Destruction of Detroit’s entrepreneurial ecosystem

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What happens when an entrepreneurial ecosystem collapses – lessons learnt from the killing of Detroit’s entrepreneurial ecosystem

Detroit – once the fourth largest city and having the highest per capita income in the USA- filed for bankruptcy (chapter 11, United States Bankruptcy Code) recently. The decline of Detroit did not happen overnight or in a month, but it took over 60 years of steady incompetence of the American Government in managing Detroit.

According to Kauffman Foundation index 2011 the Detroit has lowest start-up rate among 15 largest metropolitan cities of US.

The decline of Detroit is not because of infrastructural failure but because of the steady loss of competent human capital. Look at this fact and interpret for yourself – currently 47% of Detroit population is functionally illiterate.

Read some surprising facts about Detroit (disclaimer: the facts have not been exaggerated and taken from various internet sources) and you may feel that the real story does not look very different from a crime-based Hollywood movie:

– 70,000 houses in Detroit are abandoned and people are not ready to buy them for $1 (yes it’s true). The average price of the homes sold in Detroit in 2012 was $7,500; as of January 2013, 47 houses in Detroit were listed for $500 or less, with five properties listed for $1.

– 40% of traffic lights in Detroit do not work – imagine the chaos.

– Police force has been reduced by 40% to cut the cost of running Detroit. This led to a high crime rate. The police does not reach the crime spot before 1 hour.

– Less than 10% crime cases get solved by Detroit police.

– Police department’s working hours have been reduced to 16 hours from 24 hours.

– The chances of getting killed in Detroit are 11 times higher than in the New York and a person is 5 times more likely to be a victim of crime than the national average.

– Once its population was 1.85 million (1950), but now it has only 700 thousand people in 2010.

– Ambulance does not go to a neighborhood without police protection.

-number of manufacturing jobs declined from ~300,000 to ~27,000 (less than 10%).

– Detroit is now the first American city to have its population dropped below 1 million.

– From being 1st in per capita income in 1950, Detroit dropped to 62nd place in 2012 among the American cities.

– Detroit ranked the most poor city among 71 cities of the US with individual’s poverty level standing at 36.4%.

– A major change in the racial composition of the city also occurred from 1950 to 2010. The black/white percentage of population went from 16.2%/83.6% to 82.7%/10.6%.

– The unemployment rate is 23.6% while the national average stands at 7.6%.

Imagine the pain of its residents under such a pathetic living condition and such an unsafe and gloomy condition.

More than half of the Detroit population did not pay property tax in 2012, which led to a loss of 12% of the city’s financial budget.

Why did it happen? Most people will say, it’s because of the fall of the auto industry in Detroit, while the auto industry grew in Michigan, a western city in the US. But, in my opinion, that is not the main reason.

One of the key reasons of this decline is the government’s and political system’s inability to reduce the dependent class.

During the 2008-2010 recession, government gave $17.4 billion to Chrysler and General Motors to bail them out. Saving a company does not necessarily translate to maintaining or improving the conditions of people dependent on it. But nothing from those bail out money went to Detroit city to improve its law and order situation or the education system or the public service system.

Sixty years of decline of Detroit could have been saved by better planning and improving city condition and reducing the unemployment rate. Once a bubbling city now is “Ghost Town” could had been Silicon Valley of USA. Detroit is an excellent example of what level of destruction can happen to any country or city in world due to lack of entrepreneurial opportunities and destruction of startup/industrial ecosystem. At one side USA was rising and become no. 1 in GDP and true super power of the world in the same time Detroit a no. 1 city in USA economically went to bankruptcy.

No one can remain at top when taken for granted not even Detroit so will happen to any city due to mismanagement and lack of entrepreneurial support.

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