29 March, 2020

Reflecting upon the geographical fundamentals of the Corona-issue, and the particular challenges for relational urbanisation – PART II

In this follow-up to Part I of the Blog entry that appeared here last week, we will discuss the possible risks and ramifications for cities that are confronted with the current – and maybe longer lasting – lock-down of social systems and economies. The point here is that those cities will be particularly affected that are based on openness and circulation. Luxembourg, a small but global, economically powerful and thus ‘relational’ place par excellence, has a lot to lose in this respect.

“That is all moot.” These were the words with which a prominent geographer responded to the cancellation of this year’s annual conference of the International Network of Urban Research and Action (INURA) (www.inura.org), that was planned for this June in Luxembourg. We’ve now decided to shift the meeting to next year, including the birthday party and conference part on the occasion of the then 31st anniversary of the Network. We look forward to welcoming an international community of urban researchers & activists who will also inspire and ignite debates around here (inuraluxembourg.blogspot.com).
“Moot” could also suit for interpreting current social and economic life under the siege of the Virus more generally. In Part I of this Blog entry (see below), I presented a quick reading of the Corona outbreak from a geographical perspective, with an emphasis on some essentials such as spatial diffusion and differentiation, temporal evolution, mobilities of all kinds, and the increasing degree of interconnectedness and interrelationships that seem to characterise localities in most general terms. It’s nothing sensational, but sometimes it is useful to stress the trivial-but-not-banal essentials of a subject matter (like geography), particularly when teaching disciplinary foundations for graduate students in light of current events that have been speedily gaining momentum.
A second reason to delve deeper into the geographical ramifications of the Virus and the associated quarantine lockdown is its inherent exposure of risk. The latent standstill of social and economic systems, caused by the constraints to the assembly of people and, even more important, to their spatial mobility, brings some severe challenges to places that are actually grounded on the principle of flow. This applies particularly to cities that we approach as being ‘relational’: (relatively) small but (highly) global places such as Geneva (Switzerland), Singapore or Luxembourg – localities that we studied throughout the course of the FNR-funded research project GLOBAL (Hesse & Wong, 2020). Corona gives a bitter lesson to these places, as it questions their historically specific, highly successful trajectories. These trajectories were already associated with a certain social and environmental cost. Now it looks as if they are in fundamental danger as such.

Liquidity and vulnerability of relational urbanisation
GLOBAL aimed at analyzing the past, present and future global trajectories of these three places, for the reason of providing a nuanced view of small but global urbanisation. The basis of the research was a large corpus of secondary data, which was assessed by content analysis. In a second step, we analysed about 50 research interviews that were conducted between 2017 and 2019. The main research interest was, firstly, to reconstruct the means and measures through which these – relatively small – places were able to gain a top-level position in global urban regards. Secondly, we wanted to identify the related consequences for urban development and policy, given that the high degree of internationality creates multiple tensions at local levels.
Geneva, Luxembourg and Singapore qualified for this research as all three locales experienced strong and rapid growth within a short period of time, more related to network embeddedness – being situated in between – rather than centrality within a given territory. They operate on bounded territories, template cases of borrowed size. Their growth rates are driven by financial and other services and integration in the global economy as well as global migration. The three places are ranked on GaWC as Beta, Alpha- and Alpha+ world cities, respectively (as of 2016). They also share particular governance patterns practiced locally and beyond, successfully set in place as a consequence of niche-making based on (relative) smallness: one is a capital city of a small state, the other the seat of a canton, the third represents a city-state. All three blend scales (Affolderbach & Carr, 2016) through local and state power.
The building blocks of relationality are the management of flows, supported by positionality and governance features, further underpinned by particular historical trajectories. The ability of the three cities to make the “most out of smallness” (Grydehøj, 2011) by “extracting profit from extraterritorial terrain” (Olds & Yeung, 2004) is striking, which is not least bound to specific historical trajectories. All three were able to build on earlier expertise and infrastructures to further establish themselves in particular niche activities. But they also actively seek diversification as a central policy agenda, and are extremely open to change, new activities and new pathways to growth. Each also began shifting towards a services and knowledge-oriented economy at different times, pushed by different external and historical conditions, supported by similar governance arrangements.
Most importantly, our sample areas focus heavily on managing the flows of capital and commodities, material and immaterial flows (conveying money, information, ideas), or political flows, in order to maintain their economic niches. Luxembourg is renown as a financial market place, managing investment funds, wealth, insurance and the like. It also hosts one of the world’s more important airfreight hubs. As an important seat of European politics, Luxembourg generates huge flows of political ideas, legislation and lobbying. Besides its role as a money hub and as a centre of diplomacy, Geneva is specialised in the virtual trade of commodities, of which a huge share is also administered there (see Haller’s 2019 fascinating account of merchanting in Switzerland). Meanwhile, Singapore manages a wide portfolio of capital flows in capital markets, private wealth and insurance, and both the virtual and actual trade of commodities. All three places, even the two landlocked ones, engage in maritime services. All three host ‘Freeports’ – fortified warehouses for collectibles of highest value, a most recent strategy to capitalise on flows. All three lack domestic markets and have a limited pool of local talent – hence they rely on interregional and international pools of highly skilled labour, mobilised due to their cross-border location. Accessibility and infrastructure policy are crucial here.
A unique position–or better, positionality–as key mediators and brokers between regional and international systems helped all three places to better capitalise on particular flows: Luxembourg from within the EU, Geneva from outside the EU, and Singapore within the Southeast Asian and Chinese markets. They are situated at borders: Luxembourg in the Greater Region (including parts of Belgium, France, and Germany), Geneva with Grand Genève stretching into France, and Singapore with Southeast Asia and China. These characteristics compensate for their small size both in regional and global terms. Consequently, all three cities have a multilingual society, which they offer as a unique asset to international businesses that increasingly require linguistic and also cultural translation in their cross-border settings. Openness towards what is situated ‘out there’ (Kevin Cox) is thus required to play out relationality and to capitalise on this. However, openness alone would not suffice, as all three cases demonstrated with their ability to blend scales, that is, to merge state power and local thickness to something that unfolds as a rather strong political power.

Risks to Luxembourg’s niche-economic path/business model
Making the most of smallness by attracting flows of all kinds is only made possible by particular governance conditions, and the somehow extraverted urbanism that has made city and country prosperous is associated with some sort of introverted governance. All three cases that we studied exhibit legislative autonomy to change regulation, create new laws, and administer regulation in a way that it creates a favourable businesses climate. Niche sovereignty enabled them to create a competitive advantage compared to other (larger) cities in federal states. Close links between state and local decision-makers, or even convergence between the two in their much praised ‘ecosystems’ or clusters, have been a defining feature in all three cases and used to their maximum advantage.
However, the Corona shut down demonstrates rather brutally what can happen to open systems and niche-economies like Luxembourg, when they lack their most important asset: flows and the seamless mobilities of people, goods, money and other commodities that make up their fortune. Starting again with the trivial-but-not-banal: If the country’s borders are shut down or are rendered less permeable, it will miss a huge number of workers such as nurses and doctors. The health system of the small country seems just as vulnerable as other branches (restaurants, taxis, retail, programming …) as it relies on the constant input from, and growth of, a foreign workforce. However, unlike taxis, hospitals and doctors’ cabinets can be classified as essential to the system (“systemrelevant”) and the society as a whole.
Indispensable to the Grand Duchy of Luxembourg is the now 200,000-strong workforce (almost half of the national labour market!) that crosses the national borders every workday in order to keep the whole business model going. (The same applies btw to Geneva situated at the French-Swiss border, and to Singapore with its reliance on Malay and Indonesian workforce). This flow of workers makes relationality possible; that is, these cities remain global but keep things small and under local control. In addition, the Luxembourg-specific division of labour between qualified (foreign) job holders that occupy a variety of relevant positions in basic sectors and the private market economy on the one hand, and nationals who have the privilege of (unusually highly paid) employment in state and municipal sectors on the other hand may not work anymore, if the commuter inflow would be blocked for longer.
Even more critical is the state of the services sector in general and the financial marketplace (“la place”) in particular. Corona probably brings the biggest threat to Luxembourg’s competitive position, which is being built on the concentration of financial resources that were successfully acquired over the last three to four decades. What started with offering half obscure, half legal tax advantages (and thus allowed for the milking of neighbor countries’ public budgets) became a full-fledged global financial centre including investment funds, insurance, legal advice and more recently also fintech services. This machine contributes massively to the country’s budget line. Keeping it going requires a global economy that operates by separating real economy from the financial system, a circuit of earnings and added values that are bundled in tax havens and other specialized domains. Such a business model is highly vulnerable to disruption, and the related ecosystems require face-to-face communication, which is no longer possible now (see the national flagship airline’s announcement on the grounding of its fleet). The serious midterm question is whether and how specialized financial enclaves can develop a sense of resilience at all (see Brunnhuber et al., 2005; Dörry & Schulz, 2018).

In a small country, there is also some concern about the disruption of material supply chains (for example in the food sector), as procurement in such countries heavily depends on imports from elsewhere. These imports can be questioned, as was demonstrated by the BSE food scandal. Yet at the same time, it is unrealistic to expect economic self-sufficiency from a nation state whose area is the same size as the neighbor state of Saarland in Germany, and whose population is only 60 per cent of that. Small units simply lack sufficient demand for creating a reasonable supply on that level of scale. Even more so, the high standard of living that Luxembourg’s consumers are used to enjoying would not be satisfied by any sort of local or regional sourcing.
More importantly, the challenges that Corona brings to interconnected places and economies coincide with the observation of “Slowbalisation”, as coined by the Economist to describe the global economy moving at snail pace on 26th January 2019. As a result of Brexit and Trumpism, a certain temptation of nationalism, or post-national regionalism, has entered the stage of global politics. World trade numbers have plummeted recently, and this was before national governments began blocking cross-border flows in order to keep the Virus out. All this will challenge the niche-economies of flows quite heavily: As one logistics executive from Luxembourg mentioned to us in a research interview: “When globalization comes to a halt, we’re done”. Trade blocks and diseases have the potential not only to disrupt, but also to actually dismantle the system of world trade and global exchange as we know it. Re-regulation in the regional or national interest – something that was difficult to imagine for decades – could now offer a possible pathway for the near future. Globalization marching onwards in the same direction as before is only one possible direction, but no longer the unquestioned truth forever. There could also be a multipolar world emerging with different patterns of trade, and the same applies to a possible renationalization of economic policies (Credit Suisse Research Institute, 2016).

However accidental the Virus came to us as societies (keeping in mind the various meanings that the term ‘accidental’ has to offer), the crisis brings indeed some good reason to reflect upon its systemwide impacts. It looks as if the Virus and the subsequent lockdown could erase some of the seemingly undisputed beliefs that research and practice communities have been dealing with for a while now, most notably the imperative of global economic competition, the exaggerations of consumerist techno-capitalism, and its hunger for more. While “pushing the limits for the sake of pushing the limits” seemed sacrosanct until recently, one could now take the freedom to rethink the issue further: Is there choice after the Virus, in order to escape from the iron cage of growth?
Are there alternative geographies of, or for, Luxembourg that could be distilled from rethinking capital city and country in the light of the current lockdown? In Part III of this Blog entry, I will soon discuss some elements of these alternative pathways. While this rethinking came up entirely involuntarily (accidentally, if you want), it could provide some essential inspiration for the time after the crisis, whenever that will be.

(Special thanks to my post-doc project collaborator Dr Catherine Wong in GLOBAL, and as always to my co-editor of this Blog).

Selected bibliography
Affolderbach, Julia & Carr, Constance (2016). Blending scales of governance: Land‐use policies and practices in the small state of Luxembourg. Regional Studies, 50(6), 944-955.
Brunnhuber, Stefan, Fink, Alexander & Kuhle, Jens- Peter (2005). The financial system matters: future perspectives and scenarios for a sustainable future. Futures, 37(4), 317-332.
Credit Suisse Research Institute (2016). Getting over Globalization. Zurich: Credit Suisse AG.
Dörry, Sabine & Schulz, Christian (2018). Green financing, interrupted. Potential directions for sustainable finance in Luxembourg. Local Environment, 23(7), 717-733.
Grydehøj, Adam (2011). Making the most of smallness: economic policy in microstates and sub-national island jurisdictions. Space and Polity, 15(3), 183-196.
Haller, Lea (2019). Transithandel. Geld- und Warenströme im globalen Kapitalismus. Berlin: Suhrkamp.
Hesse, Markus & Wong, Catherine (2020). Cities seen through a relational lens. Niche economic strategies and related urban development trajectories in Geneva (Switzerland), Luxembourg (Luxembourg) and Singapore. Geographische Zeitschrift, DOI 10.25162/gz-2019-0020.
Olds, Kris & Yeung, Henry (2004). Pathways to global city formation: a view from the developmental city-state of Singapore. Review of International Political Economy, 11(3), 489-521.

Markus Hesse

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