Cit and Cri New Cri Urb The

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SSIS SERIES
Recognising the deep relations among politics, finance, cities and citizens, this book argues
Cities and Crisis
Cities and Crisis

for a rejuvenated account of urban theory. The book emphasises the need to understand the
importance of the 2008 global financial crisis and how the crisis affects cities nested in a
variety of political economies. Situating urban theory in the current economic climate, the
book powerfully illuminates the dynamic between history, theory, and practice. Stressing how
New Critical Urban Theory

catastrophic social and economic calamities under the crisis lead to reorganised city structures,
city life and city policies and hence new urban experience, this book calls for theoretical
perspectives that can speak to these challenging changes.
Innovative, crisp and groundbreaking, this title is a must for anyone interested in urban life and
its rapid movements. It will be especially useful for students and researchers in Urban Sociology,
Planning, Geography, Urban and Regional Development and Urban Studies.
Kuniko Fujita is Professor of Sociology at Michigan State University.
Edited by
Fujita Edited by Kuniko Fujita
ISBN-13: 978-1-4462-7531-3
SSIS SERIES SAGE Studies in International Sociology
Cover image © Nick Sinclair/Alamy

Cover design by Wendy Scott
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SAGE STUDIES IN
INTERNATIONAL SOCIOLOGY
Series Editor (2010–ongoing)

Sujata Patel, Professor of Sociology at University of Hyderabad, India
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:62
SAGE Publications Ltd All Editorial Matters © Kuniko Fujita 2013

1 Oliver’s Yard Chapter 1 © Kuniko Fujita 2013
55 City Road Chapter 2 © Göran Therborn 2013
London EC1Y 1SP Chapter 3 © Chris Pickvance 2013
Chapter 4 © Michael Indergaard 2013
SAGE Publications Inc. Chapter 5 © Stefan Gärtner 2013
2455 Teller Road Chapter 6 © Jerome Krase and Timothy Shortell
Thousand Oaks, California 91320 2013
Chapter 7 © Alex Hicks and Ryan Hicks 2013
SAGE Publications India Pvt Ltd Chapter 8 © Nicos Souliotis 2013
B 1/I 1 Mohan Cooperative Industrial Area Chapter 9 © Sophie Body-Gendrot 2013
Mathura RoadA Chapter 10 © Kuniko Fujita 2013
New Delhi 110 044
First published 2013
SAGE Publications Asia-Pacific Pte Ltd
3 Church Street Apart from any fair dealing for the purposes of
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Editor: Chris Rojek

Editorial assistant: Martine Jonsrud
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Cover design: Wendy Scott
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Library of Congress Control Number:

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British Library Cataloguing in Publication data
A catalogue record for this book is available from

the British Library
ISBN 978-1-4462-5219-2
ISBN 978-1-4462-7531-3
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Contents
List of Figures vii

List of Tables x
About the Contributors xii
1 Introduction: Cities and Crisis: Challenges for Urban Theory 1

Kuniko Fujita
2 “Global Cities”, World Power, and the G20 Capital Cities 52

Göran Therborn
3 Was the US Sub-prime Crisis the Prime Mover?

The Limits of the ‘Critical Urbanist’ Interpretation
of the UK Financial Crisis 84
Chris Pickvance
4 After Wall Street? New York’s Green Economy Imaginaries 114

Michael Indergaard
5 World Capitals of Capital, Cities and Varieties of Finance

Systems: Internationally versus Regionally Oriented
Banking 148
Stefan Gärtner
6 Seeing New York City’s Financial Crisis in the Vernacular

Landscape 189
Jerome Krase and Timothy Shortell
7 Ports in the Global Urban Hierarchy 219

Alex Hicks and Ryan Hicks
vi Contents
8 Athens and the Politics of the Sovereign Debt Crisis 237

Nicos Souliotis
9 Globalization and Urban Insecurity:

Comparative Perspectives 271
Sophie Body-Gendrot
10 Financial Crises and Spatial Income Inequality Growth:

The Case of Tokyo 295
Kuniko Fujita
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List of Figures
Figure 5.1 Annual percent change in employment in finance/

insurance in the United States, State New York and
Manhattan (County New York) 2001–10 158
Figure 5.2 Annual percent change in employment in the most
concentrated finance subsectors (lq < 15) in
Manhattan from 2007 to 2010 159
Figure 5.3 Geographic concentration index of employees
working in selected subsectors of the financial
services industry in 2008 163
Figure 5.4 Lending to companies and self-employed as share of
balance sheet in comparison to the geographic
concentration index of employees for credit, savings
and cooperative banks 164
Figure 5.5 Three-pillars banking structure from a
geographical perspective 165
Figure 5.6 Lending to companies and self-employed in
€ billions from 1999–2010 (except loans to
financing institutions and insurance industry) 170
Figure 5.7 The interrelated downward spiral 171
Figure 5.8 Share (as percentage) of rented accommodation,
latest country data available 172
Figure 5.9 Growth rates of loans for house purchases 174
Figure 5.10 Volume of leveraged loans (second lien) in
billion USD 175
Figure 5.11 Growth rate of nominal residential property prices 176
Figure 5.12 Sovereign deficit/surplus as percentage of GDP 178
Figure 5.13 Interests of ten-year government bonds (in per cent) 179
Figure 6.1 Demonstration and protest march in Foley Square,
Manhattan, New York, 2011 196
Figure 6.2 Occupy Wall Street encampment in Liberty
Park, New York, 2011 196
Figure 6.3 Distribution of foreclosures in New York City,
2005 200
viii List of Figures
Figure 6.4 Distribution of foreclosures in New York City,

2008 200
Figure 6.5 Distribution of foreclosures in Bedford Stuyvesant
and Bushwick, Brooklyn, 2008 201
Figure 6.6 Visual evidence of foreclosure, Bedford Stuyvesant,
Brooklyn, 2010 202
Figure 6.7 Subprime mortgage lender advertisement
and for sale signs. Bushwick, Brooklyn. 203
Figure 6.8 Land use in Community District 3. 203
Figure 6.9 Land Use in Community District 4. 204
Figure 6.10 Empty lot appropriated for ‘unofficial’ use,
Bushwick, Brooklyn, 2010 204
Figure 6.11 Community garden, Bushwick, Brooklyn, 2010 205
Figure 6.12 Community garden, Bushwick, Brooklyn, 2010 205
Figure 6.13 Abandoned buildings in Bushwick, Brooklyn, 2010 206
Figure 6.14 Another abandoned building, Bushwick,
Brooklyn, 2010 206
Figure 6.15 The Bedford Stuyvesant Restoration
Center Family Health Center, Bedford
Stuyvesant, Brooklyn, 2010 207
Figure 6.16 Commercial real estate for sale, Bushwick,
Brooklyn, 2010 208
Figure 6.17 Paused construction in Prospect Heights,
Brooklyn, 2009 208
Figure 6.18 Condominium construction intending to replace
rental housing, Prospect Heights, Brooklyn, 2009 209
Figure 6.19 Homeless improvised shelter, Park Slope,
Brooklyn, 2010 210
Figure 6.20 Residents outside the homeless women’s shelter,
Park Slope, Brooklyn, 2010 211
Figure 6.21 Bottle collectors on Park Slope, Brooklyn, 2008 212
Figure 6.22 Gold buying and pawn shop, Bushwick, Brooklyn,
2010 212
Figure 6.23 Secondhand store, Bushwick, Brooklyn, 2010 213
Figure 6.24 Unused commercial space repurposed as art display,
Downtown Brooklyn, 2010 214
Figure 7.1 Reduced graph of world city system 223
Figure 8.1 Balance on current transactions, Germany, Spain,
Portugal, Greece 240
Figure 8.2 General government current revenues as per cent
of GDP, Greece and EU 15 241
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List of Figures ix
Figure 10.1 Top 1 percent income share in selected countries

(Australia, France, Japan and the US), 1914–2010 297
Figure 10.2 Top 1 percent income share in Japan: 1920–2010 302
Figure 10.3 Household income inequality among Tokyo’s
46 districts (central city 23 wards and suburban
26 cities), 1971–2009 308
Figure 10.4 Comparison of spatial household income inequality
between Tokyo’s 49 districts (23 central city wards
and 26 suburban cities) and Tokyo excluding
4 central core wards, 1971–2009 309
Figure 10.5 Percent household income growth by Tokyo
(23 central city and 26 suburban cities) and
4 central core wards (Chiyoda, Chuo, Ninato
and Shibuya), 1971–2009 312
List of Tables
Table 2.1 City budgets as percentage of national budgets

in 2010 71
Table 6.1 Percentage of home purchase loans issued by
subprime lenders 199
Table 6.2 Neighborhoods targeted by the Neighborhood
Stabilization Program (NSP1) 202
Table 7.1 Ranking of cities on measures of corporate power
and prestige (top 15 cities per dimension) 223
Table 7.2 Principal component analysis of outdegree,
indegree betweenness 224
Table 7.3 Summary statistics 225
Table 7.4 OLS analyses of centrality closeness (without and
with regionally clustered standard errors; OLS
regression for closeness openness; and with
standardized regression coefficient below
standard errors) 227
Table 7.A1 Tobit analyses of outdegree, indegree and
betweenness (tstatistics in parentheses). 233
Table 7.A2 City financial centers among top 50 world cities by
‘Closeness’ and ‘InOutBetween’ (IOB) and these
centers’ financial revenues by city 234
Table 8.1 Long term interest rates (annual rate) 242
Table 8.2 Real GDP growth and inflation rate (annual
average rate), Greece 2008–12 243
Table 8.3 Domestic demand in Greece and EU 15.
Contribution to changes in GDP (%). Annual
percentage change 243
Table 8.4 Unemployment, Attica Region and Greece 245
Table 8.5 Youth unemployment rate <25 years, Attica
Region and Greece 245
Table 8.6 Private building activity, number of construction
permits, Attica Region and Greece, month of
December 2010–11 245
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List of Tables xi
Table 10.1 Household income household income inequality among

Tokyo’s 49 Districts 308
Table 10.2 Household income change by Tokyo’s 49 districts (23
central city wards and 26 suburban cities) and Tokyo’s 4
central core wards, 1971–2009, 10,000 yen 311
About the Contributors
The Editor
Kuniko Fujita, Ph.D. is retired Professor of Sociology. She taught

industrial sociology, urban sociology and globalization in the Sociology
Department at Michigan State University; Japanese and comparative
political economy in the Japanese Studies Department at the National
University of Singapore; and international division of labor in the Law
Department at Hiroshima University. She also worked with the World
Bank and is the past president (2006–2010) of ISA RC-21 Urban and
Regional Development Research. Her recent research interests include
urban ecology, comparative studies, and financial crises and reflect on
edited books and journals such as Residential Segregation in Comparative
Perspective: Making Sense of Contextual Diversity (coeditor, Ashgate,
2012), special theme issue on Global Financial Crisis, State Regime Shift
and Urban Theory in Environment and Planning A (guest editor, 2011),
special issue on Urban Justice and Sustainability in Local Environment
and International Journal of Justice and Sustainability (guest editor,
2009) and articles such as “Industry Cluster and Transnational Net-
works: Japan’s New Direction in Regional Policy” (co-author, 2012),
“Detroit” in Asia: A Multiscalar Case Study of Regional Development
Policy in Thailand (co-author, 2012), ‘Tokyo’ in Encyclopedia of Urban
Studies (Sage, 2010), ‘Zero Waste City: Tokyo’s Quest for Sustainable
Development’ (co-author, 2007).
The Contributors
Alexander Hicks is Professor of Sociology and Associated Faculty in

Political Science and Film Studies, Emory University (PhD, Sociology,
University of Wisconsin-Madison, 1979). He is author or co-editor of
books including Social Democracy and Welfare Capitalism and The
Handbook of Political Sociology, as well as of papers in leading Socio-
logy and Political Science journals, including the American Sociological
Review and the American Political Science Review. His work has been
www.Ebook777.com
About the Contributors xiii
mostly on the politics and economics of social and economic policy in

the relatively affluent democracies. He is currently serving on the
editorial board of the American Sociological Review for the third three;
and he was inaugural co-editor of the Socioeconomic Review in
2003–2006.
Chris Pickvance is Emeritus Professor of Urban Studies in the School of

Social Policy, Sociology and Social Research at the University of Kent,
Canterbury. He co-founded the International Journal of Urban and
Regional Research, co-edits the Blackwell Studies in Urban and Social
Change book series and edits the Ashgate Cities and Society book series.
He has been Secretary and President of the ISA Research Committee on
Urban and Regional Development (RC21) and Chairman of Trustees of
the Foundation for Urban and Regional Studies. In 2006 he was elected an
Academician, Academy of Social Science.
His interests include comparative analysis, urban theory, post-socialist
transition, housing, environmental issues, urban policy and urban protest.
His books include (edited with M. Harloe and J. Urry) Place, Policy and
Politics: do localities matter? (Unwin Hyman, 1990) and (edited with E.
Preteceille) State Restructuring and Local Power: a comparative
perspective (Frances Pinter, 1990), (edited with K. Lang-Pickvance and
N. Manning), Environmental and Housing Movements: grassroots
experience in Hungary, Estonia and Russia, (Avebury, 1997) and Local
Environmental Regulation in Post-socialism: a Hungarian case study
(Ashgate, 2000). His recent publications include ‘Understanding UK
sustainable housing policy’ in J. Flint and M. Raco (eds) The New Politics
of Urban Planning (Policy Press, 2011) and ‘The limits of neoliberalism:
is the concept of neoliberalism helpful in the study of urban policy?’ in
M. Mayer and J. Kunkel (eds) Neoliberal Urbanism and its Contestations
(Palgrave, 2012).
Göran Therborn is Professor Emeritus of Sociology at the University of

Cambridge, UK. Still a member of the university, Research Director in
2013, he now lives in Sweden. He has had a professorship of political
science in Nijmegen, Netherlands, and professorships of sociology at
Gothenburg and at Uppsala, Sweden. He has also been co-Director of the
Swedish Collegium for Advanced Study in the Social Sciences. His recent
publications include, ‘Monumental Europe: The National Years. On the
Iconography of European Capital Cities’, (Housing, Theory and Society
19: 1, 2002), Between Sex and Power. Family in the World, 1900–2000
(2004), Inequalities of the World (2006), ‘Eastern Drama: Capital Cities in
Eastern Europe, 1830–2006’ (special issue of the International Sociological
xiv About the Contributors
Review (16: 2, 2006), Les sociétés d’ Europe du XXe au XXIe siècle (2009),
From Marxism to Postmarxism? (2010) The World. A Beginner’s Guide
(2011), Capital Cities in Africa (co-ed, with S. Bekker, 2011). He is cur-
rently working on processes of inequality, and on a global project on Cities
of Power.
Jerome Krase, Murray Koppelman Professor, and Professor Emeritus, at

Brooklyn College of The City University of New York, received his BA in
Sociology at Indiana University (1967) and his Ph.D. at New York
University (1973). He is a public activist-scholar serving as a consultant to
public and private agencies regarding urban community issues. He twice
chaired the Brooklyn College Sociology Department. His interests have
expanded globally into visual semiotic studies of urban neighborhood
communities about which he researches, photographs, writes, lectures and
exhibits. He is active in the American, European, and International
Sociological Associations, International Visual Sociology Association
(IVSA), Polish Institute of Arts and Sciences in America, American
Association for the Advancement of Science and Human Rights Coalition,
and Commission on Urban Anthropology. Professor Krase is Vice-
President, Academy of Humanities and Sciences of CUNY, Treasurer,
ISA’s Visual Sociology Thematic Group, IVSA Executive Board Member,
and Editorial Board Member Visual Studies, Urbanities, and CIDADES.
Representative books and articles include: Self and Community in the
City (1982); Ethnicity and Machine Politics co-authored with Charles
LaCerra (1992), Race and Ethnicity in New York City (2005) and Ethnic
Landscapes in an Urban World co-edited with Ray Hutchison (2006);
Seeing Cities Change (2012). ‘Seeing Difference: Spatial Semiotics of
Ethnic and Class Identity in Global Cities’, Visual Communication, (2011)
with Timothy Shortell; ‘Berlin’, Streetnotes, (2011); ‘Diversity and Urban
Living’, in Orte der Diversität: Formate, Cristina Allemann-Ghionda and
Wolf-Dietrich Bukow eds. (2010); ‘Kein Mix’, Kulturaustausch, (2009)
and ‘A Visual Approach to Multiculturalism’, in Beyond Multiculturalism,
Giuliana Prato ed. (2009).
Michael Indergaard is a Professor in the Department of Sociology and

Anthropology at St. John’s University in Jamaica, New York. His work
investigates how various sorts of actors gain economic or political advan-
tages by brokering new market relationships and understandings in set-
tings of economic transformation ranging from the industrial Midwest to
postindustrial New York. He has written two books: Silicon Alley: The
Rise and Fall of a New Media District (Routledge, 2004) and Pump and
Dump: The Rancid Rules of the New Economy (Rutgers University Press,
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About the Contributors xv
with Robert Tillman). His articles include: “Making Networks, Remaking

the City,” Economic Development Quarterly (1996) 12(2): 172–187,
“Retrainers as Labor Market Brokers: Constructing Narratives and
Networks in the Detroit Area” Social Problems (1999) 46, 1: 67–87,
“Community-based Restructuring? Institution Building in the Industrial
Midwest” Urban Affairs Review (1997) 32, 5: 662–682, “The Webs They
Weave: Malaysia’s Multimedia Super-corridor and New York City’s
Silicon Alley” Urban Studies (2003) 40, 2: 379–401, “What to Make of
New York’s New Economy? The Politics of the Creative Field” Urban
Studies (2009) 46, 5–6: 1063–1093, “Another Washington-New York
Consensus? Progressives Back in Contention” Environment and Planning,
A (2011) 43, 2: 286–306 and “Beyond the Bubbles: Creative New York in
Boom, Bust and the Long Run,” Cities (forthcoming). He is co-editor
(with Andy Pratt and Tom Hutton) of a forthcoming special issue of Cities
on “Creative Cities after the Fall of Finance.”
Nicos Souliotis studied Sociology in the Panteion University, Athens, and

has done postgraduate studies in Paris where he obtained his Ph.D. from
the École des Hautes Études en Sciences Sociales (2005). He has taught
urban sociology as visiting lecturer at the Departments of Planning and
Architecture at the University of Thessaly (2006–2010). Since 2010 he is
Research Fellow in the National Center for Social Research of Greece and
teaches at the Greek Open University. His scientific interests, research
activity and publications focus on urban cultural economy and urban
policies, especially in Athens. He is currently participating in a research
project carried by the NCSR on the effects of the sovereign debt crisis on
the political and economic practices of Athenians.
Ryan Hicks, who has a Masters in City and Regional Planning from the
Cornell University’s College of Architecture, Art, and Planning, is
Community Development Associate at APD Solutions in Atlanta, as well
as Senior Research Specialist at Emory University’s Center For Community
Partnerships.
Sophie Body-Gendrot, Ph.D. in political science (Sciences-po, Paris), is

Emeritus Professor and the former Director of the Center of Urban Studies
at the University Paris-Sorbonne in France. She is a researcher at Cesdip/
CNRS/French Ministry of Justice and the stepping President of the Society
of European Criminology. She is an expert adviser on the issue of safety
and public space in the program Urban Age at the London School of
Economics in London. She is Officer of the French Legion of Honour. She
is involved with international journals and research networks and is a
xvi About the Contributors
consultant for the European Commission on criminological and urban

issues. Her inter-disciplinary and cross-national research about risk man-
agement in cities connects urban violence, ethnic and racial discrimina-
tions and socio-economic inequalities with broader societal dysfunctions
and public policies. Her most recent work in English as author or co-editor
is: Globalization, Fear and Insecurity: the Challenges for Cities North
and South (Palgrave Macmillan, 2012); The Routledge Handbook of
European Criminology (Routledge, 2013); Violence in Europe. Historical
and Contemporary perspective (Springer, 2007); Social Capital and
Social Citizenship (Lexington Press, 2003); The Social Control of Cities
(Blackwell, 2000); Minorities in European Cities, (Macmillan, 2000); The
Urban Moment (Sage, 1999).
Stefan Gärtner, Ph.D. is Head of the research unit ‘Spatial Capital’ at the
Institute Work and Technology in Gelsenkirchen and lectureship at
the Faculty of Social Science, Ruhr-University Bochum (both in Germany).
Master and PhD in Spatial Planning at the University of Dortmund. Stefan
combines working experiences at a savings bank and long lasting research
experience in the following areas: Regional banking, space, place and
money economy, regional and corporate cultural studies, urban and
regional development, integrated local economic development, structural
and cohesion policy. Academic awards: Honour Award ‘Foundation of
German Cities, Communities, and Districts for the Promotion of Municipal
Sciences 2002’ granted by the German Institute of Urban Affairs (Difu),
Berlin and European Savings Banks Academic Award 2008 (1st place
winner) granted by the European Savings Banks Group, Brussels.
Memberships and others: Invited Expert for hearings in the State Parliament
of North Rhine-Westphalia and Saxony on ‘The future of savings and
regional banks’ and Membership in the Urban and Regional Development
Committee (RC21), Society for Structural Policy [Gesellschaft für
Strukturpolitik], and Regional Studies Association (RSA).
Timothy Shortell, Ph.D., is Associate Professor and Director of the M.A.

program in sociology at Brooklyn College of the City University of
New York. He earned his doctorate in Social Psychology at Boston
College (1992). He is co-editor of The World in Brooklyn: Gentrification,
Immigration, and Ethnic Politics in a Global City (2012). His main
research interest is social semiotics and he has published in Visual
Communication, Mass Communication & Society, Social Science History,
Encyclopedia of Global Religion, and others, on public discourse and
public space. He is a member of the European Sociological Association,
Society for Francophone Postcolonial Studies, Society for the Scientific
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About the Contributors xvii
Study of Religion, and the International Visual Sociology Association, and

is currently on the board of the Visual Sociology thematic group of the
International Sociological Association. In 2010, he received a Leonard and
Claire Tow Faculty Travel Fellowship to study the spatial semiotics of col-
lective identity in immigrant neighborhoods in Paris. In addition to his
scholarship, he is an academic labor organizer and a contract enforcement
officer for the Professional Staff Congress/CUNY.
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1
Introduction: Cities and Crisis:
New Critical Urban Theory1
Kuniko Fujita
The 2008 Global Financial Crisis, Cities and New Challenges

for Urban Theory
The extraordinary event of the 2008 global financial crisis calls for the
reinvigoration of urban theory. The 2008 crisis began with an American
spectacular housing bubble and followed catastrophic bust. It then trig-
gered similar crises and panics in many parts of the world. It was a seismic
global event. Nothing could help understand the crisis of this magnitude
and its relations to cities better than history and theory. History and theory
tell that it was the biggest financial crisis since the Great Depression of the
1930s and that there is Keynesian macroeconomic theory to fight crisis
effects. The crisis, therefore, ultimately presents new challenges to urban
theory, in particular, contemporary urban theories which have failed to
grasp the historical and theoretical perspective of capitalist financial crises.
Going into the sixth year, the crisis aftermath and infliction still evolve.
Let alone solving the fundamentally internal cause of the crisis – the
unfettered financial industry – nowhere have effective urban and national
political and policy responses appeared to get out of the crisis aftermath.
Despite historical lessons and the availability of Keynesian macro-
economic theory to alleviate crisis-induced economic slumps, wrong
politics and policies – including the denying of the 2008 crisis as the
major financial crisis2 and austerity policies of slashing spending and
raising taxes as elixir for an economic recovery – have led cities and
nations to launch into an even more prolonged recession than an already
predicted long-term slump period that typically follows a financial crisis.
The depressed economy continues to accompany debt deflation and high
unemployment in crisis-inflicted countries (OECD, 2012).
Global imbalances, which played an external cause of the 2008 crisis,
are also still left untouched. Referring to differences between spending
and saving in national current accounts among countries, global imbalances
between developed countries, in particular, the United States which spent
(consumed and imported) more than saved (produced and exported), and
2 Kuniko Fujita
developing countries like China, India, Brazil, Russia and oil-producing

countries which saved (produced and exported) more than spent (consumed
and imported), became dangerously unsustainable before the crisis.
Developing countries invested their trade surplus in US treasury bills and
US assets, accumulated the US dollars, manipulated their currencies
artificially low, and kept their development (industrialization and urbani-
zation) and international trade going. By contrast, the United States kept
consumer interest rates low thanks to foreign money inflows, sustained
consumer debt, and ultimately in part helped create the housing bubble. In
the immediate post-bubble year, American consumer debt sharply declined,
but it still remains high. In the absence of a globally coordinated monetary
system, developing countries continue to save, produce, and export more
than spend, consume, and import and keep buying and accumulating US
dollars. As developing countries slow down3, global imbalances may
diminish. Left unresolved, global imbalances may potentially contribute
to another global financial crisis, challenging both developed and
developing countries.
Besides, global imbalances have new, grave implications for the global
climate catastrophe. While developed countries have been the primary cul-
prits of global warming, China, India and other developing countries are
now the source of the planet’s soaring emissions of carbon dioxide (CO2).
Global imbalances enable them to emulate the industries of the West and
be engaged in unsustainable degrees of urbanization and industrialization.
Bill McKibben (2012) warns three simple numbers that add up to global
catastrophe. The fist number is 2 degrees Celsius which presents the scien-
tific view that the increase in global temperature should be below two
degrees Celsius. So far, we have raised the average temperature of the
planet by just under 0.8 degree Celsius, and that has caused far more
damage than most scientists expected.4
The second number is 565 gigatons. Scientists estimate that humans can
pour roughly 565 more gigatons of CO2 into the atmosphere by midcentury
and still have some reasonable hope of staying below two degrees.
Computer models calculate that even if we stopped increasing CO2 now,
the temperature still is likely to rise another 0.8 degrees, as previously
released carbon continues to overheat the atmosphere. That means we are
already three-quarters of the way to the two-degree target. Finally, the
third number is 2,795 gigatons. This number is the scariest of all and most
likely consumed by developing countries. The number describes the
amount of carbon already contained in the proven coal and oil and gas
reserves of the fossil-fuel companies, and countries like Venezuela and
Kuwait that act like fossil-fuel companies. These coal and gas and oil
reserves are still technically in the soil. But they are already economically
www.Ebook777.com
Introduction 3
aboveground – they are figured into share prices; companies are borrowing
money against them; nations are basing their budgets on the presumed
returns from their patrimony.5 The scariest number, 2,795 gigatons, is,
according to Elizabeth Kolbert (2012), one of the most salient – but also,
unfortunately, the most counterintuitive aspect of global warming is that it
operates on what amounts to a time delay. Behind summer heat in 2012
were greenhouse gases emitted decades ago. Before many effects of
today’s emissions are felt, it will be time for the Summer Olympics
of 2048. Kolbert (2012) claims that it is quite possible that by the end of
the century we could, without even really trying, engineer the return
of the sort of climate that has not been seen on earth since the Ecocene,
some fifty million years ago. The 2008 crisis has thus far-reaching
implications for the global climate catastrophe and challenges the global
environment.
Cities have played an important role in the crisis. They have embodied
what the crisis and its aftermath meant in the spatially condensed form.
While history and theory tell that common patterns in the nature of a
financial crisis emerge across nations and regions as well as very divergent
institutional settings, urban crisis experience differs from city to city
as does from a nation to a nation, depending upon the national and
regional configurations in which bubbles took place. Some cities
experienced unsustainable bubbles in the housing construction industry
and witnessed the reckless practices of unfettered banks and shadow banks
as well as their citizens’ debt consumption growth, while others experienced
inflated economic and consumption booms and expanded financial and
public sectors that depended upon the inflows of foreign capital and
investment.
When the bubbles burst and severe recessions followed, cities experi-
enced catastrophic busts and faced an enormous waste and human
sufferings – the loss of jobs, in particular, the sudden surge of unemployed
youth; housing closures; business bankruptcies; the disappearance of
retirement funds; dwindling employment and education opportunities; the
growth of child poverty; declined social and welfare services; and ulti-
mately the loss of hope. Yet, urban experience in catastrophic busts and
recessions too, varies from city to city, depending on national and regional
policy responses to busts and recessions.
Cities have also become central to protest movements in the post-
bubble era as they traditionally were in the troubled times before. Occupy
Wall Street movement emerged in New York City.6 Symbolizing their
“We are 99%” slogan, occupiers protested the growth of income inequa-
lity and government’s bailout of banks (Beals, et al., 2011; Reich, 2012a;
Greenburg, 2012; Byrne, 2012). Occupy movement spread to countless
4 Kuniko Fujita
other American cities. Urban protest movements also appeared in

Europe where harsh austerity policies began to choke already dismal
employment conditions and social and urban services. Since protracted
depression undermines the living standards of an entire generation of
Americans and Europeans, there is no wonder why the young have played
the central role in urban protest movements in Washington, DC (Marche,
2012), Athens (Huffington, 2012), Madrid (Minder, 2012) and Frankfurt
(Eddy, 2012).
This book attempts to explore various national and urban experiences
resulting from the 2008 global financial crisis and its aftermath. The crisis
provides us with rare moments of opportunity to look at the way finance
plays in the economy. Finance is like the blood circulation system of the
economic body: If the blood stops flowing, the body goes into cardiac
arrest. The 2008 crisis literally stopped the blood from flowing and most
societies suffered from cardiac arrest. But cardiac arrest was severer
in some societies than in others. The importance of finance in the economy
as a whole and yet different degrees of cardiac arrest raise serious
questions: What ideologies and institutions shape the finance industry?
How are financial policy-making decisions made? How do various gov-
ernment agencies, financial institutions and other policy-making apparatus
interact in a crisis like this one? Who plays an important role in financial
rule-making and who benefits most – bankers, politicians, government
officials or international organizations like Bank for International Settle-
ments (BIS)? How do global, regional, national, and urban financial
systems actually work? How do global and regional financial inflows and
outflows affect national and urban economies? How do the global and
regional flows of money influence cities and urban society? To what extent
are global imbalances linked to national and urban development? What
strategy and policy can best work to keep global imbalances from leading
to global catastrophe? The moments of opportunity also provoke other-
wise unimaginable, but fundamentally basic, questions. If cities cannot
escape from a systemic financial crisis, what policy and strategy should
they adopt? Is there any strategy that can be integrated into urban develop-
ment and planning to alleviate and tame crisis effects on cities when a
financial crisis occurs?
These opportunities in turn lead us to examine and rethink contemporary
urban theories in the light of empirical and historical evidences that the
2008 crisis and its aftermath have brought about. In particular, the book
emphasizes two specific empirical and historical evidences. One is a crisis
perspective. History and the Keynesian crisis theory tell that a financial
crisis is inherent in the market economy and that cities cannot escape from
a systemic crisis but that there are some policy solutions when it happens.
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Introduction 5
Yet, contemporary urban theories have never taken a financial crisis

seriously. When they have actually taken it into consideration, the lack of
historical and theoretical perspective of the crisis has failed them to reckon
the importance of the crisis in capitalist urban society.
The other is their interpretation of globalization. The 2008 crisis was a
synchronized global financial crisis. Several trillion dollars disappeared
from the world economy just overnight when the bubble burst in 2008 and
almost all countries experienced panics and sharp dips in GDP in 2008–
2009. Some countries experienced time-lagged bust a few years later as
was seen in the euro crisis and the Cyprus debacle. The crisis was also
globally contagious when catastrophic social and economic calamities hit
many cities and nations simultaneously. As will be seen later, real causes
of and actual policy responses to the crisis, however, depended upon the
national and regional context. What the crisis revealed by “global,” turned
out to be no more than an aggregate of nation-states. The crisis has
disclosed how fragile the truly interconnected global financial system was.
It has made it clear that there existed neither the global financial architecture
nor global institutional system that could save globally run banks and
rescue the globally interconnected banking system. It was national
governments after all that saved their own banks.
In consequence, the evidence of national government’s role in the crisis
debunks the notion of weakened nation-states vis-à-vis empowered global
cities in the world economy, which is one of myths of globalization
conceived by currently popular urban theories like global city, global
networks and neoliberal urbanization.
Urban theory has always attempted to understand challenging and
transforming forces for cities, renew sociological interests and expand
their imagination and research scopes. Facing an extraordinary event
like the 2008 financial crisis, urban theory, as in any theory construction,
needs to be rechecked and reexamined for its validity according to the
changing reality of cities in the new times. Can urban theory meet today’s
challenges, take up an opportunity to explore new insights and perspective,
and renew itself? Given the lack of the crisis perspective in contemporary
urban theories, what new and existing theories can help us understand
the crisis and its aftermath and their relations to cities? What new
approaches and insights are to be added to urban theory? Chapters in the
book attempt to integrate the crisis perspective into urban studies and
address what needs to be done to understand cities in the time of crisis.
This book concludes that the 2008 global financial crisis and its aftermath
challenge urbanists to reinvigorate urban theory with their embracement
of the crisis perspective and a fuller vision of globalization than we have
so far grasped.
6 Kuniko Fujita
The 2008 crisis with a view to history

The 2008 financial crisis needs to be seen with a view to history. Major
financial crises are similar historically: the Dutch Tulip Crisis of the
fifteenth century, the South Sea Crisis of the seventeenth century, the
Great Crash of 1929, the Latin American debt crisis in the 1970s, 1980s
and 1990s, the Asian crisis of 1997–1998, Japan’s financial crisis of 1990,
Nordic financial crisis of the early 1990s, and the Argentine sovereign debt
crisis of 2001. Reinhart and Rogoff (2012) argue that all these crises devel-
oped from financial engineering on their own at the time without excep-
tion. They also maintain that these crises were followed by a subsequently
prolonged slow growth because when credit bubbles burst, spending cuts
by households and companies which were left with high levels of debt
depressed the economy as a whole (Reinhart and Rogoff, 2009).
There are clear similarities between the 2008 crisis and the Great
Depression of the 1930s in the scales and magnitudes (Reich, 2010;
Krugman, 2009a; Almunia, et al., 2010; Eichengreen and O’Rourke,
2012a; Romer, 2011).7 They are caused by market uncertainty and insta-
bility fundamentally built into the capitalist economy. In the case of the
United States, the 1929 Great Crash began with the unleashed American
finance system in the 1920s, housing boom in Florida and then the stock
market crash (Galbraith, 1954; Shiller, 2008; Ahamed, 2009; Reich, 2010).
The 2008 crisis began after a few decades of deregulation, lax supervision,
shadow banking development, and financial innovations that circum-
vented rules and regulations (Tett, 2009; Stiglitz, 2010a). The Great Crash
also began with global imbalances that caused money flows to the US
from Europe and other countries in the 1920s (Ahamed, 2009) and created
the spectacular stock market bubble, while the 2008 crisis accompanied
money flows from China and other emerging markets and created easy and
abundant consumer credits in the United States (Roubini and Mihm, 2010;
Stiglitz, 2010a). In both cases, money flows from abroad helped in part
lead to spectacular housing and stock market booms and catastrophic
bubble bursts.
Both crises are also truly globally synchronized ones. As in the 1930s,
the US 2008 crisis triggered similar crises and panics in many parts of the
world, while generating the most severe and synchronized global financial
crisis and recession since the Great Depression. But this does not mean
that the 2008 American crisis led to the crisis in other parts of the world.
As Krugman calls American and European cases twin housing bubbles
and bursts, crisis conditions were ripe in Spain, Iceland, and Ireland where
capital and investment flows from Germany and other rich European
countries led to booms and thus inflated prices (2012a:18–24).
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Introduction 7
And finally, DeLong and Eichengreen (2012) contend that the parallels
between Europe in the 1930s and Europe today are stark, striking, and
increasingly frightening. They claim that financial instability and distress
are widespread and that there is growing political support for extremist
parties of the far left and right as in the 1930s.
The Crisis Perspective
A financial crisis is a huge and unnecessary wasting, taking huge social

and economic cost and resulting in human miseries. And it lasts a prolonged
time as seen earlier and affects a generation. In order to integrate the crisis
perspective into urban theory, we need to understand what causes the
crisis, what tools are available to get out of it when we face it, and what the
crisis brings about in terms of research scope and perspective. Following
is the Keynesian interpretation of the 2008 crisis regarding the causes of
the crisis and crisis policy responses to busts and recessions by governments
and central banks in historical and comparative perspective and the debate
on relations between the growth of income inequality and the crisis, which
the 2008 crisis has opened up as a new area where urban inequality growth
research can be conducted.8
The Keynesian Crisis Theory

Uncertainty
If there is something that can be called a crisis theory, it is the Keynesian
crisis theory. Learning about the 1929 Great Crash and Great Depression
in the 1930s, John Maynard Keynes contributed, 77 years ago, to the
understanding of how a financial crisis would occur in the capitalist market
economy and what policy responses would help to get out of the crisis.
Keynes kept financial instability and uncertainty at the heart of his theory
in his influential book, The General Theory of Employment, Interest and
Money (1964). Keynes theorized the necessity of macroeconomic policy
solutions underpinned by full employment, public spending, and regulation.
Keynesian theory proved to buttress the long-term stable growth in the
post-World War II era in Europe, Japan, and North America.
Before the 2008 crisis, one of the biggest debates in economics was
whether a modern capitalist economy is inherently stable. The mainstream
view by both Keynesian and neoclassical economists was that the crisis-
ridden market economy would be over if one had a competitive economy
and a central bank that anchored inflation expectations. Quiggin (2012)
and Krugman (2012b) argue that the 2008 crisis has debunked this view by
relying on Keynes who believed that “deep slumps were always possible
8 Kuniko Fujita
in a market system left to itself, and that there was therefore a continuous
role for government in ensuring that they did not happen” and that “deep
slumps were not ‘one in a century event’, but an ever-present possibility”
(Skidelsky, 2009a: xvii).
Marxists are perhaps best to explain the 2008 crisis as the deep-seated
systemic failure of capitalism (Smith, 2010; Meszaros and Foster, 2010;
Harvey, 2010; Albo, et al., 2010). But they offer neither any other cause
than capital accumulation crisis nor any other solution than a revolution-
ary movement leading to socialism. Too much disappointment to the left
and progressive, there was no revolutionary movement by the working
class anywhere in the wake of the crisis. If there was such a moment as the
public’s taking over banking, that moment was long gone. The crisis did
not bring any sign for the new era of revolution anywhere. But David
Harvey (2012) claims that the Occupy movement in New York City and
urban movements in many cities of the world are signs that the deep cur-
rents of social and political change rise to the surface.9 Harvey may be
right. There needs to be seen, however, an evidence that protest move-
ments would turn into a revolutionary movement.
Keynes agreed with Marx in that a financial crisis was inherent to the
market economy. But unlike Marx, Keynes did not believe that a crisis
would lead to socialism. In the midst of rising fascism in Europe and
authoritarian planned economy in the Soviet Union, Keynes was worried
that unless governments took steps to stabilize market economies at full
employment, the undoubted benefit of markets would be lost and political
space would be opened up for extremists who would offer to solve the
economic problem by abolishing markets, peace, and liberty. Europe now
faces similar conditions with the rise of extreme right-wing politics as in
Keynes’ time. Skidelsky (2009a) argues that Keynes was rather conservative
and wished to save capitalism from such rising authoritarian economies.
Keynes’ solution was to create full employment through public spending
so that an increased demand from full employment would encourage the
private sector to invest and produce more. Expansionary public policy
was, Keynes wrote in The General Theory, the only way that could restore
the economy back on a recovery path. He wrote that when the economy is
in a liquidity trap, the private sector cannot make investment and production
as many companies are on debt and high unemployment rates make market
demand low (Krugman, 2011a). It is only the government that could make
investments and create more jobs and thus more demand. In the US, F.D.
Roosevelt’s New Deal policy was directed to Keynesian macroeconomic
policy, while promoting unions, raising wages and increasing government
investment and employment. Then, the war economy – the expansionary
government spending policy – that followed the New Deal firmly put the
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Introduction 9
US economy back to work and continued to lead to the postwar growth.

Similarly, most developed countries took the Keynesian macroeconomic
policy and experienced the unprecedented postwar economic growth era
without any big financial crisis (Hall, 1989; Ahamed, 2009; Gorton, 2010;
Eichengreen and O’Rourke, 2012a, 2012b).
Minsky moment: instability

Following Keynes, Hyman Minsky (1986) developed the concept of
systemic instability. According to Galbraith (2007, 2012), the concept of
systemic instability is the cornerstone of Minsky’s work. Minsky argued
that stability would spur risky behavior such as Keynes’ “animal spirit”
and showed how systemic dynamics inherent to capitalism breed systemic
fragility and crisis. Minsky articulated stability was destabilizing. The
leveraging of returns, principally by borrowing, was viewed as a certain
route to wealth. To him, those engaged in the financial system created such
leverage.10 When people underestimated perils, as they did in good times,
leverage exploded. For Minsky, the apparent stability of the postwar
economy was founded on the combined impact of strong regulation
enforced by strong institutions, and the policies of Big Banks and Big
Government effectively implemented from the onset of the New Deal.
This stabilizing framework precluded excessive risk-taking and blocked
the movement of financial players from hedge to speculative positions.
Those movements that did occur could be managed; if the overall system
was stable, the instability of small elements within it could be largely
offset when difficulties arose. Yet, as Minsky’s instability thesis would
predict, the stable system did not last.
Keynes’ uncertainty and Minsky’s instability differ from many econo-
mists like Johnson and Kwak (2010) and policy makers like the Secretary
of Treasury Geithner who currently emphasize financial regulations,
including regulating “Too Big To Fail” banks, to curb risk-taking and
speculative behaviors in the financial sector and therefore to keep from
another crisis. Keynes and Minsky also differ from Marxian regulation
theorists.11 To regulation theorists, the finance capital hegemony and
deregulation associated with it caused the instability of the postwar growth
regime. However, Keynes and Minsky present uncertainty and instability
inherently built in the finance market system but not only in the postwar
development of finance capital. Regulation helps to reduce uncertainty as
seen in the postwar era, but uncertainty cannot be eliminated or predicted.
Stability turns sooner or later to instability. To Keynes and Minsky, the
crisis does not end with regulation and reregulation of the finance system.
What regulation does is to help to contain market uncertainty and instabil-
ity. Galbraith (2007) argues that the postwar regulation regime perhaps
10 Kuniko Fujita
helped small financial crises grow big like the Great Depression in the
1930s in the developed world but did so by channeling instability to the
developing world like sovereign debt crises in Latin America.
The crisis theory raised by Keynes and Minsky implies that the future of
the market is uncertain and sooner or later bound to be unstable so that
governments need to embrace in no-crisis time full employment policy,
reduction of debt in balance sheets, regulation, and institutions which
would reduce uncertainty and instability.
Which group of population is a government rescue policy directed at?
Who is going to be saved? Investors? Bankers? As Keynes addressed in
the 1930s, who to be saved would be the working people. This is also the
position of Keynesian economists today (Stiglitz, 2010a; Romer, 2011;
Krugman, 2012a; DeLong and Summers, 2012; Portes, 2012; EPI, 2009;
Blinder, 2013). In particular, Krugman (2012a) vehemently advocates the
creation of jobs to the unemployed through government expansionary
policy in the US and Europe. To Keynes, the bailout of failed banks that
the US, the UK, Spain, Ireland , Greece, and Cyprus did in the 2008 crisis
and its aftermath could not have been accepted unless the unemployed
were also bailed out through expansionary public policy that leads to
create full employment. In the case of the US, government officials eagerly
served Wall Street interests at the public’s expense (Sorkin, 2009) and
regulators were captured by the very industry they were supposed to be
regulating and did not serve the public interest as they should.12 Keynes
maintained that investors (and bankers) who took risks should be left
alone. Krugman (2012c) also belatedly acknowledges that the unconditional
bailout of banks might not be the best policy. Furthermore, Keynes
repeatedly maintained that full employment was the best policy not only in
the crisis time but also in the normal time as the future of market economy
was uncertain.
Liquidity trap and debt deflation

Keynes clearly stated that depressed economic condition that followed
bubble burst was a liquidity trap. Businesses have debt in balance sheets so
that they do not make investment because of the lack of sufficient demand
in the depressed economy. Without adequate market demand and
investment, they do not borrow money and interest rates stay low.13 In such
a liquidity trap, fiscal deficit or government spending by borrowing money
(or printing more money), will not raise interest rates. Keynesian liquidity
trap theory goes against neoclassical loanable funds theory that says that
the interest rate is determined by the supply of and demand for saving and
fiscal deficits raise interest rates up. According to Krugman (2009b, 2010),
John Hicks later made Keynes’s liquidity trap clearer with the concept of
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Introduction 11
the “IS curve,”14 which shows how the equilibrium interest rate from
loanable funds varies with the level of GDP. Then, Krugman (2010) argues
that Keynes’s liquidity preference – the demand for money – needs to be
added to the general theory of interests, which Hicks represented with the
“LM curve.”15 Keynes made it clear that under depression conditions,
which mean a liquidity trap, the interest rate is entirely determined by
liquidity preference (Krugman, 1998, 2009b; Eggertsson and Krugman,
2011). Krugman (2009a) and Koo (2008) maintain that Japan proved
Keynes theory. Japan had had the fiscal deficits of over 200 percent of GDP
but interest rates for short-term loans and government bonds have remained
near zero for almost two decades. The current situations of the UK and the
US show the same liquidity trap where interest rates are low or near zero.
Notwithstanding evidences from Keynesian liquidity trap theory, politi-
cal leaders and policy makers in the US and the European Union have turned
to austerity politics and policies as they have, under their disguised concerns
with fiscal deficits, high interest rates, inflation, and bond market investors,
politically sided with bankers who wanted to get their money back sooner
with high interest rates under austerity policy. In the US, policy responses to
the crisis by classical economists have all proved to be wrong: Initial gov-
ernment expansionary spending in the US neither raised interest rates nor
inflation. Nevertheless, political leaders and policy makers have relied upon
the debunked classical supply side theory and feared that fiscal deficits
caused by public spending would deter investors from investment, lead to a
shortage of funds and thus raise interest rates.
When the crisis makes fiscal deficits worse than the normal time as tax
revenues from profits and income decline and requires government spend-
ing on social services like unemployment insurance and food stamps, aus-
terity policy of cutting public spending in the liquidity trap would choke the
economy. Krugman (2012b) contends that austerity policy does not benefit
the great masses of people who need government to be on their side now
more than ever. Austerity policy threatens unnecessarily to further prolong
the typical recovery that would take, history tells, considerably long time.16
Indeed, it was lessons and knowledge from history and the Keynesian crisis
theory that initially kept the 2008 crisis from repeating the same gravest
Great Depression-type crisis. Internationally coordinated expansionary
policy saved the world economy from a freefall. But lessons were half-glass
full to political leaders and policy makers who soon turned to austerity poli-
cies elsewhere.
What does government borrowing do, then? It gives some of those
excess savings a place to go – and in the process expands overall demand,
and hence GDP. Krugman (2009b) contends that government spending
(borrowing) does not crowd out private spending, at least not until the
12 Kuniko Fujita
excess supply of savings has been supped up, which is the same thing as
saying not until the economy has escaped from the liquidity trap. Now,
there are real problems with large-scale government borrowing – mainly,
the effect on the government debt burden. Irving Fisher summarized
American experience in the 1930s as “debt deflation” (Krugman, 2010).
And Krugman (2012b) claims that today’s entire austerity death spiral in
Europe illustrates Fisher’s debt deflation.
Debt-financed public investments create jobs and are essentially self-
financed and federal spending on rail lines, green energy, and education
would lead to higher productivity and higher living standards (Irons and
Bivens, 2010; Pollack, 2012; Grunwald, 2012). Public investment now has
an effect on private sector productivity, at a rate of as much as 45 percent.
Moreover, just $250 billion a year for a decade would boost GDP to 2.8
percent by 2021 (it would be 0.9 percent otherwise). And because money
is so cheap right now, and services are offered at such deep discounts,
there’s no better time to invest. All that expense, like the best long-term
investments, would pay for themselves eventually. The wealth of the
United States is crucially dependent on public investments and public
capital. Weiss (2013) also argues for public spending and claims that there
is a striking correlation between the decline of infrastructure and the rise
of inequality over the past four decades. The more the money goes to the
top 1 percent income earners, the more the rest 99 percent deal with
potholes, decrepit bridges, rusting rail cars, and the rest. If spending on
infrastructure is the best way to create jobs, boost demand, and heal the
economy, why aren’t we doing that?
Role of government and central bank

Keynes made it clear that governments and the central bank have an active
role in stabilizing a freefall economy during the crisis: The central bank
can use monetary policy (low interest policy) and printing more money
(quantitative ease). The solution to the 2008 crisis, orchestrated by Ben
Bernanke and Hank Paulson in the United States, was to flood the banking
system with hundreds of billions of dollars while buttressing the system
with many other measures to calm investors (Bernanke, 2013). But history
tells that central banks also acted as destabilizing forces before the crisis.
The Federal Reserve responded too aggressively to incipient recessions
in previous decades and the government was too willing to encourage
excessive leverage in the American household sector (Wessel, 2009).The
Federal Reserve’s zero-bound monetary policy in the 2008 crisis aftermath
may also be encouraging risky leveraging on Wall Street and leading to
another bubble as easy money has not been directed to job creation and
public infrastructure investment.
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Introduction 13
In Europe, the European Central Bank (ECB) did exactly what a central
bank would not do in the crisis: increasing interest rates and tightening
bond markets by letting Europe’s southern periphery’s interest rates hike.
Krugman argues that despite the Keynesian crisis theory that could pro-
vide intellectual underpinnings for policies to better manage and reduce
the likelihood of future financial crises, politicians and policy makers are
trying to walk in the new dark age unwisely and wastefully (2012a:
91–105).
Banks are important and special in society (Shiller, 2012), because the
risks they take are borne, in large part, by taxpayers and the economy as a
whole. Institutions backed by taxpayer guarantees and playing a key role
in the financial system should not have any business engaging in “propri-
etary trading,” basically speculating with depositors’ money.17 Investment
banks like JPMorgan made a huge bet on the safety of corporate debt,
something like the bets that the insurer A.I.G. made on housing debt before
the 2008 crisis (Morganson and Rosner, 2011). Yet, history tells that
banking is, and always has been, subject to occasional destructive “panics,”
which can wreak havoc on the economy as a whole (Schlarick and Taylor,
2012). In the 1930s, the scope for panic was limited due to government-
backed deposit insurance and bank regulations like Glass-Steagall Act
which came into law in 1933 and separated investment and commercial
banks. Banks with government-guaranteed deposits weren’t allowed to
engage in the risky speculation characteristic of investment banks. This
system gave the US half a century of relative financial stability. Since the
1980s, new forms of banking without government guarantees proliferated,
while both conventional and new fangled banks were allowed to take on
ever-greater risks after the drop of the Glass-Steagall Act in 1999. The
twenty-first century version of a Gilded Age banking panic, with terrible
consequences, arrived in 2008 (Krugman, 2012a).
Global Imbalances
Global saving glut
Global imbalances and financial crises are closely related. Global
imbalances are differences between spending and saving in national
current accounts among countries. The world trade and worldwide money
flows created global imbalances between countries as was seen earlier.
Excess money always looks for investment for profits worldwide.18 Global
saving glut inflows into US Treasuries and US private label asset based
securities (ABS), in particular, sizable capital inflows from European
investors into ABS, contributed to the crisis in the US (Bertaut, et al.,
2011).19
14 Kuniko Fujita
Yet, what made the global imbalances in the 2008 crisis particularly
striking was a function of the complex integration of emerging markets
in the global economy. It was saving-glut in China, the Middle East,
Brazil and other emerging markets that in part led to the American
bubble (Fratzscher, 2011). The emerging markets developed and grew
spectacularly in the pre-crisis years, while engaging in more exports
than imports and thus in more production than consumption. Then, their
accumulated trade surplus made an inroad to US Treasury securities and
semipublic mortgage companies like Fannie Mae. They made investment
in US Treasury bills primarily because the dollar was the world reserve
currency. Holding the dollar would give them two advantages. First, they
could hold down their exchange rates, domestic prices, wages, and con-
sumption. In so doing, they could keep their export growth and competi-
tiveness. Second, they could keep from the influence of the Washington
Consensus – the US Treasury Department, the IMF, and Wall Street. They
learned lessons from their past financial crises in which they had gone
through the severely austere monetary policy imposed by the Washington
Consensus, which advocated neoliberal policies for developing countries:
free trade, privatization, deregulation, balanced budgets, inflation target-
ing, and floating exchange rates. In the 1997 Asian crisis, when financial
inflows from abroad in the form of hot money basically led to bubbles,
high interest rates were enforced as part of austerity policy by the
Washington Consensus led banks and businesses to bankruptcy and left
populations suffering from the crisis effects in countries like Thailand,
Indonesia, South Korea, and Hong Kong (Fujita, 2000). When the 2008
crisis occurred in the US, US Treasury Department took the reverse policy
of the Washington Consensus: lowering interest rates to near zeros and
recapitalization of banks.
But the other side of saving-glut was low mortgage interest rates and
debt-financed consumption in the United States. Ben Bernanke, the US
Federal Reserve chairman, and American economists contended that the
2008 crisis was caused by cheap credit supply provided by Chinese
investment in the US (Wolf, 2008; Bernanke, 2013). But it was
simultaneously the Federal Reserve’s policy that made plenty of easy
money available after the 2001 dot-com crisis. The Federal Reserve did
little to supervise and regulate the financial system and instead helped
create the unsustainable boom that attracted these Third World savings in
the first place (Skidelsky, 2009b; Roubini and Mihm, 2010). Roubini and
Mihm contend that the Federal Reserve policy, more than any “global
saving glut,” helped create the housing boom in the US, leading to an
increase in residential investment financed with savings from other
countries (2010: 250).
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Introduction 15
Robert Triffen (1956) foresaw coming of the external cause of the 2008
crisis – that the dollar’s hegemony would drive foreign countries to run
trade surpluses with the US and reserve the dollar as “the world currency.”
Triffen then predicted that this would undermine power of the US economy.
And the 2008 crisis did just that.
American debt dependence on foreign money consisted of about 30
percent of the total debt at the wake of the catastrophic bust, while the rest
owed to American domestic institutions and citizens. Upon the bubble
burst, debt-based consumption could not go on and American household
debt came down quickly in the few years after the bubble burst. American
consumers have not been spending since then, contributing to debt defl-
ation and the depressed state of the economy. Besides, the collapse of
financial markets makes it impossible for savings to be channeled into
investment. DeLong (2012) writes that financial markets’ ability to price
relative risks and returns sensibly has been broken at a deep level, leaving
them incapable of doing their job: bearing and managing risk in order to
channel savings to entrepreneurial ventures.
Trade imbalances: China and the US

The US still has trade deficits with its many trade partners – Canada,
Mexico, China, Japan, and oil producing countries as it was before the
crisis. US trade deficit with China took a lion’s share and still does. But US
trade deficits do not mean that the US owes to China or any other countries.
US trade deficits play the minor role in the overall US current account
which covers both US external investment and foreign domestic
investment.
On the other hand, China’s ratio of trade surplus in GDP has recently
declined as recessions in China’s trade partners – Japan, Europe and the
US – have made Chinese exports decline and the Chinese economy slow
down, leading China to massive domestic investment.20 Yet, China keeps
accumulating the dollar and manipulating its currency artificially weak
with minor fluctuations to maintain its export-based growth (Bremmer and
Roubini, 2011).The rapid growth level of production and trade in China
and other emerging markets is not sustainable. The emerging markets
consume more of the world resources to produce goods for exports and
contribute to growing CO2 emissions.
The functions of currency devaluation

In the absence of an internationally coordinated monetary system, global
imbalances could lead to not only another financial crisis but are also a
destructive threat to society, the economy, and the environment. Global
16 Kuniko Fujita
imbalances need to get adjusted. It requires more than China consuming

more and America producing more to narrow international balances.
Krugman (2010) argues that adjusting global imbalances needs
something to be done with the exchange rates. The trade deficit can’t be
solved by returning to more or less full employment and experiencing a
significant reduction in imbalances. For full employment to happen the
deficit country must start spending more within its means; overall spending
will have to fall relative to GDP.
Correspondingly, spending in China must rise. But the decline in US
spending would impact US-produced goods and services as much as
Chinese product prices represent US distribution and retailing costs.
Meanwhile, a much smaller fraction of the rise in spending abroad will
impact US products. This reallocation of spending would lead to an excess
supply of US goods and services, an excess demand for goods and services
produced elsewhere. The relative price of US output, and along with it
such things as US relative wages, has to fall.21 Then, exchange rates need,
Krugman (2009a; 2010) argues, to be considered. To narrow international
imbalances, the US needs a lower relative price of US output and the
easiest way to get there is dollar depreciation. The US did exactly that in
2009. So did the UK and Iceland.
Global solution?
Keynes’ solution to global imbalances was the Bretton Woods agreement
that replaced the UK controlled international gold standards system in 1944
(Eichengreen, 1996; Steil, 2013). Then, the Bretton Woods treaty backed
by the geopolitical power of the US in the post WWII collapsed in 1971
when the US abandoned the dollar based gold system. Developed countries
moved to the floating system. And yet the cold war made it possible for the
US to play the dominant role in the floating system (Eichengreen, 2010).
But with the end of the cold war, the rise of developing countries, and the
arrival of the euro, it was difficult to maintain geopolitics that sustained the
dollar as the international reserve currency. Then, the 2008 crisis came and
imposed the urgent need for a new architect to create an international treaty
like the new Bretton Woods agreement. Its realization will, however, face
dauntingly geopolitical difficulties.
The new global solution requires the global geopolitical shift from the
current US dollar regime to the new world currency reserve system
(Eichengreen, 2010; Stiglitz, 2010b). Skidelsky contends that a willingness
to end global imbalances depend on a willingness to accept geopolitical
balance. If an American empire on borrowed money is rejected, other
political centers – the European Union (EU), China, Japan, Latin America,
the Middle East – will have to assume responsibility for their own security
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Introduction 17
by way of regional alliances, in which the US can take part, but not the
dominant part (Skidelsky, 2009a: 191–192). Yet, Cohen and DeLong
bluntly argue that the ability of the US to play the dominant role is limited
as the US simply does not have money.
A much more extensive group of stakeholders – BRICS and other
countries – that make up the ascendant G-20 – has, Cohen and DeLong
(2010) also argue, more money and these increasingly powerful nations will
profoundly shape the handlings of future crises. BRICS are, nonetheless,
severely divided today and unlikely to reach the consensus in years to come
(Bremmer and Roubini, 2011; Yardly, 2012). In political terms, China,
India, and Russia vie with each other for power in Asia. And in economic
terms, Brazil, India, and South Africa are concerned about the effects of
China’s undervalued currency on their economies. The lack of unity among
BRICS is apparent in recently proposed their development bank (Polgreen,
2013). Their development bank is to challenge the dominance of the World
Bank and IMF in dollar-based international reserve system. While BRIC is
unlikely to become a serious political organization of like-minded states
(Nye, 2013) and set out to solve their own global imbalances.
The external cause of the crisis no doubt necessitates more global efforts
in order to keep from another big global financial crisis and save the global
economy and the environment (United Nations, 2009). A new global
currency reserve system should be on the agenda nationally and
internationally. But such global efforts have so far failed and are unlikely
to bear fruit in the foreseeable future.
Regional Imbalances within the Euro Zone

Sovereign debt crisis
The sovereign debt crisis in Europe is in fact a form of regional imbalance
within the EU. Trade imbalances between Northern Europe, in particular,
Germany and currently debt-troubled countries like Greece, Ireland,
Portugal, Spain, and Italy (GIPSI), have grown since the inception of the
euro in 1999 (Bragar and Vincelette, 2010; Krugman, 2012c; Holinski, et
al., 2012 ). Monetary integration enabled Europe’s periphery – not only
GIPSI buts also other periphery like Iceland, Estonia, Latvia, and Cyprus –
to get a lot of capital and investment flows from Germany, France and other
core European countries. Investors thought GIPSI were as safe as Germany.
Also, the eurozone’s one-size-fits-all interest rate provided an irresistible
temptation for countries like Greece, Spain, and Ireland to build homes
that people had never been able to afford before. For a decade, Spain built
more houses than France, Germany and the UK combined (Paumgarten,
2013).22 Wages rose faster than productivity in GIPSI, fueling a consumer
18 Kuniko Fujita
boom. Furthermore, governments were lulled into excessive borrowing

because for nearly a decade, bondholders accepted almost the same return
when lending to Greece and Portugal as they did from the economic
powerhouse Germany. Monetary union thus led to booms and bubbles in
the European periphery, fueled inflation, and pushed wages up relative to
wages in Germany. Trade imbalances between Germany and the European
periphery widened as Germany grew trade surplus and GIPSI grew trade
deficits (Krugman, 2012b; Norris, 2012a).
The euro made the European periphery uncompetitive in Europe. The
financial crisis was well under way in Iceland and Southern Europe by
2008. When the Spanish and Irish real estate bubbles burst and Greece
disclosed in 2009 that its public debt and deficit were far higher than
previously declared, the fundamental flaws in the whole euro system came
to the surface and compounded the catastrophic bust (De Grauwe, 2011).
There was panic on bond markets and the euro system threatened to melt
down. As their deficits and debt grew sky-high, they had to borrow
money to pay interest rates for previous debt. Iceland, non-euro member,
simply defaulted and let its banks go bankrupt and started to rebuild the
economy by devaluating its currency.
By contrast, GIPSI, euro members, faced no flexible policy to get out of
the crisis. There is no central bank that could save these countries by printing
more money as the UK, non-euro member, managed to do to keep from the
initial threat of credit crunch. A common currency turned to be the nightmare.
Fiscal integration – a willingness to move money from richer areas to
poorer ones as a crucial component of any nation or group of nations
bound together by a successful monetary union – could have solved debt
and deficit problems in the European periphery. But there existed no such
system in the EU. The EU turned out to be an aggregate of national policy
makers and national interests.23 Besides institutional problems of the EU,
EU leaders assumed that high deficits and debt were caused by fiscal
irresponsibility and demanded for unilateral austerity from GIPSI
(Branchflower, 2012) and now from Cyprus.
The EU’s initial emergency loans provided on ad hoc bases through the
troika – the EU, the ECB, and the IMF – turned out to be too little and too
late. Besides the EU’s austerity policy by which the EU intended to win
back the favor of the bond markets created new risks not only in economic
but also social and political spheres. Its immediate and draconian programs
of spending cuts and tax hike programspushed the southern periphery into
even deeper slumps and let it fall short even in purely budgetary terms as
shrinking economies caused falling tax receipts. Unemployment rates
jumped up to 22 percent in Greece and 30 percent in Spain. In parti-
cular, youth unemployment rates grew dramatically, doubling national
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Introduction 19
unemployment rates in GIPSI (OECD, 2012; Scarpetta, et al., 2010;

Morris, 2012). Euro area unemployment rates too kept keep going up and
reached a record 12 percent in 2013 (Eurostat Newsrelease, 2013). The
EU and ECB’s austerity policy has resulted in deepening GIPSI’s social
and economic catastrophes with increasingly volatile political conditions
(Shorto, 2012; De Grauwe and Ji, 2013). Cyprus now joins GIPSI.
As GIPSI’s problems lie with regional trade imbalances, trade
imbalances between GIPSI and Northern Europe, in particular, Germany,
need to be solved by balancing trades (Krugman, 2012d). The only way
how GIPSI can get out of deficit and debt is to gain competitiveness by
export growth. To be competitive in export requires internal devaluation
(lowering wages). Since bubbles in GIPSI raised wages 30 to 40 percent
higher than pre-bubble years, the wages must come down (Krugman,
2012a: 175). Currency devaluation, which is the easiest means to lower
wages, as Iceland, a non-euro member, did, is out of question for GIPSI.24
As Ireland has showed, internal devaluation is the hardest thing to do.
Despite high unemployment in Ireland, Irish wages have fallen only about
0.6 percent in three years between 2008 and 2011 (Eurostat Newsrelease,
2012). And this process is very, very slow. It may take Ireland decades to
lower wages and be competitive again. The same thing can be applied to
Greece, Portugal, Spain, and Italy, and Cyprus.25
An alternative to internal devaluation in GIPSI is a combined policy of
very expansionary monetary policy from the ECB, fiscal stimulus in
Germany, and lowering wages in GIPSI (Krugman, 2012a: 186).26 While
the ECB decision to be a lender of last resort in the government bond
markets eliminated the fears about the future of the euro zone, its expan-
sionary policy resulted in no specific effect.27 Borrowing costs have been
stabilized but remained high in these countries and the ECB’s expansion-
ary policy has turned out to be another austerity policy.
Rescue of Europe’s debt-distressed countries depends upon Europe’s
richest country – Germany – after all. But the bitter collective memory of
the catastrophic inflation that the Reichsbank created by printing money in
the 1920s keeps German policy makers from any expansionary monetary
policy.28 German policy makers are also bound to their national political
interests and their austerity policy and cannot extend help to the eurozone
crisis.29 Furthermore, in Germany, the notion of a so-called transfer union,
which many economists see as essential to any enduring common currency,
is still firmly resisted.30
European crisis
The euro crisis now undermines the existence of the EU. It has revealed
the fundamental problems of the EU: democracy, regional gap in income
20 Kuniko Fujita
and growth, and internal social inequality.31 The architects of the euro dis-
regarded warnings about standard optimum currency, or anticipated that
the institutional framework necessary to support the euro would eventu-
ally follow. Kenen (1969) argued that grand monetary integration was not
ready without the establishment of fiscal integration. Mundel (1968) also
argued that labor integration was necessary for optimum currency area.32
Guided by grand ideals of peace and democracy, EU leaders never dreamed
of an immanently dangerous situation like the 2008 financial crisis and the
sovereign debt crisis of GIPSI, Iceland and Cyprus. As seen earlier, the
euro monetary system enabled the periphery to have huge monetary
inflows from Northern Europe, in particular, Germany. These inflows
made the bubble and the bubble burst. Then, the euro zone was caught in
a deflationary debt trap today as Soro (2012) argues. Wolf (2012) also
contends that a fiat currency backed by heterogeneous sovereigns is irre-
mediably fragile. It is European leaders as the architects of the euro that
can be blamed to have caused the European crisis.
The sovereign debt crisis revealed that the EU consisted of nation-states
that had their own elected officials and governments, their own decision-
makings and their own budgets. Let alone fiscal and political integration,
the EU has neither a credible long-term plan nor political consensus about
borrowing by local governments and private companies even today.33
Krugman argues that the EU problems cannot be solved without the estab-
lishment of a federal government like the United States (2012a: 183). Or
the EU project will fail. And yet, fiscal integration does not guarantee to
save the EU. As Dani Rodrik argued back in 2000, EU member nations
now face “trilemma” – deep economic integration, democratic politics,
and autonomy of nation-states – they can have only two of them in the
crisis but not all three.34 The crisis has disclosed incompatibility of the
three and thus the impossibility of the EU project. Despite all efforts of EU
leaders to solve the sovereign debt crisis, EU’s flawed policies – austerity
and internal devaluation – and flawed institutional arrangements remain
intact. 35
The Crisis and Inequality Growth

Keynes did discuss the failure to provide full employment and the arbitrary
and inequitable distribution of wealth and income as injustice (1964: 372–
384) and refer to the theory of the rate of interest as the future of inequalities
of wealth (1964: 375). But Keynes did not explore a close relation between
a financial crisis and inequality growth. The study on the relation has
begun with the 2008 crisis. The Wall Street Occupiers succinctly voiced
concerns on inequality growth between top 1 percent and the rest 99
www.Ebook777.com
Introduction 21
percent in the US, while the growth of income inequality was well
documented (Piketty and Saez, 2003, 2010; EPI, 2009; CBO, 2011; IRS
2011; Mishel, 2012a).
According to the Congressional Budget Office (2011), the top 1 percent
of the population took a lion’s share of wealth growth between 1979 and
2007. Their average real after-tax household income grew by 275 percent,
while the rest 99 percent rest and the middle class gained modestly (CBO,
2011).36
Inequality–crisis causal theory

Two approaches appeared to explain the relations between the crisis and
inequality growth. Some argue that inequality growth caused the crisis
(Wade, 2010; Rajan, 2010, 2012; Reich, 2010; Cohen and DeLong, 2010;
Lansley, 2011; Stiglitz, 2012a, 2012b). The causal theory embraces the
notion that inequality growth before the 2008 crisis led to situations in
which there was insufficient demand to keep the economy growing.
Conservatives in this camp argue that the Federal Reserve compensated
for that by creating a bubble (Rajan, 2010). That is, government response
to the rising inequality and insufficient demand was to democratize
credit – via financial liberalization – and thereby fueling a rise in private
debt as households borrowed to make up the difference. In this conserva-
tive view, the subprime mortgage meltdown was, therefore, the result of
government policy which was directed to low-income and minority
households via Fanny Mae and Freddie Mac.
By contrast, progressives argue as follows. Inequality was caused by a
system of maldistribution through deregulation, weakened unions,
unbridled CEO pay, the excessive financialization, and financial innovation
directed at circumventing the regulations, leading to the market instability
that led to the crisis. Reich (2010; 2012b) writes that the population on
stagnant or near-stagnant incomes tried to increase their consumption and
investment by borrowing. With easy access to credit, markets provided the
poor and low-income households with a rising demand for non-prime
mortgages, car loans, and other consumer goods, on the one hand. On the
other, people at the top of income-earners list took a high ride in the age of
global imbalances and financialization of the economy.
Wade (2010) writes that the global imbalances provided the proliferat-
ing billionaires around the world enormous opportunities to augment their
wealth through financial innovation. People at the top – high net worth
individuals, investment funds, pension funds, and the like – greatly
increased the demand for complex financial products as they searched for
ways to store their wealth and pressured institutions like Goldman Sachs
and JP Morgan to supply them with complex financial securities. The
22 Kuniko Fujita
investment banks generated huge fee and commission revenues by oblig-

ing, and neoliberal economic principles allowed the regulators to believe
that the surging growth of complex financial instruments must be to the
society’s benefit.
Furthermore, Stiglitz (2012a) contends that companies, managers, and
CEOs have been redistributing wealth from the bottom to the top. That is,
the corporate sector too joined people at the top. CEOs walked off with
mega-bonuses when they brought their company down (or to bankruptcy).
Over the last 30 years, for the top 1 percent, the share of the national
income they get, has doubled. In the recovery of 2009–2010, the top
1 percent of US income earners captured 93 percent of income growth
(Stiglitz, 2012b; Mishel, 2012b). The people in the middle, with the
median income, are today worse off, adjusted for inflation, than they
were one decade and a half ago. Stieglitz concludes that inequality growth
is the outcome of CEO rent-seeking.
Crisis–inequality correlation theory

Others do see correlation between the crisis and inequality growth but
reject the above causal theories (Krugman, 2012a; Krugman and Wells,
2012a; Atkinson, et al., 2011). Krugman (2012a) attributes the cause of the
growth of income polarization to the rise of narrow oligarchy
that market forces and politics and policies have helped to create by con-
centrating income and wealth in the hands of a few elites over the
past three decades. The rise of oligarchy distorted the redistribution
system so that the gains from productivity in the past three decades fell
in the hand of the oligarchy: Explicit fiscal redistribution from the winners
to the losers and particularly to the children of the losers; subsidization
or direct provision of jobs; big efforts to improve the quality of education
and childcare for all, including public financing of access to higher
education; and a determination to sustain demand more effectively in
severe downturns. After all, over the past 30 years, there has been a stun-
ning disconnect between huge income gains at the top and the struggles of
ordinary workers. Politics and policies in the past three decades have
helped the oligarchy rise and the crisis has aggravated the inequality
growth trend (Krugman and Wells, 2012b). The crisis–inequality correla-
tion theory concludes that the inequality growth has not caused the
2008 crisis.
Uncritical Contemporary Urban Theory
Contemporary urban theories have so far lacked any perspective on

the above-mentioned financial crises, global (regional) imbalances and
www.Ebook777.com
Introduction 23
relations between crises and inequality growth.37 Given the central role of
cities in the concentration and manifestation of bubbles and busts and the
followed recessions, the absence of the crisis perspective is even much
more deplorable. There is no discussion about whether urban develop-
ment, the quality of urban life, and cultural and creative projects are firmly
based on balanced sheets or supported by debt foreign finance. For
instance, global capital flows made it possible for Bilbao and other cities
to ascend as creative cities before the crisis. But as soon as global capital
retreated from Spain upon the crisis, Bilbao, Barcelona and other Spanish
cities faced the catastrophic bust. Have contemporary urban theories
looked into the cities’ balance sheets and Spanish current accounts for
inflated housing construction and cultural projects? When the 2008 crisis
occurred, what could they say about it? They can narrowly focus on either
subprime mortgage meltdown (Aalbers, 2009a, 2011, 2012; Harvey, 2010)
as the cause of the crisis or selected developed countries (Aalbers, 2009b)
neglecting other fundamental causes38 and the involvement of developing
countries through global imbalances. As a result, their interpretation of the
crisis tends to follow mainstream classical (or neoclassical) economics
and ideologies.
The Limited Understanding of Globalization

Contemporary urban theories have been greatly influenced by following
globalization myths. Technological leap in transport and communications,
new modes of governance including transnational networks of regulators,
international civil society organizations and multilateral institutions have
had the consequence of erased national borders and shrunk the globe.
Globalization is said to be transcending and supplanting nation-states.
Nation-states are claimed to be largely powerless in the face of global
markets run by global players such as multinational corporations, global
financial firms, and global business elite. Yet, the 2008 global financial
crisis and its aftermath have proved that nation-states are where the
principal locus of legitimate and democratic accountability firmly resides
and shattered the fallacies of the globalization myths. It is true that the
global ramifications in the 2008 crisis were as great as in the 1930s seen
earlier. But the Keynesian crisis theory and empirical study of the crisis
and its aftermath could tell that there is nothing special about contempo-
rary globalization and the global flows and forces of capital, finance, and
technology. Money could move globally as easily in the 1920s as in the
2000s. When the 2008 financial crisis happened and banks failed, the
economy went bust and the social fabric was torn, it was national govern-
ments that took a responsibility for the social and economic consequences
of the crisis everywhere as in the 1930s.
24 Kuniko Fujita
There is nowhere like urban theory area that the globalization myths
were popularized in and applied in great deal to. In particular, global city
and global network theories absurdly empowered so-called “global city”
like London and New York, while relegating nation-states to irrelevance in
the world economy. These urban theories interpret that global forces –
represented by multinational corporations, global financial system, and
information technology – have empowered cities and weakened the power
of nation-states in the contemporary global economy. But the crisis proved
otherwise.
It is also true that the 2008 crisis has inflicted pains upon every corner
of the world economy. But this is not because of global myths and
some contemporary urban theory claim that we live in the more
globally interconnected world than in the 1920s and 1930s or that banks
are so internationally connected. But as mentioned earlier and Pickvance
(2013) writes in this volume, it is primarily because conditions for
the crisis preexisted in various national contexts and unsustainable bubbles
and debts were well under way and ready to burst in some other countries
like the UK, Iceland, and Spain when the 2008 crisis broke out in the
US. As seen earlier, historically and empirically developed crisis
theory tells that all crises are caused by diverse internal and external
factors.
The crisis effects on nations and regions vary accordingly, depending on
the kind and nature of national banking systems and debt levels as Gartner
(2013) points out in this volume. National crisis policy responses also
vary, depending upon national politics and institutions. The 2008 crisis
revealed that while finance went global, financial regulation remained a
national affair. It was national governments that wielded power in crisis
policy from the bailing out of the failed banks to providing the safety nets
for the unemployed and that kept the social fabric of nations intact. This is
even true in the eurozone where more regional integration was in principle
expected as Souliotis (2013) explains in this volume. At the city level,
crisis responses and effects are even much greater as Indergaard (2013)
writes on New York and Fujita (2013) writes on Tokyo.
Global City and Global Networks Uprooted from National and

Local Entities
It took the 2008 crisis to discover just how fragily interconnected the
global financial system is. This revelation brought an end to the American
model of unregulated finance industry and the American hegemony in the
global finance industry (Lowenstein, 2010; Vogel, 2009). If one can not
see the end of free flow of global capital at the time of the crisis, the recent
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Introduction 25
Cyprus fiasco is a strong indicator that there will not be any more unregu-
lated global capital flow. The revelation also means the end of global city
and global city network theories that have heavily relied upon the American
model of the global financial industry (Therborn, 2011; Fujita, 2011).
Global city proponents base their hypotheses on global capital mobility
that they see has superseded nation-states. They see global cities as finance
and producer services centers, having replaced the nation-states as the
primary global players in the world economy (Sassen, 1991; Taylor, et al.,
2006). They contend that global cities are coming to dominate the world
economy.
They even contend that global urban network or world city network
challenges conventional, state-centric social science interpretation of
globalization and that transnational spatial relations have become a key
analytical lens through which to study the geographies of contemporary
globalization (Derudder and Witlox, 2010). Their studies primarily focus
on assessing and ranking cities according to their functions such as
financial services, legal services, and advertising (Taylor, et al., 2010).
Even cities in the developing world like Bangkok, Cairo, Hong Kong, and
Sao Paulo are also studied in the same way to follow the global city claims
in the West (Gugler, 2004). Similarly, networked cities are emphasized as
the impact of information technology on cities and argued to open up the
brave new world (Castells, 1992, 2000, 2011).
Despite their interests in globalization, the proponents of these theories
have not sought for the complexity of the globally integrated finance
industry which heavily operates on risky leveraging and inevitably faces
the danger of deleveraging sooner or later (Lewis, 2010; Hale, 2011;
Stiglitz, 2010a; 2010b; Morganson and Rosner, 2011). They have no clue
to answer the following questions: What does the role of globally increased
financial integration mean to cities? To what extent are cities exposed to
risks of leveraging and deleveraging by international banks via their local
banks? To what extent can local banks access the information about
international banking operations? How important is leverage and liquidity
shortage in local banks to cities? Are there any urban policies that address
the implications of global financial integration? How effective are different
policies such as reserve accumulation and capital controls in protecting
urban economies from a financial crisis, national or global? Is there any
variation in the financial architecture from city to city or nation to nation?
Despite banks’ dependence on national governments for rescue in past
financial crises in the US, East and Southeast Asia, Scandinavia, and
Latin America, global city proponents have kept insisting on the ahistorical
and utopian global city view uprooted from any financial crisis and
nation-states.
26 Kuniko Fujita
Proponents of global city and global networks lack the articulation of

city and state relations. Since they dissociate cities from the reality of
capitalist urban societies nested in nation-states, they simply follow the
classical free market ideology that claims that we live in a crisis-free
society. In the real world, the concept of global city is, if anything, a
nightmare, as a big financial crisis is bound to happen and crash financial
centers like London and New York.
The 2008 crisis disclosed the reality of finance industry–state relations
as well as city–state relations and revealed how groundless global city and
global city network arguments were. Furthermore, they are totally blind to
the global imbalances on which London’s City and New York’s Wall
Street thrived. It turned out that global cities – New York and London –
depended upon high risks of leveraging and geopolitics. In particular, the
imperial role of the dollar as the world’s chief reserve currency cannot be
ignored. Using the dollar as the world reserve currency, the US federal
government made the Washington’s Dollar Wall Street consensus play a
powerful role in the ascendance of American geopolitics (Gilpin, 2001;
Gowan, 1999). Their arguments are dangerously uprooted from the
complex reality of global geopolitics and contemporary cities nested in
various national and regional configurations across the world.39
Global city theory also considers globalization as the cause of growing
inequality, poverty, and social and spatial polarization in cities. Yet, the
2008 crisis revealed it false that global cities like New York would face
more polarization along the line of class, race, and ethnicity as globalization
progressed. Between 1980 and 2010, polarization between whites and
blacks measured by neighborhood residential segregation decreased from
82 to 62 in New York City and US metropolitan areas as a whole (Logan
and Stults, 2011). Also, empirical studies on the relations between the
crisis and the growth of income inequality as seen earlier overwhelmingly
support the cause of class polarization as the result of domestic politics
and policies. As discussed earlier, politics and policies – which included
unionization declines, tax reform, unbridled executive pay compensation,
the Federal Reserve policy to democratize credit to create demand, and
deregulation – led to income transfers from the bottom to the top. The
crisis clearly revealed that globalization did not play a big role in social
and spatial polarization in American metropolitan areas.40
Furthermore, despite the focus on globalization, the concept of global
imbalances is totally absent in these theories. Galbraith (2007, 2012),
Wade (2009, 2010) and Cohen and DeLong (2010) argue that American
debt growth depending on foreign money is partially the cause of the
staggeringly growing class inequality gap since 1990 and ultimately
caused the 2008 mortgage meltdown in the US. Subprime mortgage
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Introduction 27
meltdown that plagued low-income people in many cities of the US was

caused by easy credit in the market supplied through global imbalance as
seen earlier. But no urban literature dealing with subprime mortgage
meltdown addresses the global imbalances as the source of growing urban
social inequality and thus the instability that ultimately led to the mortgage
meltdown.
Globalization may not be right description of the US economy.41
According to Hale and Hoblin (2011) at the Federal Reserve Bank of San
Francisco, the US economy actually remains relatively closed: In 2010,
imports were about 16 percent of US GDP and the vast majority of goods
and services sold in the United States is produced here. Take an example
of “Made in China.” Imports from China amounted to 2.5 percent of GDP.
Of the 2.7 percent of US consumer purchases going to goods labeled
“Made in China,” only 1.2 percent actually represents China-produced
content. Good and services from China accounted for only 2.7 percent of
US personal consumer expenditure in 2010, of which less than half
reflected the actual costs of Chinese imports. The rest went to US businesses
and workers transporting, selling, and marketing goods carrying the “Made
in China” label. Although the fraction is higher when the imported content
of goods made in the US is considered, Chinese imports still make up only
a small share of total US consumer spending.42
For intermediary goods such as personal computers that use imported
goods and services, 13.9 percent of US consumer spending can be traced
to the cost of imported goods and services.43 If we take into account
imported intermediate goods, about 13.9 percent of US consumer spending
is attributable to imports, including 1.9 percent imported from China. The
share of Personal Consumption Expenditure (PCE) attributable to imports
from China is less than 2 percent and some of this can be traced to
production in other countries (Hale and Hobjin, 2011). Six out of seven
American workers are employed in service industries, which are largely
insulated from international competition, and even US manufacturers sell
much of their production to the domestic market (Krugman, 2012a).
Market Modeled Neoliberal Urbanization

Neoliberal urbanization arguments presume that the state unravels the
previous liberal Keynesian state activism and ensures the regulatory norm
of market competition – freer financial markets, more privatization of
public enterprises, more localized control over taxes and public services,
and extension of the market model beyond the economy to govern-
ment and society (Lemke, 2001; Peck and Tickell, 2002; Brown,
2006). Cities and regions play, in their arguments, a key role in the uneven
28 Kuniko Fujita
spread of neoliberalism as sites where neoliberal policies are applied,

contested and selectively appropriated (Brenner and Theodore, 2002).
The crisis has revealed that seemingly neoliberal phenomena such as
reduction in the welfare state and the retreat of government interventionist
role in the economy. The austerity policy is also seen as neoliberal because
it would reduce welfare state and public services. But even in the non-
crisis time, policy intentions and effects vary from city to city, depending
upon national and institutional frameworks, local politics and historical
context (Pickvance, 2012; Fujita and Hill, 2012). In the crisis time,
differences in policy responses and capabilities at all government levels
are magnified. Unlike national government, cities and states in the US
have, for example, to balance their budgets every year. Cities and states
either raise taxes or cut services for balanced budgets. The initial American
Recovery Act provided states with fiscal relief that preserved state and
local jobs.44 But as post-crisis recession prolonged, states and cities faced
fiscal crunch and austerity politics and policies sheeped in. Cities and
states started laying off public sector jobs – teachers, police, maintenance
workers – and unevenly affected cities and states (Auerbach, et al., 2009;
Kober and Rentner, 2011). Yet, it was in the Republican Party states that
public employees lost their jobs most, while Democratic Party states kept
the public sector jobs45 (Konczal and Covert, 2012). Local politics really
matters. Also, the seemingly neoliberal (and conservative) project of
seeking to limit public employment and thus a small government is as old
as American history. The right had long waged an unrelenting war to take
over state governments (Rogers, 2004) before neoliberalism’s arrival in
the 1980s. Neoliberal urbanization arguments imply that disclosing
neoliberal attempts at the city level is the progressive thing to do just as the
left uses the neoliberal finance as the global front to fight an imaginary
enemy. Yet, local politics and historical and institutional context matter
and reject simplified neoliberal interpretation.
The crisis has also made it clear that deregulation cannot be explained
by neoliberalism only. It has disclosed what deregulation means in the
financial sector and that Washington has been captured by the money
power.46 Close relations between Washington and Wall Street at the wake
of the 2008 financial crisis were often depicted as crony capitalism
(Johnson, 2009). The bailout of the banking system involved government
officials and Wall Street bankers who worked together to reduce govern-
ment intervention in Wall Street and mutually benefitted each other
(Morganson, 2012). Then, Obama came into office and vowed to end
crony capitalism. But nowhere did a reckoning with justice seem more due
than in the financial sector. There has not been any serious investigation of
any of the large financial entities by the Justice Department and the Federal
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Introduction 29
Bureau of Investigation (FBI). Boyer and Schweizer (2012) claim that is

the reason why Washington’s revolving door is at work. The Obama
administration is closely linked to Wall Street banks for its officials and
political contribution as previous administrations have been (Krugman
and Wells, 2012b). The bailout of the banks thus cannot be explained by
profit-making through competition. It is corruption and crony capitalism,
both of which cannot be explained by neoliberalism.
Furthermore, the crisis brought a plenty of government economic inter-
vention and regulation to curb competition. It has firmly proved that gov-
ernments have not retreated from the economy at all and that cities have
not actually been powerful enough to create and lead the economy. For
instance, the role of the Federal Reserve, the Pentagon, and government
research instututions in the economy. Central banking always requires
national government policy and mobilization as spending on national
defense, infrastructure building, and basic science and technology devel-
opment do in the United States (Rohatyn, 2009). As the Federal Reserve
has historically intervened in the time of crises, so government research
institutions like the Defense Department’s Advanced Research Projects
Agency (DARPA) and the National Institute of Health (NIH) have played
a major role in science and technology development.47 Government
research institutions have spun new industries and created jobs. The role
of the Federal Reserve as well as the Pentagon and NIH questions basic
assumptions underlying neoliberal arguments.48 Cohen and DeLong (2010:
11) argue government discretionary power in the form of technocrats in
the Federal Reserve and government research institutions is perhaps
needed to support a stabilizing wheel to make neoliberal arguments
functional.
Most importantly, policy activism was apparent during the crisis
including the Federal Reserve’s creation of huge amounts of liquidity, and
Congress’s expansion of the social safety net and passage of large-scale
fiscal stimulus programs. In particular, Obama’s 800 billion dollar stimulus
bill that turned into the Recovery Act represents the strong interventionist
role of the federal government in the economy. The Recovery Act has
played a vital role in leading an economic recovery in the aftermath of the
2008 crisis. Michael Grunwald (2012) meticulously demonstrates that the
Recovery Act has marked a pivotal shift to a clean energy economy,
doubled renewable, and financed unprecedented investments in energy
efficiency, a smarter grid, electrical cars, advanced biofuels and green
manufacturing. Like the first New Deal, Obama’s stimulus has created
legacies that last: the world’s largest wind and solar projects, a new battery
industry, a fledgling high-speed train, and the world’s higher speed Internet
network (Grunwald, 2012).
30 Kuniko Fujita
Towards New Critical Urban Theory
The crisis perspective leads us to reckon with the reality that market
economy, which is inherently unstable, cannot be escaped from a financial
crisis, the reality of globalization that global imbalances may lead to a
financial crisis and exacerbate the global environment, and the correlation
that urban inequality growth is related to the financial crisis. New critical
urban theory must embrace the crisis perspective. Chapters in this book
attempt to do that.
Cities in the Post-crisis World Order

The crisis perspective makes it clear that the power of cities does not exist
independently of their nation-state power in the given world order. The
2008 global financial crisis has firmly proved that nation-states, but not
cities, wield power. Göran Therborn (2013) reexamines, historically, city
power that is located in the national power but not in the global economic
power in “The Power of Cities and the Cities of Power.” World/global city
theory locates, Therborn argues, the power of global cities on places as
global cities wield power as a command point of the world economy or
business networking point. But the financial crisis of 2008 has demonstrated
the falsity of the stateless global cities argument as nation-state governments
bailed out the failed banking system. In Therborn’s view, cities do not
have power. Cities of power are only urban manifestations of national,
sometimes also imperial and/or global, power. Cities of power are rather
overwhelmingly located in national capital cities. Cities are built history,
which have to be understood as juxtapositions of coexisting historical
layers, in a power vision of historical layers of power. Therborn also
examines how the post-crisis multipolar world order affects capital cities
of the world. In the conclusion, cities have, Therborn asserts, to be
recognized, understood, and analyzed as built environments of people. An
approach to cities, more on the lines of Shakespeare and Mumford than of
the world economy, has something to teach us, of urban culture and
politics, of the urban something more than a business location that global
city and global network proponents emphasize.
Global Financial Crisis but a National Cause and Solution

Why is another crisis likely to occur soon? Only the crisis perspective can
tell why. Chris Pickvance contends that it’s important to understand why
the crisis happened in a given nation. Pickvance (2013) explores specific
institutional factors that caused the crisis in Britain and refutes critical
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Introduction 31
urban explanation that the subprime crisis in the US played a crucial and
necessary role in the US and UK financial crisis via the global intercon-
nections between banks. Pickvance provides the cause of the UK financial
crisis in “Conflicting Interpretations of the UK Financial crisis: Was the
US Subprime Crisis the Prime Mover?” Pickvance argues that the banking
systems in the US and UK had developed in a fundamentally unstable way
and that this was the primary cause of the financial crises, with the sub-
prime crisis playing at most a contributory role. By using the sociology of
knowledge, Pickvance explores how various state crisis policy proposals
and banking reforms have exposed the instability of the UK banking
system, the direction of state interests and the realistic position of state’s
relations with the city of London and global forces (international banks).
And he reaches the conclusion that the minimal degree of reform in the
banking system and its regulation shows the continuing dominance of the
finance sector over government, relative to households and business.
Pickvance warns that a future banking crisis is entirely possible.
Green Urban Economy for the Twenty-first Century

The 2008 global financial crisis has forced cities to depart from the
current way of consumption and production and lead to a radical shift to
the green economy. New York City is one of such cities which want to be
the global center of the green economy. Michael Indergaard (2013) pro-
vides how the crisis has enabled the city of New York to plan to move to
such a green economy in “After Wall Street? New York’s Green Economy
Imaginaries.” Highlighting multiscalar politics in promoting the green
economy at federal, state, and city levels, Indergaard attempts to weave
the efforts of various groups and organizations engaged in planning the
green economy – in particular, the elite clean tech and green collar move-
ment coalitions – into a new institutional framework that may work as a
vision for green urban development. The new institutional framework can,
Indergarrd argues, transcend the fragmented policy and governance system
inherent in the US intergovernmental system and enable locally based
green collar movement coalitions to garner influence through taking
brokering roles. He concludes that the new framework not only goes
beyond the current urban development model but also opens up the new
development model in multiple sectors: the elite clean tech vision stresses
professional-managerial and entrepreneurial occupations in the city’s
already established sector such as culture, creative and information and the
green collar movement coalitions call for more expansive inclusion of
working class and lower middle class occupations.
32 Kuniko Fujita
Implications of Region-based Banks in the Crisis

The crisis perspective leads us to see the varieties of capitalist society
where banks operate differently. Some countries are more affected by the
2008 global financial crisis, while others like Germany and Sweden are
less affected this time. Why? Answers lie in the fact that the world consists
of various forms of market economy or “varieties of capitalist society.”
Stefan Gärtner (2013) presents merits of Germany’s region-based banks
and reasons why the 2008 crisis hit Germany less in “World Capitals of
Capital, Cities and Varieties of Finance Systems: Internationally-versus
Regionally-oriented Banking.” Gärtner explores the advantages of regional
banks embedded in Germany vis-à-vis borderless global banks in the US
and UK. Gärtner questions if local outlets of international banks concen-
trated in the world’s financial hubs could serve customers more efficiently
than Germany’s region-based banks. Comparing between German region-
based banks and centralized financial centers raised by global city propo-
nents, he argues that regionally oriented banks based on spatial proximity
constitute the stability of the financial industry, reduce risks of the
credit crunch, and bring trust, confidence, and a sense of responsibility
together. The strongly regulated and regionally oriented banking system
also reduces the risk of financial crises. In this regard, he raises questions
whether the world/global cities are as powerful and wealthy spaces as
world city proponents have so far claimed. Gärtner concludes that urban
analyses can, for instance, deal with the question of how disparities within
cities and the connected downward spirals in some areas could be broken
and – to make the connection to finance – how “real” (social) innovations
could help to finance local economies, even if these loans cannot be secu-
ritized and dealt with internationally.
The Impacts of the Financial Crisis on Urban Neighborhood

The financial crisis impacts cities in various ways. The signs of economic
distress are most symbolically aggregated in urban spaces already filled
with markers of inequality and poverty. Jerome Krase and Timothy Shortell
(2013) visualize the impact of the crisis on neighborhoods in New York
City: Catastrophic housing closures and dynamic urban movement like
Occupy Wall Street. They present in “Seeing New York City’s Financial
Crisis in the Vernacular Landscape,” how dramatically the financial crisis
has destroyed and transformed urban neighborhoods through visual data.
They focus on the effects of the crisis in the form of residential and business
property foreclosures, homelessness, rising unemployment and shelter
populations, vacant unsold or unsalable real estate, construction projects
halted by lack of funding, residential and commercial rental and price
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Introduction 33
declines, reverse migration, as well as less typical indicators of economic

downturn such as closing or reductions of government services, changes in
preferences for eating out such as less expensive restaurants and the recent
practice of alternative uses for vacant store windows such as those used for
free displays of artwork. They conclude that sociological analysis of visual
data can be a tool to understand how urban neighborhoods are changing as
a result of the global financial crisis and that these transformations
demonstrate the complex effects of economic decline.
Port Cities in the Global Urban Hierarchy

The crisis perspective, in addition to climate change, makes it possible to
measure the sustainability of port cities. Alex Hicks and Ryan Hicks
(2013) focus on port cities which global city and network theses have so
far neglected. They argue the importance of port cities in the global urban
hierarchy. They investigate in “Ports in the Global Urban Hierarchy” how
port cities play the prominent role in the global urban hierarchy but ques-
tion the sustainability of the port cities from financial risks coming from
the crisis like the 2008 global financial crisis and the risk of sea-level rise
due to global warming. Their research findings on port status as a factor
for what cities dominate and what risks these cities face hardly invalidate
the relevance of the corporate-production-based global urban hierarchy.
Their research also demonstrates the incompleteness of the global city tra-
dition of scholarship as a basis for understanding the economically promi-
nent modern city. Furthermore, they stress the importance of placing
modern city in the context of what remains of the global natural system, in
particular, its aquatic aspect. They conclude stressing natural environment
as inextricable as global production and finance.
The City under the Sovereign Debt Crisis

The crisis perspective makes it clear why the sovereign debt crisis within
the eurozone is bound to happen. Nicos Souliotis (2013) argues in “Athens
and the Politics of the Sovereign Debt Crisis” that the current EU gover-
nance style besets the EU’s nonhierarchical and collaborative policy-
making procedures that involve state and non-state actors and political
institutions of different levels (international, supranational, national, and
urban). Souliotis investigates how Athens' urban policies are now largely
subordinated to the EU level politics that involve harsh intergovernmental
bargaining, the coordinative role of the European Commission and the
participation of international organizations like the IMF. Souliotis found
that intergovernmental tensions between Greece and the EU are in a more
top-down and elite-controlled direction under the Greek sovereign debt
34 Kuniko Fujita
crisis. The destiny of the city is not shaped by local or even national elites
but by intra-EU interstate relations. Souliotis concludes that urban realities
in Greece and contradictions inherent in the EU governance system may
change the EU’s top-down policy.
The Crisis and Urban and Global Insecurity

It is the crisis perspective that connects all dots of urban violence and
protest movements in many cities of the world. The 2008 global financial
crisis and its aftermath have a far-reaching impact on urban orders and
security issues as seen in protest movements in many cities of the world.
Sophie Body-Gendrot (2013) highlights disorders and mobilizations in
cities as seen in the Arab spring and emphasizes the dark and dangerous
effects of globalization in “Globalization and Urban Insecurity:
Comparative Perspectives.” Body-Gendrot argues that a growing disen-
chantment with financial domination over economic and political gover-
nance and the indebted states’ choice of imposing policies of austerity in
order to cut social expenditures, while rescuing the banks, have been a
trigger to indignant movements expressed visibly in public space. The
Occupy Movement and other crisis-related urban movements share the
same growing concern about inequality, corruption, and the lack of oppor-
tunities with urban movements in Madrid, Tel-Aviv, London, New York,
Santiago, Mexico, etc. Yet she rejects one-dimensional view that global
factors cause this local unrest and instead emphasizes the local and national
context that allows or does not allow mobilization and the formulation of
alternative strategies. She provides following reasons why local actors are
shaped by the past history and opportunity structures in national and even
global conditions and constrained by legal and economic forces. While
there is a convergence of social and economic forces at work with a world-
wide financial crisis impacting cities’ instability, the response differs
according to country, region, and city. Body-Gendrot concludes that isolat-
ing episodes of urban unrest allows seeing whether and how they fit into a
whole set of theories and practices, to examine the balance of social forces,
power relations, political-institutional arrangements, marginalization and
exclusion, and possible alternatives of empowerment.
Financial Crises, the Growth of Income Inequality and Urban

Spatial Polarization
The crisis perspective is crucial to see connections between contemporary
urban income inequality and spatial polarization. Contemporary urban
theories tend to imply that globalization, neoliberalization, and technological
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Introduction 35
changes are the cause of growing class inequality, poverty, and social and
spatial polarization in cities. But a financial crisis may cause the growth of
income inequality and social polarization as the 2008 crisis triggered much
study on relations between financial crises and income inequality growth in
the United States. Kuniko Fujita (2013) investigates the case of Tokyo,
focusing on Japan’s two financial crises: the 1990 crisis and the 2008 global
financial crisis in “Financial Crises and Spatial Income Inequality: The Case
of Tokyo.” Looking into spatial income inequality growth among Tokyo’s
neighborhoods, Fujita argues that there is a strong correlation between
Japan’s two financial crises and Tokyo’s spatial income inequality growth
patterns. Fujita also shows that spectacular bubbles were concentrated in
Tokyo’s central core area, while catastrophic busts affected all neighborhoods
of Tokyo. Furthermore, Fujita presents Japan’s redistributional system and
national and urban politics and policies which keep the effects of the crises
on Tokyo’s spatial income inequality growth relatively moderate. Fujita
concludes that contrary to popular urban claims, the financial crises are the
main cause of Tokyo’s spatial income inequality growth.
Notes
1 This collection has been developed from papers presented in ISA-RC21 (Regional
and Urban Research Committee) program, XVII ISA World Congress of Sociology,
Gothenburg, Sweden, July 11–17, 2010.
2 Some people think of the 2008 crisis as one of typical cyclical financial crises that
have occurred numerously in the past and that have not inflicted much enduring damage
on the main street economy. Others also think that the financial industry has little relevance
to the main street economy—where the jobs, factories, and shops are. They, therefore,
think the crisis in the financial industry is irrelevant to the main street economy.
3 Continued recessions in many countries and in particular the deepening European
crisis have effected on the slow growth of developing countries (IMF, 2012).
4 McKibben (2012) also insists that many scientists think that any number much
above one degree involves a gamble and the odds become less and less favorable as the
temperature goes up.
5 Much of the profit in fossil-fuel companies like BP, Exsson, Gazprom and countries
like Saudi Arabia stems from a single historical accident: Alone among businesses and
countries, the fossil-fuel industry is allowed to dump its main waste, carbon dioxide, for
free. It is the fossil-fuel industry and countries which act like fossil-fuel companies that
oppose regulation and international accord on climate change (McKibben, 2012).
6 See more Occupy Movement at http://occupywallst.org/, http://interoccupy.net/.
7 Eichengreen and O’Rourke also argue that a major difference would be that a
recovery path from the crisis recession is slower in the current crisis than in the 1930s.
8 I relied on Keynesian macroeconomic theory which has proved right in the analysis
of the 2008 financial crisis. And I also relied on Keynesian economists, who provided, in
the words of Jonathan Portes (2012), empirically testable predictions that proved to be
broadly consistent with the data and base those predications on an analytic framework that
was persuasive. This does not mean that all Keynesian theories are without critiques. For
36 Kuniko Fujita
example, Shiller (2011) criticizes Reinhart and Rogoff (2010) who argue that when
government debt exceeds 90 percent of GDP, countries suffer slower growth. Shiller points
out that Reinhart and Rogoff picked the 90 percent figure almost arbitrarily and chose
without explanation, to divide debt-to-GDP ratios into the following categories: under 30
percent, 30–60percent, and over 90 percent. Krugman also refutes their 90 percent figure
with historical evidences that the British economy grew under high degrees of debt in the
1950s and 1960s (Krugman, 2013).
9 The urban protest movements the crisis triggered may be broadly seen as a global
wave of social and political turmoil and instability in the early twenty-first century: the
Arab Spring in Cairo, riots in London (Ponticelli and Voth, 2011), Chilian student
protest movement in Santiago (Wilson, 2012), middle class protest movement in
New Delhi (Yardley, 2011), and protest against corruption and inequality in Dalian and
other Chinese cities (Bradsher, 2011). They express concerns for future, employment
prospects, security and sustainability by the young and working and middle classes living
in cities.
10 Finance then progresses from what Minsky called hedge, in which interests and
principal are repaid out of expected cash flow, to speculative, but debt needs to be rolled
over, and finally to Ponzi, in which both interest and principal are to be paid out of capital
gains (Wolf, 2012).
11 Following Polanyi (1944), Aglietta (1998) contends that the rise of finance capital
in the 1980s in the US and UK led to the collapse of the postwar regulation regime or
global Keynesian policy that essentially supported an unprecedented economic growth in
the world economy.
12 This is well documented in books by Washington insiders like the Federal Deposit
Insurance Corporation (FDIC) chairman Sheila Bair (2012), the Special Inspector General
in charge of the Troubled Asset Relief Program (TARP) Niel Barofsky (2012), and the
former vice chairman of the Federal Reserve Board Alan Blinder (2013).
13 Krugman (2009a, 2009b) maintains that Keynes pointed out that the supply of
saving was endogenous, depending on the level of output or GDP.
14 IS represents Investment and Saving.
15 LM represents Loans and Money.
16 IMF (2012) has belatedly reached this conclusion in World Economic Outlook.
17 Wall Street fights to delay, water down and/or repeal reregulation and financial
reform such as Volcker Rule, which would prevent banks with government-guaranteed
deposits from such bets. If there is one lesson from the financial crisis, it is that unregulated
derivatives are prone to catastrophic failure. Yet nearly six years after the financial
meltdown, the multitrillion-dollar derivatives market is still dominated by a handful
of big banks in the US and reregulation is slow everywhere. Properly regulated, derivatives–
financial instruments that hedge risk, help to stabilize the economy. Unregulated, they are
all too easily converted into tools for vast speculation, as demonstrated by their role in
inflating the real estate bubble, amplifying the bust and provoking the bailouts. Even if they
don’t cause a meltdown, unregulated derivatives are economic threats. That’s because
derivatives have become deeply embedded in the market economy. Pension systems use
them to hedge investment risk. Food and energy companies use them to lock in crop and
energy prices. Airlines and manufacturers use them to lock in prices for fuel or metal. But
because there is no central exchange where derivatives’ prices are listed, no one knows if
the prices banks charge are reasonable.
18 The global imbalances may be called the global demand imbalance or global
imbalances between consumption and production or global payment imbalances or global
account imbalances or trade imbalances.
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Introduction 37
19 Both global saving glut inflows into Treasuries and European acquisitions of ABS
played a role in contributing to downward pressures on US interest rates (Bertaut, et al.,
2011).
20 The huge stimulus of RMB4 trillion ($586 billion) in November 2008, mostly
poured into loss-making state-owned enterprises via directed bank lending, sustained
China’s growth in the face of global recession. But the price was an increasingly serious
misallocation of capital, resulting in growing portfolios of bad loans, while excessive
Chinese household savings have inflated real-estate bubbles.
21 There are three ways this could happen: (1) deflation in the United States;
(2) inflation in the rest of the world; and (3) a depreciation of the dollar against other
currencies (Krugman, 2009b).
22 At the peak of the boom, Spain was building nearly a million houses a year. In
2012, it built a hundred and fifty thousand (Paumgarten, 2013).
23 The European Financial Stability Facility, the temporary bailout fund was created
by eurozone countries. Each member state can veto its actions, and loan guarantees are
issued by individual nations, not the Union as a whole. This dysfunctional decision-making
system has not improved since it began in late 2009. The European Commission has
gradually taken greater power in crisis responses but cannot come up with a correct solution
to satisfy divergent national interests.
24 Iceland also took a radical policy solution by letting banks go bankrupt and a usual
policy of devaluating its currency (Lewis, 2011).
25 MGI study shows that a long period of deleveraging nearly always follows a major
financial crisis. Deleveraging episodes are painful, lasting six to seven years on average
and reducing the ratio of debt to GDP by 25 percent. GDP typically contracts during the
first several years and then recovers (MGI, 2010).
26 To be competitive again, inflated wages in GIPSI must lower than those in
Germany. As the case of Ireland shows, internal devaluation takes a long time. Besides,
German labor market conditions compound the difficulty of narrowing wages gaps. Labor
is kept in the times of economic downturns in Germany (Norris, 2012b), while labor is fired
in bad times in Ireland and other European periphery. Differences in labor market policies
between Germany and the periphery make it even much harder to narrow competitive gaps
in the eurozone area.
27 Spanish bond interest rates continued to rise and remained high. Despite high
interest rates among GIPSI, a speech by Mario Draghi (2012), president of the ECB,
showed that the ECB did not grip with the urgent reality of the euro crisis.
28 Ahamed writes that Germany experienced the single greatest destruction of
monetary value in human history. By August 1923, a dollar was worth 620,000 marks
and by November 1923, 630 billion marks (Ahamed, 2009: 121). Hungary in 1945–46 and
Zimbabwe in 2008 experienced worse inflation than Germany. But Hungary then and
Zimbabwe in 2008 were tiny economies. Germany in the 1920s was the third largest
economy in the world (Ahamed, 2009: footnote on page 121).
29 A political veto by Germany blocked the boldest solutions proposed by many
economists, like mutualizing Europe’s debts, issuing common eurozone bonds or creating
a joint bank resolution and guarantee system. With countries locked into the single currency
and unable to devalue, the only option was for stronger member states to bail out the
weaklings while imposing eye-watering austerity conditions to make them cut public
spending, wages and pensions.
30 If national banks do not have excess reserves, they can borrow from their national
central banks which then borrow from the European Central Bank. The European Central
Bank gets the money mostly from the Bundesbank as the German banks have more deposits
38 Kuniko Fujita
than they need, and they deposit money with the Bundesbank. The largest lender to the
European Central Bank under the program – 644 billion euros at last count – is the
Bundesbank. But the national banks of Luxembourg, Finland and the Netherlands are also
substantial creditors (Norris, 2012b).
31 According to Eurostat Newsrelease (2012), per capita ranges from 45 percent to
274 percent of GDP percent with 27 EU member countries.
32 According to Krugman (1999), Robert Mundell (1968), the father of the euro,
actually suggested that having an optimum currency area like the euro was a bad idea given
the lack of labor mobility. Peter Kenen (1969) also warned that the euro could be flawed
without fiscal integration.
33 German Chancellor Angela Markel knew that the EU needs fiscal and political
integration in the long run (Applebaum, 2012). For the short term plan, Merkel has
demanded structural reforms to troubled debt countries, something like wage restraint and
greater labor-market flexibility that could mirror those Germany adopted over a decade
ago. Merkel was also quoted to say that Germany will do anything to help troubled
countries. But help needs to be by German terms (Kulish and Geitner, 2012). German terms
are austerity policy.
34 Cited in Castel (2012).
35 While both Stiglitz (2012c) and Krugman (2012e) see the survival of the euro
itself in doubt, Sabel and Zeitlin (2012) provides more optimistic view of the European
Union.
36 CBO reports that income after transfers and federal taxes for households at the
higher end of the income scale rose much more rapidly than income for households in
the middle and at the lower end of the income scale. In particular, for the 1 percent of the
population with the highest income, average real-after tax household income grew by 275
percent (CBO, 2011). For others in the 20 percent of population with the highest income
(those in the 81st through 99th percentiles), average real after-tax household income grew
by 65 percent over that period, much faster than it did for the remaining 80 percent of the
population. For the 60 percent of the population in the middle of the income scale (the 21st
through 89th percentiles), the growth in average real after-tax household income was just
under 40 percent. For the 20 percent of the population with the lowest income, average real
after-tax household income was 18 percent higher in 2007 than it had been in 1979. The
Internal Revenue Service’s income tax return reports also show that income shares of the
top 1 percent grew much larger than those of the top 5 percent and the top 10 percent which
hardly changed between 1986 and 2008 (IRS, 2012).
37 Even being published after the 2008 crisis, recent urban theory readers such as
Corey and Boehm (2010), LeGates and Sout (2010), and Judd and Simpson (2011) do not
include any crisis perspective, let alone recently revised version of urban sociology readers
like Campbell and Fainstein (2011), Gottdiener (2010) and Lin and Mele (2012).
38 Many Keynesian economists identify Fannie Mae and Freddie Mac—with their
low-income and subprime mortgage portfolios—as being only secondary supporting actors
in the financial crisis (Krugman, 2012a; Blinder, 2013).
39 They look for presumed outcomes of their arguments: urban polarization as effects
of the global city; gentrification and regional uneven development as the effects of finance
capital domination in urban development.
40 The effects of international trade – in particular, imports from developing
countries – on US wage inequality have been debated. Some argue that imports lower
wages and increase unemployment (Biven, 2007; Lawrence, 2008; Autor, et al., 2012;
Scott, 2012), while others argue that the growth of international trade on the distributional
effects cannot be quantified and requires a much better understanding of the increasingly
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Introduction 39
fine-grained nature of international specialization and trade (Krugman, 2008: 135). Other
economists like Robert Gordon also argue that changes in the wage inequality are unlikely
to be explained by one factor alone, especially trade. For example, Acemoglu and Autor
(2012) contribute wage inequality to technological change. Similarly, Barlett and Steele
(2012) argue that the loss of manufacturing job too was partly caused by technological
evolution but not only by international trade and production shifts to lower wage countries.
41 According to US International Trade Commission (2011), the US is one of the
world’s most open economies. US International Trade Commission claims that the US
average tariff on all goods was only 1.3 percent on an import-weighted basis in 2010. This
means that the US is highly integrated in global supply chains.
42 For instance, Hale and Hoblin (2011) show that a pair of sneakers made in China
costs $70 in the United States, not all of that retail price goes to the Chinese manufacturer.
In fact, the bulk of the retail price pays for transportation of the sneakers in the United
States, rent for the store where they are sold, profits for shareholders of the U.S. retailer,
and the cost of marketing the sneakers. These costs include the salaries, wages, and benefits
paid to the U.S. workers and managers who staff these operations. Another example is
iPhone. In 2009, it cost about $179 in China to produce an iPhone, which sold in the
United States for about $500. Thus, $179 of the U.S. retail cost consisted of Chinese
imported content. However, only $6.50 was actually due to assembly costs in China.
The other $172.50 reflected costs of parts produced in other countries, including $10.75
for parts made in the United States. The rest are for transportation, marketing, storing,
selling, etc.
43 This is substantially higher than the 7.3 percent, which includes only final imported
goods and services and leaves out imported intermediates. Imported oil, which makes up a
large part of the production costs of the “gasoline, fuel oil, and other energy goods”
and “transportation” categories, is the main contributor to this 6.6 percentage point
difference.
44 The American Jobs Act proposed $35 billion that would have prevented hundreds
of thousands of ongoing layoffs. But it diminished in the dysfunctional Congress and was
left with the fiscal drag.
45 In particular a handful of Republican-controlled states and cities saw massive
public sector job losses (Konczal and Covert, 2012).
46 Jeff Connaughton, a former Washington public insider, described how the
influential industry – the lobbying, the media campaigns, grasstops, the revolving door –
dictated power over financial reforms in Congress in George Packer’s article (2012).
47 Jet aircraft in Seattle and biotech and electronics around Boston and California’s
Silicon Valley were always inconceivable without the MIT, without Stanford, without NIH,
and without the Pentagon (Cohen and DeLong, 2010:11).
48 Also, deregulation, austerity policy and lower corporate taxes cannot always be
seen as neoliberalism. The business community is not always in favor of deregulation,
lower taxes or lower spending. While major trade organizations like the National
Association of Manufacturers and the Business Roundtable favor government spending
that supports businesses, the Club for Growth is against it. Large companies also often
support more regulation as regulation functions as a mechanism for price fixing like the old
Interstate Commerce Commission. Furthermore, businesses favor some types of govern-
ment spending such as defense contractors, free public education, which historically gave
them a more skilled workforce.
40 Kuniko Fujita
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2
“Global Cities”, World Power,
and the G20 Capital Cities
Göran Therborn
What is the city but the people?

Sicinius in W. Shakespeare, Coriolanus
The organs of political and cultural association are, from my standpoint, the
distinguishing marks of the city: without them there is only an urban mass….
Lewis Mumford, letter to José Luis Sert 28.12.1940.1
The topic of cities and power may be approached from two sides, from that
of cities and their power, and from power and its cities. The title of this
article is meant to convey two arguments about their relationships. First,
those contemporary cities, even the so-called global cities, do not have
much power in this world – neither economic, nor political, nor cultural.
This goes against a popular thesis that a few cities are “molding” the world
economy, and contrasts with medieval and early modern cases, when cities
like Venice, Lübeck, Genua, and Malaka, were major centres of regional
and intercontinental, if not world power. A major reason for the contempo-
rary error is a confusion of location and agency.
Second, that because of the little power of current cities – beyond
their own boundaries, hinterland, and environment, the cities and power
problematic had better be approached out of a perspective of power and
its cities. That is, looking at cities, not as wielders of power but as sites
and manifestations of power in today’s world. In other words, from the
perspective of a clear distinction of agents and locales, of commanders and
their command “points” or posts.
Viewing cities as manifestations of power entails a particular kind of
reading of the urban text(ure), a selection, recording, and interpretation of
a set of urban variables of power. That is, variables indicating different
kinds and mounts of power. These variables are woven into the urban
social fabric. Cities of power are not simply taken as the zip code of power-
holders. An analytical instrumentarium will be presented below, and
deployed in a rapid overview of major cities of power in the contemporary
world.
“Global Cities”, World Power, and the G20 Capital Cities 53
Whereas all kinds of cities may be analyzed as manifestations of power,

the empirical application here concentrates on a few cities of harbouring
big power in today’s world. Ultimate world power, of life and death, of
freedom or unfreedom, of well-being or misery, is undeniably invested in
nation-states and their leaders – and in some nation-states much more than
others. How the sample should be drawn can hardly be derived from any
scholarly consensus. Taking the G20 grouping of states as my sample has
three advantages over other options, also conceivable. It is not idiosyncratic,
as it refers to a “real-time” line-up of states. It is highly relevant to the
crisis context of this volume, as the G20 assumed a significant role in it.
Thirdly, although its recruitment has its rather arbitrary edges, and an
arbitrary number, the G20 is at the same time comprehensive and of
manageable size. It does include all of the most powerful states – and
perhaps a few others – as well as the most likely short-term aspirants.
If states still have the ultimate power in this world, then state capitals
are key cities of power. The second part of this article will then look at how
power is manifested in the capitals of the G20 group of states. Given the
constraints of space, this will obviously be a bird’s-eye view only. But my
hope is that it will hint at a new, more interesting way of looking at cities
as well as at more adequate analyses of cities and power than the now
waning global/world city paradigm.
The Power of Cities
The Problematic Agency of Places

How do cities wield power? What do cities do when they have power?
How, and to what extent do cities “mould… the world economy” (Ni et al.,
2011: 49)? What is a “command point” (Sassen, 1991: 3), and how can a
city be one? If we translate networking “point” into the more familiar
“post”, can a “command post” have power?
These are important questions for a civic understanding of the contem-
porary world, not just issues of academic conceptual clarification. They
derive from a predominant paradigm of urban analysis in the last two
decades, the “global city” approach. Its academic status is in many ways
well deserved, having produced an impressive set of empirical studies of
urban locations in the world economy (Sassen, 1991; Knox and Taylor,
1995; Taylor et al., 2011; Therborn, 2011). As a globally oriented emp-
irical sociologist, this writer has a profound respect for these works, and
knows how to appreciate the painstaking labour behind them.
However, I am also deeply convinced, that they are fundamentally
wrong in their conception of power in today’s world, and that their urban
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54 Göran Therborn
analysis, while adding new and interesting insights is at the same time an
impoverishment of urban understanding.
Summed up in one sentence, my argument is that cities do not have
much power in the contemporary world, but that cities of power are most
interesting and important urban manifestations.
The power understanding of the global city paradigm is comprehensible
only under one of these two assumptions. Either, agency is irrelevant to
analyses of power, or places are agents. Neither seems very fruitful. No
wonder that the global city tribe has tried to fiddle around the issue.
Their problem is that they are confounding two things. One is the
spatial network of the current world economy, which has its hubs and its
peripheries, a perfectly legitimate and interestingly novel area of study.
What the global/world city paradigm does, and does well, is to map the
urban nodes of contemporary world capitalism. The other is the structure
of power, command, and control of the world, of the world economy and
of world society. Here the paradigm crashes, on three sides. On one hand,
by assuming that corporate network is all there is to economic power,
implying, for example, the insignificance of the “Washington Consensus”,
of the IMF, the World Bank, and the US Treasury, and of state groupings,
such as the European Union (EU) and the G20. Secondly, by assuming that
the place where a decision takes place is much more important than who
makes it. The commanders of important world economy decisions in New
York, for example, are not in any sense agents of the city, but of their
corporation. Finally, world command is not ensured by “producer services”
alone, but also by Tomahawk missiles, assassination commandos, and
bombers, which strafe the world on orders from Washington, rather than
from New York.
Who is moulding the world economy? Capital seems to be the most
plausible answer, although there are also states, and there is resistance to
capital, from workers, farmers, and others. Is it reasonable to argue that
the cities of New York, Tokyo, and London are “moulding the world
economy”? Taking agency seriously, who would then contend that city
actors like Michael Bloomberg, Shintaro Ishihara, Boris Johnson are
shaping the economy of the world?
A Geneva-based economic historian Youssef Cassis (2006) has written
a professional history of the “capitals of capital”. Interestingly, and most
probably quite correctly, it does not include any urban agency, with a slight
qualification to which we shall return below. Determining the location of
financial power in the world are, the size, the international ramifications,
and the growth of polity-bound economies, state regulations, and market
characteristics, such as liquidity of money markets and qualifications of
the services and labour markets (Cassis, 2006: 265ff and passim). One
other variable is singled out for the post-imperial revival of the London
City, the English language, that is, national rather than urban culture.
Cities are locations of power, but neither holders nor moulders of much
power. They may compete for the attraction of the powerful and the
wealthy, but even becoming the most attractive rarely entails getting a
hold on the staff of command.
Cities as Actors
However, cities are not only places. They may also be actors, and in
complex ways, as Patrick Le Galès (2002: ch. 6) has pointed out. As actors,
cities, and not only the premodern city-states, certainly can have power.
Mexico City, for instance, has a lot of power over the uses of the scarce
water resources of central Mexico (Cohen et al., 2009). Chinese cities
have acquired power over surrounding land, pushing out farmers and
selling land lots to private urban “developers”. Western European cities, in
particular, have powers of planning their territory, for example, in forcing
out corporate high-rise developers out of central Paris into the suburb of
La Défense.
The outgoing twentieth century empowered cities as actors. Capitals
like London, Mexico, Moscow, Paris, Seoul, and Washington finally got
elected governments – true, Moscow lost it in 2010, and largely Black
Washington is still supervised by largely White Congress. International
urban networking, connecting cities and mayors across the oceans as well
as over continents, took off. However, symbolic gestures, like “nuclear
free city”, apart, city actors remained within state frameworks, even in
European Union in spite of its recognized representation of cities. Within
their state some cities have gained more clout, though. One of the most
significant examples is Mexico City, as the hard core of the transition from
the “institutionalized revolution” to a more open, and more competitively
riggable, political system. Ever since the Federal District got an elected
government in 1997, it has been governed by the left opposition, and
within the city the latter’s main rival is the post-revolutionary conservative
party PAN, governing at the federal level in the 2000s. In East-Central
Europe, east of Berlin, anti-Communist liberalism tends to have its strong-
holds in the capital city.
Once upon a time, there were city-states/economies that could shape
at least a good deal of the European economy, Lübeck, leading the
Hanseatic League and a major power of the late-medieval-early modern
Baltic region, Venice and Genoa, rivally ruling a good deal of the late
medieval eastern Mediterranean and, in the Genovese case providing
Western European bankers to indebted rulers, and Amsterdam, domin-
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56 Göran Therborn
ating seventeenth-century Western European economy as head of city-

based United Provinces of the Netherlands (Braudel, 1979: chs 2–3).
These cities were not just the address of houses of finance and of trade
emporia. They had their governments – whose seats could compete with
the cathedrals in splendour, their navy, and their army (both mainly
mercenary, typical of pre-national European polities).
There were also African and Asian city states. In Africa they included
the slave trading centres of Whydah on the west coast and Zanzibar on the
east. In Asia there were Aden and Malaka, among others, or city-dominated
states like Makassar in Sulawesi, as well as resourceful economic centre
cities under imperial authority, like Mughal Surat and, more tightly
controlled, Ming and Qing Canton (Chaudhuri, 1990: ch. 11).
Are New York, London, or Tokyo remotely like these city states, or city
financiers of states? In the 1990s, all kinds of wild ideas of “globalization”
could flourish, including of “global cities” unmoored from their nation-
states, but the financial crisis of 2008–2009 hammered home where the
power was. The most telling episode took place on 13 October 2008, when
US Treasury Secretary Paulson summoned the CEOs of the nine largest
banks of the United States to Washington D.C. for a dress down and for
their acceptance of a taxpayers’ bail out. All of them came, without
knowing the agenda, and in the end all of them signed, including the CEO
of Wells Fargo, which was not in the fireline (Sorkin, 2009: ch. 20).
And, extra muros, everyone knew, well before the financial meltdown,
that if a Wall Street, a London City, or a Tokyo Marunouchi firm had
problems with some foreign political power, it had no mercenary army or
navy to call upon. It would have to ask its nation-state.
True, Singapore is a city-state of some significance, but more like, say,
Novgorod, regional and off-centre, than Venice. The precarious city-
state of Kuwait is much more representative of current times. The United
Arab Emirates may also be seen as a federation of city-states, and it is
following its illustrious European forerunners in setting up a mercenary
army, mainly recruited from Latin American death squads by Erik Prince,
the founder of the notorious Blackwater firm of mercenaries. But its scale
underlines the change of epochs, a target of 800 men (Brayton, 2011),
much more like the Pinkerton agency a century ago, deployed against
uppity US workers, than the navies and troops of Lübeck and Venice,
taking on regional dynastic states and big military powers.
On the whole, cities have been dwarfed by nation-state expansion, not
only on the battlefields of violence, but also economically.
Only the Metropolitan government of Tokyo, governing almost a fourth
of a country with a lean, and nowadays little militarized state, has any
financial clout vis-à-vis its nation-state.
In terms of power, “global cities” don’t exist. The power that cities have
is overwhelmingly local.
The Influence of Cities

In “influence”, no active agency is necessarily implied. Rather, the agency
is (partly) inside the recipient. You may be influenced by the most materi-
ally inert, like the Australian Ayers Rock, or the most ephemeral sound of
a musical accord.
With respect to cities, there is a broad range of impact, between cities as
just locations and cities as collective actors. That is, cities have influence,
in which actors are shaped or at least affected by urban encounters and
experiences.
In the shaping of the capitals of capital, cities were on the whole absent,
as we just noted above. However, occasionally, there were some place
impacts. Cassis notices the pre-World War II impact of the dress behav-
ioural code of the City of London, with the capital “C” not to be conflated
with the metropolitan small “c” London city.
The influence of cities is so far a much underdeveloped terrain of
research, compared to the huge output on urban economic nodes. In its
multifaceted and often subtle and qualitative character, urban influence
does not easily lend itself to indexing and to neat and catchy rankings.
Most often city influence may be viewed as urban role models and/or
trendsetting locales, but there are also other ways. One different example
is the part of Abidjan as “the epicenter of [HIV-AIDS] infection for the
entire eastern half of West Africa” (Iliffe, 2006: 53). As the great Cambridge
historian of Africa, John Iliffe, explains, this nefarious influence was due
to a concatenation of factors. Abidjan was the economic and cultural centre
of an initially (by African standards) prosperous economy (Côte d’Ivoire),
attracting poor male migrants from the whole region, travelling easily by
good roads and little border controls, upsetting the gender balance of the
city, in part compensated for by an international influx of commercial sex
workers. Then the country’s cocoa economy imploded, health care broke
down, and migrants dispersed. Many of them carrying HIV infections with
them, from the city into the whole neighbouring region.
More generally important has been the economic and cultural urban
influence upon or power over the “hinterland” of cities, the generation
of “cities’ own regions”, as Jane Jacobs (1984: ch. 3) called them. The
phenomenal growth of London in the eighteenth and nineteenth centuries
spawned a vast surrounding area producing, “processing, packeting, and
marketing in the way London wanted” (Belich, 2009: 440). With the recent
development of long-distance commodity chains and “global commercial
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58 Göran Therborn
circuits” (Sassen, 2002) you should expect this regional power of big cities
to diminish rather than to increase.
The two most significant manifestations of a city’s cultural influence are
probably, first, the extent to which its specific sociability generates wider
cultural trends, national, regional, global. In this sense, London has been
the social and cultural capital of the Anglophone world, including America
on the eve of US independence (Flavell, 2011), as well as long after
(Belich, 2009: ch. 15), perhaps until World War II. In 1897 the New York
Times had proclaimed in its typical ponderous manner: “!We [Americans]
are part, and a great part, of the Greater Britain, which seems so plainly
destined to dominate this planet” (Belich, 2009: 481). After the Second
World War, New York took over, at least to the US elite if not yet to those
of the White Dominions, although Time magazine in 1966 anointed
“SWINGING LONDON” “the city of the decade” (Porter, 1994: 441).
Paris is still the centre of the shrinking, Francophone world, even after
having lost its centrality to the Western arts, like London losing out to
post-WWII New York, in this case to New York of Abstract Expressionism
and later Pop Art. It still seems to keep its head up in a more multipolar art
world (Kaspi and Marès, 1989; cf. Higonnet, 2005). Late nineteenth to
early twentieth century Tokyo once had, a century or so ago, a significant
regional cultural influence to a smaller crowd of early modernist, and
nationalist, aspiring intellectuals of the Sinic area of civilization, including
Korea and Vietnam as well as China itself, many of them anti-Japanese,
like the colonized anti-imperialists of London and Paris in the first half of
the twentieth century. Although challenged by the wealth and, until the
spring of 2011, wider freedoms of the Gulf, Cairo is still the cultural capital
of the Arab world (Sadek, 2006).
Secondly, there are urban role models, inspiring other cities of how to
plan and what to build. Even in the nation-state era, urban international
influence has been quite consequential. Paris, “the capital of the 19th
century” (Benjamin, 1935/1970), in particular from the 1860s up to and
including the 1930s, is the unrivalled case. It was an almost global model
of urbanization in the period, from Khedive Ismail’s Cairo (Mostyn, 1989)
to Rio de Janeiro (Rosso Del Brenna, 1985), Buenos Aires (Gutman and
Hardoy, 2007: ch. V; Rapoport and Seoane, 2007: 220ff) to Santiago de
Chile (González Errázuriz, 2003: 190ff). Taking in Bucarest (Machedon
and Scoffham, 1999), Madrid (Juliá et al., 1994: ch. 5), and Mexico as well,
in spite of the Second Empire’s ill-fated military intervention against the
Mexican Liberals in the 1860s (Vásquez Mellado, 1990: 222), whose two
most distinguished architects were Italian, though, and stirring admir-
ation in countless other wannabes. Tokyo, though, was apparently not one
of the receivers of Paris models (Seidensticker, 1985; Coaldrake, 1996).
The urbanistic model of Baron Haussmann and of the Second Empire was
part of a much broader French cultural influence, sustained more by art and
language than by commerce, and also thriving on the myths of the French
Revolution. The pragmatic and circumspect Meiji rulers of Japan took
more to American power and German institutions, than to French culture.
If Paris should have a legitimate heir as a world city of influence, New
York would be it. In Manhattan, and Chicago, skyscrapers started to
fascinate European architects from just before World War, from the
generations of Adolf Loos and Erich Mendelsohn. After the war there was
a wave of European avant-garde interest in American high-rise buildings,
as well as in the industrial methods of Taylorism and Fordism (Cohen,
1995; Lampugnani, 2010: ch. 6). But the direct impact of New York was
limited, to Stalinist Moscow mainly. New York Art Deco skyscrapers did
have a major effect on post-World War II Moscow, but skyscraper cities
were held back in the rest of Europe, enclaved in Frankfurt, largely banned
intra muros in Western Europe, in Paris after the single modernist example
of the Tour de Montparnasse.
New York influence foundered on the rock of Western European
urban democracy, which had not arrived by the time Baron Haussmann’s
Paris was the model of the world. After the implosion of Communism,
Manhattan- and US-inspired business towers and Central Business
Districts (CBDs) became totems of capitalist arrival all over Eastern
Europe. When the “vertical city” became a hallmark of Asian modernism,
from the last decades of the twentieth century on, the type had become
more American than New Yorkish.
Why did London, the uncontested city of imperial world power, at least
between (the battles of) Waterloo and Somme, never become a global role
model of what a grand city should look like? Well, for a start, it was not
much of a model to itself. In 1903, a group of London architects and nota-
bles formed a Further Strand Improvement Committee with a view to
upgrading a half-baked development project, asking for some modest
public funding: “We ask – is London … to refuse this opportunity of
showing itself in reality an imperial city, a worthy Capital of a world-wide
Empire?” The silent answer was, yes (Schneer, 1999: 27). Cautious and
mean wealthy taxpayers, uniquely empowered in London among the
old capitals, ensured that the city of London never got the splendour of
the power of the British Empire, although this did not preclude impressive
individual buildings, from the Parliament, via the British Museum to the
Bank of England.
London was not without urbanistic influence, however. In the 1890s
it even got a red brick homage in Tokyo where Mitsubishi built a shortlived
“Londontown” (Seidensticker, 1985: 78). The gigantic neo-Gothic
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Hungarian Parliament of 1902, then governed by Anglophile Liberals, is

clearly alluding to the London model. Much more important, though, was
the worldwide diffusion of London engineering, sewage and water
systems, gas works, public transport, from Hawaii to Odessa, via Buenos
Aires and Beirut, or, alternatively, via Bombay and Smyrna (Girouard,
1985: 341). Those were important concerns to the urban transformers in
the decades around 1900, probably most so to Pereira Passos, the president-
nominated mayor of Rio with its recurrent yellow fever and other lethal
epidemics. But Paris was the best model of glamour for costly urban
enterprises, even if financed by British loans (Rosso Del Brenna, 1985: 9).
The early twenty-first century does not have a cultural centre, as far as I
can see. Though less than 100–120 years ago, there is still an important
NYLON axis between New York and London, culturally well interconnected
and exhibiting an interesting division of labour, whereby American bankers
make it in London, and British journalists succeed in New York. How far
the NYLON script goes, remains an open question – except that it is not a
very strong source of urban design. The London part of it, though, is
enjoying an international architectural interest, which imperial London
seldom had. Canary Wharf and the Docklands generally have become
interesting both as waterfront developments and as new business centres.
Many people, this writer included, think that Norman Foster’s “Gherkin”,
30 St Mary Axe, in the City with capital “C”, is the aesthetically most
successful building of recent corporate power and wealth so far. And it is
inspiring further iconic endeavours in London (cf. Hollis, 2011: ch. 12).
While the quality of life studies of cities invariably put European cities
on top, (Le Galès and Therborn, 2010: 85; Heathcote, 2011), iconic urban
design has moved eastwards in the last two decades. To the oil Gulf, where
the All-Stars Culture Island of Abu Dhabi is still awaiting completion, to
China, and to Beijing in particular, and to suddenly culturally ambitious
Singapore, most recently with its lotus flower ArtScience Museum.
Cities of Power
Power and Its Cities

There are many kinds of power, and there have been many more. Not all,
even of political power, have been based on a city – royal power in the
European Middle Ages was largely itinerant, travelling from one castle,
and its supplies, to another. Princely power in what is today’s Indonesia
was usually based on a palace (kraton, istana) without a city (Evers, 2007),
Iceland of the sagas and the Swiss Urkantone were run from rural
assemblies. But in so far as they are, distinctive constellations of power
tend to generate distinctive types of cities.
This is a very different focus, not on cities as “moulders” or “command

points” of the world, but as sites of power, which have their own specific
agency, or mode of acting, as state, capital, or taste-governing cultural
power. Cities of world power are overwhelmingly capital cities of states
of global significance. New York is the one major exception, by no means
a world-moulding city, but certainly a city moulded by world financial
power, and probably the major cultural centre of the world, although
perhaps not, in the emerging Asian century, as much as it was when Claude
Lévi-Strauss was there and when Jackson Pollock was at his peak of fame.
A few other cities may be singled out as cities of regional economic power,
São Paolo in South America, Johannesburg in Southern Africa, Mumbai in
South Asia, maybe Hong Kong and Shanghai in East Asia, but for all their
economic acumen, the latter are both clearly subordinate to the main centre
of Chinese power, in Beijing.
Political power needs representations, of
(a) the respect owed to it, whether by fear, by awe or by admiration,

(b) of its legitimacy, deriving from God or Heaven, from the lineage, or from the
people, one way or the other,
(c) and, often but far from always, of its direction, its aims of societal development.
(d) It also needs to build its own security, which may, as it often does in conte-
mporary Africa, a withdrawal from view of the locus of power, including a
hysterical fear of photographing state buildings.
Cityscapes of power have developed in order to cope with these concerns

of power. The latter then have to operate through the construction of cities
as built environments. As such, they may be analyzed through the following
variables of urban manifestations of power, but at any given point in time
always on a socle of previous built experiences, on site or at some pertinent
place of reference:
1. Urban layout: focus, centre(s), landmark(s); social divides, transport

connections
2. Clusters of buildings, accommodations of power: offices, residences, security
arrangements, relations of public and private buildings, and among public
buildings
3. Architecture, style of public and important private buildings
4. Monumentality: monuments and museums of commemoration/celebration
5. Toponymy: naming of streets, places, institutions
Cities are built history, which have to be understood as juxtapositions

of coexisting historical layers, in a power vision of historical layers of
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62 Göran Therborn
power. Enduring power is institutionalized, to variable degrees and in

different forms. The institutionalization of power weighs heavily on the
functioning of cities, which may also be seen and studied as institutions
of power. Then focus would be on their management of their environ-
ment, their supply of services, and their treatment of their inhabitants of
different kinds. In another context I intend to approach that side of cities
of power too.
In the assigned perspective of “globalization”, two main research ques-
tions arise. First, what has happened to the global geography of cities of
power? Second, how has globalization affected the main cities of power in
the world?
The Changed Global Geography of the Cities of Power

Searching for the global power structure, we have to look at states, rather
than cities, and therefore to capital cities as the main loci of state power.
We can notice the demise of Cold War bipolarity, of Washington and
Moscow, and the emergence of a more multipolar world. It seems plausible
to argue that the two main centres of world power are Washington and
Beijing, but the world is not (yet) bipolarized again. There are also the EU,
the post-2000 rise of the BRIC, in 2010–2011 mutating into BRICS, with
the full honours addition of South Africa to Brazil, India, Russia, and
China. And there is the G7 and its mutations into the G8 and, in the crisis
of 2008, into the G20 state grouping.
The official recognition and deployment of a G20 group provides a non-
arbitrary roster of major world cities of power – although not one beyond
rational controversy, about inclusion, exclusion, and significance in
relation to the old centres, of Washington, London, Paris, Tokyo, Moscow,
and new one like Beijing. Starting out in 1999, in the wake of the Asian
financial crisis, as annual meetings of finance ministers and central
bank governors of the twenty, it was upgraded to a summit forum in 2008,
with a plan for a permanent secretariat. The G20 is an extension of the
1970s G7, including Washington, London, Paris, Rome, Ottawa, Bonn,
and Tokyo, made G8 by Clinton’s invitation to Moscow. Besides those
above, the group of 20 now also includes the nation-states of these capitals,
Mexico City, Brasilia, Buenos Aires, Tshwane (aka Pretoria), Ankara,
Riyadh, Beijing, Delhi, Jakarta, Seoul, and Canberra, while unified
German Berlin has replaced West German Bonn, plus the European Union,
with its capital in Brussels. This is clearly a relocation of power; only
seven of the twenty capitals belong to the North Atlantic area, stretched
out to Rome. But it is an inclusive change. No state/city of post-World War
II has been excluded; new ones have been brought into the limelight.
The G20 is first of all a grouping of economic powers, and its agenda so
far has been mainly economic. The list includes the eight largest economies
of the world, but not the ninth, Spain, crowded out by all the other European
medium-size powers. Only London, Beijing, Tokyo, and Paris, less cer-
tainly Moscow, may be called city centres of the world economy. Geopolitics,
far more than economics, has clearly provided membership to several coun-
tries, South Africa, Argentina, and Saudi Arabia – with more economic sig-
nificance than Egypt, the centre of the Middle East region, but much smaller
economies than Spain or the Netherlands. Population does not seem to have
carried much weight, including Australia (22 million), while excluding
Bangladesh (127), Pakistan (185), and Nigeria (228). Their cultural radia-
tion is very uneven, global only in the case of London, but several are
important regional hubs, like Mexico, Paris, Seoul, Tokyo, while Beijing
and Delhi are cultural centres – rivalled, true – of continental nations.
The G20 is not self-evidently a gathering of the twenty most powerful
political units of the world, but its emergence is an important aspect of
recent changes of the world power structure, and at least the dozen or so
most powerful polities are certainly included in the grouping.
The capitals of the G20 group of countries owe their standing to that of
their nation-states – or, in the case of Brussels, of their group of nation-
states. As such they have very diverse backgrounds, reflecting different
locations in world history, and very different look, manifesting different
ways of coping with contemporary challenges. They derive their national
capital status from different sources and along different pathways to
modernity.
Among the European cities, London, Paris, and Rome are ancient urban
centres of princely and imperial power, in the case of Rome also of
religious papal power. Moscow and Brussels are more old than ancient,
and the latter a regional capital of Habsburg empires – all transformed into
national capitals through the European route to political modernity of
revolution and civil war.
The main poles of European modernity are captured by London and
Paris. London’s magnificent Parliament building, its mediocre royal
palace, its modest monumentality, and its Trafalgar Square with its
Dominion palaces express the English road to modernity, parliamentarian,
gradual, and imperial. Paris, on the other hand, is the capital of revolution
and of post-revolutionary grandeur, with its places of revolutionary rup-
tures (Bastille, République, Nation), its grands boulevards, and its discrete
and modest housing of institutions, of the presidency, the prime minister,
the National Assembly. The Moscow Kremlin visualizes how the Bolshevik
revolution and post-Communist Russian nationalism reconnected with the
big power of Russian Tsarism.
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64 Göran Therborn
Brasilia, Buenos Aires, Canberra, Mexico, Ottawa, and Washington are

“New World” capitals of settler states. Mexico was laid out by grand impe-
rial design, while Buenos Aires was colonially peripheral, although a late
vice-regal capital, and whose palatial splendour only dates from the steam-
boat agricultural export boom in the decades around 1900. The others are
wholly modern national creations. In Canberra, Ottawa, and Washington
the central public building is that of Parliament or Congress. In Buenos
Aires and in Mexico, it is the Presidential Palace. Both truthfully represent
Anglo-Saxon and Iberian configurations of power. Brasilia is more complex.
It was built by the democratic Communist architect Oscar Niemeyer, whose
Square of the Three Powers clearly gives precedence to Congress, but who
also provides the president, of a largely presidential polity, an ecologically
final say with his exquisite laid-back Palace of Dawn.
Delhi, Jakarta and, after the fall of settler apartheid, Tshwane, are ex-
colonial capitals, turned into national ones by anti-colonial revolutions.
Ex-colonial capitals usually reproduce the colonial layout, but with new,
indigenous incumbents of the elite sites. Delhi is exceptional in giving the
grandiose ex-vice-regal palace to India’s powerless, mainly symbolic,
president, and housing its powerful prime ministers in nearby former resi-
dences of colonial commanders. All three cities have been provided with
ample nationalist and anti-colonial iconography – Jakarta first. Tshwane is
also the ex-settler capital Pretoria, and democratic South African’s attempt
at reconciliation is expressed in duplicated iconography. To that of the
racist settlers is added that of anti-colonial and anti-racist resistance:
outside City Hall now stand Chief Tshwane as well as the Boer Commander
Pretorius.
Several G20 capitals come out of Reactive Modernization, of countries
never fully – although some significantly – colonized, and embarking on
their own transformation from dynastic realms to nation-states.
Tokyo is the most clear-cut and successful case, but there are
others which, mutatis mutandis, travelled the same road. Failed but never
colonized Ottoman Istanbul was succeeded by Kemalist Ankara. There is
Beijing, of the failed but domestically toppled empire, of the failed
and invaded but never properly colonized Chinese Republic, and then
the capital of the People’s Republic. Finally in the G20 there is Seoul,
of a failed early twentieth century “empire”, and of a Japanese-ruled
Korea which allowed a distinctive cultural and industrial development,
re-emerging after 1945.
Reactive Modernization also has its range of variants, with their
urban expressions. The three Asian capitals have all kept or re-linked
with their premodern past, the Beijing Forbidden City being the most
grandiose monument of the latter. In Beijing and Tokyo, but not in Seoul
with its Blue House Presidential Palace, political power is discrete and
largely hidden from view, as the CCP headquarters in Beijing beside the
Forbidden City, or the symbolic centre of the Tokyo Imperial Palace. The
Japanese prime minister’s office is overshadowed and overtowered by a
nondescript corporate building. Ankara by contrast was turned from a
dusty provincial backwater to the capital of modern Turkey with the help
of imported German urban planners. Its modernist central public cluster
consisted of ministries, while Atatürk himself stayed discretely on the
outskirts. Currently, Ankara’s main monument is the mausoleum complex
of Kemal Atatürk.
Riyadh is in a class of its own, as the capital of a pre-nation state dynastic
power, and the royal compound of more than a square mile is the discrete
location of royal power, manifesting itself mainly in corporate forms, and
in the city’s 4,300 mosques. It was built as a modern city – though from a
modest mid-nineteenth-century royal capital – by the Greek modernist
planner Constantinos Doxiades, active also in Islamabad of Pakistan, with
latter-day icons, including one by Norman Foster, and with some symbolic
national pretensions (Al-Naim, 2008).
Their different histories of emergence, posit different contemporary
tasks.
The G20 capitals vary widely with respect to their place in their respec-
tive nation-states. Many of them are specialized political centres – Ankara,
Brasilia, Canberra, New Delhi, Ottawa, Riyadh, Tshwane, and Washington.
Within Europe, if not in Belgium, Brussels is in the same class. Others are
nationally overwhelming primate cities – Buenos Aires, Jakarta, London,
Mexico, Paris, Seoul, and Tokyo. A third group is part of a more balanced
national urban structure – Beijing, Berlin, current Delhi (merging the Old
and the New into a new metropolis), Moscow, and Rome.
The “Globalization” of the World’s Cities of Power

The G20 constellation is a product of the last two decades of globalization
and of the 2008–2009 financial crisis. In terms of power, it represents a
fourfold shift in world power. First, a shift to capital, from all other forces,
from labour and non-capitalist states, extra-systemic states in particular.
The Group of 20 was called upon to rescue and stabilize their common
world capitalist economy. Secondly, a geographical shift, diluting,
delimiting, but not yet quite ending North Atlantic hegemony. Thirdly, an
increased inter-national connectivity, permeability and dependence of
political power, expressed in the explosive growth of summit diplomacy,
of which the G20 is a central but much-accompanied example, in global
media surveillance, and cultural communication. The power situation has,
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66 Göran Therborn
finally, been affected by the shift of security concerns, from the superstates-
controlled bipolarity of the Cold War to more anarchic violence.
From this follows a major question of urban analysis: How have the
recent changes of power affected the main cities of power in the world?
At the same time as globalization, there have been important national
changes of power in virtually all the twenty countries, although more
dramatic and profound in some than in others. Local city power has also
changed in many cities. In other words, even if we should be primarily
interested in the effects of globalization, we shall have to pay attention
also to the relative weight of national and local power changes. National
changes have been particularly profound with respect to four cities in
our set, Beijing, Berlin, Moscow, and Tshwane, with economic regime
change in Beijing, political regime change in Tshwane, and economic-
cum-political regime change in Moscow and in the eastern half of Berlin.
The Anglo-Saxon settler states and capitals, much more so than Buenos
Aires and Mexico, for different reasons, have been shaken in their
conception of nationhood by native and other ethnic challenges. Local
regime changes have occurred in many capitals, for example, with the rise,
fall, and resurrection of elected government in London, with its rise and
very recent fall in Moscow, with its establishment in Mexico and some
other cities. Elective city government remains an important G20 variable,
important in many cases but absent or subsumed by central government in
Beijing, Jakarta (until recently), Moscow (from 2010), and Riyadh. It is
growing in federal capitals like Brasilia, Brussels, Canberra, Delhi,
Ottawa, and, up to a point, Washington, as well as in unitary capitals
previously under the thumb of national governments, like Ankara, Paris,
Rome, and Seoul.
How have these shifts affected the world cities of power? Before going
into our five variables of urban representation, let us first list what changes
we should expect from the constructivism of power.
Generally, we should expect more claims to global respect, to respect on
global terms – manifested, that is, in attempts at global iconicity (cf. Sklair,
2006), to more respect of capital and capitalist wealth, with ostentatious
business towers, commercial centres, and upper-middle class residences,
together with many more luxury hotels. In the settler capitals more express-
ions of indigenous and ethnic respect may be expected, and in cities of
political regime change a clearly visible change, or at least a reconfigura-
tion, of political icons. With regard to legitimacy, new forms should await
us in the capitals of political regime change, including, though less dra-
matically, cities of local regime change. But for the rest, there is no strong
a priori hypothesis, as global economics is little dependent on legitimacy.
Directionality should be oriented towards economic development, in so
far as the modern view of history as possible development has survived

postmodernist critiques, scepticism, and lack of future interests.
Finally, the new insecurity situation should lead us to expect more
ostentatious vigilance, and, occasionally, more violence. In the last two
decades, several world cities have been targeted by terrorist attacks –
Delhi, London, Moscow, Paris, Tokyo, and Washington. A lurid sadism of
a permanent “war on terror” and sheer paranoia (Graham, 2010) are adding
their big part. About city reactions, a world traveller in the 2000s may have
noticed, that omnipresent armed guards were much more prominent in
Cairo than in, say, Washington or London, and that the night safety
of Communist Moscow or pre-neoliberal-crash Buenos Aires had disap-
peared. The only city where a civic safety improvement was palpable was
in the historical centre of Mexico, a product of urban rehabilitation and
surveillance cameras.
The Changing Morphology of World Cities of Power 2

The new set of cities of world power is no homogenous constellation,
historically, far from it as we have indicated above, and now some of them
are sites of rising power, others of declining. Nobody should expect that
their recent developments can be captured in one simple narrative. Since
space constraints forbid an anthology of even miniature monographs, we
shall here focus on the analytical dimensions of power in cities and their
recent changes in the G20 capitals, while paying attention both to national
specificities and to global alterations of power.
Urban Layout
With respect to the urban layout of world cities of power, there are at least
three features to be highlighted, all of which seem to be universal rather
than global and related to general changes of urbanity.
Metropolitanization is one, meaning the emergence of interconnected
and interdependent conurbations beyond city borders. This is an important
aspect of contemporary urban processes, transcending previous processes
of central city shrinking-cum-suburbanization, generating vast conurba-
tions. It seems to be due to an inextricably interwoven national and global
dynamics, for instance, Jabotabek in Indonesia. It is most noteworthy in
and around originally specialized political centres, like Ankara, Brasilia,
Delhi, and Washington, on a smaller scale in the case of Ottawa-Gatineau,
but hardly possible in the case of Canberra, isolated on its own and with a
major city, Sydney, as its nearest neighbour. But metropolitanization
may also be viewed as a national task of development, as in the 11th
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68 Göran Therborn
development plan for Beijing, encompassing the port city of Tianjin and
the adjacent province of Hebei (Beijing Municipal People’s Congress,
2006: 8).
Brasilia and Washington, in particular, have become nuclei of economic
growth areas, of Goiás agro-export in the case of Brasilia – realizing the
dream of central highlands development – and of high-tech military and
bioscience in the Virginia-Maryland surroundings of the D.C. (cf. The
Economist, 16.4.2011, p. 45). Some high-tech metropolitanization is
occurring around Ottawa, and the Delhi satellite of Gurgaon has become,
after Bangalore, one of the symbols of high-flying Indian capitalism.
Brussels too has prospered, not only from the consumption by EU and
NATO officials, but even more as a significant European site of US corpo-
rations (Elmhorn, 2001). Like Brasilia and Washington, Brussels also har-
bours a distinctly poor population in the midst of prosperity, mainly
Moroccan and Congolese immigrants.
Metropolitanization raises issues of metropolitan governance. On the
whole, these issues are unresolved and becoming more contentious,
between city governments and surrounding provincial governments in
particular. The Tokyo Metropolitan Government seems to have been the
most comprehensive and successful. Poor, Afro-American, largely heter-
onomous Washington seems to be at the other end, at disadvantage, with
some home rule but still dependent on a (mostly) hostile national Congress.
In Brasilia, on the other hand, the resourceful Federal District government,
with federal state status, drew the political conclusion of the population
development outside the city “Plan Piloto” by beginning to move the
District government out of Brasilia proper, to the pioneering working-
class supporting town of Taguatinga3. Federal state status, enjoyed by
Berlin, Brasilia, Delhi, Mexico, and Canberra, gives political clout, but
does not necessarily solve tasks of coordinating transport, of equitable
water supply, or of payment for central services.
In the federalization of Belgium, Brussels, as the Capital Region,
has since 1989 become one of the three regions of the country, bringing
some well-needed coordination to nineteen municipalities. However, not
only has the actual agglomeration outgrown the jurisdictional region, the
metropolitan relations of Brussels are poisonously infected by never-
ending cultural-linguistic strife between an expanding, mainly Franco-
phone, city surrounded by a Flemish region, fiercely defending its
language turf. In 2010–11, this conflict left Belgium without a
government (other than a caretaking interim) for more than a year.
While metropolitanization is driven by the current international
dynamic, and its national incarnations, which have produced the geo-
graphical shift of global power, a second feature of the new urban
morphology derives from the tilt of power to capital. That is the launching
of new business centres, manifesting the new power of capital, and its
demands for respect for it. This is a new drive of many cities, a tendency
for obvious reasons less prominent in the specialized political capitals,
Canary Wharf and the Docklands in London, a new central financial dis-
trict in Beijing, part of the Puerto Madero development in Buenos Aires,
the Gurgaon suburb of Delhi, the Santa Fe district of Mexico, Moscow
“City”, the Prince Abdullah Financial Centre of Riyadh. The south of the
river development of Seoul Gangnam, from the late 1980s and on, was
much more than a new business hub, the creation of a massive urban bipo-
larity, including a forest of high-rise condominiums, and educational and
political functions. The grand plans for Tokyo Bay, on the contrary, were
stalled by the 1990s economic stagnation of Japan.
Behind this developmental tendency are two different projects, an
expansion of national city business, and, secondly, most clearly in the case
of Beijing and Riyadh, a project to become a global economic centre.
Whatever their ultimate success in the latter race, these urban projects
manifest a surge of capital power.
A third important path of current urban layout development is social
segregation, and, in particular, the spread of exclusive gated communities
and guarded condominiums (Glanze et al., 2006). This is an effect both of
a capitalist tearing apart of the civic fabric, including moves by expatriate
managers, and of fear among the privileged for the social consequences of
inequality and exclusion.
Ostentatious exclusivity is less noticeable in Western Europe, Tokyo,
Seoul, and the specialized political capitals, with some qualifications for
Brasilia, than in, above all, Beijing, and Moscow. Gated communities are
also major features, recently of Buenos Aires, the big notorious Nordelta
project, and, more historically of Jakarta and Mexico.
New democratic local regimes have also had their impacts, usually
meaning more urbanistic activism. The vicissitudes of local party politics
seem to have less systematic effects. While there are clearly different
Parisian accents to the neo-Gaullist and the Socialist mayoralties of
Jacques Chirac and Bernard Delanoë, they are less audible in London,
turning from Ken Livingstone to Boris Johnson. In recent times urban
activism includes pushing public transport, bicycle paths, and pedestrian
zones, very pronounced in cities like Mexico, from a low starting-point,
but also in Paris, London, and many others. The Socialist government of
Paris is pursuing a policy of social mixing, by upgrading some poor
neighbourhoods and by introducing low-cost public housing projects into
posh ones. It is having some effect, though rather marginal to the big
picture (Bacqué et al., 2011). Waterfront, river, lake or sea developments
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70 Göran Therborn
have been a very general post-industrial urban process – including in

Seoul, the decovering of a brook once, in the second, post-World War II
modernity, covered by a highway – more likely to be focused on by local
than by national governments.
The power of capital is increasingly enhanced and displayed in
the cities of power. However, this does not mean that national and local
governments have lost all influence over the layout of urban space.
On one hand, neo-liberal governments have been very important in
making this capitalization possible, providing necessary support and
permits for Canary Wharf, Santa Fe, the Nordelta and other mega-
projects. In other cases, governments have played a leading role in
directing developments, of course in the concentrated state power
structures governing Beijing and Riyadh, for example, but also in
Luzhkov’s Moscow with its unique mix of Tsarist pomp, Orthodox
sacrality, and globalist capitalism, and in the “critical reconstruction”
and “European city” guidelines of Berlin (cf. Binder, 2009: 142ff), and
in the Livingstone-Blair plan, seemingly on course, for an eastern
repositioning of London with the help of 2012 Olympics. In Mexico the
southern sprawl was halted by city legislation, thereby protecting Indian
communities. But in Seoul, plans for European-type municipal land
planning had to be abandoned to private capital for lack of city funds
(Seoul Development Institute, 2003: 587).
Clusters of Buildings
A new thrust of transnational capitalist commerce and technology is
showing off, most spectacularly in belatedly fully capitalist cities, like
Jakarta, Moscow, and Beijing. Reporting from Jakarta, Hans-Dieter Evers
(2007: 53) signals the new construction of “shopping centres and malls …
high-rise buildings [of ] ...the new CBD with an ICT … infrastructure that
enables world-wide networking ...” Corporate office towers, malls, luxury
hotels, and convention/fair centres constitute the core cluster of contempo-
rary capitalist construction. In a specifically political capital like Ankara,
these new clusters of shopping malls and corporate offices are seen as
indicating a fragmentation of the city centre (Banu Aksel Gurun, oral com-
munication, 18 7 2005).
In Tokyo, the new urban structure of buildings was hammered home
already in the 1970s, when the new, modernist but bungalowishly modest
Prime Minister’s Office was allowed to be overshadowed by a nondescript
corporate insurance high-rise. But, as we took note of in Table 2.1, the
Tokyo Metropolitan Government is a uniquely big urban polity, and its
1991 New City Hall complex can successfully compete with any corporate
Table 2.1 City budgets as percentages of national budgets in 2010

London/UK 0.7%
New York/USA 1.2%
Paris/France (2009) 1.0%
Tokyo/Japan (2009) 13%
Sources: London: Mayor of London, The Greater London Authority’s Consolidated Budget and
Component Budgets for 2010–11, http://static.london.gov.uk;
UK: http://www.ukpublicspending.couk/central_spending (Accessed on July 6, 2011);
New York: The City of New York, Budget Summary, http://www.nyc.gov;
USA: http://www.usgovernmentspending.com (Accessed on July 6, 2011);
Mairie de Paris: http://www.paris.fr/politiques/Portal.lut?page_id=7708&document_type_id=4&
document_id=66255&portlet_id=17822&multileveldocument_sheet_id=1289
France: Ministère du Budget, Le Budget de l’Etat voté pour 2009, http://www.performance-publique.
budget.gouv.fr/fileadmin/medias/documents/ressources/LFI2009/depliant_budget2009.pdf.
Rapport sur la dépense publique et son evolution, http://www.performance.publique.gov.fr;
Tokyo: Tokyo Statistical Yearbook 2009, http://www.toukei.metro.tokyo.jp;
Japan: Ministry of Finance, http://www.mof.go.jp/english/budget/statistics.
structure. In Cairo the World Trade Centre is overtaking the Foreign

Ministry, nearby, on the right bank of the Nile.
Contemporary iconic building has two major sponsors, corporate
real estate speculators or “developers”, not corporate headquarters, and
public(–private) cultural institutions. Ambitious political buildings have
been rare, and none has acquired iconic status. The Mexican Conjunto
Benito Juárez, with its Federal Foreign Office, its Federal District Supreme
Court and, a Holocaust Museum including Guatemaltecan genocide and
Mexican social rights, is the most eloquent building manifestation of pro-
gressive (Federal District) power. Tokyo City Hall, Moscow City Hall –
representing the now eclipsed power of the elected and entrepreneurial
mayor Luzhkov – overtowering the powerless Russian parliament (the
White House), which Boris Yeltsin once shelled by tanks, the new Senate
complex of Mexico in the parade street Paseo de la Reforma, perhaps, the
new Finance Ministry in Paris, are the only other significant exceptions.
Apart from Berlin, which as a (re-)new(ed) capital had to build, and
Brussels which has to fight for its status as the capital of Europe. The Latin
American Bicentenario, actually more often celebrating the beginning of
Latin American autonomism rather than the achievement of national inde-
pendence, generated no remarkable construction anywhere, the Mexican
city plan of a Bicentenary Tower was buried by public protests.
Berlin built an impressive office for the chancellor (prime minister) of a
big, unified Germany, replacing the modest “dog kennel” bungalow in
West German Bonn, as well as some interesting additions to the old
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72 Göran Therborn
Reichstag, not only Norman Foster’s glass cupola but also a library and a
special administrative building. The ministries and bureaucracies had to
make do with a recycling of old Nazi buildings – done creatively in the
case of the Foreign Office – and with new standard buildings.
Brussels did win the competition for European capital in 1958, before
Strasbourg and Milan, but the French have prevented the city from
becoming the capital of Europe tout court. The powerful Court of Justice
resides in Luxemburg, and the powerless but symbolically significant
Parliament is officially in Strasbourg. Its fragile and contested status has
meant that Brussels has neither been able nor allowed to flaunt itself as the
Capital of Europe. The European Commission building is an off-centre,
rather mediocre office complex. The huge office area built for the
Parliament and for a plethora of new EU agencies in the 1990s–2000s also
abstains from attempts at iconicity, settling for what might perhaps be
called Biedemeier postmodernism. Very much representing the way it
has been constructed, the major building of the new area, intended for
Parliament, was built in 1987–1995 as a Congress Centre, with private
funding, because the French asserted that the proper site of the European
Parliament was in Strasbourg (Elmhorn, 2001: 219ff; Hein, 2004: 142).
The European Parliament is still moving back and forth between Brussels
and Strasbourg, but spending at least three-fourths of its time in Brussels.
Public cultural buildings, on the other hand, have been boosted in
recent years, most spectacularly, in Beijing, as a claim for global
respect. Central television headquarters by Rem Koohlhaas, the Olympic
stadia by Herzog-de Meuron and others, the new National theatre by Paul
Andreu, all financed by the central government. But every ambitious city
is expected to have one, or more. Including “the eternal city” of Rome,
recently blessed with Zaha Hadid’s not quite iconic MAXXI museum. So
are airports, like railway stations 100–150 years ago, and again Beijing is
at the current edge, with its enlistment of Norman Foster.
Delhi’s bid for global recognition was the Commonwealth Games of
2010 (Dupont, 2008), but it flopped in construction implementation, and
never had the ambitions or the resources of Beijing. The football World
Cup of the same year was South Africa’s bid for world fame. It did not
flop, but it was centred on Johannesburg and Cape Town, and will be most
remembered, in terms of building, for its Johannesburg and Tshwane
public transport links.
Cultural buildings, museums, have also been important answers to
questions of national legitimacy. In settler capitals, indigenous peoples
and national minorities have become able to raise demands for recogni-
tions of a multiethnic nation, and to have them heard. The vanguard was in
Ottawa, whose Museum of Canadian Civilization, with its foregrounding
of the Northwest Pacific Indians, blazed the trail of multiculturalism.

Canberra’s National Museum with its connected Australian Institute of
Aboriginal and Torres Strait Islanders Studies opened in 2001. In 2003 the
Washington Mall got its Museum of the American Indian. But Brussels,
after more than a decade of wrangling, has not yet got its Museum of
Europe. The grands travaux of the French Mitterrand government, to
science, music, literature, etc., on the other hand, appear to be best under-
stood, neither as global city branding nor as national legitimation but
rather as claims to national respect for the regime and to a central place in
the global sun for an updated vibrancy of national culture.
Architecture
The possibilities of architecture have increased enormously, with the
development of computer-aided design, first deployed at the Sydney Opera
House in the late 1950s, and by more recent 3D-modelling. The political
meaning of architecture is intrinsically ambiguous. Neo-Classicism, for
instance, can be Republican in USA and imperial in Russia and in France,
and Gothic may express Flemish urban autonomy, as in the City Hall of
Vienna, or the state of free-born Englishmen, as in the London Parliament.
The classical modern international style of sleek non-ornamental high-
rises, after World War II, more in glass and metal than in concrete, is still
the routine of corporate towers, but computer-aided design, more than
postmodernist ideology, has created new degrees of architectural freedom.
While there are still some national or regional cultural demands around, as
in the Petronas Towers of Kuala Lumpur, or the Burj-al-Arab of Dubai,
architectural representations are currently much more driven by aims at
global iconicity, that is, at representing the global edge of the city/nation,
than at national representation (cf. Jencks, 2005). Nowhere is this more
obvious than in contemporary Beijing (Ren, 2008; Broudehoux, 2004).
Outside our sample of cities of power, it is noteworthy that the Gulf
Sheikdoms, and Abu Dhabi, the richest, in particular, with its Culture
Island project of inputs from virtually all the top roosters of global
starchitects, are trying to become the Macaenas of world architecture.
Building was suspended during the crisis, which hit Dubai, as a centre of
speculation, quite hard, but has resumed in 2010–2011.
Mediagenic architecture is well on its way to represent the power of
wealth, rather than anything else, although the profession, through its
Pritzker and Stirling Prizes, is trying to assert another agenda, of life
quality.
Berlin is special, because it returned to world status not as a
“global city” but as the capital of German reunification. Although it
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74 Göran Therborn
has its globalist side in the Sony part of Potsdamer Platz, designed by
German-American Helmut Jahn, and its Europeanist south-eastern part
of the same area, with the heaviest footprints of Renzo Piano, Berlin
has been launched as an open national city, respecting its historical core,
and, apart from (the destroyed) Potsdamer Platz, adapting its new
architecture to it.
West Germany was where a concern with the democratic legitimacy of
architecture was not only explicitly articulated but also deliberately put
into practice (cf. Flagge and Stock, 1992). The West German absorption of
all Berlin then had important architectural implications. Public buildings
should shun pomposity and closure, and announce accessibility and trans-
parency, a programme well implemented in the Reichstag-Chancellor’s
Office complex, open public spaces, glass and lightness. Secondly, the
historical character of Berlin should be preserved, which meant strict
height limits in central Berlin and stylistic restrictions, though not
historicist prescriptions. After much campaigning, driven by a conserva-
tive businessman, and a long controversy, Berlin architecture now seems
to be on course – beyond the current financial suspension – for a signifi-
cant, probably unique anti-modernist reaction, by rebuilding (the façade
and parts of) the Wilhelmine City Palace on the middle of East Berlin. It
has, of course been helped by victorious anti-Communism, renaming the
Marx-Engels-Platz location into Palace Square, and by adding a veneer of
early nineteenth-century cultural Enlightenment to the new palace complex
as “Humboldt-Forum”.
Paris kept its avant-garde image in the 1960s and 1970s, with Paul
Andreu’s Roissy airport and with Renzo Piano’s and Richard Rogers
Beaubourg cultural centre. After that it has, for the time being at least, lost
out to other contenders. But a very successful fusion of international avant-
garde and historical architecture is the Paris Arche de la Défense, by the
late Danish architect von Spreckelsen, which links up with the national
(and imperial) via triumphalis from the Louvre to the Triumphal Arch. The
grand projects launched by President Mitterrand did also include other
constructions with few rivals at least in Europe, like Dominique Perrault’s
four-towered National Library. In Paris the connections of architecture and
the state are still important, but the resources of the latter are diminishing,
relatively speaking.
London has historically produced a few pieces of iconic architecture,
though little of impressive urban vistas, like St Paul’s Cathedral of the
1660s, the Houses of Parliament of the 1830s–1840s, the Bank of England,
upgraded in the 1930s by Herbert Baker, as the “heart of the Empire”,
more imposing than impressive. Niggardly, mean enfranchised property
owners were a major hindrance to royal and imperial extravaganza.
Contemporary capitalism has much more of a “how to spend it” orient-

ation, as the Financial Times calls one of its supplements. The extra-
ordinary wealth of the City of London, and a new capitalist orientation,
tying in with British architectural talent made London around the millen-
nium shift, after Beijing, perhaps the most exciting architectural big city of
the world, from Richard Rogers’ outdoor plumbing of the Lloyds building
in the 1970s–1980s, via the 1990s postmodernist humour of the City 1
Poultry building by James Stirling, the Millennium Dome by Richard
Rogers (now surviving after a difficult commercial birth as the event arena
O2) to the rounded elegance of Norman Foster’s 2000s “Gherkin”.
Whether London will stay in the iconic limelight is open to doubt. Canary
Wharf is no more than an average late modernist CBD, the “Shard” sky-
scraper by Renzo Piano being completed in 2012 looks little more than
the Qatar luxury tower it is. The 2012 Olympics are likely to develop the
underdeveloped London East, but are not intended to compete with those
of Beijing.
Daring, and expensive, European architecture is not to be found in
Brussels, but in the Parliament of Strasbourg and, above all, in Luxemburg,
with Richard Rogers’ Court of Justice, and Europe-oriented national
cultural buildings by I.M. Pei and Christian de Portzamparc.
Monumentality
Monuments, of homage, celebration or commemoration, became a major
feature of the European urban landscape in the course of the nineteenth
century. Have they survived into the twenty-first century? The answer is
clearly yes.
There was historically a main trajectory of monumentality, from religious
and dynastic, to national, to popular – referring to representations of popular
classes or to leaders of popular movements and parties – and on to global
signifiers. The Parisian grandes places, of Concorde, the Bastille, the
Republic, the Nation, and the London Trafalgar Square, and the Washington
Mall and Obelisque exemplify the national moment. The European worker
sculptures by Constantin Meunier (in Copenhagen as well as in Brussels),
the Tombs of the Unknown Soldier, the interwar commemorations of labour
leaders, and the post-1960s American remembrance of Martin Luther King,
exemplify the popular moment of monumentality.
The global moment had started already in 1889, with the Tour Eiffel for
the World Exhibition of Paris. The tower was expressing universal indus-
trial prowess, nothing national, one of the reasons for its initial hateful
reception. A century later, the Louvre Pyramid of I.M. Pei, commissioned
by President Francois Mitterrand, continued the global torch.
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76 Göran Therborn
What is most noteworthy about urban monumentality in this era is that

the national moment has not been eclipsed. It has been reasserted in the
new big World War II memorials of Moscow in 1995, and of Washington
in 2004. Unsurprisingly, national monumentality is a major feature of
cities of dramatic regime change, of Berlin, Moscow, and Tshwane in
particular. The impact is remarkably muted in current Jakarta, and,
understandably, more convoluted in Beijing.
In Beijing, the big face of Mao is still looking out from Tiananmen. The
square in front of him has kept his mausoleum, albeit frequently closed,
and the stele to the Heroes of the Revolution. But in January 2011 it got an
interesting addition, a big statue of Confucius. At least as interesting was
its discrete removal one night in late April 2011, into the garden of the
National Museum (Financial Times, 3 June 2011, p. 9). Less conspicuous
but also significant is a new sculpture group in the garden of the China Art
Gallery. Amicably seated around a table are the main historical leaders of
the Communist Party – Mao, Zhou-en-lai, Deng-Hsiao-ping, whom Mao
purged twice, Liu Shaoqi, whom he humiliated and drove to death, and
two others whose identity I am not quite sure of.
A conciliatory shimmer is also present on Jakarta monumentality, with
its recurrent statues of the two rival leaders of Indonesian nationalism,
Sukarno and Hatta (Salim and Kombaitan, 2009). To my knowledge there
is no commemoration of the anti-Communist massacres of 1965, with at
least half a million killed. Likewise, Beijing does not pay any official
attention to the victims of Maoist repression or of his catastrophic eco-
nomic blunder, “The Great Leap”. The newly reopened National Museum
is silent on such issues (Beech, 2011).
Moscow political iconography, by contrast, has changed more dramati-
cally, although far from completely (cf. Mercier, 2001). The Lenin
Mausoleum is still on Red Square, a few other Lenin monuments are still
around, and Marx is still in front of the Bolshoi Theatre. Plans for a public
remembrance of the Stalinist repression arose already in the late Communist
period, and in 1990 a huge granite block from the early Arctic prison island
of Solovec was placed in front of KGB headquarters. (In the summer of
2008 it was hidden behind construction planks.) There is a small, though
central and expressively organized state museum in memory of the GULAG.
However, the main thrust of monumental change in Moscow is pre-
Communist, manifesting a remarkable attempt at re-sacralization of public
space. The Resurrection Gate and Iverskaya Chapel at one end of the Red
Square, have been restored; the central Christ the Redeemer cathedral,
dynamited by Stalin for a never-built Palace of Soviets, has been rebuilt,
in all its nineteenth-century mediocre pomposity, etc. Tsar Peter I has been
given a gigantic monument. The Soviet monumentality of World War II
victory has continued, and the 9th of May, the Russian date of German
surrender, has become, after the eclipse of the political cults of Mayday
and of November 7, the main holiday of post-Communist Russia. Moscow
is the most remarkable example of a city of power striving at the same
time to become a global city of state-of-the-art office towers, of hotels,
restaurants, and boutiques of the most expensive luxury, of segregated
upper-class living, and to re-become at the same time the historical national
centre of Tsarism and orthodoxy.
Outside apartheid Pretoria was an imposing, heroic monument of Boer
nationalism, the Voortrekkers (Pioneers) monument, remembering the
exodus of the Boers from the British nigger-friendly Cape Colony, and
celebrating the Boer victory over the Zulus in the Blood River battle of
1838. The authorities of democratic South Africa decided to leave the
monument as it is, but adding, as a counterpoint on a hill some distance
away, a Freedom Park, dedicated to the African resistance to colonialism
and to liberation. Within the city, outside city hall, next to the statue of
Boer city founder Pretorius is added one of a legendary Tswana chief of
the area, Tshwane.
Paris, and the deciding French state government, have not abandoned
national iconographic monumentality. In 2000 a statue of de Gaulle was
inaugurated, near the Champs Elysées, and in 2002, on central Quai
Branly, a controversial “National Memorial of the Algerian War”, paying
homage to those who fought for a French Algeria and North Africa.
London Trafalgar Square, under city jurisdiction, by contrast, has
recently seen a series of non-political, non-national sculptures on parade at
its “fourth plinth”, but, of course, still presided over by Admiral Nelson on
his column, surrounded by a court of old imperial generals and admirals.
No G20 capital can rival Berlin in recent monumental efforts. The
monumental struggles of unified Berlin took Lenin out, but left Marx and
Engels in peace (though pushed to the park periphery in the late autumn of
2010), and, after prolonged conflict and civic mobilization, preserved the
expressive late-Soviet monument to the German Communist leader Ernst
Thälmann, murdered by the Nazis. Another conflict finally led to a major,
abstract Holocaust monument at the very heart of the city (by Peter
Eisenmann), very close to the Brandenburger Tor. Berlin today is above
all a monumentality of repentance. Apart from the central Holocaust
memorial monument, there is an architecturally striking Holocaust-centred
Jewish Museum (by Daniel Liebeskind), and a didactic museum complex,
Topography of Terror, on the totality of Nazi rule. The notorious Berlin
Wall, though mostly torn down, is another prominent feature of Berlin
commemoration, in private as well as public musea and in street figurations,
of sculptures, murals, and posters.
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78 Göran Therborn
A high-level, intellectual-cum-political conference in Brussels in 2001,

convoked by the European Commission and the then Belgian Presidency
of Europe, agreed about one thing – no European monumentality could
nor should be pushed (Therborn 2008: 70f). But the Belgian Presidency
gifted the EU with a modest allegorical sculpture of Europe holding up the
€ sign, placed outside the new parliamentary compound.
Urban monumentality is not a phenomenon only of the past, nor has
it become overwhelmingly global. The nation, its history and its memory,
is still central. In some cities of recent political regime change, like Berlin,
Tshwane and, Moscow, national monumentality is clearly overshadowing
the global iconicity of buildings.
Toponymy
Historically, name changes, of cities, streets, places, buildings, have been
part of regime changes. In the urban register under investigation, we find
them immediately in the case of Tshwane, which in the apartheid days of
South Africa was known as Pretoria, after a Boer commander Pretorius.
Now, in democratic South Africa, the city is named after a mythical Tswana
chief.
Post-Communist Moscow has changed a few of its most historical
central streets and places, from (pro)-Communist to pre-Communist, most
notably Gorkij into Tverskaya street. Unified capitalist Berlin took out all
the numerous Communist street names and places of East Berlin, returning
to old pre-democratic monarchical names, so Clara Zetkin-strasse, after
the Social Democratic but later Communist prewar feminist, became
[queen] Dorotheenstrasse, and Marx-Engels-Platz became Schlossplatz
(Castle or Palace square).
Maoist Beijing does not seem to have entailed many toponymical
changes, and consequentially few post-Maoist ones.
Naming buildings and institutions after power-holders, and donors, is
very popular in the US. Washington has its Reagan airport and its Dulles
airport. Paris is another centre of toponymy, with de Gaulle naming not
only the airport but also the place of national sacrality (the ex-Place de
Etoile of the Triumphal Arch), and where Winston Churchill was recently
given a central avenue.
In the European parts of Brussels, toponymy is naturally often a sensitive
topic. Not always though; renaming in 1963 the roundabout in front of the
Commission building Rond-point Robert Schuman, after the French
European statesman, was non-controversial. Modern quarrels could also
be avoided by naming the 1990s Council building after a sixteenth-century
Flemish political theorist, Justus Lipsius, who had once given name to a
street there. But for the rest of the new area, first called Quartier Européen,
then Espace Léopold, falling back on Belgian history, there was a lively
debate, centred in, and about, the European Parliament. The French and, to
some extent the right, appear the losers in the decisions of 2008. The main
buildings were named after Willy Brandt and József Antal, the two
connected by the Konrad Adenauer bridge, Paul-Henri Spaak, and Altiero
Spinelli. All, except Antal and Adenauer, were left-of-centre and had
strong European credentials, although the Rhineland Christian Democrat
Adenauer arguably much more so than the north German Brandt. The
former Belgian foreign minister Spaak was one of the architects of the
Treaty of Rome, and Spinelli was an indefatigable Italian Euro-federalist,
both left-of-centre at their time. Antal is perhaps the most characteristic
EU choice, the least common denominator, in the face of a strong Eastern
European claim to representation. Antal was a moderate conservative who
had been the first post-Communist prime minister of Hungary, decent,
undistinguished, and dead.
On the other hand, the capitalist development of new privileged
enclaves, usually gated, has brought forth a novel, globalist toponymy, to
advertise the privileged character of the place. While there are Asian
references in Beijing, like Purple Jade Villas, and Arab in Cairo, often
referring back to the age of Khedive Ismail, many of these of upper and
upper-middle class reservations have Euro-American names, like Beverly
Hills, Edelweiss, Palm Springs, Pompeji, Riviera, Tudor Village (Wu
et al., 2004; Denis, 2006; Follath and Schepp, 2008).
The Global, the National, and the Urban

Even in the last two decades of globalization, say 1990–2010, national
changes have not ceased to be important. In at least five of the G20
capitals, national changes have overshadowed global impacts – nationally
directed spectacular economic development in the case of Beijing;
profound political regime changes in the cases of Berlin, Jakarta,
Moscow, and Tshwane; less profound but clearly very significant also in
Mexico. Brussels has been mainly driven by and to a regional dynamic.
Intra-systemic political changes have also occurred in Ankara, with
the rise to government, in the city as well as in the nation, of Muslim
democracy, and in Buenos Aires, with the implosion of neo-liberalism.
National issues, of multi-ethnic legitimacy and of historical respect, have
been high on the urban symbolic agenda, from Canberra and Ottawa to
Paris and Berlin. Elected local governments have become active, and
deploying rich initiatives in many, probably most, cities, including Brasilia,
London, Mexico, Moscow, Paris, Rome, Seoul, and Tokyo.
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80 Göran Therborn
At the same time, the global moment is here, with global city branding,
global merchandise brands like McDonalds and Starbucks as well as Prada,
Luois Vuitton, and HSBC everywhere, as are the imprints of “starchitects”
like Norman Foster, Rem Kohlhaas, Jean Nouvel, and others. Cities of
world significance have all transnational spaces and cultures, and beneath it
all are the opaque chains of inter-and trans-national power, hard and soft.
It is crucial to catch both moments in order to understand what is going
on, and why.
Whatever else they may be seen as, cities have to be recognized,
understood, and analyzed as built environments of people. An approach to
cities, more on the lines of Shakespeare and Mumford than of world
economy, has something to teach us, of urban culture and politics, of the
urban something more than a business location.
The analysis of power has to start with politics, and then looking out
for the determinants of politics, which may take us to religious cleavages
as well as to economic interests. In the epoch of “weapons of mass
destruction”, I think this political starting-point, of the power of violence,
is imperative. Here we have concentrated on an under-investigated
dimension of power, its representation, and on cities as such. More has
been done on institutions of power, a staple of political science, but cities
as institutions of power is another important topic in a future agenda of
urban studies.
If we look at the world cities of political power, provisionally made up
of the capitals of the economic G20 group of countries, we find both global
capitalist tendencies/challenges, of spatial layouts, new clustering of
buildings, and global iconic architecture; and, on the other hand, national/
local manifestations/solutions, of spatiality, of building, occasionally
weighing upon architecture, and governing monumentality and central
city, if not gated periphery, toponymy.
The financial crisis of 2008–2009 enhanced the move of economic
power from the North Atlantic to the rest of the world, primarily to
China and India. The dazzling experience of the Beijing 2008 Olympics
underlined the arrival of Beijing as a city of world power and of world
influence, as the capital of China. The crisis demonstrated the falsity of the
stateless global cities argument, showing the crucial interventions of
nation-state governments (Therborn, 2011). It reinforced the American
urban position of Washington, while underlining the globally declining
path of Tokyo, aggravated by the nuclear disaster of 2011. However, it
cannot, yet at least, be said that the crisis altered the life of the world’s
cities of power.
Cities do not hold important power any more, as they once did in the
heyday of Lübeck, Florence, Genoa, Venice, and Amsterdam. Influential
cities are nowadays embedded in, and dependent upon, nation-states. The
power of cities has waned. But there are cities of power, urban manifestations
of national, sometimes also imperial and/or global, power. They are the
main topic of this paper, and, I hope, of many studies to come.
Notes
1 Here quoted from Lampugnani, 2010, I: 461.

2 This part is largely based on direct observation and interviews on site, as well on the
references cited and other readings.
3 By 2012 the move had been stopped, after an electoral change of the Federal District
government.
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www.Ebook777.com
3
Was the US Sub-prime Crisis the Prime
Mover? The Limits of the ‘Critical
Urbanist’ Interpretation of the UK
Financial Crisis*
Chris Pickvance
The aim of this chapter is to challenge the argument popular among

‘critical urbanist’ writers that the sub-prime crisis in the US played a
crucial and necessary role in the US and UK financial crisis. It will
be argued that this view exaggerates the role of the sub-prime crisis and of
the global interconnections between banks. Instead, it is argued that the
banking systems in the US and UK had developed in a fundamentally
unstable way and that this was the primary cause of the financial crises in
these countries, with the sub-prime crisis playing at most a contingent
contributory role. The focus will be on the structure and operation of the
UK banking system and the UK experience of the financial crisis. The
chapter concludes with a discussion of the very limited reforms that
have so far been implemented.
The ‘Critical Urbanist’ Interpretation of the Financial Crisis
The Analysis of Sub-prime Lending

The term ‘critical urbanist’ interpretation is used here to refer to two
strands of argument: one concerns international finance flows, and the
other concerns sub-prime lending. Harvey combines both the strands. He
argues that global capitalism has a permanent under-consumption problem
and staggers from one crisis to the next; and that the exhaustion of profit
opportunities in one sphere or country leads to a search for profit in new
sectors of activity, cities, regions or countries which then undergo booms
and slumps (Harvey, 2010: 28–31). As a result, he identifies trends such as
* Thanks to Vincent Béal, Monika Krause, Tarik Sengul and Peter Taylor-Gooby for
their helpful comments. An earlier version of this chapter was presented at the XVII World
Congress of Sociology at Gothenburg, July 2010.
Was the US Sub-prime Crisis the Prime Mover? 85
the internationalization of banks, the increasing investment in assets such

as property and the growth in consumer credit which, he argues, make
good the decline in US purchasing power.
For Harvey, the rise in sub-prime lending and the subsequent crisis
over repayment is due to the expansion of capital into a sphere which it
had not previously penetrated, namely owner-occupation among low-
income households. The strong role that this view gives to sub-prime
lending can be seen when Harvey says that ‘the crisis that began in highly
localized housing markets in the United States in 2007 quickly spread
around the world via a tightly networked financial and trading system that
was supposed to spread risk rather than financial mayhem’ (2010: 140)
and that ‘by the autumn of 2008 the “subprime mortgage crisis”, as it
came to be called, had led to the demise of all the major Wall Street
investment banks through change of status, forced mergers or bankruptcy’
(2010: 2).
In order to consider this argument, we start by examining critical urba-
nist academic writing on mortgage lending. We then go on to look at
evidence on the scale of the sub-prime crisis to see whether it can bear the
weight that is being placed on it.
Sub-prime loans are those made to borrowers whose ability to repay
is considered uncertain and/or whose housing is considered to be a poor
risk, and for whom tougher conditions, such as higher interest rates, are
charged.1 (In contrast, prime loans are made on more favourable terms.)
Sub-prime loans do not need to be used for house purchase: they can also
be used for the refinancing of old house purchase loans, home improvement,
or equity takeout for consumption spending (Immergluck, 2009: 68–72,
159–160; Newman, 2009).
Mortgage lending involves banks in making decisions on how much to
lend and on what terms, to whom and on what dwellings. According
to conventional economic models, lending decisions reflect judgements
about the value of the dwelling as collateral for the loan, and about the
ability to repay of the borrower. The key idea is that loan terms should
reflect risk. However, there is a long critical tradition in urban geography
and housing research which argues that this model is not accurate and that
US mortgage lending is characterized by red-lining (i.e., red lines are
drawn around areas in which prime loans will not be granted) and a refusal
to lend to racial minority groups (Aalbers, 2011). For writers who reject
the risk-based approach to lending, any place-, income- or race-based
variation in lending is evidence of discrimination. For those who accept
that lending should be risk-based, on the other hand, only variation
that goes beyond what is attributable to the greater riskiness of certain
types of dwelling, area, income group or racial minorities is evidence of
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86 Chris Pickvance
discrimination. The critical urbanist tradition has led to a focus on place,

income and race-based lending patterns.2
A recent study by Wyly et al. (2009) provides comprehensive evidence
on these patterns of variation. It uses two exceptionally large national US
individual level data sets covering over eight million loan approvals in
2004 and 2006 and allows the impact of place, race and income (but not
dwelling) to be taken into account. The authors fit several models that
explain lending patterns in terms of various household, lender and area
characteristics. However, their best model explains only 35 per cent of the
variance and so is far from offering a full understanding of the factors in
play – housing characteristics are an obvious omission. Its main conclusion
is that in 2006 African-Americans were 3.8 times more likely than white
Americans to obtain a sub-prime loan when income was not taken
into account. When income was included, this figure reduced to between
2.3 and 3.3 depending on the model used, showing that African-Americans
are more likely to obtain a sub-prime loan after income differences are
controlled for. The study also showed that this likelihood had increased
between 2004 and 2006.
This empirical result leads Wyly et al. (2009) to elaborate a critique
of US mortgage lending practice which they see as remote from the
conventional economic model of well-informed buyers having their
lending risk assessed by careful salespeople in terms of explicit criteria.
Firstly, Wyly et al. (2009) argue that sub-prime loans were (increasingly)
marketed to many people who could have afforded prime loans. This
is a surprising point since it implies that people who did not need to
pay the higher sub-prime interest rates nevertheless did so. An explanation
for this ‘market imperfection’ is advanced by Immergluck (2009: 141–
142) and Newman (2009: 318) who describe the aggressive marketing
methods used to promote sub-prime loans, the higher fees paid to sales-
people as incentives to sell subprime loans, and the unfamiliarity of the
new group of borrowers with mortgages and the interest rates they would
be paying. Secondly, Wyly et al. argue that lenders are bad at distinguish-
ing good and bad risks, and that to avoid ‘charlatans’ (i.e., unreliable
borrowers) they ration credit on supply rather than price (2009: 335), e.g.,
by drawing red lines on the map or by discriminating on the basis of
ethnicity.
Hence the critical urbanist view is that sub-prime lending is not risk-
based as the conventional economic model would suggest and that it
generates an undeniable racial bias in U.S. sub-prime lending.
Standing back from this evidence on lending patterns, it is interesting to
look at the interpretations placed upon it. Firstly, the evidence does not
lead Wyly et al. to demand that lenders reform their practices and adopt
‘risk-based pricing’.3 Instead, they use it to attack the very notion of ‘risk-
based pricing’, claiming that ‘the theory4 of risk-based pricing has become
doctrine and ideology, used for well over a decade to blame consumers for
the consequences of an abusive industry, to justify a deregulatory stance
that encourages “usury” as innovation, and to sustain the mirage of an
“American Dream” backed by high-risk, predatory credit’ (2009: 350).
Others more familiar with the US housing scene will be able to judge the
merits of these claims. However, there can be no doubt that Wyly et al. see
risk-based pricing as the fount of most if not all evil in the US housebuilding
and mortgage industries. This position is somewhat surprising since at the
same time these authors claim that risk-based lending has not been
practised.
Having constructed risk-based pricing as a ‘theory’, Wyly et al. then
go on to propose their own theoretical alternative for understanding sub-
prime lending, namely, Harvey’s analysis of class-monopoly rent. Harvey’s
(1977) classic analysis of mortgage lending patterns in Baltimore in 1970
showed how different lenders operated in different neighbourhoods,
leading to low interest rates and strict housing code inspection in more
affluent areas, and high interest rates and weak inspection in poor areas.
However, paradoxically, he showed that even at that time high interest
loans were being given in run-down inner city areas to ethnic minorities
rather than all loans being refused as the standard redlining story has it.
But Harvey’s analysis of segmented markets in mortgage lending does
not, in my view, require an acceptance of the notion of class-monopoly
rent. Nor is it obvious what analytical purchase class-monopoly rent
theory offers in understanding sub-prime lending today. It is not clear
that any class exercises monopolistic control over housing, land or finance
and the theory does not lead to usable hypotheses about how sub-prime
loans are promoted, by whom, to whom and on what conditions. Certainly,
Wyly et al.’s effective empirical demonstration that income and race are
factors affecting sub-prime lending does not require acceptance of the
theory of class-monopoly rent.
Finally, if one is left confused by Wyly et al.’s theoretical argument,
one is left even more confused by their policy recommendations. Mortgage
lenders seem to be blamed for not lending and for discriminatory non-
risk–based lending, and also for their ideology of risk-based pricing. Does
this imply that Wyly et al. believe that there is a right to home ownership
with a prime mortgage for households of all incomes, irrespective of
differences in risk? This confused vision propagates the possibility of
homeownership for all and underplays the need for private and social
rented housing with rent subsidies, controls and protection of tenants’
rights for households who cannot afford homeownership.
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88 Chris Pickvance
The relevance of this strand of academic writing to understanding the

sub-prime crisis is that, having accurately identified sub-prime loans as a
source of real difficulties for poor and minority households who find
themselves enmeshed in financial transactions which often lead to arrears
or foreclosure, critical urbanists exaggerate the role of sub-prime lending
in the wider financial crisis and do not consider the numerous sources of
instability in the wider financial system.
Evidence on the Role of Sub-prime Lending in the Financial Crisis

To explore the argument that sub-prime lending played a key role in the
financial crisis in the US which had international repercussions5, we need
to examine evidence on the scale and trends in this lending and trends in
the issuing of mortgage-backed securities6 based on sub-prime loans since
it is the rise of these ‘toxic assets’ that is held to have precipitated the
collapse of confidence among banks.
New sub-prime mortgage lending in the US rose from 8.6 per cent of
total residential mortgage lending in 2001 ($190 billion out of $2,215
billion) to 20.1 per cent in 2006 ($600 billion out of $2,980 billion)
(Gotham, 2009: 365). Moreover, as Immergluck points out, in the
2002–2006 ‘second boom’ in high-risk lending, loans were more likely to
be for house purchase, to be ‘exotic’ products, e.g., those with low initial
interest rates which increased sharply later, those with low down-payments
or those with high loan to value ratios (2009: 71, 87–91). Secondly,
Immergluck shows that ‘the issuance of mortgage-backed securities in
the sub-prime market increased from $87 billion in 2001 to almost
$450 billion by 2006’ and a related loan type, Alt-A loans (in between
prime and sub-prime loans), showed a similar sharp rise from $11 billion
to $365 billion (2009: 94–95). There is thus evidence of the rise in volume
of an increasingly risky type of mortgage and of securities based on it.
Thirdly, foreclosure rates for sub-prime loans rose from 5.7 per cent in
2005 to 17.0 per cent in 2008 Q2 (Immergluck, 2009: 136) and by 2008
28 per cent of US sub-prime loans were 45 days in arrears, compared with
14.5 per cent of Alt-A loans and 8 per cent of prime loans (IMF, 2009a:
Figure 1.21). Immergluck pinpoints the start of the ‘2007–2008 mortgage
crisis’ as being April 2007 (2009: 183).7 However while this data demon-
strates fast growth in the issuing of sub-prime loans and sub-prime–backed
securities, it does not demonstrate that this growth was either the main
cause or even the precipitating factor in the financial crisis.
The following counterarguments need to be considered. Firstly, sub-
prime loans were never more than a minority (20 per cent) of all mortgage
loans and they were dominated by other types of mortgage such as prime
mortgages, corporate mortgages, credit card debt, and student and

car loans. It has not been demonstrated that other types of asset-based
loans were any less problematic than sub-prime mortgages. Secondly, total
US asset-based securities based on assets other than residential and com-
mercial mortgages rose from $400 billion in 1996 to $2,400 billion in
2007 (FSA, 2009: Exhibit 1.5). Thus sub-prime–based securities ($450
billion in 2006) represented under 20 per cent of total securitized credit.
Thirdly, the securitization process combined mortgages of different types
and what happened to sub-prime mortgages may have been mitigated by
the experience of other types of mortgages. Fourthly, as will be shown
below, there were numerous other sources of instability besides sub-prime
loans, such as derivatives trading and the shadow banking sector.
Thus the fact that sub-prime loans were disproportionately likely to end
in arrears and foreclosure (the sub-prime crisis) and that these problems
were concentrated among the lowest-income groups and racial minorities
does not prove that this crisis was the trigger that caused the wider financial
crisis. On the one hand, the effects of the other developments in mortgage
markets just listed need to be assessed. On the other hand, there were many
other sources of instability, all of which contributed to the financial crisis,
which are considered below. At most, therefore, the sub-prime crisis was a
contingent and partial rather than a necessary or sufficient cause of the
financial crisis.
Against the Critical Urbanist Interpretation: (A) The Context
In this section we consider the global, policy and regulatory context in

which US and UK banks acted.
Global Macroeconomic Imbalances

At the level of the world economy a critical context is the fivefold rise in
macro-imbalances on current account between 1998 and 2008. This means
that countries which are running a current account surplus, such as China,
have ended up holding debt mainly in the form of what was then considered
low-risk or risk-free government debt of deficit countries such as the US
(Bank of England, 2009: 48). The expanded volume of these balances
drove down interest rates which had the paradoxical effect of binding the
US and Chinese governments together and so arguably aiding global
political stability. The low interest rates in turn fuelled a credit expansion
especially in the US and the UK (but also in Spain and Ireland) which led
to cheaper mortgages, rising house prices and banks becoming less
concerned about creditworthiness. Thus the boom in bank lending was due
www.Ebook777.com
90 Chris Pickvance
in part to the supply-side effect of the rise in global macroeconomic

balances.
Central Bank Policy

Central banks are inclined to blame external forces for negative national
economic trends. However, the role of central banks was not passive since
they adopted loose monetary policies. The UK House of Lords Economic
Affairs Committee received very different responses regarding their rele-
vance from Jacques de la Rosière, chairman of the EU High Level Group
on Financial Supervision and from Mervyn King, governor of the Bank of
England. For the former, the ‘piling up over 10 or 15 years of easy – too
easy – monetary policies’ is a fundamental factor (along with global mac-
roeconomic imbalances) (House of Lords Economic Affairs Committee,
2009: Q352), while for the latter, ‘Wherever monetary policy was loose, it
certainly was not in the UK’ (House of Lords Economic Affairs Committee,
2009: Q479). Likewise, the report by the UK Financial Services Authority
on the causes of the financial crisis makes no reference at all to govern-
ment policy (or the role of regulatory authorities) as a factor at either
global or UK levels (FSA, 2009: 11–38).
In fact, de la Rosière’s view is the more convincing. In no EU country
were housing costs included in the consumer price index whose level
central banks targeted (Goodhart, 2009: 2). This means that they targeted
low inflation but ignored asset price inflation. Their policies therefore
contributed to the uncontrolled expansion of lending.
Loose monetary policies were also a response to the demand for
increased credit as US and UK households sought to preserve their stan-
dards of living in a period of rising income inequality and falling real
incomes (Kumhof and Rancière, 2010; Irvin, 2011).
Regulatory Policy
In the USA, the Glass-Steagall Act was passed in 1933 to prevent banks
engaged in retail deposit taking from also engaging in investment banking,
which ranges from advising on mergers and acquisitions and underwriting
share issues to trading on behalf of the bank (‘proprietary trading’). The
post-war fragmented regionalized banking system with its local regulators
gave way by the 1980s to a system in which nationwide banks emerged
subject to federal regulation. Banks were allowed to merge in part to avoid
strict state-level controls on interest rates, and securitization (see below)
was encouraged. Deregulatory pressure from the 1980s onwards led to the
abolition of the Glass-Steagall Act in 1999 and fuelled the expansion of
retail banks into more risky activities, such as dealing in mortgage-backed

securities. (Some banks, such as Goldman Sachs, remained purely
investment banks.) Fannie Mae and Freddie Mac, the government housing
finance agencies, became important players in securitization (Gotham,
2009).
In the UK, the special relationship between government and finance
capital has a long history from London’s pre-modern position as a trading
centre, to the Depression and post-war period when low inflation and the
value of sterling were placed above full employment as policy goals and
‘short-termism’ became the conventional critique of the City by British
business. More recently, the treatment of financial services as an economic
sector which could promise the UK a post-industrial future has been given
high priority by successive governments. This sector grew from 5.5 per
cent of GDP in 1996 to 10.8 per cent in 2007 helped by the deregulatory
turn of policy in the 1980s which strengthened London’s position as a
financial centre vis-à-vis New York.
Prior to the general election in 1997, Labour leaders were desperately
keen to win the support of business to avoid the risk of an ‘investment
strike’, the great fear of Labour governments historically (Miliband, 1961).
Led by Tony Blair and Gordon Brown, they thus wooed City leaders and
assured them that it would be ‘business as usual’ if Labour was elected.
The incoming Labour government in 1997 introduced two innovations:
the Bank of England was made independent and tasked with keeping
inflation at a low level and a Financial Service Authority (FSA) was
created through the merger of specialized regulators. (In 2001 the FSA
also gained responsibility for mortgage lending, previously under a spe-
cialist regulator.) The Bank of England staff responsible for its previous
role as regulator of individual banks were transferred to the FSA. The
words ‘light touch’ described the FSA’s regulatory approach, although this
term emerged later as a critique of the FSA. (The FSA was and is financed
by the finance industry rather than by government, via a variety of fees –
and, more recently, fines.)8
Crucial to the success of light touch regulation was the performance of
the economy where, according to the then chancellor, Gordon Brown, the
boom and bust cycle had been transcended and a way found to achieve
unbroken economic growth. Light touch regulation was partly a matter of
economic philosophy and partly a matter of ‘what works’. According to
Lord Turner, Chair of the FSA,
I think there was a philosophy of regulation which emerged, not just in this
country but in other countries, which was based upon too extreme a form of
confidence in markets and confidence in the idea that markets were
www.Ebook777.com
92 Chris Pickvance
self-correcting, which therefore believed that the fundamental role of the

supervision of financial institutions, in particular banks, was to make sure that
processes and procedures and systems were in place, while leaving it to the
judgment of individual management to make fundamentally sensible decisions.
(House of Commons Treasury Select Committee, 2009: Q2156)
It is not surprising, therefore, that the regulation of the finance sector in

both the US and the UK has been weak. In the 1980s, self-regulation and
a multiplicity of specialist regulators with few teeth were the norm. The
term ‘regulatory capture’ (Wilson, 1980), devised in studies of public–
private sector relations to refer to the situation where the regulated are in
control of the regulator, was only too apt. The FSA seemed to be acting on
behalf of the finance sector rather than as its regulator.
Financial regulation showed the generic shortcomings of regulation.
The ideology was that effective regulation meant maintaining good rela-
tions with the regulated and relying on education, persuasion and setting
an example rather than imposing financial penalties or taking firms to
court. Regulators depended on information supplied by the regulated,
often had less specialist expertise than the regulated, offered salaries which
were too low to attract the most able, and employed staff whose loyalties
were divided since their careers would continue in the industry being regu-
lated, etc. (Miller and Dinan, 2009). In addition, there was an assumption
that self-interest would ensure good behaviour, i.e., the finance industry
would not take inordinate risks that threatened its own survival.
To explore further what is meant by regulation it is useful to examine its
organization and forms. Normative theories of financial regulation see it as
a means of (1) protecting individual financial institutions, the financial
system and society generally against the risk of a bank collapse, and
(2) protecting clients, especially uninformed ‘retail’ clients, as opposed to
professional clients. Regulation thus applies differentially to financial insti-
tutions depending on their level of riskiness and their clientele. Institutions
which are not ‘public-facing’ or which are considered less risky, such as
insurance companies and securities firms, are most lightly regulated. Unlike
banks, they are not in the inherently risky position of borrowing short and
lending long, and they do not have the power to expand credit. The main
forms of regulation are via capital and liquidity requirements. These restrict
the activities of financial institutions by requiring them to hold capital
assets to back their trading and lending activity, and liquid assets to be able
to repay depositors. Capital requirements are a response to the Wall Street
crash when trading on margin was identified as the main cause.
Whatever normative theories of regulation claim, the actual coverage
and level of regulation is a matter of power politics with the regulated
institutions fighting hard against efforts to regulate them. For example,

hedge funds have avoided regulation of their liquidity or capital by
claiming that they were ‘private’ and take in money exclusively from the
very wealthy who are well-informed investors and can afford to lose their
investments. In fact this is inaccurate; since 2002 UK pension funds and
insurance companies have been able to invest in hedge funds and by
2010 20 per cent of hedge funds’ investment funds were supplied by
pension funds.9 However, not only are there great differences in the level
of regulation between sectors of finance, but these encourage firms to
change their form, their activities or their legal status to reduce their level
of regulation and increase their profitability, i.e., to engage in ‘regulatory
arbitrage’.10 How this leads to the creation of the shadow banking sector is
discussed below.
The trend towards weaker regulation can be clearly seen from the
following figures. Between 1968 and 2008 the capital ratio for UK banks
fell from 15 per cent to 8 per cent and the liquidity ratio fell from 30 per
cent to 3 per cent (data for ‘broad ratio’) or 15 per cent to 3 per cent (data
for ‘reserve ratio’) (Bank of England 2009: 8, 43). The median equity
leverage ratio increased from 21:1 to 31:1 (for the ratio of assets to equity),
between 2000 and 2008 (FSA, 2009: 19), or from 20:1 to 48:1 (for the
ratio of assets to shareholders’ claims) (IBC, 2011: 128) These measures
underestimate the degree of risk being run by banks since they exclude
assets which are held off balance sheet precisely so as to allow very much
higher levels of leverage (FSA, 2009: 20).
Against the Critical Urbanist Interpretation: (B) US and UK

Banks’ Behaviour
Having sketched in the regulatory background we now examine US and

UK banks’ role in the financial crisis, by focusing on new types of financial
products, the creation of the shadow banking sector, and on the banks’
business model which shapes bankers’ attitudes to risk and reward. I shall
argue that these are the three key sources of instability in the banking
sector which, together with global macroeconomic imbalances, loose
central bank policy and weak regulation, are the prime cause of the
financial crisis in these countries.
‘Financial Innovation’ – The Rise of Securitized Credit and Derivatives

The low interest rates of the mid-1990s ushered in a period in which banks
sought ways of making good these losses by innovatory financial products.
There were two main kinds of innovation: securitized credit and derivatives.
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94 Chris Pickvance
Securitized credit11
The traditional model of bank lending is known as ‘originate and hold’:
banks originate loans to companies and individuals against assets such
as corporate headquarters and housing and hold the loan until it is repaid.
The new model is known as ‘originate and distribute’. This started in
the corporate sector but by the late 1990s had extended to residential
mortgages.12
The concept is that the bank which owns the asset (e.g., a corporate or
residential mortgage) sells it for cash to another financial institution or
‘structured investment vehicle’ (SIV) set up for the purpose. Typically
these entities were located in the ‘shadow banking sector’ (see below) and
were not subject to regulatory control. This entity then issues securities to
investors which are backed by the expected income flows, e.g., from mort-
gages, a process known as securitization. These securities or ‘collateral-
ized debt obligations’ (CDOs) are parcelled up and ‘tranched’ according to
their degree of risk from AAA (least risk) downwards, and a credit-rating
agency, paid by the issuer, confirms the level of risk of each tranche. The
theoretical advantage of securitization for the financial system is that it
spreads risks arising in particular regions, asset types and sectors of the
economy across financial institutions of many types located throughout
the country.
The advantages of securitized credit for the original bank are twofold.
First, it transfers risk: the original bank is no longer liable if households
default on their mortgages, or corporations default on their loans. Instead,
the entity which issues the securities takes on this risk. There can even be
an incentive to the original bank not to pass on information about the
riskiness of the loan in order to avoid future liability (Immergluck, 2009:
107). The importance of this is that if a bank loan stays with the original
bank it is part of the denominator in the bank’s capital ratio, requiring
more capital to be held, whereas if it is transformed into a securitized
asset held by an unregulated SIV this is not the case. This leads to
the second advantage: the bank is enabled to expand its lending capacity.
The sale of the original loan or mortgage increases the bank’s liquidity,
allowing it to make new loans. So, for a given volume of deposits, a
greater volume of loans can be generated. The result is to expand the
supply of credit.
However, this scenario assumes that there is no connection between the
original bank and the financial institution or SIV. In practice this may not
be the case and the latter bodies can range from being legally separate and
independent entities, to legally separate but wholly controlled entities, to
wholly owned and wholly controlled subsidiaries of the original bank.
These can be seen as different ways of reconciling the tension between
banks’ wish to avoid regulation and minimize taxation, and their wish
to draw on their reputation to help sell asset-backed securities. The
result is that in a crisis if an SIV is legally independent but is perceived
to be the responsibility of the bank, a bank may choose to support it in
order to preserve its own reputation, even though legally it does not
need to. Where this happens, the transfer of risk is less than it would
otherwise be.
Turning to the disadvantages of securitized credit, there were two
problems concerning risk transfer. The first is that the underlying theory
was based on mathematical models which proved inaccurate. In part
they relied on assumptions which were not met, e.g., that there would not
be a simultaneous decline in asset prices across the whole country; and in
part they were based on data drawn from short periods of steady growth
or on no data at all. The second problem is that the transfer of risk was
less than expected. As explained above, banks often chose to use entities
which they controlled or had relations with to hold asset-based securities
so that the transfer of risk was only on paper. In other cases, banks
ended up holding CDOs because no buyer could be found. In particular,
the least risky (or ‘super-senior’) CDOs could be hard to sell since the
interest rates attached to them were too low to attract buyers, who were
most attracted to the most risky CDOs offering high interest rates (Tett,
2009: 244). Goodhart teasingly uses the term ‘originate and pretend to
distribute’ (2009: 54) to describe this situation, but this does not distin-
guish between the intentional and unintentional paths to holding rather
than distributing, and ignores the critical role of the shadow banking
system.
Paradoxically, however, if securitization risks had been completely
transferred to the shadow banking sector, this would have increased the
instability of the financial system, given the lack of transparency and lack
of regulation of that sector (FSA, 2009: 18).
The other problem with securitized credit was that since the credit-
rating agencies were paid by the credit issuers they were incentivized to
support issuers’ judgements of the riskiness of securities. They also became
over-dependent on income from asset-based credit issuers for their own
financial survival (Immergluck, 2009: 116–120). It was assumed by some
observers that the agencies’ concern for their own reputations would
guarantee the quality of their work, but this proved not to be the case. Also
there was a general intellectual failure to understand what risk was being
rated (Goodhart, 2009: 17–19).13
Total securitized credit in the US grew from $400 billion in 1996 to
$2400 billion in 2007, and in the UK new securitized credit rose from
£20 billion in 2000 to £180 billion in 2007 (FSA, 2009: 14) One third of
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96 Chris Pickvance
new securitized credit issued in the UK in 2006 and 2007 was for residential
mortgages (FSA, 2009: 14).
Derivatives
The second type of innovative product, the derivative, is a contract
concerning a future value, such as the price of a commodity, or the level of
a share price, interest rate or currency, rather than a contract for the
purchase or sale of the underlying commodity, share or currency itself.
The contract may be entered into because the business needs to buy the
commodity or foreign currency in the future and wishes to insure against
the risk of future price increases or currency appreciation. ‘Hedging’ of
this kind can be considered a normal business transaction.
However, derivatives can also be purchased for speculative purposes.
Firms with no business need for hedging can, for example, purchase an
option to buy shares in another company, to buy a foreign currency, or to
invest in sovereign debt at a given price in the future. Here, in effect, the
firm is speculating on the future value of the company, the currency or the
government’s ability to borrow. The firm deliberately takes on (potentially
unlimited) risk in the hope of profit. When the entity purchasing the
derivative is not regulated and when the existence of the transaction is
unknown because it is not conducted on a public exchange, the potential
risk to an individual firm can be very great.
At the systemic level, the effect on stability of derivative trans-
actions depends on two factors. The total amounts involved are limited
by the fact that there are two parties to every transaction, so for every
loss made on a derivative transaction there is a potential gain. However,
the incidence of this risk depends on the distribution of derivative
losses, which will also depend on how the counterparty has laid off
the risks on the transaction.14 In practice, derivatives have been held
largely in the shadow banking sector to avoid regulation so it is impos-
sible have a realistic overall picture of the risks created by derivative
trading.
The worldwide scale of derivatives trading grew from $60 trillion in the
mid-1990s to $600 trillion by 2007 (FSA, 2009: 81). (This compares with
world GDP of $55 trillion in 2007, which is an indication of the dominance
of derivatives held for speculative reasons.) But the net risk if parties
default is estimated at ‘only’ $3 trillion (Bank of England, 2008: 21),
which is of the same order of magnitude as the total scale of securitized
credit ($2.4 trillion in the US). Derivatives can of course impact the future
underlying value in question, as in the case of currency speculation. As the
FSA (2009) points out, insurance policies cannot be taken out by persons
without an insurable interest in the object assured to avoid creating harmful
incentive effects. It has been suggested that derivative trading should be

similarly constrained.
In sum, banks, under pressure on their profits, created securitized credit
products of uncertain value (‘toxic assets’), and derivatives with vast
potential risk whose distribution among financial institutions was unknown.
It was the uncertain distribution of the risks caused by these innovations
which in September 2008 precipitated the breakdown in trust between
financial institutions needed for continued trading. No sensible party could
be expected to enter a contract with another party who might be bankrupted
by being overloaded with toxic assets or derivative claims.
The Shadow Banking Sector

The shadow banking sector has already been touched on because it refers
to the institutional domain in which financial products such as securitized
credit and derivatives are often held. However, there is a danger that it
does not receive the recognition that it deserves in contributing to the
financial crisis. Hence its separate treatment here.
The unregulated, ‘shadow’ or ‘grey’ banking sector is not a marginal
phenomenon as its name and ‘off-balance sheet’ character suggest but is
arguably as, if not more, important than the regulated sector as a source of
systemic instability. Moreover it is in part a creation of the mainstream
financial institutions in their attempts to avoid regulation and minimize
taxation, as when they create hedge funds or SIVs which operate in the
shadow sector (Blackburn, 2008; Farhi and Macedo Sintra, 2009).
Mainstream financial institutions are thus also involved in the shadow
sector. Needless to say this is not part of their public image and they are
only too happy to dissociate themselves from the non-bank ‘other’.
All regulatory rules create boundaries between regulated and unregulated
domains, and these act as incentives to regulatory arbitrage, i.e., to transfer
activities to the unregulated (or less regulated) side (Goodhart, 2009: 101).
This is much more than an academic point since the scale of the incentives
to make such transfers is enormous. The incentive is that capital and
liquidity controls can be avoided, and if the entity conducting the activity
is registered in a tax haven, there is a tax-saving too (Shaxson, 2011: 8–32,
244–278). (A disproportionate number of tax havens are in UK-controlled
territories.)
The attraction of SIVs used to hold securitized assets or derivative
contracts is that they are in the shadow sector and are therefore more
profitable. In fact it has been suggested that a key attraction of securitization
and derivatives was not their theoretical capacity to reduce risk but the
opportunity they gave to avoid regulation by moving activities into the
shadow sector.15 SIVs allowed banks to avoid or reduce regulation
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98 Chris Pickvance
and increase profits in three ways (FSA, 2009: 21): (1) capital does not
need to be held in respect of off-balance sheet subsidiaries, so the expanded
use of such entities allowed banks to grow without regard to (the admittedly
weak) capital requirements, (2) under Basel I regulations, entities that
are financed by credit of under one year’s duration are not required to
hold capital; SIVs were typically financed for 364 days, and (3) where
SIVs are set up in tax havens they can avoid paying corporation tax. This
is the case, for example, with the Jersey-based Granite trusts, worth
£40 billion, which are controlled but not owned by Northern Rock, and
which were left untouched when Northern Rock was nationalized. Thus
the role of SIVs is inseparable from attempts to avoid regulation and to
minimize taxation.
Estimates of the scale of the shadow sector are by definition hard to
come by. In the US in 2007, SIVs and hedge funds, etc., controlled
$6.5 trillion, compared with banks as a whole which controlled $10 trillion
(Timothy Geithner’s speech on 9 June 2008, cited in Tett, 2009: 263). In
the UK the Turner report shows the growth of SIVs, one element in this
sector, as rising from $100 billion to $300 billion between 2003 and 2007
(FSA, 2009: 20), and 80 per cent of EU hedge fund activity is conducted
in the UK. Since Autumn 2008 the UK grey sector is considered to have
shrunk, due to the decline in securitization, but it could expand again when
conditions are favourable.
The riskiness of the shadow banking sector has several sources. The
main reason is that the absence of capital, liquidity and leverage controls
means that there are no built-in safety limits to speculative activity, and the
value attributed to assets becomes hard to judge. A second reason is that
the activity is funded using short-term credit which is more vulnerable to
withdrawal. It was the drying up of short-term credit because of suspicion
about the value of the ‘toxic’ assets held which precipitated the Northern
Rock nationalization. Thirdly, the sector is set up ‘off-balance sheet’ which
means holdings lack transparency and no organization has oversight of the
scale and incidence of risks.
The threat which the shadow banking sector represented to the US and
the UK financial systems only became apparent too late. The fact that it
was allowed to develop to the extent it did is likely to be linked to the fact
that the mainstream banks were heavily involved in it, and exerted strong
pressure to shield it from regulation.
Banks’ Business Model and Attitudes to Risk and Reward

Banks operate according to a business model in which success and remu-
neration is based on return on equity, or ‘shareholder value’. In contrast to
the classical image of banks as taking in deposits, creating credit, and
lending to households and businesses, it has been argued that banks today
are engaged in ‘retail mass marketing and wholesale trading’ and have
become ‘transaction-generating machines’ (Engelen et al., 2011: 115).
Domestic customers are now targeted with the sale of all manner of policies
and in the UK, bank’s non-interest income as a proportion of net interest
and non-interest income has risen to 53.9 per cent in 2007, in the US to
39.3 per cent and France to 75.2 per cent (Engelen et al., 2011: 116; Dymski,
2012a). The wholesale money market has become the major source of
funds, and proprietary trading is a more significant activity. The scale of the
UK banking sector has grown to 500 per cent of the GDP. This compares
with 400 per cent for France, 200 per cent for Germany and 80 per cent for
the US (Engelen et al., 2011: 226, dates of data not given). Banks were very
successful in maximizing return on equity in the 2000s, especially relative
to other industrial sectors (Engelen et al., 2011: 103). Their return on equity
was of the order of 20 per cent, but their return on total assets was very
modest, i.e., about 1 per cent (Engelen et al., 2011: 108–109). However,
their success came about through their ability to expand their asset base via
debt finance, especially on wholesale markets, rather than equity expansion
(IBC, 2011). Much of this borrowing is linked to the role of offshore
financial bodies, set up to avoid regulation and taxation (IMF, 2009b).
A key incentive to borrow is that interest paid on loans is deductable
before taxes are calculated. In other words, wholesale borrowing rather
than deposit-taking was the means they used to achieve profitability.
The fact that borrowing came from within the financial sector increased
endogenous risk in this sector. The Vickers report also notes that banks
are currently under-supplied with the loss-absorbing assets needed in a
crisis.
This business model has direct effects on banks’ internal structure and
remuneration patterns (or what is sometimes known as ‘bonus culture’).
The internal power balance between the departments of a bank favours
those which generate the highest earnings, namely the trading departments
(or investment bank type activities) where staff are incentivized by bonuses
which relate directly to the short-term gains they make. The ‘compensation
ratio’ (between remuneration and total income) is often around 40 per cent
which encourages risky activity where profits are highest. Until recently,
bonuses could not be ‘clawed back’ if bank performance turned out to be
poor. Bonuses have attracted huge political opprobrium both for their
multi-million pound level and because they are paid even when a bank is
making a loss.16 The extent of distribution of income via salaries, bonuses
and dividends, rather than their retention to increase the capital of the
bank, and hence its lending capacity, has been a consistent complaint of
the Bank of England (2010: 6).
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100 Chris Pickvance
By contrast, back-office staff are less well-paid and receive at best small
bonuses. Departments responsible for risk management are marginalized
since they threaten the earnings of the most powerful departments. (This
was clear in the case of the HBOS risk-control head who was sacked for
raising doubts about the sustainability of the bank’s growth strategy.)
However, Lepinay’s (2011) study of a French bank questions whether
risk management departments were capable of understanding the risks
being run and suggests that there was deliberate concealment of the
riskiness of certain products because to reveal the details would have given
a competitive advantage to rivals.
One of the more intriguing defences the banks have advanced is that
the riskiness of their behaviour was unknown to them. In other words
they were not concealing what they were doing from external actors but
were genuinely in ignorance of what they were doing. There is some truth
in this argument. In front of Parliamentary Select Committees, bank chief
executives and chairmen have revealed their limited knowledge of
how products worked, and how they relied on their middle-level staff for
such an understanding. As shown earlier, these innovative products were
built on uncertain foundations, but these uncertainties were not communi-
cated to, or understood by, senior bank staff. Any doubts about them were
set aside because in the short term, securitized credit and derivatives
trading delivered profits growth, and bonus levels depended on the con-
tinuation of that growth. However, against this ‘ignorance’ interpretation
is the evidence that staff who questioned the growth strategies of banks or
drew attention to the increasing risks being taken were marginalized or
sacked. This suggests that there was a conscious attempt by bank leaders
to run banks at very high levels of risk to maintain expansion and profits
growth.
What is interesting about analyses of bank behaviour in the last two
decades is that there is no pretence that internal controls were effective.
The assumption that banks’ self-interest in their own survival would rein
in excessive risk-taking has proved to be unfounded. They no doubt
believed that the UK was going through a golden age where failure was
inconceivable, or that they were ‘too big to fail’ and that the state would
always step in to prevent a bank failure, a belief that proved well-founded
in the UK in 2007–2008, though in the US, the investment bank, Lehman,
was allowed to fail. The internal power structure of banks in which the
highest earners have the greatest weight must have shaped these beliefs.
A key factor in this banking culture is government support for the banks.
The Financial Services Compensation Scheme which protects depositors
up to £85,000 per institution is a direct benefit to individual savers, but it
is a collective benefit for banks in that it smoothes the flow of deposits to
them and does not discriminate between banks according to whether they
undertake more or less risky activity.17 Moreover, the lack of any separation
between retail and investment functions in ‘universal’ banks (which
undertake both types of activity) means they are free to allocate funds
from retail depositors to investment banking, with obvious implications
for their willingness to lend to households and businesses.
In brief, banks are run according to a business model in which growth
and bonuses are interlinked and where there is little disincentive to
excessive risk-taking. This also reflects the FSA’s light touch regulatory
approach which did not challenge bank practices.
Another insight into how banks operate can be gained from examining
UK banks’ views of the financial crisis as reported to the House of
Lords Economic Affairs Committee. Bank leaders have been swift to
deny responsibility for their behaviour. Instead they have redirected blame:
(1) towards the external regulators (the FSA in the UK), who were supposed
to have been regulating individual banks, (2) towards their own non-
executive directors, for not standing up to the executive directors, (3)
towards representative groups of investors such as pension funds and
insurance companies, for being insufficiently activist, and (4) towards
auditors, for being incompetent.18
It is of course quite possible to find fault with all of these groups. The
FSA has admitted its inadequate inspection of individual banks as in the
case of Northern Rock (FSA, 2008) but claims to have learned from this
experience (FSA, 2009). Select Committee reports have revealed the
weakness of non-executive directors who are not appointed for long periods,
who are expected to devote little time to the job, who lack research resources
to challenge board members, who lack expertise, and who typically share
the culture of those they are suppose to be checking (House of Commons
Treasury Select Committee, 2009; House of Lords Economic Affairs
Committee, 2009). Investor activism is a relatively recent phenomenon and
activist investors mainly have to be content with ‘symbolic’ victories due to
the dominance of ‘passive’ shareholders who support the company board in
every vote. Lastly, auditing of the larger banks is carried out by one of the
four main accountancy firms so competition is slight. Moreover, these firms
also work as consultants to the banks as well as auditors; their consultancy
income varies from 9 per cent to 34 per cent for the six largest banks (House
of Lords Economic Affairs Committee, 2009: Q345). Hence the accountancy
firms are disinclined to probe too far.
Overall, the blame directed by UK banks to these outside groups is
consistent with the banks’ failure to acknowledge having any responsibility
themselves. In January 2011, although the banking reforms introduced at
UK and international levels were minimal, Bob Diamond, chief executive
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102 Chris Pickvance
of Barclays, argued before the Treasury Select Committee that it was time
to stop castigating the banks and to ‘move on’. Related to this, the UK
Coalition government (2010 –) has blamed the previous Labour govern-
ment for its economic mismanagement and for the need to introduce sharp
public spending cuts, thereby diverting attention from the banks’ own role.
The Causes of the Financial Crisis: Summary

It has been argued that the prime cause of the US and UK financial crisis
was the operation of the banking systems in the two countries which in a
context of global imbalances, loose central bank monetary policy, light
touch regulation and implicit government guarantees of a bailout, devel-
oped business models which rewarded extreme risk-taking. This led to the
rapid expansion of securitization and trading in derivatives, and wholesale
borrowing as risk was transferred from the mainstream banks into a
shadow banking sector which escaped regulation and minimized taxation.
In principle, these ‘innovative products’ were about reducing risk; in prac-
tice, because their values were obscure and their incidence unknown, they
greatly increased systemic risk. The result was an unstable system which
could have been triggered into crisis in a variety of ways.
It is certainly true that sub-prime lending was one element of the credit
expansion in the US which preceded the financial crisis and hence that it
probably contributed to the crisis because sub-prime loans were one of the
types of asset which were involved in the expansion of securitization.
However they were not the only type of asset involved. As shown earlier,
in terms of volume, sub-prime lending was dwarfed by other types of
securitized credit and by the various kinds of derivative. There are no
figures that would allow us to identify the precise causal contribution of
these various factors.
It is not being denied that investment funds flow internationally or that
banks operate internationally, though they do so to varying extents. But
the critical urbanist explanation which emphasizes these processes and
structures does not explain the particular severity of the financial crisis
in the US and the UK. Only an approach which emphasizes distinctive
national conditions can do so. The fact that the US and the UK have been
at the epicentre of the financial crisis and that there has not been a global
financial crisis supports the argument that the prime cause lies in the
structure and dynamics of the banking system of these two countries.
It is not being claimed that the different levels of financial crisis experi-
enced in different countries can all be explained by their differing degrees
of involvement in the UK and US practices outlined here. Some countries
have not experienced financial crises (and ensuing economic crises)
(Canada, Australia), while others were affected only minimally (China).

On the other hand, there were countries whose financial crises were due to
other specific national features, in combination with international forces.
For Greece, the scale of public sector debt, which had been deliberately
concealed, was crucial. In Iceland, the finance sector had grown to over
1000 per cent of GDP and involved banks where owners, borrowers and
shareholders were fatally intertwined. In Spain, despite controls prevent-
ing banks from owning securitized assets, the key domestic causes were an
enormous housebuilding boom (in 2006 Spain built as many houses as
France, Germany and the UK together) and the local savings banks whose
lending policies were under political control (Garcia, 2010). Lastly, Ireland
also had a rapid housebuilding boom in which a network of bankers, build-
ers and politicians were involved. This is not to deny that UK banks lent to
Ireland or to Iceland but these countries together with Spain and Greece
had financial crises with specific domestic features which were distinct
from those in the UK and the US. The conditions described here for the
US and the UK are thus one route to financial crisis but not the only
possible one.
Hence we deny the ‘critical urbanist’ argument that the financial
crisis was triggered by the sub-prime mortgage crisis and have sug-
gested that, because of their understandable dislike of sub-prime lending,
critical urbanist writers have jumped to the conclusion that it must
have been central to the financial crisis, without demonstrating it. By
staying on the familiar territory of mortgage lending they have failed to
recognize the internal structural weaknesses of the US and UK financial
systems which made them unsustainable. This reflects an underestimation
of the degree of autonomy of developments within finance within global
capitalism.19
As Farhi and Macedo Cintra have written,
The financial crisis that started in the US in mid-2007, as a result of increasing

default rates and the devaluation of real estate property and of financial assets
linked to the US subprime mortgages, has given renewed strength to the debate
about the current architecture of the US and international financial system, its
potential risks and its mechanisms of supervision and regulation. This specific
architecture turned a classic credit crisis into a financial and banking crisis of
vast proportions, reaching a systemic dimension. (2009: 2, emphasis added)
This quotation distinguishes the structure or architecture of the system in

which the financial crisis broke out from the contributory processes, and
argues that it is the former which deserves the label of prime cause. This is
precisely the view taken here.20
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104 Chris Pickvance
Attempts at Reform
It follows from the above analysis that, to be effective, reform attempts

must be directed at changing the structure and dynamics of the financial
system and not simply at sub-prime mortgage lending. The fact that the
proposed reforms have had this wide scope is recognition of the limited
causal role of the sub-prime crisis. What progress has been made? For
brevity, I will concentrate on the UK.
Ring-fencing of Banks
In 2011 the Independent Banking (‘Vickers’) Commission reported. Its
brief was to enquire into the systemic risks and level of concentration21 of
the banking system (IBC, 2010, 2011). It rejected the complete separation
of retail and investment banking in favour of ‘ring fencing’ these activities
into two kinds of banks, but allowing them both to be owned by the same
group. The report suggests that this would allow the group to support the
retail bank from ‘group’ funds; it does not raise the question of draining
funds from the retail bank to deal with problems in the investment bank.
The solution also means that the group continues to benefit from the gov-
ernment guarantee to retail depositors, a significant subsidy in the current
system. A key point is that proprietary trading, derivatives, and securitized
assets would not be permitted in retail banks; however, there are many
grey areas concerning the allocation of activities between retail and invest-
ment banks.22 The report also requires divestment of bank branches by the
Lloyds HBOS group which was created as a crisis response, and required
the overriding of competition regulations. A weakness of the report is that
the ring-fenced system need only be in place by 2019. Unlike the report’s
all other recommendations, which are the outcomes of careful argument,
the 2019 date is not. This suggests that it was a political judgement the
Commission was asked to incorporate but for which it could not give a
reasoned argument. The Coalition government said it would accept the
report’s recommendations but, following lobbying, stated that the most
internationalized banks would not need higher capital ratios, rejected the
idea of a nationally set leverage ratio, and allowed retail banks to conduct
some risky activities. By 2012 there was mounting criticism of this water-
ing down of the report’s recommendations. By Autumn 2012 the bill to
implement the reforms was still to start its legislative path.
Form and Strength of Regulation

A new system or financial regulation will be introduced in 2013, splitting
the FSA into an industry-facing body, the Prudential Regulation Authority
(PRA), which will be part of the Bank of England, and a consumer-facing

body, the Financial Conduct Authority. This solution was advocated by the
Conservative Party when in opposition. The Bank has established a
Financial Policy Committee in parallel with its existing Monetary Policy
Committee to recognize its new responsibility. This structure has the
advantage of concentrating information on financial institutions in one
place, unlike the previous split between the Bank and FSA.
However, more important are the planned changes in the type of regula-
tion. On paper these are radically different; the question is whether in prac-
tice they will be deliverable. Whereas in the past regulation was reactive
and ‘the presumption was that supervisors should not be exercising judge-
ment on what might happen in the future; this was for management’ (BoE/
FSA, 2011: 5), the PRA will make such judgments. This means a ‘hands-
on’ approach with extensive access to firms’ data and with powers to force
a firm to adopt the PRA’s views rather than its own, for example about
levels of capital, liquidity, riskiness of new products, the firms’ risk man-
agement structure and culture. These will be backed up by fines, legal
powers and the power to close down a firm’s activities. Firms which have
greater capacity for systemic destabilization will be subject to closer regu-
lation. ‘The PRA’s most senior supervisors will be closely and routinely
involved in supervision of the most significant firms’ (BoE/FSA, 2011:
12). Hence the newspaper headline ‘FSA to sit in on Board meetings.’
Firms are not expected to engage in ‘creative compliance’ or regulatory
arbitrage (BoE/FSA, 2011: 4). This means a sea change from past prac-
tices. The new pattern of regulation amounts to something approaching
‘joint management’, and must be unique. 23 It addresses the self-destruc-
tive tendency of financial firms, but raises questions about its feasibility
due to limited PRA resources and firms’ concealment of information.
In addition, in 2009 an Act was introduced to specify the powers of the
Bank of England, the Treasury and the FSA in relation to bank resolution,
i.e., how to proceed in the case of banks which were failing, powers which
were revealed as shockingly absent in 2008.
Capital, Liquidity and Leverage Controls

All of these controls have the effect of reining in bank activity to a more
stable level. In 2010 and 2011 the G20 approved the Bank of International
Settlements ‘Basel III’ rules which require higher tier one and core tier one
capital ratios (8 per cent and 6 per cent, instead of 4 per cent and 2 per
cent), an additional 2.5 per cent for systemically important banks, and
tougher criteria for what counts as capital. Engelen et al. note that they are
‘much less stringent’ than those initially proposed (2011: 114). However,
these too will only be fully implemented in 2019. These capital ratios are
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106 Chris Pickvance
below current UK banks’ capital ratios, which indicates the feebleness of

the reform, and the character of the G20 decision-making process which
tends to proceed by consensus. The ‘rational’ argument for these limited
measures was that at a time when depression threatens it would be
dangerous to introduce controls which might reduce bank lending. But this
is special pleading which reflects lobby influence. Banks currently have a
surplus of funds and are currently criticized for refusing to lend. They have
failed to meet promises to lend to small businesses, and have preferred to
use money borrowed at 0.5 per cent for proprietary trading in derivatives
and other speculative activities.
Interestingly, the Vickers report is critical of the Basel III capital ratios
and proposes higher levels for retail banks which it thinks should be
subject to national rather than international controls (IBC, 2011: 91–93).
The Report’s criticism of debt finance does not appear in its final
recommendations, but it recommends that equities should rise to 10 per
cent of assets (compared with the Basel III minimum of 4.5 per cent) (IBC,
2011).
Basel III also includes a proposal to study liquidity ratios and leverage
ratios and introduce proposals by 2019, but the chances that they will
diverge much from current levels are low, though in the UK leverage ratios
have fallen from 30:1 to 20:1 since 2008.
Derivatives
The global total of derivative contracts has increased from $600 trillion to
$700 trillion between 2007 and 2010 (FSA, 2009: 81; BIS, 2011). There
have been national-level discussions of the need for central registries,
central clearing, and a higher capital requirement for over-the-counter
trading but no real progress has been made in the UK, the US or elsewhere
(FSB, 2011a).
Securitization
From 2007 to 2010 the global total value of securitized assets has fallen
from $12.1 trillion to $3.4 trillion (IMF, 2011). The European Banking
Authority has required originators of securitized credit to retain 5 per cent
of the value, as has the US Dodd-Frank Act. Otherwise, no action has been
taken.24
Remuneration
In 2011 controls were introduced requiring 50 per cent of bonuses to be
paid in shares with 40 per cent spread over 3–5 years ahead, and making
them dependent on bank performance. However, the effect of these

controls was limited by banks raising basic salaries and reducing the role
of bonuses. The PRA will also apply the EU directive introduced in January
2011 concerning remuneration principles and disclosure, but this does not
concern the level of salaries and bonuses.
Shadow Banking Sector

The importance of this sector was recognized in only two places in the
Vickers Report (IBC, 2011: 90, 134). In each case it was pointed out that
if stricter regulation was adopted it would force institutions to move activi-
ties into the shadow banking sector. The report contained no proposals to
regulate it or reduce its size. In contrast, Chow and Surti’s analysis of the
Vickers and Volcker solutions concludes that ‘enhancing oversight of the
shadow banking sector is essential to prevent migration of systemic risk in
response to tighter constraints on regulated banks’ business models (2011:
31). At international level the IMF (2009a) and BIS (2010) are trying to
persuade national governments to adopt reforms. The G20-based FSB has
published a set of recommendations which include obliging banks to
include on balance sheet the liabilities of all entities they sponsor, limiting
the size of these exposures, and preventing banks from giving implicit
support to non-sponsored entities (FSB, 2011b). They are also seeking to
gather data on the operation of hedge funds. From past experience, these
are not likely to make the transition to policy very soon. However, in 2010
the EU passed a Directive on Alternative Investment Fund Managers
which will come into effect in 2013. It will impose new regulations on
hedge funds and private equity concerning leverage, transparency and
remuneration and its effect will be greatest in the UK where hedge funds
are concentrated. How much bite it will have is not yet known. In 2012 the
International Monetary fund (IMF) wrote that ‘Looking ahead, a great deal
will depend on whether the higher-risk activity – investment banking and
trading – shrinks in size (contrary to current trends) and whether it remains
in the banking sector or shifts to nonbank institutions. If activities move
out of the banking sector, greater attention to regulation and supervision
standards in the nonbank sector will be required to ensure that risks
are properly addressed. If risks remain within the banking sector, the
effects of increased concentration or the entrenchment of too-important-
to-fail institutions will need to be considered’ (IMF, 2012: 18).
‘Too Big to Fail’ and ‘Too Interconnected to Fail’

These two problems remain despite the Basel III reforms (Chow and Surti,
2011). In a rational world, providing headquarters for major banks
www.Ebook777.com
108 Chris Pickvance
(famously described by Mervyn King as ‘global in life’ and ‘national in

death’) would be recognized as a collective responsibility, and a limit
placed on the maximum size for the banks headquartered in a particular
country, individually and collectively. In the absence of such a measure,
there is nothing to stop governments from attracting bank headquarters
and encouraging the growth of ‘global champions’, such as RBS, or to
stop banks optimizing their locational choice without regard for the effects
on macro-financial stability.
The question is whether the combination of ring-fencing, stronger
regulation and small changes to capital ratios will change the business
model used in banks. The lack of controls on liquidity and leverage, the
incentivization of debt-based funding, the failure to touch the shadow
banking sector, the continuing role of bonuses in encouraging growth and
risk-taking, the too-big/too-interconnected-to-fail problem, and the choice
of ring-fencing, as opposed to separation, which will leave banking groups
vulnerable to decisions made in their investment banks, are so many
reasons for concluding that the changes made or proposed are a long way
from what is necessary.
Overall, the slow pace of reform of the banking system shows the con-
tinuing dominance of the finance sector over government, relative to
households and business which have no answer to their question of why
banks were bailed out when they were not. It would be satisfying to be
able to describe the power structures and lobbying activity that have led to
this outcome, but this is impossible to do. The US practice of recruiting top
economic and financial officials from banks, e.g., Henry Paulson, the
Treasury secretary who was a former Goldman Sachs chief executive, is
well known. In the UK ties between the City and government officials are
less direct but no less effective in ensuring that the government adopts
City views as national interests. 124 members of the House of Lords are
paid by financial firms or have financial clients and it is estimated the UK
banking industry spent £92 million on lobbying in 2011 (The Guardian,
10 and 11 July 2012.) One empirical study of US bank lobbying by Igan et
al. (2009) shows a strong correlation between the riskiness of the bank’s
activities and the level of their lobbying contributions. Likewise, in the
UK, 51 per cent of donations to the Conservative Party in 2010 came
from the City and six of the largest ten donors were from hedge funds,
which were particularly vulnerable to tighter regulation (The Guardian,
9 February 2011). This suggests that while major financial institutions can
rely on inside track lobbying, less well-established bodies have to rely on
visible forms of lobbying.
The slow pace of reform also shows the incapacity of supranational
organizations such as the G20, the Bank for International Settlements
(BIS), the IMF and the European Union (EU) to take radical steps. As has
been shown, some issues have barely been recognized (the shadow banking
sector, apart from hedge funds), while those that have been addressed have
been addressed in a feeble way.
The IMF’s October 2012 Global Financial Stability report is very
pessimistic about the extent of reform.
This means that most of the drivers of the financial crisis remain
unchanged. The transformation of the financial crisis into the economic
crisis, has led European governments to give priority to the resolution of
the Eurozone sovereign debt crisis and the implementation of austerity
policies. The result is that the need for urgent action on financial reform
has been lost. A future banking crisis remains entirely possible.
Notes
1 There is some unclarity about the terminology. Some writers use terms such as
‘predatory loans’ or ‘high risk’ loans. Writers who use the term ‘predatory loan’ (e.g.,
Newman, 2009) do not say whether all sub-prime loans are predatory or if not what distin-
guishes those which are, or alternatively whether predatory simply indicates moral disap-
proval. Immergluck sees sub-prime loans as part of a wider group of ‘high risk loans’
(2009: 2) and does not use the term predatory. In the UK the term sub-prime is not in
current use, but some common UK practices such as low initial interest rates rising after a
fixed period are equivalent to the ‘teaser rates’ which some US writers identify as features
of predatory loans.
2 See Hernandez (2009) for a summary of this work. In contrast, UK work has
focused more on the house and neighbourhood than on ethnic minorities. For evidence on
red-lining in UK see Boddy (1980: 68–9).
3 In the UK in 2007, 45 per cent of mortgages were given without any income being
stated, and for the period from 2007 to early 2010 the figure was ‘nearly 50%’ (Guardian,
13 May 2009, FSA press release, 13 July 2010) but the proposed response is to be more
rigorous in judging borrowers’ ability to pay rather than to abandon risk-based pricing
(FSA, 2010).
4 To describe risk-based pricing as a theory rather than an economic practice seems
odd but perhaps it is necessary to their claims about its wider significance.
5 As suggested above, UK mortgage lending frequently departed from the risk-based
pricing norm, but while this may have aggravated the financial crisis in the UK noone has
claimed that it was a central factor as is claimed for sub-prime lending in the US.
6 More information is provided on these below.
7 In the UK, figures for actual repossession on all mortgages were 0.3 per cent in
2008, indicating the very different scale of mortgage problems.
8 In 2011, as fines levied by the FSA on banks rose, the Chancellor of the Exchequer
announced that in future they would go to the Treasury rather than stay with the FSA and
reduce the size of City firms’ contributions to it.
9 The source of this figure is a personal communication from the Association of
Alternative Investment Managers in 2010. Following the period of declining equity returns,
pension funds and insurance companies were keen to invest in ‘alternative asset classes’
which gave greater scope for profit (and were more risky). In 2006 3 per cent of UK
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110 Chris Pickvance
pension fund assets were held in hedge funds, and in that year Paul Myners (at that time a
hedge fund manager, later to join the Labour government as City Minister) stated that
pension funds should be able to hold up to 20 per cent of their assets in ‘alternative asset
classes’.
10 The UK is generally seen as more weakly regulated than the US and this has
facilitated the growth of the Eurobond market, of offshore activity, and of banking secrecy
(Shaxson, 2011: 80–102, 247–250). See also the comment that ‘London became a satellite
for transactions by large US banks: “the place where you could do what you couldn’t do
back home: a place of financial arbitrage”’ (Farhi and Macedo Sintra, 2009: 4).
11 Strictly speaking what was new was more complex types of securitized credit
(Turner, 2010).
12 For a description of its rise, see Tett (2009: 48–192) and Wainwright (2009).
13 For a more detailed analysis of securitization see Turner (2010).
14 In the US 97 per cent of the value of derivatives held by commercial banks in 2010
was held by the top five such banks (Engelen et al., 2011: 61).
15 According to an academic specialist, ‘90% of the innovation there [in the deriva-
tives market] was pure regulatory arbitrage’…I do not see a lot of merit into most of the
derivative work created. Second, I am convinced that however they are described as very
complex, part of the reason they are complex is that they were exactly designed to go
around regulation.’ (Prof Enrico Peretti in House of Lords Economic Affairs Committee,
2009: Q222)
16 And even when the bank is 84 per cent state–owned as in the case of RBS which
paid 100 bankers £1m or more and paid £1 billion in bonuses despite making losses of
£1.1 billion for 2010 (The Guardian, 28 February 2011).
17 Between 2002 and 2007 it is estimated that the government subsidy to the world’s
largest banks was $70 billion/year (50 per cent of average pre-tax profits), and that this rose
to $700 billion in 2009 (Haldane, 2012.).
18 It has also emerged that after responsibility for bank supervision passed to the
FSA, auditors were no longer contacted by the FSA as they were when the Bank of England
was in charge (House of Lords Economic Affairs Committee, 2009: Q305).
19 See Dymski (2012b) for a similar argument.
20 In this chapter the emphasis has been on the ‘normal’ running of banking systems.
However, over time the role of tolerated abuses and criminality has become increasingly
apparent. Individual traders have been taken to court for bringing multibillion pound losses
to their banks (Societe Generale, UBS, JP Morgan), their defence being that breaching risk
limits was an accepted practice. UK banks have had to compensate customers for mis-
selling financial products (about £10 billion in 2011 and 2012 for mis-selling payment
protection polices). In Summer 2012 Standard Chartered was fined £220 million for trans-
actions with Iran, HSBC £445 million for laundering drugs money – the FSA had published
a 2011 report suggesting there was a lax attitude to such transactions – and Barclays was
fined £290 million for its role in setting LIBOR, an internationally used yardstick, with up
to 10 other banks still to be fined. US prosecutors have taken a lead in this and have sug-
gested London was a ‘wild west’ where anything went. This has led to a demand for crimi-
nal sanctions against individuals, and the Serious Fraud Office is investigating the LIBOR
setting process.
21 The largest five banks accounted for 80 per cent of residential mortgages in 2009
and 85 per cent of current accounts in 2010 (IBC, 2010).
22 The US Dodd-Frank Act 2010 which was passed more rapidly than UK legislation
is potentially stronger in its controls on banks. It reintroduces the separation of retail and
investment banks (the ‘Volcker rule’) and prevents institutions receiving federal deposit
guarantees from engaging in proprietary trading or investing in hedge funds or private

equity. However, its implementation remains open to negotiation. The latter is an example
of the general point that although the UK and US have contrasting styles of regulation in
many areas (less and more law-based; more and less based on negotiation) in practice there
is a great deal of convergence due to discretion in the application of US laws.
23 In March 2012 the FSA was already demonstrating its new powers by challenging
the capacity of the Co-operative group to absorb 632 Lloyds branches, trebling its branch
network.
24 The Eurozone crisis has led to increasing coordination among Eurozone central
banks which could eventually lead to higher regulatory standards than those in the UK
being imposed by the European Central Bank. However, this remains some way off.
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www.Ebook777.com
4
After Wall Street? New York’s Green
Economy Imaginaries
Michael Indergaard
In the wake of the 2008 financial crash, urban theorists and policy-makers
in the US and UK have begun to think about alternatives to finance, insur-
ance, and real estate (FIRE) as an engine for economic development. Pratt
(2009) proposes that an information and cultural economy (ICE) may
replace, in part, financial service jobs in global cities like as London.
Others advise that political conditions now are favorable for alternative
development agendas. Indergaard (2009) suggests that policy-makers in
New York might shift their focus from real-estate-oriented development to
support of the creative and knowledge sectors. Block (2010) argues that
political realignments in the US made it possible to create a new frame-
work for development that revolves around green industry. Yet, various
global economic imbalances have kept post-crash politics churning in the
US and Europe, adding to uncertainties about how much FIRE will dimin-
ish, ICE might surge and whether the West have really eluded depression
(Krugman, 2012).
Although Fujita (2011) sees the crisis as discrediting efforts to promote
market fundamentalism globally, she anticipates that nation-states will
continue to explore ways of using finance for competitive advantage. A
shift of wealth to global export powers from the US may make the latter
more dependent on private investors (Cohen and DeLong, 2010). Indeed,
new knowledge economy initiatives in New York City that seek to diver-
sify away from dependence on Wall Street still give a prominent role to
finance and real estate. One such thrust is a green industry strategy that
draws on an eclectic jumble of federal, state, and activist initiatives. City
government and its allies in business and education do not seek to replace
FIRE with ICE as much as they aspire to marry the two ensembles, espe-
cially to support the development of green building technology. Yet, this
effort is very much in an experimental phase as are the federal and state
initiatives, more generally. There has been little settled about what
areas and populations will be priority targets nor how much influence
rival schemes and interests will have in shaping green development
projects. Of special interest, is a progressive network of activists who are
After Wall Street? 115
participating in green development politics at all levels – the green collar

movement.
The indeterminacy concerning the green economy, in part, reflects the
unsettled state of the liberal capitalist regime in the US: it seems stuck
between its free market and embedded versions. Large alternative energy
investments by the Obama administration have been matched with com-
petitive grant programs for localities that call to mind neoliberal policies;
moreover, fierce conservative resistance has stymied federal activism.
Similarly, the federal impulse to re-regulate Wall Street has been muted
by an inclination to persevere its oligopolistic core (Indergaard, 2011).
Conservative allies of finance have sought to weaken reforms and in a
rare display of bipartisan cooperation, Congressional democrats and the
White House recently joined them in loosening restrictions on banks
who are shepherding small “growth firms” through initial public offerings
(IPOs).
Moreover, green economy development, as a novel form of urban
economic governance (Jessop and Oosterlynck, 2008), is beset with
ambiguity – namely, a lack of shared understandings about what activities
and actors the green economy includes or what its relationship with society
will be (Christopherson, 2011). Seeing these ensembles as unsettled enti-
ties with unfixed identities and boundaries, the paper examines what rival
interests seek to make of them as “objects of governance” (Jessop and
Oosterlynck, 2008). It also analyzes how federal and state policies have
shaped the ability of these contenders to influence frameworks for green
economic development in New York.
Economies of FIRE and ICE
On the eve of the financial crash, President John Sexton of New York
University mused that intellectual, cultural, and educational (ICE) assets
would sustain New York as online trading diminished the FIRE sector
(Sexton, 2007). Pratt (2009) took up the acronyms (but tweaked the
content) when he assessed the impact of the 2008 crash; he advised that
the ICE might partly replace FIRE in London. In fact, Sexton’s notion was
more ambiguous as he added that that ICE “can keep FIRE from being
extinguished” (2007: 2). In certain respects, the ambiguity is warranted.
The relationship between FIRE and creative industries is hardly a novel
topic for urban analysis. Sassen’s global city model (1991) stressed the
central role of FIRE along with advanced producer services (including
creative sectors such as advertising and media): these ensembles exercised
command and control over global production systems and generated
innovative services. However, recent developments belie core assumptions
www.Ebook777.com
116 Michael Indergaard
of the model, for example, presumptions of FIRE’s autonomy and

functional merits. As FIRE wanes in New York’s postindustrial base, it
looks to be more of an ICE age. From 1993 to 2010, FIRE employment
declined by 36,300 (–7.8 percent) while prof/sci/tech services (e.g.,
architecture, design, advertising, computer services) gained 100,000 jobs
(44.2 percent) – with computer services surging by 30,400 (179.9 percent).
Jobs in the arts/entertainment sector grew by 25,700 (62.8 percent)
(Indergaard, forthcoming).
Thus, it is a good time to consider alternative paths that urban develop-
ment might take in cities such as New York. Kratke (2011) observes that
even when trade in financial assets and derivatives has dominated, “inno-
vation” has remained an alternative pathway of capital accumulation.
Similarly, there are multiple avenues for urban competitiveness. The
finance-based path is when a city serves as a site of command and control
(the global city strategy). Things are more complex when it comes to inno-
vation as its cultural and technological forms are distinctive. While both
technological and cultural innovation can bring upgrades in production,
the latter can do the same in the realm of consumption. Cultural innova-
tion’s contribution to consumption compliments the command and control
strategy: “the extension of high-rank cultural amenities and the fostering
of gentrification projects … according to the preferences of affluent citi-
zens and functional elites” is an advantage in “competitions for command
and control functions” (Kratke, 2011: 32). Technological innovation is in
greater tension with financial strategies as the latter diverts investment to
speculation and away from venture financing and the production of critical
knowledge inputs – R&D and public education. As is the case with some
nations1 a city might be able to host technological innovation along with
the other forms of accumulation in a mixed economy if sufficient knowl-
edge inputs are available. However, public investment in R&D and educa-
tion now may be diminished in the wake of the financial crash.
In a complementary meso-level analysis, Hutton (2008, 2009) and
Pratt (2011) distinguish the cultural and creative industries (CCI) from the
intermediate services of Sassens’ global city model. While intermediate
services (FIRE and producer services) use segmented labor (execs, profes-
sionals, sales, clerical, and the like) housed in office buildings, the CCI use
specialized neo-artisans, design professionals, scientific/IT staff and artists
in industrial facilities repurposed as studios, workshops, or live-works
in industries such as internet services, software design, graphic design,
film production/postproduction, video game production, music studios,
and galleries (Hutton, 2009: 616). Their extended production chains often
include manufacturers (Pratt, 2011). As creative sectors (graphic design,
advertising, and film production) become more tech-savvy and interact
with knowledge-intensive industries (software and video production), it

results in hybrid firms and workers that are difficult to classify.
The CCI has a contradictory relationship with FIRE, both in terms of
economics and politics. Financial booms boost some CCI segments while
embedded venture capital is essential for nurturing some kinds of start-
ups. Moreover, the presence of CCI firms upgrades the image and value of
real estate, drawing in turn, affluent employees of both CCI and FIRE
(Zukin, 1982; Hutton, 2008; Indergaard, 2004, 2009). In addition, real
estate interests supply built environments whose functional and aesthetic
qualities abet creative and knowledge intensive firms (Hutton, 2008,
2009). However, financial and real estate booms can limit the ability of
CCI sectors to contribute to urban revitalization (Hutton, 2008): for one
thing, the resulting rise in real estate values displaces many CCI firms and
workers who are not affluent. New York’s CCI have sharper falls during
busts; in cases where an industry was directly involved (as object or
enabler of speculation) the magnitude of the effects of boom and bust was
intensified (Indergaard, 2013).
The relationship is similarly contradictory with regard to politics. On
the one hand, FIRE interests often receive public support to help establish
creative scenes in under-utilized real estate segments. While old industrial
districts are the classic example, the retreat of the financial industry in
New York has lead to a similar dynamic in Downtown Manhattan (and, as
we will see, Downtown Brooklyn). On the other hand, the preference for
CCI tenants falls as real estate values rise. Moreover, lobbying of officials
to support real estate development, blocks adoption of CCI development
agendas – such as buffers from high rents or investments in productive
capacities (Indergaard, 2009).
Green industry, similarly hybrid in nature, actually overlaps with
the CCI. Recent definitions of green industry in New York have
included industries as disparate as architecture, computer systems, and
manufacturing – as well as finance and real estate. More uniquely, most
participants agree that the public sector must intervene to allow green
enterprise and markets to become viable. Moreover, a progressive green
collar coalition is influencing the politics of green economy development.
Understanding this politics requires a consideration of the national
institutional context in the US.
Decentralized Policy Systems in National Context
As is often the case with innovative economies, nascent efforts to nurture

green economy ensembles involve decentralized assemblages of govern-
ment, business, and nonprofit actors who collaborate at, or across, multiple
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scales. This can be seen not only in the neoliberal heartland (e.g., the US)
but also in societies known for centralized policy-making such as
China and Japan. The spread of state decentralization and related policies
(e.g., public–private partnerships) has led some to see neoliberalism as a
master process across societies that takes “variegated” forms (Brenner,
Peck, and Theodore, 2010). Others stress, instead, the continuing impor-
tance of national regimes in decentralized systems (Fujita and Hill, 2012;
Indergaard, 2011; ten Brink, 2010; Block, 2008; Jessop, 2002) including
in the matter of green economy policy (Christopherson, 2011).
For instance, in China where a “layered” governance system bears the
legacies of a “planned economy” (ten Brink, 2010: 3) national government
has invested $15 billion in electric car pilot projects in 20 cities while state
banks have joined with a mix of provincial and municipal governments to
support production of solar panels elsewhere (Bradsher, 2010). In Japan a
“post-developmental” regime has instituted an industrial cluster develop-
ment strategy that aims to spur localities to develop their own industrial
policies and knowledge base in four sectors including environmental
industry; this effort to create local networks of firms, universities, and
NGOs is “state-led” as is reflected in the fact that regional arms of the
Ministry of Education, Trade and Industry (METI) have created “cluster
promotion organizations” to broker networking in 18 clusters (Fujita and
Hill, 2012).2
Neoliberalism has dominated the US for some time. However, an analy-
sis of the decentralized US policy system reveals a mix of contradictory
factors. Decentralization is been built into its federal system where the
50 states have considerable sovereignty. In fact, some states have incu-
bated progressive policies at times when conservatives have controlled
federal policy (Freeman and Rogers, 2007). Moreover, Block (2008)
shows there is a sizeable, but largely “hidden” developmental apparatus
composed of hundreds of dispersed federal agencies and offices that
operate in the “shadows” to work with state and local actors to promote the
development and commercialization of technology.3 The decentralized
policy system of the US resembles the developmental networks of Europe
in basic respects: officials “help firms develop products and process inno-
vations that do not yet exist” and “work closely with firms to identify and
support the most promising areas for innovation” (Block, 2008: 172).
However, the difficultly of discussing industrial policy at the national level
has “distorted” the US system. A lack of democratic debate about indus-
trial policy retards its legitimacy, funding is unstable, there is a lack of
coordination and more attention is paid to labor costs than upgrading
(Block, 2008). The US system does have some advantages: federal agen-
cies are embedded in specific institutional ensembles and their myriad
public brokers positioned to tap local knowledge. Moreover, innovation

from federal research “spills out into the local industrial ecosystem”
(Cohen and DeLong, 2010: 9). Whitford and Schrank advise progressive
options may be “hidden in the interstices and inconsistencies” of the
US “institutional framework” (forthcoming: 18). Block thinks a green
economy narrative could abet reforms in the developmental apparatus:
introduce expectations that publicly supported firms will reciprocate;
create policies that “confront deep poverty and racial divisions”; expand
“space for public deliberation on the direction of technological change”;
and shift R&D funds “toward initiatives that could address the global
climate crisis” (Block, 2008: 199–200). After the 2008 crash and Obama’s
initiatives, Block (2010) proposed that a green economy could be a new
framework for growth and the basis for a “21st Century New Deal”.
However, some see national and global imbalances to pose daunting
challenges. Krugman (2012) claims that the US economy, beset by high
unemployment and debt, is trapped in a “liquidity trap” where neither
firms nor consumers want to spend. Only public spending can take the
economy out of its depressed state. Cohen and DeLong warn that the flow
of wealth from the US to export powers raises the scenario of national
governments in Japan, Germany, and China pumping billions into green
technology firms while a financially strapped US government reduces
R&D spending; American firms “dependent on the tight constraints of
capital markets, will be left far behind” (2010: 8).
Christopherson (2011) is skeptical about American politics when she
advises that green economic development is not likely to create large
numbers of jobs in cities. She proposes that the “green future is more about
politics than technology” (p. 379); “confusion” exists about what “green
economic development” is because the idea “has been adopted and adapted
by interest groups and corporations with vastly different interpretations and
agendas” (p. 372). There are two leading definitions that have different
implications for cities. The first defines the green economy to involve
renewable energy, which entails manufacturing of equipment to support
alternative energy producers (solar, wind power, geothermal, and biomass).
The second revolves around energy efficiency and conservation, which
includes new products and technologies, recycling, and building retrofits.
She argues that energy efficiency efforts have more potential to create urban
jobs in advanced societies. Manufacturing for alternative energy systems
would produce jobs for ex-urban locations and its ability to generate supply
chains would be limited by corporate outsourcing. In contrast, energy
efficiency strategies (e.g., building retrofits) could be pursued across cities
and would nurture the sort of small firms that create many jobs. However,
she fears alternative energy proposals will garner more political support.
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There has been an emphasis on creating new markets for alternative fuels
and on shifting to low-carbon products. Moreover, she thinks the centrality
of inter-jurisdictional competition in economic development policy will
give the initiative to the state level. She doubts the states will favor energy
efficiency measures such as building retrofits given the political lure of
large-scale alternative energy projects and manufacturing jobs supported
by “big firms, big unions, and big utilities” (p. 373). However, she does not
assess the role of green collar activists in green economy politics.
Constructing Economic Imaginaries and Interests
Jessop and Oosterlynck (2008) develop a conceptualization of the role of

politics in the creation of “economic imaginaries” that can be applied to
the green economy question.
They claim that an economic imaginary is necessary to make an agglo-
meration coherent and governable. “The chaotic sum of all economic
activities … is so unstructured and complex that it cannot be an object
of effective calculation, management, governance, or guidance” (p. 1157).
For example, imaginaries for industrial districts or regions develop,
… as economic, political and intellectual forces seek to (re)define specific

subsets of economic activities as subjects, sites, and stakes of completion and or
as objects of regulations and to articulate strategizing projects, and visions
oriented to these imagined economies. (p. 1158)
Such campaigns seek to “secure recognition of the boundaries … typical

economic agents” and “requirements” of a purported economic ensemble.
The process through which imaginaries are constructed and institutional-
ized is a strategic point for political analysis. An imaginary provides a
basis for an alliance to form among diverse actors. Rather than search for
carriers of the general interest, this approach explores how interests
(re)form during the making of imaginaries – a process entailing “struggles
to shape the identities, subjectivities, and interests of the forces involved”
(p. 1157). A mix of semiotic and material factors determines which
imaginaries are selected, reinforced, and eventually institutionalized. The
fortunes of an imaginary may be boosted if it resonates with elite narra-
tives or with a meta-narrative (e.g., the knowledge economy). However, it
can only have a causal effect if it is also supported by material factors.
Jessop and Oosterlynck stress the state’s role in the institutionalization of
an imaginary, for example, in a state project, vision, or regulatory rules.
Finally, they note that the possibility that an imaginary may contribute to
a new path of development increases during times of crisis.
My study tracks the efforts of the green collar movement to develop and
promote an economic imaginary for New York. That allows us to follow a
multiscalar politics as the green collar movement has evolved in a back
and forth exchange among cities, states, and the federal government. The
study begins with national-level developments in environmental politics,
the rise of the green collar coalition and its role in Obama policy. It then
examines precrash efforts by a local green collar group to spur green
economy development in New York; their imaginary is contrasted with
that of local elites. The next section shows how Obama policy has shaped
postcrash green mobilizations by the green collar coalition and state
government. The following sections profile green industry components in
the city’s new knowledge economy initiatives. The paper then traces the
evolution of the local green collar coalition as it connects with a larger
range of activists and issues. The conclusions assess the influence of
federal policy and the green collar coalition on the creation of frameworks
for green economic development in New York.
National Green Development Policies and Politics
Since 1970’s scientists, environmentalists, and political officials have

brought growing attention to the threats posed by climate change. As such
concerns lead to proposals for increased government regulation of pollution
sources, an anti-regulatory coalition has formed among fossil fuel energy
industries, the states whose economies they dominate, and anti-federal
conservatives. Their main defense against proposed federal environmental
intervention has been to claim that it will severely damage the economy.
To gain traction against this opposition, environmental groups have taken
two tacks over the last decade. They have (a) formed coalitions with each
other and with groups representing unions and business factions and
(b) devised visions of the economic benefits that would arise from an epic
“post-carbon” transformation (Layzer, 2011).
The most interesting new alliance is the green collar movement, a
coalition of environmental justice groups, mainstream environmentalists,
and unions. Its flagship organization is the New Apollo Alliance and its
most prominent figure is Van Jones, a lawyer who helped start environment
justice groups at the local and national level. Jones (2008) has published a
best seller articulating major elements of the green collar visions: cities
have a central role in addressing global warming; the environmental crisis
has a dual nature in that it is accentuated by racial and class inequality
found in cities; creating a post-carbon economy is a mammoth undertaking
that requires that “green” skills and knowledge become part of a wide
range of industries and occupations; the most common green jobs will be
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versions of blue-collar or lower-level service occupations; to make this

change requires a massive federal investment that resembles that of the
Apollo Moon Mission; and for such an intervention to be feasible requires
that environmental activists mobilize far broader political support than
they have traditionally done.
The green collar vision appeals to a great many of those who support
cities and progressive agendas. In 2008, the US Conference of Mayors
approved a resolution affirming a green collar pledge (Jones, 2008). As
candidate and president, Barrack Obama has embraced much of its agenda.
In his first speech as president, Obama declared, “To truly transform our
economy, protect our security, and save the planet from the ravages of
climate change we need to ultimately make clean, renewable energy the
profitable kind of energy” (Layzer, 2011: 327). His administration incor-
porated green collar activists into the policy-making apparatus, most
notably, Van Jones and Jerome Ringo, a past chairman of the National
Wildlife Federation, who founded the New Apollo Alliance. At that time
Apollo coalitions had been set up in ten states and four cities (including
New York City). With the assistance of Speaker Nancy Pelosi, Van Jones
influenced Congress to pass the Green Jobs Act in late 2007 which pro-
vides $25 million to green programs that build “pathways out of poverty”
while Ringo convinced all the Democrat presidential candidates to support
creation of “green collar” jobs in their climate and energy platforms
(Sheppard, 2008). Jones, a fellow at the Center for American Progress
(CAP), participated in the first meeting of Vice President Biden’s Task
Force on Middle-Class Working Families on a panel that examined how
the public sector can create green collar jobs; Jones pushed the White
House to use the stimulus money on training for green collar jobs and to
“green the ghetto” first (Burnham, 2009). A month later Obama appointed
Jones to be the White House adviser for green jobs, enterprise, and innova-
tion and to take a position in the Council on Environmental Quality, where
he coordinated energy and environmental policy initiatives of federal
agencies, including cabinet-level departments (Judkis, 2009).4 Another
Obama link to the green collar movement is Bracken Hendricks, executive
director of the Apollo Alliance and a long-time advisor to the AFL-CIO;
Hendricks, also a CAP fellow, advised the Obama campaign and transition
team – and was the architect of the clean-energy segments of the stimulus
bill (Center for American Progress, 2009).
Obama’s $787 billion stimulus bill (the American Recovery and
Reinvestment Act) provided $26 billion for low-carbon power, $27.5
billion for energy efficiency in buildings, $4 billion for low-carbon vehi-
cles, $11 billion to upgrade the electricity grid and $10 billion for rail
(Layzer, 2011: 343). In addition, his 2010 budget included a 10-year
$150 billion program to promote clean energy and energy efficiency.

The White House claimed this would “establish a foundation for … future
economic prosperity, reduce our dependence on foreign oil and help
combat climate change” (Branigan, 2009: 1). However, much of the energy
budget was to be generated by cap and trade rules. A corporate-funded
right-wing counteroffensive5 stalled cap and trade proposals in the Senate
and stymied Obama’s ability to introduce new legislation (Layzer, 2011).
Since Obama lost his legislative options, he has had a mixed record in
using executive orders to support environmental reform. On the one hand,
he blocked his own Environmental Protection Agency (EPA) from intro-
ducing new regulations on smog. On the other, he negotiated sizable
increases in fuel efficiency standards with a dozen automakers that should
spur innovation in power trains, batteries, aerodynamics, and electric cars
(Friedman, 2011b). Also, on the plus side, the big infusion of federal funds
for energy innovation “altered the mix” of Department of Energy respon-
sibilities, “from an emphasis on nuclear weapons clean-up and basic
research to energy efficiency projects, weatherization, and grid modern-
ization” (Layzer, 2011: 343). However, some observers doubt alternative
energy can become economically viable “without a carbon tax or gasoline
tax or cap-and-trade system” that account for the true costs of “dirty fuels”
(Friedman, 2011a: 35).
Green Sprouts in NYC’s Growth Machine
Real estate and financial interests have dominated the urban regime in
New York for over three decades (Gladstone and Fainstein, 2001). During
the mayoralty of Michael Bloomberg, they have tightened their hold. For
instance, there has been a greater role for the Partnership for New York
City – an elite civic organization whose members represent finance and
real estate as well as other major corporations.6 When a local green collar
coalition began to advocate new forms of green economic development in
the city, the Partnership was quick to mobilize around a rival vision.
Bloomberg’s market-oriented city hall has generally rejected calls for
industrial policy for manufacturers or new industries. Its real-estate-driven
redevelopment strategy has transformed industrial properties with visions
of upscale residential and commercial facilities that are supported by
rezoning and public infrastructure/amenities. Activists and community
groups complain that this strategy has fanned inequality while ignoring
emerging industries and small firms. Progressive groups have rallied
around demands for alternative approaches to development, such as requir-
ing that businesses be required to pay a “living wage” if they receive city
subsidies (Indergaard, 2009).
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The destruction of the World Trade Center and the Federal Government’s
promise of billions of dollars to rebuild the site created an opening for
novel development ideas. In 2004, the Central Labor Council of New York
created a local branch of the Apollo Alliance and formed a nonprofit –
Urban Agenda. The two groups lobbied for “high performance green
buildings” at the World Trade Center site and for training programs to
supply skilled labor for a “Green Ground Zero” (Regional Plan Association
and Urban Agenda, 2004: 2). Shortly thereafter, the New York Apollo
Alliance issued a Ten Point Plan for creating green collar jobs, changing
energy supply and demand patterns, and improving the city environment.
Apollo reps participated in a Sustainability Advisory Board appointed by
Bloomberg which drew on the Ten Point Plan in developing a long-
term energy conversation scheme for the city – plaNYC 2030. The city
committed to 125 initiatives in pursuit of 10 goals which included making
housing more sustainable, cleaning up brownfields, providing cleaner
power, and reducing CO2 emissions by 30 percent. However, rival interest
groups have presented quite different interpretations of what plaNYC
2030 and other local green initiatives could or should portend.
Cleantech: An Elite Imaginary of the Green City

Even before Obama’s election the Partnership for New York City had
formed a “sectoral network” to link financial and real estate interests with
“cleantech” firms. In addition, its investment arm, the New York City
Investment Fund, began to invest in a cleantech portfolio. In January 2007,
the New York City Investment Fund published a report entitled, Cleantech:
A New Engine of Economic Growth for New York State that established
the outlines of an economic imaginary for green industry. It defined
cleantech as a “clean technology industry that produces goods and ser-
vices that optimize the use of natural resources, while reducing ecological
impact and adding economic values by significantly lowering cost” (New
York City Investment Fund, 2007: 3). The report identified four major
cleantech sectors: (a) alternative energy and power (e.g., renewable
energy), (b) materials and green buildings (e.g., recycling, sustainable
design), (c) transportation and logistics (e.g., alternative-fuel vehicles),
and (d) air and water technologies (e.g., water recycling, emission
scrubbers). These sectors had,
…the potential to create a wide range of high-wage and high-skilled jobs in

research and development, design and manufacturing, and operations and
maintenance. There are also the service industry jobs that support these positions
(e.g., lawyers, accountants, bankers and environmental consultants). (p. 5)
It added that New York possessed key advantages as a “sustainable” city:
New York City is by its nature and as a result of public policy is one of the
leading “sustainable” cities in the U.S. Its inherent density, extensive mass
transit system and vertical construction result in one of the most efficient per
capita carbon footprints in the country. (p. 34)
The report’s portrait of cleantech’s dynamics stressed the role of invest-

ment which has increasingly shifted to venture capital and pension
funds. By 2006, cleantech had become the third largest category of US
venture capital behind software and biotech. Although New York lay
behind California and Massachusetts in terms of venture capital, Mayor
Bloomberg’s initiatives were cited for creating a supportive environment
for early adoption. The roster of actors envisioned to be central to green
development featured service providers such as consultants, bankers,
architects, designers, and lawyers as well as nongovernmental organiza-
tions (p. 14). The report noted that NYC has more LEED-certified7 profes-
sionals than any other US city and is a national center for environmental
law and environmental consultants (in areas such as sustainable design,
remediation, energy management, and environmental engineering). In
contrast, no mention is made a role for city unions or their workers. Instead,
the report referred to an interregional division of labor. The city’s stock
of advanced business was complemented by upstate’s ample supply of
manufacturing facilities and skills, much of which was idle.
The report recommended that state and city government fund marketing
efforts to recruit cleantech firms and venture capital, give assistance to
New York cleantech firms, create a $150 million state fund to invest in the
sector, hold forums to introduce investors to technology, create a state/
local “beta” testing program for the sectors, and support establishment of
a carbon-trading market in New York City.
A Green Collar Roadmap

In June of 2008, Urban Agenda formed a Green Collar Jobs Roundtable
for the purpose of devising a strategy to create an “inclusive green
economy.” The immediate goal was to shape implementation of plaNYC
2030. The effort drew representatives of over 170 entities, including job-
training programs, community organizations, unions, businesses, and state
and local government agencies. Participants collected data on trends in
green jobs and “best practices” in workforce development as part of a
review of “all aspects of the green economy including the current
landscape, training, employers, jobs standards and target populations”
(Chan and Dafoe, 2009: 1).
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Shortly thereafter, the context was transformed by the crash and by

national-level developments in politics and policy. On October 27, 2009
Urban Agenda unveiled a 100-page report entitled, New York City Green-
Collar Jobs Roadmap, that not only drew on national green policy, but
aspired to contribute to it. The group announced that the Center for
American Progress would help the roundtable advocate enactment of the
report. The report offered a “vision” of “an inclusive green economy” that,
employs thousands of New Yorkers in green-collar jobs that help upgrade

our infrastructure, improve the health of our communities, and reduce
our nation’s reliance on imported energy that degrades the environment.
Environmental sustainability, however, comprises only half of the vision:
Equally important is that green-collar jobs are also good jobs that offer
family-supporting wages, benefits, and opportunities for career advancement.
(Chan and Dafoe, 2009: 5)
The recession was seen as providing an opportunity in that the green collar
not only could “provide immediate relief ” but also “lay the groundwork
for a better future where the green economy is prosperous for communities,
workers and businesses” (Chan and Dafoe, 2009: 5). It implied that diverse
social segments have a common interest in a green economy.
The roadmap identified the city’s workforce development system as a
key obstacle that promoters of green industry must address.
New York City does not have the training, recruitment, pre-employment, and
job-readiness infrastructure and business services in place to reach our ambitions
sustainability goals, expand our green-collar workforce, and further develop the
city’s emerging, high-growth green sectors. (Chan and Dafoe, 2009: 6)
The workforce development system, an institution over which unions and

many of their allies have leverage, was said to be strategic for unleashing
untapped human assets. The green economy will “revolutionize the way
we build an industry’s ‘human capital’ and codify an approach that treats
jobs creation, job quality, and environmental stewardship as interrelated
parts of a long-term sustainability agenda” (Chan and Dafoe, 2009: 6).
Moreover, the report joins the green collar idea of pathways out of poverty,
critiques of economic development policy, and demands that publicly
subsidized businesses pay a living wage.
... projects subsidized with public funds that pay poverty wages put a double
strain on our resources … Incorporating job standards into public projects
would break this pattern ... Promoting community-led development and striking
barriers to employment will start making the new economy inclusive and
provide … pathways that bring people out of poverty. (Chan and Dafoe,
2009: 7)
Recommendations included: support of green manufacturing, incorporat-

ing job standards into plaNYC projects, adding green building perfor-
mance courses at colleges and trade schools, and evaluation of private
financiers participating in public programs.
Federal Green Policy and Multiscalar Mobilizations

The 2008 financial crisis and the federal policy response widened oppor-
tunities for green economic development. Fearing Wall Street would never
be the same, Mayor Bloomberg drew on Obama’s narratives concerning
green industry. The 2009 State of the City address declared his intentions
to enact “the nation’s first law to require existing private sector buildings
to improve their energy efficiency,” add “green industry skills” to job-
training programs, and make a nine-year $900 million investment to retro-
fit public buildings (e.g., schools, hospitals) with new energy systems
(Bloomberg, 2009: 4).
Interested parties showed little restraint in predicting an era of transfor-
mation. NYC Apollo Alliance estimated that with Bloomberg’s new addi-
tion, plaNYC would create 420,000 jobs by 2030. For his part, Bloomberg
claimed that New York would become “the global center for a host of
green businesses that are focused on energy, efficiency, recycling, smart
transportation … the Silicon Valley of sustainability” (Bloomberg, 2009:
5). The NYC Partnership envisioned that Wall Street would have new
markets to exploit; the city’s Economic Development Corporation (EDC)
created a group to attract businesses in new “green financial markets”
(Massey, 2009).
Progressive organizations that want alternative policies in areas such as
education, welfare, and workforce development also rallied under the
green collar banner.8 The rise of a new multiscalar politics of green
development boosted the ability of the local green coalition to compete
with local elites by bringing in federal officials and national-level policy
advocates. In January 2009, Urban Agenda acted to increase awareness in
the city about the Apollo Alliance and the federal stimulus; its aim was to
pressure Congress to shape the stimulus bill. On February 3, the NYC
Apollo Alliance held a forum entitled, “The New Apollo Program, The
Economic Stimulus and NYC.” (New York City Apollo Alliance, 2009a)
among those speaking was Jerome Ringo, the founder of the national
Apollo Alliance and representatives of local labor, environmental, and
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community groups. Ringo remarked that the New Apollo plan had gained
momentum in Washington and announced that “much of the federal
stimulus package echoes what we’re saying” (New York City Apollo
Alliance, 2009b: 1). He advised,
The nation is at a tipping point. Our economy is experiencing a tectonic shift

from one based on fossil fuels to an economy based on clean energy. Cities are
at the center of this change…Our cities must be sustainable, energy efficient
and engage in smart growth planning while sharing prosperity among all their
citizens. (New York City Apollo Alliance, 2009b: 2)
The NYC Apollo Alliance also submitted a list of green collar principles
for Congress to use in evaluating stimulus projects. After the stimulus
passed, another forum demanded that the state make sure that New York
City “receive its fair share” of the funds and asked the mayor to use the
stimulus to help “build a more environmentally sustainable city that
supports broadly-shared prosperity” (New York City Apollo Alliance,
2009b: 1).
Finally, at a May 15, 2009 event in Washington, DC at the Center for
American Progress (“Green Jobs/Green Homes New York”) a panel
discussed a proposal by NYC Apollo Alliance that New York State expand
retrofitting of homes for energy efficiency. The keynote speaker was Van
Jones while the moderator was Bracken Hendrick (the head of the Apollo
Alliance who had written the clean-energy segment of the stimulus). The
proposed program would increase the state’s capacity for retrofits (it
already led the nation with 25,000 retrofits a year) twelvefold. Hendricks
asserted such policies “can help stimulate the economy and lay the
foundation for long term growth … free markets are not going to fix these
problems” (Center for American Progress, 2009, p. 2).
State of New York Initiatives
As conservative backlash slowed down federal activism, the initiative

for green economic development shifted to the state level. However, the
long-term nature of some federal commitments means that Washington
will be a major factor for state and local efforts. For example, over a decade
the stimulus will provide in excess of $1 billion to New York City for ret-
rofitting multifamily dwellings (Satow, 2010). Thus, efforts of the green
collar coalition to influence state and local initiatives will continue to
involve a multiscalar politics. The imprint of both the green collar coali-
tion and the elite tech group can be seen on recent state of New York
initiatives.
Consortium Proposal for ERIC Grant

One state initiative where the elite cleantech group has seemed to have more
influence was in the formation of a proposal for a $120 million federal
Energy Regional Innovation Cluster (ERIC) grant. ERIC is part of the
Energy Department’s Innovation Hub Program which aims to assemble a
network of federal agencies (e.g., NSF, NIST, Commerce, Labor, Education)
to support development and commercialization of innovative energy tech-
nology. Led by the state’s Syracuse Center of Excellence in Environment
and Energy Systems, the New York consortium enrolled 119 partners includ-
ing universities, the NYC Partnership, economic development and training
entities, entrepreneurs, utilities, real estate developers, financial institutions,
media giants, nonprofits, and unions. Key elements of the consortium pro-
posal for “green real estate” reflected cleantech imaginary developed under
the NYC Partnership. It envisioned an interregional division of labor
between Upstate and Downstate (New York City) that focused on the latter’s
advanced producer services (finance, real estate, media) that would support
use of New York City to “beta test” technologies to make buildings more
energy efficient. The NYC Partnership reported that real estate firms had
committed hundreds of office and residential buildings as sites for improv-
ing insulation or for retrofits; some new buildings would also be erected
(Barr, 2010). Touting the Wall Street advantage, its CEO stated:
Market acceptance is slow, and investment strategies and financing are not yet
readily available for new untested products. So Wall Street and the financial and
insurance community are where we hope New York will beat out the competition.
(Massey, 2010: 27)
The other elements in the scheme included a “research hub” whose partners
would include assorted upstate and downstate universities and research
facilities of corporations (e.g., GE, IBM) and a network of dozens of state
centers for workforce training, regional technology development, and
small business development. The consortium could create an “energy-
efficient building supply chain” that would create an estimated 76,000 jobs
“across the manufacturing, professional services, construction trades,
financial services and building services sectors” (Wallis, 2010: 2). When
Philadelphia won the ERIC grant in August 2010, the New York consortium
pledged to continue its efforts.
State Climate Action Plan

In August 2009, Governor Patterson issued an executive order that green
house emissions be reduced 80 percent below 1990 levels by 2050. In
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October, he signed the Green Jobs/Green New York Act which earmarked
$112 million for retrofitting residential buildings and related supports
(e.g., workforce development). The projection that the five-year effort
would weatherize 1 million homes and create 14,000 jobs energized the
green collar coalition and its allies.
Interestingly, the activist coalition has used green jobs/green New York
issues to exert pressure on state actors. On April 21, 2010 Urban Agenda
and NY Jobs with Justice issued a media advisory entitled, “On Election
Eve, Communities of Color & Low-Income Groups Cited Ongoing
Struggles to Secure ‘Green Jobs/Green NY’ Promises.” It stated that com-
munity groups would hold media events in four sites (NYC, Albany,
Rochester, Buffalo) on October 29 just a few days before the election for
governor. The advisory stated that the green jobs/green NY bill had a
mandate to bring jobs and energy benefits to “distressed communities and
historically-excluded workers” but that the New York State Energy and
Development Authority (NYSERDA) would instead institute “energy effi-
ciency red-lining … deepening the race-lined economic gaps by driving
energy benefits to higher-income, mostly white suburban New York
homeowners.” It claimed that at the last minute, “NYSERDA indicated
plans to accommodate business demands to be allowed to pay sub-
standard wages, and to continue hiring practices that have overwhelm-
ingly excluded people of color, women and residents of low-income
communities” (Urban Agenda, 2010: 1).
On October 30, 2010, Democrat candidate for governor Andrew Cuomo
expressed strong support for the green collar agenda in a statement and
120-page document entitled A Cleaner, Greener New York. His statement
read, “As Governor, I look forward to expanding New York’s commitment
to environmental justice and building on other government partnerships
with local advocates” (Andrewcuomo.com, 2010: 1). He also announced
that the state would institute grant competitions whose criteria included a
focus by regional plans on “urban revitalization” and “input from environ-
mental justice communities” (Andrewcuomo.com, 2010: 1). His report
declared that “environmental justice communities will be [a] critical com-
ponent of the Cleaner, Greener Communities Program” and would “have
increased representation in the development and urban revitalization
process” (Cuomo, 2010: 28–29). It also cited the Apollo Alliance’s defini-
tion of “Green Collar Jobs” (“good paying, career track jobs …”) and said
he would expand funding for programs that train and subsidize employ-
ment in green industries for low-income individuals.
The green collar coalition also caught the attention of the State
Climate Action Council which spent 10 months developing a preliminary
plan for instituting Governor Patterson’s executive order. A section on
“Environmental Justice Considerations and Concerns” proposed that “EJ”

concerns be built into policy design and technical planning. It echoed the
core green collar tenet that, “overburdened EJ communities … merited a
greater proportion of the beneficial demonstration projects, pilot projects,
and innovative policy initiatives” (New York State Climate Action Council,
2010: 12–6). More generally, the plan incorporated elements of both the
green collar and elite cleantech imaginaries. A discussion of needs for “a
skilled clean energy workforce and dynamic workforce system” pledged
to nurture “the entire spectrum of skills … while creating pathways out of
poverty” (New York State Climate Action Council, 2010: 13–11); it also
affirmed that “public workforce investments” should focus “initially on
low-income residential building performance and urban ecology” (New
York State Climate Action Council, 2010: 13–14). Yet, there is no trace of
green collar workers in a discussion of the need for a “vibrant technology
innovation and commercialization ecosystem.” Cleantech notions domi-
nate the conception of an ecosystem whose “key participants include uni-
versity researchers, technology developers, sources of capital, entrepreneurs
and executives, service providers, business advisors, and others with a
stake in commercializing new energy technologies” (New York State
Climate Action Council, 2010: 13–17). The absence of green collars here
has strong implications given the plan’s economic development narrative:
New York’s advantage lies in its “strengths as a knowledge-based
economy” in a “new energy economy of the 21st Century – an economy
whose growth is based on innovation, knowledge, and entrepreneurship”
(New York State Climate Action Council, 2010: 13–18).
A 21st Century Innovation City
When finance crashed in 2008, many in New York expected disaster, but
the federal bailout of finance has buffered the city; the $700 billion in
Troubled Asset Relief Program (TARP) funds and trillions of dollars in
Federal Reserve maneuvers disproportionately aided New York’s invest-
ment banks (Indergaard, 2009). However, Wall Street’s reduced contribu-
tions to tax revenue and income have reinforced the view that the city
needed new propulsive sectors.9
Following up on his 2009 State of the City address, Bloomberg gave
a mandate for change to New York’s Economic Development Corpor-
ation (EDC), a quasi-public agency with a staff of 400 and annual expen-
ditures of $750 million. In 2010, the EDC created the Center for Economic
Transformation (CET) to help established sectors (e.g., media, finance,
fashion) “transition to 21st Century business models” and to “attract
and support emerging industries like bioscience, green services, and
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technology” (NYCEDC, 2011a: 17). City hall says the strategy is

to “develop a 21st century innovation economy” (City of New York, 2010:
1). CET policies are to spur innovation – “the design, invention, develop-
ment, and/or implementation of new or altered products, services, pro-
cesses, systems, organizational structures, or business models” (NYCEDC,
2011a: 3).
The new imaginary of New York as “a 21st Century City of Innovation”
features a broad set of actors including fashion, media, bioscience, green
industry, universities, real estate, and finance. The main dynamic cited is
the impact that scientific and technological research is having on business.
The main need is to accelerate economic transformation of target sectors.
That requires: supporting collaboration between academic researchers and
businesses seeking to use R&D, addressing shortages in affordable space,
supplies of capital and training, and creating a reputation as a global
innovation center that will attract innovative firms and workers. A crucial
new measure for development is use of university-centered research
centers to establish collaborative relationships for producing and applying
knowledge. Important for us are several centers created for developing
“urban technology” (e.g., green buildings, smart cities).
NYC Urban Technology Innovation Center

The first urban technology center drew on, or was influenced by, the full
range of green industry endeavors discussed above: the green collar
coalition, plaNYC 2030, cleantech, federal initiatives and, most directly,
the state ERIC consortium. Moreover, after meeting with several hundred
stakeholders, the EDC had unveiled a Green Economy Plan in October
2009 featuring green financial services, buildings, and skills (NYCEDC,
2011b).
It all came together on January 20, 2011 when Bloomberg announced
that the EDC, Columbia University, the City University of New York
(CUNY), and New York University’s engineering school in Brooklyn
(NYU-Poly) had formed a partnership to promote development and com-
mercial deployment of green building technologies. The central element
was a NYC Urban Technology Innovation Center to be housed at and
operated by Columbia University. The vision is that environmental sus-
tainability can be a focus for urban economic development. The Mayor
asserted, “We will never meet the ambitious carbon reduction goals in
plaNYC unless we reduce the emissions from New York’s one million
existing buildings” (NYCEDC, 2011c: 1) while the President of NYC-
Poly remarked, “New York City, with its intellectual and financial might,
is the ideal laboratory to advance technology that will improve the quality
of life for urban dwellers” (NYCEDC, 2011c: 2). The center will use three
methods to develop green building technology:
First, it will provide companies with opportunities to test their innovations in

operating buildings... business owners would be eligible to employ the
technologies at discounted rates. Second, it will develop an information and
data clearinghouse to track buildings technology costs, benefits, and lessons
learned. Third, it will host stakeholder discussion on green building
entrepreneurship (NYCEDC, 2011c: 1).
The center aspires to foster “building technology clusters” by develop-

ing “technology solutions to NYC-specific building management chal-
lenges [and] by promoting and supporting collaborative R&D among
academics, not-for-profit and private entities in the New York City real
estate community” (NYCUTIC, no date: 1). Importantly, the CUNY
partner – its Building Performance Lab – has strong ties to green collar
groups. Green collar allies helped set up the lab and still work with it to
develop “recommendations for policy and training programs to foster New
York City’s emerging green collar economy” (CUNY Institute for Urban
Systems, no date: 2).
By Another Name as Green? Applied Science Initiatives

Subsequent efforts to establish urban technology centers have made much
less explicit connections to green industry, although their efforts to estab-
lish an identity tout the sustainable features of their facilities. This can be
seen in a global competition the EDC held to recruit an applied science
school where sustainability features of proposals became a part of the
contest. The city offered $100 million and a site: the catch was that the
institution would have to locate in one of several publicly owned proper-
ties, all of which were marginal locations. The winner was a joint proposal
by Cornell University and the Technecon – Israel Institute of Technology
to build a 2.1 million sq ft facility on Roosevelt Island (in the East River
between Queens and Manhattan): it will focus on technology in local fields
such as medicine, advertising, finance, or urban planning. The Cornell
proposal promised to install four acres of solar panels, 500 geothermal
wells and two buildings that would generate as much power as they use
(Perez-Pena, 2011). Stressing the “real estate impact” of the “new kind of
campus” Cornell’s President claims it would anchor an “F-train tech cor-
ridor” along the subway’s arc, linking Lower Manhattan, western Brooklyn,
and Queens (Christensen, 2012: 1).
City hall indicated that it might support other proposals developed for
the applied science school competition. Indeed, the mayor announced in
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April 2012 that the city would help NYC-Poly establish a Center for Urban
Science and Prosperity (CUSP) at a city-owned site in Downtown
Brooklyn. Only part of the 460,000 sq ft facility had been used in recent
years (to store equipment). The CUSP Consortium builds on proposals
developed during the competition not only by NYU-Poly, but also by
Carnegie Mellon, University of Toronto, CUNY, and the Indian Institute
of Technology, Bombay. The consortium also includes Cisco, IBM,
Siemens, Xerox, Con Edison, and National Grid. The academic members
will supply 30 principle investigators while industry partners will provide
another 20; the school will award degrees in civil engineering, computer
science, and electrical engineering. City Hall declared that CUSP will help
New York establish itself “as a global hub of science, research, innovation
and world class urban solutions for the future” (NYC.gov, 2012: 2). NYU
reports that urban challenges to be addressed include “infrastructure, the
integration of technologies, public health, transportation, public safety,
and environmental sustainability” (NYU.edu, no date: 1). CUSP is to
“generate an entirely new sector” – the “urban technology business”
(NYU.edu, 2012: 1–2) where the city is used “as a living laboratory”
(NYC.gov, 2012: 3). The NYU-Poly president envisions a vast new global
market to be tapped. He proposes, “America’s cities need new, intelligent
infrastructure, and around the world, over one billion people will move to
cities in the next 30 years. The market for intelligent city systems alone is
estimated to be $160 trillion in that same period” (NYU.edu, 2012: 5).
In fact, the economic imagery of CUSP is dominated by the notion of
“smart cities” much more than green industry. While there is vague
mention that CUSP will study “ways to improve building performance”
(NYC.gov, 2012: 1), much more detail has been released about features of
the facility that reflect NYC’s “commitment to sustainability” – use of
recycled materials, a green roof, a grey water systems, as well as energy
efficient heating, cooling, and lighting systems. This concern with sustain-
ability as a branding theme is one of the most common actually-existing
green developments in real estate. Indeed, city hall’s press conference
stressed the impact CUSP would have on Downtown Brooklyn real estate:
“CUSP solidifies Downtown Brooklyn’s arrival as a world-class academic
community” with potential “to attract hundreds of tech firms to the area”
(NYC.gov, 2012: 5). Moreover, several public officials – ranging from city
council members to US senators – advised that CUSP would add to
Brooklyn’s “digital district” and the “Brooklyn Tech Triangle.” Similarly,
NYU declared that Downtown Brooklyn “is a vibrant, creative, entrepre-
neurial neighborhood whose energy will be leveraged by the tech cluster”
(NYU.edu, 2012: p. 1).
In fact, the depressed state of Downtown Brooklyn’s real estate is a
major reason why city and borough officials have supported CUSP.
Downtown, anchored by the MetroTech office complex, currently has

no tech firms; it has been dominated by back office units of banks,
which have begun to leave (Pincus, 2012). That is the backdrop for the
so-called “Brooklyn Tech Triangle” initiative. The project is the undertak-
ing of the Downtown Brooklyn Partnership and interests from two areas
that are creative-tech hotspots: DUMBO10 and the Brooklyn Navy Yard. In
as the two hotspots are full up of start-ups (a nebulous digital mix of
“creative,” media, and tech firms), the idea behind the triangle is that
their overflow can go to the third point on the triangle – Downtown. What
Downtown has to offer is a cluster of nearly a dozen universities (and
57,000 college students) which will be bolstered by CUSP. Thus, the
Brooklyn Tech Triangle seeks to “connect the real estate and education
resources in Downtown Brooklyn to the tech businesses in DUMBO and
the Navy Yard” (Senison, 2012: 1). The ill-defined nature of the “creative”
and “tech” categories is all the more useful for real estate interests and
development officials who can make flexible use of their positive
associations.
A New Urban Agenda: From Green Ground Zero to Occupy

Wall Street
Following the maneuvers of economic, political, and educational elites –

and the drumbeat of history – Urban Agenda remade itself to connect
green collar issues with other causes. In May 2011, Urban Agenda merged
with New York Jobs with Justice to form ALIGN (Alliance for a Greater
New York). The two groups had collaborated in a campaign to reform
economic development. ALIGN claimed the merger would “increase col-
lective resources and position the new organization to win larger, more
systemic change that increases economic and environmental sustainabil-
ity” (ALIGN, 2011a: 1). A month later ALIGN mobilized groups to pres-
sure Governor Cuomo’s new Regional Economic Development Councils
to incorporate progressive principles. It coordinated rallies and press con-
ferences in New York City and four other cities in the state which it framed
as “hunts for missing jobs plans”: the rallies demanded that the regional
initiative make explicit its principles while protesting use of taxpayer
funds to subsidize projects that do not generate good jobs or broader
community benefits (ALIGN, 2011c).
The press conferences drew attention to an ALIGN report, Seizing the
Moment: How Regional Economic Development Councils can Build a
Good Jobs Economy (ALIGN, 2011b). It proposed that the councils should
create and enforce performances standards with regard to job quality and
environmental sustainability. In addition,
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… the membership of the Regional Councils must be diversified beyond

business leaders in order to harness local expertise, drive innovation, develop
the businesses and public structures that communities want and need, and give
a voice those directly impacted by economic development decisions. (ALIGN,
2011b: 8)
The report touted a “triple bottom-line approach” – the classic green

collar rallying cry of social, environmental, and economic sustainability.
A society “is more sustainable” when there are “good jobs with family-
sustaining wages … equity is good for economic growth” (ALIGN,
2011b: 8). It discussed environmental sustainability in terms of “smart
growth.” “Long-term strategic plans should take into account smart growth
principles, transit-oriented development, high performance building stan-
dards and progressive land use policies” (ALIGN, 2011b: 8). The report
declared that “economic development programs should be aligned with
New York’s climate goals” as detailed in the state’s Climate Action Plan
interim report (ALIGN, 2011b: 8). It also said the goal of economic
sustainability required that the councils “pay special attention to the
long-term viability of businesses that apply for subsidies … and invest in
the new green economy and in industries that build the middle class”
(ALIGN, 2011b: 8).
The same month, a chain of events occurring in the wake of the financial
crash – austerity protests in Spain and the Arab Spring – reached back
to the epicenter of the crisis, Wall Street. On July 13, 2011 the anti-
consumerist magazine, Adbusters, issued a call on its website for a “Tahrir
moment in America” – on September 17, 20 thousand should descend on
Manhattan’s Financial District, “the financial Gomorrah of America.”
They should seize “a square of singular symbolic significance” and hold it
with “tents, kitchens, peaceful barricades.” They should “occupy Wall
Street” (Ketcham, 2011: 13–14).
The call was answered by a local labor coalition – New Yorkers Against
Budget Cuts who had been sleeping on the street by City Hall in protest of
Bloomberg’s proposed austerity cuts. On August 2, the group held a rally
by the statue of the Wall Street Bull that was attended by 80. When the
organizers began to plan an occupation, several anarchists from Europe
were able to persuade the group to use decentralized decision-making pro-
tocols for its “general assembly” (a visiting anthropology professor
from England suggested the group might refer to itself as part of the
“99 percent”). On September 17, 2000 persons gathered to march to the
Chase Manhattan Plaza. Finding it already barricaded, they set out to
nearby Zuccotti Park (Ketcham, 2011).
By the end of October, some 500 individuals were living in the park.
Occupy Wall Street (OWS) had set up functional areas such as medical
stations, a library, a media center and a people’s kitchen. ALIGN helped

OWS find donated office space at a nearby building where its own offices
were. ALIGN also worked with other local groups to help draw together
union, community, and student support for the occupation. A community-
labor march in mid-October drew nearly 20,000; another in mid-November
attracted close to 30,000. Spin-off occupy movements sprang up in at least
100 US cities and dozens more across the globe. ALIGN did its part
to help expand the movement when it sent out emails on October 15
announcing a new initiative – Occupy the Boardroom. Recipients could
click on a link to read profiles of hundreds of financial industry execs and
board members; they were invited to share a message on a blog site to the
notables (Guest, 2011). ALIGN wanted to show that Occupy represented
ordinary people. In five days ALIGN collected 6,000 stories of how people
were harmed by the financial crash: it sent hundreds of the messages to top
bank officials (Holland, 2011).
Although OWS was not inclined to define programs, ALIGN worked to
link it with some of its own issues. This was evident on December 16,
2011 when ALIGN sent out a fund-raising email that reflected on the
remarkable course of events over the year.
Who would have guessed a year ago that we would experience this kind
of long-delayed reaction to the growing inequality that triggered the global
financial crisis? From the Arab Spring, to Wisconsin, to the New York
State House, to Occupy Wall Street, we’ve seen outrage turned to action to
make our world more just. This is a critical time to continue building momentum
for social and economic justice, which is why we’re asking you to … (Ryan,
2011: 1)
The email then linked the events to ALIGN’s local initiatives including the
effort to reform economic development and to get the regional councils to
take “job quality and environmental standards into account.” It also
reported that ALIGN had “built bridges with Occupy Wall Street and our
long term community and labor partners” (Ryan, 2011: 1).
A notable example had occurred a month before (November 10). After
a teach-in at Zuccotti park followed by a tour of public-subsized redevel-
opments in Downtown Brooklyn, some 40 protestors from ALIGN and
other groups gathered at a protest held in front of JP Morgan Chase’s
MetroTech offices. There they raised the chant, “pay it back” and “tax
breaks are breaking the 99%” (ALIGN, 2011c: 1). The action was one of
several “Getting Our Money’s Worth” protests that day which ALIGN
helped coordinate across the state in the cause of reforming economic
development. The Brooklyn protest focused on the $237 million subsidy
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that Chase Bank had gained in 1988 to “retain” 5,000 employees by

moving them to MetroTech (part of the effort to make that development
viable); since then, Chase had made large lay-offs and won tens of
millions in subsidies to move jobs to New Jersey (Fraser, 2011). Moreover,
state records showed that only 1,593 full-time Chase workers were still at
MetroTech (Durkin, 2011). An ALIGN organizer declared, “Its no surprise
that the finance and real estate sectors dominate New York City, but what
is alarming is the amount of public subsidies these highly profitable
companies receive … even after they break their promises” (ALIGN,
2011c: 1). Linking such subsidies to gentrification, a member of a com-
munity group added, “With these development deals, taxpayers are
unknowingly paying for the destruction of their own communities” (Fraser,
2011: 2).
After the police ousted OWS from Zuccotti Park on November 15, 2011
scattered remnants of the movement have participated in Occupy events
focusing on local issues. For example, on May 11, 2012 ALIGN organized
a motley collection of activists from OWS and other community groups in
another protest of public bank subsidies held outside the offices of Bank of
America Merrill Lynch (ALIGN, 2012b).
ALIGN’s involvement in protests seems to have complemented its
efforts vis-à-vis green economy development. On January 30, 2012
ALIGN praised the progress of the regional economic development coun-
cils. It declared that four regional plans that had won awards in the first
round of funding “speak clearly about targeting distressed communities,
about abiding by smart growth principles and redeveloping core urban
areas, about prioritizing high-skill green industries, neighborhood-level
projects and affordable housing” (ALIGN, 2012a). Moreover, it is reason-
able to say that the fact that “green” jobs are terms used by state agencies
and plans speaks to the influence of the green collar movement – and the
green economy activism of the Obama administration (New York State
Department of Labor, 2010).
Conclusions
The CCI will not replace the sheer economic might of FIRE in New York,
but they are starting to surpass it as an employment base and focal point
for economic development. Green industry, similarly hybrid in nature,
overlaps with the CCI as its production chain include architects and com-
puter specialists as well as building services, construction trades, and man-
ufacturing. The CCI’s potential is enhanced by a process of technology
deepening, which was evident in the trajectory of green economy develop-
ment. However, some qualifications are in order. FIRE is down, but not out
as an economic and political power in New York. It is fast evolving and

downsizing away from its classic Wall Street form as can be seen in the
emptying of the financial district in Downtown Manhattan and of its back
office satellite in Downtown Brooklyn. However, its strong position vis-à-
vis the urban regime has allowed it to keep itself near the center of things
as the city creates knowledge economy initiatives including green build-
ings/infrastructure. A final qualification is that private financing is a central
element in New York’s knowledge economy developments, as can be seen
in the area of green economy/technology projects. The episode of heavy
federal investment in green industry was strategic, but short-lived. There
has been a subsequent flurry of state and city initiatives, but they plan to
sustain themselves through luring private investment. There is reason to
doubt this will adequately fund knowledge inputs (Kratke, 2011; Cohen
and DeLong, 2010).
Given the magnitude of the challenges that climate change poses, green
economic development must become a defining force in future cities at
some point. In fact, global economic imbalances that are wrecking havoc
are intertwined with environmentally unsustainable forms of industrializa-
tion and urbanization – this is most evident in China but is a general problem
as cities consume over 75 percent of the world’s resources and produce
75 percent of its waste (Jones, 2008). Harvey (1996) was prescient to
declare that the urban question has become enmeshed with environmental
issues. Breaking with the carbon-based economy would represent a dra-
matic departure from the industrial society that spawned sociology. There
are myriad issues urban sociology needs to take up: one immediate task is
to analyze how the environmental problematic is being framed as an urban
economic matter. Governments around the world are citing an environmen-
tal need to transform the economy as they support attempts to develop
urban/regional ensembles of green industry. The process is rift with ambi-
guity and contention. Although it is fast evolving into an international com-
petition, the question of what – and whom – is considered part of the green
economy is the subject to political struggles that are embedded in particular
institutional contexts. Moreover, models of interests born of the industrial
age are becoming less tenable. Theorists who recognize the diverse bases of
inequality point to the importance of coalition building (Young, 1998;
Fainstein, 1997; Soja, 2010). Environmental challenges will further com-
plicate positions of interest: the capabilities of cities to respond to climate
change are uneven (Tomaney, Pike, and Rodriguez-Pose, 2011) and the
costs of moving to a postcarbon economy will be borne more by some areas
(e.g., coal industry and manufacturing centers) (Garnaut, 2008).
Efforts to support green industry in the US, Japan, and China entail
decentralized groupings of diverse actors operating at or across multiple
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scales. However, they vary in critical respects: this is evident in how neo-
liberal legacies (Indergaard, 2011) constrain US promotion of innovative
clusters compared to state-led efforts in Japan imprinted by the legacies of
developmentalism (Fujita and Hill, 2012). Moreover, the manner in which
the financial crisis has unsettled the US situation has provided unique
openings for its environmental justice movements to shape green eco-
nomic development. The green collar coalition has gained leverage by
reaching across lines of class and race, allying with a progressive national
administration, and inserting itself into the politics of the green economy
at multiple levels. US green policy is marked by fierce contention, not
“apolitical” consensus as declared by armchair philosophers such as
Swyngedouw (2009).
Following Christopherson’s view (2011) that the green economy hinges
on political issues that have yet to be settled, I used insights of Jessop and
Oosterlynck (2008) on “economic imaginaries” to track the process by
which green economy discourses were defined and promoted. They claim
that collective action by a coalition of diverse interests result in a subset of
economic activities being viewed as an ensemble with specific boundaries,
characteristic actors, dynamics, and needs. Which imaginaries are selected
and institutionalized depends on semiotic and material factors.
One major material consideration is how much of an opening the
financial crisis would provide for new imaginaries. That involves political
and economic conditions that vary by national and global context. Block
(2008, 2010) was right to predict that recent developments would provide
a political opportunity for more activist federal initiatives in support of a
green economy; however, federal activism has been uneven and inconsis-
tent due to the fierce reaction of conservatives.11 There has been no New
Apollo Mission and no “New New Deal”. Given the atmosphere in the US
Congress – “no deal whatsoever” – there is not much on the horizon indic-
ative of a transformative regime. Yet, Whitford and Schrank (forthcoming)
and Block were correct in thinking that the decentralized federal apparatus
would stimulate new initiatives at the subnational level: the Energy
Department’s Energy Research and Innovation Cluster Program spurred
the formation of a significant statewide consortium in New York. Yet, the
cluster effort was modest compared to those found elsewhere (e.g., Japan).
What is most notable has been the ability of the green collar coalition –
working the interstices of US federalism – to promote a bevy of progres-
sive principles outlined by Block (2008): demands that public subsidies
for business result in public benefits; taking on deep poverty and racial
division; expanding the space for public debate on the direction of techno-
logical change; and helping bring about a shifting of R&D resources to
address global climate change.
Although Christopherson was correct to presume that much of the

initiative for green economy development would be at the state level,
many of her assumptions about how this politics would work out were
at odds with the findings of my study. The two core green economy
imaginaries in New York – cleantech and green collar – were broader
and more heterogeneous than Christopherson anticipated: each mixed
elements from the alternative energy and energy efficiency definitions
that she assumed would be mutually exclusive types. Contrary to her
expectations, an array of corporate interests and large unions embraced
energy efficiency, particularly building retrofits; her prediction that short
term financial orientation would have a prominent presence did prove
correct in the case of cleantech. Moreover, the green collar coalition was
not a single issue movement as Christopherson expected, but embraced
multiple goals.
The larger economic situation for the US seems less promising given
the shift of wealth to other countries; that is intertwined with not only a
loss of political influence (Cohen and DeLong, 2010) but also coherence.
This can be seen in the rickety response of the US government to growing
international competition in green energy. China’s lead in new energy
sectors (e.g., solar and wind) figured prominently in the “win the future”
frame that Obama presented in his 2011 State of the Union address in an
effort to rekindle support for clean energy initiatives. Republican critics
countered that new rules would hamper the ability of US firms to compete
with China.12
The New York case reveals how activist federal energy policies had
provided material and semiotic support for subnational-level activists who
have been able to bring in national-level officials and policy-makers to
support their efforts to shape state and city policy. Urban Agenda/ALGIN
and its green collar allies have had considerable success in getting elements
of their imaginaries selected and retained by green development efforts of
New York State. Both green collars and cleantech elites argue that green
industry can be a profitable frontier for economic growth while stressing
the need for government to take a leading role in establishing new green
markets and industries. They both also provide definitions of the green
economy that include multiple sectors. But while the elite cleantech vision
stresses professional-managerial and entrepreneurial occupations in these
sectors, the green collar scheme includes working class and lower middle-
class occupations in its roster of green economy activities and actors.
Whereas, cleantech elites recommends recruitment of financiers and
technology firms, the green collars call for more training and workforce
development. Finally, the green collar vision demands that benefits for
disadvantaged workers and neighborhoods be a priority.
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Given the present US context, Christopherson was right to doubt

that green industry will generate many jobs or a general transformation.
For the green collar imaginary to become institutionalized requires
that major investments actually be sunk into city and state green
development plans. Federal commitments already made will shape the
context for state and local development efforts for a time, but federal
capacity has faded. Given that US politicians have yet to reckon with the
immediate problem of a depressed economy (Krugman, 2012) or the
long-term problem in the shift of wealth (Cohen and DeLong, 2010) it
is unclear when any level of American government will invest heavily
again. That leaves New York’s green collar coalition in an ambiguous
position. Its success in weaving the green collar imaginary into emerging
frameworks for green urban development makes it likely that their vision
will influence what does materialize in New York. However, to the degree
that projects depend on FIRE, the green collar coalition will be hard
pressed to prevent segmented forms of green development – a green
gentrification.
Notes
1 Kratke comments that the German economy retains a strong base of high-tech and
medium high-tech industries, although financial industries and advanced producer services
are on the rise; in contrast, Great Britain is more dependent on finance, supplemented by
global business services (p. 17).
2 Three of the clusters involve environmental fields. In Kinki’s Environmental
Business cluster, 120 firms and 21 universities participate in a project that aims to create
1,000 new businesses; in Chugoku-Hokuriku recycling-oriented Environmental Society
cluster, 200 firms and 56 universities seek to produce 800 new firms; In Kyshu’s Recycling
and Environmental Plaza cluster, 550 firms and 41 universities aim to create 1,500 new
firms (Fujita and Hill, 2012).
3 Examples include the Defense Department’s Advanced Projects Research Agency,
Department of Energy Laboratories, NIH Genetic Engineering initiatives, NSF Engineering
Research Centers, Department of Commerce Manufacturing Extension Programs and
Small Business Innovation and Research Programs and Small Business Technology
Transfer Programs (Block, 2008; Whitford and Schrank, forthcoming).
4 Jones resigned in September 2009 after a series of attacks by conservative
commentator Glenn Beck; the White House choose not to put up a fight, apparently because
it feared this would be a diversion at a critical point in the effort to push through a health
care bill.
5 Conservatives that opposed the cap and trade legislation (e.g., the Tea Party) found
ample funding from the likes of Americans for prosperity bankrolled by two billionaire oil
barons (the Koch brothers) and the US Chamber of Commerce which amassed a
$100 million war chest to combat Obama regulatory initiatives (Layzer, 2011).
6 Co-chairs of the Partnership for New York City are Rupert Murdoch (News Corp.
Chairman) and Lloyd Blankfein (Goldman Sachs Chairman/CEO).
7 Leadership in Energy and Evironmental Design.
8 Among the groups that have fed into or joined with Urban Agenda and NYC
Apollo Alliance are the NYC Justice Network (an umbrella organization for environmental
justice groups) and New York Jobs with Justice, a group that advocates alternative economic
development strategies.
9 Before the crisis, Wall Street generated 20 percent of New York state revenue and
13 percent of the city’s tax revenue; for 2011 the respective numbers are 13 percent and
7 percent (Elstein, 2011).
10 Down Under the Manhattan Bridge Overpass.
11 House Republicans have threatened to cut funding for the EPA by $3 billion
(30 percent) so as to block it from implementing new emission regulations (Hulse and
Herszenhorn, 2011) and to cut $900 million in energy conservation and efficiency programs
(Hulse, 2011).
12 In a February 2011 meeting of the energy and power subcommittee of the House
Energy and Commerce Committee, described the science underlying Obama regulatory
efforts to be a “hoax” (Broder, 2011: 16). Republicans have argued that environmental
regulations on fossil fuels are a form of a tax.
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5
World Capitals of Capital, Cities and
Varieties of Finance Systems:
Internationally versus Regionally
Oriented Banking
Stefan Gärtner 1
Introduction
It has not been five years since the cover of Time Magazine presented an
image of the skylines of New York, London and Hong Kong assembled
into a common cityscape under the acronym of ‘NyLonKong’. The author,
Michael Elliot (2008), spoke about how these three cities, linked by a
shared economic culture, by their historic imprint as harbor cities and
connected by long-haul jets and fiber-optic cable, created a common space,
crucial to the worldwide wealth caused by globalization. And indeed at
least New York and London are powerful cities, which dominated the
global financial capitalism in the last years, but the financial crisis 2008,
the biggest crisis since 1929 (Reinhart and Rogoff, 2009), knocked these
capitals of capital from their glamorous pedestal. The question has to be
raised whether the capitals of capital will lose some of their importance if
financial markets were better regulated, or if investors learned from their
experience, respectively demanding safer products or more reputable
forms of financial investments. Based on policy and partly data analyses,
some papers have already emphasized a possible geographical shift in the
dominance of financial centers from West to East (e.g., Derudder et al.,
2010; Aalbers, 2009). This paper concurs with the views on the shift in the
geography of finance centers, not so much in an overall geopolitical
perspective (West to East), but more with regard to a shift from certain big
world finance centers to smaller scaled, more regionally (in a wider sense)
integrated financial centers and in general toward a more regionally
oriented, geographically deconcentrated financial system.
Many taxonomies and concepts exist to distinguish between financial
systems, like capital market- versus bank-based systems (e.g., Klagge,
2010; Demirgüç-Kunt and Levine, 2001) or public utility versus capitalist
credit and banking system (Gowan, 2009). In this article, the question will
World Capitals of Capital, Cities and Varieties of Finance Systems 149
be raised if a distinction between a regional versus internationally

orientated banking and financial system will bring appropriate insights in
light of the crisis.
A regionally orientated financial regime calls for spatial proximity
between debtor and creditor (decentralized allocation) in order to allow
direct decision making. Assumedly, they are superior in lending capital to
smaller, not-marketable companies or private real estate buyers. Spatial
proximity to customers could be highly relevant when gathering informa-
tion about them and their businesses. This is above all important if finan-
cial intermediaries hold the loans and credits in their books, because they
keep the risks. Internationally oriented financial regimes – by contrast –
require spatial proximity between the actors on the financial markets (con-
centration at financial centers), allowing them remote decision at a
distance. The financial crisis made the mechanism of traveling of risks
easily viewable for asset- or mortgage-backed securitization and other so-
called financial innovations for which spatial proximity to other banks,
rating agencies, consultancies, lawyers and so on, can be considered as
relevant.
Proposing a new approach for categorizing financial systems does not
mean that it can be clearly stated that one country has a strongly regional
and another country a strongly international financial system, as both
systems are interrelated and both bank types, the regional and the interna-
tional ones, mainly exist in each country. Therefore, not countries but dif-
ferent systems will be compared within different national state contexts.
The international system will be explained by the ‘Wall Street System’2
(section titled ‘Capitals of Capital and Internationally Oriented Finance’),
which organizes the flow of money from over- to underfunded spaces in an
international sense. The section contains theories and concepts, explaining
the concentration of economic activities in one area, their spatial nodes
and predominant places, as well as the increasing meaning of finance and
world-leading financial centers. Wall Street System does not mean that
finance in the United States is 100 percent international, but represents in
fact a regime mainly located in New York (and London), which organizes
the international flow of money.
The regionally oriented system will be demonstrated by the regionally
oriented banks in Germany (section titled ‘Varities of Financial Market
and Regionally Oriented Banks in Germany’), which are organizing the
money flow between debtors and creditors in one region. This again does
not mean that German financial capitalism is totally based on local and
regional banks (Regionalbanken). Nevertheless, to discuss advantages and
disadvantages of decentralized banking systems, the comparatively
decentralized German banking system is appropriate.
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150 Stefan Gärtner
The financial crisis has triggered the sovereign debt crisis and the
€ crisis which will also have an impact on the banks again in both the
regional and especially the international banking system (section titled
‘Banking and the € Crisis’). The awareness that financial centers could be
negatively affected by regulation could be helpful for regulation policy
itself. This is one of the core assertions of the section titled ‘Conclusion’,
which further mentions that, instead of one Anglo-Saxon financial market
regime, varieties of financial market capitalism exist.
Capitals of Capital and Internationally Oriented Finance
Deregulation and the Rise of Finance

Since the 1970s, international institutions (e.g., the International Monetary
Fund [IMF] and the World Trade Organization [WTO]), nation-states
and indeed also the European Union, advocate deregulation, privatization
and open financial markets as a way to – as they believe – increase
efficiency and therewith the general wealth.
But from the 1980s onward, increasing the general wealth was no longer
the main purpose for deregulation agenda. Instead, the goal became to
generate growth within the financial industry itself. The maxim to make
money from money formed the objective of the politicians responsible for
regulation in recent years (Gowan, 2009). ‘In economic, political and aca-
demic circles, financial intermediation was no longer simply considered to
be a backup for the “real” economy, a means of financial industrial growth,
but to be a source if wealth in itself, which hat to be encouraged and devel-
oped’ (Cassis, 2010: 263). Wade (2008) brings forward strong arguments
to suggest that a global spiral of deregulation was set in motion at a time
as far back as the 1980s, by Margaret Thatcher’s policies. This process
was subsequently strengthened as a result of international competition,
caused by US policy. Since underdeveloped, peripheral regions were par-
ticularly affected by a lack of regional credit supply (Chick and Dow,
1988; Dybe, 2003), banking markets had previously been regulated and/
or financial institutions were created in underserved regions (see, e.g.,
Myrdal, 1959: 42). The deregulation, liberalization and promotion of
financial centers turned this principle on its head; the creation of important
financial centers, which should cause above-average growth through spill-
over effects, became the objective (Cassis, 2010: 263).
Since the collapse of the world monetary system created at Bretton
Woods in the 1970s, ‘wealth which had been confined to local or national
enterprises or stored could much more easily move round the globe .…
Giant pensions funds and small private investors followed their lead in the
1980s and 1990s…’ (Sennett, 2006: 38). This caused an expansion of the
whole financial economy, especially in Anglo-Saxon countries. The high
profit expectations in the financial economy increased the amount of capital
looking for returns on a global scale – a fact strengthened also by the
reflationary monetary policy of the US Federal Reserve Bank. The wealth
of institutional investors grew from 3 to 55 quadrillion dollars between
1980 and 2005 (Bundeszentrale für politische Bildung, 2010). This can be
explained, for example, by Aglietta’s (2000) concept of the finance-driven
accumulation regime, which assumes that since the end of Fordism in the
1970s, new and more flexible production regimes and their accompanying
spatial-structural changes have appeared. The control of company
leadership was transferred from the production sector to the financial sector
(Scheuplein, 2009). ‘…The finance industry has taken on a life of its own
and is expanding and developing its hold over the rest of the economy’
(Corpataux et al., 2009: 321). A change in the legal form from private
partnership to public corporation as joint stock companies, which forecloses
personal liability, also took place within the US financial corporations.
Salomon Brothers was perhaps the first significant case for this development
in the 1980s, with many Wall Street Corporations following and becoming
subjects of speculation. The financial market thus changed its middle- to
long-term objective to a short-term one and pushed their risks to their
leverage limits to fulfill the shareholder requests for return.
Hedge funds, private equity and other (institutional) investors agreed to
more and more dangerous deals with less and less of their own equity. Large
(global) banks financed these business models on a grand scale, but also
expanded credit volumes through careless lending to consumers and real
estate buyers and receiving liquidity by securitizing and selling those credits.
The financial instruments developed in financial centers can be described as
innovative in terms of statistical risk analyses. Financial innovations,
however, were also made to circumvent rules and regulations (Fujita, 2011:
265) and the market for tradables permits increased information asymmetries.
Insofar that it appeared as if investments were risk-free and high-yield, and
the subprime market in the United States pooled mortgage loans and gave
them a very safe AAA rating, sometimes without regard for the income and
asset situation of the borrowers at the point of lending. This provided no
added value in the sense that risks were evaluated more accurately and
innovations were made possible in the manufacturing sector.
The Role of Space and Place

Since the 1980s,3 the World City Hypothesis (Friedmann and Wolff, 1982)
has been dealing with the extraordinary importance of certain cities that
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152 Stefan Gärtner
are highly integrated and create a common hegemonic space. These world
cities are moving into the power vacuum created by slowly dissolving
societal and political control, caused by globalization. The world economy
is defined by a linked set of markets and production units organized and
controlled by transnational capital. ‘World cities are a material manifesta-
tion of this control, and they occur exclusively in core and semi-peripheral
regions where they serve as banking and financial centres, administrative
headquarters, centres of ideological control, and so forth’ (Friedmann and
Wolff, 1982: 311–312). Castells’ (1996) Spaces-of-Flows concept which
follows the idea that informational society is shaped by a new space-logic
can be connected with this. The technological and organizational possibili-
ties can, in his view, dissolve space from the ‘geographical contiguity’
(Castells, 2000: 14). ‘A major consequence of globalization has been to
create new relational and functional monetary spaces that are simultane-
ously geographically compressed and geographically stretched’ (Martin,
2010: 5).
Being one of the most prominent representatives, the concept of world
cities has been picked up by Sassen (1991) and further developed under
the term ‘global city’. Hence, the meaning of a city most of all depends
on the degree of global connectivity of its multinational corporations
and financial businesses (Sassen, 1994). Global cities have, according to
Sassen (1991), distinct steering and controlling functions, a strong pres-
ence of postindustrial productions (finance and service companies) and are
important trade centers for specialized services. Through supranational
power relations and increasing economic, most of all financial-economic
international market relations, hubs with specific spatial integration points
concentrate at different locations worldwide. Because they are financial
centers, cities like New York and London have a so-called surplus meaning.
Transnational companies are represented at these locations for reasons
connected to reputation, which again can lead to cumulative effects in the
sense of a self-fulfilling prophecy. The increasing meaning of world
finance centers and the spatial concentration of finance goes hand in hand
with a decline in traditional local banking systems (Dow, 1999), which
leads to a higher dependency of economically weaker regions on the pros-
pering urban finance hubs.
There are a number of spatial economic theories and approaches suit-
able for explaining this: Among the most popular are agglomeration theo-
ries which take competitive advantages as their starting point and see
benefits if companies (of the same industry) are concentrated at one loca-
tion (Myrdal, 1959). The positive effects for the regional economic devel-
opment have been recognized since the 1990s within the frame of the
cluster approach and there were efforts to use them in regional policy
(Rosenfeld, 2002). Clusters, in analytical terms, have long been used in

spatial economics (see, e.g., ‘the system of growth poles’ by Lasuen,
1973). The term in its current use as a popular approach comes from Porter
(1990). Schamp (2009), referring to Gordon and McCann,4 showed three
functions for the Frankfurt financial center that make the concentration of
financial economies look reasonable and that are conditions of financial
clusters: Firstly, transaction cost advantages in the geography of a banking
complex which he refers to as internal (mergers or own efforts), as well as
external effects of scale. The latter have gained importance, especially
with regard to the gradual deregulation of financial markets in Germany
and a changed organization of the banking complex. According to Schamp,
starting in 1990, American rating agencies, informational services, finan-
cial relations, financial analysts, international businesses or lawyers came
to Frankfurt as new providers of financial services. Secondly, he mentions
urban agglomeration effects, especially in the form of specific labor
markets and the knowledge spillovers connected to them. Thirdly, he calls
the financial center the social place with the inherent possibility of face-to-
face contacts which are particularly important in the financial economy
due to the high information asymmetries.
New York and London

Large multinational, well-established companies are financed primarily by
international capital markets in the form of shares and bonds. Securing
finance and bonds on the international capital markets generally offers
improved cost-effectiveness and is associated with less dependency on the
financing institutions. The geographical proximity of debtors to lenders or
investors (e.g., shareholders) does not matter much, since the objective is
to make comprehensive information available to the public. Considerable
knowledge is required for the provision and evaluation of information, as
well as for its distribution. However, financing ventures in this way is only
cost-effective on a large scale, as the necessary provision of information
would otherwise prove to be too cost-intensive. Thus, it follows that finan-
cial intermediaries in the geographical vicinity have an important func-
tion, for financing small and medium enterprises (SMEs). Information
procurement is particularly burdensome for banks that are not in close
proximity to their potential borrowers or are not integrated into regional
markets.
It can be generally summarized that when dealing with forms of
financing based on internationally tradable assets, the proximity of the
actors in the financial market is a crucial factor in terms of inter-company
divisions of labor. At the same time, the ongoing globalization of financial
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154 Stefan Gärtner
markets has been accompanied by a growing concentration of financial

services in a few, very large, financial centers.
The cities mentioned most frequently as the world finance centers
are New York, London and, despite an economic recession, Tokyo
(Sassen, 2006; Cassis, 2010), and, with some distance but with increa-
sing importance as a hub for the region of China and East Asia, Hong
Kong and Shanghai. But the aim of the chapter is not to discuss the
hierarchy of world financial centers. Therefore, it will rather focus on
a system or a spatial structure based on Wall Street (New York) and
the City of London, accelerating a new culture of finance. Gowan (2009:
6) speaks about the ‘New Wall Street System’, producing new actors,
new practices and new dynamics. Financial innovations, deregulation,
the dominance of the US dollar as global money and ‘new shadow
banking system in London, alongside the official regulated sector’ (Gowan,
2009: 15) are the drivers of the New Wall Street System. ‘The Term
“Wall Street” should therefore be understood to include London, as a
satellite for these American operators’ (Gowan, 2009: 16). The rise of
the cities as capitals of capital can only be understood in regard to the
historical role of the national economy or, in the case of London, of
the imperial state (Therborn, 2011: 274–275). Especially due to their roles
in the financial crisis but also as foreign exchange markets and the meaning
of their own currencies, it is appropriate to concentrate on New York
and London.
Under- and Overfunded Spaces and the Role of World Financial Cities
Securitized loans offer investors high returns (Gowan, 2009: 14). But
various partners are required to operate the value-added chains in the
securitization of loans, bundling, evaluation and trading of these risks.
Large parts of the value-creation chain are concentrated in a few places.
Both the majority of creditors as well as debtors, however, have a different
spatial reference. ‘In the case of the USA particular, this meant that while
in certain areas risky mortgage lending became inextricably bound up with
global banks and the global bond market, this was far from a geographically
uniform process’ (Martin, 2010: 16). The target (borrowers) and the source
areas of capital (investors) are not the same due to the high volumes
transferred in global financial centers. The US subprime market therefore
took place in three locations.
First, where the money is invested or where the debtor lives. In the
period leading up to the crisis, it was debtors’ credit histories that usually
formed the primary basis for decision making due to the use of automated
credit checks. Furthermore, the lack of a credit history was not assessed
negatively by the models. This meant that it was often immigrants and
their residential areas that were targeted by banks (Lewis, 2010).
Second, the location of the funding source, where investors are local-
ized and are willing to invest money in securitized and pooled risks, has to
be considered. If the place where the funds are to be used and the funding
source are far apart, then the transparency of the situation decreases, and
the sale and distribution of the investments is simplified. Lewis (2010)
identifies as buyers with AAA rating, but nearly worthless, collateralized
debt obligations (CDOs), ‘German banks, Taiwanese insurance compa-
nies, Japanese farmers’ and European pension funds’ (Lewis, 2010: 141).
Aalbers (2009) describes the case of the City of Narvik (population
18,000), in the far north of Norway, which jointly invested with three
small municipalities nearby $78 million in mortgage-backed securities
from the US bank Citigroup and lost most of it.
Third, international financial centers are required as places where the
bundling, evaluation and distribution of risks occurs. The decoupling of
the financial sector from the real economy is at its greatest when the trans-
actions carried out are not connected to the host country, and connection to
the real economy is conducted to the greatest possible extent through
brokers, meaning that the capital-lending institutions do not have the risks
on their books for any length of time. The operation of financial markets,
especially in the case of the US subprime market, is based on a cluster
function and the associated knowledge spillover effect. To be able to
understand the way rating agencies’ evaluation models function, for
example, to know how many B-risks may be mixed with A-risks for the
portfolio to receive a ‘very good’ rating, vicinity and the associated knowl-
edge spillover effects are of central importance. At the same time, financial
centers must have a good reputation for investors to be willing to cede
them their capital. Specific symbols (Cassis, 2010), for example, buildings
such as the former World Trade Center or entire neighborhoods such as
Manhattan in New York, specific lifestyles as well as specific institutions
and actors (banks, stock exchanges, rating agencies, international law
firms, pertinent publishing houses and a reliable government) are of impor-
tance as well.
In addition to their reputation, locally accessible expertise and the
consequent spillovers, financial centers require a culture of success. ̔The
financial industry requires transparency to allow products from different
asset classes to be compared in terms of their returns and risks....
Paradoxically, this constant demand for transparency, that is, standardized
and public information, leads, according to the evidence, to a concomitant
growth in opacity'. (Corpataux et al., 2009: 329). It is not just the belief
that every piece of information can be recorded and evaluated and that,
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156 Stefan Gärtner
based on this historical data, models can be developed that can accurately
predict the future (Arnoldi, 2009; Krieg, 2008), but also the construction
of a specific truth. What happened in the US subprime market cannot be
explained otherwise: banks lent to less-wealthy people (hence the name
‘subprime’) with the socio-political justification that they were enabling
such people to own real estate. In many cases, neither the property itself
nor the income and asset situation of the borrower was checked. The
banks’ and rating agencies’ models reasoned that the cost of rescheduled
and/or redeemed loans would be covered by rising house prices. But with
stagnating prices, it was clear that calculations were flawed (Lewis, 2010).
Furthermore, the crowd mentality and culture of success prevalent in the
financial centers led some doubters to believe it was they who were in the
wrong and thus did not express their concerns to avoid embarrassment.
This was reinforced by the financial institutions, in particular by the rating
agencies, and by false incentive schemes that compelled credit tranches to
be classified more attractively, thereby allowing higher pricing, and
ultimately improved marketing potential (Menkhoff, 2008: 298). There
were enough serious warnings, such as that of US economist Rajan (2005),
who predicted the danger of an imminent financial crisis in 2005 at the
world meeting of central banks. There were other actors who recognized
the risks specifically related to the bundling, evaluation and distribution of
US subprime mortgages, and repeatedly predicted a collapse. However,
since the regulatory authorities did not share these concerns, people did
not want to believe them. It was also the public actors who did not want to
directly stop the growing financial industry and, indirectly, the construction
industry. Also because they did not want to lose the resulting public
revenue. For example, the Spanish construction boom was made possible
by the generous designation of land for development by local authorities,
resulting in high revenues (Garcia, 2010).
In his book The Big Short (2010), Michael Lewis presents the biographies
of real people who predicted the inevitable collapse of the subprime
market, and how their betting (with the help of financials) on this occurring
enabled them to make very large profits during the crisis. The remarkable
aspect is that these were consistently oddball characters, critics of the
system and loners, that is to say, people who did not allow themselves to
be influenced by the prevailing views in the financial centers and the
associated atmosphere. As Lewis (2010) notes, it was only possible for
business to continue due to a conglomeration of ill-informed people. This
included poorly qualified employees, responsible for assessing real estate
loans in the rating agencies, as well as both knowledgeable and partly
knowledgeable people who, however, did not want to accept the truth of
the situation.
Considering the extent of the crisis, it seems that the business mode in
the capitals of capital increased, rather than reduced, information asym-
metries. The geographical extent of this culture of success and the belief in
the ability to manage complex risks with mathematical and financial pro-
cedures was exacerbated by the sympathetic coverage of specialist pub-
lishers, which are also located in the world’s financial centers (French
et al., 2009).
Changing Landscape of Capitals of Capital

The way in which global financial centers function since the 1980s has
contributed to a strong expansion of the financial industry, of the degree of
internationalization and their risky business transactions. Haldane (2010)
states that the UK financial sectors outstripped the whole economic growth
by over 2 percentage points per year over the last 160 years and Turner
(2010) showed that the UK banks’ aggregate balance sheet (as percent of
GDP) grew from 34 percent in 1964 to 497 per cent in 2007. Goldsmith
(1969) is quite often named as one of the first who showed a positive
correlation between the size of the financial system and long-term
economic growth. His main argument is that a higher quantity of financial
intermediaries could improve the efficiency and quality of lending.
However, Arcand et al. (2011) found evidence for a threshold ‘above
which financial development no longer has a positive effect on economic
growth’ and showed that ‘the financial sector was an important amplifier
of the global economic crisis’ (Arcand et al., 2011: 18). The threshold
above which the positive turns into a negative effect is caused by two
possible reasons: first, the misallocation of resources (see also Bickenbach
et al., 2009); second, the volatility and probability of large crashes (Arcand
et al., 2011: 18–19).
The financial crisis has destroyed trust since 2008 and removed there
with the necessary liquidity from the market. Shin (2010) describes
liquidity as a public good. Over the course of 2007 mortgage, bounds lost
between 60 and 80% of their value.… It was this collapse that triggered
the banking crisis.… This in turn led to the global credit crunch, which in
turn triggered the global economic downturn that then impacted at the
local level. (Martin, 2010: 17)
The thesis underlying this chapter that the tier-1 capitals of capital will
decrease in size is, because of a lack of empirical data, difficult to measure.
However, the International Labour Organization’s preliminary analysis
quantifies the large number of job losses suffered globally by the financial
industry. According to them, the majority of losses were felt in financial
centers in the United States of America and the United Kingdom, as well
www.Ebook777.com
158 Stefan Gärtner
as in Ireland. Investment banking has been much more affected than

retail banking. This in turn has geographical effects and suggests that
banking outside the main financial centers will react more stably to the
crisis (International Labour Organization, 2009). How sustainable these
trends will prove to be is still not clear and it is not probable that the capi-
tals of capital will dissolve in favor of a more decentralized ‘grassroots’
form of banking as a result of more stringent regulation or market forces.
The high meaning of finance for the United States of America can also be
highlighted by the high share of employees working in this sector. By
comparing the sector finance/insurance (NAICS 52) from the Quarterly
Census of Employment and Wages in the United States with Germany,5
you see that the sector in Germany was only responsible for an employ-
ment share of 3.7, compared to 5.26 percent in the United States and
7.64 percent in the State New York and 15.7 percent in Manhattan. The
development of the US employees in finance (see Figure 5.1) shows a
decrease after the crisis, after increasing from 2005–07. In Manhattan
(Figure 5.1), the development of employees is most volatile. However, the
dot.com crisis, as well as the impacts of September 11 and the quick recov-
ery from them, are also obvious in the data. This could lead us to assume
that a quick recovery is typical for the financial business in Manhattan. But
the figures could also be interpreted as more dramatic, as we see a decline

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Figure 5.1 Annual percent change in employment in finance/insurance in the United

States, State New York and Manhattan (County New York) 2001–10.
Source: United States Department of Labor (http://data.bls.gov), own calculation.
in Manhattan, in the State and in the whole country in the sectors of finance
over three years. Also, by comparing the first nine months of 2011 to
the same period in 2010, we see, instead of recovery, a further small
decline of – 0.4 percent (United States Department of Labor, own
calculation). Furthermore, in opposition to earlier crises, a broad discus-
sion within the society (e.g., Occupy Wall Street), in international and
national policies and even in economics appeared, about the negative role
of unregulated financial markets.
Nearly six million workers in the United States and nearly 300,000
workers in Manhattan had been employed directly in finance/insurance
before the crisis (2007). The location quotient (lq)6 is appropriate to
understand the meaning of this sector for Manhattan and is illustrated (as
percent of change) in Figure 5.2. If the quotient is near 1, then the industry
has the same share of its area employment, as it does in the reference area.
Greater than 1 indicates an industry with a greater share of the local area
employment than is the case in the reference area (e.g., Bureau of Labor
Statistic). The quotient of finance/insurance in Manhattan is nearly 3,
saying that the number of employees in this sector, in comparison to all

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Figure 5.2 Annual percent change in employment in the most concentrated finance
subsectors (lq < 15) in Manhattan from 2007 to 2010.
Source: United States Department of Labor (http://data.bls.gov), own calculation.
www.Ebook777.com
160 Stefan Gärtner
employees, is three times higher than the one in the rest of the country.
Figure 5.2 shows the percent change of employment in the sub-sectors,
which are highly concentrated in Manhattan (lq > 15), from 2007–10. The
total amount of job losses is 46,529 workers.
The strong expansion of finance and its related activities has primarily
occurred at global hubs, especially in New York and London and in
the countries and regions that made certain transactions possible through
deregulation and a lack of transparency. This has attracted a well-
financed urban infrastructure in the form of restaurants, bars, exclusive
fitness clubs, art advisories, galleries and so on. This raises the question of
how this landscape will change as a result of stagnation of the global
financial market. Aalbers (2009) emphasizes that ‘…there are now more
secondary financial centers in the world and the centers of increasing
importance are to be found outside North America and Europe’ (Aalbers,
2009: 39).
Varieties of Financial Market and Regionally Oriented

Banks in Germany
Varieties of Financial Markets and Economic Settings
The case of Lehman Brothers and its impact on financial markets showed
how interrelated the financial markets are. However, financial systems
are still different in different countries. The bank-based system, which
is – in contrast to the Anglo-Saxon countries – dominant in Germany can,
according to the ‘Varieties of Capitalism’ approach (e.g., Hollingsworth
and Boyer, 1997; Hall and Soskice, 2001; for an overview see Jackson and
Deeg, 2006), be regarded as a product of cumulative factors, such as the
SME-dominated economic structure. In the frame of the ‘Varieties of
Capitalism’ approach, financial markets are studied by contrasting liberal
market economies (e.g., USA and UK), with dominant position of the
capital market and coordinated market economies (e.g., Germany and
Japan) with a dominant position of the banking market. The distinction
between coordinated and liberal market economies are caused by differ-
ences in the legal system, by informal rules, common knowledge or cul-
tures and so on. These factors are complementary to each other in one
country (small family-owned companies are benefitting, e.g., from a bank-
based system) and cause general for a high continuity of the varieties
(Soskice, 1999). The complementarity supports comparative advantages
in each market economy. Others (e.g., Campbell and Pedersen, 2007),
however, emphasize an incremental change of the arrangements and
believe that the models or varieties will show new hybrid forms or even a
more or less total convergence following a (Anglo-Saxon) liberal market
approach (e.g., Soederberg et al., 2005). This is congruent to the increas-

ing meaning of finance in economy and society, broadly discussed under
the term financialization (e.g., Epstein, 2005; Windolf, 2005 and see the
section titled ‘Capitals of Capital and Internationally Oriented Finance’).
In Germany, the wish for the financial industry itself to directly create
benefits and the concurrent proclamation of a shift from an industry-
based to a service-based knowledge economy started with a time lag
but were expedited by the liberalization wave in the early 2000s. For
example, the State of Hesse’s financial market initiative ‘Frankfurt Main
Finance’ and the service point ‘Financial Center Frankfurt [Finanzplatz
Frankfurt]’, introduced Federal Council initiatives such as the strengthen-
ing of the real estate market through the introduction of Real Estate
Investment Trusts (REITs) and the improvement of the fiscal framework
for the securities market. These initiatives have encouraged deregulation
and, thus, consciously contributed to the promotion of Frankfurt’s
financial center (Weimar 2005/2006). They found their equivalent on the
federal level.
The financial crisis has slowed down this process (Beyer, 2009), and
huge parts of the banking industry did not follow the so-called financial-
ization. Instead, many banks are highly regionally oriented, which will be
considered in the following paragraphs.
Regionally Oriented Banking in Germany

As global as Germany’s industrial business markets are, as decentralized
and regionally oriented is the majority of the financial system. Germany
has more than 1,500 regionally oriented, economically autonomous banks.
A decentralized public banking system is moreover a logical product of
the specific regional structure of the Federal Republic of Germany.
Savings banks have tended to be privatized in centralized countries but
have remained (mainly) public in countries with a federal structure such
as Germany and Switzerland (Cantonal Banks). Elsewhere in Europe
and in North America, unlike in Germany and a few other countries,
the banking system has seen large-scale legal reform and reorganization
and (partial) privatization (Hakenes and Schnabel, 2005; Engerer and
Schrooten, 2004). The German banking system differs from other
European markets in the major role played by public banks and the
horizontal division of responsibilities within savings banks and cooperative
bank associations. Each of these banks is regionally independent, but
works together with others within the group. As public institutes, savings
banks are bound legally to their provider, normally municipalities. A
principle which is supposed to ensure they fulfill their public task is the
www.Ebook777.com
162 Stefan Gärtner
regional principle (Regionalprinzip). This principle7 states that savings

banks may only lend to institutions, companies and private individuals in
the region in which they are based and may only open branches in that
region. The aim is to ensure that money saved in the region is used first and
foremost to boost the local economy and to help the local population. The
principle of regionalism checks capital mobility and ensures – at least in
theory – that centripetal backwash effects are reduced. This regional
delimitation also applies in a similar form to German cooperative banks.
Savings banks can be found in any region – with very few exceptions.
Cooperative banks focus on rural regions in western Germany, but are also
spatially widespread. The more internationally oriented credit banks are
mainly present in conurbations and, to a certain degree, in the West more
often than in the East of Germany, in rural areas (Gärtner, 2008; Engerer
and Schrooten, 2004). In East Germany (the former German Democratic
Republic [GDR]), credit banks provide in many peripheral regions only
self-service branches. To approximate the geographical distribution of the
banking groups, an index for geographical concentration of employees in
one location has been developed (see Figure 5.3). An index value of one
would indicate that all the employees and/or enterprises of a particular
branch were located in one region. As the geographical distribution of
workers increases, the index value tends towards zero. The low index
values for savings (first bar) and cooperative banks (second bar) clarify
that they are very much deconcentrated in space, which is rational as they
mainly provide loans to SMEs and private real estate buyers. They are
therefore more reliant on geographical proximity in being able to assess
and control risks. The third bar in the figure illustrates that the employees
of credit banks are more concentrated in certain areas. Most credit banks
are legally organized as joint stock companies (AG). Besides regional
banks, which, however, are mostly not regionally oriented, as well as other
credit banks and branches of foreign banks, the group of credit banks
comprises the four big banks (Deutsche Bank AG, Commerzbank AG,
Bayerische Hypo- und Vereinsbank AG and, since 2004, Deutsche
Postbank AG). This does not present an irrational situation, as these
institutions operate separately from the local retail banking and focus on
international investment banking and underwriting. As Figure 5.3 shows,
the geographical concentration of employees increases with the level of
specialization of their role.
The fact that a varying degree of vicinity could be responsible for
different types of businesses can be seen in Figure 5.4, which shows the
development of employees’ geographical concentration, compared to their
credits to companies and self-employed, in relation to the banks’ total
balance sheet for credit, savings and cooperative banks in Germany. A

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of the financial services industry in 2008.
Source: German Federal Labor Office [Bundesanstalt für Arbeit]/own calculations.
negative correlation between concentration and lending activities is

obvious. The more the banks’ employees are concentrated, the less the
banks are involved in the loan business to SMEs. Even more, an increasing
gap for the credit banks is viewable (first diagram in Figure 5.4): while the
spatial concentration of the credit banks increased, the loan portfolio
decreased. Due to an increase of the balance sheet, the lending activities as
ratio-value decreased for all banking groups, but comparatively less for
the cooperative banks (third diagram in Figure 5.4), and hardly at all for
savings banks.
Spatial Proximity in Banking Statistics and Economic Analyses

In statistical analyses, research reports and banking literature, nation-states
have been used as reference frames for analyses and market structure mea-
surements. The geographic space underneath the nation-state often remains
disregarded. Due to a common currency within nation-states, financial and
banking systems seem irrelevant for spatial economics in most cases
(Chick and Dow, 1988), a fact which was further increased by the common
European currency in the last 10 years. Most of the European Central
Bank’s (ECB’s) public statistics are structured according to sectors, but do
not differentiate between nation-states. The European Area Banking
Lending Survey, for example, refers to the whole € area and only offers
aggregated data (ECB, 2010). The spatial negligence in banking analyses
and public statistics can, in the case of Germany, also be seen in the strict
www.Ebook777.com
164 Stefan Gärtner
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comparison to the geographic concentration index of employees for credit, savings and
cooperative banks.
Source: German Federal Labor Office [Bundesanstalt für Arbeit] and German Central Bank’s statistics/
own calculations.
orientation of the formal, legal structure (three-pillars model) used in

studies. Figure 5.5 displays these three pillars. The government pillar com-
prises savings banks (first bar in Figure 5.3), state banks (Landesbanken),
including the DekaBank, and (public) special institutes like the KfW
banking group. The second pillar comprises more than 1,100 cooperative
banks (second bar in Figure 5.3), plus the cooperative central institutes.
The unit represented by the third pillar includes mostly credit banks that
are legally organized as joint stock companies (see previous note), such as
the four big banks (Deutsche Bank AG, Commerzbank AG, Bayerische
Hypo- und Vereinsbank AG and Deutsche Postbank AG).
This division into three pillars makes sense (horizontal axis in
Figure 5.5) because in the past, restructuring and buyouts due to legal
reasons only took place within these three pillars. With regard to the ques-
tion at hand, however, a differentiation across these pillars with reference
to geographical market orientation would seem useful. In Figure 5.5, this
happened on the vertical axis, the vertical expansion being figured
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Figure 5.5 Three-pillars banking structure from a geographical perspective.

Source: Gärtner 2011: 158
www.Ebook777.com
166 Stefan Gärtner
heuristically, but in line with the employees’ concentration index value

(see Figure 5.3). Regionally oriented banks have been summarized as one
group (grey field in Figure 5.5). This group consists mostly of savings
banks and cooperative banks, but also includes some private commercial
banks such as the National Bank AG, which is only active within a range
of 50 km around the city of Essen, in North Rhine-Westphalia. The state
banks have a supporting function in the respective states and support the
savings banks in the service of larger global business customers, but
are also active at a national and international level and therefore do not
belong to this group completely. The group of banks acting at all levels of
Germany would include mainly the Commerzbank AG, but also the
Deutsche Bank, both of which are part of the more internationally oriented
credit banks group.
Regionally delimited banking markets can be advantageous for stable
financial systems, regional development, and therefore national
economies. On the other hand, the advantages of spatially unlimited
global markets with big, internationally acting banks can at least be
derived in models. Firstly, internationally oriented banking markets can
diversify risks (Fischer, 1998; Mishkin, 2006). This must be seen against
the backdrop that the loan portfolios of regional banks reflect the regional
economy and are therefore normally not particularly diverse. Second,
internationally oriented banking markets increase competition and
thereby prevent rents of oligopoly. Third, because internationally oriented
banking markets enable equalization of liquidity on a supra-regional
level, because regional savings and investment rates may vary from one
region to another and this can mean that funds are kept unproductively in
one region, or that one region does not have sufficient access to funds.
Fourth, internationally oriented banking markets prevent circles in which
regionally oriented banks in economically weaker regions generate lower
returns (Chick and Dow, 1988) and are at risk in the long run (downward
spiral).
Germany’s banking system is suitable for contrasting internationally
oriented with regionally oriented banking systems. When looking at the
practical experience regarding advantages and disadvantages, at least two
questions can be answered empirically for Germany: First, are small,
regionally delimited banks sufficiently stable from an economic point
of view and, most of all, are they successful enough in economically
weak regions? Second, are smaller, regionally oriented banks capable of
granting credits to companies and self-employed persons, even in times of
crisis? Both will be proved by the cases of empirical material in the
following.
Stability of Regionally Oriented Banks and Their Lending Activities

If one function of global financial banks is the diversification of risks, it
seems only reasonable to assume that banks with geographically delimited
markets run the danger of having relatively homogeneous loan portfolios
which correspond to the regional economic structure and can lead to the
concentration of risks. In spite of some group-internal credit-pooling
activities to diversify risks, the danger of being dependent on national eco-
nomic business activity cycles remains, which might make strongly
regionally oriented banks less stable. Furthermore, there is a danger that
although smaller regional banks have excellent knowledge of the local
market, they may be unable to assess the risk of investments in new tech-
nologies or product innovations because of their focus on the local market.
Not only can this mean that they lack the necessary information to take
lending decisions, it can also mean that they do not demand enough inno-
vation from their borrowers (Alessandrini and Zazzaro, 1999: 85). All of
this could lead to disadvantages and instabilities. As savings and coopera-
tive banks build their equity mostly on retained revenues, this would be
especially problematic with regard to the tightened equity regulations cur-
rently planned (Basel III).
International comparisons show that the German banking market has
been offering low rates of return for years now (Gärtner, 2008). However,
it was not just the regionally oriented cooperation and savings banks; all
banks in Germany have been doing so over the last 10–15 years. This indi-
cated a highly competitive, well-functioning banking market and led the
KfW-Bankengruppe (2005) to draw the conclusion that the German
banking industry was highly productive from a national economic per-
spective. However, it was hardly profitable as a business in international
comparison.
As Beck et al. (2009) said, in a study which compared the stability of
banks across different types of ownership in Germany between 1995 and
2007, ‘We find consistent evidence that privately owned banks are less
stable than government-owned savings banks and cooperative banks.’
Especially in private banks, the authors saw an indication of the ‘too-big-
to-fail-policy’ of banks in general, which showed smaller equity ratios
corresponding with a larger size of the bank and saw a negative relationship
between bank size and lending risk for private banks.
Small, regionally oriented banks are more risk-averse and altogether
less vulnerable to crisis. Yet, as previously stated, the additional question
must be asked whether these banks are gaining the same revenues in
economically weaker regions as in successful metropolitan areas. It is
generally assumed that regional banks’ profits are directly dependent on
the strength of the regional economy. A regionally distinct banking system
www.Ebook777.com
168 Stefan Gärtner
‘may not be an unmixed blessing to the periphery: while such a system

may guard against a monetary outflow to the centre, periphery banks are
exposed to extra risk where peripheral regions have, as they tend to do,
quite specialized and strongly cyclical economies’ (Chick and Dow, 1988:
240). Economic instinct would suggest that regionally delimited banks in
a flourishing economic environment have greater profit potential and can
therefore generate higher returns than those in weak regions (Alessandrini
and Zazzaro, 1999). If they earned significantly less in weak regions than
in strong ones, the regional principle (of German savings banks) would
cause the danger of increasing economic differences between the regions.
The year 2007 saw the first test of whether regionally oriented banks in
weak regions can be successful (Gärtner, 2008). The data set covered all
counties and urban municipalities in Germany and was based on all
German savings banks and regions. Further studies followed, such as that
by Christians (2010), of cooperative and savings banks (limited to eastern
German regions) and that by Conrad (2010), with regard to aging and
migration of the population. All studies known to the author provide a
clear sign that regional banks in weak regions clearly generate sufficient
returns. In East Germany, they even generate slightly better results in weak
regions than in prosperous ones (Gärtner, 2009).
A crisis-caused ‘credit crunch’ in which banks were weakened in their
net equity base due to write-offs of so-called toxic securities and other
speculative balance sheet positions, and therefore had to reduce lending
activities, has negative impacts to the economy. This could be strengthened
if banks lost trust in each other and inter-bank exchange came to a halt.
However, a credit shortage can also be caused indirectly through the real
economic situation in which banks have to write off company credits due
to a worldwide recession or rate the risks of their customers more negatively
than before. In huge international crises like the actual one or the big
recession in 1929, the possibility is probably that both causes overlap in
some countries: Banks are weakened in their net equity base due to losses
in international financial markets and write-offs, and the surpluses of their
credit customers decrease because of the economic recession. In the best
case, banks are stable with regard to their need for value adjustment and
stable relations to their customers cause them to also bridge liquidity
shortages of their customers in hard times. Spatial proximity is important
with regard to taking responsibility, but also regarding an information
advantage about the long-term business prospects of debtors. It can be
assumed that regionally oriented banks reduce business fluctuations and
thus avoid an overlap of credit shortages.
If we look at the lending statistics published by the German Central
Bank [Deutsche Bundesbank] in order to evaluate the output – that is, the
amount of loans de facto granted by banks to companies and self-employed

persons – we can easily see (Figure 5.6) that all banking groups taken
together (right scale) reduced their total loans slightly since 2008. However,
the bottom reached at the end of 2009 was still above those seen in 2007
and 2005. The fact that total loans could be kept at such a high level is
mainly due to the credit management of the regionally oriented cooperative
and savings banks, which expanded their lending in contrast to the state
banks and the big four joint-stock companies banks (left scale). The latter
are similar to the group credit banks (see Figures 5.3 and 5.4). However,
due to different data sources this excludes the so-called regional banks and
branches of foreign banks and is therefore more exact. The analyses
presented cannot answer the question of whether there has been a credit
crunch and if the German banking system is definitely advantageous for
SMEs. It was not possible to test for demand when output was being
analyzed. There is also a lack of intra-European data available for
comparison.
Banking and the € Crisis
The Interrelated Downward Spiral

Obviously the € crisis respectively the sovereign debt crisis did not emerge
only because of the banking crisis, but was rather triggered by various
reasons and causes. A question still unsolved is, for instance, how countries
with an unequal productivity growth are able to share a common currency
in the absence of transfer and coordination of economic and budgetary
policies. However, the financial crisis pushed the sovereign debt and thus
triggered the € crisis as demonstrated in the Figure 5.7. The interrelations
presented in this section analyze the financial crisis in 2007/08 (with
special reference to the US mortgage-backed securities and hedge funds as
originate-to-distribute businesses) and its impact on the € crisis. While
many aspects will be neglected in this regard, a mechanism shall be
discovered which is responsible especially for the € crisis. The figure
shows the ‘inner banking’ and the ‘inner € crisis’ and is divided in three
phases (see the following sections): I Triggers of the Banking Crisis, II
Rise and Fall of Finance and III Aftermath of the Banking Crisis.
Triggers of the Banking Crisis (I)

Federal state governments played an important role in the emergence
of this banking crisis, allowing a more liberal flow of capital since the
1970s, as well as new financial instruments and lower shares of equity
www.Ebook777.com

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Source: German Central Bank’s statistics, own calculations.
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Source: Gärtner
capital due to deregulation in the 1980s. Some authors discovered a nega-

tive correlation between high international capital flows; financial liberal-
ization and the stability of banking sectors (see for an overview Reinhart
and Rogoff, 2009: 154–156). Central banks’ expansive money policies
also gave rise to money floods in most countries (notably after the attacks
of September 11, the US Federal Reserve tried to avoid economic reces-
sion by flooding the market with cheap money). This was accompanied by
other factors such as the end of the Bretton Woods System.
Money oversupply and new techniques within the financial market
increased for instance the amount of real estate financing dramatically and
enabled low income households to become property owners. High demands
for real estate and the dynamic increase of property prices came up, espe-
cially in countries where protection of tenants is inadequate and renting
suffers from inflation in rent prices, as families often see no alternative to
buying. On the contrary, in those countries offering long-term alternatives
in renting, real estate prices adjust as demand uses to drop when prices are
high. In Germany, for instance, with its relatively tenant-friendly laws and
www.Ebook777.com
172 Stefan Gärtner
a higher share of residential building cooperatives as well as state-owned

building associations (even if some are sold recently), the share of prop-
erty owners is relatively low and the share of rented accommodation is
highest in Europe (see Figure 5.8).
In countries with an insufficient welfare system, people with low income
have been forced to invest in real estate (Gowan, 2009), in the hope of
ever-increasing asset prices, financing their needs and especially their
pensions (Young, 2011; Reinhart and Rogoff, 2009). With regard to their
influence on finance, the pension schemes can be roughly divided into
mainly privately organized, funded systems and mainly state-organized,
unfunded systems. The first induces the amount of money-seeking returns
and business and earning opportunities of finance, especially in the capi-
tals of capital (Clark et al., 2011), while the latter could come under pres-
sure in aging societies. Therefore, in some countries with traditionally
unfunded pension systems like Germany, a privately funded but federal
state–aided pillar has been started in addition, which again increased the
glut of money and the financial business. Furthermore, the high increase in
real estate financing could only take place because of new housing proj-
ects, a growing constructions sector, and the availability of the sites
required for realizing the new buildings. At that point, federal govern-
ments and local authorities got involved in regard to planning law as well.
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Source: ECB 2009, S. 84.
The financial sector was able to gain and to further develop its substan-
tial influence on the national economies. New techniques of risk evalua-
tion as well as the outsourcing of risk evaluation to ever more influential
rating agencies contributed considerably to that situation (MacKenzie,
2010). ‘On a more applied level, the move of numerous mathematics, phy-
sicians and engineers over to finance from the eighties onwards and espe-
cially from the 1990s – a trend known as Econophysics – is part of the
process’ (Cassis, 2010). Evaluation was supposed to be better and the faith
in sophisticated financial innovation and techniques made the rise of a
financial crisis unlikely. Especially different instruments to safeguard
investments like hedging or credit default swaps (CDS) induced that banks
took excessive risks. ‘The securitization of subprime mortgages combined
with a heavy appetite for these instruments in countries such as Germany,
Japan, and major emerging markets like China fueled the perception that
housing prices would continue to climb forever’ (Reinhart and Rogoff,
2009: 171). Banks’ and investment companies’ willingness to accept high
risks increased considerably and came along with companies’ specific
organizational structures and corporate cultures.
Accordingly, one may assume that national saving- and debt cultures vary
considerably between countries. In surplus countries such as Germany and
Japan, saving increased due to the expectancy of an aging population and a
specific mentality. Also, countries with high income based on natural
resources (e.g., Norway, the Gulf States or Russia) saved their surpluses and
in the same way emerging economies (e.g., China) tried to diversify their
future income and to hold their exchange rates down (Fujita, 2011: 266).
‘These export surpluses were recycled back into the American financial
system via the purchasing of US financial assets, thus cheapening the costs
of debt…’ (Gowan, 2009: 26). In doing so, governments and societies of
surplus economies made expansive consume primarily possible and led to
the situation that some losses of the financial crisis spread to other countries
(Young, 2011). The US financial sector and especially the real estate market
were only able to grow to that extent because private households were coun-
tenanced and willing to get into debt heavily. ‘Citigroup ran a billion-dollar
campaign with the theme ‘Live Richly’ ‘in the 1990s, designed to get home
owners to take out second mortgages to spent on whatever they liked’
(Gowan, 2009: 18). Reinhart and Rogoff (2009: 201) are stating that finan-
cial innovations ‘such as securitization allowed U.S. consumers to turn their
previously illiquid housing assets into ATM machines…’.
The Rise and Fall of Finance (II)

Deregulation, new financial instruments, a strong faith in managing high
finance, the flood of money, the willingness to get into debt and accept
www.Ebook777.com
174 Stefan Gärtner
high risks, as well as the overestimated reputation of the global financial

sector located in the main financial centers, led to a strong expansion of
the financial business and profits. The scrutinizing instruments aimed at
the traveling of funds and risks. Sufficiently analyzed are those referring
to mortgage-backed securities, where real estate was financed by local
intermediaries but followed originate-to-distribute and therewith capital
market conditions. Figure 5.9 shows the growth rate of loans for house
purchases for the € zone and different European countries.
This traveling of funds and risks did not only take place in regard to mort-
gage-backed-securities, but also in regard to highly leveraged loans (e.g.,
leveraged buyouts), used, for example, by banks but increasingly by hedge
funds and other non-banks to overtake companies (Brüning, 2009). Figure
5.10 shows the volume of second lien leveraged loans (second lien means
that in the event of bankruptcy the securities will first go to the first lien
lender), which provide the investors with high interests and fees, but also
high risks. These loans are often used to fill the gap between the maximum
senior secured lenders who are able or willing to lend and the amount which
is needed for leveraged buyout. The figure shows significantly the strong
increase and decrease of this risky market in the United States and in Europe
within a very short period. In Europe, the market is currently practically
dead, in the United States there can be seen a slight recovery.
The originate-to-distribute businesses led to a process of detaching the
financial intermediaries from the customer respectively debtor in both
ratios: first, in regard to responsibility, as the original creditor does not
hold the risk in its own books anymore and, second, spatial, as the traveling

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Figure 5.10 Volume of leveraged loans (second lien) in billion USD.

Source: Standard & Poor’s Financial Services LLC (S&P), own diagram.
techniques enabled the flow of risks and money. Financial intermediaries

try to get rid of the highest risks (moral hazard) and are generally willing
to take higher risks. The so-called financial innovations enhanced the
increase of the finance business in general and the property bubble in
particular. Figure 5.11 shows the increase of the housing prices for different
countries and demonstrates that the property price inflation did not take
place in all countries alike. There are a number of reasons for that, like
the already mentioned ones (tenant law, welfare state, planning law). The
figure shows also that the increase of housing prices slowed down in many
countries already since 2005/06. During this time, the ‘heavy appetite’ of
(subprime) mortgage-backed securities still existed. However, as we saw
in the current financial crisis, the burst of one national housing bubble was
reason enough for the biggest international crisis since 1929 to occur. The
collapse of the US financial markets caused pecuniary difficulties as well
as losses which brought many banks all over the world close to insolvency.
The Aftermath of the Banking Crisis (III)

Reinhart and Rogoff (2009) showed impressively how government debts
increase in the aftermath of the current crisis, as well as in history. ‘Taken
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Figure 5.11 Growth rate of nominal residential property prices.

together the bailout of the banking sector, the shortfall in revenue, and the
fiscal stimulus packages that have accompanied some of these crises imply
that there are widening fiscal deficits that add to the existing stock of
government debt’ (Reinhart and Rogoff, 2009: 170). The authors calculated
that the stock of debt nearly doubled (plus 86.3 percent) in average in the
major postwar crises; the high increase is evident in both advanced and
emerging economies alike. Figure 5.12 shows the annual sovereign deficit/
surplus in percent before and during the crisis.
Despite the international character of the crisis and the interlinkages,
unequal national financial systems have developed as a result of specific
development tracks, differing in their vulnerability for a financial crisis.
Germany was hit much less directly by the crisis in comparison to other
countries, such as the United States and the United Kingdom. However,
Germany’s stable position is caused by many factors, such as the stable
regionally oriented banking system as well as the €, which protected
Germany from an appreciation in the exchange rate by increasing its real
productivity and enhancing its competitiveness. For the peripheral coun-
tries in the € zone, the exact opposite was the case. The countries decreased
their competitiveness and compensated Germany’s and others’ weak
domestic demand by increasing current account deficits and an excessive
debt accumulation. While the peripheral countries enjoyed debt-fuelled
consume, which was easier possible due to good refinancing conditions in
prospect of the € (see Figure 5.13), the core countries enjoyed export-led
growth. While in the core countries wages grow slower than productivity,
in peripheral countries wages grow faster than productivity (Vernengo and
Pérez-Caldentey, 2012). The increasing economic imbalances in the €
zone between the core and non-core–countries can be identified as one
reason for the crisis. However, the banking crisis induced the perception of
the attitude of these imbalances and the financiers realized that the imbal-
ances could not keep growing forever.
The countries which are hit the hardest are those with high shares in high
finance economy (e.g., Island, the United Kingdom and the United States),
those with highly increased construction industries, housing price inflation
and of course financiers financing the overinflated property market (e.g.,
Spain and Ireland) and indirectly those which used the relatively favorable
loan conditions (low interest rates with regard to the common currency €)
to fuel their spending and for dramatically increased sovereign debts (above
all Greece). The following figure shows how close the refinancing condi-
tions of Italy, Spain, Ireland, Portugal and Greece have been to those of the
core countries in advance of the € introduction and as well the dramatically
increasing spread since September 2008. The financial crisis dramatically
reduced the trust in lending to foreign markets or to foreign states and
www.Ebook777.com

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Figure 5.12 Sovereign deficit/surplus as percentage of GDP.

Source: The World Bank and Eurostat.
www.Ebook777.com

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180 Stefan Gärtner
increased the sensitivity in regard to risks. This increased for some coun-
tries the costs for CDS, which guarantee the government bonds in the event
of a default. If speculation and exploitation of the debt crisis with the so-
called naked CDS and the short selling of those also lead to an increase of
costs is controversially discussed and until 2010, the German Financial
Supervision [Bundesanstalt für Finanzdienstleistungsaufsicht] has not
found any evidence of CDS being increasingly used to speculate against
Greek government bonds (http://www.bafin.de). However, these credit
derivates increased at least the ability to manage risks and increased there-
with the possibility for making sovereign debts.
The aftermath costs of the crisis, the low growth in combination with
the already existing high debts (in Greece) and the increased interest rates
in some countries made it difficult or impossible for some countries in the
€ area to refinance their government debt. Banks, which before the crisis
bought Greek bonds nearly for the same prices like the ones from Germany
(see Figure 5.13), now were afraid to buy any Greek bonds. The Troika of
EU-Commission, ECB and IMF saved the indebted countries with loans
and guarantees (rescue packages), keeping the prices low by buying
government bonds, but forcing them into very strong austerity measures.
This accelerated the economic decline further, which again increased the
public debts due to fewer revenues. Indeed, a stronger budgetary discipline
should be required in the long run, but there is a strategic mismatch in the
fact that in most countries, a publicly financed stimulus package has been
launched to overcome the crisis, while especially Greece was forced to
reduce the public spending, resulting in the well-known downward spiral.
However, the level of public debt alone may not explain the state
financial crisis, especially against the background that the € zone together
was in 2010 with total financial government liabilities of 85.4 percent of
the GDP (Eurostat) compared to the United States (94.2 percent [OECD])
less and to the United Kingdom (82.2 percent [OECD]) slightly more
indebted. And the indebtedness of both private households and companies
is lower in the € zone than in the United States and the United Kingdom.
But the € zone is no single entity in regard to a common state policy and
community of liability. And this is the dilemma: € countries cannot act
independently anymore and take appropriate measures to devaluate their
own currency or expansive monetary policy and enhance therewith the
export competition positions to improve the balance of trade, increase
GDP and higher tax revenues. On the other hand, the ‘German view’
(Wyplosz, 2010), demanding for strong austerity and arguing against
Eurobonds as well as the mandate of the ECB, is mainly dedicated to price
stability, following the example of the German Central Bank (Deutsche
Bundesbank) during the German Mark period.
In order to rebuild confidence, EU leaders agreed in 2011 and 2012 in

fact to create a common fiscal union including the commitment of each
participating country to introduce a balanced budget amendment, installed
the European Stability Mechanism as a permanent rescue fund to allow a
(permanent) bailout of indebted € countries and forced the banking sector
to agree to a haircut of around 70 percent of Greek bonds. Despite the
tensions in the board of the ECB, the new lead of the ECB under Mario
Draghi is stronger dedicated to supplying the banks and states with money
and conducted huge long-term refinancing operations for commercial
banks maturing up to 36 months to low interest. The ECB did not offer the
loans to governments directly, but accepted also low-rated government
bonds of European countries as security. The expected impacts are that the
banks have enough liquidity to avoid a second crisis, that the banks make
additional profits by borrowing money at low interest rates and investing
in government bonds which pay a higher return and that the banks will use
these extra profits for additional equity and not for bonuses, and last but
not least that banks increase their lending to companies. And indeed, the
injections helped to activate the financing markets and to bolster the stock
and bonds market. However, even if we see some calming down in the
markets recently, there is a danger that the glut of money also enhanced by
ECB trough this new expansive monetary policy will lead again to
businesses trying to make money from money. In regard to Germany it has
to be mentioned that not only the privately owned global banks are affected
by the state crisis (e.g., the Greek haircut), but also the regionally oriented
savings and cooperative Banks, as they bought also government bonds of
€ countries. But due to the regional embeddedness of these and their
reciprocal joint liability agreement (too many to fail), it can be assumed
that they will survive. And in regard to the future of the € crisis optimism
is appropriate, if the political leaders will take the political steps necessary
for a common currency and this includes stimulus packages, austerity and
a stronger responsibility toward Europe in the long run and on the other
hand more solidarity.
Conclusion
In spite of existing global trends, there is in fact no homogeneous model of

financial capitalism, but varieties. As a result of specific development
tracks, regional and national financial regimes have occurred, which are
internationally linked, but nevertheless differing in their vulnerability for
the financial crisis. Financial capitalism develops in different ways and
definitely requires more comparative research. The financial crisis delivers
an appropriate projection screen for this.
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182 Stefan Gärtner
The study demonstrates that for the sufficient granting of credits to

SMEs, the proximity between creditors and debtors is of importance. Due
to information asymmetries, which are especially relevant in banking, we
have to go beyond the finding ‘that space matters’ and have to ask which
space matters – is it the one in the financial centers, as vicinity between
financial experts, or is it the one at the end of the value-added chain; the
vicinity between creditor and debtor? In this chapter, internationally
oriented banking, concentrated in world finance centers, has therefore
been contrasted with the German Banking market, which is very regionally
oriented in some areas. Even if the aspects and data presented could
be called selective – chosen for an argumentation focused on spatial
proximity – the possible advantages of decentralized banking can be
affirmed. The investigations above point out that banking markets function
differently from other markets and that regionally autonomous financial
intermediates are of economic interest. Furthermore, it was possible to
prove that the disadvantages of regional banking markets, which can be
conceptualized in theory, are not evident for Germany, as far as this is
statistically testable.
The fact that savings and cooperative banks in Germany are still subject
to regional restrictions on lending as well as the high share of public or
communal banks is very unique. Under the principle of municipal auton-
omy (Art. 28 Par. 2 GG), Germany’s cities provide a range of economic,
social, welfare and cultural services of general interest (Daseinsvorsorge)
which contribute to the quality of life. These public services have been at
the center of a number of conflicts and tensions for ages. The understand-
ing of Daseinsvorsorge (Germany), public service or service public (servi-
cio publico) (in France and Spain respectively) differs from country to
country, not least because views vary on whether the State should be
purely regulatory or whether it should itself offer services of general inter-
est to prevent potential allocative market failure. France on the one hand
and the United Kingdom on the other represent the two opposite extremes:
State public service in the former is enormously important, while in the
latter most services are provided by the private sector (Sommerfeld, 2005:
94). Another example is the efforts of the EU to dispute the legitimacy of
public banks; for example, in Germany (most of all communal savings
banks and state banks) in terms of legal competition law while simultane-
ously promoting the integration of financial markets, that is, the creation
of big banks acting across Europe (Commission of the European
Communities, 2009).
The findings could lead one to assume that without regionally oriented
banks in Germany, the contagious effects of the German financial economy
and the consequences for the real economy would have been more significant,
which of course does not imply that some of the internationally oriented
financial institutions which exist also in Germany would have gone bankrupt
without state-intervention. This is especially true with regard to the
securitized subprime mortgages bought by German banks and led to dramatic
losses. The second wave of the crisis, the sovereign debt crisis, will show the
amount of engagement of German banks in financing Greek, Ireland,
Portugal, Spain and Italy. However, the credit extension of Germany’s
regionally oriented banks and the overcompensation of the reduction of
credit engagement of the other banks during the crisis, as well as the generally
higher proportion of the ‘real economy’ could be one part of the reasons for
Germany’s economic success. This is of course only one aspect and in order
to understand the better economic performance, more research is needed.
Even if the culture of ‘making money from money’ will be scorned and
finance will be serving the real economy again, global financial centers
have also important beneficial economic functions. Furthermore, the world
financial cities have built up a high level of specific expertise and have
proven persistent. Nevertheless, this brings into question the future scale
of the global financial cities. In the future, we could expect multiple,
smaller finance centers with an interregional but more selective role. At
the same time, banking outside the major financial cities could gain impor-
tance and the financial intermediaries that interact with SMEs and house-
holds could become more widely distributed.
World cities are powerful intersections between transnational capital and
national interests and could therefore be the key enablers – and this is the
action-guiding thesis – for financial market regulation and rescaling of the
world’s financial centers. If the financial economy was reduced to its
original function as financier of the real economy, be it through regulation
or through the collapse of these areas in the long run by market forces, then
the future importance of great financial centers like London and New York
would have to be questioned. It may sound far-fetched, but it would be
possible to run policy programs to enable these cities to develop economic
(financial) competences with more societal benefits. The cumulated power
(capital, multinationals, policy, media, international associations and
sometimes even NGOs) in these places should not be underestimated.
World cities should be studied in a wider sense, as places ‘with cultural
history, with architectural forms, and with patterns of sociability’ (Therborn,
2011: 282). The Occupy Wall Street movement is one example for the
importance of civil society in world cities. Originated in Manhattan, it
spreads over the world to other financial centers and will, due to the political
reactions, probably make finance more safe and socially benefitting.
The advantages of geographical proximity between creditor and debtor
are also interesting for urban theories, especially those dealing with
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184 Stefan Gärtner
agglomeration effects: If it is true that these theories mainly disregard

spatial proximity to the end customer (for banking between creditor and
debtor) and prospect economic agglomeration of economic sectors in
space, the question remains whether these theories can be applied to all
industries and value-added chains equally, or whether the focus of spatial
proximity is sometimes applied to the wrong links of the chains. However,
the questions of whether concentration or deconcentration of specific
economic activities is reasonable from an economic, ecologic and social
welfare point of view and whether the one or the other can be reached only
through market forces, are important not only for the financial market.
Notes
1 Special thanks to Franz Flögel (Researcher at the unit SPATIAL CAPITAL, Institute
Work and Technology, Germany) for remarks and discussions.
2 Gowan (2009) speaks about the New Wall Street System (see section titled ‘Capitals
of Capital and Internationally Oriented Finance’).
3 Peter Hall (1966) used the term World Cities earlier, but mainly with regard to the
cities’ size as major conurbations and not with regard to their worldwide intercon-
nectedness, urban hierarchy and control function.
4 See Gordon and McCann (2000: 513–32).
5 Please note that these data are not exactly the same, as the US data came from the
quarterly employment census and the German data from own statistic records of the
German Federal Labour Office.
6 The result allows an area’s distribution of employment by industry to be compared
to a reference or base area’s distribution (e.g., Bureau of Labor Statistic). The reference
area for the quotient used here is the United States.
7 Not absolutely binding, it is a basic principle which allows for some exceptions and
can, in practice, be flexibly applied.
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6
Seeing New York City’s Financial Crisis
in the Vernacular Landscape
Jerome Krase and Timothy Shortell
Introduction
One of the many challenges for urban theory and the global city paradigm
in the face of the global recession is making connections between the
macro and micro levels of social and economic life. For Harvey (2007)
and Brenner et al. (2010), a good conceptual lens for making the
connections is neoliberalism. In New York City, the organization of
spaces, and their embedded social practices as well as its image, is
dominated by those who control social and economic capital. For
Greenberg (2010), the best example of this is the continuing effort to brand
New York as a ‘Luxury City’. At the same time that this image is pro-
moted, ordinary people, such as homeowners struggling to keep their
homes, the homeless, and, lately, Occupy Wall Street demonstrators
assert their agency and make counter claims. Looking at the city in this
way quotidian streetscapes offer the viewer a layered record of both domi-
nance and deprivation in what Mollenkopf and Castells (1991) accurately
called the ‘Dual City’. In this chapter we discuss and illustrate, through
photographs and maps, how some aspects of the global financial crisis
such as the catastrophic circulation of mortgages (Sassen, 2009) can be
read in vernacular landscapes. In doing so, we hope to provide a more
sober contrast to the celebrated neoliberal vision of New York as a
global city.
Most of our attention is focused on Brooklyn, the largest of the
city’s five boroughs, as it statistically as well as visually exhibits most of
the negative indicators of the global recession and related failures of
neoliberal urbanization. In 2009, the U.S. Census Bureau estimated the
population of Brooklyn as a bit more than two and a half million people.
Although it may be true that the ‘Big Apple’ has not suffered as much as
other cities in the United States and abroad due to the diversification of its
own economy and its wider social safety net, it has clearly not been
immune to the failures of the global market system centered in Gotham’s
Wall Street.
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190 Jerome Krase and Timothy Shortell
Commenting on a Center for an Urban Future study, New York

in the World, by Glenn von Nostitz (2011), Patrick McGeehan (2011)
wrote:
Arguably, New York has benefited more and suffered more from globalization
than any other state in the nation,’ Garrick Utley, the president of the institute
and a former television journalist, said. ‘New York is sort of a macro-microcosm
of the nation, facing the challenges of the global economy.
The state has lost more manufacturing jobs in the last 40 years than any
other big state, including Michigan, though Michigan has suffered more
since 2000, the report found. Within New York State, manufacturing has
disappeared fastest in New York City, leaving few options for the rising
tide of immigrants needing to support their families.
One effect on the relative affluence of residents of Brooklyn, Queens
and the Bronx has been stark: The report says that the median income
for individuals in each borough, as a percentage of the nation’s median
income, fell significantly from 1970 to 2008. In Queens, for example,
the median personal income was 34 percent higher than the nation’s in
1970, but by 2008, it was 94 percent of the national median (von Nostitz,
2011: n.p.).
We argue that a visual approach to vernacular landscapes can be a
sensitive micro-barometer of macro-financial changes. Here we look
at the visible local effects of the crisis in the form of such things as
residential and business property foreclosures, homelessness, rising unem-
ployment and shelter populations, vacant unsold or unsalable real estate,
construction projects halted by lack of funding, residential and com-
mercial rental and price declines, as well as other, less typical, indicators
of economic downturn such as reductions of government services,
distressed properties and vacant lots and the recent practice of alternative
uses for vacant store windows such as those used for free displays of
artwork.1
Neoliberalism and the Financial Crisis
Brenner et al. have argued that despite its shortcomings,
The evolving scholarly and practical-political uses of the term ‘neoliberalism’

would thus appear to provide an initial evidentiary basis for the proposition that
processes of marketization and commodification have indeed been extended,
accelerated, and intensified in recent decades, roughly since the global recession
of the mid 1970s. (2010: 329)
Seeing New York City’s Financial Crisis 191
For them, neoliberalization as a ‘tendential extension of market-based

competition and commodification processes into previously insulated
realms of political-economic life’ is still a keyword for understanding the
regulatory transformations that produced the 2008–09 global economic
crisis (2010: 328).
Harvey has cogently summarized the direction that neoliberalism has
taken New York City since the 1980s when the benevolent focus of local
government was on the general population. In contrast, Mayor Michael
Bloomberg’s stated goal, in office at the start of the crisis, was to make the
city more competitive in the global economy. To this Harvey asked:
But, competitive for what? One of the first things Michael Bloomberg did was
to say ‘We’re not going to offer any subsidies to corporations to come here.’ He
went on record as saying, ‘If a corporation needs a subsidy to locate, in this high
cost, high quality, wonderful location of New York City, if they need a subsidy
to come here, then we don’t want them. We only want corporations that can
afford to be here.’ He didn’t say that about people, but, in fact, that policy
carries over to people. There is an out migration from New York City of low-
income people, particularly Hispanics. They’re moving to small towns in
Pennsylvania and upper New York State because they can’t afford to live in
New York City anymore. Conditions of life for them in New York City are
appalling. Meanwhile, the conditions of life for the very, very rich are abso-
lutely wonderful. (2007: 10; see also Moody, 2007)
Public discourse about the ‘economic crisis’ has also proliferated in

American public discourse in the past several years. Since 2008, for
example, the New York Times has published more than 1,000 articles about
foreclosures and the mortgage crisis. One recent feature by veteran city
journalist Sam Roberts summarized data from the American Community
Survey (ACS) (2010). The ACS showed that, adjusting for inflation, New
Yorkers’ median household income declined between 2006 and 2009
from $48,631 to $48,355. City home values registered the sharpest
declines, to $517,000 in 2009 from $557,300 in 2007. In the same period,
the population dependent on food stamps rose to 17.2 percent from
13.3 percent in 2007 although the poverty rate remained unchanged (18.7
percent). In 2008, the City’s own more sophisticated measure of poverty
classified 22 percent of New Yorkers as poor. Since 2007, the income gap
in the city appeared to have widened somewhat as the proportion of people
who were making $200,000 or more and those earning less than $10,000,
adjusting for inflation, rose from 5.9 percent to 6.5 percent and from
11.1 percent to 11.5 percent respectively.
Whether called a ‘Recession’ or ‘Depression’, the financial crisis, which
most economists agree began in 2007, was by 2010 recognized as the most
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serious economic predicament since the Great Depression of 1929–33.

There are many, such as Sassen (2009), who argue that the continuing
global financial crisis originated in the bursting of the American housing
bubble that resounded globally. Economies as widely different as those of
Japan, the United Kingdom, Iceland, Ireland, Dubai, and Greece have all
been unevenly but negatively affected by the globalized recession and
especially the threats of sovereign debt defaults. The debt crisis in the
United States has also caused the federal, state, and municipal governments
to devise strategies to reduce social spending and narrow the scope of
other agencies. Almost all of these outcomes have had visible expressions
that can be seen on the streets of New York, some of which we will capture
and present here.
In the United States, the effects of the fiscal crisis have been repre-
sented in complicated figures and numbers reflecting the failures of
important large-scale businesses and corporations, as well as precipitous
declines in indicators of wealth and income that, for Americans, is
estimated in trillions of US dollars. Related to the drops in wealth,
consumption, and investment have been enormous financial commit-
ments taken on by national governments for ‘bailout’ packages with little
visible effect on the continuing significant decline in economic activity.
Most analysts predict that the current global recession is likely to continue
for a considerable period. Many factories and companies, in fact, have
already gone bankrupt or closed resulting in their workers being laid
off. Also, as a result of business failures, many migrant workers (docu-
mented and not) in advanced economies have been compelled or
encouraged to return home. Economists say that this is the biggest
turnaround in migration flows since the Great Depression of 1929–33.
Workers are attracted by opportunities and the global financial crisis has
created local ‘push’ factors (or decreased ‘pull’ factors) that discourage
immigration and encourage emigration in many of the more developed
economies.
New York City in particular has benefitted enormously by the inflow of
a global labor force, but the financial crisis that has reduced the market for
both cheap as well as expensive labor has led workers to consider return-
ing home. Many of New York City’s low-wage workers come from Mexico
and Central America. Emigration from Mexico to the United States has
dropped by 13 percent in the first quarter of 2009 compared to the same
period the previous year, with more Mexicans leaving the United States
than entering. The moderation in the flow of migrants was reflected in a
study by the Pew Hispanic Center based on Census data from March 2009.
The study showed that the Mexicans make up about 60 percent of all
illegal immigrants. The data also showed that the American economic
recession, in tandem with immigration enforcement, reduced illegal migra-

tion by 900,000 (Preston, 2010).
The uneven effects of the global economic crisis also can lead to
perverse effects. For example, New York City, because of its centuries-
long migratory history with Ireland, had continued to be a popular
destination for documented and undocumented Irish migrants who took
lower-level positions such as restaurant wait staff, nannies, and au pairs.
However, when the Irish economy (the so-called ‘Celtic Tiger’) boomed in
the period 1995–2007, many returned home and others simply stopped
coming, thus creating or at least contributing to a labor force vacuum for
Latinos. Since 2008, when Ireland’s economy all but collapsed, Irish
migrants have returned seeking to recapture their place in the workforce.
It should be noted that although, the waning of migrant populations should
be just as the visible in cityscapes as their waxing, it appears that the
changes are too recent for much in the way of visible evidence.
Visual Analysis of the Vernacular Landscape
Prosser (1998) argued that images enhance the understanding of the human
condition by encompassing films, photographs, drawings, cartoons, graf-
fiti, maps, diagrams, signs, and symbols. ‘Images provide researchers with
a different order of data, and, more importantly, an alternative to the way
we have perceived data in the past’ (Prosser, 1998: 1). Grady (1996: 14)
added that visual sociologists can show ‘how sight and vision helps con-
struct social organization and meaning and how images and imagery can
both inform and be used to manage social relations’. Rieger (1996: 6)
noted the advantage of photography for studies of social change ‘because
of its capacity to record a scene with far greater speed and completeness
than could ever be accomplished by a human observer taking notes’. This
temporal advantage is of special value for the current investigations of the
rapidly changing and fickle impacts of the financial crisis in New York
City. Visual methods and techniques enhance the likelihood of discovering
and documenting micro effects that could be otherwise unnoticed.
Visual sociologists generally use one or more of three different kinds of
images in research. Some researchers have research subjects produce
images. Other researchers use found or preexisting images as data. Pauwels
(2010: 551), who has done more than anyone in the field to systematize
visual methods, would classify work such as ours as ‘researcher-initiated
production of visual data and meanings’ in which phenomena to be visually
recorded are selected and processed as a ‘proper scientific end product’. A
major advantage of researcher-generated images is greater control over
data gathering as well as more reflexivity to contextualize the materials.
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Pauwels sees few limits for this approach as long as the subject matter has
a significant visual dimension such as in displays of status, class, and
culture.
In this chapter, we argue that sociological analysis of visual data can be
a tool to understand how urban neighborhoods are changing as a result of
the global economic crisis. Visual data reveals the dynamic nature of social
meanings and the ways in which urban space is both the product of
macroeconomic forces and the place where these forces are experienced in
day-to-day lives. We briefly document some of these transformations with
photographs taken in New York neighborhoods that exhibit economic
decline. In the physical environment, architectural details, commercial
signs, graffiti, among other things, signify the flows of capital, people, and
cultures.
We have written a great deal about the spatial semiotics of collective
identity in global cities, arguing that ordinary people living ordinary lives
create meaningful spaces in globalized urban environments in the form of
ethnic and class vernacular landscapes (Krase, 2004; 2005; 2006; 2007;
2009; 2012; Krase and Shortell, 2007; 2008; 2009; Shortell and Krase,
2009; 2010a; 2010b; 2010c). Because urban spaces are also subject to the
effects of social inequality as class, racial, and ethnic hierarchies, societies
often mark their urban territories with differential meanings, from slums
and ghettoes to ‘silk stocking districts’. Spatial semiotic analysis makes it
possible to see how even the most powerless of urban dwellers such as the
homeless act as social agents in the local reproduction of urban culture.
We have also argued that sociological analysis of visual data is necessary
to understand how urban neighborhoods are changing as a result of
globalization and other macroeconomic forces.
Since our concern here is with the micro-level effects of macroeco-
nomic and political forces on vernacular urban landscapes, we must more
precisely define our subject. Jackson (1984: 6) sought an appreciation of
what ‘lies underneath below the symbols of permanent power expressed in
the Political Landscape’. His perceptive work has complemented urban
sociology’s interest in how and why groups are where they are in the
city, and the mutual effects of space, social interactions, and economic
opportunities.
Jackson noted that what people do in a particular physical territory and
how they use objects therein are critical for understanding the space.
Writing about gentrification, and the displacement of the activities of the
poor from the streets and city spaces in eighteenth- and nineteenth-century
England, he noted that ‘in brief, much of the traditional play, popular
with working class citizens, located at the center of town where the players
lived and worked, was driven out, either by the shortage of space or by
police decisions to improve traffic circulation and promote order’ (Jackson,

1984: 11). As to why the study of vernacular – as opposed to ‘polite’ –
architecture has become more valuable for insight into social history, he
argued that since the nineteenth century, ‘Innumerable new forms have
evolved, not only in our public existence – such as the factory, the shopping
center, the gas station, and so on – but in our private lives as well’ (Jackson,
1984: 118–19). Especially valuable for our purposes here, Jackson (1984:
246) commented on the visual competition of commercial streets that
he believed represented ‘a new and valid form of what can be called
commercial vernacular’.
Harvey (1989: 265) also understood that ‘different classes cons-
truct their sense of territory and community in radically different ways’.
Through appropriation and domination, the powerful differentiate public
space. As Harvey (1989: 266) explains, ‘Successful control presumes a
power to exclude unwanted elements. Fine-tuned ethnic, religious, racial,
and status discriminations are frequently called into play within such a
process of community construction.’ Zukin (1996: 49) noted, ‘In the long
run vacant and undervalued space is bound to recede into the vernacular
landscapes of the powerless and replaced by a new landscape of power.’
Thus, the vernacular landscape is under constant threat because of global-
izing forces. This is particularly so in global cities like New York City. ‘In
Henri Lefebvre’s framework, New York is an example of abstract space:
simultaneously homogeneous and fragmented, subordinated to the flows
and networks of world markets, and divided into units of exchange by real
estate developers’ (Zukin, 1996: 50).
The lives of ordinary urban dwellers take place in this context. Though
disadvantaged in their struggles with the powerful, ordinary urban dwellers
are not powerless. They contest and sometimes subvert domination by
using public space for their own ends, sometimes through collective
action and sometimes by ‘unofficially’ being in the space. In 2011, the
Occupy Wall Street movement was powerful visible presence in many of
Manhattan’s centers of political and economic power such as Foley Square
(Figure 6.1) and Liberty Park (Figure 6.2) in which periodic and extended
demonstrations took place.
Visual attention to vernacular landscapes allows us to read conflict,
competition, and dominance at a level not usually analyzed. Lefebvre’s
(1991) notions of ‘accessibility’ and ‘distanciation’, for example, become
much more useful when we visualize the effect of the fiscal crisis on
employment, housing, and shopping markets. Seeing productions of
symbolic capital might help us to understand the gentrification of immigrant
ethnic enclaves during a later phase in the second circuit of capital when
they become shabbily chic ‘in’ places to live. Krase (2005) has visually
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Figure 6.1 Demonstration and protest march in Foley Square, Manhattan, New York,
2011.
Figure 6.2 Occupy Wall Street encampment in Liberty Park, New York, 2011.
researched both transnational ethnic connections and the process of

gentrification and shown that although the direct causes of gentrification in
the different locations are historically different, gentrification as a symbolic
or semiotic activity can best be grasped via the use of image-based research
and consideration of contrasted streetscapes as spatial semiotic examples
of Bourdieu’s (1977) tastes of necessity and luxury.
Conversely, we should be able to see the reverse of this process, as in
the new interest in the process of ‘degentrification’ that was first, perhaps
prematurely, noted in the 1990s. In this regard, Hackworth (2001) argued
against using localized studies of gentrification to represent the larger phe-
nomenon, noting that the impact of the early 1990s recession and subse-
quent property boom on gentrification remains debatable. His study
examined New York City–wide housing-market data that showed that the
gentrification process ‘is changing, qualitatively and quantitatively, in
ways that are difficult to discern in localized studies’ (Hackworth, 2001:
864). He concluded that we must analyze the influence of recessions and
booms on flows of investment in order to understand the connection
between gentrification on the street level and large-scale economic change
(e.g., as shown later in Figures 6.17 and 6.18).
Seeing the Financial Crisis in New York
An excellent foil for seeing the negative effects of neoliberalization in

New York City is provided by Greenberg (2010) in ‘Branding, Crisis, and
Utopia: Representing New York in the Age of Bloomberg.’ She noted that
the Bloomberg mayoral administration’s approach to economic develop-
ment was to ‘brand’ New York as a ‘Luxury City’ by attracting ‘high
impact industries’ such as ‘finance, information technologies, biotechnol-
ogy, and media – all of which were high margin/high value-added indus-
tries’ (2010: 129–30). ‘Exclusive’ and ‘class-specific branding strategies’
were then adopted for target marketing ‘class-specific perks: the city’s
highly skilled labor pool, high quality education, as well as high-end cul-
tural and lifestyle amenities for the professional and executive class’
(2010: 130). The goal of the Luxury City campaign was to ‘build a
physical city that appealed to these global elites, by attracting high-end
retailers, hotels, stadiums, and residential towers…’ (2010: 131). Instead
of a dream neoliberal city, however, the uneven class politics of urban
restructuring produced, according to her, its opposite.
The scale and pace of market rate, ‘luxury’ real estate development
under Bloomberg, alongside regressive tax policies that favor businesses
and ‘workers that can move’, have led to increasing dependence on volatile
and crisis-prone industries like finance and real estate and helped to
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produce a city with the most unequal incomes and highest levels of
unemployment in the nation. Successive waves of gentrification and
increases in the cost of living have pushed out mixed use, working class
districts – from Harlem to Willets Point to downtown Brooklyn (2010:
139).
According to a 2009 study by the Population Division of the New York
City Department of City Planning, the ebb and flow of the City’s population
has tended to remain unaffected by economic shocks:
Recent history shows us that this dynamic changes slowly and is not significantly
affected by short-term fluctuations in the economy. In the face of the steep
economic decline of the 1970s, or the attacks of September 11, 2001, the
underlying momentum in the city’s population has persisted. Even in the face of
the current economic downturn, the city’s population dynamic is again likely to
persist, and the next wave of newcomers and their children will continue to
propel the city’s population upward. (New York City Department of City
Planning, 2009: 19)
Nonetheless, these economic shocks do change the vernacular landscape

of the City’s neighborhoods. Economic stress changes both the physical
and social landscapes.
Sassen (2009) argued that the securitizing of mortgages created a new
channel for extracting household income, bundling it up with other types
of debt and selling it off to financial investors. Extending this concept to
modest-income households opens up a global potential market comprising
billions of households. These mortgages were often marketed to house-
holds that lacked the capacity to meet the monthly mortgage payments
without full disclosure as to the risks and possible changes in interest rates.
In this way, household savings could be extracted. This was evident in the
local-level data showing that African-Americans and low-income neigh-
borhoods had a disproportionately higher incidence of subprime mort-
gages in all mortgages from 2000 to 2007. She cited extreme differences
between Manhattan and other New York City boroughs: In 2006 less than
1 percent of mortgages sold to Manhattan home-buyers were subprime
compared to 27.4 percent in the Bronx. During the same period, there was
also a sharp rate of growth of subprime mortgages in all boroughs except
Manhattan. A further breakdown by neighborhoods (Community Districts
[CDs]) showed that the 10 worst-hit neighborhoods were poor, and in
them between 34 percent and 47 percent of mortgages were subprime.
Controlling for race a similar pattern was evident, as whites, with far
higher average income than all the other groups in New York City, were
far less likely to have subprime mortgages than all other groups, reaching
9.1 percent in 2006 compared with 13.6 percent of Asians, 28.6 percent of
Table 6.1 Percentage of home purchase loans issued by subprime lenders

University Heights/Fordham, The Bronx 47.2%
Jamaica, Queens 46.0%
East Flatbush, Booklyn 44.0%
Brownsville, Brooklyn 43.8%
Williamsbridge/Baychester, The Bronx 41.6%
East New York/Starrett City, Brooklyn 39.5%
Bushwick, Brooklyn 38.6%
Morrisania/Belmont, The Bronx 37.2%
Queens Village, Queens 34.6%
Bedford Stuyvesant, Brooklyn 34.2%
Source: Furman Center for Real Estate and Urban Policy (2007).
Hispanics and 40.7 percent of blacks (2009: 417–18). All of the top 10
CDs with the highest rates of subprime lending in 2006 were well-known
nonwhite minority areas. As shown in Table 6.1 five were in Brooklyn.
One of the most striking effects of the current crisis is manifest in home
loan foreclosures. According to the New York Times, mortgage foreclosure
rates in the region were highest in areas with high minority populations.
Figures 6.3 and 6.4 show the emergence of the foreclosure problem in
New York City. Figure 6.3 shows the spatial distribution of foreclosures in
2005; the data for 2008 are given in Figure 6.4. The problem increases
significantly in Brooklyn, Queens, and the Bronx over this brief span.
As expected, the distribution of foreclosures is not random, but covaries
with poverty and race. In Brooklyn, for example, the CDs hit hardest are
3 Bedford-Stuyvesant (12 percent White), 4 Bushwick (24 percent White),
and 5 East New York (18 percent White). Median Household Income in
these CDs for 2005–07 fell between $28,000 and $32,000. (In comparison,
the median household income for New York City as a whole was $47,581.)
The proportion of the population receiving income support (Temporary
Assistance to Needy Families, Supplemental Security Income, Medicaid)
in these Brooklyn areas varied between 44 percent and one-half. In the
areas least affected, such as CD 2 Brooklyn Heights, Fort Greene
(50 percent White), CD 6 Park Slope, Carroll Gardens (68 percent White),
CD 10 Bay Ridge, Dyker Heights (74 percent White), 15 Sheepshead Bay
(77 percent White) and CD 18 Canarsie, Flatlands (32 percent White) the
median household income is substantially higher, ranging from around
$46,000 to more than $77,000, with income assistance between 15 percent
and one-third (ACS Population by Race, 5-Year Average 2005–09 Census).
Figure 6.5 shows a close up of the foreclosure data for Bedford
Stuyvesant and Bushwick in Brooklyn. The sheer number of foreclosures
in these neighborhoods is startling, especially in the area north of Broadway
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Figure 6.3 Distribution of foreclosures in New York City, 2005.

Source: Matthew Bloch and Janet Roberts, New York Times, May 30, 2010.
Figure 6.4 Distribution of foreclosures in New York City, 2008.

in Bushwick (CD 4, Figure 6.9) and between Atlantic and Gates Avenues
in Bedford Stuyvesant (CD 3, Figure 6.8). This is the area that we most
extensively observed and photographed and in which typically there were
multiple foreclosures on every block. Visual evidence of the economic
Figure 6.5 Distribution of foreclosures in Bedford Stuyvesant and Bushwick, Brooklyn,

2008.
crisis gets embedded in the vernacular landscape, as shown in Figures 6.6

and 6.7. Combined with the proliferation of vacant lots and blighted
buildings, as shown in Figures 6.10, 6.13, and 6.14, you have the main
visible ingredients of classical urban decay.
Foreclosures stress neighborhoods more than just the financial distress
of the families affected. Abandoned and boarded up buildings become sig-
nifiers of poverty, which stigmatizes the surrounding area. The message
communicated is quite striking, as shown in Figures 6.13 and 6.14, and is
familiar to the residents of deteriorating neighborhoods. Neighbors often
try particularly hard to undo the stigmatization by maintaining and beauti-
fying their own property. Local community organizations may also take
over accessible lots and create community gardens as shown in Figures
6.11 and 6.12, but the signs of decay are generally more noticeable than
both the ordinary practices of homeowners and local organizations.
Another cartographical expression of the recession in New York City
can be found on the Web site of the New York City Department of Housing
Preservation (HPD) and Development, which invited developers and local
organizations to submit applications for the funding of proposals to acquire
and redevelop foreclosed, abandoned, or vacant properties in Census tracts
most affected by foreclosures. The program uses stimulus funds from the
US Department of Housing and Urban Development (HUD) to prevent
further declines in neighborhoods most severely impacted by foreclosures.
The neighborhoods targeted by the program are listed in Table 6.2.
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Table 6.2 Neighborhoods targeted by the Neighborhood Stabilization Program (NSP1)
1. Jamaica, Queens 11. East New York/Starrett City, Brooklyn

2. Bellerose/Rosedale, Queens 12. Flatlands/Canarsie, Brooklyn
3. North Shore, Staten Island 13. Mid-Island, Staten Island
4. Howard Beach/S. Ozone Park, Queens 14. East Flatbush, Brooklyn
5. Kew Gardens/Woodhaven, Queens 15. Hillcrest/Fresh Meadows, Queens
6. Rockaways, Queens, 16. Flushing/Whitestone, Queens
7. South Shore, Staten Island 17. Soundview/Parkchester, Bronx
8. Bedford Stuyvesant, Brooklyn 18. Middle Village/Ridgewood, Queens
9. Jackson Heights, Queens 19. Bushwick, Brooklyn
10. Williamsbridge/Baychester, Bronx 20. Morrisania/East Tremont, Bronx
Source: New York City Department of Housing Preservation & Development, 2009.
The New York City Consumer Affairs Commissioner, Jonathan Mintz,

announced an expansion of the City’s Financial Empowerment Centers
(Sarlin and Lootens, 2010). The centers provide free homeownership and
foreclosure prevention counseling. There are 20 Financial Empowerment
Center locations, including three new ones in the Garment District and
Lower East Side, in Manhattan, and Melrose, in the Bronx. As might be
expected, given the uneven effects of the recession in New York City,
these three as well as those in the complete list of Help Centers, are all
located in the previously identified problem areas for New York City’s
Figure 6.6 Visual evidence of foreclosure, Bedford Stuyvesant, Brooklyn, 2010.

Note: It should be noted that the resale of foreclosed homes probably were the result of the same or
similar real estate agencies arranging for subprime mortgages.
Figure 6.7 Subprime mortgage lender advertisement and for sale signs. Bushwick,
Brooklyn.
Note: Note in this image the advertisement for a mortgage from ‘Amertrust’ which the Wall Street
Journal had reported as one of the subprime lenders forced to close in 2007 (Civils and Gongloff,
2011).
Figure 6.8 Land use in Community District 3.

Source: New York City Department of City Planning.
Note: The darkest areas are vacant lots.
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Figure 6.9 Land use in Community District 4.

Source: New York City Department of City Planning.
Note: The darkest areas are vacant lots.
Figure 6.10 Empty lot appropriated for ‘unofficial’ use, Bushwick, Brooklyn, 2010.
Figure 6.11 Community garden, Bushwick, Brooklyn, 2010.
Figure 6.12 Community garden, Bushwick, Brooklyn, 2010.
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Figure 6.13 Abandoned buildings in Bushwick, Brooklyn, 2010.
Figure 6.14 Another abandoned building, Bushwick, Brooklyn, 2010.

Figure 6.15 The Bedford Stuyvesant Restoration Center Family Health Center, Bedford
Stuyvesant, Brooklyn, 2010.
Note: The Bedford Stuyvesant Restoration Center Family Health Center is part of a commercial and
social services complex that also houses one of the four Financial Empowerment Centers in Brooklyn,
2010.
Neighborhood Stabilization Program. Distressed neighborhoods such as

these tend to have clusters of anti-poverty services and businesses catering
to basic needs at low cost, as shown in Figure 6.15.
Not only are people being forced from their homes, the usual ubiquitous
residential development also slowed. As one typical example, Gregor
(2010) noted that Edison Properties of Newark planned to build two towers
with 869 condominium apartments near the recently developed High Line
urban park between 17th and 18th Streets in Manhattan when the recession
hit. The land is still a parking lot. Development failures like this are
scattered throughout poorer neighborhoods in Brooklyn also, as shown in
Figure 6.11. At the same time, the development that continues amplifies
the gentrification pressures in the City; the new ‘luxury’ buildings usually
replace moderately or low-priced rental properties. To complicate things
further, the crisis forced some condominium projects to rent properties
originally for sale. But even this compromise has tended to gentrify
working class and poor neighborhoods. Figures 6.16, 6.17 and 6.18 show
these contradictory forces at play in Prospect Heights.
From 2007 through 2009, the number of families in homeless shelters –
households with at least one adult and one minor child – leapt to 170,000
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Figure 6.16 Commercial real estate for sale, Bushwick, Brooklyn, 2010.
Figure 6.17 Paused construction in Prospect Heights, Brooklyn, 2009.

Figure 6.18 Condominium construction intending to replace rental housing, Prospect

Heights, Brooklyn, 2009.
from 131,000, according to the HUD (Luo, 2010). Although evictions in

New York City have recently skyrocketed, the most recent historical
annual statistics for homeless shelter populations showed a decrease until
2008. Though the data for 2009–10, compiled by the New York City
Department of Homeless Services, are less stark, showing slight declines
in families and children, the most recent Daily Report (November 23,
2010) showed a rise in individuals seeking shelter. One possible reason
for this apparently better than expected report is that the City of New York
has been undercounting the homeless population. According to Moore
(2010: n.p.),
The city’s homeless agency wasn’t telling the whole tale the day after
Thanksgiving, when it claimed 36,654 homeless people stayed overnight in
shelters on the city’s dime. Though the city declared the figure the ‘total
shelter census,’ a closer look reveals the city placed up to 1,200 more homeless
people – all single adults – in various shelters that night. Critics say the city
underreports the numbers to minimize the homeless problem.
Julie Bosman (2010) also reported that ‘the number of people living on
New York’s streets and subways soared 34 percent in a year, and that city
shelters for families and single adults had been inundated’. Although more
homeless people were found on the streets in every borough, the ‘largest
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increase was in Brooklyn, where an additional 228 people were counted,

more than double the total in January 2009’. She also reported that ‘a
pocket of homeless men in Greenpoint, Brooklyn, appears to be new
immigrants from Poland, trying to find work as day laborers’. In highly
gentrified neighborhoods such as Park Slope, the homeless have become
part of the landscape as shown in Figures 6.19 and 6.20.
Although we did not document this in the present chapter, our field
research has noted the ubiquity of people engaging in marginal, and some-
times illegal, economic activity. In depressed sections of Bushwick
and Bedford Stuyvesant this might be expected but even in gentrified
neighborhoods like Park Slope, Prospect Heights, and Williamsburg the
presence of people collecting bottles and cans for recycling has become so
common as to be virtually unnoticed as seen in Figure 6.21. Corey
Kilgannon (2011) has noted that recession theme emerges when one looks
at the commercial landscape for signs of financial distress such as in
pawnshops in neighborhoods. In a similar way, stores that loudly proclaim
that they are buying gold as well as secondhand stores as seen in Figures
6.22 and 6.23 can be seen as indicators of economic distress.
Candace Jackson (2010) explored still other less conventional indicators
of the economic recession, such as artists utilizing abandoned spaces in
Figure 6.19 Homeless improvised shelter, Park Slope, Brooklyn, 2010.

Figure 6.20 Residents outside the homeless women’s shelter, Park Slope, Brooklyn, 2010.
Note: This New York City Department of Homeless Services Shelter for Women Park Slope is located
in a large Armory; a block away from Prospect Park where mostly homeless men, such as shown in
Figure 6.19, often spend the night.
New York City as shown in Figure 6.24. The Tower Records building, for
example, closed as a result of the decline in retail music sales and the
overall economic downturn, but the building is being repurposed as a
performance space. ‘Starting this weekend, the place will fill up again –
this time with performances, panel discussions and conceptual art
installations, some lamenting the demise of music stores’ (Jackson, 2010:
n.p.). The project is sponsored by a New York nonprofit that places public
art projects in vacant retail spaces. The group’s first such exhibit was at an
empty fishing-tackle store.
In the Arts Newspaper, Goldstein (2010) also noted that in New York
City, nonprofit arts organizations and curators are following their commer-
cial equivalents, with a wave of ‘pop-up’ galleries taking advantage of the
recessionary real-estate market to strike up partnerships with realtors to
stage free exhibitions. Figure 6.24 shows such a display in Downtown
Brooklyn. Recent nonprofits using empty spaces include: No Longer
Empty, the Lower Manhattan Cultural Council, the Drop: Urban Infill
Project, X Initiative, the Downtown Brooklyn Alliance, and veteran non-
profits Creative Time, the Art Production Fund, and Chashama, which
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Figure 6.21 Bottle collectors on Park Slope, Brooklyn, 2008.
Figure 6.22 Gold buying and pawn shop, Bushwick, Brooklyn, 2010.
Figure 6.23 Secondhand store, Bushwick, Brooklyn, 2010.
have long worked with underused sites. One new outfit, Smartspaces, has
carved out a special niche – showing art exclusively in the windows of
developing properties, thereby promoting both artists and real estate with
minimum liability.
Conclusion
As noted by Kuniko Fujita:
The 2008 crisis puts into question the continued relevance of some here-tofore
influential urban theories, including the global city paradigm and neoliberal
urbanization arguments. Blindly following neoclassical economic ideology,
most urban theories have lost critical approaches. This is particularly evident in
urban theories dealing with globalization. Globalization is assumed to be the
flow of people, trade, and money in the open world market system. Yet, the
open world market is only neoclassical economic ideology in another guise and
just as much an illusion as the crisis-free market that neoclassical economics
claims and that the current crisis proved to be false. (2011: 268)
As critical and visually oriented social scientists we have tried to show

how analysis of visual data can be a useful tool to enrich the understanding
of how, since 2008, the New York City scene has changed as a consequence
of the global economic crisis. We believe it is important that abstract urban
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Figure 6.24 Unused commercial space repurposed as art display, Downtown Brooklyn,
2010.
theories, as well as the ‘global city paradigm’, be humanized by connecting

the macro and micro levels of social and economic life. To accomplish this
we have used the conceptual lens of neoliberalism to contest the branding
of New York as a ‘luxury city’. We have also endeavored to demonstrate
how ordinary people contest meanings of places and spaces defined by
those who control social and economic capital. We have documented some
of these with maps and photographs of some of the most affected
neighborhoods that demonstrate the complex effects of economic decline
in the social and physical environments.
In general, the signs of economic distress aggregate in urban spaces
already filled with markers of inequality and poverty. The most striking
are stigma of distressed and abandoned property in the form of empty lots
and for sale signs. Social practices also tell the story as in the increased
visibility of the poor and homeless in affluent neighborhoods.
The forces that caused the financial crisis, and that continue to remake
New York City into a space of extreme inequality, are beyond the control
of ordinary city residents, official and unofficial. Indeed, for most of us,
they are beyond imagination in the rush of everyday activities. But the
visible signs of this macro change are not to be found only in charts of
global capital flows or urban redevelopment plans. As we have shown,
urban dwellers confront and challenge the economic environment in which
they find themselves. The struggle to ‘get by’ leaves material traces in
urban space, which mark the emergence of the ‘luxury city’ in less flatter-
ing ways. Empty lots, for example, are generally seen as the classic sign of
urban decay, but closer inspection of these places reveals some of the
forms of agency of the less powerful. Not only are they turned into com-
munity gardens – a practice that requires some collective action – but even
the repurposing of a lot as informal housing or no-cost garbage dump
stand as forms of resistance to the transformation of urban space as a place
of luxury consumption. The same could be said of using parks as places to
sleep or hang out. This is the often-overlooked manifestation of urban
rebranding for the global economy.
Our research also shows forms of resistance to rebranding in the form of
collective action. Urban space has historically been the location of social
movement action and mass political participation. The recent Occupy
movements in many cities have added another dimension to this tradition.
Although Occupy Wall Street has garnered most of the headlines, there are
Occupy activities in Brooklyn and The Bronx as well. These movements
are grounded in the visible challenge to power inherent in reclaiming
public space against ‘official uses’. The discourse present in these mass
collective actions – in signs, banners, and sidewalk chalkings – has slowly
seeped into higher-order political discussions. This, too, is the underside
of ‘luxury city’ rebranding.
Our analysis of spatial semiotics hints perhaps at the future of the ver-
nacular landscape in global cities as we emerge from this financial crisis
and move toward the next. The contrast of signs of luxury consumption,
not only in real estate and commodities, but also in leisure and everyday
mobility, with the signs of resistance, both day-to-day activity and occa-
sional mass collective action, is likely to become even more familiar to the
residents of Brooklyn and New York City.
Notes
1 The visual data on neighborhoods in New York City presented in this chapter
are a small sample of thousands of photographs available at our online archive:
http://www.brooklynsoc.org.
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7
Ports in the Global Urban Hierarchy
Alex Hicks and Ryan Hicks
Is physical geography still relevant to human geography (Zimmerer,

2010)? We address this question by examining the relation of a city’s port
status to its place in the system of world cities, specifically its prominence
in the global corporate hierarchy of cities (Sassen, 1991; 2001; 2002;
Taylor, 2004; Alderson and Beckfield, 2004).
This question addressed, we briefly turn in our concluding section to
some speculations about the consequences of port status for urban sustain-
ability in the face of mounting risk of urban flooding (NASA, 2010) from
sea level rise (SLR). Indeed, we explore the relation of port status to finan-
cial prominence and, in turn, to the risk of flooding for the financially
prominent cities atop the urban hierarchy.
Our principal hypothesis is that port status contributes to a city’s global
corporate prominence. The hypothesis was suggested in large part by eco-
nomic geography literature on the cost-cutting impact of port status on
transportation costs and on the conglomeration of urban production and
population where transportation is economical because of the sea transpor-
tation available to ports (Krugman, 1997: 93; Krugman and Venables,
1995; Sachs, 1997; Fujita and Mori, 1996).
In preview, ports status is associated with urban prominence. Indeed,
ports status appears to promote world city position even after statistical
controls for city populations and position in the ‘world system’. Physical
geography in the form of sea access does seem to matter for prominence in
the global city system. Further, in an age of global warming, port status
not only advances a city’s global economic prominence, it also entails
increased economic vulnerability to catastrophic flooding. As financially
prominent cities turn out to be disproportionally ports, risks from SLR
extend to major financial centers.
Ports in the Global Urban Hierarchy
World and Global Cities

We investigate the relation of port to urban prominence using a view of
urban prominence that stresses cities as sites of authoritative corporate
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220 Alex Hicks and Ryan Hicks
control over global production. Our conception and measurement of

this structure draws directly on work by Alderson and Beckfield (2004,
2010) and, though it, on a tradition of study of the ‘world’ or ‘global’ city
dating back at least to Friedman and Wolff (1982). Also see Friedmann†
(1986).
In their grounding of hierarchical networks of cities in control and trans-
actional networks of firms, Alderson and Beckfield (2004) somewhat
resemble others in the world/global city literature. However, Alderson and
Beckfield (2004) are more precise than Friedman and Wolff in their
conception of the worldwide interrelations of global cities not simply as an
expression of urban corporate power, but as a delineation of a core attribute
of this power: the structure of headquarter control over branch plants and
affiliates. Further Alderson and Beckfield’s (2004) precise conception of
corporate networks and control structures underlying the urban web and
hierarchy differs from the conceptions of Saskia Sassen (1991, 2001,
2002) and Taylor (1997, 2004) with their stresses on producer service
(financial, legal, accounting, etc.) firms and networks. It also contrasts
with conceptions of world city structure stressing communications and
transportation firms and their interrelations (Graham, 2002; Smith and
Timberlake, 2002; Castells, 2000; Taylor 1997, 2004, 2006; Taylor et al.,
2002).
Alderson and Beckfield (2004) is wide ranging not only with regard to
intra-corporate control within the spatially dispersed organization of the
large global corporation, but with regard to the global population of large
firms and the global reach of these firms. Alderson and Beckfield (2004)
collect and analyze data on the 446 largest global corporations in 2000 and
on the presence of these firms in 3692 cities.1 Here, we focus on the
hierarchical structure of world cities mapped by Alderson and Beckfield
(2004).
In the present research, we focus our investigation on the importance of
ports for major world cities identified and ranked by Alderson and
Beckfield (2004).
However, we do speculate about some implications of urban aquatic
access that extend beyond overall position in the urban hierarchy; for
example, to global financial prominence and crisis, recurring topics in this
volume. Ports are subject to flooding (Boschken, 2010), a mounting threat
in this era of global warming (NASA, 2010). If global financial centrality,
like global urban prominence more generally, proves disproportionally
high for ports, then SLR threatens to trigger or exacerbate future financial
crisis. With an eye to such possible threats, we shall explore relations
between port status and the financial, as well as the general economic
prominence of cities.
Ports in the Global Urban Hierarchy 221
Economic Geography
Krugman (1997: 33–37) sees the traditional economic view of the spatial
distribution of production as problematical because it predicts an even dis-
tribution of production, instead of the lumpy one that all observe. He
argues that the actual concentration of production at certain locations is a
function of transportation costs. (Krugman, 1997; Krugman and Venables,
1995). Transportations costs are inversely related to productive concentra-
tions, for producers exploit the higher increasing returns to scale where
transportation is relatively economical. Important to transportation econo-
mies is access to the advantages of transportation over water, or the port
(Fujita and Mori, 1996). For example, inland nations face serious obsta-
cles to economic growth (Krugman, 1997; Sachs, 1997, 2005).
Our work draws, in particular, on Fujita and Mori’s (1996) work on the
developmental plights of inland economies and on the importance of ports
for urban conglomeration of production and population (Fujita and Mori,
1996; Krugman, 1997; Krugman and Venables, 1995; Sachs, 1997). More
particularly, it draws on Fujita and Mori’s (1996) model of the growth
advantages of port cities, which these authors suggest, might be ‘extended
to the international context’ and to the ‘evolution of the international system
of cities’. In Fujita and Mori (1996), the presence of productive facilities at
port locations, given increasing returns to scale for ports, suffices to gener-
ate a disproportionate production and population in ports. Indeed, Fujita
and Mori (1996) suggest that his model of the economic advantages of
cities might be extended to the explanation of cities’ positions in the global
city system. Our principal empirical focus here is on testing the proposition
that port status advances prominence in the urban hierarchy.
Although Fujita and Mori (1996) suggest the relevance of ports to the
international urban system, neglect of physical geography has characterized
the study of world cities (Sassen, 1991; Alderson and Backfield, 2004;
Taylor, 2004). As ports are defined by proximity, or aquatic access, to the
sea, they entail some substantial focus on physical geography. They direct
attention to the interpenetration of the human by the physical. At the very
least, it ‘is “difficult to justify” the claim that “processes of environmental
change are purely physical or that social structure rely solely upon human
processes”’ (Inkpen, 2005: 144).
More concretely, neglect of physical geography appears to be partly
due to the limited interventions of physical geographers into the domains
of human geography and, thus, into the social sciences more generally. It
also appears to be related to an apparent slowness in the scholarly exploi-
tation of leads from economic geographers and geographically minded
economists. For example, we have found no work that follows up the lead
offered by Fujita and Mori’s (1996: 118) when they wrote that their model
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of the growth and scale advantages of port cities might be extended to the
‘international system of cities’.
Alderson and Beckfield’s Urban Hierarchy
By submitting data from 3,692 headquarter and branch locations (in the
year 2000) of the world’s 500 largest multinational enterprises to network
analysis, they identify four dimensions of their intercity connectivity. One,
‘closeness centrality’, measures the average closeness of a city to other
world cities in terms of this connectivity, in particular the extent to which
a city is directly linked to other world cities. A second, ‘outdegree central-
ity’, gauges the degree of connectivity via links sent out from headquarters
to branches. A third, ‘indegree centrality’, taps the degree of connectivity
via links received by branches, and is regarded by its creators as a measure
of a city’s attractiveness or prestige. The fourth and final dimension,
‘betweenness centrality’, gauges the extent to which a city’s connectivity
places it between a high proportion of other world cities (see Table 7.1).
Alderson and Beckfield find that ‘power and prestige in the world city
system are highly skewed’, with a small number of cities monopolizing
power and prestige and forming a strong hierarchy. Sitting at or near the
apex of this hierarchy are not only such predictable global cities as New
York, London, Tokyo and Paris but such relative wild cards as Dusseldorf
and Munich. We see the most highly ranked cities on each of the above
dimensions in Table 7.1, and we see a simplified version of the underlying
pattern described by this network in Figure 7.1.
Information from Alderson et al. (2010) on the dimensions of the urban
hierarchy for 1980 and 2007 provides some assurance that the 2000
Alderson and Beckfield (2004) measurement of the urban hierarchy used
here is not too unstable or ephemeral to be instructive. First, data for 1980,
2000 and 2007 all yield the same four dimensions of urban hierarchy.
Second, correlations of 1980 and 2007 dimensions that are available for
the full population of cities devised by Alderson and Beckfield (2004) are
at least moderate across the 1980–2007 stretch. Specifically, they are 0.590
for Outdegree, 0.574 for Closeness, 0.647 for Betweenness and 0.634 for
Indegree (Alderson et al., 2010: 10). Third and most relevant, correlations
between 2000 and 2007 waves are yet more substantial. These correlations
are 0.825 for Outdegree, 0.633 for Closeness, 0.665 for Betweenness and
0.684 for Indegree.2
Alderson and Beckfield find that world system position and city
population correlate very significantly with centrality in the world city
system. They see both world system position and city population as sources
of centrality, although they treat population more as a control variable than
as a causal force in its own right.
Table 7.1 Ranking of cities on measures of corporate power and prestige (top 15 cities
per dimension)
Rank Closeness Outdegree Indegree Betweenness
1 Paris 55.51 Tokyo 3,639 New York 1,425 Paris 25.65

2 Tokyo 53.59 New York 2,601 London 1,086 Tokyo 15.04
3 London 53.47 Paris 2,535 Paris 944 Dusseldorf 13.61
4 New York 52.87 London 1,955 Tokyo 762 London 13.31
5 San Francisco 51.47 Dusseldorf 1,278 Los Angeles 538 New York 10.01
6 Dusseldorf 50.90 Amsterdam 897 Chicago 477 San Francisco 7.29
7 Amsterdam 50.84 Zurich 893 Brussels 452 Munich 4.89
8 Munich 50.05 Munich 881 Amsterdam 435 Oslo 4.60
9 Chicago 49.55 Osaka 787 Singapore 434 Vevey 4.46
10 Stockholm 49.43 San Francisco 755 Hong Kong 424 Zurich 4.32
11 Toronto 49.06 Frankfurt 515 Toronto 412 Beijing 4.23
12 Zurich 48.97 Vevey 491 Madrid 338 Atlanta 4.22
13 Los Angeles 48.62 Chicago 455 Philadelphia 334 Amsterdam 4.09
14 Madrid 48.58 Stockholm 427 Milan322 Stockholm 3.99
15 Dallas 48.46 Dallas 413 San Francisco 321 Osaka 3.98
Figure 7.1 Reduced graph of world city system

Source: Reprinted from Alderson et al. (2004: Figure 3, 840).With permission from the University of
Chicago Press.
Note: LNPT stands for London, Paris, New York and Tokyo.
What if economically prominent cities substantially result from an

accumulation of advantages achieved by ports? In this event, might ports
vie with world system status and population scale as a source of urban
position? Might ports even do so controlling for the impact of urban
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population on urban global prominence? In addition, how might Alderson

and Beckfield‘s findings shift in light of statistical consideration of city
population? We address port impact in urban conglomeration by address-
ing the hypothesis that port status advances prominence, indeed does so in
particular along dimensions of urban hierarchy delineated by Alderson and
Beckfield (2004).
Measurement and Analysis
We measure position in the urban hierarchy using the scales from Alderson
and Beckfield (2004) for each dimension of the urban hierarchy. For par-
simonious measurement, we construct a fifth measure to substitute for
Alderson and Beckfield’s (2004) separate measures of Outdegree, Indegree
and Betweenenss centrality, which are highly correlated with each other,
though not with closeness centrality.3 Given these high inter-correlations,
we perform a principal component analysis of Outdegree, Indegree and
Outdegree and then construct a scale from the principal resulting compo-
nent dimension using factor scores for the dimension (see Table 7.2). As
the scale for this dimensions, which we call ‘InOutBetween’, is highly
skewed (skewness equals 22.23), we take the natural logarithm of the scale
to moderate skewness. We focus analysis on ‘closeness openness’ and, for
economy, the natural logarithm of InOutBetween.4
Table 7.2 Principal component analysis of outdegree, indegree betweenness

Variable Factor1* Uniqueness
outdegree 0.9564 0.0853
indegree 0.8039 0.3537
betweenness 0.9232 0.1476
*Only factor with eigenvalue > 1.0 (eigenvalue = 2.41334).
We measure port status as a binary variable using designations of port/

non-port status from worldportsource.com. This source was the most volu-
minous and comprehensive public listing of worldwide ports that we were
able to locate, listing 4,206 ports in 195 countries. We test hypotheses
linking port status to position in the world city system using multiple
regression analysis for ‘closeness’ centrality, and Tobit analysis for depen-
dent variables with high concentrations of minimal values (e.g., zeroes),
that is for InOutBetween and its components measures. We perform most
tests in the context of control variables and additional hypotheses drawn
from Alderson and Beckfield’s (2004) analysis of global urban position.
These hypotheses involve the world system position of a city’s nation and
the size of a city’s population. Our control for world system position is
Table 7.3 Summary statistics

Variable Obs Mean Std. Dev. Min Max=
Closeness 3692 34.211 3.263481 23.75 55.51
Outdegree 3692 7.8158 101.7477 0 3639
Indegree 3692 7.8158 46.5584 0 1425
Betweenness 3692 .05274 .6688345 0 25.65
Ln (In Out Between) 3692 –8.12210 3.14511 –10.605* 3.3513
Port 3690 . 16431 .3700402 0 1
Core 3692 .7787107 .4151711 0 1
semiperiph 3692 .0910076 .2876589 0 1
ln(population) 3023 10.63035 1.872858 5. 193 17.586
*2153 left-censored observations.
done with an eye to the robustness of the hypothesis, born out in the analy-
ses of Alderson and Beckfield, that the global urban system and the con-
ventional world system position overlap. Our control for city population is
done with an eye both to Alderson and Beckfield’s conjecture that high
urban population promotes high rank in the urban hierarchy; and it is also
done in awareness that a city’s size might serve as a conduit for effects of
a city’s port status.
A city is classified as core, semi-peripheral or peripheral using Bollen’s
(1983) ‘World System’ classification of nation. A city’s population is
logged to normalize a skewed distribution. Population data are taken from
Cohen (2002). When city population is used as a control, resulting missing
data cause the number of cities in analyses to drop to 3,023 (see Table 7.3).
Summary statistics on all measures used in analyses are presented in
Table 7.3.
In a digression from our central findings that ties in with recurring con-
sideration of the urban financial crisis in this volume, we explore data on
the connection of finance to the urban hierarchy. We do this by examining
data on the headquarters of major banking corporations in 2000, which we
aggregate into data on Alderson and Beckfield’s (2004) cities.
Findings
How are cities associated with Alderson and Beckfield’s four dimensions
of the urban hierarchy? 13.7 percent of Alderson and Beckfield’s (2004)
3,690 cities are ports. Spearman correlations between port status and the
dimensions of the urban hierarchy are 0.102 for Outdegree, 0.234 for
Closeness, 0.092 for Betweeness and 0.178 for Indegree. The correlation
for InOutBetween and ports is 0.259. Though modest, these correlations
are all highly significant.
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When we regress dimensions of urban structure measured by Alderson

and Beckfield on port status, we concentrate our attention on two out-
come measures in order to simplify analyses for the reader. We focus on
Alderson and Beckfield’s (2004) measure of ‘closeness’ and on scores for
the InOutBetween principal component measure discussed in the preced-
ing section. We focus on closeness because it stands apart from Alderson
and Beckfield’s (2004) other three 2000 scores and is the measure stressed
in the explanatory analyses of Alderson and Beckfield (2004). We focus
on the InOutBetween score because it succinctly indexes measures of
Outdegree, Betweeness and Indegree.
In the analyses of Table 7.4, we analyze closeness centrality using OLS
regression. We analyze InOutBetween using the Tobit mode of regres-
sion analysis. This adjusts for measures with many observations scored
at a measure’s minimal value, zero or otherwise. (In Table 7.A1 of the
Appendix, we report Tobit analyses of each component of InOutBetween.)
When we regress closeness on port status alone, we get strong and robust
coefficient estimates, whether controls are included or not. Without the use
of control variables, we find that the mean level of urban location is 2.033
units higher for ports than it is for non-ports. This difference is significant
at better than the 0.0005 probability level (See Table 7.4, Column 1). When
we regress Closeness on port status with all the control variables, the differ-
ence in Centrality closeness associated with port status versus non-port
status drops from 2.033 to 0.866 (see Table 7. 4, Column 2). However, sig-
nificance at a probability value that rounds out to 0.000 is retained (see
Table 7.4, Column 2). Further, the effects of periphery and semi-periphery
status on the centrality closeness of urban location help put port effects in
perspective. These effects – estimates of how much greater urban hierarchy
is in Core and semi-peripheral nations than in peripheral ones – are 1.929
for the core and 0.959 for the semi-periphery. This core estimate is a bit
over twice as large as that for port status – 1.927 versus 0.866. However,
semi-periphery estimate is only faintly greater than the difference that being
a port makes: 0.959 versus 0. 866 (see Table 7.4, Columns 1–2).
What happens when we control for world system position but not
population? We do this on the grounds that port status is much more
likely to influence city population, and urban prominence through it,
than population is likely to affect port status. In such a case, using a
control variable like population is likely to repress part of the effects
of the variable affecting it, here port status; and dispensing with an
‘intervening’ like population as a control is likely to end this repression.
In this particular case, the port estimate bounces back to 1.94, nearly its
bivariate level of 2.033 (see Table 7.4, Column 3). Interestingly, the
estimate for semiperiphery drops to close to 0.0 and loses statistical
Table 7.4 OLS analyses of centrality closeness (without and with regionally clustered standard errors; OLS regression for closeness openness; and
with standardized regression coefficient below standard errors)
Dependent Variables Closeness Openness* InOutBetween Factor+
Without robust standard errors With robust standard errors Without robust standard errors
Regressors 1 2 3 4 5 6 7 8 9
Port 2.033*** .866*** 1.942*** 2.031*** .866* 1.942** .916** .337*** .931***
.1413 .1486 .1436 .1420 .2329 .4065 0.076 0.086 –0.077
.230 .098 –.220 .230 .098 .220 .108 .040 .109
Core – 1.927*** –.4232** – 1.927** –.4232 – 1.24*** .102
.1876 .1590 .4695 .4005 0.110 0.090
.228 .054 .228 .054 .106 .032
Semi-periphery – .959*** .166 – .959 .166 – .257* .088
.2455 .2260 .6494 .6825 0.123 0.184
.076 .025 .076 .025 .082 .028
Ln (Population) – 964*** – – .964*** – – .498*** –
.1158 .1158 0.023
.521 .521 .158
Constant 35.9*** 23.23*** 36.15*** 35.9*** 23.23*** 36.15*** –0.189** –6.98*** .498***
.1293 .5147 .1744 .2059 1.3099 .4973 –2.80 –0.335 0.023
R-squared 0.0528 0.2396 0.0570 0.0531 0.2397 0.0570 0.0188 0.0879 0.0190
(N) 3,690 3,023 3,690 3,690 3,023 3,690 3,690 3,023 3,690
www.Ebook777.com
Sigma 1.5345 – – – – – – 1.5346 1.5346
SE(Sigma) 0.0281 0.0281 0.0281
***Statistically significant at 0.001 level (two-tailed);
**Statistically significant at 0.01 level (two-tailed);
*Statistically significant at 0.05 level (two-tailed)

+
Tobit analysis to adjust for presence of c. 1500 left-censored, observations, (at minimum value).
significance; and the estimate for Core takes on an anomalously negative

sign, suggesting that in lieu of adjustment for the phenomena of enormous
non-core cities like Mexico City and Calcutta, world system position
makes no difference. (Indeed, without the control for urban population, the
sign for core location slips below zero.)
What if we reestimate the Table 7.4 analyses of centrality closeness with
robust standard errors clustered by region? This should help avert deflation
of standard errors and inflation of t tests and significance due to heter-
oskedastic errors. In this case, significance levels are attenuated for all
variables, but all estimates for ports and population remain significant.
Only those for world system status ever fade into insignificance (see
Table 7.4, Columns 5–6). Specifically, the estimate for core loses statistical
significance when we do not control for urban population.
Findings for the Tobit regression analysis log of the InOutBetween
factor scale strongly parallel those for OLS regression analysis of close-
ness centrality.5 Indeed, findings for InOutBetween models and closeness
models estimated with robust standard errors show almost exactly the
same pattern of significance levels for slope estimates. Only significance
levels for semi-periphery in the four-regressor models with all controls
differ, and these differ trivially, for semi-periphery just attains significance
at the 0.05 level in the InOutBetween model and just misses it at that level
in the closeness model (Table 7.4, Columns 2, 5, 8).6
In short, we find that the connection between port status and position in
the urban hierarchy is substantial, if not large, for the case of ‘closeness’.
For this case, standardized regression coefficients (reported below standard
errors) vary between 0.098 and 0.230. For the case of ‘InOutBetween’,
standardized regression coefficients only vary between 0.040 and 0.109.
However, no slope estimate for a measure of hierarchical position ever
fails to achieve significance at some conventional test level. True, slopes
for population size are always much larger than ones for position in the
urban hierarchy, 0.521 to 0.098 for models of closeness, 0.158 to 0.040 for
models of InOutBetween. However, although population size may be a
judicious control in models of port status impacts on hierarchical position,
population estimate may be inflated by feedback from city urban position
to population size, as we shall observe again below. We should not make
too much of the high magnitude of population findings.
Conclusion
Ports and the Urban Hierarchy

We address the continuing relevance of physical geography to human
geography on a global scale by examining the relevance of ports to position
in the system of world cities. As is common in contemporary work on

‘nature-society’ geography, our approach is interdisciplinary (Zimmerer,
2010): geographic, economic and sociological in particular. However, our
attention to the relation of physical geography to human geography, in
particular to the relation of ports to the global system of cities, is novel.
We find that port status is robustly associated with a city’s position in
the system of world cities as this is measured here in terms of relations of
headquarter control over globally dispersed subsidiaries. Knowing whether
or not particular cities are ports helps differentiate them with regard to the
closeness of their connections to other cities, their prominence as centers
of corporate authority, and the like. Indeed, port status vies with world
system position in its ability to differentiate world city position. It relates
significantly to urban prominence even in the face of statistical control for
city population, an attribute closely entwined with a city’s global position.
True, city population does appear more consequential for position in the
urban system than does port status. However, city population and position
in the urban hierarchy, like city population and productiveness in the
economic geography literature (e.g., Krugman and Venables (1995), seem
too closely entangled for impact of population on location to compare
fairly with the impact of port status as causes of world city prominence.
The endogeneity of position and population with respect to each other
seems too pronounced. Once again, the importance of port status for
world city position that is shown here at least holds for aspects of city
global prominence as measured in terms of global relations of production.
Whether or not it holds in terms of such distinct aspects of urban prominence
as the centrality within global the network of production service firms
singled out for study by Taylor (2004, 2006) remains to be examined by
future researcher. So does whether or not it holds within inter-city relations
of communication and transportation like those studied by Smith and
Timberlake (1995, 2002).
Is port status endogenous? On the one hand, the embedded character of
port status relative to surrounding human social and economic activity is
undeniable. Ports are socially constructed, however much they also may
be dependent on such prior conditions natural endowments natural harbor
or river locations. On the other hand, port location is relatively exogenous.
Viewed retrospectively, many ports go back far over time. Viewed moving
forward through history, many are durable in the face of relatively long-
term economic and demographic developments. The statuses of cities as
ports or non-ports, say of New York and Dallas or Tokyo and Beijing,
are not much altered by such economic changes as may have unsettled the
world from Waterloo to World War II, from the emergence of the UN to
that of the WTO. This surely is due in part to the ongoing relevance of
www.Ebook777.com
physical geography. From a substantial and robust impact of ports on

urban hierarchical location, we infer a substantial and robust impact of
physical geography upon so socially ornate an aspect of human geography
as position in the world city system.7 Access to sea trade today appears to
retain some of the importance it has had throughout history (e.g., Acemoglu
et al., 2002).
Ports, Finance and Flooding
Not only is flooding due to SLR a mounting threat in this era of global
warming (Boschken, 2010).8 Date collected for this study show that port
status extends beyond global urban prominence to global financial
prominence and possible future financial crisis. In the face of mounting
threat SLR this vulnerability will not soon recede.
Cities that are prominent within the global relations of production
indeed are disproportionately centers of global finance. Data we examine
indicate that urban financial centers tend disproportionately to be ports.
Specifically, data on the revenues (in US dollars) for the 64 top commercial
and savings bank among the top 500 US corporations allows us to compute
total banking revenues for each of our cities.9 What we find from these
data is that a large share of the revenues of the world’s largest banks – a
majority as measured here – goes to banks headquartered in port cities
atop the urban hierarchy.
Specifically, we find that top financial cities – cities headquartering the
64 commercial and savings banks among the top 500 global corporations
in 2000 – are concentrated among the most highly ranked cities in the
urban hierarchy. If we regard such highly ranked cities as the 50 most
highly ranked in terms of ‘closeness openness’, we find that 78.8 percent
of the revenues of these top 64 banks went to banks in top cities (see
Appendix, Table 7.A2, Column 3). If we regard top cities as the 50 most
highly ranked in terms of the composite InOutBetween dimension, we find
that 81.25 percent of the revenues of these top 64 banks went to top cities
(see Appendix, Table 7.A2).
Furthermore, we find that large shares of top financial cities are ports
and majorities of top bank revenues go to those cities high in the urban
hierarchy that are ports. If we measure such highly ranked cities as the
50 most highly ranked in terms closeness openness, we find that top
financial cities constitute 20 of these 50 top ranked cities. Further, we find
that 13 of these 20 urban centers of financial headquarters are ports; and
we find that these 13 ports received 55.6 percent of the revenues of the top
64 banks. If we measure top cities as the 50 most highly ranked in terms of
the composite InOutBetween dimension, we again find that top financial
cities constitute 20 of the 50 top ranked cities.10 We find that that 13 of

these 20 locations of financial headquarters are ports; and we find that
these received 50.6 percent of the revenues of the top 64 banks. In short, a
large share of the revenues of the world’s largest banks – a majority as
measured here – goes to banks headquartered in port cities atop the urban
hierarchy. These are cities vulnerable to flooding from SLR.
Last Words
In sum, we find that at the global level physical geography continues to be

relevant to human geography, for port status is robustly associated with a
city’s position in the hierarchy of world cities.
We also find indications that ports are relevant not only to the origins
of global urban prominence but to its sustainability, indeed to the sustain-
ability of the financial function of cities, an issue of some salience else-
where in this volume.
Also, by introducing a consideration of ports that goes beyond the
defining characteristics of urban centers and networks in the global city
literature, we show some incompleteness of the global city tradition of
scholarship as a basis for understanding the economically prominent
modern city. Therborn (2011) points to the necessity of placing the modern
city in the context of the state, and Fujita (2011) stresses the importance of
placing it in the context of the financial system as well. This research
indicates the importance of placing the modern city in the context of what
remains of the global natural system, its aquatic aspect in particular.
Indeed, we see that global production, finance and nature are inextricable.
Acknowledgements
We acknowledge the incisive substantive comments of Jason Beckfield,

Kuniko Fujita and an anonymous reviewer for Sage. We also acknowledge
the generous provisions of data by Arthur Alderson and Jason Beckfield.
The coauthors of this paper are truly co-equal contributors.
Notes
1 By comparison Taylor (2006) collects data on only 100 service corporations and
446 cities. In the principal other attempt to measure the structure of world cities, Smith and
Timberlake (1995, 2002) collect and analyze data on air travel among 22 cities.
2 Correlation are all Spearman’s correlations. Missing data are all treated as such in
data computations, never as zeros. The correlations of measures for (2000 and 2007 were
graciously provided by Art Alderson.
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3 Indegree and betweenness correlate 0.410 outdegree and indegree 0.291, outdegree
and betweenness 0.727, while outdegree, indegree and betweenness correlate 0.361, 0.518
and 0.367, respectively, with closeness.
4 In measuring ‘InOutBetween’, before we log InOutBetween, we add its minimum
score to eliminate negative values, and we then add 0.0001 to eliminate 0.0 values.
Correlations are Spearman correlations. Tobit analyses of the separate measures of
outdegree, indegree and outdegree are reported in appendix Table 7.A1.
5 For perspective on the relative magnitudes of effects across variables within given
regression we compute analogs to standardized regression coefficients multiplying each
coefficient estimate by the ratio of the standard deviation of the outcome variable
(InOutBetween) to the standard deviation of the regressor variables.
6 Relations of port status to Alderson and Beckfield’s other three dimensions of urban
location are broadly similar (see Appendix, Table 7.A1). Port status generally is significantly
and positively related to urban position at the 0. 01 test level or better for a two-tailed test
for the Indegree and Outdegree measures. (In Column 2, the t statistic of 1.59 for the slope
estimate falls just short of the t = 1.645 level needed for two-tailed, 0.10 [or one-tailed
0.05] significance. However, it does attain the 0.10 level for a one-tailed test.) Consistently
significant positive effects of core emerge for models with the city population control, but
not for those without it. Semi-periphery impacts are consistently positive but not always
significant. On another note, estimates impacts of port on city size are interesting as city
size might serve as an outcome for a rudimentary test of Fujita’s thesis. The slope estimates
for the regression of ln(population) on port are 22.38 without controls for core and semi-
periphery, 22.75 with such controls. (They are always highly significant.)
7 Our dichotomous measure of ports is crude, a first approximation. More
discriminating scales of ‘portness’ that assess a city’s degree of physical proximity to the
sea, and its infrastructural elaboration and extension by means of port facilities and
land transportation could be fruitfully developed and analyzed. Also, our analysis is
unfortunately static, a limitation that the imminent release of multiple waves of data into
the public domain by Alderson et al. might soon allow researchers to remedy. For example,
with even one more wave of this data, the impact of port status on change in urban
prominence might be estimated.
8 For example, NASA officials (www.nasa.gov/worldbook/global_warming_world
book.html 10/13/10) have warned of a likelihood of global flooding with major implications
for city restructuring and relocation. Indeed, the Intergovernmental Panel on Climate
Change (IPCC) in its ‘Fourth Assessment Working Report’ (2007, Table SPM.1), reports
that a trend of ‘Increased incidence of extreme high sea levels’ is ‘likely’ that has a
‘projected impact’ encompassing ‘Increased risks of death and injury by drowning in
floods. Migration related health effects’. Implications of global warming and flooding for
urban crime have also been considered by Agnew (2011).
9 These banking data are from Fortune (2000), specifically from data on the revenues
(in $(2000) of 64 commercial and savings bank among the top 500 US corporations in
2000. Although bank data here is confined to bank headquarters alone, they mesh with data
in Alderson and Beckfield (2004) insofar as it is on the headquarters of the banking subset
of the corporations studied in Alderson and Beckfield (2004).
10 The 20 out of 50 top ranked cities noted for the case of closeness openness are
the cities in the first column of cities in Table 7.A2 of the Appendix (and over to the
left hand side of the table). The 20 out of 50 top ranked cities noted for the case of
InOutBetween are the cities in the second column of cities in Table 7.A2 (and near the
center of the table).
Appendix
Table 7.A1 Tobit analyses of outdegree, indegree and Betweenness (tstatistics in parentheses)
Outdegree Indegree Betweenness
Regressors 1 2 3 4 5 6 7 8 9
+
Port 550.6*** 101.6 1,438*** 22.44*** 12.84* 22.8*** 2.759*** 0.57* 2.78***
7.36 1.59^ 8.46 11.00 3.00 10.99 9.32 2.14 9.59
Core 1,241*** 550*** 26.2*** 3.17 4.01*** .304
7.96 3.94 8.69 1.38 9.60 0.84
Semiperiphery 475** 1,438* 12.71** 5.88 0.778 .538
2.96 2.30 3.33 1.80+ 1.60^ 1.09
Ln (Pop) 321.9*** 9.37*** 1.71***
11.73 16.25 14.46
Constant –1,014** –161.51 –1439** 26.54*** –101*** 23.8*** 3.77*** –1.03** .136**
10.55 –6.68 8.46 14.22 –14.36 9.4511 12.01 –5.81 5.99
Sigma 45.86
.5342
R-squared 0.024 .134 .013 0.003 0.1096 0.019 .0249 .253 0.050
N 3,690 3,023 3,690 3,690 3,023 3,690 3,690 3,023 3,690
***Statistically significant at 0.001 level (two-tailed test)
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**Statistically significant at 0.01 level (two-tailed)
*Statistically significant at 0.05 level (two-tailed)
+
Statistically significant at 0.10 level (two-tailed)
^
Statistically significant at 0.10 level (one-tailed)
Table 7.A2 City financial centers among top 50 world cities by ‘Closeness’ and
‘InOutBetween’ (IOB) and these centers’ financial revenues by city.1
1 2 3 4 5 6
City closeness rank port REVENUES City IOB rank port REVENUES
Paris 1 0 112641 Tokyo 1 1 185418
Tokyo 2 1 185418 Paris 2 0 112641
London 3 1 116039 New York 3 1 51820
New York 4 1 51820 London 4 1 116039
San Fran 5 1 21795 Düsseldorf 5 1 24079
Düsseldorf 6 1 24079 San Fran 6 1 21795
Amsterdam 7 1 38821 Amsterdam 7 1 38821
Munich 8 0 47071 Munich 8 0 47071
Toronto 11 1 48176 Zürich 9 0 49362
Zürich 12 0 49362 Osaka 10 1 27065
Madrid 14 0 25583 Frankfurt 15 1 117753
Brussels 19 1 58597 Beijing 19 0 65274
Osaka 21 1 27065 Toronto 22 1 48176
Milan 25 0 25726 Basel 23 1 27652
Frankfurt 28 1 117753 Melbourne 26 1 117753
Basel 29 1 27652 Utrecht 28 0 12487
Boston 31 1 20000 Madrid 34 0 22374
São Paulo 33 0 15164 Boston 39 1 20000
Melbourne 34 1 12487 Brussels 43 1 58597
Beijing 41 0 65274 Milan 44 0 25726
1. For world cities high in the urban hierarchy that host the headquarters of at least one of these top
banks. In the first four columns of Table A2, they are displayed for world cities ranked among the top
50 in terms of ‘closeness’ openness. In the last four columns of Table A2, they are displayed for world
cities ranked among the top 50 in terms of our composite measure of indegree, outdegree and
betweenness (i.e., InOutBetween)
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8
Athens and the Politics of
the Sovereign Debt Crisis
Nicos Souliotis
Introduction
The 2008 global financial crisis originated in a US housing bubble but

complex interconnections in the global financial system diffused the crisis
worldwide. European banks and other financial institutions were severely
hit (Aglietta, 2009: 82–4). As elsewhere in the world, European govern-
ments responded to the crisis by spending huge amounts in loans, asset
purchase, guarantees and direct spending for the rescue of financial
systems (Aglietta, 2009). State interventions stabilized the banking sector
but at the same time they increased public deficits and transferred the
burden of the crisis to national government budgets. The most vulnerable
countries, those whose public finances were in bad condition, rapidly
faced difficulties in re-financing their already high sovereign debts. The
financial crisis led thus to a sovereign debt crisis in several European
countries (mainly in Greece, Ireland and Portugal, while Spain and Italy
felt also significant pressures).
The current crisis has not only economic and social effects in Europe,
but it also affects the European Union (EU) politically and institutionally.
In this chapter, I examine the position of city politics and policies within
the changing political power structures of the EU. I focus on Athens, the
capital city of the country that got early at the epicenter of the current
sovereign debt crisis in Europe. I argue that the current intra-EU political
dynamics challenge the non-hierarchical and collaborative policy-making
procedures that involve state and non-state actors and political institutions
of different levels (supranational, national, subnational). This type of
policy-making developed in the EU during the previous two decades and
fascinated the theorists of EU and urban ‘governance’. Nevertheless, at
least as far as it concerns the cities of countries under bailout programs,
urban policies are now largely directly subordinated, in a top-down
manner, to the EU level politics that involve harsh intergovernmental
bargaining, the coordinative role of the European Commission and the
www.Ebook777.com
238 Nicos Souliotis
participation of international organizations like the International Monetary

Fund (IMF).
I draw upon two distinct analytical streams. First, I use the idea that
interstate competition plays a significant role in the formation and trans-
formation of statehood. This proposition runs through the work of differ-
ent state theorists and historians (Tilly, 1990; Anderson, 1994; Mann,
1993) who have investigated the contribution of interstate war conflicts to
the formation of the national states and, to a lesser extent, to the current
transformations of state structures. I assume that within the EU, despite the
fact that interstate relations are pacified, intergovernmental bargaining
continues to play a significant role in the dynamics of statehood at all
levels (supranational, national, subnational). And the crisis intensifies such
intergovernmental tensions.
Second, I rely upon the literature of ‘political economy of scale’
(Swyngedouw, 1997; Brenner, 2004; Jessop, 2005; Peck, 2002). Prominent
urban and state theorists examined the contemporary transformations of
statehood entailed by major processes like global economic integration,
the resurgence of urban and regional agglomeration economies within
global capitalism and the emergence of supranational institutions (EU,
NAFTA, APEC and so on) as a question of changing relations between
scales (Brenner, 2004: 5–7). From this extended and rich discussion, I
retain the basic analytical principle that the formation and transformation
of relations between scales (supranational, national, regional, urban) are
dynamic processes involving social and political power (Brenner, 2004:
10; Peck, 2002: 340). My purpose in this chapter is to show how intra-EU
intergovernmental tensions, which unfold on the grounds of the economic
reality formed by the sovereign debt crisis and within a complex EU and
global governance system, change actually the relations between the
supranational, the national and the urban level towards a more top-down
and elite-controlled direction.
The first part of the chapter presents how Greece was led to an IMF-
EU-ECB bailout program, as well as the main socioeconomic effects
of the latter. The following three parts explore different aspects of
Athens’ urban politics and policies in relation with the EU crisis politics:
the emergence of an anti-austerity social movement in Athens, the dynam-
ics of pro-growth urban strategies and the implementation of a metropoli-
tan government in Attica Region within the framework of a wider local
government reform. The fifth part of the chapter explores the EU crisis
politics per se and the fifth places the empirical findings of the paper into
the wider theoretical discussions on urban governance and ‘scalar politics’
in the EU.
Athens and the Politics of the Sovereign Debt Crisis 239
Setting the Scene: Athens and the Sovereign Debt Crisis
Sovereign Debt Crisis and Bailout Programs

The Greek sovereign debt crisis started to unfold since the mid-October
2010, when the Greek minister of Finance of the then new socialist gov-
ernment reported to his counterparts of the Eurozone (Ecofin Council) that
the public deficit would reach 12.5 percent of GDP instead of 6 as it was
estimated until then (Chardouvelis, 2011: 67–73). Several revisions of the
deficit as well as of the sovereign debt followed. In April 2010 the deficit
was estimated at 13.6 percent of GDP and the debt at 115.1 percent of
GDP, while final figures for 2009 were given by Eurostat in November
2011 (deficit: 15.4 percent of GDP, debt: 126.8 percent of GDP). The pub-
lication of the bad fiscal condition of the country and the revelation of the
unreliability of Greek statistical evidence created pressures on public bor-
rowing. Rate agencies downgraded the Greek government bonds and the
long-term interest rates reached 6 percent at the end of 2010. The Greek
government announced successive austerity packages in January, February
and March (including freezing of wages in the public sector, increase of
retirement age, increase of TVA and cuts in public investments). In March
the EU announced the creation of a facility of financial assistance with the
participation of the IMF. However, despite some fluctuations, the markets
did not calm down and the interest rates continued to rise and reached
levels that did not permit the refinancing of the Greek debt. In April 23, the
Greek government requested officially for an IMF-EU-ECB financial
support.
It has been argued that the roots of the sovereign debt crisis in Greece
and in other peripheral European countries lie to a large extent at the eco-
nomic imbalances and the institutional deficiencies of the Euro area
(Lapavitsas et al., 2010; Vlachou and Lambrinidis, 2011; see also Fujita’s
introduction in this volume). Since the creation of the latter, the current
account surplus of some countries, especially Germany, grew, while the
deficit of others, like Greece, Spain and Portugal, has been impressively
deteriorated (see Figure 8.1). The competitiveness of the German economy
relies upon its technological primacy (Vlachou and Lambrinidis, 2011:
248), while it benefited from a rigid wage policy (Lapavitsas et al., 2010:
21–26). Lapavitsas et al. (2010: 26) showed that the share of labor in the
GDP reduced in Germany as well as in the peripheral countries (Greece,
Ireland, Portugal, Spain). The peripheral country workers received though
higher increases in compensation compared to Germany (Lapavitsas et al.,
2010: 24; Vlachou and Lambrinidis, 2011: 241).
Moreover, the adoption of the common currency meant that the periph-
eral countries of the Euro area could not devaluate national currencies and
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240 Nicos Souliotis
10
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Greece
–5 Spain
Portugal
Germany
–10
–15
–20
Figure 8.1 Balance on current transactions, Germany, Spain, Portugal, Greece

Source: European Commission (2011)
loosen monetary policy to face this loss of competitiveness and the exter-
nal imbalances. They attempted to support the vitality of their economies
‘by opting for growth strategies that reflected their own history, politics
and social structure: Greece and Portugal sustained high levels of con-
sumption, while Ireland and Spain had investment booms that involved
real estate speculation’ (Lapavitsas et al., 2010: 7). They have also
increased public borrowing, partly fuelled by recycled German capitals
(Vlachou and Lambrinidis, 2011: 237–8), and ran fiscal deficits in order to
support aggregate demand and corporate profits, and keep unemployment
low (Argitis, 2011: 182–4). Especially in Greece, traditions of political
clientelism and tolerance of tax-avoidance led to lower public revenues
(see Figure 8.2) and higher rates of public borrowing in comparison with
other peripheral countries (Stathakis, 2010; Lapavitsas et al., 2010: 19).
The IMF-EU analysis that accompanied the bailout agreement of the
May 2010 (Ministry of Finance and Bank of Greece, 2010; European
Commission, 2010) acknowledged that the roots of the Greek crisis were
the eroded external competitiveness and the fiscal imbalances, considering
them though as a result of bad national policies of the period 2000–9. The
loss of competitiveness and the current account deficit stemmed from high
real wage increases which outpaced productivity gains, rigid product and
labor markets and an unsustainable domestic demand boom. The budget
deficits were the outcome of systematic overspending, endemic tax-
evasion and overoptimistic tax projections. Unreformed health and pension

*UHHFH

(8

Ō
Ō
Ō
Ō
Ō
Ō

Figure 8.2 General government current revenues as per cent of GDP, Greece and EU 15.
Source: European Commission (2011).
systems posed also a threat to the long-term sustainability of public

finances (European Commission, 2010: 4).
The 2010 agreement foresaw a four-year borrowing program of
110 billion euros from the IMF and the member states of the Euro area.
Loans from the latter were to be centrally pooled by the European Com-
mission through a new, provisionary European institution, the European
Financial Stability Facility (which was to be replaced in 2013 by a perma-
nent mechanism, the European Stability Mechanism). The economic poli-
cies fostered by the program included fiscal adjustment through cuts in
public sector expenditure and increase in taxes, cuts in wages and social
services, support to the banking sector, structural reforms in the labor
market and the insurance system and privatizations of public assets and
companies. Overall economic policies aimed at rebalancing the public
budget, stabilizing the banking system, restoring confidence in the interna-
tional capital markets and regaining competitiveness in the perspective of
an export-oriented model of growth.
The implementation of the program failed to meet almost all its main
goals. The deficit decreased but in a rhythm totally out of goal: from
15.8 percent of GDP in 2009 it fell to 10.6 in 2010 and to 9.1 in 2011,
while the program anticipated 8.1 in 2010 and 7.5 in 2011. The recession
proved deeper than it was predicted; government revenues remained low
due to the recession and the failure of tax reform; the increase of
unemployment benefits and subsidies to the pension system maintained
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242 Nicos Souliotis
Table 8. 1 Long term interest rates (annual rate)

2008 2009 2010 2011 2012
Germany 4,0 3,2 2,7 2,6 2,4
Greece 4,8 5,2 9,1 17,5 26,4
Ireland 4,6 5,2 6,0 9,4 7,4
Italy 4,7 4,3 4,0 5,3 6,5
Portugal 4,5 4,2 5,4 10,1 12,1
Spain 4,4 4,0 4,3 5,4 5,9
Source: OECD Economic Outlook.
expenditures in high levels despite the cuts in public wages and pensions.
Furthermore, despite initial estimations that the crisis would be restricted
in Greece, Ireland and Portugal accepted an IMF-EU-ECB financial
assistance in November 2010 and May 2011 and Spain accepted a bailout
for its banks from the European Stability Mechanism (ESM) in November
2012. Since the summer 2011 the yields of the Italian government bonds
surged towards the 6–7 percent level where this country could lose access
to financial markets (see Table 8.1).
Although one of the main aims of the bailout program was to avoid
Greece’s default, the Greek sovereign debt has been restructured twice
during 2011–2. Following an idea launched by the German government
few months after the beginning of the bailout program and given the failure
of the latter, the Eurogroup agreed in July 2011 to foster a program of
reduction of the value of the Greek bonds held by the private sector up to
21 percent, a goal revised to 50 percent in October. The restructuring of the
debt involved a four month bargaining between the Greek government, the
EU, the IMF and the private holders of Greek government bonds (notably
the Institute of International Finance which represented the interests of
several leading financial institutions). The final arrangement entailed a
53.5 percent nominal write-off of some 206 billion euros of bonds.
Investors accepted a swap with short-term EFSF notes and new Greek
bonds with lower interest rates and the maturity prolonged to 11–30 years.
A second, more limited, restructuring of the Greek debt took place in
December 2012 when Greece launched a program of buying back
government bonds by offering private holders the chance to swap their
bonds with new short-term EFSF ones for a maximum price of between
40.1 percent and 32.2 percent. The process has been completed with
Greece buying back bonds of 31.9 bn with an average price of 33.8 percent,
retiring thus some 21 bn euros of its debt.
The reductions of the Greek sovereign debt have been accompanied by
a new loan facility agreement between IMF-EU-ECB and Greece which
has been adopted by the Greek Parliament in February 2012 and specified
in November 2012. The new program provided Greece with an additional

package of 130 billion euros for the period 2012–14. The aid is conditional
on the implementation of a new austerity package aiming at reducing
primary government expenditures by 11.5 billion euros in the years until
2013 through personnel reductions in the public sector and cuts in wages,
government services and social spending. The agreement foresees increase
of public revenues through a tax reform and a huge privatization program
of state assets (ports, airports, motorways, energy, real estate) that was
initially anticipated to yield 50 billion euros in proceeds, a goal revised
later to 10 billion. The new agreement provided also for the creation of
a ‘special account’ held in the Bank of Greece which prioritize debt
repayment over domestic obligations using proceeds from privatizations
and other public revenues.
Socio-economic Effects of the Crisis

The effects of the crisis and of the IMF-EU-ECB program in Greece were
economically and socially devastating. According to the program’s
rationale, recession was necessary in short-term (it was assumed a GDP
reduction of –4 percent in 2010, –2.5 percent in 2011 and return to growth
since 2012, Law 3845, 2010) in order to achieve the decrease in prices and
wages and render the Greek economy more competitive in a period of four
years. However the recession went much deeper and the inflation remained
relatively high (see Table 8.2). Domestic demand, which was one of the
basic motors of growth in the period 1995–2007, collapsed since 2009 (see
Table 8.3). The economy got in a vicious circle of reduction of the national
income, increase of businesses bankruptcies and jobless rates, and
restriction of tax revenues.
Table 8.2 Real GDP growth and inflation rate (annual average rate), Greece 2008–12
2008 2009 2010 2011
GDP –0.2 –3.3 –3.5 –6.9
Inflation 4.2 1.3 4.7 3.1
Source: Eurostat.
Table 8.3 Domestic demand in Greece and EU 15. Contribution to changes in GDP (%).
Annual percentage change
1996–2000 2001–2005 2005 2006 2007 2008 2009 2010 2011
Greece 3.9 4.0 1.2 7.0 6.3 1.5 –4.1 –6.6 –8.5
EU 15 2.9 1.7 1.9 2.9 2.7 0.1 –3.8 1.3 0.9
Source: European Commission (2011).
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244 Nicos Souliotis
The working people’s conditions worsened. The reduction of wages in

the public and private sectors was substantial: real wages per capita
decreased by –7.9 percent in 2010 and –3.5 per cent in 2011 (European
Commission, 2011). Labor market reforms facilitated layoffs and rein-
forced firm level collective agreements against national ones, weakening
the employees’ position vis-à-vis employers. Reforms in the insurance
system imposed cuts in pensions and raised the retirement age from 63 to
65 years.
Athens was struck by the crisis following the national average. The
GDP of the Attica region has been reduced in 2009 by –1.2 per cent.1
Unemployment and youth unemployment soared (see Tables 8.4 and 8.5).
The economic sectors that led the growth of the period 1995–2007 have
undergone significant downward pressures. The private building activity
collapsed (see Table 8.6). The construction industry has suffered payment
delays from the public sector, a cutback of the public investments pro-
gram and reduction of bank loans. The media sector’s revenues have
been reduced as a result of the shrinkage of the advertising market. The
banks are exposed to the Greek sovereign debt and to non-performing
loans of households. The restructuring of the Greek sovereign debt under
the IMF-EU-ECB program could lead to the recapitalization of Greek
banks through a two-step procedure: the nationalization of banks and re-
privatization in a period of two years.
Domestic Crisis Politics and the Syntagma Square Movement
The approval of the IMF-EU-ECB program by the Greek government

entailed that the policy-making in several crucial domains (public finance,
labor market, pension system, public administration) has been transferred
at a supranational level, at the intersection of Eurozone intergovernmental
relations, EU institutions and the IMF. The compulsive character of the
implementation and the monitoring of the program had decisive effects on
domestic politics. The attitude vis-à-vis the program (called the ‘memo-
randum’ in public debates and everyday language) became the basic politi-
cal division running through horizontally, in a degree, the different political
parties.
The governing socialist party (PASOK) legitimized the implementation
of the IMF-EU-ECB program mainly in a negative manner. It presented it
as one-way for the country to avoid ‘default’ and the complete economic
disaster. Members of the government promoted also a somewhat populist
interpretation of the crisis attributing responsibility to the Greek society as
a whole: all or almost all Greeks were involved in political clientelism
and/or tax-evasion which were the causes of the crisis. Disposing a large
Table 8.4 Unemployment, Attica Region and Greece

2006 2007 2008 2009 2010 2011
Attica 8.3% 7.6% 6.5% 8.8% 12.3% 16.3%
Greece 8.9% 8.3% 7.6% 9.5% 12.5% 16.9%
Source: Hellenic Statistical Authority.
Table 8.5 Youth unemployment rate <25 years, Attica Region and Greece
2009 2010 2011
Attica 25.0% 33.1% –
Greece 25.7% 32.8% 44.4%
Source: Eurostat.
Table 8.6 Private building activity, number of construction permits, Attica Region and
Greece, month of December 2010–11
2009 2010 2011
Attica –1.1% –13.8% –47.8%
Greece –3.1% –10.9% –41.8%
Source: Hellenic Statistical Authority.
parliamentary majority due to their broad victory in the elections of

October 2009, the socialists maintained governmental stability during the
first year of the program despite the secession of a number of deputies
who dissented with the austerity measures. The conservative party (Nea
Demokratia), as major opposition, advocated a renegotiation of the ‘mem-
orandum’ in order to decrease taxes on businesses and cancel cuts on low
pensions, maintaining that these measures could bolster growth and miti-
gate the social impacts of the adjustment. The two major parties of the left
asked for termination of the program, unilateral cessation of payments,
restructuring of the sovereign debt and nationalization of the banks. The
communists (KKE) though demanded that Greece leave the EU, while the
party of radical left (SYRIZA) supported that the country should stay a
member of the Eurozone.
The implementation of the IMF-EU-ECB program has been sustained
by a coalition comprising the Hellenic Federation of Enterprises, the large
private banks and a large part of the media. Business elites could gain from
labor market and pension system reforms. They also considered the IMF-
EU-ECB program as the only policy that could ensure that Greece would
remain a member of the Euro area, which has been a strategic goal of large
businesses, and especially of banks, since the late 1990s.
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246 Nicos Souliotis
Small and medium commercial and artisan businesses could profit less
by the adjustment program: they use much more informal labor and indi-
vidual contracts than firm level collective agreements and, more impor-
tantly, they are particular sensitive to the domestic demand. They thus
adopted a more ambiguous attitude vis-à-vis program’s implementation.
Their representatives (National Confederation of Hellenic Commerce,
Athens Chamber of Commerce and Industry) coalesced with industrialists
(Hellenic Federation of Enterprises) in collective bargaining asking for
wage freeze in the private sector. At the same time, they struggled against
increase in indirect taxes and business taxation (TA NEA, 2010a).
The major trade unions (General Confederation of Greek Workers,
Supreme Administration of Greek Civil Servants Trade Unions) called
early to general strikes and mass demonstrations. Within the framework of
collective bargaining, the unions, whose leaders were close to the governing
socialist party, tried to compromise with employers. They accepted wage
freeze in the public sector asking in return to protect jobs against layoffs
(TA NEA, 2010b).
Other significant opposing mobilizations came from different occupa-
tional groups (pharmacists, doctors, truck and taxi owners, etc.). They
struggled against reforms removing protective regulations (restrictions on
the legal form of the business activity, geographical restrictions on the
practice, minimum prices, etc.) foreseen by the IMF-EU-ECB program.
Within this general political framework, there have been the conditions
for the emergence of a dynamic social movement. The socialization of
the crisis cost downwardly through wage cuts and the raising of taxes
opened the way for the radicalization of broad middle and low social
strata. A major form of social mobilization in Athens was the occupation
of the Syntagma square, in front of the Parliament, by protesters follow-
ing the paradigm of Madrid’s Puerta del Sol. This mobilization was
inscribed in a wider ‘movement of squares’2 or ‘movement of indignant
(aganaktismenoi)’ that unfolded from May to October 2011 in several
Greek cities (the first manifestations took place in 38 central squares in
different cities). The ‘movement of squares’ has been organized via calls
launched in the social media (Indymedia, Facebook) for meetings in
squares of large cities against the austerity policies. The calls were anony-
mous and stressed the spontaneous and pacific character of manifestations,
as well as the lack of any organic relationship with political parties and
trade unions. The manifestations in Athens and other cities hosted public
discussions between protesters which evolved rapidly into popular assem-
blies taking place on an everyday or weekly basis. At the peak of the
movement, one could find popular assemblies in forty squares of Athens
(Kavoulakos, forthcoming).
The gatherings of Syntagma have been the most emblematic due to

the centrality of the square and its location in vicinity with the Parliament.
The assembly of Syntagma played a coordinative role in relation with the
assemblies of other squares, as well as with the unions, political parties
and political organizations that called for manifestations in the same
area during the summer 2011. The occupiers attempted to transform
the Syntagma square in a center of a communitarian life based on self-
organization and solidarity. The procedures of the assembly have been
agreed after public discussions. Speakers were chosen by lottery and dis-
posed limited time to expose their ideas in order to ensure the maximum
of participation. Decisions were taken by majority voting of present
persons. In parallel with the popular assembly, committees were created
to work on specific thematic areas (economy, environment, gender, etc.)
and suggest propositions to the assembly. During the occupation, the
square hosted tents, a cuisine, ‘pharmacy’, a team of first aids, a radio
station and an internet site, all ran by the occupiers. It seems that the social
composition of the occupiers has been quite differentiated; the assembly
itself described participants as working people, unemployed, retired
and young people with different ideological starting-points (Kavoulakos,
forthcoming).
The manifestations in the squares of Athens and other Greek cities
opposed the implementation of the austerity policies induced by the bailout
agreement. The occupiers declared that they would stay to the Syntagma
square ‘until the government, the Troika, the banks and the memorandum
go away. The main positively formulated objective was to foster ‘direct
democracy’, a version of which was practiced on the square itself. Other
specific proposals were discussed and sometimes adopted by the assem-
bly, like the debt relief, the nationalization of the banks, the redistribution
of wealth, and so on (Kavoulakos, forthcoming).
The ‘movement of squares’ added to social mobilizations of the first two
years of the IMF-EU-ECB program the air of a spontaneous, wide move-
ment of anonymous people. It can be said that this movement has been
more menacing for the implementation of the austerity measures than the
mobilizations organized by unions, parties and political organizations to
the degree that the absence of an official leadership made it less control-
lable and more unpredictable. However, this movement has been inher-
ently characterized by a structural contradiction which determined its
limits: while the approval of the IMF-EU-ECB program by the Greek
government entailed the transfer of decision-making and policy-making
to a supranational level, the movement of squares had a place-bound char-
acter, in Jessop’s term (2005: 225). It focused on a ‘here and now’ political
solution and was organized around direct interaction of individuals and a
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248 Nicos Souliotis
re-appropriation of the urban public space through which the occupiers

attempted to promote and give visibility to an alternative way of demo-
cratic self-organization. But the movement had to deal with a policy-
making process that takes place at a socially remote, supranational level.
Indeed, the movement could exert pressure on the Greek government, but
not on supranational and international forces (IMF, EU, ECB) which are
not accountable to the Greek citizens.
In late July 2011 police forces dissolved the occupation of the Syntagma
square and removed the settlement, taking advantage of the reduction of
occupiers due to the beginning of summer holidays. Some attempts to
restore the popular assembly were made in September. Later, at the echo
of the movement of squares, spontaneous mass concentrations interrupted
and cancelled the manifestations of October 28 for the national celebration
of the country’s resistance to the Italian attack in the Second World War.
Under the pressure of the failure of the IMF-EU-ECB program and the
impression that the control over the domestic socio-political situation was
lost, the government resigned. Nevertheless, this ‘success’ has to be rela-
tivized. Under the pressures of the EU and the IMF, the new prime minis-
ter was the ex-president of the Bank of Greece and ex-vice-president of the
ECB, Loukas Papademos. The conservatives compromised and supported
the new government without any renegotiation of the bailout agreement.
The movement of squares itself did not recover under the form that had in
May–June 2011. The limits of the square movement pose the question of
the embeddedness of the city in a governance system that operates at the
EU and global level. From this vantage point we will examine the more
specific question of Athens’ urban policies.
Pro-Growth Policies in Athens
The accession of Greece to the EC/EU entailed a gradual transformation of

Athens’ urban policies. The productive base of the city changed, new
opportunities were created by the EU-financing and Athens’ urban policies
were oriented towards enhancing city competitiveness. Actually, the imple-
mentation of the IMF-EU-ECB program fosters aggressively the associa-
tion of urban growth with the attraction of FDI through privatizations. It
tends thus to introduce the city into a Europe-wide process of redistribution
of socioeconomic opportunities between national business elites.
The Emergence of an Internationalization Strategy for Athens

In late 1970s, before the accession of Greece to the EC, Athens was at a
turning point. After two decades of explosive increase, the population of
the city was stabilized to be reduced slightly in the early 1980s

(Kotzamanis, 1997). The oil crisis of the 1970s had struck the industrial
base of the city. At the same time, the rapid growth, in association with the
absence of substantial urban planning (Leontidou et al., 2007: 73–80), had
cumulated in the city environmental and social problems: poor transport
system, pollution and congestion, social imbalances and unequal spatial
distribution of urban infrastructure.
The socialist government of the early 1980s promoted a ‘decentraliza-
tion’ policy criticizing the excessive concentration of power and wealth in
the capital of the country in detriment of the periphery. Regarding
Athens the socialists fostered growth management policies. In 1985 they
enacted the Regulatory Plan of Athens which focused on stabilization
of the city’s population, neighborhood revitalization, return of housing in
the city center, preservation of architectural heritage and improvement of
social and physical infrastructures in working class areas.
This policy started to change during the 1980s under the double pres-
sure of the unification of the European market and the fading out of the
postwar developmental dynamic of the city. At the time, a part of intra-EC
interstate competition focused on the implementation of policies that could
mitigate the negative impact that the Single Market was expected to
produce for the less-developed areas. Greece requested in early 1980s the
implementation of specific programs to provide support to the agricultural
sector of the then Mediterranean EC member states (Greece, Italy, France)
in the perspective of the increase of competition from the accession
of Spain and Portugal to the Community (Leonardi, 2005: 46). This request
led in 1986 to the implementation of the Integrated Mediterranean
Programs (IMP). The IMP have been the precursor of the ‘cohesion’ and
‘regional policies’, which channeled significant financial resources to the
less developed countries of the EC for almost two decades (mainly through
the three Community Support Frameworks, 1989–2006). Under Delors
presidency, the European Commission promoted the cohesion/regional
policies as a means to reinforce its position within the European power
structure and to underpin the ‘federal’ character of the EC (Le Galès, 2002:
100). On the ground of these policies, the European Commission estab-
lished direct cooperation with subnational authorities for the allocation of
funds, partly bypassing the national governments (Le Galès, 2002: 100;
Leonardi, 2005: 35).
This grid of constraints (economic recession) and opportunities (avail-
ability of EU funds) pushed the Greek political and economic elites
towards investments that would enhance the competitiveness of the Greek
economy and it seemed that the locus for them could not be other than
Athens. The first indications of a policy change appeared in the mid-1980s
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250 Nicos Souliotis
when both the conservative mayor of the city and the socialist prime
minister stated that the developmental objective for Athens was its
transformation into an international center of services and culture
(Romanos, 2004: 154). In 1987, the central government announced the
construction of Athens’ metro and of a second airport in eastern Attica
(Spata). During 1988–90, Athens stood, unsuccessfully, as candidate city
for the organization of the 1996 Olympic Games. Nevertheless, Greek
political elites’ attitude vis-à-vis pro-growth policies remained ambivalent
for a decade. The socialists were still constrained by the anti-Athenian
pro-rural consensus which brought them in power in 1981. The political
system as a whole relied on clientelistic relations with medium and lower
strata organized around small land and real estate property (Maloutas,
2010). As an expression of these political alliances and dispositions,
the sums of the First and the Second Community Support Frameworks
(1989–93, 1994–99) were mainly directed to small scale projects, a
strategy that ensured their social diffusion (Economou, 1997; 2004).
Since the mid-1990s political and economic elites and academic experts
started to form a coalition over a more coherent developmental strategy for
Athens with focus on competitiveness. The Technical Chamber of Greece
(TCG), the Organization of Planning and Environmental Protection of
Athens (OPEPA) and members of the central government and the local
authorities of Attica took part after 1994 in a number of meetings and con-
ferences which examined the prospects of implementation of a metropoli-
tan government in the Athenian agglomeration and the investment in
infrastructures required to re-boost the city’s economy (for an overview
see Economou et al., 2001). In the late 1990s and early 2000s the turn
toward urban competitive strategies was codified in the terms of the ‘world
city’ literature in two influential research projects funded by the OPEPA
and the Ministry of Environment, Physical Planning and Public Works
(MEPPPW) (Economou et al., 2001; Leontidou-Gerardi, 2004). The
general lines of the new direction have been adopted by major policy texts
and plans, mainly the 1999 law on the Planning and the Implementation of
the 2004 Olympic Games and the Regional Operational Programs of Attica
(GSPA, 2006; 2007). The changes in the social structure of the city shaped
the conditions, if not for a consensus, at least for a tolerance vis-à-vis the
emerging competitive policies. The multiplication of university graduates,
the growth of liberal professions and the decline of the industrial activity
(Maloutas, 2010) led to the expansion of social strata which are more
attracted by private consumption than redistributive policies.
The rationale of the new pro-growth strategy for Athens, as it was put
forward in the above-mentioned policy and planning texts, may be
summarized as follows: The accession of Greece to the EC/EU and the
prospect of participation in the Euro area increased pressures on the Greek

economy and forced the country to seek ways to enhance its competitiveness.
Athens and, in a lesser extent, Thessalonica were the only sites where this
strategy could be effectively implemented as they concentrate the necessary
critical mass of population, wealth and infrastructures of the country.
Athens could claim an international role of ‘second rank’ in the Eastern
Mediterranean and a leading position especially in the post-communist
Balkans. Given the poor performance of the country in some sectors of the
‘new economy’ (especially technologies) the ‘international role’ of Athens
would be based on tourism, constructions, banking, insurances and health
services. Economy and international politics fueled an urban strategy that
aimed simultaneously at preventing the downgrading of Greece in the
unified Europe and at promoting some kind of regional hegemony in
Balkans.
The policy change was expressed par excellence in the allocation of the
sums of the Third Community Support Framework and in the preparation
of the 2004 Olympic Games. In the second half of the 1990s the central
government initiated a number of large-scale metropolitan projects setting
again in the agenda a number of ‘major works’ already proposed by the
conservatives in the late 1970s. They included the construction of a Ring
Road, the expansion of the metro system and the creation of tram lines, the
relocation of Athens International Airport and extended rehabilitation
works in the historical center. The projects have been implemented through
Public-Private Partnerships (with the exception of the rehabilitation of the
historical center) and supervised by quasi-private agencies owned and
controlled by the Ministry of Culture and the MEPPPW. The preparation
of the Olympic Games functioned as a catalyst for the completion of the
projects. It entailed also the implementation of large-scale sport venues
which were programmed to be converted into tourism and leisure poles
after the Games by private investors through long-term leases. In the days
before the sovereign debt crisis, Athens’ growth depended upon large-
scale investments implemented through formal and informal types of
cooperation between real estate and construction companies, banks and
the central government (Delladetsima, 2006).
Athens and the Current Privatizations Program

The sovereign debt crisis rendered in practice obsolete Athens’ inter-
nationalization strategy as both the state and the business elites that
promoted it are facing severe difficulties and are restricted to rather
survival strategies. The IMF-EU-ECB program fosters now a develop-
mental perspective for Athens which is based on FDI and a more
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252 Nicos Souliotis
aggressive privatizations package. This policy is characteristic of the

way that the political economy of the crisis entails a redistribution of
opportunities between national business elites in the EU.
One of the major legislative initiatives undertaken by the Greek govern-
ment after the agreement on the bailout program in May 2010 was the
promotion of an institutional framework which facilitates large-scale
investments. In November 2010 the Parliament adopted the law on
the ‘Acceleration and Transparency regarding the Realization of Strategic
Investments’. According to the explanatory report the objective was to
provide ‘a special, flexible, transparent, objective and efficient framework
of rules for the implementation of major public and private investments’
(for a detailed presentation see Souliotis and Kandylis, 2011). Presented
by the government under the not translated term ‘fast track’, the law intro-
duced a set of ‘exceptional’ processes which exempted ‘strategic invest-
ments’ in infrastructures and networks in crucial sectors (industry, energy,
tourism, transport, communications, health services, waste management,
high-end technology) from established regulations. Exemptions concerned
issues such as land expropriation, environmental qualifications and spatial
planning regulations that could cause limitations and delays in the licens-
ing and the implementation of the investment. Furthermore, in July
2011 the Greek government established the Hellenic Republic Asset
Development Fund (HRADF), a state-owned SA, to which it assigned
absolute authority on the privatization of a wide range of public infrastruc-
tures, public corporate monopolies and private land properties of the
public sector. These measures, imposed by the crisis politics, extend and
radicalize the logic of procedures that characterized several large-scale
urban development projects in European cities during the 1990s and early
2000s (Swyngedouw et al., 2002; Brenner, 2004: 216), including the 2004
Athens Olympic Games (Delladetsima, 2003).
During the same period, the Greek government started to come in
contact with foreign governments and investors in the perspective of the
realization of investments in the country. A significant part of them con-
cerned Athens. In September 2010 the Greek government signed a coop-
eration memorandum with Qatar Investment Authority (QIA), the Qatar’s
state fund, on the realization of an investment program in Greece (Tsitsas,
2010). This included energy production, gold mining and the redevelop-
ment of the old airport of Athens, a large coastal area of 600 Ha in the
Hellinikon suburb. The old airport area would host a complex including a
marina for luxury yachts, a hotel, a convention center, a casino and a small
private airport. In February 2011 the government transferred the control
over the area to a Special Purpose Company, Hellinikon SA, and in
July 2011 to the HRADF. The procedure ran, however, into difficulties due
to ownership status problems and the opposition of the Hellinikon inhabit-

ants and local authorities who advocated the conversion of the area into a
green park. After May 2011 negotiations with the QIA almost froze, as a
result of European Commission’s intervention, which opposed the direct
assignment of the project and asked for an open call for bids. In December
2011 the HRDAF launched an invitation for an expression of interest to
which responded nine investors. Among the latter, four (the QIA-controlled
Qatari Diar Estate Investment Company, the Israeli Elbit Cochin Ltd, the
British London & Regional Properties and the Greek Lamda Development)
have been selected by the HRDAF to participate to the second phase of the
sale process which was expected to be completed in July 2013 (Mandravelis,
2012).
In October 2010 the Greek government started negotiations with Cosco,
a shipping and logistics company controlled by the Chinese state, on a
150 million euros investment for the construction of a major logistics
center in a 588,000 sq. meters area in Western Attica (Bardounias, 2010).
Cosco was already present in the Piraeus port since 2009, when it acquired
through long-term leasing the control of one of its major piers. In June
2010 the GAIAOSE (the of Hellenic Railways subsidiary which owes the
land that will host the project) launched a public international bid for the
logistics center. The Chinese multinational was the main interested group
and bargaining with the Greek government lasted about a year. A basic
request of the government was the participation of the Hellenic Railways
Organisation into the joint venture which would undertake the construc-
tion of the center. Cosco was demanding the upgrading of the railway con-
nection of the Piraeus port and was fostering the creation of a zone of
light manufacturing and of a zone of free trade. The latter though, once
again, were in conflict with the EU law (Mandravelis, 2011). The talks
have been fruitless and GAIAOSE declared the end of bidding in July
2011. A new call for interest has been launched in March 2012. Only two
Greek companies participated and the new call ended also without result
in April 2012.
A significant German investment took place in June 2011, when the
Deutsche Telekom (DT) acquired 10 percent of stocks of the Hellenic
Organization of Telecommunications (HOT). DT made thus use of a pro-
vision included in a 2008 agreement according to which it had acquired
the 30 percent of the HOT. Since the spring 2010, German companies
expressed interest for investments in infrastructures in Athens (Ifantis,
2011). The German Hochtief envisaged selling its stocks of the International
Airport of Athens, and another German company, Frankfurt Port, expressed
its willing to acquire them. The railways and logistics company DB
Schrenker participated in the bid for the logistics center in Attica. This
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254 Nicos Souliotis
mobility was a part of a larger interest of the German government and

German companies for investments in the production of solar power, air-
ports and construction of national routes in Greece. In July and September
2011 the ministers of Finance and Development and businessmen from the
two countries realized meetings which explored the possibilities for invest-
ments in Greece by German companies (Charontakis, 2011). The most
important project discussed was a large-scale investment in solar power
infrastructures aiming at exporting energy to Germany.
Athens and Local Government Reforms
Since the mid 1980s, the Greek governments implemented successive, sig-
nificant reforms of the local government system which were inscribed into
a more general, European trend. During the same period several European
countries promoted the political strengthening of regions and cities through
the devolution of responsibilities from the central government, the estab-
lishment of diverse forms of metropolitan government and the diffusion of
the model of directly elected major (Lefèvre, 2010; Le Galès, 2002:
323–49; Borraz and John, 2004; Brenner, 2004: 219–27). These reforms
aimed at facilitating the participation of cities and regions to the European
Commission-controlled cohesion and regional programs.
Within this framework, Greece implemented in 1986 ‘administrative’
regions, adding a fourth level to the local administration system which
included also prefectures (nomarchies), municipalities (demoi) and com-
munities (koinotites). In 1997 an extended reform of the local administra-
tion system (known as ‘Kapodistrias plan’) provided for the abolition
of communities, which were merged in a relatively limited number of
municipalities, and for the establishment of the elected prefect. In early
2000s, Greece was the only European state which opted for the fusions
of municipalities in order to quickly ‘catch-up’ with the evolution of local
governments in Europe and rationalize its public administration (Jouve,
2005: 287).
In June 2010 a new reform (‘Kallikratis plan’) reduced further the
number of municipalities (from 1,034 to 325), abolished the former second
level (the 52 prefectures) and enacted the elected Head and Council of the
13 regions. The first level of territorial administration (municipalities)
acquired increased responsibilities in low level social policies (education
and health) and in environmental policies. The second level of administra-
tion (regions) becomes mainly responsible for the promotion of develop-
ment policies on a spatial basis. The central state reserves the role of
supervision and coordination in policy sectors of nation-wide importance
(such as spatial planning and immigration) through seven administrations
controlled by the Ministry of Interior. The Kallikratis plan institutional-

ized for the first time the metropolitan level of administration in Athens
and Thessalonica, by enhancing the responsibilities of the respective
Regions in transports, environment, spatial planning and civil protection.
Overall, the reform aimed explicitly at adjusting the Greek state structure
to the EU multi-level governance system by creating the pertinent subna-
tional political authorities (Ministry of Interior, 2010).
Despite the successive reforms of the local administration system, cen-
tralism continued to characterize Athens’ urban policies. For several years,
even in the extended 1997 reform, the establishment of a metropolitan
government in the Athenian agglomeration was avoided. The central gov-
ernment maintained complete control over major choices concerning
urban development in Athens (implementation of new infrastructures,
urban regeneration projects, bidding and organization of the Olympic
Games). New institutional tools and processes rather reinforced than
weakened centralism. The introduction of quasi-private agencies into
urban policies did not increase the participation of private actors but
offered one more means for the implementation of policies decided by the
central government, dispensing the latter with confronting directly citi-
zens’ opposition. The ‘exceptional’ legal framework enacted for the facili-
tation of the realization of the Olympic Games works exempted the central
government from legal restrictions related to urban and environmental
regulations. Similarly, the programs of urban redevelopment launched by
the European Commission did not lead to a more decisive role of local
governments and private stakeholders in urban development. Their imple-
mentation at the domestic level remained controlled by the Greek central
state (Chorianopoulos, 2010; Chorianopoulos and Iosifides, 2006). Thus
Athens’ urban policies had during the previous 15 years a highly contra-
dictive character: while Greece was the only European state in which the
regional politics of the EU have had such a strong impact on its urban
institutions (Jouve, 2005: 287), Athens’ urban policies remained in prac-
tice determined by traditional centralism.
The implementation of the IMF-EU-ECB program reconfirms the power
of the Greek central state as well as of the intergovernmental politics,
which are the main political mechanism of the management of the crisis,
against the political autonomy of the city. Negotiations on foreign invest-
ments and privatizations in Athens provide for strong indices in this direc-
tion to the degree that they are conducted exclusively by the central
government with no participation of the recently implemented metropoli-
tan government of Athens.
Furthermore, the Kallikratis plan fosters the transfer of austerity poli-
cies to the local administration system. The devolution of responsibilities
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256 Nicos Souliotis
to the municipalities and the regions has not been accompanied by the
transfer of the necessary financial resources. What is more, the Kallikratis
plan imposes to the municipalities with less than 300,000 inhabitants –
which are the large majority in the country – restrictions regarding the
number of public bodies that they can establish. It also provides for the
obligation of local authorities to keep balanced budgets. Municipalities
and regions that suffer excess borrowing and deficits may follow local
stabilization programs under the supervision of the Ministry of Interior.
These programs give access to borrowing from a public fund supervised
by the Ministry of Finance imposing at the same time the implementation
of fiscal adjustment policies. The participation in such a program may be
requested by the municipal authorities or decided unilaterally by the
services of the Ministry of Interior. Thus, the IMF-EU-ECB bailout agree-
ment is used at the domestic level as model to reshape the fiscal relation-
ships between the Greek central state and the local authorities towards the
institutionalization of austerity policies.
The Crisis and the Intra-EU Intergovernmental Competition
When the sovereign debt crisis burst, EU’s institutional structure lacked
the mechanisms to face it, mainly because the ECB is not allowed to play
the role of the lender of last resort for national governments. The manage-
ment of the crisis took primarily the character of intergovernmental bar-
gaining, as the necessary financial resources for solving the crisis were to
be found in the national budgets. Intergovernmental tests of strength
became the core mechanism of EU policy-making and politics of the crisis
and their outcomes have been imposed to lower institutional levels (indi-
vidual national governments and subnational authorities) as well as to the
legislative power – this is what Habermas recently called ‘executive
federalism’ (Habermas, 2012).
Intergovernmental balance of power was shaped on the grounds of pre-
vious national economic performances within the unified European market
and the single currency area, debtor states occupying dominated positions
and states in surpluses occupying dominant ones. Since the early stages of
the sovereign debt crisis in 2010, countries in surplus of the Central and
Northern Europe (the Netherlands, Finland, Austria) formed, under the
guidance of Germany, a block which adopted common political strategies
and managed to lead the process. The involvement of the IMF in the
bailout programs underlined these strategies, transferring in the European
periphery the neoliberal recipes that were applied in the Asian crises in late
1990s (Krugman, 2009). Germany and its allies defended also fiercely
ECB’s independence and rejected central bank funding of governments.
On the other hand, the countries in deficit (Greece, Portugal, Ireland,

Spain, Italy) applied individual defending strategies attempting to avoid
to get at the epicenter of the crisis. The implementation of bailout pro-
grams entailed the control of major public policy domains (fiscal policy,
labor market, pension system) by an international power figuration which
included the EU and the IMF.
Quite quickly the management of the crisis exceeded the implementa-
tion of stabilization programs and turned into an institution-building
process. The implementation of bailout programs has been associated with
the creation of new European financial stability mechanisms (EFSF, ESM).
On March 2012 the EU member states (with the exception of Czech
Republic and UK) adopted an agreement fostering budgetary discipline,
called the Treaty on Stability, Coordination and Governance (TSCG),
which has been advocated by the German and the French governments.
The TSCG forecasts (Blizkovsky, 2012) that the general government’s
budgets of participating countries shall be balanced or in surplus and the
annual structural deficit must not exceed 0.5 percent. The rule of a bal-
anced budget is intended to be incorporated into national legislation at
constitutional or equivalent level. The European Court of Justice, on its
own initiative or at the request from the European Commission or a TSCG
member, will be able to fine a country that does not comply with the incor-
poration of the balanced budget rule into national legislation with a penalty
up to 0.1 percent of GDP. Through the new institutions – especially through
the TSCG – the states adopted enhanced economic policies coordination.
However, contrarily to the ‘open method’ coordination which is based on
voluntary sharing of best practices (the main policy-making innovation in
the EU the last 15 years, Jessop, 2005: 229; 2008: 205–6), the TSCG fore-
casts semi-automatic sanctions for the deviating countries and thus imple-
ments a rather constrained mode of coordination. What is more, the
agreement on the TSCG took place under the weight of the possible col-
lapse of the debtor states and of the ‘contagion’ of the crisis to more coun-
tries. The decision-making had a rather asymmetrical than consensual
character and the means of pressure of dominant states were particularly
forceful (the vetoing capacity of indebted states being in practice can-
celled). The overall institution-building process tended to transcribe the
crisis-induced balance of economic power between states to the political-
institutional field.
The policies fostered by the coalition of countries in surplus have no a
single ideological root and are characteristic of the complexity of European
public policies (Jessop, 2008: 212–7). The reluctance to allow central
bank’s interventionism draws upon the tradition of Bundesbank’s indepen-
dence which was established in the post-war Germany in order to prevent
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258 Nicos Souliotis
hyperinflation crises. Bundesbank has been the model for the design of the
ECB which constituted one of the pillars of the Eurozone as it was launched
in 1999 (Arestis et al., 2001: 1). The opening of ‘regulated’ professions is
inscribed in the tradition of economic liberalization, largely inspired from
German odroliberalism, that characterized the EC already since the Treaty
of Rome and has been reinforced and elaborated in the Treaties of the 1980s
and 1990s (Joerges and Rödl, 2004: 8; Sbragia, 2000: 224 cited in Jessop,
2008: 214). The structural reforms in the labor markets and the pension
system, the retrenchment of public finance and the privatizations program
are inscribed in the neoliberal policies emphasizing supply-side competi-
tiveness that have been adopted by the EU mainly since the Maastricht
Treaty in 1993 (Jessop, 2008: 213, Arestis et al., 2001: 30–1).
The strategy of Germany and its allies may be interpreted as the outcome
of the meeting of dominant EU economic ideologies with a pragmatic
interest to preserve both the German model of growth and the overall
stability of the European financial system. Germany could not accept
the loosening of fiscal and wage formation policies as means to solve the
crisis, given that its model of economic growth was based, especially since
the late 1990s, on exports, fiscal discipline and stability of wage cost
(Lapavitsas et al., 2010). On the contrary, the bailout programs and the
TSCG diffused Europe-wide the basic principles of the German model.
The bailout programs provided also the European banks (mainly French,
German and Greek) with the necessary time to reduce exposure to the
Greek debt by selling bonds in the secondary market (Wilson, 2011) and
to be better prepared to participate in the restructuring of the Greek debt
which took place in February 2012.
The restructuring of the debt wrote off a large part of the debt held by the
private sector, but at the same time Greece received a new loan from
European countries and the IMF. This process rendered the Greek debt
somewhat more sustainable and transformed it from a privately held debt to
a principally interstate one (after the implementation of the bailout program
decided in February 2012, more than two-thirds of the Greek sovereign
debt are held by other EU member states). It also largely disencumbered the
European banking system of the ‘toxic’ Greek debt. Meanwhile, the German
government adopted a highly pragmatic attitude vis-à-vis domestic public
opinion: While it capitalized on Germans’ opposition to aid for Greece
(Harriet, 2011) in order to reject more ‘federal’ solutions to the crisis (issu-
ance of Euro-bond, central bank financing of governments), it has promoted
a transfer of risk linked to the peripheral debt to the German and other
European tax-payers through the bailout programs.
Last, Germany and the governments of other countries in surplus
tolerated some forms of ECB interventionism in financial markets: under
Jean-Claude Trichet’s presidency, the ECB began open market operations
buying government debt securities to contain the borrowing cost for coun-
tries under pressure. Under Mario Draghi, Trichet’s successor since
November 2011, the ECB launched in December 2011 and February 2012
two three-year loan programs to European banks at the cheap interest of
1 percent, of an overall amount of 1tn euros. Banks could use liquidity to
buy bonds of their governments, repair their own balance sheets and
bolster economic activity by lending businesses.
While the austerity policies prevailed clearly during the first two years
of the crisis, the idea to use more Keynesian and ‘federal’ tools gained
gradually ground, especially since the implementation of the bailout pro-
grams in Greece, Ireland and Portugal faced severe difficulties. Giulio
Tremonti, the Italian Economics Minister, and Jean-Claude Junker, the
Luxembourg Prime Minister and president of ECOFIN, proposed in
December 2010 the emission of Eurobonds by a European Debt Agency
and up to the limit of 40 percent of GDP of the EU (Tremonti and Juncker,
2010). Jose Manuel Barroso, head of the European Commission, adopted
the Eurobonds idea at a briefing in November 2011 as a complement to
public finance discipline that could foster economic governance integra-
tion and bring down yields for the countries under pressure (Telegraph,
2011). The German government and its allies objected that the debt
mutualisation could function as counter-motif for the implementation of
restructuring policies in the debtor countries and would spread the cost of
the crisis to the tax-payers of countries with healthy public finances.
However, proposals in the direction of some loosening of fiscal disci-
pline and pro-growth measures continued to gain some visibility. During
the French elections campaign in April 2012, the socialist candidate
François Hollande criticized the German government’s attitude and advo-
cated the issuance of common European project bonds, an increase in
investment by the European Investment Bank and the introduction of a
financial transaction tax (Carnegy, 2012). Backed especially by the new
French government, Spain achieved a direct recapitalisation of its banks
by the ESM, without adding the rescue funds to Spanish public debt. In
September 2012 the European Commission returned with a proposal for
unified bank supervision in the Euro area under the auspices of the
European Central Bank which could contribute to preventing bank crises,
as well as to attenuating creditor countries’ hesitations on direct bank
recapitalisation (Economist, 2012).
A Word about Theory: The Crisis and the Question of Scale in

the EU
After a period of abeyance in 1970s and early 1980s, the European integra-
tion knew a new impetus from the mid-1980s and on (Single European
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260 Nicos Souliotis
Act, Maastricht Treaty, Lisbon Treaty) which involved an expansion of the

powers of the EU and an increase of resources directed by the EU to
regional policy initiatives (John, 2000: 890). Within the new political and
institutional framework it seemed that the subnational authorities’ (regions
and cities) political power has been particularly enhanced. They acquired
the possibility to lodge appeals against states decisions through the
European Court of Justice; to develop horizontal transnational networks;
to accumulate resources and expertise; and to represent and defend the
interests of their citizens independently of the state both formally (through
representative organizations) and informally (through lobbying cam-
paigns) (Le Galès, 2002: 98–9; John, 2000). The EU itself claimed explic-
itly that the variable forms of partnership between the supranational
authorities, the member states, the regional and local levels are a basic
component of its overall governance system (Lisbon European Council
statement in 2000 cited in Jessop, 2008: 220).
The ‘multi-level governance’ model (Marks et al., 1996, Bache and
Flinders, 2004) has been arguably the most influential theorization of
the mutation of the relations between supranational, national and sub-
national authorities in the EU during the late 1980s and the 1990s. This
model has had a political importance as well to the degree that it inspired
local government reforms (as in the case of the Kallikratis reform in
Greece). Marks and other theorists of multilevel governance see the EU as
a political system where authority is shared by actors at different levels
(Marks et al., 1996: 346). State executives remain important in policy-
making processes, but they dispose no more monopolistic powers and are
one among a variety of actors. Through various formal and informal pro-
cesses (meetings, committees, networks, etc.) the supranational (mostly
the European Commission) and the subnational (regions, cities) institu-
tions, as well as non-state actors (businesses, NGOs, etc.), may interact
bypassing the national governments and thus exert independent influence
on policy-making (Marks et al., 1996: 346, 356). Policy-making in the EU
is rather non-hierarchical and collaborative and is characterized by mutual
dependence, complementary functions and overlapping competencies
between institutions of different levels (Marks et al., 1996: 372). Supra-
national actors (especially the European Commission) play a significant
role in the policy-making processes, largely through subtle influence and
consensus crafting rather than sanction (Marks et al. 1996: 366; Bache and
Flinders, 2004: 3).
The idea that European cities are now embedded in political structures
where the authority is diffused vertically and horizontally became central
in urban studies and fuelled investigations in new directions. Cities seemed
acquiring political power in a way comparable to the urban condition of
the age before national states and it was posed the question whether we are
witnessing the formation of a ‘Europe of cities’ (Harding, 1997). In a neo-
Weberian perspective, Le Galès (2002) argued that the emergence of a
political system in the EU where no player possesses a monopoly of rule-
production created a new political potential for cities transforming them
into ‘collective actors’. In order to examine the vertical relations between
city authorities and civil society, urban scholars (Basset, 1996; Harding,
1997; Kantor et al., 1997; Stoker and Mosseberger, 1994; Mossberger and
Stoker, 2001) tested in European cities US-originated models, especially
the urban regime theory (Stone, 1993). This approach allowed European
scholars to better conceptualize the increase of business elites’ influence
on urban policy and the implementation of pro-growth strategies by the
European cities (often financed by the EU) as a response to globalization
pressures (Mosseberger and Stoker, 2001: 819; Harding, 1997: 308). Other
scholars examined the diffusion of the model of the directly elected mayor
in countries where it was absent or only in part applied (Borraz and John,
2004), the establishment of transnational networks of cities, largely within
the framework of EU programs (Le Galès, 2002: 105–8; Heinelt and
Niederhafner, 2008) and the implementation of unitary administration in
metropolitan areas (Lefèvre, 2010).
The assumption that the cities (and the regions) enjoy a significantly
enhanced political power and are involved into a redistribution of political
authority within the EU raised mainly three criticisms.
First, it was argued that central governments remained powerful.
National governments act as ‘gatekeepers’ on European public policy
institutions (John, 2000: 882) and maintain the initiative to reform, or not,
the political structures of the cities according to their interests (as it is the
case of the establishment of metropolitan governments in capital cities,
Jouve, 2005: 287; Lefèvre, 2010). Urban scholars that tested the ‘urban
regimes’ model in European cities, stressed that a major difference between
Europe and the United States was that the national authorities and the
public sector still play a more important role in urban policies in Europe
(Basset, 1996: 550; Harding, 1997: 308–9; Mosseberger and Stoker, 2001:
821).
A second point of criticism has been that the transition to multilevel
governance and the political empowerment of cities are far from being
linear and uniform processes. They have rather a variegated character and
are contingent upon different national and local contexts. The ability of
cities to take advantage and influence EU policies and to develop partner-
ships with public authorities of different levels and the civil society depend
highly upon conditions like the existence of bureaucratized and profes-
sionalized local authorities or the dominance of political clientelism, the
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262 Nicos Souliotis
unitary or federal state structures, traditions of centralism or decentraliza-

tion, the degree of development of the civil society and so on (John, 2000:
883; Jouve, 2005: 285–90). In this direction, scholars proposed different
typologies to seize context-dependent variations of urban governance in
European cities (Stoker and Mosseberger, 1994; Kantor et al., 1997; Pierre,
2005).
Last, it has been argued that the ‘collaborative’ urban governance
schemes (mainly the institution of ‘public-private partnerships’) of the
1990s–2000s has not benefited uniformly the different segments of civil
society but involved mainly the fusion of economic, political and technical
elites, having thus a socially highly exclusive character (Swyngedouw
et al., 2005; Jouve, 2005: 290–2).
The crisis politics challenge further the vertical diffusion of authority
within the EU. In contrast with policy and institutional innovations of the
last 25 years (cohesion and regional policies, open method coordination),
they tend to restore a more hierarchical relation between levels of gover-
nance, lead to power concentration at the supranational level and imple-
ment forms of a ‘constrained’ or ‘asymmetrical’ coordination between EU
member states. These dynamics call for a reconsideration of relations
between levels in the EU around an issue that has been neglected by the
multilevel governance theory with its emphasis on vertical interdepen-
dence and joint-decision: the question of how interscalar relations are
shaped by political power dynamics.
The most seminal elaborations in this direction are to be found the
‘political economy of scale’ literature (Swyngedouw, 1997; Peck, 2002;
Brenner, 2004; Jessop, 2005). Codifying his political-economic concep-
tion of scale, Peck (2002: 340–1) insisted on the processual, relational and
power-centered character of scales. Following Swyngedouw (1997), he
stressed that what matters is not scales themselves but the underlying
social processes (Peck, 2002: 339–40). Scales must be understood as an
‘object of and a medium for political-economic struggles’ (Peck, 2002:
340). Through the latter the social functions (labor regulation, policing of
financial markets, welfare arrangements and so on) may change scale
(being upscaled or downscaled). This process does not constitute merely a
redistribution of pre-given social functions to some fixed ‘horizontal slices
of space’, but a dynamic formation and transformation of both social func-
tions and scales (Peck, 2002: 339–40).
While this way to put the question of scale allow to link the study of
scale with a wide range of social structures and power relations, the
above-mentioned theorists tend to focus somewhat narrowly on the capital/
labor relation, its regulation (labor regulation, welfare state) and the
associated socio-political struggles (party politics, social movements).
Their researches relate to the processes of capitalist regulation rescaling

(entrepreneurial city, local workfarist policy experimentations, interscalar
policy transfer). As far as it concerns the EU, they tend to see it as a
supranational institution among others (NAFTA, APEC, World Bank, etc.)
whose emergence is a part of a crucial (neoliberal) capital accumulation
strategy involving state rescaling (Brenner, 1999: 442): in a process
famously termed by Swyngedouw (1997) as ‘glocalization’, state powers
are transferred upward to supranational agencies and devolved downwards
toward subnational authorities, while the national state maintains important
coordinative competencies (Brenner, 1999: 439; Jessop, 2008: 210).
Nevertheless, as we saw in the previous part of this chapter, the transfer-
ring of competencies in a number of public policy domains (financial
policy, labor market, pension system) upward toward the supranational
level through the bailout programs and the TSCG agreement passed not
only through struggles between classes, but also between national govern-
ments. The crisis politics unfold on the grounds of a mutual mediation of
class and interstate tensions. Adapting Peck’s analytical framework (2002:
337) to this proposition, we can argue that the scalar fix of several political
competencies at the supranational level during the crisis reflects the hege-
monic power of countries in surplus and their business elites. The transfor-
mation in power relations between states and (national) classes through
the excessive debt accumulation in a number of countries results now in a
shift of scale relationships. Powerful actors (national governments and
business elites) ‘jump’ scale in order to acquire direct control over the
assets of national and urban space of debtor countries. Powerful actors
thus seek to an optimal positioning within the process of distribution of
both uncertainties (i.e., the exposure of banks to the Greek sovereign debt)
and opportunities (i.e., privatizations programs in debtor countries)
induced by the crisis. The use of state power to foster the interests of
national business elites in the European environment challenges the argu-
ment that the further integration of the EU economic governance reflects a
wider process of ‘formation of a transnational capitalist class concerned
with the conditions for capital accumulation on a global scale’ (Jessop,
2008: 216). In fact, if such a transnational capitalist class emerges, this
process involves a nation-state–mediated competition between national
capitalist classes which leads to the destruction of a part of business elites
of debtor countries.
These remarks call us to consider interstate relations as a basic condition
of the formation of statehood, including relations between scales or levels.
Prominent state historians and sociologists, even if they were not
particularly concerned with the question of scale, provided some valuable
observations in this direction. Tilly (1990) argued that the making and
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264 Nicos Souliotis
prevalence of the centralized, hierarchical, national state in Europe have

been historically associated with its effectiveness in war conflicts against
other types of state (empires, city-states, etc.). According to Mann, the
geopolitical concern to prevent a third devastating war in Europe after the
Second World War fuelled the attempt to create an association of nation-
states, one characteristic of which is a more uniform distribution of power
between central and local governments (Mann, 1997: 486). Anderson
argued similarly that the pacification of relations between nation-states in
Europe enabled states to relax domestic coercion, allowing decentralization
and territorial differentiation processes (Anderson, 1994, cited in Le Galès,
2002: 88).
The intensification of intergovernmental political-economic competi-
tion during the crisis opposes the trend to establish non-hierarchical rela-
tions between scales within the EU. However, it would be oversimplifying
to conclude that the crisis politics entail a mere return of past patterns of
intergovernmental policy-making. The crisis politics and the resulting
institution-building are more than a confrontation of national interests
or a strategy of national executives (heads of states or governments) to
strengthen their position vis-à-vis domestic opposition through interna-
tional cooperation (Moravcsik, 1994). On the contrary, following Jessop
(2008: 216–7), we have to see the intra-EU intergovernmental tensions
and cooperation as a core mechanism of global crisis politics which
involve international organizations (IMF), interest groups (IIF), the capital
markets (rating agencies, banks, hedge funds) and informal intergovern-
mental bodies (G20). If the crisis entails some kind of return of European,
pacified intergovernmental bargaining, at the same time it gives a new
impetus to its integration into a wider, changing, global governance system
(Jessop, 2008: 216–7).
Conclusion
The political dynamics of the crisis pose emphatically the question of the
embeddedness of Athens’ urban policies within the intra-EU intergovern-
mental politics and the associated institutional transformation of the EU.
The Kallikratis local reform is inscribed in the pre-crisis trend of state re-
scaling within the framework of the European integration. Nevertheless,
as the reform was implemented during the crisis, it was used to promote
austerity policies and state retrenchment, while the political empowerment
of regional and urban authorities has been partly cancelled by the EU level
policies and politics. Along with the reform of the public administration,
health, education and pensions system (mergers of public administrative
departments, hospitals, funds, schools and universities), the local reform is
a part of a still evolving project of a radical reduction of general govern-

ment’s primary expenditure from around 49 percent in 2009 to around
36 percent in 2020 (IMF, 2012: 93). Moreover, the privatization program,
the policy for the attraction of FDI and the implementation of the special
account for the repayment of the Greek sovereign debt entail a direct sub-
ordination of the socioeconomic assets located in the urban and national
space to the EU level politics bypassing subnational political institutions.
The politics of the sovereign debt crisis restore a more hierarchical rela-
tion between scales within the EU than it is assumed in multilevel gover-
nance theory. The lack of monopolistic powers and the mutual dependence
of different institutional levels prevail in several specific policy areas, but
when the question comes for policy issues of systemic importance, as
those associated with the sovereign debt crisis, then the supranational
scale takes clearly the lead. This entails a top-down policy-making and
implementation, while multilevel governance theorists were rather fasci-
nated by the attenuation of older scalar hierarchies, characteristically
expressed in the ability of the subnational authorities to cooperate directly
with the supranational ones.
The new element of the last two years is that the destiny of the city is not
shaped by local or even national elites who attempt to deal with the con-
straints and the opportunities of globalization, but by a complex and evolv-
ing supranational power figuration at the heart of which we find intra-EU
interstate relations. One could argue that the effects of the crisis politics
and policies could prove limited and impermanent as the majority of EU
member states are not under stabilization programs and those which are
could be able to return to ‘normal’ policy-making procedures in a few
years. However, there are indices of a deeper change in interstate relations
which, although they remain typically based on equality, become in prac-
tice much more asymmetrical as a result of unequal sovereign debt burdens.
The bailout programs establish in the medium-term, for the first time, a
debtor–creditor relation between Eurozone member states. Contrarily to
soft law mechanisms like the ‘open method of coordination’, the TSCG
and the monitoring of the implementation of the IMF-EU-ECB austerity
programs have a clearly coercive character. The new political and eco-
nomic reality alters the content of what ‘partnership’ relations between EU
member states may mean.
In early 2013 the crisis is still evolving and nobody can foresee its
outcome. However, as far as the crisis entails further integration of
economic governance, it seems that the city, and especially the city of the
debtor countries of the European periphery, will have to deal more and
more with decision-making procedures which are located at the, almost
unreachable by non-elite citizens, level of EU and global politics. Yet,
www.Ebook777.com
266 Nicos Souliotis
urban realities and inherent contradictions of the EU governance system

may permit some hope about a policy change. In the Greek elections of
May 6, the two major parties of the country lost around 60 percent of their
2009 votes, a significant part of which has been transferred to the radical
left. The key lesson which can be drawn from this evolution is that the
pressure exerted by a supranational power figuration over a domestic
political system may simply lead the latter to collapse. The upscaling of
political competencies towards the supranational level without further
integration of ‘federal’ representative political institutions means less
democracy and dissolves the relations of trust and expression between the
national electorate and the domestic political parties. It seems that the
movement of squares, despite its inability to endure and to influence
decisively policy-making procedures, played a catalytic role in this process
of political change: the spontaneous mobilization was an experience of
collective empowerment which gave a more definitive character to the
disengagement of voters from the dominant political parties and opened
the way, probably, for more radical political forces which can contribute to
a wider change of power balance within the EU.
Acknowledgements
This article benefited from an anonymous reviewer’s and, especially,

Kuniko Fujita’s valuable comments.
Notes
1 Data on years 2010–11 are not available.

2 The following description of the ‘movement of squares’ is based on Kavoulakos,
forthcoming.
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9
Globalization and Urban Insecurity:
Comparative Perspectives
Sophie Body-Gendrot
In most countries, a growing disenchantment with financial domination

over economic and political governance and the indebted states’ choice of
imposing policies of austerity in order to cut social expenditures, while
rescuing the banks, has been a trigger to indignant movements expressed
visibly in public space.1 A growing concern about a possible global pan-
demic of unrest has been publicly expressed by the US director of national
intelligence as well as by the Economist Intelligence Unit (Brenner et al.,
2009: 176). Unrest visibly displayed in public space started with the Arab
spring, then reached Madrid, Tel-Aviv, London, New York, and then over
five hundred North American and Latin American cities and African and
Asian cities. It was no longer possible for political elites, submitted to
voters’ approval, to ignore the social question, relabelled as the urban
question, and to minimize these visible disorders, with their contagious
effects. The decried banking practices, the outside corporate profits and
the wide divide between the richest categories and the rest of the popula-
tion do bring along issues of conflicts and unrest. Capitalist cities are
‘arenas in which the conflicts and contradictions associated with histori-
cally and geographically specific accumulation strategies are expressed
and fought out’ and where alternatives are formulated (Brenner, Marcuse,
Meyer, 2009: 176).
Globalization – the interconnection of mass communication, finance,
knowledge institutions, administration and force in a power network –
yields an agreed view of the world for a lot of decision-makers in the finan-
cial, economic and political spheres of these world-class cities. Global
dynamics generate jobs, profits, assets and power leadership and although
inequalities loom large between the advanced economic and financial
sectors and the backward-looking sector of cities, as long as there is profit
for everyone, little dissent is heard. But, after the sub-prime crisis in the
US cascaded into other crises, including that of sovereign debts, socio-
economic problems kept piling up and could not be ignored. On the one
hand, these developments maximize the profits of a privileged stratum,
evolving in a fragile and unstable context. Highly creative, the influence of
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272 Sophie Body-Gendrot
the financial sector is exerted on numerous economic sectors (real estate,

land ownership, health), with a goal of profit maximizing. On the other
hand, populations whose skills do not match the new requirements of the
global financial and economic cycles or who do not have access to the
appropriate spheres or who cannot adjust to change – the ‘useless normal’,
unfit or redundant – are set aside, ‘downgraded’, in a logic of expulsion.
The decline of stable job opportunities in large cities has upset the
uneven balance in the standards of living of national residents, immigrants
and naturalized minorities. More and more members of the middle classes
experience ‘economic insecurity’ and downward mobility (the rate of
joblessness reached 22.8 per cent in Spain and 18 per cent in Greece in
2011) (Body-Gendrot, Garcia, Mingione, 2012). Middle-aged employees
underwent a loss in wages and in pension rights. Prices went up and bank
deposits down. Fear of not finding a job when jobs become scarce, housing
expensive, benefits less generous and credit hard to get is then wide-
spread, especially for debt-laden graduate students. Global insecurities do
worm their way into people’s everyday life. But, while globalization
favours competitiveness and winner-take-all attitudes via flows of images,
information and communication, our point is that it is not seeds of
revolution and rosy futures that such context breeds but rather, forms
of resistance and a sense of solidarity with contagious effects borne by
city space.
‘Urban theory of this kind is contested terrain’ (Judd, 2011:16). There
are indeed theoretical limitations at interpreting global capitalism changes
as causes of local unrest. Cities are diverse and contradictory. They are
‘composites of many moving parts and tiny enclaves (nestled) within
larger patterns’ (Abu-Lughod, 2011: 23). In some places, anger at govern-
mental inaction or compromise with global forces generates mobilizations
of empowered people; in others, elites’ non-decision-making is a preferred
option and the possible occurrence of conflicts and of urban violence is
deliberately ignored. What matters is the context allowing or not mobiliz-
ations and the formulation of alternative strategies. Cities are ‘interactional
systems of local actors whose behaviour, in turn, is shaped by the past,
by opportunity structures afforded within larger national and even global
conditions and constrained by legal and economic forces’ (Abu-Lughod,
2011: 26). This formulation summarizes the opportunities and limits for
change.
In this essay centered on disorders and mobilizations in cities, I look at
interrelationships among variables at different levels and how their dialec-
tics interplay. I test theories of urban politics which are normative (what
urban capacities an ideal city should have; what is expected from a democ-
racy, in terms of power-sharing), empirical (explaining and interpreting
Globalization and Urban Insecurity 273
observations from the field, evaluating the nature of the local in an era of
globalization) and based on conceptual frameworks or perspectives. The
issue at stake is whether global cities which have so much to lose from the
consequences of attacks, wide disturbances, social fragmentation and
decay are on the frontline for experimenting with social innovation. In a
strong context of inequality, do cities have the capacity to confront the
‘systemic logic of expulsion’ currently at work (Sassen, 2010)? At what
scale and in which context?
Ideas and experimentations are abundant in large cities. However, cities
cannot alter legal restraints. In the US, constitutionally, they are ‘creatures
of the state’, and in other countries, their capacities for decision-making
may be dispersed and heterogeneous or dominated by higher spheres of
authority. Evaluating local empowerment is a complex issue of research,
linking the global and the local (and deconstructing such terms), the
present, the future and the past. It sets more theoretical and empirical
questions than answers. When a mirror falls, no one knows which shape its
pieces will take on the ground.
I draw here upon my research experience on safety and public space
that I have tested in various global cities via the Urban Age Program at
the London School of Economics and Public Policy. My research is
comparative, qualitative and interdisciplinary. The relationship between
macro-financial and economic changes, policies of security and of control
meant to contain potential disturbances is indeed best understood in a
comparative approach. While there is a convergence of social and eco-
nomic forces at work with a worldwide financial crisis impacting on cities’
instability and conflictual conditions, the dynamics of urban violence may
also be global. The response differs according to country, region and
city. Conjunctural analyses attempt to decipher ongoing, site-specific pro-
cesses. Isolating episodes of urban unrest allows to see whether and how
they fit into a whole set of theories and practices, to examine the balance
of social forces, power relations, political-institutional arrangements, mar-
ginalization and exclusion and possible alternatives of empowerment
(Brenner, Marcuse, Mayer, 2009: 178–9).
Considering Urban Risk
Risk is defined as a potential, more or less anticipated, danger. But as

remarked by D. Campbell,
danger is not an objective condition … Anything can be a risk; it all depends on

how one analyzes the danger and consider the event. As Kant might have put it,
the category of risk is a category of the understanding, it cannot be given in
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sensibility or in intuition. Not all risks are equal and not all risks are interpreted
as dangers. (1998: IX)
Some risks cause fear, some of them just raise concerns, others may even
appear attractive in some circumstances. Dangers which are statistically
insignificant are given a great deal of attention, due to the discourse(s) of
experts, media, economic interests and politicians. It is in their interest to
do so, because the political manipulation of feelings of insecurity is made
easier when urban populations lack markers and the necessary distance to
anticipate the future and make sense of the large mutations characterizing
our time. Addressing risks, danger and urban insecurity allows governing
elites to avoid answering impossible demands such as a better future for
the generations to come and to refocus general anxieties on something
concrete like problem neighbourhoods and their residents. Beck (1992:
96) rightly points out that risk awareness is frequently based on second-
hand information but also on second-hand non-experiences. There is a
widespread conception that everything can happen. Fear thus becomes a
way of looking at a world in which risks are constructed and overblown.
Everything seems uncertain when one feels unprotected.
Risk is socially situated and varies from culture to culture. People tend,
however, to select the risks that they want to be concerned with, according
to puzzling rationalities. They orient their mode of thinking on specific
issues or groups in order to be mentally prepared to confront danger,
within what Douglas and Wildavsky (1984) call ‘a portofolio of risks’.
Risk is consequently a socially and individually constructed element,
defined through comparisons in an architecture itself characterized by
obliviousness to all other potential risks. There is no scientific basis to
such construction. People are scared of elements which objectively cause
few casualties and they do not dread road accidents which are a lethal risk.
The ‘producers’ of risks and those of insecurity are different agents.
Insecurity may not be caused by events that one has witnessed, but merely
by rumours circulating among people who more or less know each other
or by intensive crusades launched by the media, after a very unusual inci-
dent. The collective contamination of negative perceptions, a feeling of
powerlessness when signs of order have vanished, even an ‘ontological’
disenchantment: all testify to the solitude of individuals confronted with
macro-changes that they cannot master and that states supposedly invested
with the duty of protection seem unable to alleviate. In the past, when
sovereigns were endowed with a strong authority, people would gather
inside the walls of cities for protection. This situation has vanished with
modernity and then late-modernity, increasing feelings of insecurity due to
a general loss of markers (Garland, 2001).
With urban risks, images of traffic accidents, hurricanes, collapsing

buildings proliferate (Virilio, 2004). Risks are examined one by one and
evaluated before deciding on a behaviour (driving while drunk) while, by
contrast, insecurity is a more general feeling one tries to avoid by calling
for protection. Risk can be managed individually or by the community, via
trusted individuals or experts’ informed advice, while experts or science
rarely alleviate feelings of insecurity.
Within the field of insecurity, politicians, media and researchers also
cite the risk of urban violence. In France, this notion was given legitimacy
by the police when a Department of Cities and Neighborhoods was created
at the central level of the General Intelligence Service (Renseignements
généraux). Daily information was collected in ‘sensitive’ neighbourhoods
based on urban violence as ‘collective, open and provoking: it is both
destructive … emotional … expressive, sometimes playful, frequently
criminal … always juvenile’. This definition was too narrow, too much
focussed on the relationship of youths and police and it has been aban-
doned. In the US, debates related to violence in cities were frequent in the
1960s. President L.B. Johnson appointed a commission on this issue under
the direction of Milton Eisenhower, the brother of the former president of
the US and the president of Johns Hopkins. This commission was referred
to as the Violence Commission and its numerous recommendations are
worth remembering. But the societal debate related to the production of
violence by American society itself disappeared in the 1970s and the term
crime came to the forefront. Crime was a way of externalizing the issue, of
connecting it to trouble makers in dangerous places which are not part of
‘us’ (Body-Gendrot, 2000: XXVI).
Data on crime and on fear of crime, however, remain questionable, they
reflect police activity (a lot of crimes are not reported), and when shown to
be in decline, they remain unconvincing for numerous people. Murder
rates are much higher in Sao Paulo than in London. Yet Londoners are just
as fearful of crime as Paulistanos are. The difference is that Londoners
believe that their institutions can help them and Brazilians less so. They do
not trust their police. This is where the debate relative to the ‘precautionary
principle’ takes place.
More than a decade ago, F. Ewald (2002) opposed this principle to risk
management. This principle was not just concerned with the anticipation
of future harms, he thought, it also had to do with the pre-emption of disas-
ters. Any action seemed better than inaction before the unknown threat
made itself known. This mode of thinking is used to justify governmental
pre-emptive intervention, surveillance and identification. The flaw in this
type of reasoning, as pointed out later by Ewald (2010: 10), is that risk is
correlated to threat in the management of uncertainty. Negative emotions
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or manipulations prevail over experts’ knowledge that the risk in question

is microscopic. ‘The recourse to risk as a foundational state for civil
society has saturated almost every aspect of our lives and times’, he says.
Moral panics about dangerous groups, places and behaviours inform policing
and community safety policies, and within urban development, unjust fortressing
and surveillance strategies clash with rhetoric about inclusive and peopled
cities. (Gilling 1997; Garland 2001)
Bombarding the world with messages about new and renewed risks allows
governments to capitalise on fears by governing through beliefs, behaviours
and assent of the “neurotic citizen”. (Pain and Smith, 2008: 1; Isin, 2004)
The precautionary principle was renamed pre-emptive action by the Bush

administration to justify its action of eradication of weapons of massive
destruction in Iraq. Such a principle grants legitimacy to policies intending
to prevent recidivism or to neutralize a potential criminal endeavour. ‘Are
we heading toward a precautionary state, the privileged tool of which
would be the precautionary principle to manage risks and threats?’ Ewald
asks (2010: 11). Facing an alleged or real danger, precautionary measures
are taken by power-holders and the principle is brought up to justify them
and to minimize criticisms. Anticipating the question: ‘what if?’ (Crawford,
2010), governing elites claim that is was their duty not to wait for the next
act of terrorism which is not ‘if’ but ‘when’. Three powers – scientific,
media and political – that could neutralize each other in other circumstances
in fact amplify one another.
Cities are the key targets of skilled terrorists, of violent organized gangs
confronting weak institutions and of disenfranchised actors exerting
various forms of violence since they have nothing to expect. But how do
cities confront such global challenges? How do they restore social
cohesion? Can they?
The Globalization Context
Research at the interface of geopolitical practice, public discourse and

everyday life is relatively unusual. Yet events provoking fears in one
global space may make people fearful at very local levels.
How do global insecurities worm their way into everyday life? Where do they
figure in local landscapes of risk? What do people do with them? What are the
tangible threats to safety and well-being, outside of those fears of ‘mainstream’
society which grab the headlines, and what are the fears of those who are feared?
Pain and Smith wonder (2008: 2), there is no in-depth theory on the
social implications of urban globalization regarding risks for cities
at various levels. Problems generating insecurity, in particular, in some
urban areas, are frequently perceived and defined locally and politic-
ally, but the link with how they are understood socially and felt by resi-
dents experiencing them on a day-by-day basis is rarely explored.
We agree with R. Beauregard (quoting R. Stern) that adversity impinges
on a city from the outside and that this ‘outside’ is less a force for
change that an occasion for response. Studying what happens allows to
form attitudes, hypotheses and arguments (Beauregard, 2011: 188–89.)
But there can be no generalization from one city to the next or from one
context in the south to that of the north. General urban theory then is of
little help.
In the observed responses, markers between the global and the micro-
local tend to get blurred. ‘There are not two scales which inspire and
address fear by variously relating to one another; rather there are assem-
blages of fear built, trained, embedded, woven, wired, nurtured into the
way the specific times, places and events work’ (Pain and Smith 2008: 3).
It is this linkage that is theoretically explored here. Cities experience dif-
ficulties to come up with adjusted, multidimensional solutions for the chal-
lenges that they face. Eager to keep the upper hand, some of them make
radical decisions, such as bulldozing massive public-housing projects
which appeared to be beyond control. Yet, some inefficiency, disorder,
incompleteness and unpredictability are sometimes positive for neigh-
bourhood rejuvenation and for change to happen, but that assumption sits
in sharp contrast to the logical and functional propositions made by bureau-
cracies in charge of planning decisions. The decisions of the latter do not
take into account what a majority of people feel and require such as ‘a
right to the city’.
Are there linkages between globalization, inequalities and urban unrest
(translating into riots, violent protest or space occupation)? In other words,
does the current sovereign debt crisis in its various forms translating into
social tensions and urban dissent hamper the economic, political and social
well-being of cities? If so, are global cities in less developed countries
more vulnerable? (Body-Gendrot, 2011)
Marxist theories of urban politics analyze political institutions as part of
the state apparatus, marked by the role which the state plays in capitalist
society in terms of accumulation and legitimation of capital (Pickvance,
1995: 253; Lefebvre, 1996/1968; Castells, 1977/1972; Harvey, 1976).
Beyond the ‘right to the city’ and ‘cities for people and not for profit’,
specific programmes, strategies of resistance and the politicization of grass
roots action are needed.
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Precisely, the emerging trend of ‘assemblage theory’ focuses on process

and multiple temporalities and possibilities (the capacity of events to
disrupt patterns and invent new connections); it describes change in rela-
tions to urban policy mobilities (McFarlane, 2011: 206). As early as 2006,
Sassen (2006), studying closely globalization outputs as embedded in
cities, pointed out at new, distinct assemblages of territorial insertions,
authority and national rights in specialized and highly singular fields,
allowing multiple transactions for various uses. She emphasized the
importance of scales rather than that of levels. Moreover, she observed
that the eminent role played by technologies, by interactive numerical
entities with their specific social logics introduced new boundaries and
shifts of frontiers in more numerous places and institutions than one imag-
ines when using the term ‘city’. Competing bodies of law produce ambiva-
lence but also enable diverging and competing city-law spaces, suggesting
that cities can build alliances with each other (Segbers, 2007: 11).
The Divergent Contexts of Urban Regimes
Referring to three criteria for assessing urban theory, Beauregard (2011)

claims that generalities should be connected with particularities and
mediated by specific places and times and this is a position that we share.
Theory should attend to the historical geography of cities and finally, it
should look at what is concrete and particular about such places. ‘Individual
cities have to be conceived as simultaneously similar and distinct and
ripe with theoretical possibilities’ he adds (2011: 195). Where cities are
located makes indeed a difference. Three different types of urban regimes
linked to their geographical location can be distinguished (Marcuse and
Kempen, 2000): in North American (mainly US) cities, the poorest of the
poor, mostly racial minorities, are concentrated in inner-cities within
racially segregated ghettos. Such places are inhabited by ‘disposable but
usable people, rabble and labour at the same time’, according to Ruggiero
(2007: 393). The effects of ecologically concentrated disadvantage on
individual outcomes as well as rates of behaviour are powerful in terms of
poverty, broken families, incarceration, poor health and high mortality.
Disinvestment, devalorization and territorial stigmatization target such
places. Their residents seem denied ‘a right to the city’, they are captives
of racial logics and stratification. Neighbourhoods affect individual and
collective perceptions which, in turn, influence mobility and ultimately
neighbourhood composition and social dynamics, as powerfully demon-
strated by Sampson in his study of Chicago (Wilson in Sampson, 2012: x).
American middle classes have started to move to the periphery of central
cities since the 1920s, as the dynamics of north-east cities such as Chicago
and New York reveal. The polycentrism of Los Angeles would not apply
here (Judd, 2011). ‘Reputational’ ghetto residents (Peach, 1996) inspire
fear rather than compassion. Public interventions are meant to exert
surveillance, identify and discipline recalcitrant or ‘incivil’ residents.
‘Inequality is not quite the top priority: only 17 per cent of Americans
think it is extremely important for the government to try to reduce income
and wealth inequality, according to a Gallup survey in November 2011’
(Newport, 2011).
Some federal cities (cf. the federal programme Hope VI) attempt to dis-
perse poverty. But vouchers allowing poor families to move out of hope-
less ghettos to better neighbourhoods raise other problems. They are not
popular among the middle classes, concerned that the presence of poor
newcomers living in their own backyard will decrease the value of their
property and poor families are uncomfortable in an unfriendly environ-
ment. Gans does not share the enthusiasm of scholars from the New York
School, for whom density and diversity are what makes a city. ‘Middle-
class people, especially those raising children, do not want working
class – or even bohemian – in their neighbourhoods (Gans, 1968: 28–29).
Conversely, should poor residents have a chance to live wherever they
want. ‘If they live in a great working-class neighbourhood, why do we
want middle class people there too?’ Marcuse asks, criticizing mixed-
income planning (quoted by Fainstein, 2010: 68). There is little hope of
maintaining great working-class neighbourhoods though, in the absence of
effective welfare and social programmes in the US along with the destruc-
tion of public-housing projects unmatched by an equal number of recon-
structed units. The mayors of large American cities claim that they have
demonstrated forms of efficiency in terms of law and order, that streets
are safer, homicides in decline and that no major terrorist attack or riots
have occurred in the country in the last 12 years. Yet policies of repression
are conducted at the expense of the most vulnerable categories whose
rights are frequently bypassed. The category of victim does not apply to
them but to those who have an easy access to the criminal justice system
and have offenders condemned with a light view of due process. Procedures
seem to matter more in such a system than real people.
Historical European cities, where inequalities and segregation are
visible but less so than in American cities, display more processes of
continuity. Yet the impact of Europeanization, globalization and den-
ationalization is also felt. Until the 2008 recession, poor urban areas
where disadvantaged households are concentrated seldom constituted
‘ghettos’ comparable to those of American cities and it was not in terms of
homicides that they made the headlines. The lack of opportunities for
mobility on the job market is indeed alleviated by still generous welfare
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regimes (the welfare budget in France – including health expenditures,

pensions, family benefits – has the world record in welfare expenditures
– 33 per cent of the Gross Internal Product (GIP) and in pension
allowances – 14 per cent of the Gross Internal Product (GIP) compared
with an average of 8 per cent in Organisation for Economic Co-operation
and Development (OECD) countries in 2011).
Programmes of public-housing destruction are matched by important
programmes of reconstruction with tenants maintained on renewal sites
(Patillo, 2009). Yet access to jobs via adequate training and public trans-
portation remains difficult. The built option is preferred by local authori-
ties over social and comprehensive policies addressing educational, health,
job training needs. A post-comprehensive policy focussed on security with
adequate funding is supported by a large consensus of voters from left and
right political parties in many parts of Europe (Body-Gendrot, Kostelecki,
Stone, 2011).
The weakness of anti-discriminatory struggles hampers the mobility of
immigrants and their children who form an important part of European
cities’ populations. Before the recession of 2008, in a relatively successful
economy, such as the Dutch one, offering job opportunities, Moroccans
and Surinamese blacks faced unemployment figures four to six times
higher than Dutch nationals (Musterd, Ostendorf and Breebaart, 1998).
Economic and social status according to occupations, ethnic identity and
family cycles, especially for immigrant households, explain partly those
differences (Musterd et al., 1998: 240). A yawning gap divides well-paid
economic elites in the knowledge economy and masses of unskilled or
partly-skilled workers, many of them migrants or children of migrants
from developing countries, struggling to remain on the labour market and
make ends meet. Their vulnerability inspires a fear of downward mobility
among non-immigrant cohort of workers and employees who are less pro-
tected than in the past. Yet despite those tensions, major riots and terrorist
attacks remain unusual in European cities.
As for city regions in developing countries, comparative research is
considerably less advanced, despite the fact that their growth is much
higher than in cities of the north (Segbers, 2007: 9). We use the term city
region because cities are growing beyond their administrative boundaries,
making it difficult to distinguish cities from their surrounding regions.
These city regions are particularly interesting to study, as they serve as
sub-national units of interaction for global business, culture and social
relations in a context of weak performance at the nation-state level (Body-
Gendrot, 2012). Frequently, states (the power decision of which remains
important) choose to devolve their responsibilities to them, particularly
tasks related to security. As such, cities experience colossal challenges in
terms of socio-economic inequalities and fragmentation, scarce regulation
and control, modes of exclusion which may be channels for disorders and
urban violence, in a context of eroding control. A majority of the global
cities’ residents in the Global South live in substandard conditions; infra-
structures are lacking and resources including that of clearly defined juris-
dictions are inadequate. In vast slums where 33 per cent of the world
population lives, a mix of order and disorder and of competing and ambiv-
alent identities have diverse effects, according to logics of collective effi-
cacy and specific norms varying from place to place and differing from
those of elites or of the middle classes.
Urban Disorders as the Expression of the Disempowered
When they hit cities, situations of disorder are both an opportunity as well
as an event. They often highlight issues that are being ignored in the public
discourse, like situations of injustice and people’s emotions. They do not
necessarily hit the headlines but they make a difference. They form a con-
nection between the global and the local. The murky problem of why dis-
turbances occur can also be illuminated by thinking about the obverse:
Why do they not occur more often in situations where we might expect
them? The answer can best be obtained initially, by acknowledging that
civil strife is relatively rare, and next, by suggesting that when it does
occur, it is catalyzed through a labyrinth of relatively discreet, highly dis-
positional events which, at a defining moment, fold into one another. It is
this combination of chance, context, and causation which may explain
why disorders occur (Body-Gendrot, Savitch, 2012). Urban theory here,
including that of relative deprivation, is anything but predictive.
Urban outbreaks, disorders and more generally, social rebellion, are
not just a threat for global economic players, investors, political elites,
businesses and, more generally, citizens whose daily life is disrupted.
They give globalization its confrontational dimension, without immedi-
ately resorting to political claims. The urban sites targeted by dissenters,
protestors and activists embody what global cities are, in terms of flux
and wealth but also of social failures. Mobilizations are a mode of social
expression; they reinterpret public space and organize a drama in the
context of marked and contentious territories (Sassen, 2010; Body-
Gendrot, 2012). Theoretically, they can be perceived as a ‘voice’ or a least
‘a cry’, a signal that disjunctive democracies are going too far in their
excesses. The case of Occupy Wall Street (OWS) illustrates this point.
Occupy Wall Street (OWS)

Officially, the movement began on 17 September 2011. But the idea was
launched a few months earlier, when a senior editor at Adbusters, a
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bimonthly magazine located in Vancouver (Klein, 2000), suggested that

her subscribers ‘flood into lower Manhattan, set up tents, kitchens, peace-
ful barricades, and occupy Wall Street for a few months’ (Greenberg,
2012; Schwartz, 2011). Dozens of individuals started to meet regularly in
Tompkins Square Park in New York City.2 The groups then moved to
Zucotti Park (renovated in 2006 and privately owned by Brookfield
Properties). The location of the site is significant. The park is close to
Liberty Plaza and Ground Zero and two blocks north of Wall Street.
Choosing a privately owned public space was a good tactic. While the city
can close its public parks at night, zoning laws require Zucotti’s owners to
keep the park open night and day ‘for passive recreation’. A sort of orga-
nization then took place and a decision-making body, a general assembly
emerged. Working groups focussed on themes like direct action and safe
spaces. Their proposals were approved or rejected by crowds through ges-
tures and on the internet, day after day, in a revived form of participatory
democracy. The succinct motto ‘We are the 99 percent’ is usually associ-
ated with Teicheberg, a mathematician and former trader, who imported
the lessons of the Indignato movement in Madrid in the spring of 2011 to
New York City, and then launched an ongoing internet network to wide-
spread the contest and protect the movement from opportunistic or co-
opting forces. This detailed description intends to point out how global
trends insert themselves in material city spaces and how messages from
below can trickle up. People are not at the mercy of forces beyond their
control, they can act. It is very likely that the Arab Spring tactics, espe-
cially in Tahir Square in Cairo, formed the context which inspired the
OWS movement. Online social networks were then activated to stage
spontaneous protests, a strategy also used in London and other British
cities to spread unrest in the summer of 2011 through ‘flash mob’ mes-
sages (Body-Gendrot, 2013). According to a poll in Time Magazine,
mid-October 2011, 54 per cent of Americans supported OWS versus
27 per cent supporting the Tea Party movement (Lesnes, 2011) and a
Gallup Poll of 14–15 October revealed that 44 per cent of Americans felt
the economic system was personally unfair to them (Greenberg, 2012: 46).
The powers that be could start to worry. (OWS is reported to have received
$ 450, 000 in donations.)
How does such a mobilization relate to the issue discussed in this
chapter? First, its interest comes from its process. The process is the
message in some ways. Second, it displays an ongoing interaction between
very different people mobilized by diverse motivations but outraged by
social injustice. ‘We write so that all people who feel wronged by the cor-
porate forces of the world can know that we are your allies … No true
democracy is attainable when the process is determined by economic
power’ stated a declaration of the occupation (of Zucotti Park) as early as

22 September 2011 (Schwartz, 2011: 33). People resented having to pay
for the excesses of corporate greed which increases the governments’ and
citizens’ debts and lead eventually to large banks’ insolvency (Greenberg,
2012). They denounced having to undergo austere policies, while the
banking-industry regulations are not tightened, high-frequency trading
banned and all the financial ‘fraudsters’ arrested (Schwartz, 2011: 32).
Fear changed into indignation. Third, the elusive character of the mo
bilization partly explains its success. The huge mix of eclectic people
gathered in one single space, city after city, night after night on many con-
tinents, reveals global togetherness despite differences in gender, race,
age, cultures. Face-to-face conversations, ‘human microphones’ (each one
repeating sentence by sentence what the speaker said to the next person in
one voice), were interpreted as a language of protest. Such process of
public protest breaks individuals’ solitude and isolation, it has the appear-
ance of a social compact. Most of all, space allows all kinds of grievances
to overlap and bridge into a cementing ethos. ‘Consensus builds commu-
nity (in) an architecture of consciousness’ (Greenberg, 2012.).
The spatial dimension needs to be emphasized in a theoretical perspec-
tive: the ‘sense of place empowers protests’ (Kimmelman, 2011) and only
cities’ public space allows such empowerment. The media give visibility
to people occupying space or taking to the streets because it strikes and
resonates with their audience’s imagination. In American cities, it reminds
some of the vision propelled by Alinsky in the 1950s–1960s and revital-
ized by Obama. The political power of physical space is too frequently
ignored. Public space, buildings, monuments, bridges mobilize both mem-
ories of past decades (or in European historical cities, of past centuries)
and the power of place. They create a political stimulus. ‘Politics troubles
our conscience but places haunt our imaginations’ (Kimmelman, 2011).
People feel that they exercise a right to ‘peaceably assemble, occupy
public space, create a process to address problems’ and hopefully generate
solutions (Schwartz, 2011).
The modes of expression of OWS, its tactics and the responses it got in
various parts of the world reveal the institutional culture of place. The 200
German demonstrators who set their tents in front of the European Central
Bank were mostly concerned by economic issues, it seems, while Southern
Europeans were restless about their future and their lack of job prospects.
There were very few demonstrations in France, probably due to the domi-
nant presence of radical political parties in the media, denouncing the
excesses of the financial system, day after day in pre-election time. The
tents in front of St Paul’s Cathedral in London received part of the support
of the church hierarchy and the process of eviction took longer than
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elsewhere, due to legal requirements (whether a police chief is account-

able to a mayor or to the state makes a difference.) In 82 countries,
950 mobilizations expressed indignation. Even the former president of the
European Central Bank acknowledged that he understood the movement
without supporting it. Yet, numerous political and financial – mostly
conservative – elites criminalized the protesters and on the whole,
required authorities to put an end to the challenges set by this form of
direct participatory democracy.
Connecting OWS to Larger Trends

Disempowered citizens collectively measure up their strength via the con-
vergences that cities allow. Inequality is a powerful social divider but also,
in times of stress, a unifier (Body-Gendrot, 2011). Disorders reveal indeed
issues which have no political legitimacy, which are not on the agenda,
which belong to non-decision-making. They give visibility to people who
are the hardest to reach. It is not clear what they stand for. Lots of them
have no world echo, yet they resonate in the imaginaries, not in the com-
munication, of youth cultures (Bertho, 2009). In troubled times, young
people opt to take to streets. Some of them no longer believe in the ballot
box. Theoretically, there may consequently be a correlation between mac-
roeconomic developments, rising inequalities, the elites’ loss of legitimacy
and the dialectics of order and disorder in the public space of cities. Civil
unrest is a denunciation of the way public power-holders have willingly
supported, tolerated or been taken hostage by entrenched financial interest
groups fighting for the defence of their privileges all over the world.
As an important reminder, popular mobilizations are easier to generate
in democracies. The Arab Spring, however, demonstrates that they
may also occur under authoritarian political regimes. On the BBC news
(2 December 2011), a businessman remarked that if the nine million
Chinese graduates did not find jobs when they left university, it would be
Tienamen once more. A wishful thinking? Mobilizations are unpredictable.
The powerful tools held by the Communist Party cannot be easily dismissed
in the probabilities.
Urban violence conveys ambiguities. Cities are both the material support
and the symbolic (and strategic) stake that situations of disorder need. It is
rarely the rich categories who take to the streets and shout their discontent.
The rich Western world fears the resentment of Arab/Muslim countries.
When suicide bombers denounce the Westernization of the world, the
domination of affluent societies, their grabbing of wealth, resources
and assets and the erasure of cultural diversity, they are heard by
impoverished masses. In India, elites worry about Pakistani militant sects
instrumentalizing violence for multiple – including ideological and

religious – reasons and aiming at crushing their domination. If the world is
in part safer since 9/11, old forms of urban violence, such as ethnic hatred
or caste tensions are continuously revived under new conditions. As
Appadurai remarks (2007: 124), ‘the fear of small numbers is intimately
linked to the tensions produced by the forces of globalization’.
Massive demonstrations may disturb residents’ everyday life (blocking
traffic and access to stores, for instance, or accumulating litter in public
spaces or attracting deviant individuals causing havoc) and more funda-
mentally, challenging order and common rules. Yet parents, educators,
teachers, religious and community leaders also point out that they can
understand young protestors’ anger and frustration. Forms of protest, as
those observed in European cities in 2011, draw acquiescence. Eighty
per cent of Spaniards in the summer of 2011 supported the indignatos’
protests in the public space (The Economist, 16 July 2011, p. 32). A small
booklet in France by Hessel (2011) titled Time for Outrage became an
instantaneous bestseller in numerous countries. Even though, in the British
case of summer 2011, urban violence was vehemently denounced, it
offered an opportunity for political opposition and for the media to
condemn the ruling-classes excesses, their greed and their moral decay,
after the phone-hacking scandal and other misbehaviours were revealed.
It may explain why both Ms Thatcher after the Brixton incidents in 1981
and D. Cameron in the summer of 2011 did not want to hear any sociologi-
cal explanation regarding the linkages between inequalities, marginaliza-
tion and collective disturbances but only the support for repression, better
formulated by T. Blair’s sound bite ‘tough on crime, tough on the causes
of crime’.
At the same time, the changing role of the state in democracies is an
important dimension to take into account. While governments claim an
increasingly effective monopoly of ‘legitimate force’ (or is it ‘legitimate
violence’, depending on Max Weber’s various translations?) to maintain
internal order, their powerlessness at meeting heterogeneous citizens’
urgent claims has to be emphasized. A general distrust of the protective
role attributed to the state is felt, an ‘ontological’ disenchantment with
modernity or more simply with institutional inefficiency, feeding populism,
frustration and anger.
Social unrest signals a danger, a dysfunction of our societies translating
into a powerlessness or an unwillingness at enforcing significant reforms
and revealing a general short-sightedness on the part of elites. National
policies, strong in rhetoric (‘doing something’ to assuage public discontent),
and incremental in enforcement (patchwork repair and interim solutions)
characterize current urban governance (Body-Gendrot, 2013).
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Global Cities’ Compromises
Dramatic social problems, conflicts, tensions and forms of violence result-

ing from global processes could be alleviated if cities were included from
the start in the decision-making process and in the transactions among
various political, financial and economic actors. Macro-level frames
should be held accountable ‘for the types of stress that arise out of every-
day violence and insecurity in dense spaces’ (Sassen, 2010: 1) – the type
of issues that global governance discourse and its norms do not quite
capture.
Cities are submitted to states’ domination but, closer to citizens, they
also take advantage of their own perceptions of problems. Confronted with
threats and attempting to alleviate fears and insecurity, can they innovate
with their own solutions?
The dilemmas megacities confront come from the need to become or
remain world-class cities with top financial ratings, to control crime, social
disorders and unrest in order to reassure investors on one hand, and on the
other, to avoid and reduce the socio-economic fragmentation of their pop-
ulations, weighing on contexts boosting urban risk. Should they pursue the
dream of attracting global actors (the 0.1 of 1 per cent) via efficient struc-
tures of control, performing stock exchanges and financial opportunities or
should they alleviate poverty and ‘buy social peace’ with larger redis-
tributive measures, more basic public services and shared spaces for the
99.99 per cent? Theorists remain divided. Some scholars like P. Peterson
(1981) assert that cities cannot afford redistributive policies because sup-
porting welfare measures with high taxation would drive out capital invest-
ment. Ironically, 20 years after his statement, policies of repression based
on prison constructions and their maintenance at the detriment of redis-
tributive welfare measures show that such expenditures can be afforded by
cities and counties, without driving out capital investment in the U.S.
Others claim that local public policies still affect who gets what, when,
how and that they are not fully constrained (Lasswell, 1950). Some cities
have a lot of resources but addressing multiple demands formulated by
many interest groups conveys the risk of great deficits or even bankruptcy,
as the one New York City experienced in 1975 when Mayor Lindsay
accommodated many conflicting demands from an increasing number of
interest groups (Piven and Cloward, 1971). Political compromises are
then elaborated as second-best choices and should be evaluated case by
case, the first-choice ones (matching ideals and norms) being utopian.
‘Compromises are vital for social life, even though some compromises are
pathogenic … We need to actively resist rotten compromises that are lethal
for the moral life of a body politic’ Margalit observes (2010: 7).
This dilemma regarding compromises is felt more acutely in south

metropolises characterized by globally connected elites on the one hand
and on the other hand, larger populations living on the margins and
engaged in daily struggles for survival with, in-between, middle classes
trying to avoid downward mobility (Segbers, 2007). While the dilemmas
faced by most of world-class cities are different in scale, no option appears
as satisfactory in the long term.
Attempting Solutions
Good urban governance is not the alpha and omega in terms of solution to
problems, the causes of which are beyond cities’ capacities. Exogenous
factors and outer forces weigh on the future of neighbourhoods and of
metropolises. Optimism may come from strong social cohesion at the
community level, as will be illustrated by a few examples.
The strategies to turn Johannesburg into a world-class city have been
ambitious from the very start and their approach more coordinated than in
Sao Paulo or Mumbai (Murray, 2011). The region is run by one political
party, the African National Congress (ANC) which rules at all levels.
Compromising and negotiating take place within party structures among a
plurality of actors. New instruments for citizen participation have however
been introduced, but the locus of power remains in a few hands, perpetu-
ating the geography of exclusion. According to Beauregard and Tomlinson
(2007), the issue of exclusion and of spatial decay is politically ignored
by the city administration and its institutions, making the city vulnerable
to crime and social tensions. There is no acknowledgment of the need
for solving problems of crime or horizontal and vertical conflicts. As in
the US, new segmented forums at the community-level encouraging
public debates exist; the density of non-profit organizations has a notably
positive effect on neighbourhoods, regardless of deep problems. They
challenge neither the overall governmental structure nor global policies,
but they allow shared expectations to promote trust and impact on residents’
daily life.
The authorities’ long-term perspective is that by year 2030,
Johannesburg will be a ‘city of possibilities and promise, excitement and
hope for the future’ (City of Johannesburg, 2002: 3). There are doubts that
this assumption may come true, due to the rate of poverty, unemployment
and crime among Africans and rates collection shortfalls among other
issues (Beauregard and Tomlinson, 2007: 251). The truth probably lies in
between: Johannesburg is neither a kind of urban ‘noir’, as described by
architect Rem Koohlas nor a city of all possibilities. Sao Paulo and Mumbai
also demonstrate that there is a lot of work still to be done to provide a
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sense of equal justice to all and to improve safety (Body-Gendrot, 2012).

But unlike global cities in developed countries that complain that they are
bankrupt after each major financial crisis, the cities in the South come
across as young, energetic and resilient. Which of these cities will succeed
the best? It depends on what the dominant actors’ priorities and goals are
and whether movements from below trickle up. When designing growth
strategies for global cities, it is important to keep ‘the city’ in mind. Only
if the essence of the city is maintained and citizenship rights guaranteed’
(Beauregard and Bounds, 2000) can a project be successful in a sustain-
able manner. The essence of a city is urbanity, which can be translated as
shared public space, where different cultures and classes can meet safely.
Under such conditions, encounters with other people can serve as sources
of ideas and innovations. But creating a shared vision for the city remains
incredibly arduous.
Empowering Citizens
When coping with assemblages of fears and insecurity, global cities
confront a multitude of difficulties, some arising from general causes
and some from highly specific ones, including the rise of populist move-
ments, based on disenchantment and anger with elites’ choices. When
attempting to manipulate fear, however authorities may face civic resis-
tance. Everyday life always and already speaks back, resists and “chal-
lenges political attempts to manipulate fear … Grounded approaches to
fear challenge the politics embedded in the scalar, top-down view of fear
assemblage’ Pain and Smith observe (2008: 249). Urban democracies need
counter-powers and accountability. Mobilized constituencies may act as a
bulwark against financial and institutional abuse and corruption, requiring
accountability and surveillance bodies. They may express shared values or
formulate alternatives to elected officials’ decisions. People can be vigi-
lant, be judges or denunciators, exert sanctions and vetoes or recall their
elected officials, if there is an opportunity to do so. It is easier for reformist
officials to ‘imagine, articulate, pursue and actualize the vision of a just
city’ if they are supported by motivated groups (Fainstein, 2010: 181).
New forms of social involvement are thus displayed, some of them
quiet and personal, others large-scale and spectacular. Within global pro-
cesses, local actors, some of them illiterate, may, via technologies of com-
munication available to them such as the internet, acquire a presence on a
global and political scene when they connect to other local actors in the
same country or elsewhere in the world. In return, they may receive pro-
posals for action from world organizations in need of a local basis for their
transactions. NGOs and the third sector are a must that make a large
metropolitan area work. In the best cases, they insufflate trust, confidence
and cooperation. With globalization, new social patterns emerge indeed
within traditional social conditions. Immigrants who have lived in cities
for ever take a new meaning, become aware of it and act consequently.
Other impoverished citizens may act similarly in specific contexts, even in
Los Angeles (Soja, 2010).
Cities can provide a dense articulation of global and local dynamics, in
response to which people think and insert themselves into politics, becom-
ing new kinds of citizens. Participation – a learning process – empowers
citizens who are organized. Community-based organizations may teach
people how to get what they need, once they are organized (Alinsky, 1971).
In that process, cities become both the site and the substance not only of
the uncertainties of modern citizenship but also of its emergent forms. The
politicization and capacity for resilience of ‘people at the bottom’ (les gens
de peu) require those practices of everyday city life, unveiled by de Certeau
(1984), mixing the illegal and the legal, the just and the unjust, the public
and the private, the political and the domestic.
An innovative and survival perspective, more appropriate for cities
of the South, points at the self-help of poorer populations, that is, altern-
ative decisions made at the margins in order to survive in dangerous
environments. What Bayat (2000: 533) calls ‘a quiet encroachment of the
ordinary’, refers to marginalized groups’ individual direct actions and
alternative outlooks in the city. What do these men and women aim for?
Their agency is necessary for the basic necessities of daily life, for instance,
for opportunities in the unlawful and direct acquisition of collective
consumption (land, shelter, piped water, electricity and roads), public
space (street pavements, intersections and street parking places), opportu-
nities (favourable business conditions, locations and labels) and security,
essential for survival and minimum standards. The poor aim at autonomy,
outside the boundaries of the state and institutions, basing their relation-
ships on reciprocity, trust and negotiation, resorting to informal dispute
resolution rather than go to the police or to the judge, and so on. However
such actions remain individual despite the legacy of urban social move-
ments. ‘For modernity is a costly affair; not everyone can afford to be
modern … The disenfranchised are unlikely to become a more effective
player in the larger sense…’ (Bayat, 2000: 533–54).
In conclusion, long-term studies show that despite financial turmoil
impacting on cities, patient, modest, almost invisible processes of media-
tion among diverse, old and new class-differentiated residents and urban
decision-makers can prove efficient (Amin and Thrift, 2002). Inviting
people to think and express themselves about the spaces where they live
and go to work or entertain themselves is a variation of this democratic
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idea. Expectations, pressures and collective cultures have a lingering effect

on individual behaviours. They reveal the power of place (Hayden, 1996:
78). Providing voices for the different groups that dwell together in the city,
even without forming a community, is an alternative to exclusion. Inviting
people to express themselves about the spaces where they live and work or
entertain themselves is a variation on the same idea. (Young, 1990: 227).
People invest in actions and places endowed with social and cultural
meaning and thus empower themselves. But civic participation is not
inbred, only certain types of individuals participate in forums, community
board meetings, and other forms of reunion, not everyone does and not the
most fearful or disempowered (Body-Gendrot, 2000). Yet, without pres-
sures exerted for a redistribution of decisional power, there can no redistri-
bution of benefits and opportunities. Poverty is about lacking political
power and without a learning process of power-snatching, there is not col-
lective capacity to develop local leadership, to teach people how to decide
for the best of their interests after solving their conflicts, to win power via
a democratic organization, via various tactics and strategies and to exert
and maintain pressures on power-holders (Alinsky, 1971). However, such
strategy of power-snatching is not intended to last. People cannot live in
conflict continuously and organizations which are only structured locally
are extremely vulnerable. OWS escapes such danger due to its lack of
vertical, leader-led organization. Once evicted from city spaces, its loose
connections and modern technologies of communication can help it reform
under other forms and on all kinds of websites.
People get involved in mobilizations if they find a personal interest in
doing so. The Olson principle (1966) is tested here. The solution is
not, however, to advocate a philosophy glorifying a ‘small is beautiful’
approach, as in the 1960s. Proximity has its limits, especially seen from
global financial players’ cynical perspectives. More democratic processes
in decision-making practices are neither the answer to every urban problem
nor their solution. Not only do not they fundamentally challenge existing
relations of power and the lack of accountability exacerbated by the
context of globalization. But on one hand, the danger of a tyranny of order
exerted by small communities threatens dissenting individuals and collec-
tive movements which, in their singularity, may be motors of progress and
of innovation (Simmel, 1908). On the other hand, no deterministic correla-
tion links a lack of transparency and inequity: insulated decision-making
is sometimes a necessity when dealing with complex and ambiguous
issues and it may also produce fair outcomes.
In brief, cities and their leaders retain important capacities. They are
resilient; they complement and sometimes bypass states in securing their
spaces and their residents. They mobilize very different scales and sectors
for the implementation of measures, even outreaching to supranational

levels, then, with their density and diversity of populations, they display
an accumulated knowledge for preventing conflicts and unrest, alleviating
problems of ethnic and racial antagonisms, healing wounds and restoring
public tranquillity, after disruptive events; finally and paradoxically, by
allowing empowered citizens to visibly express their claims and discon-
tent in the very space that unites them, they perform a catalyst function.
Civil societies’ capacities of resistance should not be downplayed. People
are not at the mercy of global forces beyond their control. They can act.
While reducing inequality is not in the cities’ grasp, it remains in their
power to choose measures and policies at various scales that will alleviate
them and make a difference. What they can do in terms of social cohesive-
ness relates to their singular cultures, inherited from decades of experi-
ence, to the supply of public services, to the use they make of public
space, to architectural solutions and other innovations taken in the cities’
reservoirs of resources. Each city is distinct but all of them form unique
laboratories for social innovation.
The city is ‘a spatial location, a political entity, an administrative unit, a
place of work and play, a collection of dreams and of nightmares, a mesh
of social relations, an agglomeration of economic activity’ (Hubbard,
2006:1). Consequently, any theory dealing with how cities cope with
forms of insecurity generated by global phenomena calls for an interdisci-
plinarity that embraces ‘the spaces of multiplicity’ (Beauregard, 2011:
189). It should analyze modes of risk management in cities, including
work performed by the police and the justice institutions, connecting urban
violence, ethnic and racial discriminations and socio-economic inequali-
ties with broader societal dysfunctions and preventative public policies.
In the end, all the news are not negative. Some of the pathologies created
by rapid financial macro-crises may generate long-term internal dynamics
within urban regimes. In frequent cases, they reveal that resilient cities are
frequently ahead of states to deal with challenges and conflicts.
Notes
1 This chapter draws on Sophie Body-Gendrot (2012).

2 In the 1990s, this park became famous after police fought a vigorous battle to retake
the space from squatters and anarchists who had set up their living quarters in the park.
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10
Financial Crises and Spatial Income
Inequality Growth: The Case of Tokyo
Kuniko Fujita
Introduction
The 2008 global financial crisis has raised an important question –

whether financial crises and the income inequality growth are closely
related. Fortunately, a few but excellent historical and cross-national
income inequality studies exist and answer the question positively
(Atkinson and Piketty, 2010; Atkinson, et al., 2011). The World Top
Income Study Database at the Paris Institute of Economics also covers
a long-term expansion and contraction of income inequality growth
pattern over the past 100 years. It shows two peaks in the growth of
income inequality: the pre-1929 Great Crash and the years going up to the
2008 crisis (Alvaredo, et al., 2011). These comparative and historical
studies and databases present that financial crises and the rise of income
inequality are closely related.
As the effects of the 2008 crisis have continued to evolve into recession
and debt deflation in the US, widely polarized directions have emerged
between the middle- and low-income segments and the high-income
segments of population. Middle- and lower-income families suffered
from the prolonged depressed state of the economy with high unemployment
rates and income declines, while high-income families continued to thrive
and regained profits from the government bailout of banks after a brief
setback. In consequence, the growth of income inequality has attracted
much public and academic attention. A handful of studies on the crisis and
inequality growth have appeared (Piketty and Saez, 2003, 2013; Wolff,
2010; Weinberg, 2011; EPI, 2011; CBO, 2011). Then, the Occupy Wall
Street movement, which emerged in New York City and spread to other
American cities in the fall of 2011, led the media to pick up the topic of
inequality growth and widened the public interest in the rise of income
inequality. “Occupiers” in the Occupy movement succinctly captured the
crisis time’s sentiment in the slogan, “We are the 99 percent,” protesting
the extreme income inequality growth between the top 1 percent of
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296 Kuniko Fujita
population and the rest 99 percent (Byrne, 2012). More inequality studies
followed (IRS, 2012; Krueger, 2012; Noah, 2012; Stiglitz, 2012a).
Although the Occupy movements and various austerity protests took place
in many cities of the world from Athens to London, there have arisen few
studies on relations between the income inequality growth and the 2008
financial crisis elsewhere other than in the US.1 There are even fewer
studies on this subject at the city level.2
In this chapter, I first survey the theoretical debate over relations between
income inequality growth and financial crises. Then, I turn to Tokyo and
explore the relations between Japan’s two major financial crises of 1990
and 2008 and their impacts on not only income inequality growth as
a whole but also residential income inequality growth among Tokyo’s
neighborhoods. I present empirical evidence that Tokyo’s spatial income
inequality growth is highly linked to two crises and that spectacular
bubbles and catastrophic busts were exclusively concentrated in Tokyo’s
central core area and directly impacted little on the rest of Tokyo. I also
argue that Japan’s redistributional system and national and urban politics
and policies kept the effects of the crises on Tokyo’s income inequality
growth and residential income inequality growth among neighborhoods
relatively moderate. Lastly, I conclude that contrary to popular urban
claims that globalization, neoliberal turn, and technological change have
led to urban income inequality and metropolitan polarization, the two
financial crises are the main cause of Tokyo’s residential income inequality
growth.
The 2008 Financial Crisis and Income Inequality
Historical and Comparative Studies

One of most striking studies on historical and cross-national income
inequality growth is the “Top Income Share Study between 1914 and
2008” by the Paris Institute of Economics’ World Top Income Database.
The top income share study shows that the inequality shape over the past
100 years in most countries makes a clear L-shaped pattern with only one
peak in the 1930s and flat lines in the rest of the twentieth-century. All
countries in the database experienced the dramatic income inequality
growth in the 1930s just around the Great Crash but then the low income
inequality for several decades in the post-World War II era and the moder-
ate rise of income inequality since the 1980s. Exceptions for this pattern
are the US and the UK where the inequality growth pattern has the U shape
that has two peaks of income inequality just before the 1929 Great Crash
and just before the 2008 global financial crisis (Alvaredo, et al., 2011).
Financial Crises and Spatial Income Inequality Growth 297

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Figure 10.1 Top 1 percent income share in selected countries (Australia, France, Japan
and the US), 1914–2010
Source: The World Top Incomes Database. http://g-mond.parisschoolofeconomics.eu/topincomes
Figure 10.1 shows selected countries – Australia, France, Japan and the
US – from the World Top Income Database. The Piketty and Saez study
(2003, 2010) of the US case shows that income polarization peaked twice
in American history between 1913 and 2010 as seen earlier. The 1929
Great Crash is the classical ^ pattern. The increasing wealth of the 1920s
flowed disproportionately to the owners of capital. The distribution of
income worsened in the 1920s. Inequality reached its peaks just at the start
of the Great Depression. The Gini coefficient of overall inequality rose in
the 1920s, and was lower in the mid to late 1930s (Atkinson, 2005;
Atkinson, et al., 2011). The share of the top 1 percent (including capital
gains) which had been 15 percent in 1920, rose to 24 percent in 1928, and
then fell back to 15.5 percent in 1931 and 1932. There is an almost perfect
^ pattern between the pre- and post-Great Depression years. The proportion
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298 Kuniko Fujita
of the population with income below 60 percent of the median, a relative

poverty line, is estimated to have risen in the 1920s.
Three Schools of Theories on Relations between the Financial Crisis and

Income Inequality Growth
There are disagreements about explaining close relations between the
growth of income inequality and the 2008 crisis. Disagreements can be
divided into three schools of thought.
The first school is causal theory which contends that income inequality
growth caused the 2008 crisis (Kenworthy, 2010; Wade, 2010; Rajan,
2010; Reich, 2010; Cohen and DeLong, 2010; DeLong, 2011; Lansley,
2011; Stiglitz, 2012a). The second is a reverse causal theory which claims
the 2008 crisis and other financial crises cause income inequality growth
(Galbraith, 2007; Piketty and Saez, 2003, 2013). Finally, the third is cor-
relation theory which rejects both causal and reverse causal theories but
sees correlations between the crisis and income inequality growth
(Acemoglu, 2011; Krugman, 2012a; Krugman and Wells, 2011, 2012;
Atkinson, et al., 2011).
All schools rely upon historical and comparative analyses on income
inequality growth trends and claim that the impact of crises on inequality
differs across countries. All also agree that the rise in the wealth income
ratio before 1929 and before 2008 were both associated with climbs in the
stock and real estate markets (Atkinson, et al., 2011: 24). Furthermore, all
tend to see redistributional mechanisms and politics and policies at
work in the effects of the financial crises in some countries. Tax system,
welfare system, unionization, the minimum wage system, expansionary
policy, big efforts to improve the quality of education and childcare for
all, and the policies of sustaining demand effectively in post-crisis eco-
nomic downturns make difference in crisis effects on income inequality
growth.
Causal theory
The causal theory contends that income inequality growth generated high
debt which in turn led to housing boom which then caused the banking
crisis at the bubble burst. Comparing the top 5 percent of US households
from 1983 to 2007 with the remaining 95 percent, Lansley (2011) con-
tends that the rich got richer in the decades before the 2008 crisis; every-
one else tried to maintain his or her standard of living by going deeper into
debt. As income inequality grew over that period so did debt levels,
because the rich increasingly invested their growing wealth in bonds and
bank deposits, in effect providing money for ever more lending to the poor
and the middle class. The population on stagnant or near-stagnant incomes

tried to increase their consumption and investment by borrowing. The top
group’s increasing wealth, and the bottom group’s increasing reliance on
debt, spurred the growth of the financial sector. But with ever-increasing
debt, the financial system – and the broader economy – became ever more
vulnerable to crisis. In 1983, the top 5 percent had 80 cents of debt for
every dollar of income, while the remaining 95 percent had 60 cents for
every dollar. By 2007, after decades in which an increasing share of income
flowed to the top, the situation had reversed. The top 5 percent had
65 cents of debt for every dollar of income, while the remaining 95 percent
had $1.40 in debt for every dollar. The situation remains skewed
today.
Rajan (2010), Reich (2010), Roubini (2011) and Stiglitz (2012a) agree
that high debt caused the crisis but they disagree with the cause of inequal-
ity growth. Stiglitz (2012a) attributes inequality growth to a result of rent-
seeking monopolies – that companies and managers redistributed wealth
from the bottom to the top, therefore inequality, and distorted the economy.3
To Rajan, growing income inequality stemmed from unequal access to
quality education and led to political pressure for more housing credits
(2010: 43). This pressure, Rajan (2010) also claims, created a serious fault
line that distorted housing prices and private-sector incentives.4 To Roubini
(2011), inequality growth was caused by democratization of credit – via
financial liberalization. Roubini argues that in Anglo-Saxon countries, the
gap between income growth, ending aspiration for everyone but the rich,
widened and the response was to democratize credit – via financial liber-
alization – thereby fueling a rise in private debt as households borrowed to
make up the difference. In Europe (in particular, southern Europe), the gap
was filled by public services – free education and health care – that were
not fully financed by taxes, fueling public deficits and debt. In both cases,
debt levels eventually became unsustainable.
Stiglitz (2010, 2012a), Wade (2010) and Cohen and DeLong (2010)
belong to causal theory when they claim that American debt growth
depending on foreign money is the cause of the staggeringly growing
class inequality gap since 1990 and ultimately caused the 2008 mortgage
meltdown in the US. The global imbalances provided the proliferating bil-
lionaires around the world with enormous opportunities to augment their
wealth through financial innovation. People at the top – high net worth
individuals, investment funds, pension funds and the like – greatly increased
the demand for complex financial products as they searched for ways to
store their wealth and pressured institutions like Goldman Sachs and
JP Morgan to supply them with complex financial securities. The invest-
ment banks generated huge fee and commission revenues by obliging, and
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300 Kuniko Fujita
neoliberal economic principles allowed the regulators to believe that the

surging growth of complex financial instruments must be to the social
benefit.
Reverse causal theory

The reverse causal theory school claims that the financial crisis caused the
growth of income inequality growth. Current crisis effects are similar to
previous currency and financial crises that took place in Latin America,
Asia, and Scandinavia. There are a lot of studies on inequality growth
during the 1997–1998 Asian crisis (Wade, 2007, 2009) and Latin American
debt crisis (Galbraith, 2007, 2012). Comparing the effects of the financial
crises on the inequality growth in Latin America, East Asia, and
Scandinavia, Galbraith and Jiaqing (1999) conclude that the financial
crises raised inequality in the most deregulated labor markets such as Latin
America, and less in more highly regulated ones like East Asia and
Scandinavia. In Latin America, the inequality growth in cities and regions
was deeply linked with debt financial crises in the 1970s, 1980s, and
1990s. This is, Galbraith (2007, 2012) argues, because debt financial crises
brought by the Washington-Wall Street consensus – in Wall Street, US
Treasury Department, the IMF and the World Bank and their neoliberal
policies – expanded the finance industry in Latin American cities and
spurred the inequality growth. Cities and regions in Latin America are
among the most unequal in the world today. But the Texas University
Inequality Project (TUIP) led by James Galbraith, demonstrates that
poverty and inequality have declined in cities and regions in Latin America
since the early 2000s as they got out of the financial crisis.5 TUIP attributes
a decrease in inequality and poverty to the role of national governments
that got lessons from their own financial crises, reduced the finance sector,
and made public investment in social programs (Giovannoni, 2010).
Recent United Nations study on the crisis also falls in this category.
Linking the crisis to debt problems, the UN study (2009) advocates
balanced sheet approach to measure per capita income based on inclu-
sive GDP which covers physical capital, human capital, and natural
capital.
Correlation theory
Krugman (2006, 2007, 2012a) and Krugman and Wells (2011, 2012) reject
causal and reverse casual theories. They instead acknowledge that there
may be effects of the crisis on income inequality growth and that inequal-
ity growth and the crisis have something to do with politics and policies.
Krugman, first of all, rejects Reinhart and Rogoff’s belief that high debt
causes a banking crisis (2012a), giving an example of the UK that had high
debt ratio in GDP in the 1960s and 1970s. Shiller (2008) and Kindleberger
and Aliber (2005) also do not see high debt causing a crisis. Moreover,
Irons and Bivens (2010) contend that Reinhert and Rogoff suffer from
theoretical and empirical flaws. Regarding high debt, Krugman sees the
banking crisis causing high debt, which then leads to slow growth, which
further leads to income declines among the working middle and lower
population. Krugman’s logic is based on Keynesian demand theory: Firms
in advanced economies are now cutting jobs, owing to inadequate final
demand, which has led to excess capacity, and to uncertainty about future
demand. But cutting jobs weakens final demand further, because it reduces
labor income and increases inequality. Because a firm’s labor costs are
someone else’s labor income and demand, what is individually rational for
one firm is destructive in the aggregate.
Krugman attributes the cause of the income polarization growth to the
rise of narrow oligarchy that market forces and politics and policies have
helped to create by concentrating income and wealth in the hands of a few
elites over the past three decades (2006, 2012a). But unlike Stiglitz who
sees the unequal distributions created by corporate rent-seeking and dis-
torted government policies, Krugman sees the rise of oligarchy distort the
redistribution system so that the gains from productivity in the past three
decades fell in the hands of the oligarchy. The result is that free markets do
not generate enough final demand. In the US, for example, slashing labor
costs in post-crisis recession sharply reduced the share of labor income in
GDP. With credit exhausted, the effects on aggregate demand of decades
of redistribution of income and wealth – from labor to capital, from wages
to profits, from poor to rich, and from households to corporate firms – have
become severe, owing to the lower marginal propensity of firms/capital
owners/rich households to spend. Krugman and Wells (2012) further
argues that the rightward shift in American business (LBOs6) and politics
have benefitted more the wealthy than ordinary Americans since around
1980 or so. The productivity growth has kept growing but been slower
since the rise of LBO-type operators in the 1980s. And competitiveness –
big trade surplus before 1980 – has turned to big trade deficits. Krugman
concludes the result is this: income distribution became radically more
unequal.
Acemoglu (2011) takes an entirely different argument. He contends that
wage inequality below the 99th percentile is being driven by supply,
technology, and trade, while the top percentile is being driven by something
entirely different and this something entirely different is also very related
to the causes of the financial crisis and to the peculiar political processes
that have been underway in the US over the last 25 years. Acemoglu also
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302 Kuniko Fujita
claims that politics is a key to understand the relations between the crisis
and inequality growth. The key financial players were bailed out, while
low-income homeowners were not. He further points out that powerful
political resistance to extension of unemployment benefits tells that the
politics is very important.
Japan’s Two Financial Crises
This chapter argues the second school of reverse causal theory best
explains Tokyo’s case on relations between Japan’s two financial crises
and spatial income inequality growth among Tokyo’s neighborhoods.
Figure 10.2 shows Japan’s top 1 percent income share over the period of
1914 and 2010. Japan makes a clear L-shaped pattern. The impacts of two
recent financial crises (1990 and 2008) on the top 1 percent income share
can hardly be detected in this figure. The figure also shows that Japan’s top
share growth is extremely low by international standards. But Japan has its
own story.

6QRKPEQOGUJCTG
Figure 10.2 Top 1 percent income share in Japan: 1920–2010

Source: The World Top Incomes Database. http://g-mond.parisschoolofeconomics.eu/topincomes
Moriguchi and Saez (2007, updated to 2010 in 2012)
Figure 10.2 slightly detects the drop of the top 1 percent in 1992 as the
effect of the 1990 bubble burst after the asset bubble in the 1980s. Japan’s
major financial crisis of 1990 triggered a prolonged recession between
1990 and early 2000 and aggravated the effects of the 2008 global financial
crisis on the economy. Although unemployment rates stayed around
3 percent on average in the post-1990 crisis era, they reached the highest
at 5.6 percent in 2009 just after the 2008 crisis, and came down to 4 percent
levels by 2012. But the results of the two crises are the “lost two decades”
of slow growth, which have disproportionately inflicted upon the weaker
and vulnerable part of the population (female-headed households with
small children) and younger generations that have missed out employment
opportunities and suffer from irretrievable consequences.
Internal and External Causes

The first financial crisis of 1990 was a typical spectacular asset bubble and
followed catastrophic bust. It was internally created by Japan’s own
financial engineering “zaiteku,” which meant raising profit by utilizing
capital for securities, investments, and real estate.7 But external conditions
for the bubble were linked to Japan’s trade surpluses. Japan produced more
than it consumed, exported more than it imported, and saved more than
it spent, while accumulating trade surpluses and the dollar reserve for
decades and thus leading to global imbalances, in particular with the US.
The first crisis of 1990 was therefore the result of Japan’s growth model
over the long period of time in the post-World War II era. The global
imbalances began in the form of trade conflicts in the early 1980s when the
consequence of the Vietnam War led the US to run a trade deficit for the
first time in the post-World War II era.
State policy focus on production and export trade under Japan’s state-
guided and highly regulated economy came into conflict with the American
policy focus on consumption and deregulation under the Reagan adminis-
tration. As the US government saw jobless rates and budget and trade defi-
cits going up, it began a concerted and geopolitical offensive against Japan
and led to the 1985 Plaza Accord, in which the US led G5 nations to an
agreement to reduce its trade deficits and devaluate the dollar with its trade
partners. Then the value of the yen soared and Japan’s exports became less
competitive in the world market. Japan’s production and trade fell, leading
to recession. The government adopted the monetary policy of lowering
interest rates and stimulated the economy. The monetary policy added
cheap credit to the already abundant money supply market inherited from
the previous three decades of the high economic growth. Conditions for
the inflated asset bubble were ripe.
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304 Kuniko Fujita
Corporations and individuals began borrowing money using their land

whose prices were traditionally high and which served as the engine
of credit for the entire economy as collateral for bank loans and made
excessive investment in capital equipment and assets. Easy credit, cheap
money, relaxed regulation, and speculation on land and stock valuations
drove land and stock prices sky high in the mid- to late 1980s; in particular,
commercial land prices rose over 290 percent between 1985 and 1990.
Then the government saw that the bubble was uncontrollable, and suddenly
raised interest rates at the very end of 1989. The bubble burst and started
to shrink. The stock market lost nearly 50 percent of its value over the next
nine months, but fluctuated enormously throughout the 1990s. Land prices
too plummeted by over 60 percent in the subsequent few years; they
continued to decline and hit bottom in the early 2000s, a decade after the
1990 crisis (Fujita, 2011).
The government managed to kill both the stock and real estate market
booms but did not attempt to solve the cause of the crisis. It engineered
most of the boom-bred funds into Japan’s production capacity rather than
into consumption and welfare, while enabling the corporate sector to con-
tinue to make high investment in Research and Development (R&D) and,
thanks to the high value of the yen, purchase high-tech firms in the US and
build factory buildings in Southeast Asia.
Policies that focused on production and export trade and that caused the
global imbalances in the first place were left untouched; and trade/current
account imbalances between Japan and the US continued. This was
because the Japanese government made a political choice: Japan would
continue to accumulate current/trade surpluses and the dollar reserve to
maintain Japan’s international competitiveness. Japan would also keep
supporting American budget deficits by turning its trade surpluses to
investment in US treasury bills. In this way, Japan would have access to
the American market and would benefit from the US nuclear defense
umbrella. The government’s choice was made to preserve the essence of
the Japanese economic system, and government power over the economy.
The US government and liberal economists criticized that Japan saved too
much and consumed too little, and that Japan used the global open market
system for its own ends without opening up its domestic market to foreign
investment. Japan was blamed for endangering the free-world market.8
Varieties of market economies accrue different politics, policies, and
results upon financial crises. American shareholder-based corporate
governance and short-term profit measures made a quick policy response
possible, with the result of higher employment rates, whereas Japan’s
stakeholder-based corporate governance and long-term performance
measures made a quick response impossible.
The government kept from intervening in the banks. State intervention

meant restructuring, and restructuring meant bankruptcies and massive
layoffs of the workforce as ripple effects would extend to bank-
corporate-supplier networks. Japanese policy makers, regulators, and
bankers lived as zombies for a decade with-out making effective
policies and reforms: government intervention policy came too late.
Belatedly, government recapitalized banks through the Reconstruction
Finance Corporation between 1998 and 2004, almost a decade after the
crisis. The banking sector eventually restructured itself, and three
big banks emerged out of the crisis but continued to be under state
control (Fujita, 2011).
Given the economy where national wealth equivalent to three years of
GDP simply vanished, the effects of the 1990 financial crisis could other-
wise have been much greater than two decades of slow growth (Koo, 2008:
24–25; Fingleton, 2012; Krugman, 2012c). Japan’s unemployment rates
averaged 3 percent in the so-called “lost” decade of the 1990s, while
unemployment rates quickly rose over 10 percent in the US and over 20
percent in some European countries after the 2008 crisis. The government
literally sustained Japan’s standard of living by spending on infras-
tructure to fill the gap made by the huge evaporation of money and corpo-
rate disinvestment. Japan was able to restore the economy at not perfect
but “tortoise speed” because Japan was primarily a creditor in the
world economy and had a sovereign currency after all. Despite almost
200 percent of budget deficit, interest rates on Japan’s ten-year govern-
ment bonds have remained below zero percent over two decades.
Yet, the slow growth implied that Japan’s postwar growth model was no
longer at work after the crisis. The postwar growth model was premised
upon growth-based linkage between higher income, higher tax revenue,
higher private savings, higher corporate investment, and higher state
policy spending. And it was supported and implemented within the state
policy framework like industrial policy and public policy corporations
such as Japan policy development bank. As the depressed and deflationary
economy lowered household incomes and corporate profit levels, public
savings and tax revenues shrank drastically. A monetary policy which put
interest rates low, at near zero, also discouraged private savings. Moreover,
the aging society pushed household savings down. Consequently, declines
in private savings and tax revenues made it harder for the government to
make coherent public investment through industrial and urban and regional
policies. Nonetheless, the government kept spending on infrastructure in
the regions, with the consequence of even higher state budget deficits and
alienated urban residents who demanded policy for social equality and the
provision of better quality public goods and services. After all, the Japanese
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306 Kuniko Fujita
government did what it was required to do in a Keynesian liquidity trap in

which public investment was the only way to manage the economy
(Keynes, 1964; Krugman, 1998, 2009, 2011, 2012a; Koo, 2011).
As deflation deepened and recession was prolonged, the social and
political instability followed the crisis. The social and political instability
that resulted from public concern for the growing social inequality became
a highly political issue just as the prolonged recession in the US and
Europe triggered urban protest movements that expressed concerns over
inequality growth in the post-2008 global financial crisis. The Japanese
saw income inequality growing alarmingly high. Conditions for elderly
single women and mothers with children on welfare got worse (Shirahase,
2011). The homeless became more visible on the urban scene. And young
people faced no permanent employment opportunities.
The social and political instability forced state policy shift from produc-
tion and trade to innovation and consumption a decade later since the
crisis. The state emphasized innovation in science and technology in such
areas as nanotechnology, medical and welfare, information and environ-
ment, as well as services in health and welfare. The government linked
innovation to an international division of labor to solve global imbalances.
Japan would have its own niches in the international division of labor
according to its national comparative advantage; other countries would
have their own niches as well, and the global imbalances would diminish.
Japan’s exports to the US would then be reduced and Japan’s trade sur-
pluses would go down. In this way, Japan could keep R&D and higher
valued production within Japan, maintaining its international competitive-
ness. The policy focus on services came from the public politics of better
quality of life and social justice; services included healthcare, medical,
environmental, and social and welfare areas (Fujita, 2011).
Yet as the 2008 crisis, the second financial crisis in Japan, revealed, policy
shift turned out to be inadequate to alter Japan’s contribution to the global
imbalances as well as to meet urban public demands for better quality of
public services. Innovation policy led to more exports of higher-valued
products, such as hybrid cars, and did not result in reducing Japan’s trade
surpluses. Government policy shift to innovation and services was also half-
hearted. Political leaders and policy makers were still deeply committed to
economic nationalism and unable to embrace consumption and services
fully. They failed in moving away from trade surpluses (the global imbal-
ances). When the 2008 global financial crisis came, it hit Japan hard. It did
not hit Japan’s banking sector as severely as the 1990 crisis. But it triggered
a severe recession. Global recession, followed by the 2008 crisis, brought
Japan’s exports down drastically. Recession was again caused by global
imbalances, revealing state policy failure in promoting consumption and
services effectively. The integrated East Asian production network strategy

was what the government had initially planned to mitigate trade conflicts
with the US, but the result was more trade surplus and thus global imbal-
ances. As the 2008 crisis led US consumption to fall, US consumer demand
for made-in-China products fell drastically and production in China was
down. As production fell in China, China’s demand for Japan’s capital goods
fell and Japan’s exports were down. Consequently, the sudden fall in exports
led Japan to recession and high unemployment rates. The 2008 crisis proved
that state policy shift did little to alter Japan’s contribution to global imbal-
ances. The Japanese economy still largely depended more upon production
and exports than on domestic consumption and services (Fujita, 2011).
Crises and Spatial Income Inequality Growth in Tokyo
How were Japan’s two financial crises translated into Japanese cities?
National aggregate data may not convey the specific pictures of the crises
effects on cities. Tokyo, which includes the central city of 23 wards and
26 suburban cities, may provide the case that the financial crises could
trigger not only income inequality growth but also spatial income inequality
growth among neighborhoods. Followed is a close look at the effects
of the two financial crises on the spatial household income inequality
growth among Tokyo’s 49 districts (central city 23 wards and suburban
26 cities).
Tokyo’s Four Central Core Wards Leading Tokyo’s Spatial Household

Income Inequality Pattern
Where do the effects of the two crises appear in Tokyo most? This study
emphasizes the role of Tokyo’s central core four wards – Chiyoda, Chuo,
Minato, and Shibuya – in the 1990 financial crisis and 2008 global financial
crisis.
Table 10.1 shows trends in the distribution of per household income and
household income inequality, measured by the coefficient of variation,
among Tokyo’s 49 local districts (23 central city wards and 26 suburban
cities) between 1971 and 2009.9 Figure 10.3 shows spatial household
income inequality increased over the forty-year period, in an undulating,
wave-like pattern.
The inequality trend line crests twice, as shown in Figure 10.3. The first
and highest peak occurs in 1990 when the bubble burst. 1990 marks both
the pinnacle and the termination point for Japan’s first financial bubble.
The 1980s financial bubble created a steep rise in land values in Tokyo’s
four central core wards, relative to the rest of Tokyo. Soaring land values
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308 Kuniko Fujita
Table 10.1 Household income and household income inequality among Tokyo’s
49 districts (central city 23 wards and 26 suburban cities, 1971–2009, 10,000 yen)
1971 1975 1980 1985 1990 1995 2000 2005 2009
SD 14 29 36 54 115 77 77 112 139

Mean 103 195 286 360 492 485 449 430 447
SD/M 0.14 0.15 0.13 0.15 0.23 0.16 0.17 0.26 0.31
Sources: Japan Real Estate Institute (Nihon Fudosan Kenkyujo), Statistics on Real Estate (Fudosan
Toukei) for 1980–1990; Japan Marketing Education Center, Individual Income Indicators (Kojin
Shotoku Shihyo) for 1971 and 2000; JPS, Individual Income Indicators for 2005; and Ministry of
Land, Infrastructure, Transport and Tourism, Statistical Outlooks of Regions (Toukei de miru chiho no
sugata) for 2009.
Note: Per household income refers to total taxable household income divided by the total number of
households in each ward and city. Taxable household income includes the sum of salaries, bonuses,
income from individual businesses, pensions, interest on savings, dividends, rents and real estate sales,
after some work related expenses are deducted.

Figure 10.3 Household income inequality among Tokyo’s 46 districts (central city
23 wards and 26 suburban cities), 1971–2009.
Source: Based on Table 10.1.
spawned a huge increase in the average incomes of families living in the

central core, relative to outlying areas, thus issuing in the steep rise in
income inequality among Tokyo’s 49 districts between 1985 and 1990.
Spatial income inequality fell between 1990 and 2000, and then rose to a
second peak in 2009 just after the 2008 global financial crisis, again reflect-
ing parallel movements in land values and incomes in the four central
wards as well as the effects of the 2008 crisis which sucked 6 percent of
Japan’s GDP and raised unemployment rates to 5.6 percent. The resur-
gence of land values in the four central core wards between 2000 and 2009
mirrors a government-initiated urban redevelopment boom designed to
boost Japan’s stagnant economy (Fujita, 2011).
The Role of the Four Central Core Wards in Tokyo and Japan
As Tokyo’s spatial inequality data tell, the two financial crises’ epicenter is
Tokyo’s four central core wards which constitute Tokyo’s core central
business districts (CBD).10
Tokyo’s spatial income inequality rises and falls over time, in a wave-
like pattern, in line with fluctuations in the fortunes of the four central core
wards as seen earlier.
Figure 10.4 shows comparison of spatial income inequality among
Tokyo’s 49 districts and Tokyo excluding the four central core wards, by
household, between 1971 and 2009. Excluding the four central core wards,
Tokyo’s spatial income inequality comes down drastically and there is
almost no change over the past four decades, leading to a clear picture that
the four wards play a special role in the crises and make a difference in
Tokyo’s trend and pattern of spatial income inequality growth. The
distinctive wave-like movement in income inequality among Tokyo’s
49 districts, revealed when city wards and suburbs are combined at the
metropolitan level, actually applies only to central city wards; the inequality
trend among suburban cities is flat, displaying almost no variation over the
years between 1971 and 2009.11 Within the central city, the four central
core wards lead the distinctive wave-like movement in income inequality
among 23 wards.

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%QGHHKEKGPVQHXCTKCVKQP

'ZENWFKPIEGPVTCNYCTFU

Figure 10.4 Comparison of spatial household income inequality between Tokyo’s

49 districts (23 central city wards and 26 suburban cities) and Tokyo excluding 4 central
core wards, 1971–2009.
Source: The author’s drawing based on Table 10.1.
Land Values and Household Income

The four central core wards have by far the highest per household income
in Tokyo; there is little variation in per household income among the rest
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310 Kuniko Fujita
of Tokyo’s 23 central city wards and 26 suburban cities. The income of the
four central core wards in turn moves in lockstep with fluctuations in their
land value. Land value and per household income correlate highly in
Tokyo; but occupation and per household income correlate less (Fujita and
Hill, 2012).
Property assets peak in Tokyo’s central core area, decline precipitously
in adjoining areas, and flatten out over the rest of Tokyo. The sky-high
price of land in the central core wards and the L-shaped, tapering-with-
distance land price gradient reflect the functional primacy of Tokyo’s
CBD. Functional primacy refers to the central management activities of
Japan’s major economic, political, and sociocultural institutions which
concentrate overwhelmingly in Tokyo’s four central wards.12 The income
of a Tokyo ward and city correlates very highly with the value of land in
the district. The Pearson product moment correlation between a ward and
city’s per household income and the ward and city’s residential land value
per square meter was 0.83 in 2009. As expected, the four central core
wards stand out in the upper right quadrant (high income, high land value)
of the figure based on the Pearson product moment correlation among 49
local districts (Fujita and Hill, 2012).
Household Income Growth Change in the Four Central Core Wards

and Tokyo as a Whole
Table 10.2 shows household income growth change by Tokyo (49 districts)
and the four central core wards between 1971 and 2009. Household income
in the four central core wards went up extremely high during the bubble
years between 1985 and 1990 and dropped by 1995 after the bubble burst
in the first 1990 financial crisis, reflecting rise and fall of land values in
Tokyo’s CBD. By contrast, household income in the rest of Tokyo continued
to rise and peaked in 1995, five years after the 1990 crisis. Then, the rest of
Tokyo began to feel the time-lagged effects of the crisis as the depressed and
deflationary economy generated job losses and income declines. The second
2008 financial crisis did not hit the Tokyo economy and the banking sector
as hard as the first financial crisis did so that household income changes
fluctuated less for both Tokyo and the four central core wards. Yet, Tokyo as
a whole eventually shows household income decline as the 2008 crisis led
to sharp falls in exports and severe recession. By contrast, the four central
core wards show the continuous upward in household income but some
indicators like falling land values in Tokyo’s CBD imply that household
income in the four central core wards may decline in the years to come.
Figure 10.5 shows percent change in household income growth over the
same period calculated on the basis of Table 10.2. Percentage change
Table 10.2 Household income change by Tokyo’s 49 districts (23 central city wards and
26 suburban cities) and Tokyo’s 4 central core wards, 1971–2009, 10,000 yen.
1971 1985 1990 1995 2000 2005 2009
Tokyo 102 347 475 481 436 422 442

Central core wards
Chiyoda 137 608 1,064 872 753 846 866
Chuo 114 400 695 573 508 556 619
Minato 141 498 803 701 730 911 1,099
Shibuya 107 396 639 593 585 650 720
Sources: Japan Real Estate Institute (Nihon Fudosan Kenkyujo), Statistics on Real Estate (Fudosan
Toukei) for 1980–1990; Japan Marketing Education Center, Individual Income Indicators (Kojin
Shotoku Shihyo) for 1971 and 2000; JPS, Individual Income Indicators for 2005; and Ministry of
Land, Infrastructure, Transport and Tourism, Statistical Outlooks of Regions (Toukei de miru chiho no
sugata) for 2009.
shows more dramatic role played by the four central core wards in Tokyo’s
income inequality pattern. Between 1971 and 1975, average percent
growth in the four central core wards was 35 percent, while Tokyo’s
average household income growth was 83 percent. Tokyo’s house-
hold income growth was more than twice as high as that of the four central
core wards. This indicates that household income at the four central core
wards was traditionally much higher than the rest of Tokyo but income
growth did not take place in the four central core wards in the 1970s.
When the bubble rose, peaked and burst between 1985 and 1990, percent
income growth reversed between the four central core wards and Tokyo
(49 districts). Percent income growth in the four wards was 68 percent,
while Tokyo’s percent income growth went down to 37 percent. In the post
bubble years between 1990 and 1995, percent income growth in the four
wards sharply dropped to –14 percent, while Tokyo’s percent income
growth stayed at 37 percent. These figures also indicate that the asset
bubble was concentrated in the four wards and percent income growth was
also highly fluctuated in the four central core wards. By 2005, thanks to
public policy on urban redevelopment projects that inflated land values in
CBD again, average percent growth in the four central core wards was on
the way to a recover and reached 9 percent, while Tokyo’s average percent
growth recovered from the minus percent growth between 1995 and 2000
but remained as low as 3 percent. Between 2005 and 2009 just after the
2008 global financial crisis, average percent growth in the four central
core wards grew to 14 percent and Tokyo’s percent income growth also
grew to 4.8 percent. Notwithstanding percent growth in Tokyo and the
four central core wards, the effects of the 2008 crisis have yet to come. As
the 2008 crisis led to the sharp decline of land value in the four central core
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312 Kuniko Fujita

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Figure 10.5 Percent household income growth change by Tokyo (23 central city wards
and 26 suburban cities) and central core wards (Chiyoda, Chuo, Minato and Shibuya),
1971–2009
Source: The author’s drawing based on Table 10.2.
wards, income growth is also expected to decline there between 2010

and 2015.
Comparison of percent household income growth between the four
central core wards and Tokyo clearly tells that the four central core wards
played the leading role in shaping Tokyo’s income inequality trends and
pattern. In particular, Chiyoda, one of the four central core wards, shows a
striking role in percent growth in household income inequality in the first
1990 crisis, while Minato in the second 2008 crisis. Percent growth in
Chiyoda was lower than Tokyo’s average between 1971 and 1975 but
grew the highest at 75 percent in the four wards in 1990. After the 1990
crisis, Chiyoda never fully recovered the income levels of 1990. Chiyoda’s
percent income growth remained only 2 percent between 2005 and 2009,
lower than Tokyo’s average. On the other, percent growth in Minato was
the highest among the four central core wards and continued upward
between 2000 and 2009.
How does the spatial relationship between land value and income
account for the large income gap between Tokyo’s four central core wards
and the rest of Tokyo and the wave-like fluctuations in that income dispar-
ity over time? It is likely that a substantial segment of Tokyo’s rentier
class – land owners, brokers, builders, mortgage bankers and service pro-
viders who make their living from the real estate game – lives in the four
central wards. But all data show that Tokyo’s four central core wards are
not filled with the rentier class (Fujita and Hill, 2012). The four central
core wards contain a slightly higher percentage of households employed

in professional, technical, and managerial positions than the rest of
Tokyo, but by and large, Tokyo’s professional, technical, and managerial
jobs spread rather uniformly throughout the central city and suburbs.13
All kinds of occupational households live in the four central core
wards and happen to be trapped with real-estate bubbles and busts. Also,
Tokyoites who lived outside the four central core wards had nothing to do
with the inflated land and asset bubble and began to feel the impact of the
depressed economy gradually over the extended period. The bubble, which
had such a profound impact on income inequality among central core
four wards, barely affected the distribution of income among Tokyo’s
49 districts.
Cyclical Real Estate Booms and Busts

Functional primacy continues to inflate Tokyo’s land values relative to
other Japanese cities even in no-crisis times, especially in the four wards
where the headquarters of the nation’s central institutions are concent-
rated, while at the same time rendering Tokyo’s traditional CBD parti-
cularly sensitive to ups and downs in the real-estate and financial
markets. As noted above, land values in central Tokyo ballooned in the
latter half of the 1980s, collapsed in the early 1990s, remained low through-
out the 1990s, and turned upward again in the mid-2000s. Government
policies that counteracted the rise of the yen against the dollar in the mid-
1980s helped create speculative gambling on real estate and pushed land
prices in central Tokyo sky-high in the latter half of the 1980s (Fujita,
2003, 2011).14 Families who lived in the four central wards and who owned
land and did business in city real estate gained immense fortunes from
speculation-inflated prices during in the 1980s bubble. When the bubble
economy collapsed in the early 1990s, land prices plummeted 60 percent.
Families in the four core wards lost fortunes as fast as they had gained
them. As their income plummeted, income inequality among Tokyo’s
wards and suburban cities also dropped. Today, twenty years later, the
price of land in Tokyo’s central area is only one-fifth of the peak 1990
level.
The upward trend in land values in the 2000s was triggered by a public
policy-led urban redevelopment boom. The central government launched
a nationwide Urban Renaissance Policy to stimulate economic growth and
designated central Tokyo as one of the principal redevelopment areas. As
Tokyo’s functional primacy among Japanese cities continues to stand
out in new office development, the supply of new offices in Tokyo’s
central core has kept growing. Within the central city, the CBD occupied
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314 Kuniko Fujita
80 percent of new office supply between 2000 and 2005 (Fujita and Hill,
2012). Families in the central wards once again began reaping fortunes
from an investment boom, thus accounting for the second peak in
Tokyo’s spatial income inequality in 2009. Tokyo’s CBD land values
began falling again in 2010 in response to the economic downturn caused
by the 2008 global financial crisis (MLIT, 2010).15 Predictably adverse
impact of plummeting land prices on four central core ward incomes
suggests that spatial income inequality in the city is once again on the
decline.
Household income inequality among Tokyo’s 49 districts essentially
boils down to a large income gap between families residing in Tokyo’s
four central core wards and families in the rest of the city. That income gap
mirrors huge differences in land prices between the four central core wards
and outlying districts. Land values reach stratospheric levels in Tokyo’s
core wards, and there is very high, indeed a nearly perfect, positive
correlation between housing land value and per household income among
Tokyo’s 49 districts as seen earlier. On the other hand, per household
income and professional and managerial occupations are less strikingly
correlated among Tokyo’s 49 districts.16 Four central core wards’ incomes
rise and fall with booms and busts in land prices, so does income inequality
among the 49 districts in Tokyo as a whole.
Political Economy, Politics, Policies, and Redistributional Systems

that Keep Crisis Effects on Tokyo’s Spatial Income Inequality
Growth Moderate
The institutional power centers that underpin Tokyo’s functional primacy

in Japan’s urban system are concentrated in the four central core wards.
The gap between the fortunes of the four central core wards and the rest of
Tokyo essentially determines spatial income inequality in metro Tokyo;
there is almost no variation in per household income among communities
outside the four central core wards. The crises caused Tokyo’s spatial
income inequality growth. But this does not mean that Tokyo’s spatial
income inequality growth has turned to class-based residential segregation.
To begin with, Tokyo’s spatial income inequality has less to do with class
segregation. Land value and per household income correlate highly in
Tokyo; but occupation and residential segregation do not (Fujita and Hill,
2012). Tokyoites employed across the whole occupational spectrum live in
proximity to one another in neighborhoods throughout the metro area.
Economic structure, politics, policies, and redistributional systems can
explain why the two crises have not aggravated Tokyo’s spatial income
inequality growth into a class-based residential segregation.
Political Economy
Economic structure
Tokyo’s economy as a whole and central city economy in particular
are not skewed toward the finance, insurance, and real estate service
industry. The effects of global, technological, and urban changes on
the labor market and occupational structure have been gradual.17 In par-
ticular, globalization has less impacted wage and occupational structures.
Japan has shifted low valued production and used cheap labor abroad as
other developed countries have done. But simultaneously Japan kept
investing in technologies and upgrading production processes at home.
Technological investment in computerization and robotization has
not resulted in replacing human labor with machines and robots but
rather helped create people-based “lean production system” (Office of
International Affairs, 1990; Womack, et al., 1990; National Research
Council, 1998; Economist, 2012).18 The effects of globalization and tech-
nological change have been incremental. Also the government has been
engaged in managed trade and linked trade policy to domestic industrial
policy and regional Asian strategies. In consequence, percent changes in
metro Tokyo’s labor force have been moderate: professional, technical,
clerical, sales, service jobs have been increasing, while managerial and
production jobs have been declining.19
The compressed wage system

Wilkinson and Pickett (2009) argue that there are different routes to greater
equality: income distribution through a large welfare state is one; Japan’s
compressed wage system (before taxes and benefits) is another (2009:
236–237). Japan’s compressed wage system is perhaps the primary reason
why the effects of the crises did neither widen household income inequal-
ity nor translate spatial income inequality into class-based spatial segrega-
tion in Tokyo. Managerial salaries in Japan are on average only three times
larger than the wages of rank and file workers. A corporate president’s
salary seldom exceeds 10 times that of the lowest paid rank and file worker.
By contrast, executive pay at Standard & Poor’s 500 corporations in the
US averages 200 times the pay of the typical American worker (Anderson,
et al., 2010). Salaries and wages in Tokyo’s finance sector rank highest
among the nation’s industries but they are only 7 percent above the next
highest paying utility industry; 17 percent above information and telecom-
munication, education, medical and welfare; 32 percent above construc-
tion, manufacturing, wholesale, retail trade, and services; and 67 percent
above the lowest paying industry, restaurants and hotels (Fujita and
Hill, 2012).
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316 Kuniko Fujita
Compressed wages are particularly identified with the seniority

wage system, a practice prevailing in both the private and public sectors.
Wages are lowest for young workers who are at the beginning of their
careers, reach the highest level when employees are between the ages
of 50 and 60, and gradually decline thereafter. In principle, the longer
employees serve in the same company, the greater the skill levels they
attain and the higher the wages and bonuses they earn. The compressed
wage system is also linked to a collective approach to innovation. The
creation of new products and technologies is attributed to a team, a divi-
sion, and the corporation as a whole. Individual rewards exist but are less
valued. Furthermore, compressed wages shape households incomes. A
2005 Tokyo Metropolitan Government (TMG) survey found that the
income of employed households headed by managers exceeded Tokyo’s
average household income by just 41 percent. Managerial household
income was 16 percent higher than professional, 35 percent higher than
clerical, and 94 percent higher than production household income (Fujita
and Hill, 2012).
Government policy also helps the corporate sector retain the compressed
wage system. In economic downturns, like the recession triggered by the
2008 global financial crisis, the state provides subsidies to corporations to
assist them in maintaining employment.
The corporate practice of long-term investment also makes the com-
pressed wage system possible. Bond and equity markets and the finance
industry don’t play a major role in the Tokyo economy (or in the Japanese
economy as whole). More Japanese corporations raise capital from the
stock market these days but they don’t depend upon shareholders alone for
capital. Large corporations still look to the main banks with which they are
interlocked to purchase their bonds. Playing the shareholders’ role, main
banks do not place a priority on profit maximization. Freed from the pre-
ssure of quarterly dividend reports, companies are free to make long-term
investment plans that in turn make intra-corporate training possible.
Redistributional Systems, Public Policies and Institutions

Redistributional systems
Japan’s redistributional systems consist of the tax system, public education
system, and regional and urban development policy, which are all
centralized in the national government. And public resources and services
are more or less evenly allocated among cities and regions.
A centralized tax system plays the most important role in redistribution
as a centralized public education system does, and prevents the crisis
effects from turning Tokyo’s spatial income inequality into class-based
residential segregation. As the headquarters site for large corporations and

the dwelling place for high-income residents, Tokyo’s four central core
wards is a tax-rich locale. Ninety-eight percent of the central city’s corpo-
rate tax revenues are generated in just three core wards: Chiyoda, Chuo,
and Minato. But Japan’s tax system doesn’t allow tax-rich ward govern-
ments to simply retain the revenue for their own purposes. The state redis-
tributes the revenue throughout Japan. Tokyo Metropolitan Government
also collects taxes from the 23 wards – each of which functions as a city
and elects a mayor but does not have tax collecting power as suburban
cities – and redistributes the revenues throughout the central city based
upon urban development priorities and public service needs. Residents in
the four core wards pay much higher income taxes per household than
Tokyoites dwelling in districts elsewhere in the metro area. Tax inequality
among Tokyo’s districts is much higher than income inequality, indicating
that Tokyo’s income tax system is progressive and redistributive. A corre-
lation between per household income and per household tax was indeed
very high (0.96) in 2009 (Fujita and Hill, 2012).
The welfare state

The welfare state in Japan does not play a major role in after-market
income distribution. The Japanese political economy rather emphasizes
pre-market distributional mechanisms in which the government plays the
major role. Government policies, for instance, emphasize a full employ-
ment strategy through a fiscal investment policy that redistributes tax rev-
enues from tax-rich metropolitan areas to poor rural areas, public policy
assistance that enables big firms to maintain their workforce and the
corporate welfare system during economic downturns, and subsidies that
help maintain a myriad of otherwise uncompetitive small businesses.
Government’s full employment policy has thus played a surrogate role for
the welfare state.
As the 2008 crisis aftermath and recession worsened, employment con-
ditions were such that one-third of the nation’s workforce was in tempo-
rary employment, the government promoted the welfare state seriously for
the first time and incorporated social inequality issues into the low-
carbon-society policy. The government provided working women with
children, the temporary workforce, and the disabled with social and
welfare programs. But the state welfare measure was not a welfare state in
the Northern European sense. Its rationale meant that public investment
in social welfare would create more jobs and therefore enhance quality of
life through employment. The new welfare measure has not helped
young people who suffered most since the first 2009 financial crisis. Two
decades of slow economic growth have created a generation with
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318 Kuniko Fujita
substantial numbers who have missed out on full-time employment

opportunities.
National politics and policies

When Japan felt the effects of the 2008 crisis, the government prompted a
stimulus package of 75 trillion yen, 2 percent of Japan’s GDP, injected into
the economy.20 The other side of the stimulus policy was the low-carbon
society policy that directed to promote innovation and services and inte-
grated economic, environmental, and international trade policies. The
low-carbon society policy was to help keep global imbalances down. The
government implemented it through public stimulus and fiscal policies: It
financed it through tax increases on higher-income families and individu-
als by reversing previous policy tax cuts on capital gains and dividends,
renationalization of partially privatized postal services, increasing con-
sumption tax, and introduction of the carbon-trade system (Fujita, 2011).
Tokyo’s policies and politics

Japanese government takes an integrated approach to intergovernmental
relations, emphasizing the benefits to be gained from central-local coordi-
nation, shared responsibilities, and intertwined competencies among levels
of government. TMG’s urban policy is couched within the central state’s
fiscal investment policy framework. Within this centrally coordinated but
locally specified plan, Tokyo planners choose new areas for investment
and job growth and plan the revitalization of older industrial areas and
declining downtown commercial districts. They allocate funds for trans-
port networks, for example, not only to alleviate traffic and population
congestion, but also in response to public concerns about unemployment
rates, population decline, and depressed industries (Fujita, 2003).
The 1990 crisis hit Tokyo hardest as 95 percent of Japanese banks were
concentrated in Tokyo. The banking crash and the economic depression
which followed led to higher jobless rates in Tokyo than elsewhere in
Japan and a drastic fall in tax revenue in the 1990s. As an economic
revitalization policy the TMG initiated urban redevelopment projects on
vacant land owned by itself and by the state. Tokyo’s policy demands for
relaxed regulations on land use and urban planning were soon implemented
in a nationwide urban redevelopment policy called the Urban Renaissance
Policy. The Urban Renaissance Policy incorporated growth and better
quality of life and aimed at improving the urban environment by reducing
carbon emissions and redeveloping densely packed areas to protect against
fires and earthquakes. The ultimate state policy goal was to guide the
economy to grow in the direction of the sustainable and internationally
competitive cities that the state desired. This national policy framework
for urban redevelopment helped the TMG facilitate and expand its
redevelopment projects, both in the central city and in the suburbs. It also
enabled Japan’s big corporations headquartered in Tokyo’s downtown to
respond to state policy to great effect and helped boost the TMG’s tax
revenue. Japan’s big corporations were land and property owners in the
central business districts (CBD), and led a several-trillion-yen restructuring
of Tokyo’s CBD (Fujita and Hill, 2008).
Intergovernmental relations between the state and Tokyo enable policy
flows but are not free of political tensions and contradictions. Different
policy goals, which mostly emanate from the hierarchical government
structure, inevitably create tensions between central and local states like
the TMG. The TMG’s policy goal in urban redevelopment was a sustain-
able and safe city, while stimulating innovation and creating new markets
in the new green urban economy. Yet the national policy framework turned
out to be far more inclined towards growth to revitalize the national
economy than to improve quality of life. As the TMG’s policy was often
subject to public opposition, and was shaped by public activism, grassroots
voices raised against Tokyo’s redevelopment projects (Fujita and Hill,
2008).
Conclusion
The financial crises and income inequality growth are highly connected,
whether crises caused income inequality growth or inequality caused the
crises. And the effects of the crises on income inequality growth vary
country to country, depending upon national redistributional systems and
politics and policies.
Tokyo’s residential household income inequality pattern, measured by
coefficient of variation, has traditionally been established between the four
central core wards in Tokyo’s CBD and the rest of Tokyo. Tokyo’s spatial
inequality trend has been cyclical over the past four decades: Inequality
fell in the 1970s, rose in the 1980s, fell in the 1990s, and rose again
between the 2000s in a wave-like pattern. The first rise in the 1980s was
caused by the bubble, while the fall in the 1990s was caused by the 1990
catastrophic bust. The second rise in the 2000s was caused by the small
bubble that government urban redevelopment policy created to revitalize
the economy, while the fall in 2009 was caused by recession triggered by
the 2008 global financial crisis.
Tokyo’s wealthy four central core wards played a crucial role in the two
crises, leading Tokyo’s spatial household income inequality growth trends
and pattern for the entire 23 wards of the central city and the entire Tokyo
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320 Kuniko Fujita
metropolitan area. The fluctuating fortunes of the four wealthy wards have
been brought about by estate markets, which have largely determined the
rise and fall of residential income inequality in Tokyo as a whole. No data
indicate that globalization, technological change, and urban redevelopment
projects which have, some argue, turned to neo-liberal direction, have
shaped Tokyo’s spatial income inequality growth trends and pattern. It
was the two financial crises that caused Tokyo’s spatial income inequality
growth.
Notes
1 A few studies include Galbraith and Jiaqing (1999) who did research
on metropolitan regions in Latin America; Olafsson, et al. (2010) on Iceland; Habib, et al.
(2010) on developing countries; McKenzie (2010) on Japan; Galbraith, et al. (2009)
on Beijing; United Nations (2009) on selected countries; and Cornia (2012) on Latin
America.
2 Exception is Reardon and Bischoff (2011) and Weinberg (2011) on American
Metropolitan Area and Beverage (2011) on New York City.
3 Stiglitz (2012a) argues that the government distorted the economy by giving a
preference to derivatives, making student loans non-dischargeable, providing inadequate
supervision and thus supporting the unfettered global financial industry which were backed
by the Washington consensus, the World Bank, BIS and which fancied fantastic profits that
could be accrued by taking risks. He also argues that deregulation, weakened unions, and
unbridled CEO pay, the excessive financialization, and financial innovation directed at
circumventing the regulations gave rise to the instability that led to the crisis. In this income
redistribution from the bottom of the top, Stiglitz contends, there is insufficient demand to
keep the economy growing. “The Fed compensated for that by creating a bubble. It was a
temporary palliative.” “It’s absolutely clear there was inadequate regulation; it led to a sub-
prime bubble” (Stiglitz, 2012b).
4 Rajan argues as follows. Broadening access to housing loans and home ownership
was an easy, popular, and quick way to address perceptions of inequality. Politicians set
about achieving it through the agencies and departments they had set up to deal with the
housing debt disasters during the Great Depression. Ironically, the same organizations may
have helped precipitate the ongoing housing catastrophe. Both the Clinton administration’s
attempt to make housing affordable to the less well-off and the Bush administration’s
attempt to expand home ownership were laudable. They were also politically astute in that
they focused on alleviating the concerns of those being left behind while buying time for
more direct policies to work. But the gap between government intent and outcome can be
very wide indeed, especially when action is mediated through the private sector. Any
instrument of government policy has its limitations, and what works in small doses can
become a nightmare when scaled up, especially, when scaled up quickly. Some support to
low-income housing might have had benefits and prompted private sector reaction (Rajan,
2010: 44).
5 See http://utip.gov.utexas.edu/
6 Leveraged Buyout
7 Krugman (1998) too argues that Japan’s 1990 crisis was Japan’s own.
8 Today, emerging economies are doing the same thing as Japan did thirty years ago.
9 For individual income inequality among Tokyo’s 23 wards ad 26 cities, see (Fujita
and Hill, 2012)
10 Tokyo has many CBDs in both central city and suburbs. The CBD made of the
4 central core wards is, however, called Tokyo’s traditional CBD.
11 In sharp contrast to the central city, income inequality among suburbs, negligible
to begin with, actually fell slightly (8 percent) over about 40 year period (Fujita and Hill,
2012).
12 The centrifugal power or functional primacy exerted by the CBD is also indicated
by the ratio of daytime to resident population in the central wards: The daytime population
is 20 times larger than the resident population in Chiyoda ward; 6.6 times in Chuo ward;
and 5 times in Minato wards.
13 Measured by coefficient of variation, the Professional and Managerial (P&M)
distribution inequality among Tokyo’s 49 districts is quite low at 0.213 in 2005 (Fujita and
Hill, 2012).
14 Three decades of high and rapid rates of growth, deregulation of foreign currencies,
and successful American pressure on Japan to raise the value of the yen against the dollar
in the mid 1980s, all contributed to the makings of the asset bubble.
15 Between 2009 and 2010, housing land value per square meter declined 11 percent
on average in 4 central core wards, while Tokyo as a whole declined 6.8 percent (MLIT,
2010).
16 The correlation is 0.75.
17 Many studies show negative impacts of global and technological changes on labor
markets (Acemoglu and Autor, 2010; Jaumotte, et al., 2008; Ford, 2009).
18 Japan’s case belies pessimistic views that human workers would fail to adapt to
the quickening pace of technological changes raised by Brynjolfsson and McAfee (2011)
and Ford (2009). These authors of course focus on digital revolution, the third industrial
revolution, or the new industrial revolution which are exemplified by the use of 3D printers.
Japan has long been engaged in the third industrial revolution (Anderson, 2012).
19 For an entire Tokyo metro area, between 1980 and 2005, changes in occupational
trends were incremental: professional and technical workers increased from 11.3 percent
to 17.1 percent and clerical, sales and services workers grew from 54.0 percent to
56.2 percent, while managerial workers decreased from 7.0 to 3.1 and production workers
and laborers from 26.7 percent to 19.9 percent (Fujita and Hill, 2012).
20 Unlike the 1990 crisis, this time the government pumped sufficiently large
amounts of money into the corporate sector, quickly enough, to counteract the effects of the
crisis.
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Cities and Crisis

Cities and Crisis

New Critical Urban Theory

Kuniko Fujita is Professor of Sociology at Michigan State University.

SSIS SERIES SAGE Studies in International Sociology

Cover image © Nick Sinclair/Alamy

Series Editor (2010–ongoing)

SAGE Publications Ltd All Editorial Matters © Kuniko Fujita 2013

Editor: Chris Rojek

Library of Congress Control Number:

British Library Cataloguing in Publication data

A catalogue record for this book is available from

List of Figures vii

1 Introduction: Cities and Crisis: Challenges for Urban Theory 1

2 “Global Cities”, World Power, and the G20 Capital Cities 52

3 Was the US Sub-prime Crisis the Prime Mover?

4 After Wall Street? New York’s Green Economy Imaginaries 114

5 World Capitals of Capital, Cities and Varieties of Finance

6 Seeing New York City’s Financial Crisis in the Vernacular

7 Ports in the Global Urban Hierarchy 219

8 Athens and the Politics of the Sovereign Debt Crisis 237

9 Globalization and Urban Insecurity:

10 Financial Crises and Spatial Income Inequality Growth:

Figure 5.1 Annual percent change in employment in finance/

Figure 6.4 Distribution of foreclosures in New York City,

Figure 10.1 Top 1 percent income share in selected countries

Table 2.1 City budgets as percentage of national budgets

Table 10.1 Household income household income inequality among

About the Contributors

Kuniko Fujita, Ph.D. is retired Professor of Sociology. She taught

Alexander Hicks is Professor of Sociology and Associated Faculty in

mostly on the politics and economics of social and economic policy in

Chris Pickvance is Emeritus Professor of Urban Studies in the School of

Göran Therborn is Professor Emeritus of Sociology at the University of

Jerome Krase, Murray Koppelman Professor, and Professor Emeritus, at

Michael Indergaard is a Professor in the Department of Sociology and

with Robert Tillman). His articles include: “Making Networks, Remaking

Nicos Souliotis studied Sociology in the Panteion University, Athens, and

Sophie Body-Gendrot, Ph.D. in political science (Sciences-po, Paris), is

consultant for the European Commission on criminological and urban

Timothy Shortell, Ph.D., is Associate Professor and Director of the M.A.

Study of Religion, and the International Visual Sociology Association, and

The 2008 Global Financial Crisis, Cities and New Challenges

developing countries like China, India, Brazil, Russia and oil-producing

other American cities. Urban protest movements also appeared in

Yet, contemporary urban theories have never taken a financial crisis

The 2008 crisis with a view to history

The Crisis Perspective

A financial crisis is a huge and unnecessary wasting, taking huge social

The Keynesian Crisis Theory

US economy back to work and continued to lead to the postwar growth.

Minsky moment: instability

Liquidity trap and debt deflation

Role of government and central bank

Trade imbalances: China and the US

The functions of currency devaluation

imbalances need to get adjusted. It requires more than China consuming

Regional Imbalances within the Euro Zone

boom. Furthermore, governments were lulled into excessive borrowing

unemployment rates in GIPSI (OECD, 2012; Scarpetta, et al., 2010;

The Crisis and Inequality Growth

Inequality–crisis causal theory

List of Figures vii

1 Introduction: Cities and Crisis: Challenges for Urban Theory 1

2 “Global Cities”, World Power, and the G20 Capital Cities 52

3 Was the US Sub-prime Crisis the Prime Mover?

4 After Wall Street? New York’s Green Economy Imaginaries 114

5 World Capitals of Capital, Cities and Varieties of Finance

6 Seeing New York City’s Financial Crisis in the Vernacular

7 Ports in the Global Urban Hierarchy 219

8 Athens and the Politics of the Sovereign Debt Crisis 237

9 Globalization and Urban Insecurity:

10 Financial Crises and Spatial Income Inequality Growth:

Figure 5.1 Annual percent change in employment in finance/

Figure 6.4 Distribution of foreclosures in New York City,

Figure 10.1 Top 1 percent income share in selected countries

Table 2.1 City budgets as percentage of national budgets

Table 10.1 Household income household income inequality among