Cities in Contemporary Capitalism

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Volume 38.5 September 2014 166077
International Journal of Urban and Regional Research

DOI:10.1111/1468-2427.12165
ARTICLES
Cities in Contemporary Capitalism
STEFAN KRTKE
Abstract
This article outlines essential concepts of the political economy approach of urban
research and offers critical modifications and clarifications to some of its contentions
concerning the functioning of cities as strategic places of capital accumulation. The
interrelations between contemporary capitalism and urban economic development are
discussed at the scale of a transnationally extended urban system. Based on the general
context of the global economic downturn, I focus on the role of cities in distinct circuits
of capital, the switching of capital flows within the urban system and the different
functional roles of cities within the world city network that interconnects cities both in
the global North and South. I call into question the established focus of urban economic
research on the role of cities as financial and service centres, arguing that cities might
redirect their economic development trajectories towards real economy activities,
in contrast to relying on the disastrous development model of finance-dominated
capitalism.
Introduction
Contemporary capitalism is shaped by a finance-dominated regime of accumulation,
wherein trade in financial assets and derivatives as well as the urban real estate business
have become leading sectors of economic development. This particular regime of
accumulation has a profound impact on the development of cities and urban regions. In
the context of a worldwide economic crisis affecting territories and places all across the
world, it is worth revisiting essential concepts of the urban political economy approach
concerning the functioning of cities as strategic places of contemporary capitalism. The
retreat of political economy perspectives in contemporary urban studies might have been
fuelled by the widespread view that the work of David Harvey in particular offers an
exhaustive account of the role of cities in capitalism that leaves no scope for further
development. By offering some critical modifications and clarifications to certain
contentions within the urban political economy tradition, this article presents the key
arguments of radical urban political economy with regard to contemporary patterns of
urban restructuring, and includes some new and specific claims on how to interpret
financialization, the theory of capital switching and the need to combine the urban
political economy approach with a global urban network approach that highlights the
different yet interconnected functional roles of cities in the global North and South. In
contrast to a northern view of global capitalism, I argue that despite the regional and
local variations in urban economic and socio-spatial structures, cities in both the global
North and South are shaped in essence by the economic forces of todays global
capitalism, including the uneven distribution of key functions in a global spatial division
of labour.
2014 Urban Research Publications Limited. Published by John Wiley & Sons Ltd. 9600 Garsington Road, Oxford OX4
2DQ, UK and 350 Main St, Malden, MA 02148, USA
Cities in contemporary capitalism
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In general, cities and urban regions play a central role in the spatial organization of
capital accumulation they represent the geographic nodes of capital accumulation in
the real economy sector as well as in the financial sphere, and they seem to be the most
important places of capital valuation in the real estate sector, which today forms an
integral part of the capitalist economys financial sector. At the same time, cities offer the
enterprise related infrastructures that support capital accumulation, and they represent
spatial centres of social consumption, which comprise the spheres of collective
consumption (Castells, 1978; Theret, 1982) of health, education and transport services
and so forth on the one hand, and the spaces of private consumption, including urban
residential areas with different qualities and locational features on the other. The social
divisions of a capitalist society articulate themselves in the city by more or less
pronounced socio-spatial hierarchies and divides. Nonetheless, there are important
differences between cities not only in terms of size, but particularly with respect to the
functional specialization of urban economies and the dynamics of economic, social and
spatial restructuring processes. From a comparative perspective, individual cities form
part of an urban system that increasingly exceeds the boundaries of national state
territories. The urban system comprises cities of different sizes, economic and
socio-spatial structures that are interconnected by economic exchange and control
relations, information and capital flows, as well as migration flows. At the urban system
scale, the problem of uneven spatial development in capitalism is articulated by the
different pathways of prospering or up-and-coming cities and declining cities.
The role of cities in contemporary capitalism might be analysed from the perspective
of a particular city. Yet from a broader perspective, the role of cities can be reviewed at
the scale of urban systems. At this scale level, we are in a good position to take functional
specialization, spatial division of labour and competition between cities into account.
Today, the economic development and internal structure of cities is increasingly affected
by global influences, particularly cities external relations. Hence it is increasingly
difficult to analyse the functioning of a city endogenously, based on what is happening
inside its conventionally defined administrative boundaries. A citys economic and
socio-spatial restructuring, particularly the extent or spatial reach of residential
gentrification processes and the construction of new business centres, is increasingly
shaped by the citys positioning within a transnationally extended system of competing
urban regions. This systemic perspective on urban development is not confined to the
traditional conceptualization of national urban systems. At present, the scale level of a
global urban system is of much more relevance.
This article presents an account of the major economic forces that shape uneven
development within the capitalist urban world. The second section of this article starts
from the general context of the current global economic crisis, referring to the role of
cities in distinct circuits of capital and to the switching of capital flows within the urban
system. These basic themes are closely related to the notion of uneven development and
of the different functional roles of cities within the urban system. Therefore we need to
deal with the spatial division of labour and the different economic profiles of cities in the
capitalist urban world. This theme is at the heart of the third section, which is based on
the claim that we need to relate the key concepts of the urban political economy approach
to the study of global urban networks in order to grasp the different yet interconnected
functional roles of cities both in the global North and South.
The current world economic crisis

In contrast to preceding historical formations of capitalist society, contemporary
capitalism is characterized by a finance-dominated model of development (Huffschmidt,
2002; Chesnais, 2004; Sablowski, 2011; Zeller, 2011) and a mode of regulation that rests
on the neoliberal conception of unchaining market forces in all spheres of economic and
International Journal of Urban and Regional Research 38.5
2014 Urban Research Publications Limited
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Stefan Krtke
social development (Brenner and Theodore, 2002). The financial sector no longer has a
mere supporting function within the economy, but has become the dominant and driving
force in a post-Fordist model of capitalist development. The deregulation of financial
markets exerted a decisive influence over its proliferation. Interestingly, the current crisis
emanated from a financial innovation called securitization of subprime credits in the
real estate sector, that is, it was triggered by financial operations related to urban settings
(Aalbers, 2012). However, it may be exaggerated to argue that the crisis is rooted in the
development of urban areas. Rather, securitization primarily relates to the inclusion of
urban real estate valuation in the circuits of financial capital, whose unchained race for
profits based on investment banking and newly constructed derivative financial products
is at the heart of the current crisis (Blackburn, 2008). Meanwhile, the crisis scenario has
expanded and involves the damaging of entire national economies (as in the case of
Ireland and Greece) by financial-market imperatives that combine with neoliberal
austerity policy. The neoliberal model of deregulated casino capitalism has proven to be
extremely harmful to economic development all over the world. Furthermore, the crisis
is causing millions of people, particularly in developing countries, to fall below the
poverty line. Advocates of neoliberal capitalism have organized government bail-outs of
the financial sector to a previously unknown extent. David Harveys warning (1989: 277)
concerning the destructive powers of financialization turns out to be quite relevant to the
current situation: There are abundant cracks in the shaky edifice of modern capitalism
. . . The worlds financial system the central power in the present regime of
accumulation . . . puts such huge claims on future labor that it is hard to see any way
to work out of it. Indeed, current policy for handling the crisis has abolished the market
economy in the systemically relevant financial sector by extensively bailing out failed
banks. This will force continued tributes from the ordinary population, and, owing to the
radical austerity policies involved, is turning out to become the greatest assault on the
welfare state ever experienced, in decades.
Contemporary capitalism is characterized by tremendous amounts of capital
circulating in the financial sphere, the total sum of which corresponds to a multiple of the
worlds GDP. An empirical measurement of the financialization of capital is impeded
by the lack of statistics on international financial transactions. A large share of these
capital flows entails the activity of shadow banks and over-the-counter transactions
(OTC) occurring outside the official stock markets. If we take world GDP as a rough
measure of worldwide real sector economic activity, the relation between the world
GDP and the volume of international financial transactions (including speculative
activity such as the trade in derivative financial products and currencies) is estimated to
amount to 1:65 in 2007 (UNIA, 2009). Since 1970, the relation has strongly shifted in
favour of the financial sphere, since the volume of financial transactions grew much
faster than real sector production activity (Huffschmidt, 2007; UNIA, 2009). In
particular, the financial derivatives business grew from US $123 billion in 1990 to a
volume of US $1,408 billion in 2005 (Huffschmidt, 2007). Over the past few decades,
the sum of capital circulating in the financial sphere has been additionally fuelled by an
increasingly polarized income distribution in the heartlands of neoliberal capitalism.
Owing to capital owners sharply rising claims of profitability, the sphere of investment
banking and financial speculation has been extended ever further at the expense of
investment in the real economy sector (Huffschmidt, 2002). Thus capitalism today has
become for the most part a parasitic endeavour that rests on picking others pockets
instead of manufacturing goods, constructing infrastructures or offering real consumer
and producer services.
The economic geographies of financialization are multifaceted (Pike and Pollard,
2010; Hall, 2012), yet the actors, processes and impacts of financialization seem to be
strongly (though not exclusively) concentrated on urban areas. How does the crisis of
financialized capitalism relate to cities? In the most simple way, we might say that the
worlds most prominent financial centres in particular the city of London, New Yorks
Wall Street, and Tokyo (besides the well-known offshore financial centres of the world)
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represent distinct places from which the current destabilization of the world economy is
set in motion. Yet on the receiving side, the economy and population of cities all over
the world is to a more or less dramatic extent confronted with the outcomes of the
crisis, which manifest themselves in the downturn of real sector production activity,
rising unemployment, cutbacks in social expenditure and public services and the spread
of abandoned urban housing estates as a result of foreclosures. A more differentiated
account, however, needs to remind us of some basic insights of the political economy
tradition of urban research.
The role of cities in distinct circuits of capital

The political economy tradition of urban research emphasizes the essential role of
capitalist economic relations in the development of cities, particularly the impact of
capitalist imperatives on the restructuring of urban economies, the cities built
environment and socio-spatial fabric. In his account of the urban process under
capitalism, David Harvey (1982; 1989) drawing on Lefebvre (1976: 169)
emphasized the interplay of different circuits of capital as a macro-economic background
that has a profound impact on urban development. A primary circuit of capital is related
to the capitalist production process, in which the creation of surplus value can be focused
on diverse forms of absolutely extended exploitation (representing absolute surplus
value in terms of Marxs analysis of capital cf. Marx, 1981) or on productivity gains
derived from innovation of the productive forces through the application of advanced
technology and the reorganization of work processes (relative surplus value). At the
level of the capitalist firm, innovation activity is driven by the search for surplus profits
arising from the command of superior technology and organizational forms (including
the firms spatial organization). Whereas the primary circuit of capital is related to the
sphere of surplus generation in manufacturing industries, the conceptualization of a
secondary circuit of capital refers to the combined outcome of individual capital
accumulation processes in the primary circuit, which are leading at the aggregate level to
a tendency for periodic overaccumulation. Today, this tendency manifests itself in an
increasing amount of disposable financial capital seeking profitable investment
opportunities outside the established industrial base. This capital can be switched into a
secondary circuit of capital that, according to Harvey, denotes capital flows into the
built environment. Hence this circuit is closely related to the real estate sector and urban
development. A closer look at the main features of contemporary urban real estate
business might be useful for clarifying that rent seeking as a (capitalist) way of shaping
and exploiting urban spaces forms an integral part of financialization and the secondary
circuit of capital: according to Scott (1980), the urban real estate market and the
appropriation of urban land rents are of particular importance in determining the spatial
structure of cities in capitalism and actively forcing a continued restructuring of these
cities built environment.
Marxist contributions to the theory of land rent often proceeded from the assumption
that land rent represents an appropriation of revenues stemming from the surplus value
created in the real economy sector, that is, in the primary circuit of capital. As a deduction
from surplus value, land-rent appropriation would have a restrictive effect on the
accumulation process. Hence the economic utilization of private landed property appears
to be parasitic and dysfunctional to modern capitalism. Yet scholars such as, for
example, Harvey (1985) and Ball et al. (1985) emphasized that the valuation of urban
real estate will be included in the prevailing dynamics of capital accumulation, so that the
traditional Marxist thesis of landed property acting as a barrier to the accumulation
process has to be corrected. In the course of historically changing regimes of
accumulation and their respective institutional settings, the emergence of new forms of
urban real estate valuation have to be taken into account. The most important institutional
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Stefan Krtke
change is the fusion of landed property and capital (Massey and Catalano, 1978) in
terms of the dissolution of the traditional class of landowners. Today, the appropriation
of land rents and valuation of real estate takes place within the capitalist economy and is
passed on to the entire flow of capital investments, contributing to an expanded
accumulation of capital. With the integration of landed property into the entire process of
capital accumulation, urban real estate has become an ordinary sphere of capital
investment that supports and accelerates accumulation. Today, a stage has been reached
where the acquisition and valuation of urban real estate largely means the choice of a
distinct financial asset (Harvey, 1985; Haila, 1988) that forms part of an entire portfolio
of stocks, bonds and so on, and thus becomes a component of the entrepreneurial
management of portfolio investments. A second decisive development is the
internationalization of real estate capital: banks and large corporations, including
capitalist firms specializing in the real estate business, acquire transnationally scattered
urban property as a financial asset. In the course of this development, particularly
large-scale office complexes, new consumption palaces, exclusive residential
properties as well as large-scale complexes of upgraded ordinary housing estates in the
metropolitan centres of the urban system have become important forms of capital
investment and profit generation. Correspondingly, the sectors contemporary
institutional structure includes the internationalization of commercial capital, focusing
on the trade and financing of urban real estate (cf. Thrift, 1987). The capitalist
exploitation of urban real estate as a financial asset functions as a driving force behind
strategies aimed at maximizing urban land rents. These strategies have a profound impact
on the built environment and the socio-spatial structure of cities.
In particular, the real estate business has become a driving force behind todays
gentrification processes, in which strategies for proactively constructing privileged
sites enable the acquisition of monopoly rents in line with the real estate sectors
inclusion in the circuits of financial capital (Krtke, 1992). While the classic notion of
differential rents refers to enhanced economic returns stemming from particular
locational advantages (Marx, 1981), monopoly rents have become the predominant form
of land-rent appropriation in urban settings (cf. Harvey, 1985; Krtke, 1992). One type of
monopoly rent is based on the fact that urban spaces offer manifold opportunities to
create local islands with unique locational qualities. The construction of prestigious
buildings (such as new, attractive office complexes and shopping centres) in the inner city
and social-status differentiation of residential areas enable the appropriation of
site-specific monopoly rents. A second type of monopoly rent is based on the collective
power of real estate owners to command economic returns on urban land use that exceed
the level of economically calculable locational advantages and are for the most part
determined by the customers ability and willingness to pay. This applies to office
complexes as well as to residential areas, where competition among different classes and
social groups for attractive residential locations enables monopolistic price
differentiation on top of the ordinary returns demanded for a residential building (or the
construction related investment). The switching of capital flows to large-scale
gentrification projects and, according to Neil Smith (2002), the proliferation of
gentrification as a global urban development strategy can be regarded as a specific
manifestation of capital circuits that directly affect the urban spatial fabric. In
conclusion, investment in urban real estate can play a crucial role in the absorption of
capital surpluses (in terms of the overaccumulation problem). This point has been
particularly emphasized by David Harvey. At the same time, real estate deals and urban
land-rent appropriation contribute to the unbounding of financial sector accumulation
processes. In this sense, the contemporary real estate business also represents a barrier
or impediment to the development of productive real sector investment activity.
However, there are further possible ways of dealing with the overaccumulation
problem: according to Rosa Luxemburg (1951), the geographic expansion of capital
investments in order to include new spaces in the process of capital accumulation
represents a particularly relevant approach, as well as the switching of capital flows into
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sectors that had not previously been incorporated into the domain of private capital
accumulation. The latter is articulated by the continued struggle for privatization of ever
more sectors and resources. What is most important to the dynamics of a secondary
circuit of capital, however, is the financial sector as a whole. In contemporary
capitalism, the sphere of financial investments and the creation of fictitious capital has
expanded to the extreme. This development can partly be attributed to the incorporation
of the real estate sector into the sphere of financial investment. Harveys initial concept
of capital circuits particularly emphasized the switching of capital flows into the built
environment and thus underestimated the continued unbounding of the financial sector
in modern capitalism, a process extending far beyond the sphere of real estate
development. Yet in his more recent works, Harvey emphasizes the financial sectors role
in the proliferation of strategies of accumulation by dispossession or primitive
accumulation (Harvey, 2003; 2006). This term denotes accumulation practices that
Marx had treated as original accumulation during the rise of capitalism (Marx, 1981).
Today, such practices include the privatization of hitherto public assets, the neocolonial
appropriation of natural resources, the white slave trade, and the economically most
devastating forms of all, the worldwide proliferation of speculative financial products
that serve as a means of primitive accumulation. Securitization, for example, can be
characterized as a form of profit making that is consciously based on fraud (see also
Blackburn, 2008). As far as the determinants of the current world economic crisis go, a
detailed analysis of the proliferation of systemic fraud and thievery in the contemporary
financial business has been presented by Leo Mller, lecturer of economic crime
investigation (Mller, 2010; see also Anderson, 2008). In contrast to ordinary capital
accumulation, which rests on the production of surplus value and its appropriation by
capital owners owing to a rational exchange relation between capital and wage labour
(cf. Marx, 1981), primitive accumulation rests on the appropriation of value through
practices of fraud and robbery. Contemporary practices of primitive accumulation,
however, should be distinguished from original accumulation as described by Marx
with regard to the historical preconditions of the rise of industrial capitalism.
Today, an increasing amount of surplus capital desperately seeking profitable
investment opportunities circulates within the secondary capital circuit of speculative
financial investments, which include, as mentioned above, the acquisition and
development of urban real estate, and particularly extends to derivative financial
products and the attendant business of dealing with financial assets. According to
empirical estimates cited in the first section, we might say that the worldwide volume of
the secondary circuits of capital today is 65 times larger than the volume of the primary
circuits of capital as measured by the world GDP (a rough measure of real sector
economic activity). In the past few decades, the secondary circuits of capital grew much
faster than real sector investment and production activity (Huffschmidt, 2007; UNIA,
2009). This means that in a finance-dominated regime of accumulation, investment in
real sector manufacturing activity, particularly in innovation and technological change,
no longer functions as the major pathway to increased capital accumulation, since
financial sector deals and speculative financial investment activities seem to be an
equally relevant or even superior strategy. At the level of the urban system, some
metropolitan centres are specializing in a sectoral mix of secondary circuits of capital
namely financial centres with a particularly strong share in the FIRE sector (finance,
insurance and real estate) and on the command and control of geographically
extended value chains of the primary circuit, which allows gains from manufacturing
activities at distant locations to be channelled into the respective command and control
centres. The diagram in Figure 1 presents a rough picture of the positioning of cities in
major circuits of capital, distinguishing between cities that specialize in a sectoral mix of
secondary circuits of capital and the command and control of geographically extended
value chains of the primary circuits of capital, and cities whose economic base primarily
rests on real economy sector activities (particularly the manufacturing industries)
within the primary circuits of capital (see Figure 1). These two types of cities might
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Stefan Krtke
= Primary Circuit of Capital (Real Economy Sector)
= Secondary Circuit of Capital (Financial Sector)
Strength of Flows variable over Time
Offshore
Financial Centres
Investment Banking,
Derivatives and Speculative Financial Deals
Financial Centre and
Headquarter City
Financial Sector
Real Sector Firms

Capital Flows to the
Financial Sector
Urban Real Estate Sector

Branches within the
Secondary Circuit
Real Economy Sector
Corporate Headquarters
Real Economy Sector

Internal Circuit
of the urban real economy
External
Real Estate
Business
Industrial City: Urban Economy

primarily based on Manufacturing
Outgoing
Capital Flow:
Surplus
Appropriation
Urban Real Estate Sector
Externally controlled
Subsidiary/Branch Plant
Incoming
Capital Flow,
in Case of
Real Sector
Investment
Activity
Real Economy Sector

Internal Circuit
of the urban real economy
Figure 1 Cities in major circuits of capital (source: author)
represent a classical form of the spatial division of labour between cities in the global
North (which contain financial, command and control centres, technologically advanced
manufacturing and innovation) and the global South (where many cities function as a
preferred location for standardized manufacturing in a transnational value chain
governed by corporations of the global North). Yet the two types of cities also exist
within the urban systems of both the global North and South. In the framework of a
globalizing capitalist order, the urban system of countries such as China, India or Brazil
has also been subject to a functional spatial division of labour between prominent
finance, service and command centres on the one hand and manufacturing towns on the
other. The simplified representation does not deal with the national and local states
functions concerning circuits of capital.
This graphic representation highlights the leading role of secondary circuits of capital
in contemporary capitalism and the inclusion of urban real estate business into the
financial sector. The tremendous growth of capital flows within the financial sector gives
a sustained boost to urban real estate business, not only in cities that are functioning as
1667
financial centres, but also to the external real estate valuation in cities outside the group
of metropolitan finance and service centres. It is important to note that the strength of
different capital flows and their branches varies over time. Present conditions under the
financial crisis might lead us to expect a growing share of financial flows to be directed
towards speculative investment in the real estate sector, which may trigger an increase in
inner-city redevelopment projects and gentrification processes in major cities of the
urban system. Figure 1 also emphasizes that, in line with a finance-dominated regime of
accumulation, real sector firms increasingly direct shares of the surplus appropriated in
the primary circuit to the financial sector and thus feed the growth of the secondary
circuit of capital. Furthermore, the representation points to the issue of inter-urban
connectivity of capital flows: industrial cities whose real economy sector encompasses
branch plants controlled by external firms might draw on incoming capital flows for real
sector investment activity, yet in the long run they will be subject to outgoing capital
flows in terms of surplus appropriation by the respective headquarter city (see
Figure 1). The situation of declining cities with a shrinking industrial base and
weakened real economy activity, which also includes a decoupling from inter-urban
capital flows, is not explicitly dealt with in Figure 1. While the rough schematic
presentation emphasizes the role of the secondary circuit of capital, we have to be aware
that the primary circuit of capital anchored in real economy sector activities is still of
great importance to urban economies manufacturing and real producer and
consumer services (those services that are not grouped under financial services
and related consultancy services) form an integral part even of the headquarter cities and
financial centres urban economy, and they represent the major economic base of most
ordinary cities, aside from those cities that specialize in manufacturing functions or
clusters of particular manufacturing industries. The functioning of urban economies
evidently also encompasses the internal circuits of the cities real economy sector.
It is important to note that the dynamic of capital circuits entails the sectoral and
geographical switching of capital flows, which imply the unfolding of various crises
(Harvey, 1989): we can distinguish between switching crises and global crises that affect
all sectors and regions of the capitalist world. The current crisis, which was triggered
within the secondary circuit and subsequently spread out to the real economy sector, is
a striking example. The particular form of switching crises, by contrast, stems from the
massive relocation of capital from one sector or geographical location to another.
Frequently, the relocation of capital into emerging new industries (such as information
technology, biotechnology, and so on) involves restructuring the economys sectoral mix,
which can lead to the downgrading and decline of traditional industrial sectors.
Moreover, the rise of new industries can trigger geographical switching crises. In
addition to strategies of accumulation that focus on the spatial extension of production
networks and offshoring of jobs (Gereffi, 2006), the rise of new industries implies the
shifting of capital flows towards the emerging centres of these new industries, thus
contributing to the decline of the regional centres of traditional industries. This dynamic
can be regarded as a specific articulation of capitals sustained search for the command
over and the creation of favourable locations (Harvey, 1989: 29). The active creation of
new favourable locations that are essentially based on collective economies of scale
through the clustering of distinct industrial activities in specific urban regions is a major
subject of Storper and Walkers (1989) theory of geographical industrialization. The
switching of capital flows within the real economy sector manifests itself in the
different development paths of declining industrial cities that are losing their
manufacturing base, on the one hand, and up-and-coming industrial cities that are based
on the expansion of new industries, superior innovation systems, or on the inclusion into
globally extended value chains of manufacturing, on the other. Hence the global crisis
urban impacts should be distinguished from the economic downgrading of selected
cities triggered by a real sector related switching crisis.
Today, a global economic downturn unfolds side by side with the sectoral and related
geographic relocation of capital to distinct industrial clusters and geographic activity
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Stefan Krtke
centres. This switching of capital flows is currently leading to the metropolization of

economic development potentials and innovation capacities within the urban system
(Krtke, 2007). Metropolization is a paraphrase for the increasing concentration of
technology- and research-intensive industries and knowledge-intensive services in
metropolitan regions and large cities, which are functioning as the motors of economic
development. In addition to the local concentration of service industries in these urban
regions, these regions are the prime locational centres of innovative production clusters
in fields such as information and communication technology, the pharmaceutical
industry, medical engineering and biotechnology (Scott, 1988; Porter, 2001; Cooke,
2002). In many cases, traditional technology-centred branches of manufacturing
industries such as the automotive industry and mechanical engineering represent an
equally important component of the economy of metropolitan regions and large cities.
The formation of local clusters of real sector industrial activity entails the development
of dense inter-firm transaction and communication networks within the urban economy,
supplemented by strong linkages to the respective sectors leading clusters located in
other cities at the national or global scale. In the course of structural changes of industrial
organization linked to cluster formation, the economic geography of capitalist
production is shaped by an increasing efficacy of agglomeration effects (in terms of the
social production of localization and urbanization economies). Yet the increasing
concentration of economic potentials on metropolitan regions and large cities is also an
essential driving force of increasing disparities in the urban and regional system.
Not only underdeveloped rural regions, but also less dynamic urban regions are
under threat of being left behind in the process of metropolization if they are not
economically connected to the leading metropolitan regions and large cities (for
example, by performing functions in the supply chain of firms residing in the
metropolitan centres).
As competitive economic units within the geographical division of labour, cities rely
on systemic competitiveness, based on the sectoral mix and the socially produced
collective assets that enhance their economic performance. At the urban-system scale,
the continued search for surplus profits under conditions of intensified competition
between firms and urban regions triggers shifts in fortune of individual cities in terms of
the rise or decline of particular urban economies. It is important to note that, within the
urban system, the pathways of accumulation differ from one city to another. Besides
providing an innovation-oriented path that focuses on the development of innovative
capabilities in diverse subsectors of an urban economy, the space economy of capitalism
offers, at least for a number of major urban regions, the option to rely on economic
command and control relations for attaining a superior position in the inter-urban
competition. This pathway is based on the local concentration of capital and headquarters
of large firms that are able to exploit spatially dispersed external production sites and
attract inward flows of surplus value created in other urban regions (Krtke, 2011).
Command and control functions are regularly supplemented by local concentrations of
enterprise related business services. Particularly in established global cities, metropolitan
complexes of these strategic business functions have developed (Sassen, 2000) that
draw on gains from dealing with financial assets and managing transnational production
networks. The aggregate wealth of urban regions thus may stem from quite different
sources, including different functional structures as well as different development paths.
Hence the political economy approach assigns particular importance to the citys
economic base and trajectory of economic change as well as to the strategic governance
of an urban regions economic development. This point might clarify the meaning of
David Harveys notion of the different forms of structured coherence that urban
economies can achieve (Harvey, 1989). Regrettably, the economic-geography dimension
of urban change, which has been at the heart of research presented by, among others,
David Harvey, Allan Scott, Michael Storper and Richard Walker, tends to be mostly
neglected in recent contributions to critical urban theory, which predominantly focus on
the socio-spatial dimension of urban development and related social conflicts.
1669
A strategic option for urban economic development that is particularly widespread

among the established metropolitan centres of the urban system is competition for
command and control functions, which is increasingly supplemented by efforts to
enhance the respective cities position within the spatial division of consumption by an
extension of high-ranking cultural amenities and the fostering of gentrification projects
that include many different forms of upgrading the urban built environment according
to the preferences of affluent citizens and the functional elites of a capitalist society.
Secondly, competition between urban regions with regard to the spatial division of labour
can focus on upgrading the urban economys sectoral mix and on strengthening
innovative capacities within established industrial sectors. Cities that develop strong
technological innovation capacities might attain a comparatively privileged position
within the spatial division of labour (Krtke, 2011) in contrast to cities that
predominantly perform executive manufacturing functions, or declining cities with
abandoned industrial activity. Thirdly, the notion of competition between urban regions
with regard to the spatial division of consumption refers to the diverse local amenities a
city offers the more affluent strata of its population and the functional elites of capitalist
society. The competitive strategy in this realm is based on expanding attractive shopping
malls, cultural facilities and entertainment quarters, and on upgrading its built
environments, particularly in inner-city areas, as a supply-side component of
gentrification projects (Smith, 1996; Lees et al., 2008). Furthermore, the positioning
of a city as a centre of cultural creativity functions as a relevant ingredient of
competitiveness. The close interrelation between the potential contribution of the cultural
economy to urban economic development and its specific role in strengthening a citys
consumerist attractivity is at the heart of the contemporary rise of urban growth
strategies that focus on what is known as the creative industries (Krtke, 2011). In sum,
interurban competition in its diverse forms is fundamental to uneven development in the
urban system of capitalism.
The differing functional roles of cities within

global networks of the capitalist economy
In an urban political economy approach, the dynamic of distinct capital circuits and the
switching of capital flows within the urban system offer a basic concept for
understanding how capitalist economic relations shape the development of urban areas
and lead to uneven development within the urban system. Thus the political economy
approach must take into consideration the spatial division of labour, the different
economic profiles and the functional roles of cities in the capitalist urban world. Yet
under conditions of intensified globalization we need to relate the key concepts of urban
political economy to an extended world city network approach in order to grasp the
capitalist economys global networks that interlink cities in both the global North and
South. These global networks can be interpreted as representing a system of channels
that direct capital flows between cities that function as prime nodes of activity and
branching points of capital flows. The relationship between different circuits of capital
and the formation of networks or nodes manifests itself in a distinct variation of the
cities functional roles. The secondary circuit of capital requires the management of
financial operations on a global scale, which leads to the formation of a global network
of financial centres (equipped with related specialized business services). To a certain
extent, urban economies specializing in secondary circuits of capital are also managing
the financialized real estate business that affects spatial development in many other large
cities. The primary circuits of capital as the domain of real sector production activity,
by contrast, are increasingly shaped by the setting up of global value chains and
production networks, which involve the formation of a global network of cities linked
through the transnational organization of the activities of manufacturing industries.
1670
Stefan Krtke
Critical urban theory has for a long time regarded the concept of the global city as an
account of the rise of a distinct group of urban regions that serve as command and control
centres through entrepreneurial control relations extending worldwide (cf. Sassen, 1991).
By contrast, an extended approach, based on the idea that the globalization of capitalist
economic relations involves a majority of globalizing cities beyond the limited group of
leading global cities such as New York, London and Tokyo, addresses the formation of
a global network of interconnected cities. This kind of global urban network analysis
offers scope to extend the urban political economy approach in order to grasp the
different functional roles of cities within global networks of the capitalist economy.
Today, the role of cities as strategic places of capital accumulation needs to be
conceptualized at a global scale, since the different functions of cities within a globally
extended spatial division of labour have become a decisive factor of uneven development
in the urban system. As John Friedmann (1986, cited in Brenner and Keil, 2006: 68) has
emphasized, the form and extent of a citys integration with the world economy and the
functions assigned to the city in the global spatial division of labour will be decisive for
its development level and internal structural changes. Globalization does not simply
lead to the formation of a small group of outstanding global cities such as London, New
York and Tokyo. Rather, we are facing the continued extension of transnational economic
networks to include more and more cities both in the global North and South into the
complex fabric of a world city network. In view of the shortcomings of previous
global-city research, this section presents new perspectives on the functional divisions
within the urban system of globalized capitalism and some findings of recent research on
multiple globalizations in the world city network.
While Saskia Sassens approach to the global city (Sassen, 1991) focused on
comparative case studies of selected cities and thus did not present a truly global-scale
urban analysis, the Globalization and World Cities Study Group (GaWC) explicitly
concentrates on the inter-urban linkages in a global urban system, which includes a large
number of cities beyond the small group of leading global cities (Taylor, 2004; Taylor
et al., 2010). Yet we have to be aware that both approaches focus on the respective cities
function as finance and corporate-services centres. The analysis presented by the GaWC
is based on the global networks and specific urban anchoring points of 75 leading
financial sector corporations and 100 global service firms (Taylor et al., 2010). Thus, up
to now, global and world-city research is presenting accounts of the global urban system
that focus one-sidedly on the finance and service-sector functions of cities. We should be
aware that global cities such as London and New York represent the outstanding urban
centres of financial business within todays finance-dominated regime of accumulation.
However, the dominating role of financial accumulation does not mean that the cities
real economy sector can be neglected: within the urban system of capitalism, most cities
are still functioning as a production space that encompasses new and traditional
manufacturing activities. In contemporary capitalism, we are even facing a sustained
proliferation of industrial urbanism on a global scale (Soja, 2000) involving more and
more urban regions particularly in the global South. If we take into account the structural
diversity of cities in the worldwide urban system, we detect that many urban regions in
the global North and South are linked to transnationally extended production networks
(Henderson et al., 2002). Globalizing cities of this type are functioning as major
locations in the global value chains of manufacturing industries. The urban regions of
Munich and Bangkok, for example, are interconnected as spatial anchoring points of car
manufacturer BMWs transnational production network. In similar ways, the global
production network of car manufacturer VW includes the global city regions of So
Paulo, Mexico City and Shanghai (cf. Krtke, 2013).
Economic globalization processes are essentially characterized by the formation of
transnational production networks (combined with foreign direct investment activity)
that generate a geographically extended network of interacting organizational units of
global firms (cf. Henderson et al., 2002; Dicken, 2007), which at the same time are
connected to local suppliers and service providers residing in the specific urban locations
1671
of the particular globally integrated activity. Against this background, the traditional
state-centred conception of economic space that considers national state territories as the
primary units of the world economy has been challenged by research on the multi-scalar
network structures of the actors and organizations governing the process of globally
interconnected production activity (cf. Bartlett and Ghoshal, 2002; Alvstam and Schamp,
2005; Dunning and Lundan, 2008). However, global-city research even though it
investigates cities as anchoring points of global economic networks has tended to
neglect the role of global value chains and of manufacturing industries global
production networks in the constitution of transnational urban spaces.
The concept of global value chains (Gereffi and Korzeniewicz, 1994; Gereffi, 2006)
interprets globalized production as a series of cross-border transactions between
different corporate establishments. A global value chain denotes a transnational
(transcontinental) network of production and value creation that connects the different
production stages of commodities. The chain links are geographically distributed over a
series of locations, and international transactions or capital flows take place between the
respective spatial nodes. Within global value chains, control over the diverse stages of
value creation is unequally distributed among the participating actors and locations,
resulting, in turn, in the uneven distribution of economic gains created within the value
chain in favour of those actors and locational nodes that are able to set the standards and
command the most profitable functions in a value chain (such as design, marketing,
branding and logistics).
Today, research on global value chains and global production networks is in need of
more detailed detection of the territorial dimension of global value chains and
production networks, that is, of the regional and urban nodes of transnational production.
This calls for an integration or combination of global-value-chain analysis and
global-city research (cf. Derudder and Witlox, 2010). The question is: In which ways are
distinct nodes of global value chains inserted into the worlds fabric of globalizing cities
and global city regions? Global-value-chain analysis has so far neglected investigating
local articulations of inherent transnational economic linkages. Although the literatures
on global cities and global value chains and production networks share a similar general
conceptualization of economic space in terms of the discontinuous territoriality of global
network relations, they have not yet been constructively integrated (first attempts at an
integration are offered by Brown et al., 2010; Derudder and Witlox, 2010; and Parnreiter,
2010). Yet the concepts of global value chains and global production networks offer an
approach to meet the demand for a multi-sectoral perspective on globalizing cities.
Based on these concepts, world city network research has recently been
complemented by an analysis covering 120 top global manufacturing firms from
different subsectors (Krtke, 2013). The analysis reveals the positioning of particular
cities within the global production network of distinct manufacturing industries. These
globally extended production networks might be interpreted as an organized system of
channels for capital flows. In conceptual terms, the formation of a world city network is
the articulation of a global spatial division of labour at the urban-system scale, in which
the involved urban regions are functioning as anchoring points or branching points of
transnational capital flows. In contrast to the actual capital flows, the urban anchoring
and branching points of the capitalist economys organizational networks can be
empirically deciphered. Furthermore, global urban network analysis covers the origins
and destinations of foreign direct investment (FDI) flows, since any network link
between a corporate headquarter located in city A and a corporate division, branch plant
or branch office located in city B represents the outcome of a distinct FDI flow (and the
continued maintenance of capital flows between cities A and B). The analysis
differentiates in detail between incoming links, which demonstrate an urban regions
role as a destination of capital flows, and the urban regions outgoing links, which
reveal an urban regions role as the source and control centre of capital flows.
Interestingly, at the scale of distinct urban regions the locations of the establishments of
global manufacturing firms are predominantly situated in the fringe areas of the
1672
Stefan Krtke
respective urban regions, that is, in the suburban areas, thereby contributing to the
continued spatial expansion of major cities economic territories (Soja, 2000). This
contrasts with the local concentration of the establishments of finance and service firms
in the central inner-city business districts of large cities, and confirms that a number of
very important urban development processes are specifically taking place in the
suburban areas of cities (Keil, 2012). At the scale of a worldwide urban system, the
space of flows of particular manufacturing industries global networks might be
conceived as a structured fabric of channels for information and capital flows that
contains some particularly intensive links and a number of distinct urban regions as
major branching points.
In order to demonstrate that the formation of a world city network represents the
outcome of multiple globalizations in which global firms from a variety of economic
sectors contribute to transnational inter-city connectivity, the analysis of the geographical
structure of global manufacturing firms corporate networks encompasses a comparative
ranking of the outstanding urban nodes of global services and global manufacturing (see
Figure 2). This comparison focuses on the difference between the cities ranking in terms
of global connectivity in both functional sectors.
Three groups of cities can be distinguished within Figure 2: first, the comparison
identifies cities that possess a surplus rank in manufacturing in terms of a positive rank
difference. Cities such as Milwaukee, Nagoya, Torino, Hannover and Stuttgart are
characterized by strong global connectivity in the manufacturing sector (represented here
by the automotive industry) that considerably exceeds their rank position in the sphere of
global services. A second group includes cities that have comparatively balanced global
connectivity between their service and manufacturing sectors. This means that the rank
difference between sectors is rather small. Globalizing cities such as Toronto, Paris,
Milan, Bangkok and So Paulo are functioning to nearly the same extent as globally
connected nodes of manufacturing firms corporate networks and as global service
centres. The third group consists of cities with a surplus rank in the finance and services
sector. It includes leading global cities such as New York and London, as well as a
number of globalizing cities in Asia, such as Singapore, Kuala Lumpur, Hong Kong and
Beijing. Cities whose names appear in this group are characterized by strong global
connectivity in finance and service-sector activities that exceeds the degree of global
connectivity they have achieved in the sphere of manufacturing.
In sum, the world city network includes cities that focus on business services and the
financial sector in particular, as well as many cities with differing profiles of globally
connected activities. Hence we should be aware that cities may follow different pathways
or sectoral trajectories towards globalization.
Conclusion
Against the background of the current global economic crisis, this article revisits
essential concepts of the urban political economy approach and offers some
modifications and clarifications particularly concerning the work of David Harvey
on the functioning of cities as central places of capital accumulation. The political
economy approach concentrates on the economic forces that shape uneven development
within the capitalist urban world. Under capitalism, urban development and urban
fortunes are essentially shaped by the dynamic of capital flows. These take on different
forms: first, capital flows from the primary to the secondary circuit of capital, during
which capital flows to the urban real estate sector fuel urban spatial restructuring
processes. Large-scale financial deals aimed at the acquisition of (already built)
commercial and residential estates for the purpose of rent appropriation (as a form of
secondary exploitation) form part of these capital flows. Secondly, urban economic
restructuring processes are shaped by the sectoral and geographical switching of capital
1673
Note: The graph in Figure 2 is based on an analysis of the worlds 120 largest global
manufacturing rms, according to the Forbes 2000 listing. In order to discover the selected
rms international organizational network and its linkages within the global urban system,
the prominent rm database Corporate Afliations (http://www.corporateafliations.com/)
was utilized. The analysis included 4,512 rm units that constitute the organizational
network of the 120 parent companies. The locations of the registered enterprise units are
distributed across the world over a total of 544 cities (urban regions) in 104 different
countries (for details, see Krtke, 2013). The ranking of global nance and service centres is
based on data by the Globalization and World Cities Study Group (GaWC) (see Taylor et al.,
2010)
Figure 2 Rank comparison of selected cities global connectivity in the nance and services
sector and the manufacturing sector (represented here by the automotive industry), 2010
(source: based on authors calculations)
flows within the urban system particularly in the real economy sector of cities. We
also dealt with major forms of inter-urban competition, which are generally geared
towards attracting capital flows to particular cities, thus fuelling uneven development
within the urban system of capitalism.
The proliferation of a finance-dominated regime of accumulation, in which trade in
financial assets and derivatives as well as the urban real estate business have become lead
sectors, has a profound impact on urban futures. In particular, the financialized urban real
estate sector is at the heart of the proliferation of gentrification as a global urban
development strategy. However, at the scale of a transnationally extended urban system,
cities are included in the circuits of capital in different ways and obtain different
functional roles owing to the varying specialization of urban economies. Capitalist
economic relations lead to different functional roles of cities and to uneven development
1674
Stefan Krtke
within the urban system. Thus the political economy approach must be extended to
include the spatial division of labour and the different economic profiles of cities in the
capitalist urban world.
The secondary circuits of capital that obtain a leading role in contemporary capitalism
have a major impact on urban development by giving a sustained boost to the real estate
sector on the one hand, and by squeezing out investment and innovation related
activities in the real economy sector on the other. The urban system of capitalism entails
metropolitan centres specializing in a particular sectoral mix in the secondary circuits of
capital and in the command and control of geographically extended value chains of
primary circuits of capital. Yet, for the majority of cities, primary circuits of capital that
rest on real economy sector activities remain relevant to shaping the citys economic base
and labour market prospects.
Furthermore, the different functions of cities within a globally extended spatial
division of labour have become a decisive factor of uneven development in the urban
system. Thus we should link the key concepts of the urban political economy to a global
urban network approach in order to grasp the different yet interconnected functional
roles of cities both in the global North and South. In order to clarify the link between the
global division of labour, the functional role of cities and their positioning in economic
networks, we have to recall the distinction between different circuits of capital: in the
context of economic globalization, the secondary circuits of capital require the
management of financial operations on a global scale, which leads to the formation of a
global network of finance and business-service centres. The primary circuits of capital,
being the domain of real sector production activity, by contrast, are increasingly shaped
by the setting up of global value chains and production networks, which involve the
formation of a global network of cities linked through the transnational organization of
activity in the manufacturing industries. Within both types of capital circuits, global
corporate networks function as a system of channels that direct capital flows between
cities that are acting as prime nodes of activity and branching points of capital flows.
Through the switching of capital flows between economic sectors and cities located in
different world regions, cities are included in the circuits of capital in different ways,
obtaining different functional roles, depending on the extent to which their economy is
involved in the primary or secondary circuits of capital, and on the extent to which a city
functions as a destination of related capital flows or as an origin, that is, as a source and
control centre of capital flows. Thus the world city network is the articulation of
multiple globalizations in terms of different economic networks linking cities in a
global spatial division of labour. This spatial division of labour is far more complex than
the traditional view of a global urban system consisting of corporate finance and control
centres in the global North and dependent manufacturing towns located in the global
South suggests. Extended global urban network analysis confirms that both in the global
North and South the urban system includes cities focusing on business services and the
financial sector in particular, and cities whose economic profile and functional role is
shaped by their insertion into the global production networks of the manufacturing
sector. In addition, we find cities functioning to nearly the same extent as nodes of
manufacturing firms global networks and as global service centres. Hence the structural
diversity of cities and their different functional roles in global networks need to be
emphasized. This diversity means that the economic development strategy of globalizing
cities need not be restricted to the pathway of developing global finance and service
capacities. Global urban network analysis confirms that cities follow different pathways
or sectoral trajectories towards globalization. Today, established metropolitan finance
and service centres in particular represent the major geographic hubs of the disastrous
development model of finance-dominated capitalism. Cities that are searching for a
sustainable development path might be better off extending and upgrading their real
economy activities, combined with efforts to link local manufacturing capacities to
global production networks. This does not negate the need to improve industrial
organization, innovative capabilities, labour relations and employment standards in the
1675
real economy sector, which is still subject to capitalist imperatives fostering the
precarization of labour and extended forms of exploitation. Yet we should be aware that
the currently dominant development path of financialization involves a continued
devaluation of productive work and thus undermines the chances of enhancing the
situation of the working population of urban regions.
The different forms of integration of cities into global economic networks and the
unequal extent to which this happens raise questions concerning the governance of
urban development. We might ask, for example, in which ways a citys inclusion in
global production networks of the manufacturing sector might be taken as a resource
for upgrading its employment standards and industrial structure for instance, by
taking over more advanced functions within the value chain or by developing local
suppliers capabilities in order to spread the gains of globalized economic
activities in favour of the citys working population. Secondly, we might ask in which
ways urban governance could deal with the threat of growing social and socio-spatial
inequality in globalizing cities. Today, many cities are striving to take on global-city
functions in order to strengthen their reputation and position within worldwide interurban competition. Yet in most cases, urban governance in the globalization arena is
geared towards restructuring the citys spatial fabric and built environment according
to the presumed needs of global finance and service functions, consequently fostering
socio-spatial polarization. In this context, we are well advised to refer to Neil Smiths
(2002) emphasis on the proliferation of gentrification as a global urban development
strategy, which includes a broad range of upgrading projects in the built environment
of cities beyond the well-known processes of residential gentrification, particularly
large-scale conversion projects in inner-city areas. These extended forms of
contemporary gentrification represent a major form of real estate based capital
accumulation and function as a vehicle for transforming whole areas into new
landscape complexes that pioneer a comprehensive class-inflected urban remake
(Smith, 2002: 96).
In recent times, urban restructuring in favour of the presumed needs of capital and
its functionaries has challenged critical urban scholars and activists to reclaim the right
to the city (Brenner et al., 2011) for the urban regions ordinary population. In this
respect, there is much scope for sustained efforts to advance strategies of urban economic
and socio-spatial development that are socially inclusive and might benefit urban
residents beyond the upper strata of business elites. The failure of neoliberal
finance-dominated capitalism demonstrates that there is an urgent need to cut back and
re-regulate the dealer economy of the financial sector and to redirect urban economic
development trajectories towards real economy activities and industrial upgrading, as
well as towards social innovation, particularly in terms of employment standards, public
services, housing provision and urban residential spaces.
Stefan Krtke (Kraetke@t-online.de), Chair of Economic and Social Geography, European
University Viadrina, Groe Scharrnstrae 59, 15230 Frankfurt (Oder), Germany.
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Volume 38.5 September 2014 166077

International Journal of Urban and Regional Research

Cities in contemporary capitalism

The current world economic crisis

Cities in contemporary capitalism

The role of cities in distinct circuits of capital

Cities in contemporary capitalism

Strength of Flows variable over Time

Real Sector Firms

Urban Real Estate Sector

Real Economy Sector

Industrial City: Urban Economy

Urban Real Estate Sector

Real Economy Sector

Figure 1 Cities in major circuits of capital (source: author)

Cities in contemporary capitalism

centres. This switching of capital flows is currently leading to the metropolization of

Cities in contemporary capitalism

A strategic option for urban economic development that is particularly widespread

The differing functional roles of cities within

Cities in contemporary capitalism

Cities in contemporary capitalism

Cities in contemporary capitalism

Anderson, G. (2008) Cityboy: beer and

Cities in contemporary capitalism

International Journal of Urban and Regional Research 38.5

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