Rising urban inequality and segregation and the role of the state

Last week, 61.1 per cent of Dutch voters who turned out (the turnout was above the legal threshold to make the vote legal) voted against the referendum proposal to ratify a ‘preferential trade’ agreement between the European Union and Ukraine. It means that the Dutch government cannot, from a political perspective, ratify the EU initiative. It is the second time in its history that the Dutch have rejected a referendum about the EU – the last time was in 2005 when the EU Constitutional Treaty was soundly rejected. Then, the EU elites just ignored the democratic intent and bundled the initiative up into the Treaty of Lisbon and went about business as usual. Democracy is only useful to the EU elites if it ratifies their own self-interest. The same will happen this time. Merkel and Hollande have already said (in as many words) that they will disregard the Dutch outcome. The interpretations of last week’s voting outcome are now coming ‘fast and furious’ and the denialists are out in force – ‘oh, it doesn’t mean what it appears’ etc, and so the EU will just go about business as usual, as it always does, and that ‘culture’ is one of the reasons the whole European Project (now dominated by the common currency) is now proving to be an abject failure. It is a dysfunctional dystopia! Then citizens are watching the unfolding story from The Panama Papers, which only serve to confirm how top-level corruption, hypocrisy etc is rife and there is one (no) rule for them and another, harsher, binding rule for the rest of us. And, recent research findings suggest that our social settlements, where we live, bring up families, develop our aspirations and behaviours, are riven with rising inequality and increased segregation. Juxtapose that with the facts coming out about the urban backgrounds of young Belgians who achieve their aspirations by blowing themselves up and taking as many of us with them. The souls typically come from highly segregated urban enclaves in our cities with joblessness and poverty a daily burden. All of the above has been created by a neo-liberalism that works for the elites and aims to extract as much real income out of the system for the few as possible with as little democratic oversight as possible.

The topic today is motivated by a recent academic study – Socio-Economic Segregation in European Capital Cities. East meets West – published by a consortium of urban researchers in Europe.

American urban researcher, Richard Florida has also written about this research (November 16, 2015) – Economic Segregation and Inequality in Europe’s Cities.

You can also access two chapters from the book – Chapter 1 A multi-factor approach to understanding socio-economic segregation in European capital cities (the introduction) and Chapter 15 Inequality and rising levels of socio-economic segregation (the conclusion), which are informative and might motivate you to purchase the detailed book linked to above.

The study is motivated by the observation that there are “Growing inequalities in Europe, even in the most to egalitarian countries” which are “threatening the sustainability of urban communities and the competitiveness of European cities”.

The authors note that the extant literature on segregation in urban spaces has largely focused on “ethnic rather than socio-economic” dimensions. They acknowledge that the two dimensions are related but the growing incoming qualities warrant a particular spatial study of socio-economic segregation.

The obvious underlying motivation is that rising “socio-economic segregation may lead to social unrest” and worse (Paris-Brussels).

They accord with earlier research that:

Although often openly ethno-religious, the deeper underpinnings of such urban unrest stem from rising socio-economic inequalities that are also clustered into urban space

They are referring here “two recent riots in several European cities”.

Socio-economic segregation means “residential segregation of population groups based on occupation and income.” In regional science, we talk about ‘spatial sorting’ of the population, which refers to the forces that shape the pattern of

Socio-economic status is a powerful source of ‘spatial sorting’ via transport systems, housing, capacity to commute, schooling districts etc.

In general, poorer people have less options – they are more reliant on public transport systems and can only afford to live in certain districts and get pushed out of traditional housing areas by gentrification processes (the better-off buying in closer to the city centres where the professional employment tends to be).

Low-paid workers get trapped by the changing composition of industry, which, in turn, shapes the employment available, because they can rarely afford to move when their local labour market sheds jobs – even if other low-skill jobs are available elsewhere (which is often not the case).

The obvious ethnic dimension in the urban context – the ethnic-religious enclaves – is driven by the low-ranked occupations and poor income.

We need to always understand this link when trying to work out how to deal with social instability and its more extreme elements such as the ‘blow-themselves-up-bombers’.

The authors argue that the rising socio-economic segregation in European cities is driven by a combination of “globalisation, neoliberalisation and welfare state retrenchment”.

They study the spatial shifts in socio-economic segregation in 13 European cities: London, Amsterdam, Stockholm, Oslo, Vienna, Madrid, Milan, Athens, Budapest, Prague, Riga, Vilnius, and Tallinn.

The choice is motivated by the fact that “these economic and political capital cities because they have been the most influenced by globalisation … [and that] … they do share similar positions in their countries as important locations for government services, as centres for education and jobs, and for international investments.

The following graph (Figure 15.3 from the book) “shows the relationship between income inequality (Gini index) and the level of residential segregation between top and bottom social categories measured by the index of dissimilarity”.

The authors conclude that:

… in 11 out of 12 European cities the changing intensity of segregation reflects changes in income inequality; growing inequality involves increasing segregation, and, as the case of Amsterdam clearly illustrates, reduced levels of segregation follow income disparities …

They point to anomalies (Tallinn and Oslo) where “income inequality was consistently growing in the 1990s” and the rising segregation now might just “point to the lagged effect of income disparities on residential segregation”.

The authors note that the period following the end of World War II up to the mid-1970s was characterised by declining social inequality thanks in no small order to full employment, real wages growing in line with productivity and a coherent welfare state to support those who fell behind for one reason or another.

The increasing dominance of neo-liberalism since the 1970s has “heralded … the advent of the era of mounting inequality, increasing class segregation and concentrated affluence and poverty”.

I will leave it to you to explore all the details of the study and its findings if you are interested.

The main conclusions of the study are:

1. “the levels of socio-economic segregation in European cities are still relatively modest compared to some other parts of the world but that the spatial gap between poor and rich is widening in all capital cities across Europe.”

2. “Four central factors were found to play a major role in the changing urban landscape in Europe: welfare and housing regimes, globalisation and economic restructuring, rising economic inequality and historical development paths.” The impact of the GFC has been profound in advancing this rising inequality and segregation.

The existing pattern of industry and employment is also influential – “cities with a very strong history as a manufacturing industry centre, which were dependent on low-skilled or unskilled employees, may not immediately succeed in professionalising their population … This will result in rising unemployment levels in those cities, especially for the lower-skilled people.”

3. “Where state intervention in Europe has long countered segregation, (neo) liberal transformations in welfare states, under the influence of globalisation, have caused an increase in inequality. As a result, the levels of socio-economic segregation are moving upwards … Institutional arrangements – welfare-state regimes or housing regimes – may be developed in such a way that these can effectively temper social inequalities. However, welfare and housing regimes may also be designed in such a way that social inequalities are increased. We currently seem to have entered an era in which the latter type of regime has taken centre stage, with increasing segregation as a result.”

4. “If this trend were to continue, Europe would be at risk of slipping into the epoch of growing inequalities and segregation where the rich and the poor will live separate lives in separate parts of their cities, which could seriously harm the social stability of our future cities.”

Where I depart from the authors, and, in part, it is a reflection of a different emphasis (mine being primarily macroeconomic) is that the increased “(neo) liberal transformation of welfare states” has not been an inevitable outcome of increasingly global supply chains.

That is the myth the Right has propagated (TINA) and the Left has swallowed with little scrutiny. The conflation of the globalisation of supply chains and capital flows and the neo-liberal free market rhetoric has been a powerful device in the hands of the elites, but the two are quite separate.

The latter has relied on the power of the state.

The longer term context to these trends is the way in which the dominant neo-liberal policy makers construct the concept and importance of the ‘urban space’.

Prior to the rise of what we now call neo-liberal, by which we mean the prioritisation of the so-called ‘free market’ over state planning and regulation, which has led to increased ‘liberalisation’ (unless it damages the elites), retrenchment of the welfare state, suppression of real wages growth, massive redistributions of national income towards profits, rising inequality and elevated levels of unemployment.

As we argue in our forthcoming book, the neo-liberal narrative of a diminishing state is a myth. The capacity of the currency-issuing, legislating state is well understood by the neo-liberals and, while they have publicly declared the state to be irrelevant in the globalised world, the reality is different, they have actively co-opted the state to advance their own ends at the expense of the rest of us.

In the Karl Polanyi’s 1944 opus – The Great Transformation – we learn about the centrality of the state in the development of capitalism.

The state has to maintain financial stability and allow for the privatisation of returns and the socialisation of losses (viz the GFC and the bank bailouts), it has to manage the unemployed and migration, and it has to manage land (zoning etc).

In other words, there can be no ‘free market’ and ‘market capitalism’ is dependent on the state’s resources. Further, the interests of the elites are advanced by co-opting the state’s resources.

Polanyi provided great insights which still resonate. He knew that if the elites get too much their own way via deregulation etc then a crisis follows and capital is first on the door of government for bailouts.

The rise of the social democratic state which served to mediate the class conflict between capital and labour after the Great Depression was an inevitable result of the disastrous instability that a relatively unfettered capitalism produced.

At the urban (planning) policy level, the dominance of neo-liberalism has severely undermined the pattern of development of the social settlement in our cities.

Urban planning now means reducing government intervention and leading the ‘market’ determine the way in which cities will develop. We need always remind ourselves that the ‘market’ really means allowing those with more ‘dollar votes’ to have more influence, irrespective of whether the outcomes are beneficial to the broader population.

This cuts across other trends such as the outsourcing of major public infrastructure under the so-called Public-Private Partnerships (PPPs), which essentially transfer public resources into the hands of a narrow group of private firms and beneficiaries. The problem is that the nature of essential public infrastructure is then largely determined by private, profit-seeking criteria.

Further, the macroeconomic constraints that neo-liberal governments have placed upon themselves under the guise of ‘fiscal responsibility'(a.k.a. austerity), typically feeds down into unworkable constraints on local government activity, which often leads to endemic corruption at the local level where land developers have excessive influence on spatial development.

This self-imposed fiscal constraints also lead to reduced levels of maintenance of public infrastructure, a decline in the volume and quality of public services provided at the local level, increased private provision of essential services (with lower quality and higher prices), and a plethora of profit-seeking corporate vultures seeking whatever public largesse they can get their hands on with little or no regard for the well-being of the local citizens.

Planning processes used to consider the so-called ‘external’ impacts of particular land use activities. These concerns are barely considered these days and the processes set in place to evaluate them are often corrupted by corporate cash.

The myth of ‘competitiveness’ at the local level is really about local governments being compromised to bid for corporate involvement irrespective of whether such investment is in the national interest type or location.

I could go on and on about this.

The nightmare is playing out in my own city at present as a result of the State government tearing up our train line leaving the city centre within adequate public transport and then proposing a series of changes which will benefit the land developers and privatise what is left of the public transport system. It is a total disaster but a classic demonstration of the impact of neo-liberalism on urban planning and land use.

The importance of this work on rising socio-economic segregation is summarised neatly by Richard Florida (cited above).

He concluded that:

… growing inequality and segregation are the result of shifts in welfare and housing policy, which have not kept up with the rising economic pressures on cities and the growing socioeconomic divides. In short, segregation and inequality are not just a result of basic economic forces – they are also a consequence of policy choices …

Dealing with growing inequality and economic segregation will require more than local action – it will require a renewed commitment to national urban policy.

Conclusion

Nothing is the outcome of pure market forces. These allocations are always shaped by the policy structures that the state puts in place.

The research highlights the rising incidence of “extreme forms of segregation” which “include gated communities for the top end … and inaccessible ghettos or favelas for the bottom ends of the socio-economic distribution.”

They argue that this increasing pattern “might be dynamite under the social stability of our future cities. The increasing number of no-go areas in our cities implies that ultimately major parts of cities are regarded to be no part of urban life anymore, which implies a serious limitation of freedom in such cities, and are having a major impact on the lives of those living in these no-go areas. Social apartheid, a process involving social discrimination and manifested in very high inequalities and spatial separation of the rich and the poor … could be the ultimate outcome of these urban social processes.”

Then think about some of those highly segregated and poor suburbs the north, west and south of the centre of Brussels where there is little employment and little hope.

And along comes along a sales pitch that offers hope, identity and meaning …!

The series so far

This is a further part of a series I am writing as background to my next book on globalisation and the capacities of the nation-state. More instalments will come as the research process unfolds.

The series so far:

1. Friday lay day – The Stability Pact didn’t mean much anyway, did it?

2. European Left face a Dystopia of their own making

3. The Eurozone Groupthink and Denial continues …

4. Mitterrand’s turn to austerity was an ideological choice not an inevitability

5. The origins of the ‘leftist’ failure to oppose austerity

6. The European Project is dead

7. The Italian left should hang their heads in shame

8. On the trail of inflation and the fears of the same ….

9. Globalisation and currency arrangements

10. The co-option of government by transnational organisations

11. The Modigliani controversy – the break with Keynesian thinking

12. The capacity of the state and the open economy – Part 1

13. Is exchange rate depreciation inflationary?

14. Balance of payments constraints

15. Ultimately, real resource availability constrains prosperity

16. The impossibility theorem that beguiles the Left.

17. The British Monetarist infestation.

18. The Monetarism Trap snares the second Wilson Labour Government.

19. The Heath government was not Monetarist – that was left to the Labour Party.

20. Britain and the 1970s oil shocks – the failure of Monetarism.

21. The right-wing counter attack – 1971.

22. British trade unions in the early 1970s.

23. Distributional conflict and inflation – Britain in the early 1970s.

24. Rising urban inequality and segregation and the role of the state.

The blogs in these series should be considered working notes rather than self-contained topics. Ultimately, they will be edited into the final manuscript of my next book due later in 2016.

FINALLY – Introductory Modern Monetary Theory (MMT) Textbook

We have now published the first version of our MMT textbook – Modern Monetary Theory and Practice: an Introductory Text (March 10, 2016).

The long-awaited book is authored by myself, Randy Wray and Martin Watts.

It is available for purchase at:

1. Amazon.com (60 US dollars)

2. Amazon.co.uk (£42.00)

3. Amazon Europe Portal (€58.85)

4. Create Space Portal (60 US dollars)

By way of explanation, this edition contains 15 Chapters and is designed as an introductory textbook for university-level macroeconomics students.

It is based on the principles of Modern Monetary Theory (MMT) and includes the following detailed chapters:

Chapter 1: Introduction
Chapter 2: How to Think and Do Macroeconomics
Chapter 3: A Brief Overview of the Economic History and the Rise of Capitalism
Chapter 4: The System of National Income and Product Accounts
Chapter 5: Sectoral Accounting and the Flow of Funds
Chapter 6: Introduction to Sovereign Currency: The Government and its Money
Chapter 7: The Real Expenditure Model
Chapter 8: Introduction to Aggregate Supply
Chapter 9: Labour Market Concepts and Measurement
Chapter 10: Money and Banking
Chapter 11: Unemployment and Inflation
Chapter 12: Full Employment Policy
Chapter 13: Introduction to Monetary and Fiscal Policy Operations
Chapter 14: Fiscal Policy in Sovereign nations
Chapter 15: Monetary Policy in Sovereign Nations

It is intended as an introductory course in macroeconomics and the narrative is accessible to students of all backgrounds. All mathematical and advanced material appears in separate Appendices.

A Kindle version will be available soon.

Note 1: There is a typographical mistake in the book which although not repeated might throw your understanding.

On Page 138, Equation 7.15a is written as

(7.15) Y = E = A + [c(1-t) – m]Y

and solving for Y is then stated to give

(7.16) Y[1 – c(1-t) – m] = A

however this should instead read Y[1 – c(1-t) + m] = A.

Thanks to Brian S. for picking this up

Note 2: We are soon to finalise a sister edition, which will cover both the introductory and intermediate years of university-level macroeconomics (first and second years of study).

The sister edition will contain an additional 10 Chapters and include a lot more advanced material as well as the same material presented in this Introductory text.

We expect the expanded version to be available around June or July 2016.

So when considering whether you want to purchase this book you might want to consider how much knowledge you desire. The current book, released today, covers a very detailed introductory macroeconomics course based on MMT.

It will provide a very thorough grounding for anyone who desires a comprehensive introduction to the field of study.

The next expanded edition will introduce advanced topics and more detailed analysis of the topics already presented in the introductory book.

That is enough for today!

(c) Copyright 2016 William Mitchell. All Rights Reserved.