The 1980s brought forth a significant change to the United States. This change occurred both within the economy and all around the urban cities of America. During this time the financial sector experienced a large and powerful rise to prominence; a rapid rise that was unlike any increase that had occured before. The rapid increase in size of the financial market is due to a new wave of international and corporate investment that has penetrated U.S. activities especially in those urban areas. This phenomenon is known as “financialization” which encompasses four elements: power, wealth, savings, and society (Abernathy, 7). These factors of financialization have greatly reorganized cities in a distinct way in terms of both the economy itself and daily life in urban areas since the 1980s. This is due to the adoption of financialization at both the state and local level which has led to political and economic transformations. Scholars on cities and the economy have proposed that this change in urban structure is one of the main factors in increasing inequality in the United States. An emphasis on a quick and high return in investment has redistributed capital in the city. The effect on the economy and economic growth is one that has brought forth new markets and shifted the focus into finance based services. Capital is concentrated in specific areas and what it is used personal profit. Other scholars have explored the effect on daily city life and degradation of the local spaces specifically in the urban areas with a heavy focus on real estate. In an effort to be more desirable and lucrative cities have sold themselves and created financial instability and reduced their assets.
Financialization is defined as “The increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies” (Epstein, 2017). This led to a shift from commodification or commodity culture into the “ascendancy of finance” and the production of capital (Komlik, 2015). Or as others view the topic a shift from Post World War II Keynesianism – during the short-run and during recessions economic output is influenced by demand – to Neoliberalism – associated with the laissez-faire or free-market capitalism – in the early 1980s (Izar, 2014). The effects of financialization are clearly seen within the city as it affects influences the political, economic, and social sphere. The reformation of the economy has led to the increase in its size, yet a decrease in how well it works for all people. There is an explosion of the power of money yet the real economy and society’s influence over finance lessens. The elite now have more control than ever over the size and influence of financial markets. Which has pushed the average consumer of city dweller out of the macro and microeconomic levels. This then makes the economy more prone to risk of a prolonged recession.
The rise of capitalism and more specifically free-trade capitalism made financialization possible. The Neoliberalist approach created an uneven playing field. Those with the most power dominate wealth and income while the weak struggle to compete (Pettinger, 2017). The limited government and low taxes has caused laissez-faire to become an overarching practice in society. It is with this approach and an emphasis on capitalism that the 1% and the 99% are created; leaving a large amount of people out of the growth engine. Furthering the separating divide and gap between the two groups and encouraging monopoly.
Another factor that has contributed to financialization is the manipulation of the stock market. Despite the consequences of its initial use, financialization is built upon the same tactics used in the 1920s – the speculative bubble. “The speculative bubble is caused by, exaggerated expectations of future growth, price appreciation, or other events that could cause an increase in asset values” (Investopedia, 2018). It is a high risk investment based on what can be summed up as a guessing game. The banks created this mess with little regard for the people who would be affected – the consumers or savers. Instead, the stock traders focused on making large profits by taking outrageous risks with money that is not available. This phenomenon was first shown in the 1920s. Then the bubble popped, and the Great Depression occurred sending society spiralling. This should have acted as a disclaimer for what would happen in the future. The New Deal was put in place to stop something so volatile from ever happening again. Yet, “the New Deal regulations were slowly dismantled, the financial sector growth accelerated along with risks and speculation” (Collins, 2015). Wall street once again created a bubble that popped right in America’s faces. This time it occurred in 2008 with the recession and the collapsing of the real-estate bubble. The asset prices were so volatile that they ended up depressing the real economy. Instead of manufacturing or using services to make money; money itself was used to make a profit – even when it did not exist. Therefore, the both the bubble and other securities based on real-estate failed leading to crisis. This destruction of the economy had large effects on many facets of life and impacted millions of people. The cause was without a doubt financialization, and the allowance of finance to take precedence with an emphasis on high short return.
Recently because of financialization the banks have changed their structure. They are no longer concerned with long-term profits. Instead, decisions are made based on high short-term profits that will best benefit the stakeholders of a corporation (Collins, 2015). The “speculative bubble” has been used to increase the amount of capital earned instead of increasing the workforce. Loaning out money that is not saved and other destructive practices have become the cash cow. The financial market now focuses preying on the middle-class by giving out ridiculous loans that cannot be repaid. Or by saddling them with high fees for saving or investing their money. These asset and loan practices have accounted for 74 percent of the growth in financial-sector output from 1980 to 2007 (Konczal, 2014). Private equity and alternative investment have soared. The money is being used to make money to benefit a small section of the population. This model makes it difficult for anyone but the top wealthiest people to benefit.
One of the most significant effects of financialization is that it leads to an increase in inequality. “A flood of yield-seeking capital poured into municipal debt instruments in the late 1990s, but not all cities or instruments were equally successful in attracting it” (Weber, 251). So, right from the start there are already places that are unable to share the wealth of brought forth by the increased emphasis on finance because those cities are unable to support the new market. These places are completely erased in the financial market and often turn into ghettos or areas where there is little access to municipal services. However, even in cities where financialization is actively taking place there is inequality. Overall there has been wage stagnation and a rise in unemployment in those urban areas. Like most capitalistic phenomenon, the benefits are not evenly distributed. There is already a lack of opportunity imbedded in capitalism so the shrinking of the market to only include finance makes it much worse. The workforce was no longer judged by what they can produce, corporations instead put the main focus on a quick payout to their shareholders. There has also been a disproportionate amount of minorities targeted with these predatory practices and a decrease in efficiency.
The growth of the financial sector and its four elements tell a story of how the economy has functioned since the 1980s. Now, “financialization is the growth of the financial sector, its increased power over the real economy, the explosion in the power of wealth, and the reduction of all of society to the realm of finance” (Abernathy, 7). It is because of this power held by finance that destructive activities in have exploded. Capital has become king and now fully wields the power over production and more traditional business markets. Finance also has power over corporate decisions that affect everyone. Instead of distributing the wealth among the masses; toxic deals are made to choke off the bottom. This is clearly shown in the bank’s use of expensive fees on bank accounts and investments to make money off of the consumer. This makes people worried about the value of their savings and lessening importance of society.
Another showcase of the power of finance is the toxic loan market with unrealistic interest especially in real estate where foreclosure happens so often. Leading to a furthering divide between the wealthy and the rest of society. This pushing of power back up to the wealth has further disadvantaged the 99%. All facets of daily life have been turned into investments. For example skills and education that people possess are seen as “human capital” or individual businesses to be run. Even the mindset and attitude of people have turned towards images of finance. Showing the total control financialization has over the economy and space.
Cities are becoming abandoned and losing their charm in place of globalization and global cities. Most urban places have begun to look like templates of each other with no specific or distinctive features. Representing the denationalization of space in addition to the use of corporate architecture. Leading to a fight between the global and local in terms of political fracturing. Either large corporations or empty lots have begun to take over and change the shape and dynamic of these areas. This is because society associates global cities with glamour. While economic activity is dispersed across the globe, these places act as command centers. In turn, the global cities provide the infrastructure for globalization for the new markets. Often these areas are quite centralized in this heavy corporate and international sector. This kind of infrastructure must be spatially confronted. The cities are interconnected and occupy large expanses of time and space as there is no integrative national structure. Most often meaning that they are no longer connected to the mainland or the rest of the country. Instead global cities communicate with other global cities and are disconnected to their country of origin. There is less regulation and ordinance and overseeing on this allowing currency to flow; often bringing the local economy to the brink of failure. This is characterized by international finance and the nation state has less sovereignty over what occurs domestically.
One example of a city that has begun to suffer the consequences of financialization is in New York. Manhattan once was known as the capital of business, commerce, and diversity. Now it is becoming a desolate vacuum that sucks up small businesses in favor of corporations. In How Manhattan Became a Rich Ghost Town Derek Thompson explores the effects of New York City is a city that has suffered the consequences of this new industry. Local businesses are closing quickly because they can no longer afford the rent in the area. Leaving the spaces open for bigger or wealthier corporations instead. However, most large corporations are not moving in. Companies like Amazon refuse to sign the long term leases for the space (Thompson, 2018). Instead they are looking for short-term leases where they can quickly make a profit and then go somewhere else. So the local businesses are closing and the corporations are not moving in leaving large pockets of empty spaces in their wake. This slack is often picked up by online shopping. Yet, the neighborhood still suffers. In person services like nail salons and barbershops are also squeezed out in hopes to make a city more desirable for international investment. Manhattan has begun to lose its charm in hopes of switching over to the corporate commercial real estate market.
New markets have come to the forefront, insurance finance, real estate. “Beginning in 1980 and continuing today, banks generate less and less of their income from interest on loans (Konczal, 2014). Banks are focused on making a profit for themselves by forcing volatile practices on savers and spenders. They manipulate the market with finance in order to control who has access to what. In terms of real estate the mortgage market and rise of rent and fall of infrastructure occurred. The real estate market is affecting people and where they live. Pushing them further away into unsustainable places, leaving empty towns behind. Meaning that the volatile has taken the vitality out of the city. This has also greatly affected the shape and organization of the city. Corporations now run free without any checks and balances. Forcing society to flee, giving u their space to finance.
There is a big debate concerning the benefits and costs of financialization of the United States. Despite the increase in overall profitability for some, financialization is detrimental to the United States. The creation of financialization upon the speculative bubble has led to an increase in urban inequality. The banks and other financial markets have begun taking advantage of the people in search of profits by using destructive processes. The function and look of the economy has been reshaped to fit the needs of the 99% alienating everyone else. Cities themselves have also fallen victim to financialization. Losing their image of individuality to corporate greed. This process manifests itself many ways and has ruined the urban of America.