Policy Update 017 Pre-event Interview No.3

Global Cities: Strategic Roles and Socio-Political Implications

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

RIETI: 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 (a) the spatial organization of the urban economy, (b) the structures for social reproduction, and (c) the organization of the labor process. In these trends towards multiple forms of polarization lie conditions for the creation of 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. One of these pressures is towards polarization, as is the case with the possibility for superprofits in finance, which contributes to devalorize manufacturing and low-value added services insofar as these sectors cannot generate the superprofits typical in much financial activity.

The superprofit-making capacity of many of the leading industries is embedded in a complex combination of new trends: technologies that make possible the hypermobility of capital at a global scale and the deregulation of multiple markets that allows for implementing that hypermobility; financial inventions such as securitization, which liquefy hitherto illiquid capital and allow it to circulate and hence make additional profits, the growing demand for services in all industries, along with the increasing complexity and specialization of many of these inputs that has contributed to their valorization and often over-valorization, as illustrated in the unusually high salary increases beginning in the 1980s for top level professionals and CEOs. Globalization further adds to the complexity of these services, their strategic character, their glamour, and therewith to their overvalorization.

The presence of a critical mass of firms with extremely high profit-making capabilities contributes to a bidding up of the prices of commercial space, industrial services, and other business needs, and thereby makes survival 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. High prices and profit levels in the internationalized sector and its ancillary activities, such as top-of-the-line restaurants and hotels, make it increasingly difficult for other sectors to compete for space and investments. Many of these other sectors have experienced considerable downgrading or displacement, for example, the replacement of neighborhood shops tailored to local needs by upscale boutiques and restaurants catering to new high-income urban elites.

These trends have generated a large growth in the demand for low-wage workers and for jobs that offer few advancement possibilities. This, amid an explosion in the wealth and power concentrated in these cities - that is to say, in conditions where there is also a visible expansion of high-income jobs and high-priced urban space.

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. For instance, the polarization among firms and households, and in the spatial organization of the economy, contributes, in my reading, to the informalization of a growing array of economic activities in advanced urban economies. When firms with low or modest profit-making capacities experience an ongoing if not increasing demand for their goods and services from households and other firms in a context where a significant sector of the economy makes superprofits, they often cannot compete, even though there is an effective demand for what they produce. Operating informally is often one of the few ways in which such firms can survive: for example, using spaces not zoned for commercial or manufacturing uses, such as basements in residential areas, or space that is not up to code in terms of health, fire and other such standards. Similarly, new firms in low-profit industries entering a strong market for their goods and services may only be able to do so informally. Another option for firms with limited profit-making capabilities is to subcontract part of their work to informal operations.2

The reconstitution of the sources of growth and of profit-making entailed by these transformations also contributes to a reorganization of some components of social reproduction or consumption. While the middle strata still constitute the majority of urban residents, the conditions that contributed to their expansion and politico-economic power in the postwar decades - the centrality of mass production and mass consumption in economic growth and profit realization - have been displaced by new sources of growth.

The rapid growth of industries with strong a 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.

In good part the consumption needs of the low income population in large cities are met by manufacturing and retail establishments which are small, rely on family labor, and often fall below minimum safety and health standards. In many of the Western cities, cheap, locally produced sweatshop garments, for example, can compete with low-cost Asian imports; further, a growing range of products and services, from low-cost furniture made in basements to "gypsy cabs" and family daycare, is available to meet the demand for the growing low-income population.

One way of conceptualizing the fact of growing informal economies in some of the majors cities (New York, Paris, London, et cetera) in advanced urban economies today is to posit it as the systemic equivalent of what we call deregulation at the top of the economy (See Sassen 1998: chapter 8). 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.3

We can think of these developments as constituting new geographies of centrality and marginality that cut across the old divide of poor and rich countries, and new geographies of marginality that have become increasingly evident not only in the less developed world but inside 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.

Interview conducted by Takako Kimura, online editor, on March 15, 2005.

  1. More generally, we are seeing the formation of new types of labor market segmentation. Two characteristics stand out. One is the weakening role of the firm in structuring the employment relation. More is left to the market. A second form in this restructuring of the labor market is what could be described as the shift of labor market functions to the household or community.
  2. Linking informalization and growth takes the analysis beyond the notion that the emergence of informal sectors in cities like New York and Los Angeles is caused by the presence of immigrants and their propensities to replicate survival strategies typical of Third World countries. Linking informalization and growth also takes the analysis beyond the notion that unemployment and recession generally may be the key factors promoting informalization in the current phase of highly industrialized economies. It may point to characteristics of advanced capitalism that are not typically noted. For an excellent collection of recent work focusing on the informal economy in many different countries see Parnreiter et al. (1997).

March 15, 2005