Transcript . Guiding future growth - Urbanization and Global

Macroeconomics and the Future
of Cities
Alejandro Nadal
Centre for Economic Studies
El Colegio de Mexico
Urbanization and Global Environmental Change
2014 UGEC Conference
Taipei, November 2014
The Future We Want
• The Outcome Document of the Rio + 20 Conference
on Sustainable Development
• The word “urban” appears nineteen times
• The word “cities” appears eleven times
• “Macroeconomics” is never mentioned
• Only one entry for “macroeconomic policies”
– “We recognize the importance of job creation by adopting forwardlooking macroeconomic policies that promote sustainable
development and lead to sustained, inclusive and equitable
economic growth …”
• And the word “crisis” appears once… in reference to
the climate crisis
• Maybe the Rio+20 outcome document is not
inaccurate…
• Perhaps there is no connection between
macroeconomics and cities
• After all, macroeconomists (and
macroeconomic theory) are totally
unconcerned with the urban environment
• But then again…
• Consider the global macroeconomic and
financial crisis
• The global macroeconomic crisis that erupted in the Fall of 2007
was closely related to cities and their role in capital accumulation
–
–
–
–
–
–
–
–
–
–
USA: late 1970s incomes shift from wages to profits
Households: debt/income ratios more than doubled between 1970-1988
Associated event: financial deregulation
Low interest rates led to greater indebtedness and bubbles in housing
prices
Corrected “real” price of housing served as collateral for mortgage loans
and later for home equity loans
Global imbalances help finance increase in debt
Finance capital enters a new space: home ownership in low income strata
Mortgages: securitized and packaged as derivatives (MBS, CDOs and credit
default swaps)
Cracks start to appear in 2006: new home sales stall, home prices cease to
increase, interest rates start to rise fuelled by fears of inflation, ARMs start
to reset
Home prices crashed in 2007
• Massive defaults blow up the bubble of real estate prices
… and so we got the global crisis
• A macroeconomic crisis, not just financial in nature
– And not a ‘market failure’ crisis
• It has not gone away: we still have a process of
deflation
• Deleveraging (a balance-sheet crisis)
• US out of QE while Europe and Japan apply their own
versions of QE
• China: slowing down and largest real-estate bubble
• Sustainability displaced by other priorities in global
debate
• Resources are for ‘recovery’, not for sustainability
Objective and plan of this presentation
• Objective: explore the relation between
macroeconomic features of the global
economy and urban change in the context of
environmental and social sustainability (E&SS)
• Plan:
– What is ‘macroeconomics’?
– Macroeconomic Policies: Effects
– Key Features of the Global Economy and their
relation to sustainability and urban change
Introduction: Why Macroeconomics?
• Macroeconomic perspective is important
– Examines the working of an economy as a whole
• Analysis at macroeconomic level uncovers rationale of the
entire model and reveals how it works
• Sector level analysis does not challenge the rationale of the
entire model
– Analyses dynamics of economic aggregates
• A word of caution on the notion of ‘aggregates’
– Explains international economic relations
– Clarifies our understanding of macroeconomic policies
– Enables analysis of the nature and origins of
macroeconomic crises
Introduction (2)
• Macroeconomic policies affect:
– Rate of activity
• Employment
– Economy-wide resource allocation
• Expenditures for environmental stewardship
– Income distribution, inequality and poverty
• Wages, social security, relative prices
– Insertion in the global economy
• Usage rates of natural resources
– Structural and economy-wide transformations
• Migration patterns, industrial restructuring
Macroeconomic policies should be critical for a discussion
on environmental and social sustainability (E&SS)
Macroeconomic Policies
– Monetary policies
• Banks: monetary creation
• Financial sector
– Fiscal policies
• Fiscal revenues and public expenditures
– Incomes’ policies
– Key economy-wide prices
• Energy prices, wage goods
– Balance of payments
• Exchange rate
• Capital account regulations
Surprisingly, the macroeconomic
perspective (including policies) has
been absent from debates on
environmental and social
sustainability
Macroeconomics and International Debates on
Sustainability
• MDGs: targets on poverty, hunger, education and environmental
sustainability
– Critically related to public spending
– No relation with macroeconomic policies?
• Climate change and UNFCCC
– IPCC recognizes development trajectories are critical for mitigation and
adaptation
– Also: poverty entails vulnerability to climate change
– Mitigation: Investment and technical change
– Adaptation: public expenditures
• Rio+20
– No reference to the world’s deepest recession since 1930
– Resources for transition to ‘green economy’ to come from the financial sector
– Mathematical model of the global economy does not contain a financial sector
• Two reasons that may explain why
macroeconomics is not taken into account in
these discussions on sustainability
• FIRST: Macroeconomic perspective invites
controversy
• No scientific imperative concerning priorities
• SECOND: State of macroeconomic theory
Five Key Features of the Global Economy and
their Impact on Urban Change
•
•
•
•
•
Dominance of financial capital
Passive macroeconomic policies
Massive global imbalances
Intense social inequality
Global economy entering a period of ‘under
par’ growth, instability and crises
Dominance of Financial Capital
• Financialization originated in the mid 1970s
• Transformed the structure and dynamics of the
economic system
• Led to three decades of credit driven growth
– Credit/GDP ratio jumps from 157% in 1973 to 362% in 2007
• Increases the importance of the financial sector relative
to the real sector of the economy
• Transfers income from the real to the financial sector
• Contributes to income inequality and wage stagnation
• Dominates macroeconomic policy-making
Massive Global Imbalances
• Global (financial) imbalances refer to the
difference between deficit and surplus countries
(in current account)
• World economy is marked by the persistent and
growing difference between surplus of export-led
economies and deficit economies
• China, Japan and Germany vs the USA and the
rest of the world
• No automatic reabsorption mechanism of
surpluses
GLOBAL IMBALANCES: CURRENT ACCOUNT OUTSTANDING (1980 – 2008)
Effects of global imbalances
• Global imbalances brought about by the pursuit of
neo-mercantilist policies by a small group of
countries (China, Germany, Japan, Asian tigers)
• Global imbalances are also the product of
neoliberal corporate liberalization (“barge
economics”)
• Cost arbitraging and mobile production
• 76% of China’s exports are generated by wholly
owned subsidiaries and joint ventures
• NAFTA was the template that corporations needed
Passive Macroeconomic Policies
• Macroeconomic policies subordinated to needs of
finance capital (since early 1980s)
• Paramount objective: price stability
– Repression of aggregate demand (low wages, cuts in public
spending, high interest rates), overvalued exchange rate
• Monetary policy: interest rates linked to harnessing
inflation
– A word about monetary creation
• Fiscal policy: balanced budget
– Primary surplus and public spending
• Capital account of balance of payments: deregulate to
allow capital flows
Intense Social Inequality
• Wage stagnation in developed and developing
economies since the 1970s and 1980s has led to
higher inequality
• SAPs and mobile production and cost arbitraging
leads to lower wages in developing countries
• Reduction in public spending worsens situation
(less and costlier public services in health,
education, transport)
• Piketty uses new data set to examine a process
that started four decades ago
Results for the Global Economy: Secular
Stagnation, Instability and Crises
• Global crisis: are we out of the woods?
• Fed stops QE: what does it mean?
• Developed economies and emerging markets are
entering a period of slower growth
• Greater instability and volatility in current
accounts, capital flows, exchange and interest
rates
• Changing monetary hegemony: transitions are
always bumpy
How do these macroeconomic features
affect cities?
• Macroeconomic policy posture considers price stability
the paramount priority
• To attain that objective aggregate demand is ‘managed’
in such a way that inflation is controlled
• Typical instruments: stagnant real wages, high interest
rates, low public expenditures, overvalued exchange
rates
• Some effects: greater inequality (and poverty), lack of
resources for agriculture leads to increased migration
to cities
• Low investment in environmental stewardship
Changes in the global economy and urban transitions
• Inequality and poverty in cities: result of low wages,
incapacity of economy to provide adequate jobs
• With stagnant wages, growth will continue to rely
on bubbles in prices of key assets (real estate)
• Overpopulation in cities: in part the result of
policies that push people from rural to urban
settlements
• Macroeconomic policies curtail public expenditures:
affects housing and municipal services, public
transportation, infrastructure, public services
Global Crisis: Implications for Conservation
• Sustainability displaced in global agenda
– Priorities: growth and ‘recovery’, jobs, macroeconomic
stability
• Cuts in allocations for environmental stewardship
(result of bailouts and fiscal austerity)
• Unemployment, poverty and inequality
• Greater pressure on natural resource base
• Extractivism
• Policy response (fiscal retrenchment) worsens
situation
• Macroeconomic policy debate is essential: need to
move from price stability to sustainability
One final word
• The debate on macroeconomics is a
heated debate already unfolding in the
cities of the world
http://www.iucn.org/about/union/commissions/ceesp/
Thank You