Global Cities

Global Cities

Mark Abrahamson University of Connecticut

New York Oxford

OXFORD UNIVERSITY PRESS

2004

Oxford University Press

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Library of Congress Cataloging-in-Publication Data Abrahamson, Mark.

Global cities I Mark Abrahamson. p.cm.

Includes bibliographical references and index. ISBN 978-0-19-514204-4 1. Metropolitan areas. 2. Globalization. 3. City dwellers-Social conditions. 4. City

dwellers-Economic conditions. 5. City and town life. 6. Culture. 7. Sociology, Urban.

I. Title.

HT330.A27 2004

Printed in the United States of America on acid-free paper

2003047110

Dedicated, With love and hope for the future

Rachel Evan Leah

Jason

70 GLOBAL CITIES

52. This discussion of the distinction between nation and state is based on Herfried Munkler, "Nation as a Model of Political Order and the Growth of National Identity in Europe," International Sociolog;y, 14(1999):283-299.

53. For further discussion of this dual referent, see Jean L. Cohen, "Changing Paradigms of Citizenship and the Exclusiveness of the Demos," International Sociology, 14(1999): 245-68.

54. U.S. Census Bureau, Current Population Survey (March 2000, Washington, D.C.: Gov- ernment Printing Office, January 3, 2001).

55. Quoted in Robert Holton, "Globalization's Cultural Consequences," The Annals, 570 (July 2000):149.

56. See Cohen, "Changing Paradigms of Citizenship," and Jurgen Habermas, "Citizen- ship and National Identity," in Theorizing Citizenship, ed. R. Beiner (Albany, N.Y.: SUNY Press, 1995), 255-82.

57. See Martin MacEwen, Tackling Racism in Europe (London: Berg Publishing, 1995). 58. Chris Hedges, "Policy to Protect Jailed Immigrants Is Adopted by U.S.," New York

Times, 2 January 2001, p. Al. 59. There is also the obligation of nation-states to noncitizens living elsewhere who may,

for example, be affected by that nation's environmental regulations. 60. Ginger Thompson, "Mexico President Urges U.S. to Act Soon on Migrants," New

York Times, 6 September 2001, p. A10. 61. David Jacobson, Rights Across Borders (Baltimore: Johns Hopkins University Press,

1996). In addition to human rights groups and pressures from specific nations, immigration-related issues have also been subjected to courts, whose ru!i~gs ca~ P?- tentially further erode the sovereignty of nation-states over people res1dmg w1thm their boundaries. Created by the United Nations and located in The Hague, Nether- lands the oldest is the International Court of Justice, often called The World Court. The c~ntent of the cases this court considers often intrudes into areas where nation- states were historically considered to have exclusive jurisdiction. For example, in 1999, Germany sued the United States for executing two German brothers who were convicted of murdering a bank manager during a robbery in Arizona. The court ruled, in 2001, that the United States should have informed the German consular of- fices of the arrest and allowed those offices to assist the prisoners. The ruling was too late for the German brothers-Arizona had already executed them-but it could affect the twenty German citizens who were still in American jails at the time, four on death row. Marlise Simons, "World Court Finds U.S. Violated Consular Rights of 2 Germans," New York Times, 29 June 2001, p. A10.

------- --- ---

I I f

I FOUR

rities in the Global Economy

Throughout most of the twentieth century, urban rankings and classifications typically focused on the role or place of a city in its nation. At one extreme, a city might be at the literal and figurative center of its nation, ecologically, eco- nomically, politically, and so on. At the opposite extreme, a city might be of lit- tle significance to its nation. This difference involves ~ees of prima£Y, and those cities that are at the highest end are considered o be ~s. The most frequently relied on measure of primacy is a demographic ratio that com- pares the slze of the lar est cit - in a nation to the next lar est city (or cities) in

at nation.1 To illustrate, Santiago, Chile, is a highly primate city because its population of more than 4.5 million people is over ten times greater than any other Chilean city, none of which has as many as 400,000 people. In contrast, Rome, Italy, is not much of a primate city because its population of 2.7 million is just about twice the size of Milan, the next largest Italian city (and Naples and Turin also have populations of about a million or more).

This straightforward demographic ratio typically reflects the degree to which a city dominates the 'rest of its nation in terms not only of population, but all types of economic resources, such as jobs and investment funds. In addition, primate cities are likely to be the nation's capital and educational and religious centers. Primacy also provides a summary measure by which cities can be com- pared (e.g., Santiago is more primate than Rome), though the different config- urations of national urban systems often detract from primacy's value in comparing cities.2

During the last decades of the twentieth century, the transnational linkages of cities grew in importance. Imports and exports, for example, comprised a steadily growing proportion of the economies of the world. This was part of a long-term trend toward more global trade that has characterized the past 200 years, though it has been periodically interrupted by wars and recessions. Con- sider the cereal that people eat for breakfast as an illustration. The sugar and wheat it contains have long been international commodities in the sense that,

71

72 GLOBAL CITIES

since 1800, the production and distribution of sugar and wheat have been strongiy affected by giobai market forces. Other products, such as many of the fresh fruits people eat in the morning, did not become global commodities until they could be transported more quickly. Thus, the average breakfast, eaten any- where in the world, became more globalized during the last third of the twen- tieth century, though portions of it had been globalized for many years.3

The closest approximation to the pure form of a global economy is proba- bly provided by the world's financial markets. They consist of networks of banks and other traders that buy and sell currencies, options, and other securi- ties. Tne traders are in dispersed locations around the world, but electronic information technologies link them together as though they were in a single place. The system would be truly global, or globally inclusive, if exchanges were completely unimpeded by national boundaries. While such a system may be established in the future, at the start of the twenty-first century these mar- kets were still based on "tradin~heads" in the financial centers of a few major global cities.4 -

GLOBAL CLASSIFICATIONS

As international economic and financial linkages grew in importance, social scientists turned to the question of how cities could best be ranked and classi- fied in a global framework. Prin.acy was not particularly useful once analysts began trying to describe the relationships among cities apart from their na- tional contexts. The size of cities could probably best be used only to identify world city "nominees" from specific nations. For example, Janet Abu-Lughod selected the three largest cities in the United States-New York, Los Angeles, and Chicago-when she wanted to describe a small sample of the presumably most global cities in the United States.5

It is impossible to state, unambiguously, where contemporary, nondemo- graphic analyses of cities in the global economy began. A good case might be made for Peter Hall's 1966 book, in which he proposed that world cities, such as London and New York, were those in which a large percentage of the world's business was conducted.6 Few studies immediately followed Hall's lead, then after about 1980 there were a host of publications. Of particular im- portance, as noted in Chapter 1, were several articles by John Friedman that at- tempted to synthesize the growing body of literature on world cities and to suggest several directions that future research should follow.

While Friedman acknowledged that it might be premature, in 1986, he nev- ertheless thought it important to present at least an initial hierarchy of world cities based loosely on the amount of international capital they contained and the number of multinational corporations headquartered within them.7 Nine years later Friedman presented another hierarchy, again based on what he termed "rough notions."8 Some of the categories he employed were different, making exact comparisons difficult, but there appeared to be both continuity and change in the rankings. London, New York, and Tokyo were among the top

FOUR • Cities in the Global Economy 73

cities at both times, and Friedman referred to them as "the command and con- trol centres of the global econorny" (p. 23). On the other hand, there were some marked changes. For example, Rotterdam was in the highest category in the 1986 paper, but was not included in any of the top four categories in 1995.

While we expect some changes in the rankings of cities to occur over time, a decade is probably too short a period for changes of this magnitude actually to occur. Perhaps a portion of the excessive change occurred in error, due to Friedman's use of "rough notions." More likely, much of the excessive variation was due to the fact that different indicators yield different results. For example, the concentration of wealth and capital ir1 a city is art ii1Lportai-1t consideration. It could be measured by the location of leading banks or by financial institu- tions more broadly defined to include insurance companies, stock and bond brokers, and related firms. Which is the better measure? In the absence of other information it is difficult to say which is better, but which one is used certainly does matter. There are marked differences in the ranking of cities each of these different measures produce. New York is first when wealth and capital are measured more broadly, but fifth in terms of banks only. Paris ranks second on leading banks, but eighth on the more inclusive measure.9

It is not surprising then, that when investigators use a single indicator of a city's global rank, there are especially marked divergences in their findings. Kunzmann illustrates this principle by noting that between 1986 and 1996 four different studies each presented a list of Europe's leading world cities and each was based on different economic indicators. The only cities all four studies agreed on were London and Paris. Seven other urban areas appeared in at least one of the studies, but five of the seven were included in only one.10 Such vari- ations in findings provide a strong argument for relying on multiple indicators, that is, the use of a number of separate indicators combined into a single index. When indicators are combined, the idiosyncracies of specific indicators are re- duced and one probably gets closest to the heart of the matter.

In this chapter we examine the global rankings of cities that are produced by several sets of indicators: stock exchanges, banking and finance, multina- tional corporations and foreign direct investment, and corporate services. The locations of these firms and activities help define the most important centers of the global economy and several also provide a picture of linkages among these urban hubs. Some of these indicators partially overlap, but that is not necessarily a problem.11 Each reflects a somewhat different aspect of how the international economy is hinged on the most important global cities and, as we shall see, using fewer indicators would result in missed nuances in the urban hierarchy. It is also important to recognize that, although these indica- tors are being separately discussed, they are often interdependent. For exam- ple, the development of Tokyo's stock exchange in the 1960s was an important impetus to attracting large banks, financial institutions, multina- tional corporations, and financial services firms to the city.12 The conclusion to this chapter presents a single global economic hierarchy based on the com- bined index.

74 GLOBAL CITIES

LOCATION OF STOCK EXCHANGES The major stock exchanges are special types of markets in which individuals and firms buy and sell several types of stocks, or shares, in publicly traded cor- porations. (Most of the largest corporations in the world are publicly traded.) In addition, most exchanges offer bonds, mutual funds, and a variety of special- ized financial mediums, such as "options" (contracts to make purchases in the future at a designated price). Some exchanges also operate commodity markets, in which supply and demand fix the price of items such as cattle or cotton. In the larger exchanges, over half of all trading involves foreign entities, such as the stocks of corporations located in countries other than the exchange's.

The major exchanges can be viewed, first, as centers of world capital where the major corporations of the world go to raise eq~gy, or loan capital. Thus, whether or not a business enterprise in Italy can-rafse the funds required to ex- pand its operations into Poland may depend on the willingness of investors to buy shares of the Italian company when it is offered for sale on the Tokyo stock market. The second way to view exchanges is as marketplaces where th~f everything from soybeans to a government's bonds is continuous!Y_ set. Thus, the price of oranges grown in Brazil for shipment to London is set by transactions that occur on the New York Stock Exchange. The cities in which these major ex- changes are located can therefore be viewed as cornerstones of the world's econ- omy in the sense that they house the activities that set .the_c:;011ditions ~der which economies and businesses operate across the entire world. Ids important als-crto notetfiat a m~or -exchange acts like a magnet, attracting financial service firms and a variety of investors, advisors, and so on. Thus, the presence of a stock exchange also indicates a likely concentration of financial activity.

The world's oldest stock market is in London, England, but the largest by far, in terms of shares traded or the market value of the listed corporations, is the New York Stock Exchange. NASDAQ, roughly tied for second place with the Tokyo exchange, is also in New York, giving that city a clearly preeminent position in the world. (Until late 2000, NASDAQ was alone in second place, but then it began a long decline because the price of many technology companies it listed moved lower.) The London exchange, in fourth place, is dose behind the NASDAQ and Tokyo exchanges in size. Before electronic trading opened much of the world to twenty-four-hour trading, the exchanges in these three cities, given their time zones, made a worldwide, around-the-clock market possible because the exchange in Tokyo opens just when New York's closes, and it closes

as the London exchange opens. An international ranking of stock exchanges, arranged according to the

market value of the corporations whose shares are traded on them, is presented in Table 4.1. However, these rankings are subject to change as a result of:

1. mergers and joint ventures among exchanges in process across the entire

globe, 2. new Internet companies offering electronic trading across national

boundaries.

T I I I

FOUR • Cities in the Global Economy

TABLE 4.1 Location ofWorld's l :,ra"•' ,,nrv i:vrh~nno• _ - - --· o-- .. - .. --.... -, .............. . o ... J

Market Capitalization Headquarter City

New York (NYSE)

75

Over $10 Trillion

$1 to $3 Trillion

$11, to $213 Trillion

Frankfurt•, London, New York (NASDAQ), Paris+, and Tokyo

Hong Kong, Milan, Osakatt, Toronto, and Zurich§

(a::t ::~~~r:oi: ~~~i~,~~:~!:~i~~t1~1~:a:i:f ~~:~t~:;:;~:~:p:1~ 1

~s~e~t:~~~ ~;:~~~~s 0

::~~s::l~;orld's Amsterdam and Brussels are joined to this exchange, formally known as Euronext ·

tt Also linked to NASDAQ in 2000. ·

§ Basie and Geneva are also linked to the Swiss Exchange.

In addition, as individual stocks vary, there are fluctuations in the values of shares traded_ on an ~~change. To iron out these short-term variations, Table 4.1 presents a r~~~ of ~1ti~s averaged by total market size in 1998, 1999, and 2000.13

ra mg m s12e behind the world's leading exchanges, as noted in Table 4.1, are a number of secondary exchanges, beginning with Chicago's. That cit hous~s the largest_ exchange in the United States outside of those in New Yor? and 1t also contains its nation's major agricultural commodities and future~ mar~et~-f?,r cattle ~d ~ogs, com and wheat, and so on-and these agricultural producLS st~l.compnse the largest export category of the United States. In addi- ~on, a subs1d1ary of the Chicago Mercantile Exchange sets international prices for silver and the future U.S. rates of exchange for most foreign currencies.14 ~ the same general range as Chicago's are stock exchanges located in

Madr~d, ,~tockh?lm, and S~dney. Finally, there are several other exchanges lo- cat~d ~ e_mer_gm? ~arket nations. They are still relatively small, with market cap1tahzahon ill b1l_l10ns rather than trillions, but any or all of these exchanges may be _of substantial global cc:,_nsequence in the near future. The largest in this group, ill. order of market capitalization, are the exchanges in Taipei Seoul Mexico City, and Sao Paulo. ' '

INTERNATIONAL BANKING AND FINANCE

~tematio1:al ba~k:11g be~an in the thirteenth century, when commercial estab- hshn1ents m Italy, oased ill Florence opened branches and b 'd' · · 1 . ' su s1 ianes ill sev- era Eur_opean nat~o1:s. The banks' primary objective was to assure local re - resentation of their interests as they financed the silk and wool cloth t d ~cross Eu~ope. Pursuing si1:1ilar ob)ectives, over the following centuries b:~k: 1:1 other cit~es followed smt. The first major change in the nature of interna- t'.o~al bankillg o~~urred in the nineteenth century, when the predominant ac- hv1~y became ra1_sillg loans for forei~n governments and investing in foreign nations. (The Umted States was a maior recipient.) At this time large bank · L_ondon were the world's leading arrangers, underwriters, and holders of :0: eign bonds.

76 GLOBAL CITIES

. d 5 t · the earlv twentieth century was The economic rise of the Umte S : e: m The US 'dollar replaced the U.K. associated ":'ith the :xpansion of Ud. Nan \ork to~k London's place as the sterling in international trade, an . t ew fonal finance remained relatively world's financial center. However, m erntaili the 1970s when another major

d t d estic finance un ' . small compare . o o:11 . . h the rowth of transnational corporations. change occurred m coniunction wit g and soon realized it would be The banks followed their corpo~t~ cutomet~ in the host country at the same even more profitable to service t e ~c~ mar et Modern telecommunications time they hand~ed th~ _tr~si:iationa; ;c:~~ t: transfer funds, arrange loans, also played a role, mal<l.ng it mcreas g y by k and its distant branches or

· between a parent an . . . and convert currencies f .1 t 1s Although of major s1gmfl-among bank affiliates thousands o m1 es a par 1· t f the modern financial cance, commercial and ~velst;e;t bants :;i~; :d~:or:, insurance and stock services complex. Also me u e are m brokers, and the like. . d linkages among firms in the fi-

There have been accelerahi:1-g mergers :th business sectors and national nancial ~ervices complex, ~u:::nttt:~%~ed o States by the giant Swiss bank boundaries. The purchase . 1997 d 1998 the bank acquired three spe- UBS A.G. are illustrative. Dunng an d '. f'r""s in New York and

t and corporate a v1sory 1 w cialized money managemen h d p m· eWebber the fifth largest brokerage

. d th in 2000 pure ase a , Chicago, an ~n ank ld then directly provide and manage house in the United States. The b .. cou d wealthy individuals in Zurich, a wide array of services to corporanons an

New York, Chicago, .U:d s~ on.1_6 h . r world centers have the advantage .--- The financial service firms m t e :11.~o,, Their staff members know how to ' of what Sassen terms "global connechv1 Y·

F . 4 I Banks from all over the world are part of the financial concentrations of ,gure . . Z . h 2001 )

global cities. (Pictured is the Arb Bank m unc , .

FOUR • Cities in the Global Economy 77

execute major i..'1ternational deals. With modem telecommunications, firms in cities like Dayton, Ohio, or Palermo, Italy, know the day's closing prices on the New York Stock Exchange the same time as everyone else in the world. TI1ey may not fully understand its significance, though. What the staff members of firms in the major financial centers uniquely possess is the expertise to interpret what those closing prices will likely mean for future investments and to guide a client by assessing the risks of specific crossnational ventures.17

An excellent example of a firm with this type of specialized knowledge is Goldman Sachs, a leading New York investment bank that has concentrated on globai communications. During the 1990s, when government-owned telephone and telecommunications companies in Europe and Asia either became private or offered shares to the public, Goldman Sachs was often their advisor. The firm was the lead banker for billion-dollar public stock offerings in Denmark, Hong Kong, and Japan, and was consultant to giant telecommunications mergers in England, Germany, and the United States. One industry observer described the highly successful Goldman Sachs strategy for its client companies as: "If it was owned by the government, take it private. If it is private, take it public. Then . merge it. They are a transaction machine."18 And each transaction meant a fee J for Goldman Sachs. --

Many of the most successful of these international firms have contacts to open doors in the capitals of the world. For example, the Carlyle Group is a pri- vate equity firm based in Washington, D.C. Its specialty is buying and selling companies, often across national lines. The funds used in Carlyle Group's pur- chases come from such diverse sources as pension funds in Texas and Califor- nia and oil money from Saudi Arabia. The advisors and directors of the Carlyle Group include former president George H. Bush and former presidents or prime ministers of Britain, Thailand, South Korea, and elsewhere. Specializing in the purchase of foreign companies regulated by their governments, the Car- lyle Group has used its conn~ctions to learn when there will be shifts in gov- ernment spending that could affect the value of companies in the future. 19

In order to illuminate the general place and role of banking and finance in the global economy, it is instructive to examine the Bank of New York (BNY), a large institution that was especially successful in attracting foreign clients, par- ticularly from Eastern Europe. As Russia, Poland, and other Eastern European nations moved into a capitalistic mode during the last decades of the twentieth century, cooperative arrangements with U.S. banks became especially critical. For example, most of the foreign suppliers to Russian companies wanted pay- ment only in U.S. dollars. This required that the companies' Russian banks es- tablish "dollar settlement accounts" in American banks. In addition, to increase their capitalization, a number of Russian banks wanted to be listed on U.S. stock exchanges and needed the expertise of American financial specialists to arrange it. Large banks in cities with major stock exchanges, like New York, have departments that specialize in stock capitalization.

Many U.S. banks were eager to do business with the Russians, but because of their locational advantage, New York banks, especially BNY, were able to ob-

78 GLOBAL CITIES

tain most Russian business. Banks were interested because it meant new clients who, in addition to paying commissions for special services, could be billed for transaction fees on their accounts. Even though each transaction (e.g., a deposit, withdrawal, transfer) involved only a nominal fee (typically about $3), many of these accounts had extremely high volume. For example, in a six-month period beiween October 1998 and March 1999, one BNY account that linked firms in New York and Moscow had 10,000 transactions. Unfortu..,ately for the bank and several of its chief executives, this account was apparently used to move profits from illegal activities in Moscow to a "front" company's account at BNY. Tne money ihen was seni io banks in England, Haly, and Switzerland before being returned-its origins moot, hence "laundered" -to a bank in Russia.

The BNY money laundering scandal was a criminal corruption of the in- ternational banking system and a deviant exception to the way the system normally operates. However, it is instructive to examine the BNY fiasco be- cause criminal, or deviant, behavior typically provides insight into the socie- tal (or intersocietal) arrangements in which it occurs. The same Internet technology that makes it possible for distant friends to stay in touch via e-mail messages also improves the access of child molesters to kiddie porn. In the future scientists wishing to study our current technology would learn much by studying the actions of those convicted of transmitting or receiving illegal images of children. To illustrate further, criminal groups-mafias, La Casa Nostras, and so on-have usually organized following the same forms (e.g., familial or bureaucratic) that predominated in legitimate sectors of soci- ety. Thus, one could gain insight into a wide range of legitimate business op- erations by studying how criminal syndicates were organized. In a parallel way, money laundering through BNY helps us understand many conven- tional aspects of international banking.

The central figure ii, the story was Natasha Gurfinkel Kagolovsky. Russian born, Princeton educated, Kagolovsky was a senior vice president at the BNY's main office in New York, in charge of the bank's Eastern European Division. Her husband, who lived mostly in Russia, was a banker and oil executive and Russia's former representative to the International Monetary Fund (IMF). He was apparently of great help in steering corporate clients in Russia to BNY. (U.S. investigators later accused him also of diverting $200 million in IMF loans through the bank.) Reporting to Ms. Kagolovsky and working as head of the Eastern European Division ii, the bank's London office was anoL11er Russian- born executive, Ludmila Edwards. Her husband, living mostly in New York, opened the BNY accounts to which the Russian funds flowed. The source of most of the money, according to the FBI, was the Russian mob's profits from drugs, extortion, arms traffic, and prostitution. From New York, Mr. Edwards moved the funds to European banks and eventually the laundered funds re- turned to Russia. There was apparently enough money for everyone to make out nicely. Ms. Kagolovsky purchased a condominium in Manhattan in 1997 for $796,000 and Ludmila Edwards bought a $500,000 apartment in central London-and both paid cash. 20

FOUR • Cities in the Global Economy 79

The importance of U.S. dollars to world trade made it likely that Russian money laundering would involve changing local currencies inio U.S. dollars. New York's role as the leading financial center in the United States made it likely that a bank located in New York would be involved. The amount of money cross- ing borders is so great, making the potential for bank profits so large, that normal safeguards are sometimes relaxed. BNY is not alone in this regard. Its problems vvould be less h,terestiri.g to us if they vvere unique. Thus, at the sarr1e time that key officials at BNY were being indicted, a congressional committee began to ex- amine Citibank of New York which, during the 1990s, became the preferred banker for elite farnilies ii, Asia. That probe focused on illegal tnmsfers between Citibank's corporate parent in New York and its Hong Kong branch.21

There are at least two indicators that can be employed to focus on the con- centration of capital in major financial centers:

1. the location of the largest banks in the world as defined by their total assets,

2. the location of the world's largest financial service institutions, as re- flected by market capitalization (i.e., the value of their common stock). Included in the latter category are banks, plus insurance companies, brokerage firms, holding companies, and the like. Both measures reflect the presence of extensive capital in a city, and the likely availability of fi- nancial expertise to go with it, though as noted in the introduction to this chapter, each indicator yields a somewhat different ranking of cities. It is important, therefore, to examine both indicators, and the two sets of findings-involving the thirty largest banks and one hundred largest fi- nancial institutions-are presented in Table 4.2.22

TABLE 4.2 Location of Leading Financial Firms*

World's Thirty Top One Hundred Largest Banks Financial Institutions

City (%) (%)

Tokyo 27 9

Paris 13 2

London 10 10

Frankfurt 10 6

Bejing 7

New York 7 14

Osaka 7 2

Munich 3 4

Zurich 3 4

Chicago 0 4

Total 87 56

• This table includes only the ten cities that house 2 percent or more of either type of firm. For this reason, neither of the columns totals 100 percent.

BO GLOBAL CITIES

From Table 4.2, we can see that the location of the largest banks is especially highly concentrated: 60 percent of the total are in the four principal centers: Tokyo, Paris, London, and Frankfurt. Add Bejing, New York, and Osaka, and the seven principal centers contain over 80 percent of the world's total. The lo- cation of the leading financial institutions is more dispersed, though still quite concentrated, as the seven leading cities contain over half of the world's total.

Several other cities contain some of the largest banks or financial institu- tions, but fewer than the leading cities listed in Table 4.2. The most important of these cities to consider are Amsterdam, Dusseldorf, and Geneva.

MULTINATIONAL CORPORATIONS AND FOREIGN INVESTMENT

Perhaps the most significant form of conglomeration in the major global cities involves multinational ( or transnational) corporations. Included here is any corporation that engages in economic activity in nations other than the one in which its headquarters is located. The largest of these corporations are involved in production and sales across much of the world. The vast resources controlled by the largest multinationals make them an enormous asset to the city and na- tion in which they are housed.

Many of the largest multinational corporations are household names, fa- miliar to people everywhere in the world. Others have less public recognition either because their products are not sold to the general public (e.g., industrial chemicals) or because they have brought together a number of product lines that are marketed separately, so many people do not recognize their vast con- solidation of ownership in the marketplace. For example, the Diageo Corpora- tion is a consumer goods company whose size is interesting precisely because it is not among the top fifty multinationals in yearly income or total assets. It is a London-based corporation that many people have never heard of but almost everyone is familiar with some of their products. Diageo's holdings fall into three categories23:

1. spirits and wine, labeled under such names as Johnnie Walker and J&B (the two best-selling brands of scotch in the world), Smirnoff, Baileys, and Guiness beer and ale

2. packaged foods, under the following labels: Pillsbury dough products, Green Giant vegetables, Old El Paso Mexican foods, and Haagen Dazs ice cream

3. fast foods: Burger King

Most of the products sold by the various divisions of Diageo Corporation are virtually identical throughout the world. Among Burger King Whoppers, for example, there is essentially no variation. However, like many multination- als, Diageo subsidiaries also make some concessions to local tastes. In Japan, for example, the second leading Haagen Dazs ice cream flavor, after vanilla, is

FOUR • Cities in the Global Economy Bl

gr~en tea;"_~nd it is only marketed in Asia. (This type of localization is not umque to Uiageo. Domino's best-selling pizza in England is topped with sweet com and tuna.)

Throughout the world, one can find salesrooms for the same automobiles or television sets and franchised restaurants serving the same food, but about 90 percent of the headquarters of multinational corporations tend to be con- centrated in a few of the economically most advanced nations. The United ~tate~, the_ United Kingdom, Germany, France, and Japan are the leading na- ~ions m this ~egard. If one looks at all corporations conducting business in more than one nation, then Germany is found to house the most parent corporations and the United States is in fourth place.24 When the size of firms-and indi- rectly, therefore, their wealth and importance-is taken into account the head- quarters of firms is even more highly concentrated in a small numbe; of nations and the hegemony of the United States becomes more apparent. To illustrate, Tab_le 4.3. focuses solely on the headquarters of the one hundred largest multi- nat10nal mdustnal corporations. (If other types of companies had been utilized the specific numbers would change, but the overall pattern would remain th~ ~ame.) Table 4.3 makes it clear that, although the United States has lost some of its large share of the top global firms, mostly to Japan, it nevertheless head- quartered the greatest percentage of the largest firms throughout the twentieth century.25

The small group of nations (and cities within them) that house the multi- national corporations (see Table 1.1 in Chapter 1) are highly advantaged be- cause extre_mely large amounts of capital flow to the headquarters nations, and enormous influence over decisions made throughout the world emanates out £:om the n~tional ~omes of multinational corporations. The largest transna- tionals are, m fact, ncher (and probably exert more influence in the world) than manf moderately well-off nations. To illustrate, in 2000, a typical year, Exxon- Mobil and General Motors Corporation both exceeded entire nations such as Peru, New Zealand, and Hungary in wealth. 26

. As noted earlier, one reason firms establish production facilities outside of their headquarters nation is to find relatively cheap labor and raw materials.

TABLE 4.3 Headquarters of Top Global Industrial Firms

Country 1912 (%) 1995 (%) United States 52 40 United Kingdom 15 13 Germany 14 7 France 6 5 Japan 0 21 Rest of Europe 6 12 Rest of Non-European World 7 2 Total 100 100

82 GLOBAL CITIES

Within the Dia2:eo Corooration. for examole. Guiness established a brewery in Tanzania (Afri~a) and 'Pillsbury operated a ·plant in Irapuato (Mexico). Other reasons for transnational investments are access to new markets, especially when trade barriers discourage imports, and for economies of scale. The latter has been especially important in recent years to firms experienced in foreign operations. To illustrate, consider the recent investments of the Frenc_h a~- tornaker Renault. Recognizing that its factories in France were old arid ineffi- cient, and hoping to expand sales outside of France, the company sought to diversify its products and production facilities. During 1999 and 2000, Renault purchased a 37 percent share in Nissan (of Japan), a 51 percent share in Dacia (of Romania), and a 70 percent share of Samsung Motor (of Korea). With these investments, Renault expected to be able to coordinate production and opera- tion facilities throughout much of the world.27 It remained for a board of direc- tors meeting in Paris to later decide which of the facilities Ln Japan, Korea, and Romania might eventually be closed, expanded, or merged with others.

When a subsidiary of the Diageo Corporation builds a brewery in Africa or Renault purchases an automobile factory in Romania it entails Foreign Direct Investment (FDI). The current definition of FDI, according to the International Monetary Fund, requires the purchase of at least 10 percent of the equity of the firm receiving the funds.28 That criterion is employed to assure that the foreign investor will have a voice in the management of the company. The ownership of most large trai'1snational firrns is spread an10ng thousands of small, separate ii,vestors. A holding as small as 10 percent is often sufficient, therefore, to ac- cord a single owner a substantial amount of control.

Since about 1970, the worldwide volume of FDI has multiplied many times over. To be exact, total investment abroad by transnational corporations was less than $50 billion in the early 1970s. By the late 1990s it exceeded $350 billion, and over the past quarter century, it grew much faster than other components of the world's gross domestic product, providing another reflection of in- creased internationalization. 29 In recent decades, there. have been two major flows of FDI. The first has gone from firms in economically advantaged nations, such as the United States and the United Kingdom, to firms in less economi- cally advantaged countries. Most of the latter have been located in either Asia (notably Cambodia and Vietnam) or Latin America and the Caribbean (notably Columbia, Trinidad and Tobago). In addition, a growing proportion of FDI to these nations has tended to exceed the 10 percent criterion and, in fact, results in majority control for the foreign investors. The second major FDI flow has oc- curred among firms within economically advantaged nations, and has been less likely, than the first flow, to result in majority control for the investing firm.

Table 4.4 describes nations and cities according to the sum of FDI flowing outward from firms within them. The first column indicates the total amount of such funds invested in 1996, and shows that the United States, and to a lesser extent, the United Kingdom were in their own categories, that is, without equals. Moving down the first column to lower levels of investment, the num- ber of more or less similar nations increases in number. When a number of na~

T I F

FOUR • Cities in the Global Economy

TABLE 4.4 FDI Outflows and Mu!tinationa! Headquarters

Billions Invested (U.S.$)

Over 80

Over SO

20-30

Nations

United States

United Kingdom

France

Cities with at Least 10% of Top Global Firms

New York

London

Paris

Cities with Between 1 % and 5% of Firms

Chicago, Los Angeles, San Francisco

83

Germany

Hong Kong*

Japan

Netherlands

Dusseldorf, Frankfurt, Munich, Stuttgart

6-10 Belgium

3-5

Canada

Italy

Switzerland

Korea

Singapore

Sweden

Taiwan

Tokyo Hong Kong ·

Osaka

Amsterdam

Toronto, Montrealt tt

Zurich

Seoul

Singapore

Stockholm

Taipei

"' Hong.Kong~~ an. "~~min~strative region" of Mainiand China with its own economy. AJmost all of its population res1aes m V1ctona, the capital of Hong Kong Island.

t U'.llike other cities wHhin nations that are presented alphabetically, Toronto is presented first to call at- tention to the fact that 1t has more corporate headquarters than Montreal and scores higher on all of the other economic indicators.

tt Both Milan and Rome barely missed inclusion.

tions are in the same catego_ry (column two), they are presented alphabetically beca~se from year to year small increases or decreases in their FDI change the rankings among nations within (but not between) these categories. Columns three and four indicate the cities in these nations in which the transnational cor- porations making the bulk of foreign investments are located. Specifically, col- umn three notes the major headquarter cities, each of which houses 10 percent or more of the top global firms. The final column includes the next largest set of headquarter cities, each of which houses between 1 percent and 5 percent of the leading firms in the world. There were no cities or metropolitan areas in which between 6 percent and 9 percent of the top global firms were located. This absence of intermediate cases suggests the fruitfulness of placing cities into fi:ese two categories, as in Table 4.4, rather than trying to view them along acontmuum.

In the table, the investments noted in column one pertain to nations, and these figures are straightforward. Obtaining information about the nations' cities in which the investing firms are located is more difficult. Two kinds of in- formation can be used. First, there are a number of listings of leading intema-

84 GLOBAL CITIES

tional corporations. Some rankings, such as Fortune's Global Five Hundred, are based solely on the firm's total revenue for the preceding year. To use this list to indicate city locations, one must assume that a firm's total revenue reflects its volume of nondomestic activity, which is true more often than not, but not necessarily the case. Another type of measure attempts to focus more specifi- cally on firms' degrees of internationalization. For example, Ietto-Gillies has combined the percent of a firms' total assets, sales, and employment that are foreign into a single index, and then employed this index to identify the one hundred most transnational firms. Despite a few differences in the corporations that are included with each measure, the urban areas in which either set of firms are located are remarkably similar. Columns three and four in table 4.4 rely on both of these indicators.

Whether cities are in the higher (10 percent) or lower (1-5 percent) cate- gories in terms of FDI outflows is a function of their nation's urban configura- tion and FDI volume. The total FDI outflows from the United States are so large that the nation can contain one major world center of corporate headquarters, New York, as well as three secondary world centers, in Chicago, Los Angeles, and San Francisco. France, in contrast, has only one major world center, fol- lowing a classic primate city pattern in which a single metropolitan area, Paris, dominates as the nation's headquarters for transnational corporations. Al- though Paris has historically been its nation's most dominant city, its share of France's international economic activity increased over tl1e last quarter of Hie twentieth century, mostly at the expense of Lyon and Marseilles.

In other nations, such as Canada and Germany, there is a more even distri- bution of headquarters locations among two or more metropolitan areas. In Germany there are two sets of cities that have expanded into important conur- bations: the Rhine-Maine conurbation, with Frankfurt as its "global urban flag- ship,"31 and the Rhine-Ruhr conurbation, in which no one city stands out. Even though these nations score relatively high in FDI outflows, they contain no sin- gle urban area among the world's top headquarters cities-which would not be the case if they followed the primate city pattern.

CORPORATE SERVICE FIRMS

As economic activity became more global, the scale and complexity of transac- tions increased, prompting the growth of specialized service firms to provide diverse types of assistance to corporate headquarters. Decision making in the home offices of multinational corporations requires diverse expertise in inter- national banking and finance, advertising, accounting, and law. The firms that provide these services to the headquarters of multinationals provide the infra- structure necessary to run "the advanced corporate economy."32 They do not, of course, provide entirely new services that suddenly appeared with global- ization. What has changed is the increase in demand for such specialized serv- ices and it has led to enormous growth in their scale and scope. Because service firms bill resource-rich home offices, they have been particularly profitable and

T FOUR • Cities in the Global Economy 85

are able to afford desirable office space near the center of midtown Manhattan, ~e City of London, and elsewhere.33 In fact, by the tum of this century, service firms accounted for about 40 percent of all employment in the central business districts of many global cities.

In recent years corporate service firms have tended toward increasing scale to accoi:nmodate the multinational corporations whose accounts are large, hence highly value~. The service firms have had to reorganize to prevent the appearance of co~flict that could arise if they maintained as clients companies that compe~ed with e~ch other. For example, when a manufacturing company buys a retail food_ cham, the law firm that has been billing the manufacturing company would likely want the business of the food chain as well. In fact, not handling the food chain's legal matters could threaten the loss of the parent (manufacturi:1g) compan~'s business. But what if the law firm previously ac- cepted a retamer from a nval food chain? Each client might be uncomfortable if ~he law_ firm attez:n.l:'ted to repr~sent the other. The same potential problems anse for firms providmg accountmg, advertising, and other services. . _To illu_strate ho:V service firms have realigned themselves to handle poten-

tial m!erc:ient conflicts, c_onsider True North Advertising. One of the top-ten ad agencies m the world with a roster of huge clients, in 1999 it moved all of its component parts into one of two renamed agencies, Bozell and FCB. To en- ~ance their image as separate agencies, separate management teams were put 1...r1to place. Bozell ,vas able to service L11e Bank of ArrLerica account, while FCB handled Chase Maru'.attai,, and neither client had reason to object; Bozell then took Bell Atlantic Mobil, while FCB serviced AT&T, and so on.34

To better understand how large corporate service firms have expanded aro:1nd :he. world, the _re_searc~ o~ a group of geographers at Loughborough University m England is illummatmg. For the past several years, this research group (known as GaW~ for "globalization and world cities") has been tracking ~e gr?wtl_1 and connechon_s am~ng corporate service firms. Focusing upon the m:ercity linkages of_ the firms is on strong grounds theoretically, given the widespre~~ conception that globalization entails an increasingly dense net- work of cities and that the command and control functions of world cities is best expressed via exchanges among cities.35

In one study, the Ga WC group examined large U.S. law firms. Such firms c_lear~y- repre_se~t a specialized, knowledge-based producer service, though na- hona. JUnsdichons over legal codes have somewhat discouraged the transna- tional growth of law firms. They were almost always local until around 1965, when they began to follow their multinational clients across national bound- aries, despite the fact that most legal systems remained state based. The firms were still a?le to offer clients information and advice unavailable in most places and they hired local lawyers to complement their international specialists. .. Many of the largest of the law firms are now found in several principal

~ihes of the world. Baker and McKenzie, originally a Chicago firm, is the largest m the world and the most global. It provides foreign investment advice to 150,000 clients and employs 1,800 lawyers outside of the United States. Baker

86 GLOBAL CITIES

and McKenzie now denies that Chicago, or anywhere else, is its headquarters. It has become global to the poii,t of becoming "homeless." As one might expect, New York is the U.S. city in which the most law firms with foreign offices are located. It is home to a third of these international U.S.-based firms. (Chicago is a distant second.) The foreign city in which these law firms are most likely to be present is London, followed by Hong Kong, Paris, and Tokyo.36

Of particular relevance to our interests here, the GaYVC research group studied sixty-nine major multinational firms in four sectors: law, advertising, accounting, and banking and finance. Within each of the four sectors, cities were given scores ranging from O (no office was present) to 3 (meaning it was the corporate headquarters). Intermediate scores (i.e., 1 or 2) reflected the size and importance of nonheadquarter, affiliated offices. Summing across all sec- tors, city scores ranged from Oto 12 (i.e., scores of 3 on each of the four sectors). Cities in the three highest categories-involving scores of 12, 10, and 9 (no city had a score of 11)-are presented in Table 4.5.37 Only four cities had perfect scores (i.e., 12), and they are the same cities that were found at or very near the top of all of the previously considered world economic indicators. Most of the cities in the second and third groups (i.e., scores of 10 and 9, respectively) are also in familiar positions on global economic hierarchies. The Ga WC research group's findings also suggest a fourth tier of cities with significant numbers of global service firms, but fewer than those noted in Table 4.5. Included in the fourth tier are Brussels, Madrid, and WashLngton, D.C.

The importance of basing ratings on multiple indicators is reinforced by the observation that some cities that scored highly on the other economic measures did not score highly on service firm locations. Especially notable is Osaka, the sight of a major stock exchange and home to a concentration of the world's largest banks. Its service firm score is only 6, however, putting it in a category that includes Jakarta, Prague, Santiago, and a number of other cities that do not score highly on any world economic indicators. If one relied solely upon the Ga WC index, the international economic standing of Osaka would be seriously underestimated. That is also true for other cities, such Stockholm (which scored 5, even lower than Osaka). On the other hand, several cities had much higher scores on this linkage measure than any other economic indicator.

THE ECONOMIC HIERARCHY

Our objective now is to combine the four specific indicators discussed in this chapter into a single index that can be used to describe the global urban eco-

TABLE 4.5 Cities with Highest Concentrations of Global Service Firms

Service Finn Scores

12

10

9

Cities

London, New York, Paris, Tokyo

Chicago, Frankfurt, Hong Kong, Los Angeles, Milan, Singapore

San Francisco, Sydney, Toronto, Zurich

FOUR • Cities in the Global Economy 87

nomic hierarchy. Any city's score on this composite index may be interpreted as providing the best measure of that city's place in the global hierarchy. To combine indicators it is helpful to assign numerical values to the cases (i.e., cities) because they can readily be added. We will proceed by assigning a score of 10 to cities that were placed at, or near, the apex of any indicator. Cities in the next highest group will be given a score of 7, and cities in the third tier will be given a score of 4. Those other cities noted in addition to the leading cities will be given a score of 1. To illustrate, Table 4.1 described the location of the world's largest stock exchanges. New York, in the highest category by itself, receives a score of 10 on this indicator. Frankfurt and three other cities in the second rung each receive a score of 7. Hong Kong is the first of five cities in the next cate- gory, and each of them receives a score of 4. Finally, Chicago, Madrid, and Syd- ney were noted as three cities with sizeable stock exchanges, but below the leading cities included in Table 4.1. Each is given a score of 1. This is, of course, an arbitrary set of numbers. One could just as readily assign cities scores of 80, 40, 20, and 10, for example, or 4, 3, 2, 1. It is important, therefore, not to exag- gerate the significance of small differences between cities' scores.

Table 4.6 presents, in column one, all the cities among the world's leaders on any of the economic indicators discussed in this chapter. The next four columns present all of the cities' scores on each of the indicators. (A dash indi- cates that the city was not among the world leaders on that indicator.) The final rol1nn_n sholATS thP t()t;:\1 srnr~:u;;: nn +ho f""f"\TYlpnsi+o lnrlov.

New York (with a total of 40) has the highest score. It could be placed alone at the apex because it was the only city that received the maximum score on every indicator. On the other hand, the difference between New York and Lon- don, Paris, and Tokyo, all of which had scores between 34 and 37, may be too small to treat as significant. Therefore, an equally plausible argument could be made for placing these four cities in the same category and regarding all of them as the leading cities in the global economy. The latter interpretation, as noted in the introduction to this'.chapter, is what most analysts have done. It was behind this top group that we saw a lack of consensus. Indeed, we noted that the different indicators employed here sometimes produced very different rankings. Frankfurt, with a score of 28, has the next highest score on the com- posite index. It seems too far behind the leading cities to be included with them in the top category. On the other hand, there are no cities immediately behind it. Thus, Frankfurt is a unique economic center in a class by itself, but closer to the top category than to the group below it.

Below Frankfurt, with composite scores of 15 or 16, are four cities that may be regarded as comprising the second tier of cities in the global economy. In- cluded here are Chicago and Osaka, historically "second cities" in their nations, and Hong Kong and Zurich. Then there are six cities with scores between 8 and 12 that may be considered tertiary cities in the global economy. This category includes Los Angeles, Milan, Munich, San Francisco, Singapore, and Toronto. The entire hierarchy is summarized in Table 4.7.

At the bottom of the hierarchy are seven cities with scores of 4 or 5. All of their scores are primarily due to the fact that they housed significant numbers

88 GLOBAL CITIES

TABLE 4.6 Global Cities Composite Economic Index

Stock Banks and Multinational Setvices

City Exchanges Financial Institutions* Corporations Firms Total

Amsterdam 1 4 5

Beijing 7 7

Brussels 1 1

Chicago 4 4 7 16

Dusseldorf 4 5

Frankfurt 7 10 4 7 28

Geneva

Hong Kong 4 4 7 15

London 7 10 10 10 37

Los Angeles 4 7 11

Madrid 1 2

Milan 4 7 12

Montreal 4 4

Munich 4 4 8

New York 10 10 10 10 40

Osaka 4 7 4 15

Paris 7 7 10 10 34

Rome 1 1

San Francisco 4 4 8

Seoul 4 4

Singapore 4 7 11

Stockholm 4 5

Stuttgart 4 4

Sydney

Taipei 4 4

Tokyo 7 10 10 10 37

Toronto 4 4 4 12

Washington, D.C. 1

Zurich 4 4 4 4 16

of multinational corporations. This was the "weakest" of the four indicators in that more of the cities in Table 4.6 received a positive score for multinational corporations than for any of the other indicators. Only six of the twenty-nine included cities failed to receive any points for multinational corporations, and five of the six were among the cities with the lowest scores on the composite index. Thus, we can surmise that housing multinational corporations may often be the first step toward becoming an economically important global city. The indicator with the next greatest number of positive scores is the location of pro- fessional services firms, and it would make theoretical sense to think of a pro- gression in which cities become entry-level nodes in the global economy by virtue first of housing multinational corporations, and that these corporations

TABLE 4.7

Score

40 34-37

28

15-16

11-12

7-8

4-5

FOUR • Cities in the Global Economy

The Global Economic Hierarchy

City

New York

London, Paris, Tokyo

Frankfurt

Chicago, Hong Kong, Osaka, Zurich

Los Angeles, Milan, Singapore, Toronto

Beijing, Munich, San Francisco

Amsterdam, Dusseldorf, Montreal, Seoul, Stockholm, Stuttgart, Taipei

89

then attract professional service firms, thereby enhancing the global signifi- cance of the city.

In Chapter 7 we will present a different composite index based on whether the world's cultural industries are headquartered in a city. In Chapter 8, the economic hierarchy presented here and the cultural hierarchy presented in Chapter 7 will be compared, and it will then be possible to further differentiate among global cities according to whether they house economic or cultural con- centrations, or both.

In addition to thinking about global cities arranged in an economic hierar- chy, it is i..111porta..,.1t to conceptualize them as a network within which informa- tion is excha.,ged, funds flow, and personnel are transferred. The relationships among many of these global cities is so well established that one city could drop out of the loop without necessarily disrupting the entire system because firms and activities located in other cities can be utilized as equivalents. The best case in point was provided in the immediate aftermath of the terrorist at- tack on the World Trade Center in New York. The large banks and specialized services firms that had been housed in the Twin Towers before September 11, 2001, were suddenly paralyzed. Many had satellite offices in other U.S. cities, such as Boston and Washington, but instead turned to their affiliates in London.

The investment firm of Cantor Fitzgerald, for example, was missing two thirds of its New York staff in the week following the terrorist attack. Its com- munication lines were also severed. (Those lines had been used to price over half of all trades in U.S. government bonds.) At the London office of the firm, em- ployees worked around the clock for a week until they had Cantor Fitzgerald's electronic trading platform running smoothly. Traders and investors faced a time-zone gap as a result of New York's absence, though. In response, London employees extended their shifts until midnight, local time, when their colleagues in Tokyo could then take over (midnight in the United Kingdom is 9 A.M. in Japan). Thus, around-the-clock trading in securities was quickly reinstituted.38

POSTSCRIPT: SEPARATING PRODUCTS AND PLACES

Multinational corporations are, as we have seen, cornerstones of the world economy. The concentration of their headquarters in select cities contributes to

90 GLOBAL CITIES

a global structure in which wealth flows to the cities (and nations) at the top of the hierarchy, while influence and control emanate down. However, many multinationals have gone to great lengths to obscure their headquarters loca- tion in order to present themselves as "local"; in other words, to be seen as "genuine" parts of every place they are sold. The result is that people's mental images often do not correspond with the underlying economic structure.

We can begin with the obvious point that the products of la~ge ~,ulti~1a- tional corporations are necessarily "foreign" in most of the countries m which they are consumed. In order not to appear foreign, home corporations often at- tempt to identify their products with local icons. That is designed to increase sales, of course, but blending also helps to insulate the company from nation- alistic backlashes against foreign domination. In advertising its beer products in the United States, for example, London's Diageo Corporation has often pic- tured their Guinness beer in the hand of the Statue of Liberty. To illustrate fur- ther, consider corporate advertising at Expo 2000, held in Hanover, Germany, in June 2000. As a World's Fair, the Expo had exhibits from many nations, but not from the United States. The U.S. Congress forbade the use of government funds, so the U.S. commissioner for the fair tried unsuccessfully to raise private funds for an American pavilion. U.S. corporations simply refused to contribute to a national site at the fair because they did not want to be associated with any particular nation. Coca Cola, for example, contributed $5 million in return for rights to advertise using the Expo logo, but did not want the logo to be con- nected to an American flag or under the roof of a building associated with the United States.39

When multinational corporations are able to separate their products from their locations in people's minds, the result is an amorphous conception of commodities that are not identified with real places or with the underlying in- terurban economic structure. A suggestive study of this effect was reported by Roper Polling in 1999. In thirty nations, representative samples of people w~re first asked to rate which products were best from among a large number of in- ternational brands that included Disney, McDonald's, Mercedes, Sony, and more. After people identified which they thought were best, the poll~ters as~ed them the country with which they associated the best product. Most mterestmg from our perspective is the finding that nearly half of all the international re- spondents stated that the best brands did not belong to any country-they were simply regarded as global products, lacking any national connection. Among younger, better educated, and more traveled respondents, the percen~~ge of.re- spondents that tied the best products to the world rather than a specific nation was over 50 percent.40

CASE STUDY: McDONALD'S

McDonald's Corporation, headquartered in suburban Chicago, leads the world in number of franchises. Its golden arches may be the most widely recognized corporate icon in the world. For that reason, McDonald's could be a frequent_

FOUR • Cities in the Global Economy 91

target of antifranchise, anticapitalistic, or anti-American demonstrations. The "anti" ~entimen~s are "".idespread, but do not lead to mobilization until they are galvanized. An mterestmg example is provided by the French farmer who led a group of protesters in an attack on a local McDonald's restaurant. Prior to mo- bilizing a band of followers, he had no organization, few long-term allies, and n~ real long-term str~tegy. However, his criticisms of McDonald's tapped into a widespread antagomsm to the franchise in his country once he represented it as an agent of external intrusion ("McDomination") and many French citizens beg~ to agree that fast food-both in its preparation and consumption-was decidedly out of place in their culture. One sociologist equated people's embar- rassment at being seen coming out of a McDonald's in France with being "caught leaving an X-rated movie" in the United States.41

. During th~ far~er's trial, thousands of supporters showed up: teenagers with_ gree1: half, m1ddle-~

1

ged men with ponytails, and retirees, many wearing T-shirts with the slogan, The world is not merchandise, and I'm not either. 1142 ~is is the kin~ o~ mobilization-cutting across age, class, and lifestyle Imes-that multmahonal corporations may most fear, and it provides an im- portant part of the explanation for why corporations have often gone to great lengths to make themselves less conspicuous. The sporadic protests in France notwithstanding, McDonald's has been highly successful at blending with local settings.

The P .. venty-four }J!cDonald's restaurants in Ltdia provide a good iHustration of ~o': th~ corporation weaves itself into any milieu. Most of the population in India 1s Hmdu, hence they hold cows to be sacred and condemn their slaughter. ~ecau~e they would never eat the meat of a cow, it is difficult to sell hamburgers m India. The restaurant's solution was the "Maharaj a Mac," made of chicken and mutton. In every McDonald's in India a sign is posted stating, "No beef or beef products sold in this restaurant."43 At the new McDonald's in Delhi, the Ma- haraja Mac is now popular with Indians on their way to the Taj Mahal. Once this flagship sandwich becomes connected in people's minds with an authentic as- pect of local culture (such as the Taj Mahal), the blending is complete.

However, th~ McDonald's in the former Yugoslavia must surely provide the most dramatic example of how a corporation can fit in anywhere and be- come part ~f local culture. During spring 1999, American planes and bombs were conspicuously involved in NATO air strikes on parts of former Yu- goslavia. (The bombing was designed to stop Serbian atrocities.) When air raids be~an, 1:fc~onald's franchises in Belgrade and other cities were vandalized by nahonahshc protesters who smashed windows and scribbled insults on walls. :he ~estaurants were targeted because they represented a conspicuously Amer- 1cai:11con. Even though every one of the franchises in the former Yugoslavia was entirely owned by McDonald's, the local head of operations launched a suc- cessful strategy to get Serbs to view the company as their own. Toward this end, the restaurants closed for a few days while they redesigned the familiar golde~ arches _logo to include the traditional Serbian cap over one of the arches, and this redesigned logo was set against the colors of the Serbian flag. McDon-

92 GLOBAL CITIES

ald's printed thousands of banners and lapel buttons with the new logo and distributed them when the restaurants reopened.

As the NATO bombing continued, McDonald's passed out thousands of free cheeseburgers to the participants at anti-NATO rallies. They convinced Serbs that-in relation to bombs falling from the sky-they were all in the same boat. Hence, McDonald's was as Serbian as the dinar people used to pay for their fries. At tvicDonald's headquarters in. suburbarl Chicago, a spokesperson argued that the local strategy should not be interpreted in national or interna- tional terms because it was the plan of the Yugoslav manager who was "func- tioning as a hamburger guy and not as a politician."44

NOTES

1. Brian J. Berry and John D. Kasarda, Contemporary Urban Ecology (New York: Macmil- lan, 1977).

2. Saskia Sassen, Cities in a World Economy (Thousand Oaks, Calif.: Pine Forge Press, 2000).

3. I have adopted this example from Chase-Dunn et al. They pose it as question at the beginning of their paper, however, while I have presented it as a statement, indi- cated by their results. See Christopher Chase-Dunn, Yukio Kawano, and Benjamin D. Brewer, "Trade Globalization Since 1795," American Sociological Review, 65, no. 1 (2000):77-95.

4. In addition to describing international financial markets, an insightful application of microsocial theories to the interactions among these electronically connected traders is presented in Karin K. Cetina and Urs Bruegger, "Global Macrostructures," Amer- ican Journal of Sociology, 107(2002):905-50.

5. Janet L. Abu-Lughod, New York, Chicago, Los Angeles: America's Global Cities (Min- neapolis: University of Minnesota Press, 1999). For further discussion of the limita- tions of demographic measures, see David A. Smith and Michael Timberlake, "Cities in Global Matrices," in World Cities in a World System, ed. Paul L. Knox and Peter J. Taylor (Cambridge: Cambridge University Press, 1995), 79-97.

6. Peter Hall, The World Cities (London: Werdenfeld and Nicolson, 1966). 7. John Friedman, "The World City Hypothesis," Development and Change, 17(1986):

69-84. 8. John Friedman, "Where We Stand: A Decade of World City Research," in World Cities

in a World-System, ed. Paul L. Knox and Peter J. Taylor (Cambridge: Cambridge Uni- versity Press, 1995), 21-47.

9. Figures from Sassen, Cities in a World Economy. 10. Klaus R. Kunzmann, "World City Regions in Europe." in Globalization and the World

of Large Cities, ed. Fu-chen Lo and Yue-man Yeung (Tokyo: United Nations Press, 1998), 37-75.

11. For example, corporate services include finance, already included in banking, but three other specialized services are also included in this category (law, accounting, and advertising). So, the measures are only partially redundant.

12. Masahiko Honjo, "The Growth of Tokyo as a World City," in Globalization and the World of Large Cities, ed. Fu-chen Lo and Yue-man Yeung, 109-31.

13. For recent figures on market capitalization, see "Floating in the Air," The Economist, 26 May 2001, p. 11.

T FOUR • Cities in the Global Economy

93

14. Janet Lippman Abu-Lughod "Campa . Ch. ,/ World Cities in a World-Syst;m ed p:mlgL K1cago, Ndew York and Los Angeles," in C b . - ' · u · nox an Peter J Taylor (C b "d am nctge University Press, 1995), 171-91. . am n ge:

15. For further discussion see Alf d L · the 1990s (London: Ac~demic ;;ess, ;;~~tnd Gioia Prescetto, EU and US Banking in

16. Edmund L. Andrews "Swiss Ac . H H York Times, 13 July 2000. o. C4 qwrer as ad Plenty of Its Own Problems," New

17. Sassen, Cities in a· World Econo~y. 18. Laura M. Holson and Andrew R S k" "'I< 1 . . York_ Times, 13 December 1999, p. ·cti m, e ecommumcations Powerhouse," New 19. Leslie Wayne, "Elder Bush in B" GO p C ..

Times, 5 March 2000, p. 1. ig · · · ast Tmling for Top Equity Firm," New York

20. Timothy L. O'Brien with Raymond Bonner "J Russian Case," New York Times, 6 October 199~ry Charges 3, One a Bank Aide, in were also accused of looting assets from d P· Al. Edwards and her husband cal!y transferring funds from that bank ; n~;:; e;~nct :ussian bank by systemati- York Suit R;,vived," New York Times, 15 Ja:uary 200{0~ C~g News, "Bank of New

21. Jeff Gerth, Under Scrutiny· Citibank's H d . p . counts," New Y~rk Times, 27 july 1999, p. A:.n ling of High-Profile Foreigners' Ac-

22. Data on financial institutions are fro Th (Skokie, Ill.: Thompson Financial Publi~ o~~;rtPolk, Bank Industry Statistics Cities in a World Economy. ng, · ata on banks are from Sassen,

23. This information, and the followin.g about D" C . . 1003 A , R . , ' iageo orpora t10n 1s taken f · t • ..,.., nnnua,, eview (London· 1999) A f h - rom 1.s

' · · s o t e summer 2001 Dia · lk sell its nonbeverage holdings and h h . , . geo was in ta s to try. However its hold" pure ase ot er companies in the beverage indus-

' ings were as presented here in summer 2002 24. See the annual World Investment Reports db .

on Trade and Development Ge . U ~rtedpaNre . y the United Nations Conference · neva. m e at10ns

25. ~11 figures in Table 4.3 are from Leslie Hannah "Sur;ival and Siz M bTt t .e World's Largest 100 Industrial Corporation~ 1912-1995 "A e_ oE1 I y among view, 37(1998), 19-31. ' , mencan conomic Re-

26. United Nations Conference on ·Trade and D 1 (Geneva: United Nations, 2002). eve opment, World Investment Report

27. John Tagliabue "Volvo B · R 1 York Times, 26 April 2000, ;:~ enau t Truck and Bus Unit for $1.5 Billion," New

28. International Finance Corp f F · · World Bank, 1997). ora wn, oreign Direct Investment (Washington, D.C.:

29. "World Investment Report 199? " r, . 127_69_ , ransnational Corporations, 6, no. 2(1997):

30. 1999 Fortune Global Five Hundred· (2000) N ~ k "Different Conceptual Framewo~ks for Int:; or : F~rtu_ne ~~d Grazi~ Ietto-Gillies, tions, 7, no. 1(1998):17-39. natwnahzation, Transnatwnal Corpora-

31. Klaus R. Kunzmann, "World City Re ions in Eu " . tion ~nd the World of Large Cities, 41 _ g rope, m Lo and Yeung, Globaliza- /

32. iasra ~ssen, '.'?n _Concentration and Centrality in the Global City," in Kn d / ay or ,,orld Cities ma World System, p. 63. , ox an

33. Sassen, On Concentration and Centralit "Th ducer service firms which also incl d !" ese employment figures are for pro-

34 S . ' u es insurance and real estate . tuart Elliot, "Advertising," New York Times, 10 September 1999, p·. C4.

"" 94 '\,,,

GLOBAL CITIES

\s. This view is presented by David Meyer, "World.~ities as Financial Centr:s," in L~ and Yeung, Globalization and the World of Large Cztzes, 410-32; and Sassen, On Con

centration and Centrality." L F · 36. J. V. Beaverstock, Peter J. Taylor, and D. R. F. Walker, "United States aw 1rms m

World Cities," Urban Geography, 21(2000):95-119. . ,, .

37 Peter J Taylor D.R. Walker, and J. V. Beaverstock, "Introducing Ga WC, mUGl?badl · · ' · d S k' S (Tokyo· mte Cities: The Impact of Transnationalism and Telematzcs, e . as 1a assen · Nations University, in press). . 26 S 38. Suzanne Kapner, "Wall Street Runs Through London," New York Tzmes, eptem-

ber 2001, p. Cl. 1. " N Yi k T' 39. Roger Cohen, "A World's Fair Beckons; the Superpower Dec mes, ew or zmes,

29 May 2000, p. A4. 40 D'ane Crispell "McWorld?" Public Perspective, 12, no. 1(2001):18-21. .

41 : S~zanne Dale;, "French See a Hero in War on 'McDomination'," New York Tzmes, 12

October 1999, p. A4.

42. Ibid. , . t "A 43 On the other hand, some critics insist that McDonald swill a~w~ys repre.sen,, mer-

. f t· " and that its food will remam Un-Indian. Never-ican patterns o consump 10n d l theless, there were twenty-four McDonald's in India at_ the en~ of 2000, an a tota of eighty were planned. Luke Harding, "Lunch in India: A B1g Mac, But Hid '.he beef," Journal Inquirer, 20 December 2000, p. 21. (Scripps Howard News rv1ce,

published in Manchester, Conn.) . ,, ll 5 44. Robert Block, "How Big Mac Survived NATO's Attack on Yugoslavia, Wa treet

journal, 3 Septe1nber 1999, p. 3.

T I

FIVE

Inequaiity

Since the 1980s, when studies began systematically to try to catalog the distin- guishing features of global cities, one of the most emphasized characteristics has been differences in the wealth of the highest and lowest segments in these cities. Some analysts designated it income inequality while others referred to it as class polarization, but all were offering essentially the same diagnosis. After several decades in which the middle class had grown substa..."l.tially, especially in the most economically advanced nations, observers believed it might be re- ceding and that the highest and lowest classes were expanding. As a result, they hypothesized that the overall distribution of wealth, or income, in the global cities might be moving toward the shape of an hourglass. Friedmann and "':olff, in one of the earliest studies, used the metaphors of the "citadel" and the "ghetto" to describe the expanding classes at the top and the bottom.1 They selected terms with an ecological referent to highlight the fact that they were not only describing strata within a hierarchy, but groupings that were segre- gated spatially from each other as well.

If the hypothesis about increased inequality being a concomitant of global city development turns out to be correct, it would portend serious future diffi- culties because inequality eventually results in multiple social and political problems. When there is a high degree of inequality in a city or nation, it can be difficult to maintain civic order and security, seek justice, provide needed wel- fare, and so on.2 Of course there is nowhere, other than a fanciful utopia, in which everyone has the identical amount of whatever it is that people value. Some difference is ubiquitous. It is a high degree of inequality that creates spe- cial problems, as described later in this chapter's case study of Sao Paulo, Brazil.

In the following pages we will examine income inequality in both global cities and in nations. Although our primary interest is in cities, it is important to consider nations also because some of the inequality in any city is a result of national policies. The degree to which access to education is left to the market- place, for example, will have a profound effect on opportunities for intergener-

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