Cities and Crisis

New Critical Urban Theory

Kuniko Fujita, Kuniko Fujita, Author

• Publisher: SAGE Publications Ltd
• Year: 2013
• Print ISBN: 9781446275313, 9781446252192
• eBook ISBN: 9781446286708
• Edition: 1
• Topic: Social Sciences
• Subtopic: Urban Sociology
• Index: Social Sciences

Recognizing the deep relations between politics, finance, cities and citizens, this book argues 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, it powerfully illuminates the dynamic between history, theory, and practice. Stressing how catastrophic social and economic calamities under the crisis lead to reorganised city structures, city life and city policies and hence new urban experience, it calls for theoretical perspectives that can speak to these challenging changes.  

This groundbreaking 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

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 triggered 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 macroeconomic 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 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 urbanization) 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 culprits 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 scientific 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 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 experienced 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 ultimately 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 inequality and government’s bailout of banks (Beals, et al., 2011; Reich, 2012a; Greenburg, 2012; Byrne, 2012). Occupy movement spread to countless 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 government 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 Settlements (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 otherwise 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 development 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. 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.

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 developed from financial engineering on their own at the time without exception. 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 an...

Table of contents

• Cover Page
• Title
• Copyright
• Contents
• List of Figures
• List of Tables
• About the Contributors
• 1 Introduction: Cities and Crisis: Challenges for Urban Theory
• 2 “Global Cities”, World Power, and the G20 Capital Cities
• 3 Was the US Sub-prime Crisis the Prime Mover? The Limits of the ‘Critical Urbanist’ Interpretation of the UK Financial Crisis
• 4 After Wall Street? New York’s Green Economy Imaginaries
• 5 World Capitals of Capital, Cities and Varieties of Finance Systems: Internationally versus Regionally Oriented Banking
• 6 Seeing New York City’s Financial Crisis in the Vernacular Landscape
• 7 Ports in the Global Urban Hierarchy
• 8 Athens and the Politics of the Sovereign Debt Crisis
• 9 Globalization and Urban Insecurity: Comparative Perspectives
• 10 Financial Crises and Spatial Income Inequality Growth: The Case of Tokyo