RIETI Report March 2005

Global Cities: Strategic Roles and Socio-Political Implications
<RIETI Special Interview> Saskia SASSEN

This month's featured article

Global Cities: Strategic Roles and Socio-Political Implications
<RIETI Special Interview> Saskia SASSEN

Saskia SASSENProfessor, Department of Sociology, The University of Chicago / Centennial Visiting Professor, London School of Economics

Greetings from RIETI

At this time of year, visitors to Japan are apt to encounter people in sterilized masks. The problem isn't an epidemic: People are doing their best to ward off the ravages of hay fever season. Although hay fever may seem a minor annoyance, its economic impact is significant. According to a recent report by the Dai-Ichi Life Research Institute, pollen allergies may lower Japan's GDP for the quarter by 0.6%. On the other hand, pollen in the nose is a lucrative business for pharmaceutical companies: The "Voice of America" news service reports Japanese spend some $2 billion annually on allergy medicines, or about 20% of worldwide sales. "Odaijini." (Take care of yourself.)

Ahead of the March 18, 2005 RIETI Policy Symposium "Rise and Fall of World Cities - Implications for Greater Tokyo, Japan and Asia," "RIETI Report" spoke with Dr. Saskia Sassen, Professor of Sociology at the University of Chicago. Dr. Sassen's expertise includes globalization studies, immigration, and urban studies. She is a keynote speaker at the upcoming symposium. Excerpts of the interview are below. To read the entire text of the interview, please click here.

Special Interview

Saskia SASSEN
Professor, Department of Sociology, The University of Chicago / Centennial Visiting Professor, London School of Economics

Dr. Sassen has just completed a five-year project on sustainable human settlement for UNESCO for which she set up a network of researchers and activists in over 50 countries. She has written many books, which have been translated into 15 languages. She serves on several editorial boards and is an adviser to a number of international bodies. She is a Member of the Council on Foreign Relations, a member of the National Academy of Sciences Panel on Cities, and chair of the Information Technology and International Cooperation Committee of the Social Science Research Council (USA). She obtained a Ph.D. from the University of Notre Dame in 1974 and an M.A. from Universite de Poitiers in 1973. Dr. Sassen's major works include Denationalization: Territory, Authority and Rights in a Global Digital Age, Princeton University Press, 2005; Socio-Digital Formations: New Architectures for Global Order (co-ed.), Princeton University Press, 2005; Global Networks/Linked Cities (ed.), Routledge, 2002; and The Global City (updated edition), Princeton University Press, 2001.

RIETI Report: In your book, The Global City: New York, London, Tokyo (2001), you state, "The global city is a function of cross-border networks of strategic sites." Could you elaborate on the strategic role that global cities play in the world economy?

Sassen: One way to answer this question is to ask why cities matter at all in a global economic system operating in good part through electronic markets and global communications that facilitate geographic dispersal. In the 1980s, a dominant discourse on globalization and technology posited the end of cities as important economic units. There was a tendency in that dominant discourse to take the existence of a global economic system as a given. My counterargument was that the capabilities for global operation, coordination and control contained in the new information technologies and in the power of transnational corporations need to be produced. By focusing on the "production" of these capabilities, we recover the city because it is one of the strategic spaces for the production of complex capabilities. These operations require intensely networked, specialized service sectors such as accounting, legal, advertising, financial, and communications to address the high levels of uncertainty and speculation that characterize globalized economic sectors. Further, this type of analysis adds a neglected dimension to the prevalent notion that the global economy is a result of the power of large corporations and the capacity of new technologies to neutralize distance and place. Cities remain ideal places for the production of specialized services, especially when they are complex and interwoven, and meant to serve global markets.

What matters here for the analysis of the role of cities in the global economy is that, to a very large extent, these central functions originate and are produced in cities. Further, the growing complexity of these functions has meant that large corporate headquarters outsource the production of these central functions to specialized services. We thus can have a situation where a corporation can locate its headquarters anywhere so long as it has access to a concentrated, state-of-the-art, specialized services sector. Today, after a decade and a half of deregulation and privatization around the world, this organizational architecture is located in a network of some 40 cities. At the heart of the specialized production capability that characterizes a global city is a mix of unique service functions.

Insofar as a growing range of sectors in national economies are becoming integrated into the global economy, global city production capabilities can involve multiple sectors. Finance, though the major sector typically, is but one. Global media, high tech, trade, and certain types of manufacturing have been internationalized. A city like New York combines these capabilities to handle the global operations in many different sectors, not just finance. The same is true for London, Tokyo and Paris and, to some extent, Frankfurt. Cities such as Mexico City, Sao Paulo and Seoul handle all the major globalized sectors of their economies and are in that regard full-blown global cities.

It is perhaps one of the great ironies of our current international system that its master industry, finance, is characterized by a combination of geographic spread and a simultaneous concentration of resources and critical operations. We have long argued that trade can be far more "democratic" than finance: A small country can become articulated with global trade markets for its benefit. In terms of finance, a small, weak country will be either completely ignored or destroyed by the system.

To a large extent the major business centers in the world today draw their importance from transnational networks that bind the major international financial and business centers together - New York, London, Tokyo, Paris, Frankfurt, Zurich, Amsterdam, Los Angeles, Sydney, Hong Kong. But this network now also includes cities such as Bangkok, Seoul, Taipei, Shanghai, Sao Paulo, and Mexico City. The intensity of transactions among these cities, particularly through the financial markets, trade in services, and investment, has increased sharply. This has consequences for the role of urban systems in national territorial integration. National urban systems are being partly unbundled as major cities become part of a new or strengthened transnational urban system.

RIETI Report: You argue that global cities such as New York, London, and Tokyo fulfill coordinating roles and functions, rather than compete against each other. But in the past decade or so the pattern of international capital flows among these three cities has changed significantly. How would you describe the roles and functions of these cities today?

Sassen: In the 1980s, when almost everyone saw competition among major cities, I began to find a certain division of functions among New York, London and Tokyo. Emphasizing a division of functions, even if incipient and elementary, enabled me to capture an emergent global system for finance, even if national tasks continued to prevail in each center. Not all stock markets, for example, are equal. A division of labor emerges among these centers, a feature that adds to the networking nature of the global market and reflects a major difference between current markets and the pre-1980s period of highly regulated national markets. Both in the 1980s and today, New York has a very special function: It is the major center for financial innovation. This entails a tight collaboration with legal and accounting experts and their much-needed creativity. I have described Wall Street as the Silicon Valley of finance. London remains the preeminent international banking and financial center - far more international than any other city. And Tokyo, since the 1980s, has been the key provider of rather unprocessed capital - an exporter of the raw commodity, so to speak.

An issue that jumps out of this discussion is the continuing weight of major business centers in an increasingly internationalized and digitized system. It is particularly pronounced in the case of finance, the most globalized and electronic of all industries, and in leading service industries. These features suggest that location should not matter. In fact, geographic dispersal would seem advantageous given the high cost of operating in major cities. Further, over the last 10 years we have seen an increased geographic mobility of all types of corporate expertise. So why do we have business centers at all?

At least three reasons present themselves. The first is the importance of social connectivity and central functions. Although communications technologies do indeed facilitate geographic dispersal of economic activities, they also strengthen the importance of central coordination and control functions for the global enterprise. Second, corporations operating in a global economy need prodigious resources, a trend that is leading to rapid mergers and acquisitions as well as strategic alliances. A third factor is the denationalization of elites and their agendas. National attachments and identities are weakening for both global enterprises and their customers. This trend is particularly strong in the West, but may develop in Asia as well. This process of denationalization has been strengthened by state policies that enable privatization and foreign acquisition. In some ways, one might say that the Asian financial crisis has functioned as a mechanism to denationalize control, at least partly, over key sectors of Southeast Asian economies which, while allowing the massive entry of foreign investment, never wholly relinquished that control.

RIETI Report: You mention increased income polarization as an important social phenomenon driven by the globalization of economic activity. Could you briefly explain this issue?

The implantation of global processes and markets in major cities has meant that the internationalized sector of the urban economy has expanded sharply and has imposed a new set of criteria for valuing or pricing various economic activities and outcomes. This has had devastating effects on large sectors of the urban economy. It is not simply a quantitative transformation; we see here the elements of a new economic regime. These tendencies towards polarization assume distinct forms in the spatial organization of the urban economy, the structures of social reproduction, and the organization of labor. These trends towards multiple forms of polarization create the conditions for employment-centered urban poverty and marginality, and for new class formations.

The ascendance of the specialized services-led economy, particularly the new finance and services complex, engenders what may be regarded as a new economic regime because although this sector may account for only a fraction of the economy of a city, it imposes itself on that larger economy; the superprofits produced in the financial sector devalorize manufacturing and low-value added services insofar as these sectors cannot generate the superprofits typical in much financial activity. The presence of a critical mass of firms with extremely high profit-making capabilities bids up the prices of commercial space, industrial services, and other business needs, and thereby makes life for firms with moderate profit-making capabilities increasingly precarious. And while the latter are essential to the operation of the urban economy and the daily needs of residents, their economic viability is threatened in a situation where finance and specialized services can earn superprofits. These trends have generated a large growth in the demand for low-wage workers and for jobs that offer few advancement possibilities, ironically, amid an explosion in the wealth and power concentrated in these cities. Inequality in the profit-making capabilities of different sectors of the economy has always existed. But what we see happening today takes place on another order of magnitude and is engendering massive distortions in the operations of various markets, from housing to labor.

The rapid growth of industries with a strong concentration of high- and low-income jobs has assumed distinct forms in the consumption structure, which in turn has a feedback effect on the organization of work and the types of jobs being created. The expansion of the high income work force in conjunction with the emergence of new cultural forms has led to a process of high income gentrification that rests, in the last analysis, on the availability of a vast supply of low wage workers.

One way of conceptualizing the fact of growing informal economies in some of the major cities - New York, Paris, London, et cetera - is to posit it as the systemic equivalent of deregulation at the top of the economy. Both the deregulation of a growing number of leading information industries and the informalization of a growing number of sectors with low profit-making capacities can be conceptualized as adjustments under conditions where new economic developments and old regulations enter into growing tension. We can think of these developments as constituting new geographies of centrality and marginality that cut across the old divide between poor and rich countries, and new geographies of marginality that have become increasingly evident, not only in the less developed world but within highly developed countries. Within major cities in both the developed and developing world, we see a new geography of centers and margins that not only strengthens existing inequalities but sets in motion a whole new dynamic of inequality.

The program for the RIETI Policy Symposium "Rise and Fall of World Cities - Implications for Greater Tokyo, Japan and Asia" is available at: http://www.rieti.go.jp/en/events/05031801/info.html

To read the interview with Professor Scott (Policy Symposium Pre-event Interview No.1), go to: http://www.rieti.go.jp/en/special/policy-update/017.html

To read the interview with Professor Aoyama (Policy Symposium Pre-event Interview No.2), go to: http://www.rieti.go.jp/en/special/policy-update/017_2.html

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