Cities in the Global Economy

Saskia Sassen. Handbook of Urban Studies. Editor: Ronan Paddison. SAGE Publications. 2001.

The dispersal capacities emerging with globalization and telematics led many observers to assert that cities would become obsolete. Indeed, many of the once-great industrial centres in the highly developed countries did suffer severe decline. The off-shoring of factories, the expansion of global networks of affiliates and subsidiaries, the move of back offices to suburbs and out of central cities also left their mark on the more service-centred cities. But against all predictions, a significant number of major cities also saw their concentration of economic power rise. While the decline of industrial centres as a consequence of the internationalization of production beginning in the 1960s has been thoroughly documented and explained, until recently the same could not be said about the rise of major service cities in the 1980s. Today we have a rich new scholarship, replete with debates and disagreements, on cities in a global economy.

What explains the new or sharply expanded role of a particular kind of city in the world economy since the early 1980s? It basically results from the intersection of two major processes. One is the sharp growth of the globalization of economic activity, particularly some very specific features of its implementation which have received far less attention than the dispersal aspects. It is a fact that globalization has raised the scale and the complexity of economic transactions, thereby feeding the growth of top-level multinational headquarter functions and the growth of services for firms, particularly advanced corporate services. The second is the growing service intensity in the organization of the economy, a process evident in firms in all industrial sectors, from mining to finance.

The key process from the perspective of the urban economy is the growing demand for services by firms in all industries and the fact that cities are preferred production sites for such services, whether at the global, national or regional level. The growing service intensity in economic organization generally and the specific conditions of production for advanced corporate services, including the conditions under which information technologies are available, combine to make many cities once again key ‘production’ sites, roles they had lost when mass manufacturing became the dominant economic sector. That is to say, the strategic space for mass manufacturing is the large, vertically integrated factory; the city is, at most, the space for administrative activities. If there is another strategic space for mass manufacturing it lies in the realm of government—the site for the execution and legitimation of many of the features of the social contract that is a part of the regime characterized by the dominance of mass manufacturing, especially, but not only, in the highly developed countries.

The growing service intensity in the organization of all industries brings with it a newly strategic role for cities as production sites of these necessary service inputs. This holds for cities at many levels of the urban hierarchy, including cities that service sub-national regional economies. In the case of some cities, these servicing functions have global reach; in these cities also, the dominant economic engine tends to be highly specialized service industries. These are the world cities or global cities that are the focus of a new research literature. How many there are, what is their shifting hierarchy, how novel a development do they represent—all are subjects for debate. But there is growing agreement about the fact of a network of major cities cutting across the North/South divide, cities that function as centres for the coordination, control and servicing of global capital.

The first section of this chapter examines the key components in the new narrative that has emerged from the research literature on world or global cities. The second reviews the evolution of this literature. In this review I confine myself to a fairly narrowly defined field of scholarship grounded in the notion that the contemporary forms assumed by globalization over the past two decades have specific organizational requirements and political possibilities and that the new technologies produce specific opportunities and capacities. This does not preclude the existence of enormous continuities with past periods—a subject of considerable debate also in this literature—but it does posit the specificity of the current era and hence of the role of cities. The third section examines some of the themes that are emerging as an agenda for research and theory.

It is impossible in such a short piece to do full justice to the many scholars who have and are contributing to this new literature. Because of the diversity of variables that can be incorporated -from finance to immigration—the subject of cities in the global economy has contributed not only a research literature in the social sciences but also in cultural studies and in anthropology, and most recently in certain aspects of political science, notably questions of citizenship, governance and the participation of sub-national units in international relations. It is also a subject that has been given modernist and postmodernist treatments, highly theorized and highly empirical treatments. Finally, it is a subject with an older literature on capitals of empires and world cities—from Braudel (1984) to Peter Hall 1996)—and on urban hierarchies in world systems analysis (Chase Dunn, 1984).

Toward a New Narrative: Recovering Place in the Global Economy

The massive trends towards the spatial dispersal of economic activities at the metropolitan, national and global level which we associate with globalization have contributed to a demand for new forms of territorial centralization of top-level management and control operations because this dispersal is happening under conditions of concentration in control, ownership and profit appropriation (Sassen, 2000a). National and global markets as well as globally integrated organizations require central places where the work of globalization gets done (Friedman and Wolff, 1982). Further, information industries require a vast physical infrastructure containing strategic nodes with hyper-concentrations of facilities (Castells, 1989; Graham and Marvin, 1996); there is a distinction to be made between the capacity for global transmission/communication and the material conditions that make this possible. Finally, even the most advanced information industries have a work process that is at least partly place-bound because of the combination of resources it requires, even when the outputs are hypermobile.

This type of emphasis allows us to see cities as production sites for the leading information industries of our time and it allows us to recover the infrastructure of activities, firms and jobs, that is necessary to run the advanced corporate economy. Advanced information industries are typically conceptualized in terms of the hyper-mobility of their outputs and the high levels of expertise of their professionals rather than in terms of the work process involved and the requisite infrastructure of facilities and non-expert jobs that are also part of these industries.

A central proposition here is that we cannot take the existence of a global economic system as a given, but rather need to examine the particular ways in which the conditions for economic globalization are produced. This requires examining not only communication capacities and the power of multinationals, but also the infrastructure of facilities and work processes necessary for the implementation of global economic systems, including the production of those inputs that constitute the capability for global control and the infrastructure of jobs involved in this production. The emphasis shifts to the practice of global control—the work of producing and reproducing the organization and management of a global production system and a global market place for finance, both under conditions of economic concentration. The recovery of place and production also implies that global processes can be studied in great empirical detail.

The specific forms assumed by globalization over the past decade have created particular organizational requirements. The emergence of global markets for finance and specialized services, the growth of investment as a major type of international transaction, all have contributed to the expansion in command functions and in the demand for specialized services for firms. Much new global economic activity is not encompassed by the organizational form of the transnational corporation or bank. Nor is much of this activity encompassed by the power of such firms, a power often invoked to explain the fact of economic globalization. The spatial and organizational forms assumed by globalization and the actual work of running transnational operations have made cities one type of strategic place and producer services a strategic input.

In brief, the combination of geographic dispersal of economic activities and system integration which lies at the heart of the current economic era has contributed to new or expanded central functions and the complexity of transactions has raised the demand by firms for highly specialized services. Rather than becoming obsolete due to the dispersal made possible by information technologies, cities (a) concentrate command functions, (b) are post-industrial production sites for the leading industries of this period—finance and specialized services, and (c) are transnational market places where firms and governments from anywhere in the world can buy financial instruments and specialized services.

Such a focus allows us to conceive of globalization as constituted through a global grid of strategic sites which emerges as a new cross-border geography of centrality.

The New Urban Economy

This is not to say that everything in the economy of these cities has changed. On the contrary, there is much continuity and much similarity with cities that are not global nodes. It is rather that the implantation of global processes and markets has meant that the internationalized sector of the economy has expanded sharply and has imposed a new valorization dynamic, often with devastating effects on large sectors of the urban economy. High prices and profit levels in the internationalized sector and its ancillary activities, for example, restaurants and hotels, made it increasingly difficult in the 1980s for other sectors to compete for space and investment. Many of the latter have experienced considerable downgrading and/or displacement; or have lost economic vigour to the point of not being able to re-take their economic space when the recession weakened the dominant sectors. Illustrations are neighbourhood shops catering to local needs replaced by up-scale boutiques and restaurants catering to new high-income urban elites. The sharpness of the rise in profit levels in the international finance and service sector also contributed to the sharpness of the ensuing crisis. These trends are evident in many cities of the highly developed world, though rarely as sharply as in major US cities (see, for example Le Debat, 1994 and Veltz, 1996 for Paris; Todd, 1995 for Toronto; Levine, 1995 for Montreal; Brake, 1991 and Noller et al. 1994 for Frankfurt; and generally, Wissenschafts Forum1995; Peraldi and Perrin, 1996; Short and Kim, 1999; Allen et al., 1999).

Though at a different order of magnitude, these trends also became evident towards the late 1980s in a number of major cities in the developing world that have become integrated into various world markets: São Paulo, Buenos Aires, Bangkok, Taipei, Mexico City are but some examples (Cicolella and Mignaqui, 2000; Schiffer, 2000; Kowarick et al., 1991; Santos, 1993; see various chapters in Cohen et al., 1996; see various chapters in Gilbert, 1996 and in Rakodi, 1997; Hardoy and Satterthwaite, 1989; see various chapters in Henderson and Castells, 1987; Landell-Mills et al. (1989). Central to the development of this new core in these cities were the deregulation of financial markets, ascendance of finance and specialized services, and integration into the world markets, real estate speculation and high-income commercial and residential gentrification. The opening of stock markets to foreign investors and the privatization of what were once public sector firms have been crucial institutional arenas for this articulation. Given the vast size of some of these cities, the impact of this new economic complex is not always as evident as in central London or Frankfurt, but the transformation has occurred.

Accompanying these sharp growth rates in producer services was an increase in the level of employment specialization in business and financial services in major cities beginning in the late 1980s. There is today a general trend towards high concentration of finance and certain producer services in the downtowns of major international financial centres around the world: from Toronto and Sydney to Frankfurt and Zurich we are seeing growing specialization in finance and related services in the downtown areas (Brake, 1991; Gad, 1991; Hitz et al., 1995; Todd, 1995). These trends are also becoming evident in major Southern cities, notably Mexico (Parnreiter, 2000), São Paulo (Schiffer, 2000) and Buenos Aires (Ciccolella and Mignaqui, 2000).

These cities have emerged as important producers of services for export, with a tendency towards specialization. New York and London are not only leading producers but also exporters of financial services, accounting, advertising, management consulting, international legal services and other business services. For instance, out of a total private sector employment of 2.8 million jobs in New York City in 1995, almost 1.3 million were export-oriented (both national and international) (see generally Crahan and Vourvoulais-Bush, 1997). Cities such as New York are among the most important international markets for these services, with New York and London the world’s largest sources of service exports.

There are also tendencies towards specialization among different cities within a country. In the USA, New York leads in banking, securities, manufacturing administration, accounting and advertising. Washington leads in legal services, computing and data processing, management and public relations, research and development, and membership organization (Markusen and Gwiasda, 1994). New York is more narrowly specialized as a financial and business centre and cultural centre. Some of the legal activity concentrated in Washington is actually serving New York City businesses which have to go through legal and regulatory procedures, lobbying, etc. These are bound to be in the national capital.

It is important to recognize that manufacturing remains a crucial economic sector in all of these economies, even when it may have ceased to be so in some of these cities. I return to this in a later section.

A New Theoretical Framework Emerges

We now know from unpublished papers and a variety of publications that by the early 1980s a number of scholars had begun to study cities in the context of globalization. But it is one article in particular, ‘World city formation’ by Friedmann and Wolff (1982), that marked a new phase. This article took a variety of elements that were emerging in the research literature on cities, on the global economy, on immigration, and a number of other subjects, and sought to formalize these into several propositions about the meaning of the global economy for cities. The key elements in this framework were the emergence of several cities as basing points for global capital, a hierarchy (albeit a shifting one) of such cities, and the social and political consequences for these cities of being such basing points.

By the mid- and late 1980s we see the beginnings of a research literature (concerned with one or another of these propositions, and often proceeding quite autonomously from the World City hypothesis notion). This literature makes a number of specific contributions to comparative analyses of cities, to international trade in services and its impact on cities, the impact of economic globalization on the social and spatial structure of major cities, etc. At this time we also see more explicit research on the subject of cities in the global economy, including an elaboration of the framework presented in the World City hypothesis. But we also see work quite independent from that hypothesis, notably the work by Thrift (1987) on the formation of an intermediate economy, and the research on producer services (e.g. Noyelle and Stanback, 1984) and the office economy (Daniels, 1991). All of these make extremely important contributions to questions about the organization of the economy and its spatial implications; they lay a groundwork for much of the subsequent literature.

With the books by Castells (1989), King (1990a) and Sassen (2000d), what had been a hypothesis in the early 1980s became a full-fledged theorization and empirical specification. These three books add important propositions to the general framework: Castells’s proposition that globalization as constituted today has engendered a space of flows that reconfigures economic and political power; Sassen’s proposition that it is not simply a matter of global coordination but one of the production of global control capacities and that an examination along these lines allows us to understand the role of global cities; King’s emphasis on the historical transformation of the link between cities and internationalization.

It is important to distinguish what is different about this literature from a broader, earlier literature on world cities prominently represented by the work of Peter Hall already in the 1960s, and a new literature on mega-cities especially focused on Latin America and Asia (e.g. Dogan and Kasarda, 1988; Gilbert, 1996; Rakodi, 1997; Fuchs et al., 1995; Lo and Yeung, 1996). These literatures do not have the fact of globalization and the centrality of crossborder networks connecting cities as crucial variables. The earlier literature on world cities is closer to the notion of capitals of empires: one city at the top of the power hierarchy. In the current literature on global cities the determining factor is a cross-border, global network of cities that function as strategic sites for global economic operations. There is no such entity as a single global city—as there is with the capital of an empire; by definition, the global city is part of a network of cities (Sassen, 2000d). Similarly, an older literature focused on past world cities, as in the work of Braudel, and earlier studies of major centres of world commerce and banking, as well as more recent work on urban hierarchies in the world system (Chase Dunn, 1984), are to be differentiated from the current literature if we historicize the world economy and specify what is distinct today. Finally, we need to distinguish between a narrowly specified literature on global and world cities today and various literatures that directly or indirectly contribute to our understanding of these cities, notably the research on producer services.

By the mid-1990s the subject was clearly a large field for research, with scholars in many different disciplines and countries working on particular aspects of global cities. This was reflected in the variety of authors and themes in several state of the art collections, notably by Fainstein et al. (1993), Knox and Taylor (1995), Brotchie et al. (1995), Noller et al. (1994), and several others that elaborate, critique, expand the empirical base and generally advance this theoretical and methodological project. We can also see it in several new important books that set the stage for highly focused research on particular variables, notably Fainstein (1993), Keil (1993), Hitz et al. (1995), Pozos (1996), among others. During this period several book series were created by various publishers in different countries: the series on World Cities edited by Knox for Belhaven Press, the series edited by Milton Santos and his colleagues in São Paulo for Hucitec, the series edited by Martin Wentz for Campus Verlag (Frankfurt), the series edited by Ciccolella for EUDEBA (Buenos Aires), and the series organized by Fu-chen Lo for the UN University Press (Tokyo) are just some.

In the late 1990s two types of scholarly work added, directly and indirectly, a set of new dimensions to global city research. One of these is the renewed interest in the nature of localized growth in the spatial economy in a variety of disciplines. The observed coincidence between spatial industrial clustering and regional specialization is central to the principle of increasing returns to scale in urban and regional economic analysis. This was stimulated by the development of formal research techniques and the specific changes in the organization of economies over the last two decades, notably the fact that external scale economies assume a new importance over internal scale economies. Under these conditions, localization economies become important. While economic geographers have long focused on these issues, we are now also seeing this within neo-classical economics where the interest in locational questions and spatial clustering is related to applications of modern trade theory to problems of spatial allocation. Much of the research on spatial clustering has focused on the manufacturing sector; but this is, nonetheless, a useful set of contributions to the understanding of the specific types of service industries that concentrate in global cities (see Sassen 2000a).

A second important development in the late 1990s was the work by Scott et al. (2000) on global-city regions. This relocates some of the dynamics and issues about cities and globalization on the territorial scale of the region and is far more likely to include a cross-section of a country’s economic activities than the scale of the city. It is likely, for instance, to include as key variables manufacturing and basic infrastructure. This, in turn, brings with it a more benign focus on globalization. The concept of the global city introduces a far stronger emphasis on strategic components of the global economy, and hence on questions of power than that of the region. Secondly, the concept of the global city will tend to have a stronger emphasis on the networked economy because of the nature of the industries that tend to be located there: finance and specialized services. And, thirdly, the concept of the global city will tend to have more of an emphasis on economic and spatial polarization because of the disproportionate concentration of very high and very low income jobs in the city compared with what would be the case for the region. In contrast, the concept of the global-city region is more attuned to questions about the nature and specifics of broad urbanization patterns, a more encompassing economic base, more middle sectors of both households and firms, and hence to the possibility of having a more even distribution of economic benefits under globalization. There is a strong emphasis on competition and competitiveness in the global-city region construct. In contrast, the nature itself of the leading industries in global cities strengthens the importance of cross-border networks and specialized division of functions among cities in different countries and/or regions, beyond international competition per se.

It is not only the growth of the research literature but also the growth of a body of critical responses and analyses that signals the strength and vigour of this field of enquiry. There is only space here for the briefest mention, a sort of guide to criticisms: Logan and Swanstrom’s (1990) critique of the excessive weight given to global structural processes in comparing internal versus external factors that shape a city’s economic development; Waldinger’s (1988) and Hamnett’s (1994,1996) critiques of Sassen’s proposition that globalization has contributed to social and economic polarization in global cities; Markusen and Gwiasda’s (1994)) critique of the notion that New York is at the top of the US urban hierarchy and how a comparison with Washington shows that the latter has a higher level of specialization than New York in many advanced specialized services, notably in legal services; Michael Peter Smith’s critique of the literature for its neglect of grassroots transnationalism and the new kinds of politics and identity formation that this entails; Beauregard’s (1991) critique of the explanatory variables for changes in the built environment and the real estate industry; Simon’s (1995) critique of the neglect of the periphery, notably Africa; the debate in Urban Affairs (March 1998); the special issue on ‘Ségrégations Urbaines’ in Sociétiés Contemporaines (1995); the multi-year project on New York, London, Tokyo and Paris sponsored by the SSRC (Social Science Research Council) where many of the authors criticize what they consider an excessive emphasis on the impacts of globalization (Mollenkopf, forthcoming); and many others.

There are two types of scholarly literature that intersect with this body of research on cities and the global economy, and indeed often invoke or use it to develop their arguments. They are on the one hand a literature in anthropological and cultural studies on transnationality, globalization and identity formation. The other is the scholarship on the global economy by regional economic geographers, who have also focused on cities (e.g. Moulaert and Scott, 1997; Shachar, 1990; and Veltz, 1996).

In terms of method, a number of strategies have been developed. Perhaps the most ambitious quantitative method is the effort by Smith and Timberlake (2000), who conceptualize urban areas as central nodes in multiplex networks of economic, social, demographic and information flows. They use the methodological logic of sociological network analysis, using particularly two measures. One of these is structural or relational equivalence between actors (i.e. cities) in a network; the second measure is centrality Both of these measures relate to a number of propositions developed in the literature on cities in the global economy. The necessary data on intercity flows may exist but it will take a lot of work to constitute the requisite data sets (see also Sassen, 2000c). Hill, drawing on the work of Wallerstein, McKenzie and Hymer (1972), calls for a focus on ‘global production systems’ linking places across the globe in an increasingly integrated vertical division of labour. David Meyer (1991; 2000) has developed a quantitative analysis of the distribution of international bank branches linking cities in various regions of the world to the world’s financial centres and to each other.

Several very recent efforts will make a strong contribution to the possibility of empirical specification of key hypotheses describing the global city. One of the most important developments for research on global cities is the work by Taylor et al. (2000), GAWC (2000) and Beaverstock et al. (2000) who have constructed a new and pioneering data set that makes it possible to map the global networks of affiliates of the leading firms worldwide in accounting, law, advertising and finance. These networks of affiliates can be used to classify cities in terms of their participation in cross-border networks. At this time, the data set shows the networks of affiliates of 46 major advanced producer services firms in 55 cities involved in cross-city networks. The data can be analysed using a variety of hypotheses and statistical techniques. A second important contribution is by Drennan et al. (1996) who have developed a measure that allows us to establish the impact of high levels of international trade in producer services characteristic of global cities on median income families compared with that of families in cities with low levels, if any, of international trade in producer services. A third contribution is by Elliott (1999) who ranked metropolitan areas along variables that allows for a specification of global city status and developed a measure of the impact of global city status on earnings inequality. The work by Hamnett and Cross (1998) and by Klosterman (1996) also makes methodological contributions in this same domain.

Castells (1989) and Sassen (1991) developed several techniques of analysis which range from methods to understand the place of cities in global markets to expanding the representation of the global. In The Informational City and The Global City each of these authors sought to establish rather broadly what is the array of data sets that can be brought into analyses of this subject -from international flows of capital and information to very localized social effects. This was an effort to resist the simplification in mainstream accounts that emphasize the global dispersal of activities and telecommunications and exclude most social issues. For instance, Sassen’s formulation of urban ‘spatial circuits of economic operations’ seeks to capture the diversity of firms, workers and work cultures that constitute the leading information industries in that portion of a sector that is urban. Urban space can be mapped in terms of these circuits for a whole range of global market-oriented industries. Techniques for data analysis traditionally used by economic geographers can also be helpful: for instance, Wheeler’s (1986) examination of the dispersion of higher-order financial services throughout the US urban hierarchy—which he found had proceeded at a much slower rate than the headquarters of other large corporations. This allows him to posit that corporations tend to proceed up the urban hierarchy for their advanced service and banking needs.

The Research and Theory Agenda

There are a number of emerging issues for research and theorization. Some of these are narrowly technical while others are broad and need to be specified more rigorously, both theoretically and empirically. I will discuss a few at some length and just name a few others.

Spatial Agglomeration in a Global Economy

Among the more empirical questions are several concerning locational issues in a context of globalization and telematics. A central one concerns the locational needs and options of different kinds of headquarters and producer services, and the extent to which their mutual dependence has a spatial dimension. It is common in the general literature and in some more scholarly accounts to use headquarters concentration as an indication of whether a city is an international business centre. The loss of headquarters is then interpreted as a decline in a city’s status. The use of headquarters concentration as an index is actually a problematic measure given the way in which corporations are classified.

Which headquarters concentrate in major international financial and business centres depends on a number of variables. First, how we measure or simply count headquarters makes a difference. Frequently, the key measure is size of firm in terms of employment and overall revenue. In this case, some of the largest firms in the world are still manufacturing firms and many of these have their main headquarters in proximity to their major factory complex, which is unlikely to be in a large city due to space constraints. Such firms are likely, however, to have secondary headquarters for highly specialized functions in major cities. Further, many manufacturing firms are oriented to the national market and do not need to be located in a global or any city. If we change the measure, the results can change dramatically. For instance, in the case of New York City, 40 per cent of US firms with half their revenue from international sales have their headquarters in the New York City region. Secondly, the nature of the urban system in a country is a factor. Pronounced urban primacy will tend to entail a disproportionate concentration of headquarters no matter what measure one uses. Thirdly, different economic histories and business traditions may combine to produce different results. Further, headquarters concentration may be linked to a specific economic phase. We need more research and more complex measures to understand the impact of globalization and telematics on locational patterns of firms and their implications for the future of global cities.

Another locational issue with urban implications concerns the conditions for agglomeration, long a central feature in urban economies. For instance, the production process in advanced corporate services benefits from proximity to other specialized services, especially in the leading and most innovative sectors of these industries. Complexity and innovation often require multiple highly specialized inputs from several industries. The production of a financial instrument, for example, requires inputs from accounting, advertising, legal expertise, economic consulting, public relations, designers, and printers. The particular characteristics of production of these services, especially those involved in complex and innovative operations, explain their pronounced concentration in major cities. Routinization has long been and is also here a force reducing the importance of agglomeration. Yet, the acceleration of economic transactions and the premium put on time, have created new forces for agglomeration. Routine operations can easily be dispersed; but where time is of the essence, as it is today in many of the leading sectors of these industries, the benefits of agglomeration are still extremely high.

Can we detect significant changes in the importance of innovation in these sectors and hence in the advantages of agglomeration? There is a strong suggestion in current locational and organizational patterns that the agglomeration of the leading sectors of producer services in major cities actually constitutes a production complex. This producer services complex is intimately connected to the world of corporate headquarters; they are often thought of as forming a joint headquarters-corporate services complex. But in my reading we need to distinguish the two. Although it is true that headquarters still tend to be disproportionately concentrated in cities, many have moved out over the past two decades. Headquarters can indeed locate outside cities, but they need a producer services complex—a single firm in each speciality won’t do for the more complex operations—in order to buy or contract for the needed specialized services and financing. Further, headquarters of firms with very high overseas activity or in highly innovative and complex lines of business tend to locate in major cities. In brief, firms in more routinized lines of activity, with predominantly regional or national markets, appear to be increasingly free to move or install their headquarters outside cities. Firms in highly competitive and innovative lines of activity and/or with a strong world market orientation appear to benefit from being located at the centre of major international business centres, no matter how high the costs.

Both types of firms, however, need access to a corporate services complex. Where this complex is located is probably increasingly unimportant from the perspective of many, though not all, headquarters. Such a specialized complex is most likely to be in a city rather than, for example, a suburban office park. The latter will be the site for producer services firms but not for a services complex. And only such a complex is capable of handling the most advanced and complicated corporate demands. There is a large literature in the US on the spatial distribution of top level corporate functions and corporate services across the urban system; though there are theoretical and empirical disagreements, most studies show considerable growth of these activities beginning in the 1980s and continuing in the 1990s at various levels of the urban system (Daniels and Lever, 1996; Noyelle and Stanback, 1984; Wheeler, 1986). In the case of cities that are major international business centres, the scale, power and profit levels of this new core of economic activities are vast. In this context, globalization becomes a question of scale and added complexity in a process that is also taking place at lower levels of the urban hierarchy, where a national or regional, rather than global, orientation may prevail.

Space and Power: The New Centrality

A more theorized version of these locational questions can be posited in terms of centrality. Cities have historically provided economic actors with something we can think of as centrality -agglomeration economies, massive concentrations of information on the latest developments, a market place. How do economic globalization and the new technologies alter the role of centrality and hence the key comparative advantage of cities as economic entities?

Telematics and globalization have emerged as fundamental forces in the reorganization of economic space. This reorganization ranges from the spatial virtualization of a growing number of economic activities to the reconfiguration of the geography of the built environment for economic activity. Whether in electronic space or in the geography of the built environment, this reorganization involves institutional and structural changes. One outcome of these transformations has been captured in images of geographic dispersal at the global scale and the neutralization of place and distance in a growing number of economic activities.

But is a space economy that lacks points of physical concentration possible in an economic system characterized by significant concentration in ownership, control and the appropriation of profits? Another way of formulating this, one that captures both the physical, organizational and power dimension, is in terms of centrality: can such an economic system operate without centres? And, further, how far can forms of centrality constituted in electronic space go in replacing some of the functions commonly associated with geographic/organizational forms of centrality?

The Topoi of E-Space: Global Cities and Global Value Chains

The vast new economic topography that is being implemented through electronic space (e-space) is one moment, one fragment, of an even vaster economic chain that is in good part embedded in non-electronic spaces. There is no fully virtualized firm and no fully digitialized industry. Even the most advanced information industries, such as finance, are installed only partly in e-space. And so are industries that produce digital products, such as software designers. The growing digitali-zation of economic activities has not eliminated the need for major international business and financial centres and all the material resources they concentrate, from state of the art telematics infrastructure to brain talent.

None the less, telematics and globalization have emerged as fundamental forces reshaping the organization of economic space (see, for example, Special Issue of Journal of Urban Technology, Spring 1997; Castells, 1996; Graham and Marvin, 1996; Rotzer, 1995; Salomon, 1996). This reshaping ranges from the spatial virtualization of a growing number of economic activities to the reconfiguration of the geography of the built environment for economic activity. Whether in e-space or in the geography of the built environment, this reshaping involves organizational and structural changes. Telematics maximizes the potential for geographic dispersal and globalization entails an economic logic that maximizes the attractions/profitability of such dispersal.

The transformation in the spatial correlates of centrality through new technologies and globalization engenders a whole new problematic around the definition of what constitutes centrality today in an economic system where (1) a share of transactions occurs through technologies that neutralize distance and place, and do so on a global scale, and (2) centrality has historically been embodied in certain types of built environment and urban form, that is, the central business district. Further, the fact of a new geography of centrality, even if transnational, contains possibilities for regulatory enforcement that are absent in an economic geography lacking strategic points of agglomeration.

There are at least two sets of issues on which we need more research. First, leading economic sectors that are highly digitalized require strategic sites with vast concentrations of infrastructure, the requisite labour resources, talent and buildings. This holds for finance but also for the multimedia industries that use digital production processes and produce digitalized products. What is the range of articulations and their spatial expression between the virtual and the actual organizational component? What are the implications for urban space?

Secondly, the sharpening inequalities in the distribution of the infrastructure for e-space, whether private computer networks or the Net, in the conditions for access to e-space and, within e-space, in the conditions for access to high-powered segments and features, are all contributing to new geographies of centrality both on the ground and in e-space. What does this mean for cities?

The Place of Manufacturing in the New Urban Service Economy

Another subject for research and debate is the relation between manufacturing and producer services in the advanced urban economy. The new service economy benefits from manufacturing because the latter feeds the growth of the producer services sector, but it does so whether located in the particular area, in another region, or overseas. While manufacturing, and mining and agriculture for that matter, feed the growth in the demand for producer services, their actual location is of secondary importance in the case of global level service firms: thus whether a manufacturing corporation has its plants off-shore or inside a country may be quite irrelevant as long as it buys its services from those top-level firms.

Secondly, the territorial dispersal of plants, especially if international, actually raises the demand for producer services because of the increased complexity of transactions. This is yet another meaning of globalization: the growth of producer service firms headquartered in New York or London or Paris can be fed by manufacturing located anywhere in the world as long as it is part of a multinational corporate network. It is worth remembering here that as GM was off-shoring production jobs and devastating Detroit’s employment base, its financial and public relations headquarters office in New York City was as dynamic as ever, indeed busier than ever.

Thirdly, a good part of the producer services sector is fed by financial and business transactions that either have nothing to do with manufacturing, as is the case in many of the global financial markets, or for which manufacturing is incidental, as in much of the merger and acquisition activity which was really centred on buying and selling rather than the buying of manufacturing firms. We need much more research on many particular aspects in this relation between manufacturing and producer services, especially in the context of spatial dispersal and cross-border organization of manufacturing.

Not unrelated to the question of manufacturing is the importance of conventional infrastructure in the operation of economic sectors that are heavy users of telematics. This is a subject that has received little attention. The dominant notion seems to be that telematics obliterates the need for conventional infrastructure. But it is precisely the nature of the production process in advanced industries, whether they operate globally or nationally, which contributes to explain the immense rise in business travel we have seen in all advanced economies over the past decade. The virtual office is a far more limited option than a purely technological analysis would suggest. Certain types of economic activities can be run from a virtual office located anywhere. But for work processes requiring multiple specialized inputs, considerable innovation and risk-taking, the need for direct interaction with other firms and specialists remains a key locational factor. Hence the metropolitanization and regionalization of an economic sector has boundaries that are set by the time it takes for a reasonable commute to the major city or cities in the region. The irony of today’s electronic era is that the notion of the region and conventional forms of infrastructure re-emerge as critical for key economic sectors. This type of region in many ways diverges from older, geographic notions of region. It corresponds rather to a type of centrality—a metropolitan grid of nodes connected via telematics. But for this digital grid to work, conventional infrastructure—ideally of the most advanced kind—is also a necessity.

New Forms of Marginality and Polarization

The new growth sectors, the new organizational capacities of firms, and the new technologies—all three interrelated—are contributing to produce not only a new geography of centrality but also a new geography of marginality. The evidence for the USA, Western Europe and Japan suggests that it will take government policy and action to reduce the new forms of spatial and social inequality.

There are misunderstandings that seem to prevail in much general commentary about what matters in an advanced economic system, the information economy and economic globalization. Many types of firms, workers and places, such as industrial services, which look as if they do not belong in an advanced, information-based, globally oriented economic system are actually integral parts of such a system. They need policy recognition and support: they can’t compete in the new environments where leading sectors have bid up prices and standards, even though their products and labour are in demand. For instance, the financial industry in Manhattan, one of the most sophisticated and complex industries, needs truckers to deliver not only software, but also tables and light bulbs; and it needs blue-collar maintenance workers and cleaners. These activities and workers need to be able to make a decent income if they are to stay in the region.

Yet another dimension not sufficiently recognized is the fact of a new valuation dynamic: the combination of globalization and the new technologies has altered the criteria and mechanisms through which factors, inputs, goods, services are valued/priced. This has had devastating effects on some localities, industries, firms and workers.

The Global City and the National State

Globalization has transformed the meaning of and the sites for the governance of economies (see, for example, Jessop, 1999; Sassen, 1998: Chap 10). One of the key properties of the current phase in the long history of the world economy is the ascendance of information technologies, the associated increase in the mobility and liquidity of capital, and the resulting decline in the regulatory capacities of national states over key sectors of their economies.

One of the characteristics of the current phase in the world economy is a reassertion of the importance of sub-national units: whether global cities or strategic regions such as Silicon Valley in California. This signals the possibility that the impact of globalization cannot simply be reduced to the notion of the declining significance of the national state, as is so often asserted, but rather a triangulation: national state, global economy and strategic localities—typically major international financial and business centres. The strategic relationship is no longer the diad national state-global economy. Taylor’s (1995) work on the changing nature of territoriality in the modern world-system, and his observations on national states and cities (2000) set an agenda for research (see also Jessop, 1999; Sassen 1996: Chap. 1).

The excessive emphasis on the hypermobility and liquidity of capital is a partial account which tends to obscure the relation between foreign policy, local policy and the global economy. It is an account that excludes, for instance, the possibility of a de facto participation of global cities in international economic policy and practice and hence in foreign policy insofar as economic policy has become a growing concern in foreign policy. It also has the effect of excluding a variety of global processes that are really about the re-territorializing of people, economic practices, cultures. The immigrant communities and the neighbourhood sub-economies they often form are an instantiation of this (Basch et al., 1994; Smith, 1997; see also Holston, 1996). The formation of transnational bonds and communities through immigration raises a whole series of additional issues that have the effect of displacing certain political functions away from the international relations among national states and onto privatized spheres of individuals, households and communities.

We are also seeing the formation of cross-border regions that are increasingly acting as units, not because they are cohesive but because of a shared spatial and organizational terrain (see, for example, Chen, 1995b; Sum, 1999 on East Asia; Herzog, 1993 and Alegria, 1992 on the Tijuana-San Diego region). The formation of a new ‘transnational class’ of managers and professionals represents yet another dimension of triangulation. More broadly defined, several scholars are exploring transnationality from below, a process particularly evident in global cities (Portes et al., 1999; Smith, 1995). Finally, there is an emergent debate about the return of the city-state given the conditions characterizing global cities—strong articulation with global markets, multiple forms of transnationality and weakened articulation with the national economy and national state.

These transformations in key aspects of the modern state and the modern inter-state system signal a conceptual and a practical opening for the inclusion of cities that are strategic in the global economy and thereby contribute to triangulate what was once a partnership of two.


An examination of globalization through cities, more specifically global cities, introduces a strong emphasis on strategic components of the global economy rather than the broader and more diffuse homogenizing dynamics we associate with the globalization of consumer markets. As a consequence, this also brings an emphasis on questions of power and inequality. And it brings an emphasis on the actual work of managing, servicing and financing the global economy. Second, a focus on the city in studying globalization will tend to bring to the fore the growing inequalities between highly provisioned and profoundly disadvantaged sectors and spaces of the city, and hence such a focus introduces yet another formulation of question of power and inequality.

Third, a focus on cities and globalization brings a strong emphasis on the networked economy because of the nature of the industries that tend to be located there: finance and specialized services, the new multimedia sectors, and telecommunications services. These industries are characterized by cross-border networks and specialized divisions of functions among cities rather than inter-national competition per se. In the case of global finance and the leading specialized services catering to global firms and markets—law, accounting, credit rating, telecommunications—it is clear that we are dealing with a cross-border system, one that is embedded in a series of cities, each possibly part of a different country. It is a de facto global system.

Finally, a focus on networked cross-border dynamics among global cities also allows us to capture more readily the growing intensity of such transactions in other domains—political, cultural, social, criminal.

Global cities around the world are the terrain where a multiplicity of globalization processes assume concrete, localized forms. These localized forms are, in good part, what globalization is about. Recovering place means recovering the multiplicity of presences in this landscape. The large city of today has emerged as a strategic site for a wide range of new types of operations -political, economic, ‘cultural’, subjective. It is one of the nexi where the formation of new claims, by both the powerful and the disadvantaged, materializes and assumes concrete forms.

Economic globalization and telecommunications have contributed to produce a spatiality for the urban which pivots on cross-border networks and territorial locations with massive concentrations of resources. This is not a completely new feature. Over the centuries cities have been at the cross-roads of major, often worldwide, processes. What is different today is the intensity, complexity and global span of these networks, the extent to which significant portions of economies are now dematerialized and digitalized and hence the extent to which they can travel at great speeds through some of these networks, and, thirdly, the numbers of cities that are part of cross-border networks operating at vast geographic scales.

The new urban spatiality thus produced is partial in a double sense: it accounts for only part of what happens in cities and what cities are about, and it inhabits only part of what we might think of as the space of the city, whether this be understood in terms as diverse as those of a city’s administrative boundaries or in the sense of a city’s public imagery Yet, while partial, it is strategic.