Ph.D. Octopus

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The Euro Crisis, Geography, and Globalization: Is Ireland like Detroit?

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By Wiz

There’s a lot to chew on in Paul Krugman’s new magnum opus on the failures of the Euro. But I wanted to riff off this point he makes:

“America, we know, has a currency union that works, and we know why it works: because it coincides with a nation — a nation with a big central government, a common language and a shared culture. Europe has none of these things, which from the beginning made the prospects of a single currency dubious.”

Although Krugman doesn’t frame it this way, his argument is to some degree about geographic scales. The problem with Europe, among other things, is that the space of the Euro is larger than the space of any particular political unit’s fiscal policies. As such, when the fiscal policies of a particular country—Spain, Italy, Greece, etc…– get the country in trouble for whatever reason (often from causes not necessarily the country’s fault) they are unable to devalue their currency, since it belongs to the bigger unit of Europe. As such the Greek people are stuck using a currency that is, from their perspective, too strong because it represents attitudes towards the entire European project (including the stronger economies of Germany and France), when devaluation would actually benefit their economies. In the end, he argues for increased fiscal integration, bringing the space of fiscal decision making closer to the space of the European currency.

I’m in no position to judge the economics of the argument (as if that ever stopped me…). But I think the so called “spatial-turn” in history may have some valuable insights here, as what is occurring in Europe strikes me as analogous in some ways to recent moments in American urban history. In American historiography, scholars have begun analyzing how power is written into social space, and how different and competing geographies affect politics and economics. The work I’m most familiar with is 20th century histories, especially those of suburbanization and urban planning. I’m particularly thinking here of Robert Self’s American Babylon, Lizabeth Cohen’s A Consumer’s Republic, and the Thomas Sugrue’s The Origin of the Urban Crisis, each of which studies post-war urbanization practices in, respectively, Oakland, New Jersey, and Detroit. Each are intricate and important works, which don’t always agree with each other, but to me, highlight one important insight: when the effective economic space of a given market does not coincide with the effective political space(s) governing that market serious political and economic problems arise.

Detroit

In urban politics the fact that, for instance, labor markets can be “bigger” than the political unit which theoretically manages the economy has encouraged things like white flight and suburbanization. Middle class parents can continue to work downtown, while taking advantage of lower-taxes, cheaper land, and (likely) their own conscious or unconscious preference for de facto racial segregation in the suburbs. Take New York City, for instance, which in the 60s embarked on a series of ambitious social democratic measures (free higher education at the CUNY system, public hospitals, public housing, etc…). These measures, which primarily benefit the poor and working class, all require taxation and/or debt financing. If an individual, let’s say, ad executive, can continue to work on Madison Avenue while living in lower tax Westchester County or Long Island, where there are no poor people to support, he will move out there. The suburban resident, then, essentially is parasitic, taking advantage of the urban labor market while self-seceeding so as to avoid paying for its maintenance. And bondholders will prefer lending to fiscally conservative suburbs which are, theoretically at least, less likely to default, driving up the cost of borrowing for urban polities.

A vicious circle begins, in which the infrastructure and social programs of the city decline, hastening the flight of middle and upper class taxpayers into the suburbs. The result, of course, is a process of class and race based segregation that undermines social democratic urban policy. After the debt crisis of the 1970s– brought about in no small part because the city lost so many high and middle income taxpayers to the suburbs– New York City retreated from any serious commitment to its working class citizens and hasn’t looked back since (see Josh Freeman: Working Class New York). In cities like Atlanta this is being taken to the absurd extreme of outer-ring areas seceding from the city, in order to avoid having to pay to maintain urban facilities (and, once again, to avoid political integration with the African-American core of the city).

Meanwhile the fact that there is one market but multiple, and competing, political units, each smaller than the market, only aggravates this problem. My father has served in a number of thankless positions in our local town government. Almost every year, our town government face some sort of dilemma that goes like this: Company A asks for a tax break or the right to disobey an ordinance or whatever. If they don’t get it they’ll leave. The problem is each town council knows if they don’t give in, their neighbors might, and Company A will just relocate. So even if every local government sees through this crass corporate blackmail, they’re all stuck in a collective action problem. In Massachusetts, Deval Patrick is under a bit of attack for funneling 58 million dollars to a solar power plant, on the hopes of keeping employment in state, only to see it turn around and move to China. But what choice did he have? If New Hampshire was willing to give them $57 million, he had to pony up. The solar plant violated the terms of the informal contract only being rude enough to leave so quickly. This is a long way of saying, of course, that capital can play individual political units off each other, setting off a race to the bottom.

And what happened in a minor scale, in cities across America, is now occurring across the globe. In Greece and Ireland, for instance, the debt crises have forced a massive reduction in the welfare state, even while, as in Ireland, corporate taxes remain low in order to continue to attract highly mobile international capital.

David Harvey is the theorist who has most extensively written on this, arguing that one of the main strategies for renewed capital accumulation in the neoliberal age has been what he calls a “spatial fix.” Part of this is as old as capitalism itself, which has always had the tendency towards constant geographic expansion (“The need of a constantly expanding market for its products chases the bourgeoisie over the entire surface of the globe. It must nestle everywhere, settle everywhere, establish connexions everywhere”). The annihilation of space and time that accompanied the rise of the internet, containerization, and trucking all sped up and intensified this pre-existing process.

But spatial fixes become especially useful in the post-war period as a form of top-down class warfare against social democratic regimes. The greater mobility of capital is one of its most powerful weapons against both labor movements (which are most often local or nationally based) and against government regulation. Are wages too high in this country? Did the voters just implement some pesky environmental regulation? Did the government just approve taxes in order to finance some social program? Capital can find somewhere else that is friendly to its continued accumulation. Especially attractive are undemocratic states like Dubai or China where you never have to worry about the citizens getting in your faces if you pollute their river. And even if the factory doesn’t move, just the threat that they could relocate serves as a powerful disciplinary tool. Go try to organize a union of manufacturing workers in America. See how long it takes before management puts up posters reminding people that “In the past, when factories have unionized, these jobs have been forced to go overseas, hint, hint, nudge, nudge.” Under the Breton Woods system, as I understand it, it was actually fairly difficult to move capital in and out of countries, as nations maintained strong restrictions on the out-flow of capital.

But now this is possible, of course, because with 30 years of “free trade” globalization combined with technological improvements, the effective space that capital can operate has become much larger than the effective space that capital’s main antagonists (organized labor and democratic oversight) generally function in. And, of course, the fact that the era of globalization has also been one of increased repression and restriction of immigration (i.e. labor trying to move around just as capital does), only highlights the mocking farce that is the ideology of globalization.

The problem, then, is that by making the market bigger than the democratic institutions which used to oversee it, the neoliberals have undermined their own ability to regulate that market, even in ways they might want to. In their honest moments, neoliberals even admit this, as when bankers threaten to move overseas if the rabble taxes them, or when Thomas Freidman writes about the “golden straightjacket,” that limits the policies governments can implement if they want to grow economically. Now Europe, it seems, is suffering from the ability of capital (in this case bondtraders) to operate in a significantly larger arena than other agencies.

A lot of ink has been spilled on the left about the undemocratic nature of the various international agencies that oversee the world economy– the IMF, the World Bank, G-20, etc… But to some degree, these critiques miss the point. The problem isn’t the undemocraticness of the IMF itself as in institution, though that might be true. The problem is that by creating a market bigger than our nation-state, we’ve undermined our ability to democratically control the market through our normal channels of citizenship and democratic participation.

I realize the analogy with modern European problems isn’t perfect: I’m not totally sure that the bond market, for instance, operates in the same way that other markets do. And since countries are bigger than urban spaces, and produce strong affective ties, I’m not sure that individual taxpayers move around that much. But capital certainly does, blessing Ireland one day, and then pulling out the next. And the fundamental point, that the problem arises from the mismatch between the space of the market and the space of the effective political units, preventing the regulation and management of the market, I think holds. (I say effective, since in this case the actions of the Greek or Irish parliaments are clearly more salient than the largely meaningless European Parliament).

One solution, of course might be reintroduce restrictions of various sorts, as those who wish to leave the Euro suggest. The other is to “scale up” the various political units so that they more accurately coincide with the various economic marketplaces. This seems to be Krugman’s preference. Theoretically there are certain UN bodies, like the ILO, which have some universal jurisdiction. But at this point the ILO is completely toothless (I know, they condemned NYU, my employer, for its labor practices in no uncertain terms back in 2008, and here we are still without a union.) And given that the international community has been unable to agree on some proper management of the carbon in our atmosphere, the clearest example of a global commons, there isn’t a lot of hope that, at least in the near future, countries would give up their sovereignty over issues like taxation, labor policy, and their welfare state. And the UN, whose various agencies are perhaps best positioned to oversee some of these issues, is still only indirectly democratic, with both India and Belize getting the same votes in the General Assembly, and the Security Council dominated by those countries which happened to win World War II. And of course, the other major global institutions—the World Bank, the IMF, the G-20, etc…—are far less democratic, dominated, at best, by unaccountable neoliberal technocrats, and at worse by the naked influence of the financial industry.

And so any real global integration of global politics seems, at this point, to be almost completely utopian. Which is to say, that the problem Krugman hints at, that the spaces in which global capital operates in will continue to be larger than the spaces in which the countervailing forces operate, will not be restricted to Europe. Hopefully we don’t all end up like Detroit, but I’m not optimistic.

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Written by Peter Wirzbicki

January 17, 2011 at 10:12

One Response

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  1. This is an interesting post, but one thing I might quibble with is this:

    “the fact that the era of globalization has also been one of increased repression and restriction of immigration (i.e. labor trying to move around just as capital does), only highlights the mocking farce that is the ideology of globalization.”

    My questions are: when is this era of globalization you are talking about? And to what other eras is it comparatively more repressive and restrictive? And who is doing the repressing and the restricting?

    There was tons of immigration to the US from Europe in the late 19th and early 20th century, though much less from other places. Then came immigration restriction from the 1920s to the 1960s. Since then, as I understand it, there’s been tons of immigration, from Latin America, Asia, Africa, and elsewhere. People have been moving to the US, Canada, Europe, and all over the European states. Indeed, the rise of the EU has made mobility within Europe remarkably easy. With the fall of the Soviet Union, many people from those lands have moved around, especially Jews to the US, Canada and Israel.

    Also, are regimes broadly more repressive now than they were in the first half of the 20th century?

    I think one can easily argue that our society has gotten more unequal since the 1960s, perhaps the political climate is less favourable to labour, but broadly speaking, both in the United States and globally, I’d say the world has become less rather than more repressive.

    All this is not to say that your economic forecast is wrong. It may be right. I have no idea. And I share your concerns about the power of global capital and finance. The Atlantic has a good piece on this by Chrystia Freeland about “The Rise of the New Global Elite.”

    http://www.theatlantic.com/magazine/archive/2011/01/the-rise-of-the-new-global-elite/8343/

    There’s a lot to be concerned about. And things might be getting worse if keep our memories short. As concerned citizens, we should act on that. But as historians, we should keep our memories as long as possible.

    weiner

    January 17, 2011 at 11:05


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