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Urban Austerity ebook



What started as a mortgage crisis in 2007 and became a global financial and economic crisis in 2008, has transformed into a sovereign debt crisis since 2010. Throughout, cities all over Europe have been at the heart of the turmoil in multiple ways: indebted homeowners have been evicted, masses impoverished, public budgets tightened, municipal infrastructures privatized, and public services downsized. In short, austerity measures have been implemented. In view of the above, this book focuses on an issue that affects most people living in urban regions across Europe: the idea that fiscal austerity is a necessity that politics cannot avoid, no matter how harsh the consequences might be. To bring the effects of austerity politics to the forefront, the authors of this book expose actual urban problems in their spatiotemporal dimensions, discuss regulatory restructurings under a new regime of austerity urbanism, and reflect on the role of urban social movements struggling for progressive alternatives. Barbara Schönig is Professor for Urban Planning and Director of the Institute for European Urban Studies at the Bauhaus-Universität Weimar, Germany. Sebastian Schipper, PhD, is a researcher at the Department for Human Geography, Goethe-University Frankfurt am Main, Germany.

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Urban AusterityImpacts of the Global Financial Crisis on Cities in Europe

Edition Gegenstand und RaumHerausgegeben von Thomas Flierl

Barbara Schönig | Sebastian Schipper (Eds.)

Urban Austerity

Impacts of the Global Financial Crisis on Cities in Europe

Table of contents


Sebastian Schipper & Barbara Schönig

Impacts of the Global Financial Crisis on Cities in Europe

An Introduction to Urban Austerity

Urban governance in times of austerity

Jamie Peck & Heather Whiteside

Financializing the Entrepreneurial City

Joe Penny

The (Post)politics of Fiscal Retrenchment

Managing Cities and People in a Context of Austerity Urbanism

Robert Ogman

Social Impact Bonds: A “Social Neoliberal” Response to the Crisis?

Dimitris Poulios & Thanos Andritsos

Urban Politics towards a New Paradigm?

Reflections on the Crisis-driven Regulatory Reforms in Greece

Urban infrastructure and public services

Elena Besussi

Extracting Value from the Public City

Urban Strategies and the State-market Mix in the Disposal of Municipal Assets

Katja Thiele

Who governs? Struggles over Public-landed Property Policy in Berlin under (a not so new) Austerity Regime

Anastasia Roukouni & Basil Stefanis

Value Capture as a Tool to Finance Urban Transportation Infrastructure in the Era of Crisis

Daniela Patti & Levente Polyak

From Austerity to Self-organization

The Changing Landscape of Social Services and Infrastructures in Rome

Housing crisis

Dimitra Siatitsa

Changes in Housing and Property under the Austerity Regime in Greece

Challenges for Movements and the Left

Maria Karagianni & Matina Kapsali

A New Socio-spatial Order in Crisis-stricken Greece

The Housing Crisis and the (In)visibility of the New Marginals

Knut Unger

Financialization of Rental Mass Housing in Germany

Understanding the Transaction Cycles in the Mass Rental Housing Sector 1999–2015

Stefania Animento

Moving to Berlin from the European South

Post-crisis Mobility Patterns and Uneven Development in the EU

Ícaro Obeso Muñiz

Geographic Analysis of Evictions in Spain

Urban conflicts and contestations

Margit Mayer

Urban Social Movements in Times of Austerity Politics

Daniel Mullis

Crisis and the City: Producing Space on Both Sides of the Barricade in Athens’ City Center

Julia Tulke

Tales of Crisis from the Walls of Athens

An Exploration of Urban Austerity through the Cultural Practice of Street Art

Silvia Aru & Matteo Puttilli

Shades of (In)justice

The Right to the City and the Right to the Housing in Sant’Elia, Cagliari


Short bios of all authors



Sebastian Schipper & Barbara Schönig

Impacts of the Global Financial Crisis on Cities in Europe

An Introduction to Urban Austerity

In the period since the Wall Street crash, the refurbished rationale for austerity measures is that the imposition of strict fiscal discipline and government spending cuts is the (only) way to restore budgetary integrity – thereby securing the confidence of the investor class, appeasing the jittery markets and paving the way to growth. The critical test case that is Europe, of course, shows no signs of working. (Peck, 2012: 626)

1. Introduction

Since 2010, the global financial and economic crisis – which began, in 2008, as a result of the mortgage crisis of 2007 – has transformed into a sovereign debt crisis (Altvater, 2011; Blyth, 2013; Whitfield, 2014). Throughout each of these interconnected phases, cities have been at the center of the turmoil (Gotham, 2009; Hadjimichalis, 2011; Harvey, 2011; Martin, 2011; Blazek & Netrdova, 2012; Donald et al., 2014; Tabb, 2014; Eckardt & Sanchez, 2015). The economic crisis and the “fiscal dictatorship” (Lehndorff, 2012: 8ff) imposed by German and European elites in the years that followed (Bieling, 2011; Hadjimichalis, 2011; Demirovic & Sablowski, 2012) have dramatically affected urban regions: indebted homeowners have been evicted, masses impoverished, public budgets squeezed, municipal infrastructures privatized, public services downsized, and, above all, austerity measures implemented.

In December 2014, more than 80 urban scholars, politicians and social movement activists from ten different countries came together at the Institute for European Urban Studies (IfEU) at Bauhaus-Universität Weimar to share their research on the impacts of the global financial crisis on European cities as well as the experiences these cities have made with urban austerity policies. As a result, the conference has placed an issue that affects most people living in urban regions across Europe into the center of attention: the idea that fiscal austerity is an unavoidable political necessity in spite of its harsh consequences. The seemingly unavoidable hegemonic paradigm driving European politics is the idea that public budgets must be balanced and that this can only be achieved by way of frugal policies and an even leaner state than that which already exists: whether school buildings or bridges are nearly in ruins, public housing, waste management and/or health care are being privatized and reorganized according to profitability, participation in planning processes is being sacrificed on the altar of inter-urban competition, or the masses proclaim their resistance.

The impact of this strategy is felt most in urban regions. It is in the cities, as Jamie Peck (2012: 629) puts it, “where austerity bites.” The immense effects of austerity are most obvious in cities, which are sites of collective consumption dependent on public infrastructures, such as schools, social housing, hospitals, and public transportation. Increasing social polarization can immediately be observed where most of the poor and working class people live (Tonkiss, 2013; Donald et al., 2014; Meegan et al., 2014; Peck, 2014; Vaiou, 2014): “Austerity is especially [urbanized] with cities predominantly on the receiving end of fiscal retrenchment because they remain disproportionately reliant on public services and public employment with large municipal bureaucracies and [organized] workforces with pay and pensions that are targets for reform. They also house the [marginalized] individuals and groups that are the target of austerity-driven welfare reform [programs]” (Meegan et al., 2014: 141).

None of this is new: neither budget deficits nor the hegemonic idea that austerity is an appropriate reaction originated in the financial crisis of 2007–08 (Blyth, 2013; Tabb, 2014; Whitfield, 2014; see also Patti & Polyak, Chapter 9 in this book): “Austerity measures, selectively applied, have long been part of the neoliberal repertoire. Fiscal purges of the state (especially the social state) derive from the most elemental of neoliberal motives-to ‘roll back the frontiers of the state’” (Peck, 2012: 629). However, political support for austerity policies has clearly increased significantly as a result of the European and global crisis. Austerity policies are now the leading principle of public budgetary planning in Europe.

In Germany, for example, the Federal Government and state (or Länder) governments initiated early austerity measures decades before the 2008 financial crisis. These led to job cuts in the municipal sector (Keller, 2014) and a somewhat permanent fiscal crisis on local state level, especially after the early 1990s (Jungfer, 2005; Häußermann, 1991; Eicker-Wolf, 2010; Troost & Schuster, 2010; Müller & Sträter, 2011; Schipper, 2013: 268; see also Thiele, Chapter 7 in this book). However, despite the comparatively favorable economic situation and the fact that the German export-oriented growth model is surviving the current crisis rather well (Belina, 2013a), austerity measures have even increased in recent years. Most importantly, in Germany, austerity has been established as a constitutional principle. In 2009, a measure was introduced under the label “debt brake” (or Schuldenbremse). It will become effective at the Federal level, in 2016, and at the state level in 2020 (Eicker-Wolf & Himpele, 2011; Keller, 2014: 400). Consequences of the “debt brake” can already be observed today. Many German cities suffer from a drastic lack of financial resources. Due to constitutional restrictions and the threat of being subjected to budgetary monitoring by the states, local decision-makers are eager to put high priority on achieving a balanced budget.

However, up until now, there has been little public awareness of the dire costs of austerity policies in cities. Only a few urban scholars have emphasized the negative outcomes of austerity measures and the power structures that sustain them (Jungfer, 2005; Eicker-Wolf, 2010; Troost & Schuster, 2010; Keller, 2014; Klein & Rumpfhuber, 2014; Heinz, 2015). This is slightly different within the English-speaking academic community. While more scholars contribute to the debate on urban austerity (Peck, 2012; Mayer, 2013; Oosterlynck & González, 2013; Tonkiss, 2013; Donald et al., 2014; Meegan et al., 2014; Panayotakis, 2014; Peck, 2014; Tabb, 2014; Eckardt & Sanchez, 2015), the research is also just in an early stage of development.

From our perspective, one of the most important tasks for urban scholars is to fill this gap and shed light on the effects of austerity policies through research. A counter-hegemonic understanding of austerity’s ideological foundations, its urban impacts and the social power relations sustaining it is crucial to successfully combating austerity in Europe and elsewhere. Accordingly, the conference “Urban Austerity: Impacts of the global financial crisis on cities in Europe,” which was sponsored by the Hermann Henselmann Stiftung and the Rosa Luxemburg Foundation, has promoted an interdisciplinary debate that exposed actual urban problems and their spatiotemporal dimensions, discussed regulatory restructuring under a new regime of austerity urbanism, and reflected on the role of urban social movements struggling for progressive alternatives. The decisive questions that guided both the conference and this resulting publication are: How are different urban regions affected by the financial crisis and the resulting austerity strategies? How do cities, urban planning approaches, and urban governance structures change and evolve under the circumstances of crisis and austerity? Which new regulatory restructuring approaches are emerging? What does it actually mean to live in, plan, or design cities under these circumstances? How is the right to housing neglected due to forced evictions and crisis-induced gentrification processes? What is the role of urban social movements in fostering resistance to the depredations of crisis? How do urban governments drive, manage, or subvert austerity policies? An interdisciplinary approach, which includes contributions from urban planners, architects, sociologists, geographers, political scientists, and social movement activists, must answer these questions. Finally, all of these issues must be addressed from a European, international, and transnational perspective.

2. From austerity as a dangerous idea to “austerity urbanism” (Peck, 2012: 650)

For proponents and critics alike, austerity has become the new buzzword for describing the neoliberal crisis management designed and implemented despite heavy resistance in the form of mass protests in the aftermath of the 2008 global financial crisis. Politicians and decision-makers from many European countries and North America have introduced austerity measures to quickly reduce public debt, which increased enormously as a result of the global financial crisis and the gargantuan state-funded bank bailouts that followed. The vague promise of austerity, supported by dubious economic research (Herndon et al., 2014), represents a combination of state budget cuts, wage reduction, the privatization of public services, and further dismantling of the welfare state as a strategy that would, in turn, allow the private sector to rekindle growth and escape economic recession. Critical scholars have emphasized the negative consequences and economic failures of this recent turn towards extreme austerity measures. For Clarke and Newman (2012), the “alchemy of austerity” is based on two simple, but false, assumptions: (1) that the government budget deficits experienced today by many developed countries are unsustainable and (2) that fiscal consolidation measures are invariably expansionary, resulting in positive output and employment effects. Concerning the latter, Blyth (2013) and Whitfield (2014) have demonstrated that this flawed theory of growth-oriented fiscal consolidation has been empirically discredited on a massive scale as austerity policies “have fuelled the fire of recession in Europe and the [United States] rather than stimulating growth” (Whitfield, 2014: 6). Austerity has failed despite its promises: government debt has continued to increase and weak economic performance has prevailed in most countries due to reduced effective demand as a result of significant public expenditure cuts.

In addition to economic failure, the socioeconomic effects of austerity are catastrophic. Worldwide, austerity has led to increased unemployment rates, reduced wealth, increased social inequality, and increased cuts to wages, benefits, and pensions (for the housing situation in Greece and Spain, see Siatitsa, Chapter 10, Karagianni & Kapsali, Chapter 11, and Muñiz, Chapter 14, in this book). Austerity, as such, entails a “gigantic wealth transfer from taxpayers to the corporate sector and wealthy individuals” (Whitfield, 2014: 7). Based on the intellectual history of austerity since the seventeenth century and a comparison of different austerity policies since the Great Depression of the 1920s, Blyth (2013: 184) concludes that austerity is a dangerous idea as it “simply doesn’t work, no matter how many times you do it” and “relies on the poor paying for the mistakes of the rich” (ibid.: 10).1

Concerning the current situation, Blyth argues that the 2008 financial crisis has been transformed into a sovereign debt crisis by means of a concerted ideological offensive or “the greatest bait and switch in human history” (ibid.: 73). Fundamental misrepresentations of the facts and intensive ideological work have “turned the politics of debt into a morality play, one that has shifted the blame from the banks to the state. Austerity is the penance – the virtuous pain after the immoral party – except it’s not going to be a diet of pain that we shall all share. Few of us were invited to the party, but we are all being asked to pay the bill” (ibid.: 13). As the public debt level was declining on OECD-average before the crisis and only increased dramatically after 2008 (Stützle, 2013: 318), Blyth concludes that “any narrative that locates wasteful spending by governments prior to the crisis in 2007 as the cause of the crisis is more than just simply wrong; it is disingenuous and partisan” (Blyth, 2013: 47).

Due to this successful neoliberal re-narration of the crisis (Clarke & Newman, 2012; Peck, 2014; Schipper, 2014) and shifting of responsibility from creditors to debtors (Belina, 2013b; Tabb, 2014), states are now becoming, in the end, more amendable to creditors and the interests of financial institutions, while access to state power by certain social forces, such as trade unions, public housing advocates, and other welfare organizations, is delegitimized. As a result, “the costs, risks and burdens of economic failure” are redistributed “onto subordinate classes, social groups and branches of government” (Peck, 2014: 20).

From a scalar perspective on urban governance, Jamie Peck has argued that austerity measures frequently operate downwards as they dump risks, responsibilities, and deficits onto the local scale and function as “a new operational matrix for urban politics” (Peck, 2012: 632): “They offload social and environmental externalities on cities and communities, while at the same time enforcing unflinching fiscal restraint by way of extra local disciplines; they further incapacitate the state and the public sphere through the outsourcing, marketization and privatization of governmental services and social supports” (ibid.: 650). Since austerity operates as a “permanent fiscal tribunal” (Ibid.: 652), municipal governments have become both victims and instigators of new neoliberal restructuring. Within local state apparatuses, “the cadre of fiscal disciplinarians, restructuring advocates, change-managers, consulting auditors and local state entrepreneurs” (ibid.: 649) gain more strength, legitimacy, and power over those defending the interests of economically-marginalized citizens, welfare recipients, or public sector employees (see Besussi, Chapter 6 in this book). Despite its disastrous social impacts, urban austerity is often able to renew its own legitimacy as the highest priority of local state governments on the basis of a vicious circle of public spending cuts and declining state capacity to act. While municipal spending is being cut across all sectors, the ability and flexibility of cities to design policy and react to social problems is declining. The resulting lack of capacity to act delegitimizes state action; as a result, society’s willingness to enable local governments to take action by, for example, paying higher taxes, decreases (Streeck & Mertens, 2010).

The social, political, and economic impacts of austerity strategies on the urban scale are manifold. The long-term downsizing of local government through budget cuts, outsourcing, the squeezing of labor costs, and the restructuring of public services enables more intensive commodification of the public sphere (Meegan et al., 2014). At the same time, income inequality is increasing within cities across Europe and the United States (Donald et al., 2014: 7ff). Furthermore, the “landscape of austerity urbanism will be a variegated one” (Peck, 2012: 647) due to the unequal impact of austerity measures on declining cities and failing local states and on those with stronger growth (see Animento, Chapter 13 in this book). Meegan et al. (2014), in their comparative study of public expenditure and service cuts in Liverpool and Bristol, demonstrate that Liverpool and other disadvantaged cities are being disproportionately affected by austerity measures. As a result, austerity advances a tendency of spatial polarization, which increases the uneven development between “winner regions” and “loser regions.” Moreover, austerity promotes the decline of democratic decision-making (see Penny, Chapter 3 in this book). While the shift towards the “entrepreneurial city” has already undermined local democracy for more than two decades and has led to a post-democratic situation in cities worldwide (Crouch, 2004; Swyngedouw, 2011; Mullis & Schipper, 2013), the rise of new austerity regimes has displaced democratic processes even further by empowering unelected urban technocrats on multiple scales, ranging from the local to the EU-level (Donald et al., 2014: 6ff; see also Poulios & Andritsos, Chapter 5 in this book).2

3. Contradictions and contestations

A number of scholars analyzing austerity policies have come to the convincing conclusion that austerity does not equate to a sustainable destination or comprise a stable regime of regulation as it leads to political instability and “metastasizing state failure” (Peck, 2014: 22). In accordance with Karl Polanyi’s work on the contradictory double-movement of self-regulating markets (Polanyi, 1944 [2005]), an orderly transition to lean local government seems unlikely. The deficiencies of commodification tend to create a counter-movement rooted in the contradictory character of market rule: “Inescapably, austerity urbanism is politically controversial, and the animation of resistance politics might be considered one of its double-movement contradictions. Since sustainable small-state solutions are likely to remain elusive, austerity manifestly does not anticipate a stable regime or new political-economic equilibrium. Instability and uncertainty beckon. New terrains (and stakes) of struggle will be shaped in the process” (Peck, 2012: 649).

At least three reasons that support the claim that austerity has no viable future can be identified: First, massive budget cuts and a lack of investments in maintaining and improving vital public infrastructure also have dysfunctional effects on private capital, which is dependent on “general preconditions of production” (Marx, 1857 [1983]: 432) provided mostly by local states. Long-term consequences of “starve the beast” strategies may lead to “various forms of low tax/low service disequilibrium” (Peck, 2012: 630) and a cumulative incapacity of cities to invest in public infrastructure indispensable to advancing capital accumulation. Up until now, new financial tools, which are implemented as auspicious compensations, such as Social Impact Bonds (see Ogmann, Chapter 4 in this book), also do not seem to have kept their promises. While shifting the balance of power towards a rising class of financial technocrats (see Peck & Whiteside, Chapter 2 in this book), financial innovations often lead to increasing, rather than declining costs in the public sector. Therefore, the deterioration of bridges, streets, school buildings, and public transport infrastructure may also result in a growing opposition by business interest groups against a (too) lean local government.

Second, current and future waves of austerity collide with an already deeply neoliberalized terrain: “The current round of austerity measures is qualitatively different, however, to the welfare state retrenchments of the 1980s, in that it operates on, and targets anew, an already neoliberalized institutional landscape. It cuts deeper into the remnants of the socially redistributive and welfare state (the target for 1980s rollbacks), while also curtailing many of the institutional accretions and adaptations associated with rollout neoliberalism” (Peck, 2012: 631). Hence, austerity policies lead to “rollout neoliberalism’s very own roll back moment,” since budget cuts nowadays also affect the institutions and practices of the entrepreneurial city that have been established and/or enhanced during the last decades. These include economic development departments, city marketing agencies, and repressive state apparatuses, such as local police forces, cleanliness and anti-graffiti campaigns, and the prison system.

Third, mass protests, especially in Southern Europe (Abellán et al., 2012; Arampatzi & Nicholls, 2012; Kastner & Lorey, 2012; Candeias & Völpel, 2013; Douzinas, 2013; Hadjimichalis, 2013; Taibo, 2013; Brekke et al., 2014; López & San Juan, 2014; Sitrin & Azzellini, 2014; Huke et al., 2015; Sevilla-Buitrago, 2015), riots in many European cities (Dzudzek & Müller, 2013; Mayer et al., 2016), the electoral success of SYRIZA, in Greece, and Podemos, in Spain, but also nationalistic, neo-fascist, racist, and anti-European mobilizations (Buckel et al., 2012; Belina, 2013a) reveal that the austerity regime cannot secure a hegemonic consensus: “To date, the European (and North American) reaction to austerity has been uneven, though there have certainly been enough strikes, demonstrations and riots to suggest that austerity is not entirely popular” (Clarke & Newman, 2012: 309). In the British context, austerity, according to Clarke and Newman (2012: 309), may “enable a degree of acquiescence to ‘economic necessity.’” However, this form of “passive consent” is unable to secure popular mobilization similar to that of the post-war austerity period, which, contrary to the current situation, was supported by an aura of hope and a degree of public confidence in the political class.

In terms of securing hegemonic consensus, Germany is perhaps the most obvious exception. A brief window of opportunity for social movements opened, in 2008–09, when the German economy was suffering severely as a result of the banking crisis. An increasing number of people were no longer convinced that market rule and the dismantling of the welfare state were good ideas (Altvater, 2009; Brie, 2009). After the collapse of Lehman Brothers, in 2008, many, including some eminent conservative intellectuals, began raising doubts about neoliberalism and even capitalism in public debates.3 However, neoliberal hegemony was reestablished quickly and popular support for austerity increased as soon as the German export-oriented accumulation model recovered and as the financial crisis was successfully re-narrated into a sovereign debt crisis. In 2010, media and political elites started aggressively blaming the non-German “others” on the European periphery, especially “the broke Greeks” (Belina, 2013a: 281). Today, forced austerity measures are accepted by a clear majority of German voters – except for the small, socialist Left Party (Die Linke) and the Blockupy alliance, consisting of radical and civic groups, which organized anti-austerity protests to block and shut down the European Central Bank (ECB) in Frankfurt, in 2012, 2013, and 2015 (Mullis et al., 2015) – as good governance without alternatives, at least when implemented elsewhere (Belina, 2013b). Contributions by Margit Mayer (Chapter 15), Daniel Mullis (Chapter 16), Julia Tulke (Chapter 17), and Silvia Aru & Matteo Puttilli (Chapter 18) demonstrate that this is definitely not the case with anti-austerity struggles and social movements in Southern Europe. Especially in Southern Europe, contradictions inherent to austerity offer a context for radical contestations, alternative spaces, and the emergence of strong social movements. These provide the foundation for non-neoliberal forms of urbanization (Künkel & Mayer, 2011; Mayer, 2013), which at least maintain the hope for a different Europe based on principles of social justice and democracy.

However, Jamie Peck is correct in stating that it would be naive to conclude that austerity “will somehow automatically call forth its own gravediggers, in the singular service of progressive renewal” (Peck, 2014: 23). While anti-austerity struggles often, for practical reasons, emerge within urban centers, progressive social movements must extend beyond the local scale by building transnational alliances, which are able to challenge the “heart of the European crisis regime” (Mullis et al., 2015) and institutionalized centers of power, such as the European Central Bank, the European Commission, International Monetary Fund, and the German government. We hope that this collection of articles on the impacts of the global financial crisis on cities and counter-hegemonic narratives to neoliberal policies can make a small contribution by inspiring critical urban scholars, political activists, and social movements to continue their struggle for progressive social change in Europe.


We would like to thank Thomas Flierl, Harald Bodenschatz, Mario Candeias, and Stefan Thimmel for their productive cooperation. Neither the conference nor this publication would have been possible without the generous support of the Rosa-Luxemburg-Foundation and the Hermann-Henselmann-Foundation.


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1According to Blyth (2013), austerity policies have failed historically in the United States (1921–1937), Great Britain (1921–1939), Sweden (1921–1938), Germany (1923–1933), Japan (1921–1937), and France (1919–1939). Recently, in the aftermath of the 2008 global financial crisis, similar policies have failed in Spain, Portugal, Greece, Italy, Ireland, Romania, Estonia, Bulgaria, Lithuania, and Latvia.

2All these tendencies are often coupled with a “racialization of the people living in the European periphery” (Panayotakis, 2014: 10), nationalistic defamations stating that the southern “others” have been living beyond their means (especially in Germany, see Belina, 2013a), and a new wave of rightwing populism in many European contexts.

3For example, Frank Schirrmacher, the former editor of the Frankfurter Allgemeine Zeitung, argued, in August 2011, that conservatives should free themselves from the failing and devastating free-market ideology, which has held them hostage throughout the last decades (http://www.faz.net/aktuell/feuilleton/buergerliche-werte-ich-beginne-zu-glauben-dass-die-linke-recht-hat-11106162.html).

Urban governance in times of austerity

Jamie Peck & Heather Whiteside

Financializing the Entrepreneurial City

1. Introduction

This chapter develops the argument that the post-2008 wave of urban-austerity measures must be understood in the historical context of the deepening financialization of urban governance. Urban political economy has always been shaped by financial pressures, constraints and imperatives; there is nothing particularly new in that. What is distinctive about the latest rounds of financial intensification, however, is that they have flourished on the barren soil of the post-Keynesian or entrepreneurial city, the conventional policy repertoires of which have been prone to zero-sum competition and diminishing effectiveness. Compounding an earlier shift towards entrepreneurial modes of urban governance, cities now find themselves in an operating environment that has been constitutively financialized. Bondholder-value disciplines have become systemic in reach, along with an amplified role for financial gatekeepers like credit-rating agencies; technocratic forms of financial management have been spreading and deepening, both in supposedly normal times and under externally-imposed emergency measures; and, in some cities, the routinized play of growth-machine politics is being eclipsed by a new generation of “debt-machine” dynamics.

Given the continued intensification of financial regulation, governance, and management, staple understandings of urban growth-machines and growth-elite politics may need to be augmented or revised, not least since some cities have come to resemble debt machines, existentially governed by the imperative forces of lean-state discipline, technocratic fiat, and budgetary triage. This is a rather different story to the familiar one in which development agendas are hijacked by local business elites; in a world of slow growth, devolved risk and responsibility, and credit-market dependency, urban-political power assumes a different kind of post-democratic form, not one but two steps removed from local constituencies. In this sense, austerity and financialization can be self-reinforcing: maintaining (even “reformed”) urban services amid slow growth and fiscal restraint has bred reliance on financial markets; likewise, financial-market volatility and periodic crises have exposed overextended municipal budgets, driving the rationalization of public services and public-sector workforces, often “necessitating” further austerity. The tangled relationship between fiscal and financial crises, between austerity and financialization, and slow and uneven growth has transformed the terrain of urban politics – as well as that of urban political economy.

It is in this context that the chapter explores the nexus of entrepreneurial urbanism and financialized urban governance, against the backdrop of aggravated metropolitan restructuring in the United States. This does not constitute a simple “transition,” of course. As the first-mover advantages of entrepreneurial cities have been exhausted, and as the purchase of the associated policy repertoire has declined, a quite ubiquitous form of “weak” entrepreneurialism now coexists with deepening dynamics of system-wide financialization. The structurally stressed condition of city budgets, the atrophy of redistributive financing systems, and the explosive growth of the municipal bond market speak to conditions of constitutive financialization. This has been accompanied by a drift towards post-democratic modes of technocratic management and transformed rules of the fiscal game for municipal states, conditions that have localized both risk and responsibility, while extending the reach of financial discipline, incorporation, and control.

2. Entrepreneurial turns and financializing times

There are few stylized facts in the interdisciplinary field of critical urban studies that can match the durability of the (repeatedly verified) claim that cities, urban governance, and interurban relations have been comprehensively “entrepreneurialized,” in historically and geographically contingent but significant ways, since the 1970s. These (structural) conditions of entrepreneurial urbanism have been activated on the “inside” by increasingly dominant growth-machine dynamics and animated on the “outside” by the rollback of federal programs and fiscal-transfer regimes, by the globalization of capital flows and supply chains, and by the intensification of (often zero-sum) competition for all manner of investment opportunities, cultural distinctions, and locational advantages (after Logan & Molotch, 1987; Harvey, 1989; Leitner, 1990). “In recent years in particular, there seems to be a general consensus emerging throughout the advanced capitalist world,” David Harvey (1989: 4) wrote a quarter-century ago, “that positive benefits are to be had by cities taking an entrepreneurial stance to economic development,” a consensus that was already “hold[ing] across national boundaries and even across political parties and ideologies.”

While this consensus has in many ways been consolidated, the conditions of existence for entrepreneurial urbanism have been cumulatively transformed: the first round of entrepreneurial strategies emerged from the husk of the Keynesian welfare state and in significant respects were predicated on that inheritance; they have since been increasingly pursued, though, in an operating environment that has become deeply financialized and neoliberalized, involving not only the widespread ascendancy of a repertoire of financial practices and policies, but also reciprocal transformations in the fiscal operating environment of cities. This does not imply that an historical break divides entrepreneurial from financialized urban governance, not least because entrepreneurial norms and practices have become effectively hegemonic, albeit prosaically so (Kirkpatrick & Smith, 2011; Peck, 2014a). Rather, it is to suggest that entrepreneurial strategies – the routinized performance of which is associated with seriously diminished returns – are increasingly realized through financially mediated means and in conjunction with credit-market actors, agencies, and intermediaries. These processes become all the more heightened by austerity urbanism, suggesting that austerity’s impact may extend beyond the (cyclical) pain of budget cuts and structural reform, extending to the long-run financialization of urban-governance strategies.

Conventional (critical) wisdom has it that the political economy of urban governance is animated by the pursuit of growth and, internally, by growth-elite dynamics. Increasingly, though, it is debt as much as growth that shapes and drives the system, while the locus of power and control has been shifting from growth coalitions to debt machines and from local business leaders to more distant finance-market interests. For many cities, the new urban governance is concerned with the structural challenges of debt management and the exigencies of credit-market relations, under persistent conditions of budgetary constraint and fiscal stress. In as far as these conditions reflect the limits and contradictions of the entrepreneurial regime, financialization may be thought of, to borrow a Braudellian metaphor, as the “autumn” of the post-Keynesian mode of urban governance. Schematically, some of the shifts and realignments entailed by this financialization of late-entrepreneurial urban governance are summarized in Table 1.

Table 1: Mutating urban governance: between strategic entrepreneurialism and systemic financializing

2.1. The entrepreneurial imperative

The turn towards entrepreneurial modes of urban governance was led by those cities most exposed to the twin threats of deindustrialization and welfare-state retrenchment (Hubbard & Hall, 1998). This was the transformative historical moment identified, notably by Harvey (1989), as a manifestation of the crisis of Fordism-Keynesian urbanism in its “managerial” form. Not all of this was new, of course. Documenting the long history of growth-machine politics in the United States, Logan and Molotch (1987) had earlier shown how the urbanizing frontier was commodified from the start, as local entrepreneurs forged “communities of fate” around the pursuit of the intensified exploitation of land-based exchange values (see also Sbragia, 1996). Often, it was the speculative financing of urban infrastructure – in effect a wager on future growth – that ensnared cities in an “infrastructure trap,” as large-scale fixed investments induced city leaders to “move heaven and earth to make sure they get that growth,” the capricious logic of which invited alternating threats of overbuilding or overuse, locking cities into cycles of “crisis-oriented growth-addiction” (Logan & Molotch, 1987: 87). Drawing from (and extrapolating across) concrete shifts in the political economy of cities, especially in North America and Western Europe, Harvey’s would become the received account of the eclipse of Keynesian-style urban “managerialism” by entrepreneurial modes of governance (Harvey, 1989; Peck, 2014a).

The tendential institutional form of this post-Keynesian entrepreneurial city was based on privatized governance arrangements and the proliferation of growth-chasing projects, centered on “the notion of a ‘public-private partnership’ in which traditional local boosterism is integrated with the use of local governmental powers to try and attract external sources of funding, new direct investments, or new employment sources” (Harvey, 1989: 7). Generalized pressures arising from competitive insecurities and (perceived and actual) exposure to capital flight were compounded in the U.S. case by Reagan’s New Federalism, “a clear effort to rearrange jurisdictional authority and funding responsibilities to help overcome local resistance to capital investment,” since “supporting growth infrastructure [had become] the only form of urban spending acceptable to [the Republican administrations of the 1980s]” (Logan & Molotch, 1987: 244–45). Cities had to fend increasingly for themselves, municipalities being pressured to engage in speculative ventures, corporate subsidization, and promotional initiatives, resulting in competitively induced responsibilization and an increased burden of financial (and social) risk at the urban scale.

The Keynesian city – as a manager of territorially-based collective services, somewhat insulated from the pressures of interurban competition, and located within a web of fiscal transfers, automatic stabilizers, and redistributive programs – was falling victim to a host of competitive pressures, out of which was emerging the characteristically volatile order known as entrepreneurial urbanism. The (il)logics of capitalist urbanization were duly exposed in increasingly “naked” terms by the rollback of Keynesian modes of sociospatial regulation; there was “surface vigour” at the level of speculative projects and promotional efforts, but lurking beneath were accumulating risks, courtesy of these mostly credit-financed developments, beckoning a “quagmire of indebtedness” (Harvey, 1989: 15, 16, 13). These were also dynamics of contagion, as more and more cities were induced – by dint of the absence of viable alternatives – to play a competitive game that only a fortunate few could realistically expect to “win.” But if Harvey’s account was notable for the way in which it connected certain institutional manifestations of entrepreneurial urbanism with a prescient reading of post-Keynesian metagovernance, it was Leitner’s (1990: 149, emphasis added) rendering of local-state entrepreneurialism that focused on the significant role of new financial pressures, instruments, and rationalities, including a generalized turn to industrial revenue bonds and equity financing, which was equated with “a significant intervention by the local state into the capital market.”

Confronted by dwindling local tax bases and a seemingly existential growth imperative, cities came to rely on a staple fare of economic-development measures that were unequal to the task and unevenly effective at best. And nowhere was this more clearly exposed than in rapidly deindustrializing cities, the fiscal uncoupling and weak competitive position of which triggered crisis-driven attempts to ignite compensatory growth and rebuild the local tax base – for all the long odds. These efforts would become emblematic of the “new urban politics” of the 1990s. Cities responded by leveraging all manner of urban assets and by playing up local flavor, even as the strategies themselves expressed “remarkable similarities” (Hubbard & Hall, 1998: 6). As Harvey had anticipated, competitive pressures and insecurities had led not to innovation as such, but to the serial repetition of a narrow (and increasingly tired) repertoire of growth strategies, predictably characterized by zero-sum dynamics and diminishing returns, once first-mover advantages were exhausted (Peck, 2014a). In as far as entrepreneurial urbanism had become hegemonic, this was the hegemony of last resort. Cities had turned in escalating numbers to strategies based on the construction of high-tech clusters, the promotion of cultural tourism, and the attraction of the creative class, not so much in the expectation of success (measurable achievement on this score being the exception rather than the rule, and often fleeting at that), but by virtue of the absence of feasible metropolitan-scale alternatives, given the gradual erosion of the developmental capacities of municipal governments, the drag effects of inter-jurisdictional tax competition and (subsidized) corporate mobility, and the retreat from (and privatization of) investment-based strategies on the part of federal and state governments.

2.2. Financial deepening at the urban scale

Entrepreneurial strategies of various kinds have become quite ubiquitous, even if they continue to vary both in form and in effect. In the process, “the local state has undergone a conceptual reorientation” (Hubbard & Hall, 1998: 5). As Leitner identified early on, municipal governments were not just “acting out” in entrepreneurial ways, they were beginning to ingest and internalize the logics of competition, finance, and business: “In a sense, city agencies have learned to imitate the outlook and financial practices of the private sector” (Leitner, 1990: 149), in the context of a distinctive patterning of scalar politics. Under the U.S. model of neoliberalized “fiscal federalism,” financial disciplines are invariably pushed in a “downward” direction, to the cities (Pew, 2012; Peck, 2014b). In a political environment marked by aggravated fiscal restraint and small-state ideologies, cities have been hemmed in by the historical attenuation of redistributive federalism, by mandates against deficit spending (often married with legally enforced limits on local tax increases), and by their typically low (and volatile) tax bases, which have become more dependent on the cycles of the residential property market. This is the backdrop to the turn to Wall Street, and to a host of “innovatory” means of accessing credit, including interest-rate swaps, derivatives, and securitized revenue streams (see Hackworth, 2007; Ashton et al., 2015), given that growth machines can no longer “survive without access to capital markets” (Kirkpatrick & Smith, 2011: 498).

Financialization, as Rutland (2010: 1168) has observed, is an “economy-wide rationality.” But even as financialized logics and patterns of governance can be considered to be increasingly systemic, in both reach and intensity, this does not mean that they are driving some singular process of convergent development. Cities have had limited room for maneuver, but they have exploited this in different ways, in the process producing new geographies of urban development, new forms of inclusion and marginalization, and new patterns of uneven fiscal development.

[The] generalized pressure to attract capital does not mean that local governments have been equally financialized across space. Some entrepreneurial cities have been able to convert their wealth into freedom from financial market dependence, while others have used it as leverage for more borrowing. Some cash-strapped municipalities have been ignored by financial markets altogether, while others have “paid to play,” becoming encumbered by high-interest debt on usurious terms. (Weber, 2010: 252–253)

As these variegated strategies indicate, city governments have become “active agents” in the process of municipal financialization (Weber, 2010: 257), although hardly under circumstances of their own choosing.

There have been transformative changes on the supply side of municipal credit markets too, especially since the mid-1990s, driven by a glut of yield-seeking capital, by a phase-shift in the “engineering” of new financial products, and by the speculative opportunities presented by inflating downtown real-estate and property markets (Hildreth & Zorn, 2005; Torrance, 2009; Hebb & Sharma, 2014). This means that “the growth machine now [operates] in a context shaped by the speculative energies and disciplinary logics of financial markets,” along with a host of new organizations, such as redevelopment agencies, special districts, and quasi-public agencies, many of which are predicated on the goal of accessing credit finance (Kirkpatrick and Smith, 2011: 482). Infrastructure provision, which was integrated and socialized under Keynesian regulation, has since been extensively “unbundled,” rated for “return,” and financialized, in a manner that shifts the locus of power toward bond-market networks and away from growth-machine coalitions per se (Perry, 1995; Adams, 2007; Kirkpatrick & Smith, 2011). The interests of bondholders and urban-growth elites are far from synonymous, and sometimes even “antagonistic” (Kirkpatrick & Smith, 2011: 495). The complex and less than transparent operations of these hybridized growth-and-debt machines has resulted in the further dilution of local democratic control, under the rule of what David Harvey (2006: 15) calls “bondholder supremacy.”

Nowhere is this more starkly revealed than in those cities where elected mayors have been replaced by externally appointed “emergency managers,” most notably in the State of Michigan and most notoriously in Detroit (Peck, 2014b). Emergency-manager laws install pre-emptive, unitary, and close-to unilateral forms of financial control, overriding the powers of elected officials and circumventing local democratic channels. They allow emergency managers to rescind signed collective agreements, to hire and fire, to restructure city functions, and to privatize public services and assets at will. Detroit’s Emergency Manager, Kevyn Orr, was the embodiment of what some in Michigan portrayed as tsar-like financial powers – and which the appointee presented as a form of benign rationality, the “rule of reason” (quoted in Vlasic and Yaccino, 2013: A17). Conventional narratives of the Detroit crisis effectively normalize this process of management by diktat and (electoral) depoliticization, heaping praise on the impartiality and prudence of financial technocrats, while suggesting that local political control has been synonymous with politicized mismanagement.

The first generation of post-Keynesian growth-machine strategies had been formulated within an institutional and infrastructural grid effectively inherited from the preceding era (Logan & Molotch, 1987; Kirkpatrick & Smith, 2011). Several decades later, following an extended period of austerity-induced underinvestment, “infrastructure deficits” have become, simultaneously, a brake on urban development and a new source of private investment opportunities befitting portfolio demand by global investors. As urban fortunes are increasingly tied up with the management of infrastructure deficits, both physical and financial, today’s urban managers are tasked with more than rebuilding the jobs and tax base – they must rebuild the city itself as well. Reconstructing what Kirkpatrick and Smith (2011: 479) call the “infrastructural preconditions for urban growth” has become a defining challenge for cities, and one plainly exceeding the capacities of growth-machine coalitions at the local scale.

3. Slow growth and financialized urban governance

If there is an underlying reason for the degraded state of growth-machine politics, and the rise of debt machines, it is that there has been very little growth to go around. Financialization has been practiced in a slow-growth environment. Average economic growth rates have slumped significantly since the Fordist-Keynesian period, inducing entrepreneurial cities to commit increasing resources to corporate attraction and retention efforts as a means of defending local shares of a barely growing pie. In the period 1961–1971, annual U.S. growth rates averaged a fairly robust 4.2 percent; by 2003–2013, they had fallen to an anemic 1.8 percent (World Bank, 2015). Urban growth machines may have been (hyper)active, but under these conditions it is arithmetically impossible for any but a minority to have been productive. These structurally adverse conditions have compounded the problems faced by cities as they have been detached from state and federal funding streams by superior governments seeking to impose devolved austerity, either through direct cutbacks or underfunded mandates, amid a revival of urban “fiscal mercantilism” (Logan & Molotch, 1987: 148). All of this forces “responsibilized” municipal governments to do more with less.

Here and by way of illustration we discuss three characteristics of the ascendant mode of financialized urban governance – the systemic role of the municipal bond market, the diffusion of techniques of financialized urban policy, and the rise of financial gatekeeping in the form of credit rating.

3.1. Bond-market urbanism

It was in the context of federal retreat and the competitive “responsibilization” of cities that the municipal bond market assumed a central role in state and local government financing, the dramatic expansion in the scale and scope of which was initiated in the early Reagan years. The sustained ramp up in local-government debt began in earnest in the late 1990s, surging by 55 percent from 2000–2005 and by 60 percent in the five years after that (Federal Reserve, 2014). By 2012, the amount of outstanding debt in the muni-bond market – which is valued at around 3.7 trillion US dollars, with 44,000 state and local issuers – was 60 times higher than in the 1950s (SEC, 2012). At root, this was driven by funding shortfalls during a time of fiscal restraint and devolution, but the high rate of growth was also facilitated by reciprocal waves of innovation in bond markets and in public-sector budgeting practices, where key trends included the shift to revenue bonds and a growing tendency to borrow through devolved public authorities of various kinds, intraurban organizational mechanisms that have allowed cities to work around balanced-budget rules and constitutional limitations on public debt (Savage, 1998). In the early 1960s, practically all of the public borrowing that occurred at the urban scale was undertaken by way of general-purpose funds secured by municipal authorities, like elected city councils; today, almost two-thirds of municipal credit flows through special-purpose authorities and quasi-private development agencies in the form of revenue bonds with repayment contingent upon economic growth or service-fee revenues (Adams, 2007; Hackworth, 2007).

As the importance of bond markets has increased, new power dynamics have emerged. Whereas individual bondholders are granted property rights over city assets and tax revenues, courtesy of constitutionally protected debt obligations, local taxpayers possess no such rights with respect to urban wealth, income, or assets. The financialization of municipal budgeting consequently redistributes power and property rights from citizens to debtholders (Hackworth, 2007). In the process, creditors have effectively become a “second constituency,” courting and catering to which is an essential task of municipal government. Keen to cultivate perceptions of municipal financial rectitude and business-friendly investment climates, city managers have committed to repaying bond-market debts by any means necessary, not least through strategies of dispossession. The protection of creditor interests has necessitated public-asset sales, the raiding of public-sector pension funds, cuts to the wages and benefits packages of municipal employees, and a host of other austerity measures (Sinclair, 2005: 97–118; Peck, 2014b). In cases, like Detroit, where cities have declared bankruptcy, these dynamics are played out in extreme form, the federal bankruptcy code serving as a vehicle for the spatial and temporal intensification of financial discipline, technocratically applied with the force of law.

3.2. Financializing urban development

Tax-increment financing (TIF) measures have been characterized as the epitome of “financialized urban policy,” and arguably represent the most prevalent on-the-ground manifestation of this “financialization of urban politics” (Weber, 2010: 254; Pacewicz, 2013: 413; Lake, 2015). If the web of capital-market relations has come to play a constitutive role, “at a distance,” in the political economy of urban governance, devices like TIF call attention to the ways in which development spaces and governance arrangements within cities themselves have become arenas for credit-leveraged speculation and financial innovation. In “blighted” neighborhoods in particular, TIF schemes have become the mechanism of choice for financing redevelopment efforts. TIF has been available since the mid-1950s, but it was barely used until the late 1990s, when the conjunctural conditions of inflating real-estate values and liberalized credit flows triggered a rapid and widespread expansion. Subsequently, TIF has allowed municipalities to “repackage the rights to a stream of future property tax revenues into fungible bundles and sell these rights to investors as debt instruments,” albeit as a “fundamentally risky instrument” (Weber, 2010: 258–59). Cities like Chicago have pioneered this trend, where TIFs have been used for everything from school construction to public-housing renewal and transportation projects; by 2011, Chicago’s 163 TIF districts covered 30 percent of its land area and accounted for one tenth of property-tax revenues (Weber, 2010; Peterson, 2014).

But if TIFs are wagers on future growth (or at least real-estate inflation), other uses of market finance in public-sector budgeting depart from the growth ambition altogether, instead playing a palliative role in light of neoliberal fiscal federalism and pro-cyclical tax reforms (Krugman, 2008; Kasparek, 2011). Included in this category is short-term financing by way of tax notes (known as TANs) and revenue anticipation notes (or RANs) that are issued to cover shortfalls in revenue-sharing funds and/or tax receipts. Riskier still are the longer term (often multi-decade) financing deals known as fiscal stabilization bonds that pledge payments from a city’s anticipated income from revenue sharing, despite the demonstrated insecurity of these revenues and their inherent vulnerability to political manipulation through the downloading of austerity measures and rationalities (even in cases of constitutional protection).

Some of the biggest bets are being placed on the renewal of the aging stock of public infrastructure, including highways, public transit, and water/wastewater facilities, which has become a key sphere of financial expansion and experimentation. “Infrastructure has emerged,” Hebb and Sharma (2014: 498) observe, “as the latest urban development asset class” and a global investment market valued at more than half a trillion dollars. This has been associated, in turn, with the proliferation of public-private partnerships, or P3s, at the nexus of market supply and municipal demand. More than vehicles for stimulating rentier-oriented growth, P3s institutionalize the privilege of (often distant) creditors. As post-democratic models of actor-agency, they insulate investment and development opportunities from local political contestation, locking in a financial override. In the business of urban governance, they may even be usurping the once-conspicuous place occupied by growth coalitions. This is another way in which financialization refers to more than the tyranny of tight budgets, but to a profound restructuring of the institutions of urban governance.

An augmented array of financial instruments, credit-market maneuvers, and private-financing arrangements now constitutes a well-established repertoire for urban managers across the United States. Financially speaking, U.S. cities must operate in the short-term, avoiding or evading current-account deficits, but their responsibilities – for infrastructure, social and environmental sustainability, and economic development – manifestly extend to the long term. Caught in this vise, urban managers have had recourse to increasingly creative strategies of temporal displacement or institutional ring-fencing, under pressure of fiscal restraint from above, volatile tax revenues, and flattening rates of economic growth. Understood from a systemic perspective, the resulting repertoire of debt-machine strategies arguably have more to do with the reorganization, rescheduling, and repackaging of urban fiscal problems than with their sustainable resolution. Once a realm of conservative financial management, indeed a bulwark against socioeconomic risk, metropolitan government has become a site of heavily leveraged assets, real-estate market exposures, and financialized risks.

3.3. Rating risk

There are few more potent symbols of the pervasive financialization of municipal management and urban politics than the inordinate significance attached to the ratings of cities and states provided by a handful of credit-scoring firms (Sinclair, 2005; Hackworth, 2007). Despite their proven implication in the Wall Street Crash of 2008, the oligopoly powers of the credit-rating agencies has been actively extended and entrenched in recent years (Economist, 2015). During the 1990s, a period of increasing fiscal stress across the urban system, some 85 percent of all municipal-debt defaults was on non-rated bonds (SEC, 2012: 24). Creditors have since come to read ratings in the context of fiscal uncertainty and ever-more complex deal-making (Sinclair, 2005). Meanwhile, credit-rating agencies’ judgments of the policymaking rectitude of municipal and state governments increasingly govern both access to and the cost of debt finance. The surveillance and “gatekeeping” functions of credit-scoring agencies extend to evaluations of the fiscal and political “management” of cities – a category that comprises fully one fifth of Moody’s weighted scorecard for local government (Moody’s, 2014: 3).

Table 2