The recent bankruptcy of Detroit city is another example of what happens when any entity spends more than what it earns — living on borrowed money, and living beyond its means. With the decline of revenues the city couldn’t cope with its fixed costs that were OK during the heydays of 1950s and 1960s when the US automobile industry was healthy and prosperous. The haste in which the bankruptcy was filed also exposed the bad intent of the city to default on many payments.
The manufacturing base in the so-called industrialized world is on decline for various reasons, most important being the class struggle between the so-called top management and the workers. Workers ask for more of the pie, while the size of the pie is shrinking. But the biggest problem most industrialized nations face is their public borrowing which in many cases is more than their GDPs. This fiscal indiscipline and recklessness cascaded down from federal policy makers to local governments, who too got into the habit of unlimited borrowings. The ‘Wall Streets’ continues to suck much of the government bailout monies, thus diverting the scarce funds that could have been better utilized for the ‘Main Streets.’
The Western nations have still not come out of the ‘colonialism hangover.’ They still follow flawed policies, and are recklessly getting engaged in wars that only mean general destruction and loss of real markets. If the US had invested that much money in real developments, not only America, but globally we would have witnessed unprecedented economic growth. Detroit bankruptcy is not the end — many other cities are in precarious fiscal conditions, and would not be able to provide basic facilities if the revenues continue to decline. The writing is on the wall for those who are literate enough to understand and should act now. Many of the US cities suffer from chronic corruption, and law and order situation, high unemployment among minority groups which can only aggravate the already tough challenges. — Seif A. Somalya, Jeddah
Detroit bankruptcy
