with best practices of 21st-century government.”
- Detroit owes around $18.5 billion to its creditors. That includes about $6 billion in health-care and life insurance obligations, plus roughly $3.5 billion in pension costs racked up over the years. Given its ever-worsening economic slide, Detroit was in no position to pay off all its obligations.
Doesn’t it ring a bell? History will have its say in due time, but the collapse of Detroit can be seen as a turning point in the evolution toward a post-industrial era.
‘I really didn’t want to go in this direction, but now that we are here, we have to make the best of it,’ (Dave Bing, Detroit’s mayor)
Featured Image: Enjoy Detroit, Graffiti