Author`s name Dmitry Sudakov

Is there a glimmer of hope for Detroit?

Formerly the largest U.S. engineering center, and now a dying city of Detroit, is half a step away from bankruptcy. External crisis management was introduced last week in the "Motor City", whose debt exceeds $14 billion. The ruined city was given into the hands of Kevin Orr.

The man, who has to decide the fate of Detroit and deal with all of its financial problems, is an associate of Jones Day. Incumbent Mayor David Bing introduced him as a crisis manager during a press conference on Friday. Kevin Orr is not a stranger for the "Motor City." He was involved in restructuring Chrysler, after the corporation filed for bankruptcy during the financial crisis. Orr contributed to the revival of Chrysler and earned over one million dollars on it.

Now the main task of the lawyer is not to let Detroit conduct the procedure of bankruptcy. Otherwise, the collapse of Detroit may go down in history as the largest municipal bankruptcy of the United States. However, Kevin Orr promised he would not allow such a sad scenario for the city that was rapidly developing during the first half of the 20th century. Moreover, the lawyer said that the time of 12-16 months would be more than enough for him.

Meanwhile, the U.S. automotive center is dying. As revealed in February 2013, the budget deficit of the city was 327 million dollars, with the total debt exceeding $14 billion. The payments totaling $2 billion will have to be made in the next five years. Experts said that Detroit was currently going through a financial disaster, which the sitting mayor of the city is unable to handle. Rick Snyder, the governor of Michigan, shares the same opinion. As a result, Detroit has joined Pontiac, Flint, Ecorse, Allen Park and Benton Harbor that had to introduce external crisis management too. 

Detroit's financial situation has been deteriorating since the middle of the 20th century. Back in the 1950s, it was one of the five major U.S. cities. At that time, there were 1.8 million people living in the city. It was the most rapidly growing and the richest city in North America. Ford and Chrysler corporations provided jobs for the population of the city; Dodge and Packard companies were working in the city as well. First motorway interchanges appeared in Detroit. But the city lost its power because of the government program, the purpose of which was to populate the city center with black citizens. It was in 1950, when skilled workers, engineers, doctors, small businessmen, bankers and the middle class started to move out of town, to suburbs. Detroit residents would put their houses and apartments for sale and leave. The center of the automotive industry of the United States was thus filled with unemployed individuals who were living on the support from the state. This marked the beginning of the financial problems of the metropolis.

The oil crisis that occurred in 1973 resulted in significant losses for American car manufacturers, whose products were much more "gluttonous" than their Japanese and European counterparts. The crisis led to the bankruptcy of auto companies; many factories closed. Detroit residents could no longer pay taxes, and the city started to sink into the swamp of debt.

During the recent years, Detroit's population has decreased to 700,000 people. Today, the city resembles a huge ghetto with an off-scale crime rate. The headquarters of General Motors are still there, whereas the headquarters of the Ford Motor Company and Chrysler are located in the suburbs. However, more than a third of the official city population lives below the poverty line. The unemployment rate is 18.2% vs. the national average of 7.7%.

Is Kevin Orr strong enough to revive the economy of Detroit? Time will tell. However, many believe that Orr's priority is major financial institutions and banks rather than small businesses that traditionally provided most of the jobs in the city.

Roman Sakharov

Bigness

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