Cities in the New Global Economy

Although it has been eerily absent from the Clinton administration's otherwise ambitious economic program, an urban economic crisis persists in America. As the economy continues to globalize, it helps to think of the urban economic question as having two parts: Do large central-city economies have competitive functions that will enable them to prosper, or are they outmoded relics of an earlier economic age? And can the increasing numbers of racial and ethnic minorities and poor people who live in the central cities be integrated into urban economies (and for that matter political systems) in ways that generate upward mobility and social equality? To the extent that the answers are negative, we can expect more trouble.

Today these enduring questions are clearly being posed in a new way in both Europe and in the United States. Since the early 1970s, the collapse of the Bretton Woods system of more insulated national economies, the oil shocks, and the end of American hegemony in world politics have marked the increasing integration of national economies into a new international division of labor. This process has led to the deindustrialization of large, old manufacturing cities of the advanced societies, the rise of new landscapes of high-technology industry and "edge city" office complexes, the concentration of advanced corporate-service activities in a relatively small number of large cities, and the economic displacement of the unskilled urban poor.

Simultaneously, big cities in the advanced societies also have attracted many migrants fleeing political instability and seeking economic opportunity. This migration has altered the nature of racial and ethnic succession and competition not only in the U.S. but also in Europe and even Japan. Rapid changes in telecommunications, computer, and transport technology have accelerated these trends. (It is easy to forget that the reliable transatlantic phone call is only 36 years old, the personal computer only a decade old, and the personal fax machine not even that.)

These dramatic changes seem to produce new and more vexing forms of urban inequality. While large central cities in the U.S. and other advanced economies contain people who benefited handsomely from the new global economic order, many--perhaps most--residents were hurt by economic restructuring or excluded from its benefits. In addition to the immigrant influx, large U.S. and European cities have experienced increasing poverty rates, low rates of labor force participation, and rising dependency on social welfare. Some industrial cities where racial conflict was severe, like Detroit, experienced catastrophic decline.

These conditions raise troubling questions: Have traditional central cities lost out to "edge cities" detached from the old urban terrain? Does economic restructuring inevitably lead to greater urban inequality and intergroup conflict? Can public policy at the urban, regional, or national level affect these trends, and if so, how? Whether we contemplate the decline of Detroit, the explosive growth of Orange County, or conflict in South Central Los Angeles, Manhattan's Washington Heights, or Liberty City in Miami, we see that cities are (as perhaps they always have been) fulcrums of large-scale social change. Can an increasingly fragmented and divided metropolitan citizenry cope?

Despite the reluctance of national political leaders to focus on urban issues, the works discussed in this essay suggest the urban crisis is receiving plenty of scholarly attention. While there is no consensus, my reading of the debate suggests that many, though not all, large central cities still have pivotal functions that will enable them to compete in the global economy. The most important have to do with finance, law, accounting, and other advanced corporate services. Nonetheless, cultural institutions, universities, foundations, think tanks, and government agencies clustered in these cities provide a congenial base and an information-rich and analysis-rich environment for the highly educated professionals and managers who operate the new economy, so global cities serving financial elites are unlikely to become cultural wastelands. But the prognosis is gloomier for the urban poor, who have diminishing economic functions and declining income opportunities in the new large urban economy. And if global cities are repositories of greater inequality, it is by no means clear that public policy can or will counteract the trend.

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Much of the recent discussion on these issues has been stimulated by John Friedmann's article "The World City Hypothesis." Cautioning that he was providing "neither a theory nor a universal generalization about cities" but rather a "loosely joined ... framework for research," Friedmann, a professor of urban planning at UCLA, argued in 1986 that a city's internal structure and economic prospects would depend on how it was integrated into the world economy. Certain "world cities" had become key "basing points" for the transnational corporate headquarters and the other institutions that organize and control the global economy. These cities attract foreign and domestic capital investment, as well as the most immigrants.

These trends, however, produce new forms of spatial and class polarization, which impose new social costs that exceed the fiscal capacity of city governments. The result is a new challenge to the governability of world cities. Friedmann's cases in point are cities as diverse as London, New York, and Tokyo, together with Paris, Rotterdam, Frankfurt, Zurich, Chicago, and Los Angeles. For Friedmann, the paradox is that world cities will prosper as important nodes in the global economy--but the structure of their prosperity generates conflicts that they can neither redress nor manage.

As we will see, not everyone agrees with Friedmann's focus on office functions as the basis for cities' ability to compete. A growing body of evidence and argument does support this position, however. Global Cities, by Saskia Sassen, a professor of urban planning at Columbia University, is the most ambitious attempt to substantiate Friedmann's perspective. She seeks to show that New York, London, and Tokyo have "undergone massive and parallel changes in their economic base, spatial organization, and social structure" because "key structures of the world economy are necessarily situated in [these] cities." Sassen observes that global cities function more as centers of complex international transactions than as command posts for multinational organizational hierarchies. She shows how international trade and foreign investment have become increasingly important to the U.S., U.K., and Japanese economies; how trade in services has grown as a fraction of total world trade (to at least 29% of the total); and how producer services, especially finance, play a pivotal role in international trade. No longer do multinationals' corporate headquarters do these activities in house; instead they purchase these services from specialized firms clustered in large central cities, even when the headquarters themselves are in suburbs. Sassen further argues that the deregulation of financial markets and heavy borrowing by national governments also boosted the relative importance of the largest capital markets, New York, London, and Tokyo. These cities' relative share of advanced corporate-service activities has declined slowly, Sassen notes; but these centers still so outdistance other cities that "discontinuity in the urban hierarchy" results.

Cornell urban economist Matthew Drennan's work on "information intensive industries" in "gateway cities" complements Sassen's insights by showing that the headquarters of multinational industrial firms have become a fairly unimportant component of the economies of most large U.S. cities, while their flexible networks of advanced corporate-services firms have become their most dynamic elements. As noted urban planner Jean Gottman observed, the rise of the global city is also the rise of the transactional city.

Not everyone agrees with the emphasis by Sassen, Drennan, and others on the primary importance of advanced corporate services. A second school of thought, represented here by Allen Scott's Metropolis, argues for "the continued basic importance of industrial production." His book, he writes, "is an open challenge to the proponents of the postindustrial hypothesis." While he agrees that white-collar occupations and service industries are a growing part of urban economies, he argues their importance must be understood in terms of how they serve industrial production. Having described the shift of manufacturing from older central cities to the suburbs and the sunbelt, Scott uses the theory of the firm to develop an original argument about the logic of development for new industrial zones. He holds that as vertically integrated industrial firms (companies that own and control all stages of the manufacture of a product) have disintegrated, they have produced new spatial clusters of smaller, more flexible, high-technology firms. He notes that in the period of mass production of standardized consumer goods, firms maximized their profits by integrating the steps of the production process into one hierarchical organization while dispersing them in space. Drawing on Michael Piore and Charles Sabel, Scott, a UCLA geographer, argues that firms producing highly customized goods instead maximize profit by parceling out the parts of the production process to networks of smaller, specialized, flexible contractors. "The more the system breaks down into specialized industrial establishments, the denser the web of interlinkages between those establishments becomes" and the more they cluster at their center of gravity.

Scott applies this insight to several fascinating case studies, including the dress, printed circuit, and animated film industries in Los Angeles. His most important case analyzes the development of the high-technology industrial complex of Orange County, California. Scott says this complex began through large branch plants constructed by Los Angeles defense firms but later fanned out into a growing number of independent smaller contractors. "With the unfolding of these intricately structured processes, ever more potent agglomeration economies are created so that costs of production tend to fall and profitability tends to rise everywhere in and around the complex. This then attracts further productive investments, leading to new growth impulses and the creation of new locational details within the complex."

Part of Orange County's attraction was the lack of powerful labor unions, strongly partisan city governments, or well-organized poor or minority constituents. Rob Kling, Spencer Olin, and Mark Poster's edited volume, Postsuburban California: The Transformation of Orange County Since World War II, develops a fuller view of Orange County's growth by elaborating on these themes. They point out that even in conservative, Orange County, significant discontent arose over the density of development, the need to preserve open space, the economic and political exclusion of minority groups, and the like.

The work of Scott and others who point to manufacturing as the driving force of economic change (including Gordon Clark, Steven Cohen and John Zysman, Piore and Sabel, and Michael Storper) is certainly a corrective to the view that advanced services are the only important part of urban economies. Differences in the structure of local manufacturing economies may explain why some cities have more inequality than others. Nick Buck, Drennan, and Ken Newton's chapter in Divided Cities shows that New York and London are highly deindustrialized, while Kuniko Fujita and Richard Child Hill's Global Interdependence and Urban Restructuring in Japan shows that manufacturing remains integral to Tokyo's economy. They find that Japanese manufacturing firms, in contrast to U.S. firms, do not make strong spatial distinctions between headquarters, research and development, and production. Instead, they emphasize close working relationships among all functions. Since Tokyo has retained all these components, it "has not experienced many of the social problems attributed to world city development by western theorists, including inner city unemployment, welfare dependency, job/skill mismatches, and fiscal stress."

It does not follow, however, that the "tertiary" service activities merely serve the cause of industrial production. The reverse may just as well be true. Sassen's argument has power in part because she adapts Scott's insight that the disintegration of hierarchical organizations promotes new spatial clusters of smaller, more flexible producers, and applies it to the clustering of advanced corporate-service firms in large central cities. In her view, clusters of advanced service firms become the motive power of urban economies, driving demand for manufacturing inputs such as printing, office machines, and telecommunications equipment. In the final analysis, Scott's claim that manufacturing has priority over advanced services, though brilliantly argued, is not proven.

In The Informational City, Manuel Castells of the University of California at Berkeley dismisses the very need to distinguish between manufacturing and the advanced services. He urges that we focus on "the emergence of information processing as the core, fundamental activity conditioning the effectiveness and productivity of all processes of production, distribution, consumption, and management." Synthesizing a broad body of work by Scott, Ann Markusen and her colleagues, and many others, Castells concludes that high-tech industries have a "bifurcated" location pattern. That is, they locate research and development, design applications, and other highly technical functions in "innovation producing milieux" like Silicon Valley to maximize both access to educated labor and interactions with customers. At the same time, these companies locate routine production activities where wages are low and worker discipline is high. Research universities, government and corporate R&D centers, and venture capital interact to attract large numbers of scientific and technical workers.

Drawing on work by Robert Cohen, Drennan, Mitchell Moss, Thierry Noyelle, Tom Stanback, and others, Castells also describes how the telecommunications revolution has transformed office work and the service sectors. Here too he finds networks of information-intensive organizations centered in the central business districts of certain cities, including New York, Boston, Washington, and Chicago, but not the high-tech industrial cities of Los Angeles, San Diego, or Denver. (He writes that there were more word processors in Manhattan in 1984 than in all of Western Europe.) Routinized services activities have already shifted to second-tier regional business centers in the South and the West and to the suburban periphery.

What connects these seemingly opposite trends is an increasingly dense pattern of communications within and between organizations that Castells calls a "space of flows." He argues that communications networks have taken on a life that transcends attachment to any locale. "The more organizations depend, ultimately, upon flows and networks, the less they are influenced by the social contexts associated with the places of their location." Instead, their location is driven by "the need for the organization to be connected simultaneously with the financial markets, the pool of professional labor, the strategic alliances in the world economy, and the ability to install and update the necessary technology." Since, as Sassen, Drennan, and others have shown, certain large central cities clearly serve this purpose, their economies will prosper, while others will not. Thus contrary to the popular vision articulated by Joel Garreau in Edge City, Castells argues that the "space of flows" links the fate of areas like Orange County or Silicon Valley to that of their adjacent central cities, or at least to those central cities where the information elite wants to live.

In sum, there is strong reason to believe that the economies of cities that serve as nodes in the global economic system will continue to grow. Those that retain a strong manufacturing base in their metropolitan region may grow most rapidly, and perhaps have less inequality, but this is not a necessary condition for their economic viability. Global Finance and Urban Living, edited by Leslie Budd and Sam Whimster, and Divided Cities clearly show that New York and London, both highly deindustrialized metropolises in what might be argued to be economically declining regions, prospered mightily during the 1980s.



How the economic restructuring of central cities relates to the growth of inequality and whether local and national policy can or will do anything about this trend are more problematic questions. Following Friedmann, most of the authors cited here argue that globalization has simultaneously increased urban inequality and decreased the capacity (or willingness) of city and national governments to redress it. Sassen, for example, discerns the same trajectory toward inequality in New York, Tokyo, and London, notwithstanding each city's distinct history, socioeconomic make-up, and politics. She sees each as having produced a new upper class of (male) professionals, a low-paid class of (female) clerical workers, and a new immigrant working class that caters to the professionals, often through an informal economy and "downgraded" manufacturing. She concludes by questioning whether social polarization will threaten these cities' viability as centers for global business transactions.

The evidence seems strong that major central cities are experiencing income polarization. The study by John Logan, Peter Taylor-Gooby, and Monika Reuter in Divided Cities, shows that inequality has become more pronounced in New York and London. But they suggest that economic restructuring is not solely responsible. Public policy, in the form of the declining real value of welfare benefits, has also contributed.

The extent and trajectory of urban inequality does vary considerably, even across global cities. Fujita and Hill's study, Japanese Cities in the World Economy, shows that the relatively low social differentiation and polarization evident in Tokyo stems not only from its economic mix but from local and national government policies that have promoted economic adaptation and cushioned the social dislocations caused by industrial decline. If we cast our net beyond the three global financial centers, it becomes even more clear that central cities vary in the extent of their income inequality and social polarization. This insight suggests that national policies and local political conditions may indeed influence the trajectory of inequality in any given city.

Certainly, we know that federal policies have strongly shaped the evolution of American cities, whether through Veterans' Administration and Federal Housing Administration mortgages, creation of the interstate highway program, or urban renewal. In The Rise of the Gunbelt, Ann R. Markusen, Peter Hall, Scott Campbell, and Sabina Deitrick convincingly show how defense contracts shaped the rise and trajectory of Southern California, Silicon Valley, greater Boston's Route 128, and a host of other industrial growth poles. In contrast to Scott's reliance on a pure logic of industrial production, they argue that the interaction between local boosters, entrepreneurs, universities, and venture capitalists on the one hand, and the strategic requirements of the military end users on the other, produced the new geography of high technology.

Just what factors enhance the ability of local or national government to affect the trajectory of urban economic restructuring or urban inequality is a matter that requires careful analysis. In their introduction to Beyond City Limits, John Logan and Todd Swanstrom criticize the economic determinism that pervades much of the discussion on global economic restructuring. They observe that local and national political alignments, systems of intergovernmental relations, and national policies shaped the way economic restructuring has played out in their several case studies. In his concluding essay, John Walton suggests that cities with a tradition of popular action, an extensive network of community-based organizations, and some locational advantages are most able to develop a progressive response to economic restructuring, while highly polarized cities that are more dependent on private investment or are dominated by conservative parties are least able to do so. Walton suggests we look more closely at what determines the "capacity for local political action, particularly as it engages the economic and ideological mechanisms of market reorganization."

Mike Davis's brilliant City of Quartz: Excavating the Future in Los Angeles provides a most interesting but ultimately pessimistic analysis of how culture, real estate development, and political power interact in one urban setting. Brief comments cannot do justice to this study, which includes commentary on the city's cultural and literary history (we have forgotten, if we ever knew, that the Frankfurt School spent World War II in Hollywood!), its power structure, the property tax revolt, the privatization of public space, the repressive practices of the LA police department, the political tendencies in the Catholic Church, and the deindustrialization of Fontana. As in New York and London, Davis finds that a "Dickensian social polarization between rich and poor has been the single most dramatic cause/effect of LA's economic transformation." He notes that tract lots have become "a luxury good affordable only by a shrinking minority," that places like Orange County have emerged as "outer cities in their own right," and that "internationalization of the regional economy" has made "Los Angeles elites tributary to the great financial centers of Tokyo's Shinjuku and Lower Manhattan." While Davis argues that Los Angeles urban restructuring has undermined the capacity of the city's elites to direct its development, he does not argue that politics is irrelevant. Instead, he believes that the political reaction against overdevelopment has added to the increasing power of international capital to undermine the two previously prevailing power centers in Los Angeles, the old conservative WASP elite associated with the Chandlers and the new liberal West Side Jewish elite based in the entertainment industry and real estate development. As in Orange County, rising property values and overdevelopment stimulated a revolt against the property tax and a movement among upper-middle-class homeowners, sometimes in alliance with middle-class white liberals, to control growth.

While these movements undermined the elites (the first of which favored downtown development and the second of which did not want constraints on building), they did not produce movement towards greater inclusion and equal opportunity. Davis finds they were "defending the fat life....If the slow-growth movement has been explicitly a protest against the urbanization of suburbia," he concluded, "it is implicitly...a reassertion of social privilege."

Echoing Castells, Davis depicts Los Angeles as a place where not even elites can control the trajectory of economic development or the allocation of its benefits. As in other global cities, no political institution or social movement can hold the actors in the "space of flows" accountable, much less build bridges over the divides of race, ethnicity, gender, industry sector, and occupation. It could not have surprised Davis that the rage at conditions his book describes was expressed in collective violence not long after its publication.

In Divided Cities, Fainstein, Harloe, and Gordon also find that the absence or failure of local political efforts to enact redistributive policies has accentuated the drift towards economic polarization and intergroup conflict. They argue that the fading political influence of unionized industrial workers and the inability of the new, largely nonunion service labor force to express its interests in local politics weakened the basis for opposition to the negative effects of economic restructuring in New York and London. In both the U.S. and England, conservative national policies and local pro-business coalitions "mainly succeeded in disorganizing any coherent, large-scale political opposition to the reshaped urban policies."

What lessons, then, can we draw from the urban experiences described in these works? First, despite continuing disinvestment in goods-related sectors, large central-city economies are not doomed to failure. To the contrary, they are the key points at which the global and the local connect. This is most obvious in the case of financial markets, financial transactions, and the making of large business deals. While the 1987 stock market crash and the current recession deflated the crazed booms taking place in New York, London, and Tokyo, such functions will continue to concentrate in certain cities and benefit their economies. But the most ancient functions of large central cities--making markets, providing timely access to the broadest array of information, housing powerful institutions, sustaining sophisticated lifestyles and consumption patterns, and generating high and mass culture--turn out to be particularly valuable in the new global economy, perhaps more so than their lost nineteenth century advantage as industrial production sites. This competitive advantage is reflected in the fact that many large U.S. cities did well in the 1980s, New York among the best. Not only did its economy and population grow robustly, but per capita real income rose by 20 percent in the decade, a far better performance than the rest of the country.

It is also clear that urban economic restructuring has produced new forms of social and economic polarization and conflict in most large cities. Even in Tokyo, land price inflation has priced the traditional middle class out of the city, the quality of the urban environment is poor, and the living conditions of perhaps 700,000 illegal immigrant workers are grim. We know far less than we need to know about the relationship between changing economic structure and the growth of economic and social inequality. These works make it clear that simple models of bifurcation or jobs-skills mismatches cannot explain the changes in big cities. As the populations of large cities have become increasingly diverse and fragmented, their division of labor has been complicated along lines of race, ethnicity, gender, and nativity. Each of these groups is struggling to find and/or defend its niche in the urban political economy. This struggle has been played out in varying ways on the different economic terrains of different metropolitan areas. Has the upward mobility of native-born urban African-Americans been limited by deindustrialization, by insufficient education, by their political organization or disorganization, by the influx of immigrants, or by labor market discrimination? We don't know. To find out, we need comparative studies on the causes of inequality that are sensitive to the range of economic, social, and political conditions across U.S. cities.

These studies do suggest that some may be overstating the importance of the decline of the nation-state in the new global context. There are clearly national differences in the extent to which urban economic restructuring has been accompanied either by deindustrialization or by urban polarization. These problems seem worst in the U.S. because it has lacked national policies to promote and ease the pains of urban restructuring, because it has the most pronounced tradition of local competition and metropolitan fragmentation, and because race has complicated everything. To the extent that London shares these conditions, it appears to be not far behind New York and Los Angeles on the indicia of urban inequality, probably because of conservative national policies and the dismantling of London's local government. For different reasons, Tokyo and Paris are far less deindustrialized and probably less socially polarized. Though more comparative study is needed, it would appear that national and local policies have indeed made a difference.

And what of American cities? Though they have actively promoted private investment in corporate office buildings and luxury housing, most have lacked the political will, and perhaps the governmental capacity, to do much about the negative consequences of urban restructuring. Here, however, the contrast between New York and Los Angeles might be instructive. In LA, the mayor has little authority, agency heads are independent and "unpolitical," and public officials have little political accountability to neighborhood constituencies. As Davis describes, the most effective discontent has come from upper-middle-class property owners, while others have been left to express their rage in the streets. New York, by contrast, has a powerful mayor, a strong government, and a highly politicized populace. Even Mayor Koch felt compelled to invest $5.2 billion of city money in rehabilitating low- and moderate-income housing in poor neighborhoods. Mayor Dinkins was elected by a coalition of African-Americans, Latinos, and white liberals who favor stronger government efforts to overcome social polarization and racial tension. As we get more perspective on the responses to the urban unrest of 1992 in Los Angeles and New York, it will be interesting to see if differences in local political alignments and governmental capacities do in fact account for differences in the outcomes. If so, we would learn particularly important lessons about the fate of the city in the new global economy.

Present evidence does allow us to conclude, however, that national policies have profound effects on central cities. The Washington talk about high technology and worker training has yet to focus on central cities. If the Clinton administration can find ways to promote their advanced services producers and increase their employment of minority residents, it will have made the most effective contribution to U.S. competitiveness in the global economy.

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