In the 1983 movie The Right Stuff, during a test of wills between the Mercury Seven astronauts and the German scientists who designed the spacecraft, the actor playing astronaut Gordon Cooper asks: “Do you boys know what makes this bird fly?” Before the hapless engineer can reply with a long-winded scientific explanation, Cooper answers: “Funding!” If an economist were asked, “Do you know what makes this economy fly?” the answer, in one word, would be “trust.”
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By Adam D. Dixon
In early April 2014 Greece returned to the sovereign bond market raising 3 billion Euros, following a four-year hiatus. This marked a turning point in the global financial and economic crisis that began in 2008 with the collapse of the subprime mortgage market in the United States and the advanced-economy recessions that ensued. The Greek economy is certainly not healed, with unemployment still exceeding 25%, and a government debt burden still unnervingly high — it is expected to reach 175% of GDP this year. That the Greek government was able to issue bonds to international investors, likely didn’t provide any degree or sense of solace for the many Greeks still struggling to get by.
This story has been repeated across much of the advanced industrialized economies, from the United States to the United Kingdom, from Spain to Italy. We are told that most economies have turned the corner, even if there is some way to go before life feels normal again — hopefully before some other crisis takes hold. Now we can get back to focusing on crises of the longue durée. Will anything be done to reduce wage and wealth inequality? Will labor markets adjust to increasing automation and artificial intelligence? How will we adapt to climate change? Are we prepared for the peak of the baby boom retirement?
Some countries and some regions within countries will certainly fair better than others. There will be winners and losers. This is largely a reflection of the core-periphery model that characterizes the geography of capitalism and its developmental logic. The drivers of economic growth and development are not nation-states, but large regional agglomerations, which often span different countries, and the global production networks and global financial markets that connect them. But what does it mean to be a resilient country or region in an increasingly integrated and interdependent global economy?
The global financial crisis struck a blow to globalization, leading to some speculation that we could see the reemergence of a more fragmented world economy comparable to periods following other major crises (e.g. the Great Depression). For those critical of global capitalism, it was a chance for alternatives to emerge. Yet, if one looks at life in the major world cities or the boardrooms of multinational firms, the powerhouses of global capitalist integration, the remnants of crisis are hardly visible. Capitalism marches onward.
In the last few decades the barriers to cross-border capital flows and trade have been progressively removed, leading to growing opportunities for firms to outsource and offshore production. Moreover, the integration of capital markets has opened up financing possibilities that are global in scope. For multinational firms, and those in the service of multinational firms, history and geography are no longer constraints. Is the core anymore resilient than the peripheries, if they can’t ultimately claim and contain the drivers of growth? Are the winners this time around going to be the winners next time around?
At the height of the Eurozone crisis it was not uncommon to hear suggestions (and even outright demands) that periphery countries (e.g. Greece and Spain) leave the euro. Exit would facilitate recovery, resetting prices to competitive levels with trading partners. And it wouldn’t mean the end of the European project. But Greece nor any other periphery country has left the Eurozone. Even if they wanted to, would they have been allowed? Market expansion and integration is at the heart of capitalism. To be sure, a currency union is not a prerequisite to market expansion and integration.
The countries on the periphery didn’t leave, because they’ve become too integrated with the core. Economies do not start and stop at the political borders of the nation-state, even if the nation-state is still a crucial site of governance and regulation. There is certainly diversity among capitalist economies, reflecting history and geography. But increasing interdependence and integration mutes diversity. Yet, what increasing interdependence and integration means for capitalist diversity is less important than what it means for the losers of capitalist crises. As market expansion and integration is at the heart of capitalism, losers aren’t left to some alternative. They are re-integrated in the fold, even though they may be left on the periphery.
Adam D. Dixon is a senior lecturer in economic geography at the University of Bristol. His research focuses on comparative economic geography, the geography of finance, and the political economy of institutional investors. He is author of The New Geography of Capitalism: Firms, Finance, and Society, co-author with Gordon L. Clark and Ashby H.B. Monk of Sovereign Wealth Funds: Legitimacy, Governance and Global Power (2013, PUP), and co-editor with the same of Managing Financial Risks: From Global to Local (2009, OUP).
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By Klaus Dodds
If a week is a long time in politics then goodness knows what seven years represents in geopolitical terms. The publication of the second edition of the VSI to Geopolitics was a welcome opportunity to update and reflect on what has changed since its initial publication in 2007. Five issues loomed large for me in terms of the second edition.
First, the onset of a global financial crisis and the geopolitics of austerity deserved greater recognition. While much of the conversation focused on the failings of neoliberal globalisation and the banking/financial services sector, the financial crisis was also geographical and geopolitical in nature. Geographically, the impact and scope of crisis and austerity remains resolutely uneven with some communities and localities more exposed to debt, liability, loss and dispossession. The retrenchment of government spending and investment hit those communities highly dependent on public sector employment for example. Geopolitically, the financial crisis brought to the fore the manner in which some countries were represented and understood as financially reckless, political weak and incapable of reforming their economies. The so-called PIGS (Portugal, Ireland, Greece, and Spain) within the European Union context might be one such example of this geopolitical profiling but another might be the manner in which Cyprus was depicted as a source of ‘hot money’ from Russia and China, which was disrupting the capacity of the Cypriot government to make ‘necessary’ fiscal and political reforms to its economy and society.
Second, the ongoing legacies of the War on Terror needed further exposition. The recent rise of Sunni Islamic State of Iraq and Syria (ISIS) has generated a plethora of commentary much of which insists that the contemporary crises in Iraq and Syria are related to the deeply controversial invasion of Iraq in 2003 by a US-led coalition and a US-led strategy designed to use the invasion of Iraq as a way of introducing democratic transformation in the Middle East and Central Asia. What we now appear to face is a situation where the US and Iran might find they are able to collaborate with one another in a mutual goal of preserving the territorial integrity of Iraq (and perhaps also Syria). All of this seems far removed from the situation in January 2002 when President George W Bush described Iran as part of an ‘axis of evil’ with Iraq and North Korea. As critics noted at the time, this opportunistic labelling did not reflect the complex geopolitical circumstances surrounding those three states. And the refrain ‘states like these’ in the 2002 State of the Union Address by President Bush suggested that there might be even more to add to the list.
Third, the Edward Snowden revelations have highlighted the second edition had to talk more explicitly about an ‘invisible geopolitics’ or one perhaps barely visible to those of us not well connected to the intelligence community. While few would have been surprised by the rise of a surveillance culture post 9-11 in the US and UK (for example), it took these revelations to bring home quite how involved the communications sector was in enabling these mass surveillance cultures. Had popular culture, including films such as Enemy of the State (1998), offered us a pre-warning of the kind of surveillance capabilities that might be brought to bare on domestic citizens? What might the implications be for citizens to express geopolitical dissent in a world where telephone conversations and electronic conversation might be capable of being recorded, analysed and actioned?
Fourth, a new chapter on objects is introduced for the express purpose of focussing attention on the materiality of geopolitics. In other words, stuff. Whether it be either the CCTV camera on the high street or the flag being waved at an official ceremony, geopolitics is made possible by our relationship to objects. In the midst of the 2014 World Cup, it is difficult to avoid the sight of various national flags fluttering from buildings and cars, and being waved vigorously by supporters. In the contexts of mega events such as the Olympics and World Cups, the flag is an essential accomplice to host governments eager to capitalise on such global media exposure while at the same demanding ever more investment in security projects designed to safe-guard participants, spectators and the interests of government sponsors. But the flag can also matter in more mundane ways as well; the flag that might hang from someone’s house barely noticed but a powerful marker of geopolitical possibilities which extend far beyond national identification.
Fifth, and finally, the second edition was a welcome opportunity to remind readers that geopolitics is always embodied. It is not abstract. It is not something merely preoccupied with the global. It is a subject matter that is resolutely everyday. Geopolitics is about the various ways the geographies of politics are made to matter and the manner in which the local, national, regional and global co-constitute one another. Feminist geographers have been at the vanguard of this realisation and demonstrating how bodies, sites, objects and practices are inter-linked to one another and capable of producing very real consequences for people, communities and environments. The border and associated border regimes provide a rich source of material; linking border control/policing ideologies to the mobility and vulnerability of bodies. Sites and environments matter as anyone who has attempted to cross the US-Mexican border or the Mediterranean in a ramshackle boat would testify. For many of those migrants the journey itself will be one they won’t survive.
Professor Klaus Dodds is Professor of Geopolitics at Royal Holloway University of London. Since publication of Geopolitics: A Very Short Introduction, he has co-edited three books, Spaces of Security and Insecurity (2009), Observant States: Geopolitics and Visual Culture (2010), and The Ashgate Handbook on Critical Geopolitics (2012). He has also written The Antarctic: A Very Short Introduction. The new edition of Geopolitics: A Very Short Introduction
publishes this month.
The Very Short Introductions (VSI) series combines a small format with authoritative analysis and big ideas for hundreds of topic areas. Written by our expert authors, these books can change the way you think about the things that interest you and are the perfect introduction to subjects you previously knew nothing about. Grow your knowledge with OUPblog and the VSI series every Friday, subscribe to Very Short Introductions articles on the OUPblog via email or RSS, and like Very Short Introductions on Facebook.
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By William Chislett
The Spanish economy roared along like a high-speed train for a decade until it slowed down dramatically in 2008. Only recently has it emerged from a five-year recession. But the jobless rate has tripled to 26% (four times the US level) and will not return to its pre-crisis level for up to a decade. Why is this?
(1) The economic model was excessively based on the shaky foundations of bricks and mortar.
Between 2000 and 2009, Spain accounted for around 30% of all new homes built in the European Union (EU), although its economy only generated around 10% of the EU’s total GDP. In one year alone (2006), the number of housing starts (762,214) was more than Germany, France, and Italy combined. After Spain joined the euro in 1999, interest rates were low, property was seen as a good investment in a country with very high home ownership (85%), and there was a high foreign demand for holiday and retirement homes due to the 60 million tourists who visited Spain annually.
When the property bubble burst, jobs were destroyed as quickly as they had been created. As construction is a labor intensive sector, its collapse reverberated through other areas of the economy. Between 2002 and 2007, the total number of jobholders, many of them on temporary contracts, rose by a massive 4.1 million, a much steeper rise than in any other EU country and more than three times higher than the number created in the preceding 16 years. Since 2008, more than 3 million jobs have been lost, around half of them in the construction and related sectors.
(2) Labor market laws were too rigid.
Spain has a dysfunctional labor market: even at the peak of the economic boom in 2007, the unemployment rate was 8%, a high rate by US standards. At the hiring end, Spain’s labor market laws were very flexible, largely as a result of widespread use and abuse of temporary contracts, but at the firing end, severance payments were higher than in comparable countries. This made employers reluctant to put workers on permanent contracts. The reforms approved in 2012 by the conservative government of the Popular Party, which returned to power at the end of 2011, lowered dismissal costs and gave companies the upper hand, depending on their financial health, in collective wage bargaining agreements between management and unions. The reforms have yet to have a discernible impact on job creation. They have, however, lowered the GDP growth threshold for net job creation from around 2% to 1.3%. The Spanish economy is expected to grow by more than 1% this year.
(3) The property sector caused a banking crisis and corruption to flourish.
The 45 regionally-based and unlisted savings banks, which accounted for around half Spain’s financial system, were closely connected to politicians and businessmen. Many of them made reckless loans to developers and were massively exposed to the property sector when it crashed. The reclassification of land for building purposes and the granting of building permits, in the hands of local authorities, created a breeding ground for corruption. Bad loans soared from 0.7% of total credit in 2007 to more than 13%. The European Stability Mechanism came to the rescue of some banks in 2012 with a €41 billion bail-out package in return for sweeping reforms. The number of savings banks has been reduced to seven, with high job losses. Spain exited the bail out in January.
Spain was ranked 40th out of 177 countries in the latest corruption perceptions ranking by the Berlin-based Transparency International, down seven places from the year before. Its score of 59 was six points lower than its previous score in 2012, in a numerical index where the cleanest countries are those closest to a score of 100. Spain lost more points than almost every other country, topped only by war-torn Syria.
(4) The education system is in crisis.
The education system is holding back the need to create a more sustainable economic model. One in every four people in Spain between the ages of 18 and 24 are early school leavers, double the EU average but down from a peak of one-third during the economic boom, when students dropped out of school at 16 and flocked in droves to work in the construction and related sectors. Almost one-quarter of 15-29 year-olds are not in education, training, or employment. Results in the OECD’s Pisa international tests in reading, mathematics, and scientific knowledge for 15-year-old students and for fourth-grade children in the TIMS and PIRLS tests are also poor. No Spanish university is among the world’s top 200 in the main academic rankings. Research, development and innovation spending, at 1.3% of GDP, is way below that of other developed economies. In these conditions, the creation of a more knowledge-based economy is something of a pipe dream, and the brightest young scientists and engineers are emigrating.
(5) Spain received more immigrants in a decade than any other European country.
Immigrants were lured to Spain when the economy began to expand rapidly. Their number soared from more than 900,000 in 1995 to 5.7 million in 2012, the largest increase in a European country in the shortest time. They were particularly needed in the construction and agricultural sectors, as there were not enough Spaniards prepared to work in them. At the peak of the boom in 2007, more than half of the 3.3 million non-EU immigrants in Spain worked in the construction sector. When the economy went into recession, immigrants bore a large part of the surge in the unemployment, as many of them were on temporary contracts and were the first to lose their jobs. The jobless rate among immigrants (37%) is much higher than that for Spaniards (24%). Immigrants only began to return to their countries in significant numbers in 2012 and Spain’s population declined by 500,000 in 2013, an unprecedented fall in the country’s modern history.
William Chislett is the author of Spain: What Everyone Needs to Know. He is a journalist who has lived in Madrid since 1986. He covered Spain’s transition to democracy (1975-78) for The Times of London and was later the Mexico correspondent for the Financial Times (1978-84). He writes about Spain for the Elcano Royal Institute, which has published three books of his on the country, and he has a weekly column in the online newspaper, El Imparcial.
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