The locus of globalization

Global networks - Linked cities (Introduction), Saskia Sassen, 2002

Saskia Sassen has been following global capital markets for years. In the introduction of this edited volume, she uses capital markets to explain the strange relationship between economic globalization and geography. While Sassen focuses on global cities (New York, London, Hong Kong, Tokyo, and more recently Sao Paolo, Mexico City, Johannesburg, Bombay, Shanghai, etc.), many of her insights are applicable to specialized clusters. Since much of her analysis is based on the finance industry, the leap to apply it to other information-based industries is not very large. Of course, her aim is a different one than mine. In the larger argument on globalization, financial markets are probably a better indicator of the global economy than the new technologies I'm looking at.

By analogy, her comments on the relationships between global cities is also much-welcome support for my proposition that we are seeing a network of cooperating and competing hi-tech clusters emerge. As Sassen sees it, such a network of global cities already exists.

There is a growing number of transnational actors: not only MNCs, but also NGOs, government regulators, professional associations, mayors etc. As the nation state loses power (e.g. by giving up state monopolies), other geographic entities gain: cities, regions, cross-border regions, and supranational entities (e.g. the EU). Add to this the existence of new 'virtual spaces' and the picture can easily become confusing. On the one hand, cities and regional economies are becoming more important, agglomeration economies are increasingly powerful. On the other hand, ICTs allow a dispersion of information, capital, and thereby business. According to Sassen, these two trends are not wholly contradictory, and 'global cities' are the links between national economies and global circuits.

Cities provide the pronounced territorial concentrations of resources necessary for the management and servicing of more dispersed and mobile resources. By doing so, they reinforce the global influence and the global links of their respective cities - strengthen their position in the global economy. While they therefore remain dependent on their surrounding regions, these cities become a part of the global center: the network of global cities.

The geography of globalization contains dynamics of both dispersal and centralization. The massive trends toward the spatial dispersal of economic activities at the metropolitan, national, and global levels that we associate with globalization have contributed to a demand for new forms of territorial centralization of top-level management and control functions. Insofar as these functions benefit from agglomeration economies even in the face of telematic integration of a firm's globally dispersed manufacturing and service operations, they tend to locate in cities. An important reason why they might benefit from agglomeration economies lies in the presence of business networks.

By central functions I do not only mean headquarters functions; I am referring to all the top-level functions necessary to run a corporate organization operating in multiple countries. These central functions are partly embedded in headquarters, but also in good part in what has been called the corporate services complex, that is, the network of financial, legal, accounting, and advertising firms that handle the complexities of operating in more than one national legal system, national accounting system, advertising culture, and so forth and do so under conditions of rapid innovations in all these fields. Such services have become so specialized and complex that headquarters increasingly buy them from specialized firms rather than produce them in-house. These agglomerations of firms producing central functions for the management and coordination of global economic systems are disproportionately concentrated in an expanding network of global cities. This network represents a strategic factor in the organization of the global economy.

Further, leading firms in information industries require a vast physical infrastructure containing strategic nodes with hyperconcentration of facilities; we need to distinguish between the capacity for global transmission/communication and the material conditions that make this possible.

Sassen goes on to explore the new economic geography that combines agglomerations and global dispersal.

This type of analysis of globalization, which seeks to map the strategic sites with hyperconcentration of resources as well as the cross-border networks that link these sites and others, helps us understand to what extent there is a specific geography of globalization and the fact that it is not a planetary event encompassing all of the world. It is, furthermore, a changing geography, one that has undergone multiple, often specialized transformations over the last few centuries and over the last two decades, and most recently has come to include electronic space.

Today, partly as a result of the new technologies, the spatial correlates of the center can assume several geographic forms, ranging from the CBD (central business district) to a new global grid of cities. Simplifying one could identify three forms of centrality today.

First, while there is no longer a direct relation between centrality and geographic entities such as the downtown, the CBD remains a key form of centrality. But the CBD in major international business centers is one profoundly reconfigured by technological and economic change. ...

Second, the center can extend into a metropolitan area in the form of a grid of nodes of intense business activity. ... Insofar as these various nodes are articulated through cyberroutes or digital highways, they form a grid that is a geographic correlate of the most advanced type of "center." The places that fall outside this new grid of digital highways, however, are peripheralized. This grid of nodes represents, in my analysis a reconstitution of the concept of region. Far from neutralizing geography, the grid is likely to be embedded in conventional forms of transport infrastructure, notably rapid rail and highways connecting to airports. ... (Compare this to the Silicon Valley notion that the diameter of the cluster is defined by a 2-hour drive.)

Third, we are seeing the formation of a transterritorial "center" constituted via telematics and intense economic transactions. It consists of the multiple and diversifying inter-city links that take place partly in electronic markets and transactions and partly through the intensifying circulation of goods, information, firms, and workers. In this regard this is both a territorialized and deterritorialized space of centrality. It requires both a specific logic for territorial development and the infrastructure for global networking technologies.

The relationship of cities within this last transterritorial center sounds much like that of organizations within a conventional agglomeration economy.

The global integration of markets make many ... activities redundant and makes collaboration a far more complex matter, one that has the effect of sharpening the division of labor within the network. Beyond the necessary range of specialized services present in all these centers, we now also see a trend toward the formation of specialized capabilities that partially differentiate centers and simultaneously integrate them into a larger global network. This configuration also promotes the formation of strategic alliances. ...

In my reading the globally integrated financial system is not only about competition among countries as is typically assumed. The trend is toward an increase in specialized collaborative efforts among these centers. Further, insofar as markets are integrated, growth overall is maximized through growth in all centers.

But why have financial centers at all? It comes back to well-known arguments about social networks and interpretation vs/ information.

The continuing weight of major centers is, in a way, countersensical, as is, for that matter, the existence of an expanding network of financial centers. The rapid development of electronic exchanges the growing digitization of much financial activity, and the fact that finance produces a dematerialized and hypermobile product, all suggest that location should not matter.

3 reasons that explain the trend toward consolidation in a few centers rather than massive dispersal:

a) The importance of social connectivity and central functions.
First, while ICTs do indeed enable geographic dispersal of economic activities without losing system integration, they have also had the effect of strengthening the importance of central coordination and control functions for firms and even for markets. ...
One fact that has become increasingly evident is that to maximize the benefits of ICTs firms need not only the infrastructure but a complex mix of other resources. Most of the value added that these technologies can produce for advanced service firms lies in so-called externalities - material and human resources such as state-of-the-art office buildings, top talent, and the social networking infrastructure that maximizes connectivity. ...
A second fact that is emerging with greater clarity concerns the nature of "information." There are two types of information. One is the datum, which may be complex yet is standard knowledge: the level at which a stock market closes, a privatization of a public utility, the bankruptcy of a bank. But there is a far more difficult type of "information," akin to and interpretation/evaluation/judgment. ... Access to the first kind of information is now global and immediate ... But the second type of information requires a complicated mixture of elements, which we could think of as the social infrastructure for global connectivity. It is these specialized kinds of social connectivity that give major financial centers a leading edge. ...

b) Cross-border mergers and alliances.
Global firms in the financial industry need enormous resources, which is leading to rapid mergers and acquisitions of firms and strategic alliances among markets in different countries. ...
I would argue that another kind of "merger" is the consolidation of electronic networks that connect a very select number of markets. In the late 1990s several financial exchanges sought to form highly integrated alliances. ...
What we are seeing now is a ... pattern whereby the cooperation or division of functions is somewhat institutionalized: strategic alliances not only between firms across borders but also between markets. There is competition, strategic collaboration, and hierarchy.

c)Denationalized elites and agendas. ...
Major international business centers produce what we can think of as a new subculture, a move from the "national" version of international activities to the "global" version. ... I would posit that major cities, and the variety of so-called global business meetings (such as those of the World Economic Forum in Davos and other similar occasions), contribute to denationalize corporate elites.

Essentially: The global economy and the people that are more part of it than of their national/regional economies still need a place or home. Global cities provide it.


Some numbers on the global economy:
By 1999 companies had well over half a million affiliates outside their home countries accounting for U.S. $11 trillion in sales, a very significant figure if we consider that global trade stood at U.S. $8 trillion.
The orders of magnitude of cross-border financial transactions have risen sharply, as illustrated by the 1999 U.S. $68 trillion in the value of internationally traded derivatives, a major component of the global economy.