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The wider context of austerityurbanismWilliam K. TabbPublished online: 08 May 2014.
To cite this article: William K. Tabb (2014) The wider context of austerity urbanism, City: analysisof urban trends, culture, theory, policy, action, 18:2, 87-100, DOI: 10.1080/13604813.2014.896645
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The wider context of austerityurbanismWilliam K. Tabb
Austerity urbanism is part of a larger neoliberal project in which the debt relation is both animportant tool of redistributive growth and central to understanding the contemporary socialstructure of accumulation that generates financial bubbles and collapse. The financializationthat is central to the contemporary period in Western capitalism impacts cities as part oflarger phenomena that encompass not only mortgage debt but consumer and student debt ina context in which the legal system has shifted the obligations and entitlements of lendersand debtors. The pessimism that pervades an urban literature in which a ‘zombie’ neoliberalisminflicts endless austerity can only be countered by a wider re-embedding of market relations in amoral economy, a requirement that goes back at least to Adam Smith and has been revived andrevitalized by Occupy Wall Street and related movements, including the Right to the City.
Key words: austerity urbanism, neoliberalism, social structure of accumulation, Detroit, debt-fare, re-embedding markets
Critical urban theory has exploredthe impact of neoliberalism oncities as a process of de-entitlement
producing the fiscal crisis of the localstate. Looking at the austerity urbanismforced on cities, scholars have been per-plexed by the staying power of neoliberal-ism and its squeezing debtors thatprolong recession and depression-like con-ditions; policies that seem counterproduc-tive. Work has rightly focused on thedisastrous social impacts of the subprimecrisis and derivative markets failure.However, we should not underestimatethe rationality of individual actors alongwith the power of mortgage originators,investment banks, credit rating agencies,lawyers and others who benefitted so sub-stantially from what has been a corruptwealth-generating project that producedthe real estate bubble. They made out likebandits and when it all collapsed escaped
with their ill-gotten gains. The collectiveproduct of their activities may have beena social disaster but they were guided by adifferent calculus. What transpired was asystem failure of major proportions (Tabb2012). The ideology that legitimated suchappropriation has been unmasked and thesocial cost to those victimized has becomewidely apparent, but the ‘solution’ to thecrisis has been a doubling down of austeritypolicies. Focusing on the power of ideas,Aalbers (2013, 1089) declares that ‘actuallyexisting neoliberalism is flexible enough toincorporate criticism of its discourse’. Theadroit misdirection to state failure and theneed above all else to reduce governmentdeficits have meant that the mainstreamdebate stays inside limits that perpetuateexisting policies from which urban auster-ity derives.
This reality has been evident for sometime. Neil Smith (2008) argued that
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neoliberalism had run out of ideas politi-cally. In imagery that continues to bepopular, he suggested that neoliberalismfinds itself a corpse, and appropriating thecomment Habermas made regarding mod-ernism, declared ‘Neo-liberalism: Deadbut Dominant.’ Five years on, this dis-course in which neoliberalism is oftenanthropomorphized, found Peck, Theo-dore, and Brenner (2013, 1091) writing of‘its Houdini-like ability not only tosurvive, but to gain further momentumthrough the exploitation of crisis con-ditions for which it is often largely respon-sible’. Manuel Aalbers continued the tropeby classifying neoliberalism as a ‘zombie’,the living dead that acted with a will of itsown: it ‘does not mind pretending it issomething else’. ‘It’ ‘comes up with newideas on how to ‘save and revamp thesystem’ (Aalbers 2013, 1089).
This long-lived living dead destructiveapparition is perhaps less amazing than suchcomments suggest. Until a counter-hegemo-nic understanding of what is to be donetakes hold, backed by a political movementthat comprehends the culpability of the prin-cipalities and powers that dominate themedia, fund the think tanks and control thedecision-making boards that set the bound-aries limiting policymaking, the intellectualdiscrediting of ideology will be insufficientto overcome material interests. However, itis also the case that its own internal contra-dictions may be becoming increasinglyglaring. As Jamie Peck (2010) writes in hisstrongest evocation of the zombie metaphor:
‘The brain has apparently long since ceasedfunctioning, but the limbs are still moving,and many of the defensive reflexes seem to beworking too. The living dead of the free-market revolution continue to walk the earth,though with each resurrection their decidedlyuncoordinated gait becomes even moreerratic.’ (109)
The temptation to attribute to zombie neoli-beralism a will of its own needs to be coun-tered by greater focus on structure. In the
current stage of capitalist development thedominant moment is found in the globalgaze of transnational corporations and inter-national financial institutions. The spectralmarauding of urban austerity draws the life-blood from communities. Moreover, thetransformations of capitalism have alwayssacrificed working people in the service ofaccumulation and in doing so produced itssocial antagonists. It is this systemic dimen-sion that needs to be stressed. The need forsuch a macro framing provides awareness that
‘What is striking about local strategies is justhow un local they are . . . [T]he vigorousmarketing of place and the ritual incantationof the virtues of international competitivenessand public–private partnership seem now tohave become almost universal features of so-called local strategies.’ (Peck and Tickell 1994,281)
A devolved austerity filters downin the politicalorder, in the American case which is our focushere, from Washington to state capitals tolocal governments. ‘Cities’, Peck (2012, 629)writes, ‘are therefore where austerity bites.’
But of course austerity ‘bites’ elsewhere aswell. In the USA the rural landscapes ofdepressed regions of meth labs and smalltowns with their dying local economies alsosuffer. Neoliberalism takes its toll on thedebtor countries of the European peripheriesthat experience a counterpart to austerityurbanism. The linkage between the localand the national in the larger context of acapitalist world system invites interrogation.Austerity has been biting on a host ofspatial scales.
The first is the constraining force of thecontemporary social structure of accumu-lation (SSA) that explains the continueddominance of neoliberalism and austerityurbanism. The institutional norms of thepostwar SSA of national Keynesianismdiffer from the present crisis of the hegemonyof its successor SSA, global neoliberalism(McDonough, Reich, and Kotz 2010). Neoli-beralism addresses the contradictions of adysfunctional spatio-temporal fix while
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promoting a particular distribution of costsand benefits when an SSA can no longerreproduce itself on the bases that in thepostwar era it promoted less regressive pat-terns of growth. By understanding common-alities, causal mechanisms and the changednorms of key institutions of finance, govern-ment policy alternatives can be betterappreciated.
A second orienting frame places urbanfiscal crises in the context of financialization.Financialization denotes the increased impor-tance of finance, the buying and selling offinancial products, the debt relationshipsinvolved and the fallout from the collapse offinancial bubbles not just on the urbanterrain but on how debt relations areenforced more generally. Urban austerityhas counterparts in the manner in which thestate has modified policies and laws to favorcreditors to the detriment of individuals,household borrowers and nations, as well asof local governments. Financialization is aform of redistributional growth. It providesan accumulation strategy for an economy inwhich productive investment opportunitiesare unable to absorb the surplus produced.The overaccumulation of capital, theproduct of increased inequality in which thelion’s share of income has been appropriatedby a small elite (Occupy Wall Street’s 1%),feeds two dominant processes. The first isthe need for the working class to borrow tomaintain living standards within the contextof stagnant or falling real income. Thesecond is that the FIRE (Finance, Insuranceand Real Estate) sector grows to service thisneed and promotes financial products toabsorb the rapidly increasing wealth ofelites that does not find an outlet in pro-ductive investment due to slow growth andreduced consumer demand. A substantialliterature exists by geographers and urbanscholars on the subject, most of it at thelevel of theory (Pike and Pollard 2010;French, Leyshon, and Wainwright 2011)although there are empirical applications(Walks 2014). However, the connections ofthe global to the local are more diverse and
reflect a broader sense of the organic struc-ture of financialization.
Like students with debt, nation-statesseeking to declare their debts unpayable aretold they cannot default. International insti-tutions such as the World Bank and the Inter-national Monetary Fund (IMF) lend themmoney sufficient to pay at least the interestdue on their debt in exchange for which thecountry gives up sovereignty. These globalstate economic governance institutions (as Ihave called them [Tabb 2004]) then imposeausterity regimes on the debtors in muchthe same way that an emergency financialmanager does on a municipality, as in thecase of Detroit, Michigan featured in thenext section. It is thus not only the citiesthat have suffered an outflow of people andjobs which are deeply in debt. Many tens ofmillions of Americans, like these cities,depended on borrowed money to financetheir spending. When they could no longerborrow and when the shakiness of loans,especially subprime mortgages, becameclear, the economy went into a tailspin. Formost working people the hard times havenot gotten better despite the recovery ofbank profits and the strong performance ofthe stock market.
The third part of the paper examines thebankruptcy of Detroit in the context of theanalysis that comes before and as representa-tive of urban crisis more generally. Thedetails of the case resonate with the largerstructural relations of the contemporarystage of capitalist development that shapeshow the city’s fiscal crisis is addressed.Among the general public (and holders ofmunicipal bonds) there were surprise andconsternation that Detroit, once the coun-try’s fourth largest and one of its wealthiestcities but now shrunk to 17th and amongthe poorest, filed for Chapter 9 bankruptcyon 18 July 2013. Detroit’s history tells ussomething about the way the liberal–laborcoalition that once governed America col-lapsed (Sugrue 1996; Farley, Danziger, andHoltzer 2002). Also available is a smalllibrary with sensationalist treatments, some
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feature striking photographs of ‘ruin porn’, asthe less sentimental have termed such mem-orials to disinvestment and abandonment.The shelf includes such titles as Detroit: AnAmerican Autopsy, The End of Detroit, LostDetroit and The Ruins of Detroit. What thebooks make clear is that bankruptcy wassimply the culmination of ‘a five-decadeKatrina’ (Fletcher 2013).
Stepping back from Detroit in this waywidens the focal lens, allowing a broaderexamination of the ways neoliberalism pro-duces debt dependency and imposes austerityregimes. As finance became the dominantfraction of capital, it influenced regime for-mation at the international level accompaniedby legislation and its enforcement at thenational level in order to benefit from thepattern of accumulation that has becomethe norm of our time. Detroit offers awindow on these processes. Expandingunderstanding of the role of finance and thedebt relationship from urban fiscal crises tothe broad features of financialization anddebt in the global neoliberal SSA allows usto see the debtor position of cities differentlyfrom the narrow approach of today’s hege-monic discourse. Attention to the assump-tions of moral philosophy broadens thediscussion still further and provides agrounding for policy debate that escapes thelimitations of a callous efficiency calculus.
This latter perspective is developed in theconcluding section. It draws on what hasbecome a popular interpretation of Karl Pola-nyi’s ‘double movement’ in the sweep of capi-talist development, which argues that when asociety goes too far toward devaluing peopleand their communities a reaction sets in thatdemands markets be re-embedded in a moraleconomy. The construct of a moral economywithin a political economy has been a pointof philosophical inquiry going back at leastto Adam Smith and the Scottish Enlighten-ment. Smith’s larger framing of markets isgiven short shrift by those who know onlyof his hidden hand metaphor. A seriousimmersion in his writings reveals an econom-ist who thought it likely that when
businesspeople get together the topic of con-versation will turn to how best to defraudthe public, one who expressed concern aboutthe impact of exploitation of workers ontheir humanity. Smith did not believe inmarkets divorced from ethical moorings. HisThe Theory of Moral Sentiments (1759)—unknown to most economists—provides anunderpinning to The Wealth of Nations(Tabb 1999, chap. 6). In The Theory ofMoral Sentiments, he explains that themarket needs to be embedded in a largermoral frame; that is, an ethical philosophyneeds to control the market’s excesses thatwill otherwise harm society.1 Smith madethe case for a market economy, not a marketsociety. Moral constraint on market freedomwas necessary to a great society. (The phrase‘great society’ owed to Smith, not as popularlythought to President Lyndon Johnson’sspeechwriters.) It has been the severe disem-bedding of markets from moral restraint inthe era of global neoliberalism that has pro-duced generalized austerity regimes, onemanifestation of which is the current urbanfiscal crises. We will look at contemporary lit-erature discussing social embedding of urbanproblems as part of a moral economy’s econ-omic norms drawing on the literatures thathave emerged from diverse sources as coun-ters to the presumed pragmatism that bindsmuch of urban fiscal crisis discourse to aninevitability of austerity solutions.
Neoliberalism as a social structure ofaccumulation
The post-World War II SSA had its roots inthe 1930s New Deal response to the GreatDepression. Its proponents accepted govern-ment activism to provide macroeconomicstability, employment and basic security.The philosophy it replaced was a laissez-faire belief in the efficiency and self-healingpowers of the market. Keynesianism wasthe dominant national policy framework inthe postwar years. During a recession, gov-ernment spending was to compensate for
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the fall in private sector demand bybusinesses and consumers and keep demandup. However, with the globalization of thepolitical economy a state’s spending createddemand for imports which brought signifi-cant leakage of stimulus from the jurisdictionin question. Furthermore, a downturn in oneplace could provide the occasion for puttingpressure on wages and benefits rationalizedby the need to be competitive internationally.The globalization of production wasaccompanied by a tripling of the size, and ashift in the location, of the relevant laborforce. A high-waged domestic labor forcebecame an impediment rather than a stimu-lant to growth. The qualitative transform-ation of an international economy to aglobalized one was accompanied by aban-donment of Keynesian economics and thetriumph of global neoliberalism.
The SSA literature suggests that globalneoliberalism has entered its period of crisis,inaugurating a transition currently underwaythat will in some decades give way to asuccessor regime. In its decline not only arethere evident perverse distributional impacts,but also slower growth and a greater intensityof crises. These macroeconomic impactssuggest a new way of thinking about debtregimes and urban crises.
Understanding the commonalities andcausal mechanisms impacting cities every-where and the accommodationist policies ofgovernment at the national and internationallevels to these changed norms of financebrings a fuller appreciation of just howun-local the local has become.
Financialization denotes the dominance ofthe financial sector in the totality of economicactivity such that financial markets signifi-cantly shape the overall economy (Tabb2013, 527; on financialization in the contem-porary SSA, see Tabb 2010). The growth ofbanks and other financial institutions, alongwith the significance of the fact that 40% ofUS-generated corporate profits in 2007came from the FIRE sector, indicates theextent to which derivative contracts, andespecially collateralized debt obligations,
drove the economic bubble. The extensivediscussions of financialization pay insuffi-cient attention to the connection betweenthese activities and the dramatic loss ofwealth to homeowners, of community viabi-lity and of local government revenues.
While not historically new, austerityregimes have grown more prevalent in theera of global neoliberalism. Starting in the1970s, and continuing into the 1980s, wemay reference fiscal crises and unpayabledebt in Latin America that produced painfulcutbacks in public spending, extensive privati-zation, and the revision of nationalist regu-lations and tax codes to favor transnationalcorporate interests and the imposition ofnon-democratic takeovers of state power. Inthe 1990s, the East Asian financial crisisbrought countries in that part of the worldunder the same austerity pressures. Morerecently, the IMF and other global state econ-omic governance institutions imposed auster-ity regimes on countries of the Europeanperiphery. An Emergency Financial Managerperforms a similar role in Detroit. In eachcase, political leaders were blamed for notmaking ‘difficult choices’. Of course, whenpoliticians in a large number of places aresaid to have made the same ‘mistakes’, weneed to look for larger structural constraintsthat lead them to act in similar, inadequateways. Under such conditions, blaming poli-ticians for creating a crisis situation may inreality be more a rationale for overrulingdemocratic governance and imposing unpop-ular measures necessitated by forces beyondthe realistic control of public officials.
At least a decade ago it was clear that neo-liberalism and the imposed debt regimes thatfound wider application in all parts of theworld had
‘not brought more rapid economic growth,reduced poverty, or made economies morestable. In fact over the years of neoliberalhegemony growth had slowed, poverty hasincreased and economic and financial criseshave plagued most countries of the worldeconomy. The data on all of this are
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overwhelming. Neoliberalism has, however,succeeded as the project of the mostinternationalized fractions of capital. In itsunannounced goal it has increased thedominance of transnational capital,international financiers, and sectors of localelites.’ (Tabb 2004, 3)
It has done this by imposing harsh austerity.The impacts of such policies made fundsavailable to creditors, reduced wages andincreased inequality—but did not restoregrowth.
At the time of Detroit’s declaration ofbankruptcy, when Mayor Dave was quotedas saying ‘We cannot cut our way out ofthis situation. We’ve got to talk aboutgrowth’, he sounded very much like poli-ticians in Europe opposing austerity regimesthere (Carey 2013). Indeed, the pre-crisishistory in Europe and other debtor econom-ies is similar to that of deeply indebted localgovernments, where over time a structuraldebt was allowed to grow because bondbuyers felt assured that no matter what theconsequences for the country or city and itscitizens, they would be paid. However,matters have now reached a point where gov-ernments cannot pay bond-holders as theyhave in the past, nor is borrowing withoutexternal guarantors more viable. It shouldbe noted that individuals and families are ina similar position and that state power hasbeen used to strengthen the position of thefinanciers in this area as well.
Financialization involves the use of statepower to enforce collection of debt. This istrue when the IMF extends credit that isused to pay debts to private financial insti-tutions, when courts enforce debt collectionby imposing harsh laws that favor creditorsand disadvantage individual debtors, andwhen emergency managers are imposed oncity governments. In the last case thedevolved urban austerity is in significantmeasure caused by the extensive mortgagedefaults and falling property tax collectionresulting from the FIRE sector’s irresponsi-ble subprime lending and shady collateralized
debt obligation sales. The severe 2008 econ-omic collapse reduced employment and gov-ernment revenues at all levels. It wasanswered not by penalizing those responsiblebut by bailing them out with taxpayer dollarsand imposing dramatic budget cutting in theface of the inevitable increase in the deficitcaused by the crisis rather than a sudden gen-erosity in new government programs. Cities,where social needs and economic marginali-zation were addressed however inadequatelyduring the era of national Keynesianism bywelfare state provisioning, have seen federalassistance slashed and the local tax base deci-mated (Tabb, in press). Because urban fiscalproblems increased over a lengthy period,there has been a tendency to overlook theimportance of the Great Recession on localgovernment finance.
According to Census Bureau data, non-seasonal vacant properties increased 51%nationally from nearly 7 million in 2000 to10 million in April 2010, with 10 statesseeing increases of 70% or more. High fore-closure rates have contributed to theadditional vacancies. The cost to the localgovernment of maintaining properties or dis-mantling them so they are not used by junkiesand other non-desirables further inflicts coston neighborhoods. The loss of property taxrevenue is widespread. In Detroit, it will beargued, it was the tax shortfall produced bythe financial collapse that led to the initiationof Detroit’s bankruptcy—not the legacy costsstressed in most accounts. In favoring WallStreet with deregulation, and allowing thebubble and the dishonest practices of thebanks and real estate interests, the USA wasindirectly engaging in a destructive nationalurban policy.
The Great Recession increased povertyrates and reduced household incomes in thevast majority of metropolitan areas. Nearlyall had lower median incomes in 2010 than2000. Brookings Institution scholars Berubeand Kneebone (2011) tell us:
‘Over the first two years of the downturn, SunBelt metro areas on the front lines of the
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housing market collapse—in Florida, theIntermountain West, and inland California—registered the largest increases in povertyrates. They were joined by a handful of metroareas in the nation’s manufacturing belt likeIndianapolis and Cleveland. Several of theseplaces continued to experience rising povertyfrom 2009 to 2010, but the most affectedplaces included a broader set of metro areas inthe Southeast like Columbia, Birmingham,and Nashville; in other parts of the West likeSalt Lake City and Colorado Springs; and inpreviously better-off regions like Austin andOmaha.’
From 2000 to 2010, the number of poor indi-viduals in major-metro suburbs grew 53%,compared to 23% in cities. This is a result ofa clear trend especially in older suburbs, ofincreasing numbers of poor residents occupy-ing aging housing stock as the earlier, clearerseparation of urban and suburban breaksdown. Suburbia is now the home of morethan half of the metropolitan poor in America(Kneebone and Berube 2011). The largerpicture includes the imbalances among sover-eign states that produced unpayable debt (notall that different from the situation many sub-national governments find themselves in) andpersonal debt that grew to the point of unsus-tainability. All of these phenomena sharecommon characteristics, not least in the waythe crises in each area were dealt with by thestate to favor creditors over debtors.
We need to understand urban fiscal crisesas part of the wider buildup of debt, acentral feature of the contemporary mode ofsocial regulation. In the case of the USA, wemay reference an important piece of legis-lation that most Americans have neverheard of: the Bankruptcy Abuse Preventionand Consumer Protection Act of 2005. Inshifting risk and responsibility in the debtrelationship from creditor to debtor therewas a moralizing process. In blaming thevictims of what was after all a systematicexpansion of risky credit, those who wereheld responsible were not the financial insti-tutions that had advanced more money thanborrowers were able to handle, financial
institutions were counting on expandingtheir coercive capacities by effecting changein the legal regulation of the credit relation-ship. At the same time it needs to be acknowl-edged that the greater extent and risk ofstudent and consumer lending coincidedwith reduced government financing ofhigher education and the stagnation of wages.
The new legal framework basically disal-lowed discharging student debt through thebankruptcy process. Millions of youngpeople borrowed for college to get jobs thatthey had expected would allow them torepay the debt. However, they found thatavailable jobs did not allow for repaymentof student loans. Consequently, many nowface a lifetime of debt servitude. Thepremise of the law is a reversal of the tra-ditional purpose of bankruptcy legislation asit had existed: to enable a new start fordebtors. This was recognized at the level ofpopular awareness, perhaps accounting forthe immediate popular support of OccupyWall Street (Cooper 2011).
All this is part of what Susan Soederbergcalls debtfare, a financialized state policyregime. In strong terms that describe anaccumulation by dispossession strategy, shewrites that:
‘The debtfare state legitimates, normalizes,depoliticizes and mediates the tensionsemerging from cannibalistic capitalism.Facilitating intensified and expanded forms ofpredatory practices, the debtfare stateprotects banks through the ongoingderegulation of finance and legal policies. Thedebtfare strategies of the state should,therefore, be viewed as complements to otherkey features of neoliberalization, such as theworkfare state . . . and the criminalization ofpoverty.’ (Soederberg 2013, 495)
The 2005 law is one piece of this new regime,a regime that has changed the life prospects ofmillions of debtors reflects larger shifts to ahegemonic economic and political modelfrom embedded liberalism to free-marketneoliberalism. The same sea change in thestance of the state is evident in policies with
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regard to the protection and promotion ofhomeownership. Millions were allowed tolose their homes because the governmentthat had so long encouraged homeownershipnow favored the banks and other mortgageholders refusing to reset mortgages tocurrent property values (Immergluck 2009;Marcuse 2009). Mortgage debt, student debtand consumer debt are components of a debt-fare state and part of the larger austerityregime.
When countries using the euro lose compe-titiveness, they can no longer devalue theircurrency as they once could to bring theirinternational account back into balance.(Devaluing makes imports more expensiveand exports more competitive.) Without thisability their foreign debt increases until acrisis occurs; when debt payments cannot bemade, outside enforcers are empowered tocompel austerity. In the case of sovereignnations this role is carried out by globalstate governance institutions such as theIMF or often by a combination of suchorganizations. In the case of Eurozonedebtors such as Greece and Portugal, onespeaks of ‘getting troiked’, the ‘troika’ beingthe IMF, the European Central Bank andthe European Commission. Such institutionalcoercion imposes extreme austerity thatelected officials would not. Somewhat thesame thing happens to cities when theirlocal economic base falters. If there is norevenue sharing and they cannot raise reven-ues except by borrowing, they soon face fiscalcrises. The rationale for austerity is alwaysthe claim that elected officials failed to dotheir job properly. The context that con-strains their choices and triggers crises isoften excluded from the conversation andblame is misdirected from systemic causationonto the personal failings of leaders.
Ideological priors and the Detroitbankruptcy
Peck, Theodore, and Brenner (2013, 1092)draw a conclusion that is certainly apropos
of Detroit and Detroit-like cities: urban pol-icymaking has become ‘over-responsibi-lized’. Local officials lack resources andpower to do much to promulgate fiscallyviable alternatives. They are surely notcapable of pursuing a social justice agenda.This suggests a growing legitimization crisisthat will reverberate politically. Policy entre-preneurs facing Detroit-like problems try tore-image their cities, manufacturing hopefulscenarios. Beyond boosterism there need tobe tough examinations and evaluations ofsuch programs, and their costs and benefitsto low-income residents of the city. Forsome places there may be viable options,but for many more only extensive outsidehelp and sizeable investment with externalresources can make the difference. Moreover,when such revenue sharing does not come,what the cities are likely to get is harsh finan-cial market discipline and perhaps, as in thecase of Detroit, the imposition of outsidecontrol.
In shaping who will bear the costs of thecity’s bankruptcy we see the same favoritismtoward banks evident in the way Washingtonprivileged the banks in addressing the finan-cial meltdown. The government, fearing acollapse of the economy, subsidized thebanks by whatever amount was needed (andthe amount was in the trillions of dollars) torestore rather than change the system (Tabb2012). We see the same pattern in the wayKevyn Orr, the Emergency FinancialManager imposed on Detroit, initially nego-tiated favorable terms for the same banksthat had sold the city dangerous financialinstruments which had blown up andbecome a major source of cash drain for thecity.
Before Mr Orr declared Detroit bankrupthe had estimated the cost of terminating thecity’s ill-considered interest rate swaps at$345 million, a figure seen as inflated byobservers in order to strengthen the case fordefault and perhaps transfer more citymonies than necessary to the banks. Daysbefore Detroit (that is the Emergency Finan-cial Manager) filed its bankruptcy petition
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the number was lowered to $250 million andthen months later to $220 million, and finallyto $165 million. Even then, Judge StevenW. Rhodes of the United States BankruptcyCourt ruled that the city could not pay the$165 million because it is ‘higher than thehighest reasonable number’ (Walsh 2014a).He thus lent support to those arguing thatthe swap contracts appeared to be illegal tobegin with and should be invalidated. Protes-tors outside the court carried signs making anadditional connection: ‘Bank of AmericaOwes Detroit for destroying our neighbor-hoods!’ Given the cost of acceding to thebank claims, the judge’s skepticism and thewidespread protests, a very differentapproach came to be taken by Mr Orr. Onbehalf of the city he brought suit against thebanks, claiming the deal was done ‘at theprompting of investment banks that wouldprofit handsomely from the transactions’(Walsh 2014b). In what presaged a historicchallenge to Wall Street the city sought tocancel the swaps, arguing that they wereillegal from the outset, a move which sentshudders through the municipal bond andfancy financial product markets. As of early2014, the Detroit case is challenging suchexpectations, the courts will decide onwhether loans made in bad faith will bebinding.
Attention at this writing is rightly focusedon the legal outcome of Detroit’s effort tohave the interest rate swaps the city hadbeen induced to undertake declared illegiti-mate; a judgment against the banks wouldbe far-reaching. The larger issue remains—cities like Detroit are not fiscally sustainable,based on their own resources. In such acontext there are efforts at local self-suste-nance. Some urban scholars are optimisticregarding the potential of urban agriculture,community development corporations, localco-operatives, low-income housing taxcredits, financial repopulation incentives,economic development through corporaterelocation and other approaches (Dewar andManning 2012; Solomon 2014; Smith andKirkpatrick 2015).
Another optimistic literature exists, albeitone that is less relevant to Detroit. Itfocuses on civic ‘glocality’, an alternativeurban discourse in which entrepreneurialmayors and governors are policy initiatorsand cities show the way to the next Americanrevolution (Katz and Bradley 2013). Theincubators for problem solving are foundlocally (Barber 2012). Indeed, scholars fromdifferent political perspectives involved inthis discourse are much enamored with thepotential of cities to prosper if they followpolices responsive to global economy incen-tives (Glaeser 2012). Underlying this dis-course is an implicit assertion that (all) largecities, if they persuade investors effectively,can successfully reboot their economies.
The optimistic position is that ‘[i]n the faceof rapid urbanization, every city, state or pro-vince wants to call its own shots. And theycan, as nations depend on their large citiesmore than the reverse’ (Khanna 2013). Suchoptimism is grounded in the view that‘cities’ can stimulate growth and raise theoverall quality of life, even reducingpoverty, overcoming ‘arbitrary’ nationalborders and sidestepping any inefficient med-iating role of national governments. Accept-ing the premises of neoliberalism, theinstrumentalities of public–private partner-ships, subsidies and tax incentives can shapeurban policymaking. However, this mode ofwhat may be called trickle-down urbanismdoes not directly address the needs of thepoorer residents of cities in crisis, who con-tinue to be victimized by austerity urbanism.Only a select set of cities can prosper in thisway.
Re-embedding the social (and the urban)
The argument of this paper has been thatwhat we see as urban fiscal crisis and the aus-terity that is imposed on many cities, both soprominent in Detroit, are part of a muchbroader phenomenon, one that characterizesas a mode of redistributive growth the com-bined and uneven spatial development of
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our time’s financial character and its depen-dency on debt. This accumulation model,and the powerful fractions of capital thatbenefit from its deployment, have relied onpolitical influence to rewrite domestic legis-lation and influence global state economicgovernance institutions. As a consequence, adebtfare state nationally and austerityregimes from the local to the global protectfinance at the expense of the larger society.Deficits today (and urban crises) are causednot by uncontrolled government spendingbut by allowing capital a mobility that mini-mizes taxes on corporate capital and the veryrich. This has pushed fiscal responsibilities tolocal political units that lack the resources toaddress them.
The developments described in this paper,the manner in which the spatial reorganiz-ation of production, consumption, land useand public revenues characterize a period ofausterity regime dominance, suggest theneed to re-embed markets in a moraleconomy vision of the good society asAdam Smith advocated long ago. Smith ‘didnot trust the morality of the market as a mor-ality for society at large. He in fact did noteven envision a capitalist society. He envi-sioned a capitalist economy within a societyheld together by non capitalist moral senti-ments’ (Rasmussen 1993, 41–42). It is thiscore conviction that goes unrecognized,indeed denied, by those who see onlySmith’s invisible hand of the market, animage irrelevant today given the market andpolitical power of transnational capital andinternational finance.
Indeed, from the hindsight of a maturecapitalism we can see the inadequacy ofsuch thinking. It became clear that thecontext relevant to the time of AdamSmith—that the state was a rent extractingparasite commandeering the surplus createdby productive members of society—hadbecome, at best, a misleading oversimplifica-tion, given the power of monopoly capitaltwo centuries later. Smith knew it was fruit-less to appeal to the crown and cronies toredress the exploitative behavior for which
they were the major beneficiaries, or to askthe business class to forego collusive practicesagainst workers and the public. He countedon what we now call atomistic competition,many producers forced to compete againsteach other. The self-regulation of themarket would bring about efficient allocationand returns proportional to the value of indi-vidual contributions to societal well-being.However, over time the commercial, indus-trial and, in recent decades, the financial frac-tions of capital came to dominate. Culpabilityin the financial crisis suggests the need toseriously regulate finance—that is, to con-strain financial markets in a moral society.
While there has been some progress towardthe required regulation of finance (albeit lesstoward helping the deeply indebted), thepower of finance capital is such that for what-ever category of debtor we talk about,whether cities like Detroit or students carry-ing burdens that the available jobs will notallow them to discharge, meaningful helpcan only come from fundamental rethinkingabout how the economy is purposed. Thegrowing support for such an alternative per-spective informs both popular movementsand, for our purposes here, substantial litera-tures in a number of social sciences.
Among sociologists, spirited debate hasarisen regarding embeddedness followingthe contribution of Mark Granovetter(1985). An extensive literature is found inthe discourse on the political economy ofcapitalism that stresses embeddedness ofinstitutions (Hollingsworth and Boyer1998). For our purposes, two other authorshave initiated ongoing lines of inquiryregarding the embeddedness of markets andthe reconfiguring of social norms. JohnGerard Ruggie’s (1982) influential interven-tion in political science focused on thepost-World War II regulation regime inWestern democracies. He explains that byembedding markets in a social welfarestate, the New Deal in the USA and socialdemocracy or the social market economyin Europe represented a grand bargainwhereby the social partners agreed to open
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markets in exchange for social protections.This accommodation required ‘moderatingthe volatility of transaction flows acrossborders and providing social investments,safety nets and adjustment assistance—yet all the while pushing international liber-alization’ (Ruggie 2003, 1). Globalizationundermined this system, providing a signifi-cant element in the erosion of the nationalKeynesian SSA.
Embedding a new global market withinshared social values and institutional prac-tices, Ruggie came to see, represented ‘atask of historic magnitude’. The reason wasobvious: ‘there was no government at theglobal level and free riders employing state-led industrial policies were eating the lunchof the rich countries at the traditional coreof the world system’ (Ruggie 2003, 1).While Ruggie became a special assistant tothe Secretary-General of the UnitedNations to work out a global regime ofembedded liberalism (Kofi Annan’s GlobalCompact), in reality globalization and thepower of transnational capital undercutwhat had existed of embedded liberalism atthe national level. It was difficult to buildsupport for reconstituting embeddednessthrough voluntary agreements involvingdiverse transnational corporations and sover-eign states. This theorization, seemingly sodistant from the city, set the terms for itsabandonment, disinvestment andbankruptcy.
Important in many disciplinary discussionsis the seminal contribution of Karl Polanyiand his sweeping historical analysis, onethat captured the imagination of many,including urbanists and economic geogra-phers. Polanyi, as Jamie Peck points out,‘remains an enduringly enigmatic and some-what perplexing figure’. For our purposeshere, while it is true as Peck also writes thatPolanyi’s evocative use of the constructionof social embeddedness ‘and its impliedother—the disembedded, a social economyor pure market—was ambiguously andinconsistently handled in his work’. Thishas allowed the ‘seductiveness of his
metaphors’ to be cherry-picked, as Peck(2013, 1545) complains—but I think touseful purpose. The Great Transformationhas been pressed into service in adaptationsthat address the prospects of another greattransformation in reaction to the current neo-liberal hegemony (Block and Somers 1984;Barber 1995; Krippner et al. 2004; Brie andKlein 2011).
Polanyi wrote in a time of war, the rise offascism, the Great Depression and general ‘cat-aclysm’, as he termed it. Numerous theoristsfrom a variety of perspectives (Latham 1997;Bugra and Agartan 2007; Hann and Hart2009) have drawn parallels to our own time;they mark the relevance of Polanyi’s assertionthat the disruption of social unity of thatperiod was then, and they believe is now,rooted in the triumph of a market fundament-alism which has disembedded the economyfrom its moorings to a larger moral economythat once set limits on the behavior of marketparticipants. They employ a version of hisdouble movement, that the pain imposed byunregulated capitalism leads to oppositionand to a pendular movement back to regulationin the interest of preserving communalharmony; a socially embedded market canbetter allocate resources in terms of societalcosts and benefits by putting limits on unrest-rained greed.
A number of theorists (cf. Brie and Klein2011) have, over the opening years of the21st century, predicted that we are on theverge of another ‘great transformation’ to asocial re-embedding of the market. Becausethey assume the neoliberal project to beutopian, its triumphs are predictably thecause of its inevitable demise. However,many intellectuals, both within the urbanistcommunity and elsewhere, have taken tomarveling at its continued power, anointingit a form of zombie capitalism—it is deadbut somehow fantastically continues andthreatens to destroy the existing economicorder. However, zombies do not self-destructon their own.
Urban struggles have been, and continue tobe, on the cutting edge of efforts to embed the
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market in a moral economy. In recent yearspopular adaptation of the Lefebvre ([1966]2009) urban imaginary speaks to thisimpulse to re-embed economic relations in amoral economy (Harvey 2013). As AntonisVradis (2013, 399) has written, introducing asymposium on the topic,
‘There is quite no term that has been loadedwith more hope and expectations in urbanstudies than the Right to the City (RttC): theurbanists’ plea and promise to fight back thegreed of capital, a claim and an idea born inthe face of neo-liberalism’s onslaught.’
Certainly a good dose of right-to-the-citydiscourse is implicitly, and sometimes expli-citly, involved in the popular struggle for$15 an hour by fast food workers, Wal-Martemployees and other campaigns for an ade-quate minimum wage that have been takenup, and in many cases passed, by city councilsand other sub-national governments.
While Lefebvre’s term ‘right to the city’has been variously interpreted, PeterMarcuse (2013) argues that it is not intendedto be taken literally but rather to be read inthe tradition of the moral economy:
‘Not a Right in the sense of a legal claimenforceable through the judicial system, but amoral right, an appeal to the highest of humanvalues. And it was not a right to the City, not aright to be included in what the city alreadywas, but rather a right to a city that could andshould be, to the city as a metaphor for a newway of life, one whose characteristics weredirectly related to the new processes ofurbanization, which for Lefebvre encompasseda new way of life, of everyday life as well as ofgovernment, or a social system as well as, evenmore than, a physical place, a particular builtenvironment or legal jurisdiction.
For Lefebvre, the call for the Right to the Citywas a revolutionary call, a call produced byand justified by the urban revolution of whichhe wrote as a new stage in the historicaldevelopment of civilization.’
Neoliberalism has been discredited intellec-tually but remains a powerful force even as
it has lost legitimacy. As in the past whenan SSA no longer works for the many, itscontradictions become evident and it entersa period of crisis that invokes a successor.Because the city is so often ‘where austeritybites’, social and political change is likely tocome, as it has so often in the past, throughurban transformational struggles withnational implications. The pessimism manyurban scholars have expressed finds justifica-tion in our awareness that while victories canbe won in local struggles, the larger societalexpectations of continued austerity and con-tinued insistence on neoliberal solutionslimit such potential. However, the otherside of what is a dialectical tension (not abinding constraint) is that in thinking glob-ally and acting locally, those of us involvedin urban struggles awaken societal awarenessand promote transformative potential.
Notes
1 This is not the place for a fuller exploration of AdamSmith’s moral philosophy (but see Tabb 1999,chap. 3). However, the triumph of neoclassicaleconomics has done intellectual violence to thethought of the founder of the profession and perhapsin setting the background for the reformulations tofollow I may be forgiven to call attention to a questionEmma Rothschild (1992) is hardly alone in asking:
‘The Political Economy of Adam Smith was thescientific expression of the impassioned crusade ofthe 18th century against class tyranny and theoppressor of the Many by the Few. By what silentrevolution of events, by what unselfconscioustransformation of thought did it change itself intothe “Employers’ Gospel” of the 19th century?’ (88)
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