Reshaping Economic Geography: The World Development Report 2009
David Harvey
Dec 15 2009 4:15AM
Development and Change 40(6):1269–1277 (2009). Institute of Social Studies, The Hague. Published by Blackwell Publishing. Download article as PDF

World Development Report 2009: Reshaping Economic Geography. Washington, DC: The World Bank, 2009. xvii + 383 pp. $26 paperback.

Something ominous began to happen in 2006. The rate of foreclosures in low-income areas of older US cities began to increase. Officialdom and the media took very little notice because, as had happened many years before in the early stages of the HIV/AIDS pandemic, the communities affected were low-income, mainly African-American or immigrant (Hispanics), in cities like Cleveland and Detroit that were in any case already blighted and deteriorated. It was only in mid-2007, when the foreclosure wave had spread to white middle class areas as well as to the US South (Florida in particular) and Southwest (California), where new housing tract developments, often in peripheral areas, were becoming vulnerable, that officialdom started to take notice and the mainstream press began to comment. By the end of that year, nearly 2 million people had lost their homes and estimates began to emerge that another 4 or perhaps 6 million more might be lost before it was all over. By the autumn of 2008, the phenomenon of the ‘sub-prime mortgage crisis’ had led to the demise of all the major Wall Street Investment Banks, either through change of status or through forced mergers, and the outright bankruptcy of Lehman that triggered a worldwide collapse of confidence in financial institutions. The contagion then spread outwards from banking to the major holders of mortgage debt (Fannie Mae and Freddie Mac) along with insurance giants like AIG, before hitting the rest of the economy big- time towards the end of 2008. By early 2009 the export-led industrialization model that had generated such spectacular growth in East and Southeast Asia was contracting at an alarming rate; at the same time, many icons of American capitalism, such as General Motors, were moving closer to bankruptcy.

While many elements were involved in the crisis that has rocked the world over the last two years, it should be clear from this description that urban processes played a key role. The so-called sub-prime foreclosure crisis was in fact an urban crisis. If, therefore, the roots of the crisis lie in urban malformation then the solutions must also surely lie, in part if not in whole, in urban re-formations.

It was therefore with great anticipation that I turned to the 2009 World Development Report which seeks to investigate the relations between macro- economic growth and the reshaping of economic geography in general and regional development and urbanization in particular. The impulse behind this initiative to explore the ‘influence of geography on economic opportunity’ and to elevate ‘space and place from mere undercurrents in policy to a major focus’ (p. 3) seemed particularly praiseworthy given that the World Bank had for years not taken such questions seriously. It was only in 1999, at the World Bank Conference on Development, that Jeffrey Sachs and Paul Krugman debated, from very different perspectives, the question ‘Is Geography Destiny?’. I was not only curious as to where World Bank thinking was on this question: I also hoped for insights into the urban difficulties that now beset us and for coherent ideas on urban and regional development policies as to how to stem the bleeding and the losses (recently put at over US$ 50 trillion in asset values worldwide, with a US$ 11 trillion loss of asset values for US households in 2008 alone).

On this last question, the Report is, unfortunately, not only lamentably silent, but deeply complicit with the kinds of policies that got us into this mess. We are told (p. 206), without a hint of critical commentary, that:

Since the deregulation of financial systems in the second half of the 1980s, market-based housing financing has expanded rapidly. Residential mortgage markets are now equivalent to more than 40 percent of gross domestic product (GDP) in developed countries, but those in developing countries are much smaller, averaging less than 10 percent of GDP. The public role should be to stimulate well-regulated private involvement…. Establishing the legal foundations for simple, enforceable, and prudent mortgage contracts is a good start. When a country’s system is more developed and mature, the public sector can encourage a secondary mortgage market, develop financial innovations, and expand the securitization of mortgages. Occupant-owned housing, usually a household’s largest single asset by far, is important in wealth creation, social security and politics. People who own their house or who have secure tenure have a larger stake in their community and thus are more likely to lobby for less crime, stronger governance, and better local environmental conditions.

Now it might be plausible for the authors to maintain that they, along with everyone else (including Alan Greenspan), have been blindsided by recent events and that they could not be expected to have anticipated anything troubling about the rosy scenario they painted. In any case, by inserting the words ‘prudent’ and ‘well-regulated’ into the argument they had hedged themselves against potential criticism. But this excuse cannot possibly wash given their own curious way of mixing (as they do in this passage) the ideological nostrums of neoclassical theory (including the myth of home-ownership) with ‘prudently chosen’ historical evidence. Did they not notice that the crisis of capitalism that began in 1973 originated in a global property market crash that brought down several banks? Did they not notice that the end of the Japanese boom in 1990 corresponded to a collapse of land prices (still ongoing); that the Swedish banking system had to be nationalized in 1992 because of excesses in property markets; that one of the triggers for the collapse in East and Southeast Asia in 1997–8 was excessive urban development in Thailand; that the commercial property-led Savings and Loan Crisis of 1987–90 in the United States saw several hundred financial institutions go belly-up at the cost of some US$ 200 billion to the US taxpayers (a situation that so exercised William Isaacs, then Chairman of the Federal Deposit Insurance Corporation, that in 1987 he threatened the American Bankers Association with nationalization unless they mended their ways)? Where were the authors when all this was going on? There have been hundreds of financial crises since 1973 (compared to very few prior to that) and many of them have been property or urban development led. Something is going on here that requires careful analysis and attention. But this Report ignores this empirically obvious connection between urbanization and macro-economic development entirely.

Of course, the authors (all economists) could also claim that this sort of thing has nothing to do with their concept of what geography is and should be about. If so, then their conception of geography is radically different from mine and bears no relation to the work done by political-economic geographers over the last three decades.

So what, then, is their concept of economic geography all about? The basic idea is that proper spatial ordering can improve efficiency, lower transaction costs and thereby liberate growth. The Report provides general guidelines to policy makers and seeks to define optimal policy mixes which, when combined with spontaneous entrepreneurial activity in the private sector, will contribute to overall growth. What constitutes ‘proper’ spatial ordering and how that ordering can best be achieved are, of course, the main questions.

The central theme of the Report is that not only is uneven geographical development inevitable but that, properly managed, it can be a primary vehicle for stimulating growth. Too often, unfortunately, ‘governments intervene (usually incorrectly) to spread the benefits of economic growth more evenly across space . . . (and) the economic costs of mistakes can be large and lasting: recognizing the importance of economic geography means realizing that once producers and people make decisions on where to locate, they can be difficult to reverse’ (p. 34).

Attempts to level out development across space inevitably backfire and hinder the ultimate achievement of higher and more equal per capita incomes for everyone. If only the Chinese had not restricted migration and urbanization processes they would have grown even faster than the 10 per cent they have achieved until recently! The authors note a pervasive historical- geographical pattern to development, in which economic activity tends initially to concentrate geographically, thus producing spatial inequalities in income. Over time, as an economy matures, the spatial inequalities flatten out, even as the distinction between geographical concentrations of economic activity and a more geographically dispersed well-being for the population remain. The task of policy makers is to accept and facilitate this ‘natural’ progression, but they have to do so at a variety of different scales — local, regional and global. Policy thinking has to ‘telescope in’, as it were, policies and processes operating at these different scales. But no matter what scale is involved, the general (and, I have to say, remarkably conventional) approach is clear:

Governments can do better by promoting the market forces that deliver both the concentration of economic production and the convergence of living standards, and augment them with policies to ensure affordable basic services everywhere. They can do this by helping people and entrepreneurs take advantage of opportunities, wherever they arise. The market forces that help most are agglomeration, migration and specialization. (p. 34)

The Report concentrates on the economic benefits that can arise from such an approach. While they concede that ‘the unintended social and environ- mental effects are important policy matters’ (ibid.), lack of space prevented them from serious consideration of these effects in a report focused on ‘how economic geography is shaped during development’. Many, including me, will find these exclusions seriously damaging. It means that the authors felt no obligation to consider how increasing social inequality and poverty along with environmental degradation might actively be produced through capital- ism’s market-led uneven geographical development. The slums which they describe as problem areas that will surely one day disappear if only the correct policies are put in place, are viewed as unfortunate residuals produced by rapid migration to the cities, along with lack of development (partly caused, in the case of Mumbai, by wrong-headed government interference in land markets which would otherwise have led to a far more efficient allocation of land to uses) rather than contemporaneous creations of primitive accumulation in rural zones and processes of exclusion and marginalization of a disposable reserve army of labour and productive capacity in urban areas.

The authors naively believe, for example, that the extension of microfinance into slum areas and the subsequent market integration of the billions currently living on less that US$ 2 a day is one key solution to global poverty, when there is plenty of evidence that this ‘raiding’ of ‘the wealth at the bottom of pyramid’ by financial institutions extracting high rates of return actually constitutes a system of ‘debt-peonage’ for the mass of the population at the same time as it functions, in Juliet Elyachar’s (2005) phrase (derived from detailed ethnography in Cairo), as a ‘market of dispossession’. The authors also naively believe that the spread of homeownership, mortgage finance and securitization is by definition a healthy thing — even as it is currently leading to massive dispossessions and loss of asset wealth for the most vulnerable populations (particularly black) in the United States and creating a whole series of ‘financial Katrinas’ of neighbourhood destruction in many cities. This separation of the social and environmental from the economic is illegitimate; until World Bank economists get out of this way of thinking we may well have to face another decade of bad policy advice followed by yet another scramble to clean up the ‘unintended consequences’ of free market determinations, as the economists and policy makers (like Alan Greenspan most recently) express unimaginable surprise that things could have gone so wrong, because the world did not conform to their particular theories.

But let me be generous and set all this aside to see what the Report actually does say for there is, in fact, much that is useful and interesting to reflect upon here. There is something important to be gained from a careful and critical reading of both the theoretical framework and even more importantly the empirical examples of historical-geographical dynamics drawn from all around the globe. On the empirical side the report is a mine of information which, when reformulated, provides a huge base of evidence and information for thinking more clearly about the role of uneven geographical development in the reproduction of capitalism and for this I am extremely grateful. Researchers interested in that question will have a field day with the data assembled here. This is precisely because no economic theory can ignore the production of spaces, places and the ‘second nature’ constituted by the infrastructures of the built environment.

It is also laudable to have the question of scale introduced at least in principle, since this is a generally neglected arena in economic thinking. Unfortunately the arbitrary and fixed distinction between local, national and international scales does not work very well. In the geographical literature, scale is defined by processes and not determined a priori. The spatial externality effects observable in housing markets are differently scaled from those generated by airports or sulfur dioxide emissions from power stations. And space is not necessarily continuous. High educational attainments in India have externality effects in the Seattle labour market. While the authors may be correct to suggest that erroneous spatial planning practices in the Soviet Union (that curbed urban concentrations and attempted to industrialize Siberia) had something to do with the inefficiencies that led to the downfall of communism, they might also want to consider how the increasing porosity of state boundaries (including the iron curtain) after 1970 or so to the spatial movement of cultural images and influences also played a role. They might even one day want to study (self-reflexively) the spatial effects of the spread of neoclassical and increasingly neoliberal economic doctrines around the world, followed by their rejection in much of Latin America and even more startlingly by some mainstream economists in the United States in recent times. Furthermore, while they fully recognize that what is important at one scale is not so at another, and that the spatial scale at which data are aggregated makes a big difference to statistical analysis (the so-called ‘ecological fallacy’), they conspicuously fail to recognize that policies that make sense at one scale do not necessarily aggregate up to make sense at another scale.

The authors make a laudable and by and large successful attempt to reduce what I know only too well to be complicated questions of geography into a comprehensive and comprehensible structure of exposition. They do so around three fundamental facts of density (of populations and economic activity), distance (flows over space of people, goods and capital) and division (of labour as well as religious and cultural divisions within populations). These correspond, they argue, to fundamental processes of agglomeration, migration and regional specialization which require distinctive policy responses at the local (urban), national (territorial development) and international (regional integration) levels. The authors are careful throughout to keep their terminology consistent and in their empirical work note a number of interesting tendencies. The reduction of artificial spatial barriers such as tariffs and border restrictions, for example, increases regional integration rather than long distance trade.

Each one of these configurations deserves critical but, I would hope, constructive engagement. While the framework set up in the Report is not perfect, it is certainly able to illuminate many aspects of spatial dynamics, but the big questions are those of interpretation and of policy responses rather than of framing. On this point the Report contains not a word of criticism for how the market works, only finger-wagging at all those who seek to restrain it.

For purposes of illustration, consider how the Report handles the theme of density, agglomeration and urbanization. Increasing density, the authors argue, with the help of abundant empirical examples, is conducive to economic development and rising incomes in particular places in such a way that proximity and accessibility to that density later become crucial to the economic development of proximate areas. The policy conclusion is not to be fearful of increasing density and open migration of people and economic activity (something I tend to agree with) but to go with the flow of market forces and let concentrations increase until increasing congestion costs counteract the benefits that accrue from increasing economies of scale through agglomeration. For this to happen requires that planners stop worrying about inequalities (something I definitely disagree with). Furthermore:

[cities that] provide fluid land and property markets and other supportive institutions — such as protecting property rights, enforcing contracts, and financing housing — will more likely flourish over time as the needs of market change. Successful cities have relaxed zoning laws to allow higher-value users to bid for the valuable land — and have adopted land use regulations to adapt to their changing roles over time. (p. 142)

But land is not, as Polanyi (following Marx) long ago insisted, a commodity in the ordinary sense. It has fictitious value based on expectations of future rents and this is by definition always speculative. This is precisely the kind of activity that has driven low- or even moderate-income households out of Manhattan and central London over the last few years, with catastrophic effects on class disparities and well-being. This is what is putting such intense pressure on the high-value land of Dharavi in Mumbai (a so-called slum that the Report correctly depicts as a productive human ecosystem even though it is both informal and environmentally challenged). The Report advocates the kind of free-market fundamentalism that has spawned urban social movements of opposition to gentrification, neighbourhood destruction and the use of eminent domain to evict residents to make way for higher value land uses. In other words, the Report favours speculative capital and not people.

Plainly, the authors have never considered questions of urban democracy and the notion that people might have ‘the right to the city’, as specified in the Brazilian constitution and now the object of struggle in many cities around the world. Social movements of this sort have no place, although by implication their objectives fly in the face of the superior economic rationality that the Report relentlessly advocates. The idea that a city can do well while its people do badly is never examined.

But there is something else very curious here. We are told that economists have in the past favoured competitive models (and presumably given pol- icy makers bad advice) instead of emphasizing the market forces that create agglomeration economies. We are then told that recent hard work by economists has remedied this mistake. This is a strange assertion be- cause the economic geography courses I taught in Bristol back in the 1960s were full of references to the significance of agglomeration, along with the Myrdal (1957) notion of circular and cumulative causation, gravity models, geographical inertia, and all the rest of it, that are here cited as if they are new. The materials assembled in this report were, for me, like a trip down memory lane. And my understandings came from reading economists like E.M. Hoover (1937), Benjamin Chinitz (1961) and Alfred Marshall (Marshall and Paley, 1881) on industrial production districts, as well as reading the conventional literature in economic geography (including a wonderful piece on agglomeration economies in the nineteenth century jewellery and gun trades in Birmingham by the geographer Michael Wise, 1949), while mulling over the significance of the different location theories of von Thunen (1966), Alfred Weber (1965) (cost-minimizing) and August Lo ?sch (1954) (profit-maximizing). So it seems that economists abandoned the question of space and agglomeration in favour of purely competitive and largely a-spatial models. The question is why?

I am no expert in the history of economic thought but I suspect this happened because, as Chamberlin (1942) followed by Lo ?sch (1954) showed, all spatial competition is a form of monopolistic competition (and therefore anomalous for standard theory) and the location-allocation problem first posed so elegantly by Hotelling (1990) in the 1920s turned out, as Koopmans and Beckman (1957) showed, not to be amenable to equilibrium analytics (prices were unstable) and therefore not open to the mathematical modelling that made economics a true science. So economists, in spite of the noble efforts of Walter Isard in founding the Regional Science Association and its journal in the 1960s, gave up on agglomeration because they could not mathematically model it. All this began to change in the 1980s as Paul Krugman (1995) and others began to find the mathematics at least partially satisfactory for this purpose. This was just as well because during those years economic geographers along with the few urban and regional economists left (like Bennett Harrison, 1974) were writing reams and reams about the ravages and social costs of deindustrialization in the traditional heart- lands of industrial capitalism, from the Sheffield steel industry to the textile mills of Mumbai (a phenomenon not mentioned in this report) as well as the rise of industrial production districts like the Third Italy, Bavaria and Silicon Valley that were cultivating agglomeration economies like mad. But the consequence of the theoretical work was that the Ricardian doctrine of comparative advantage in trade had to be junked as well as a whole slew of other favoured nostrums of the neoliberal canon. As a result of intellectual inertia it has taken the World Bank economists until now to get us back to where we were in the 1960s, but this time backed by mathematical models that tell us once more how capitalist space should be organized so as to produce more capital in the hope that one day this will redound to the benefit of all.

The idea that free markets really benefit the capitalist class and only incidentally do something for the well-being of the people is never, of course, considered. The concept of class inequalities (of power as well as of wealth and incomes) never enters into the analysis. Only monadic individual entrepreneurs (including migrants and diasporas) figure. Sadly, this Report plays the same old capitalist game while promoting a spatial version of the old neoliberal ideology: let the market rule and one day we will all be better off. What Marx showed, and what has empirically happened over the last thirty years of neoliberalism, is that the closer we get to free market situations the more the rich get richer and the poor get poorer. Billionaires have erupted all over the place (including in India and Mexico). By the mid-1990s, the UN was reporting that the net worth of the 358 richest people in the world was by then ‘equal to the combined income of the poorest 45 per cent of the world’s population — 2.3 billion people’ (UNDP, 1996, p.2).

The idea that market-led neoliberalism produces uneven geographical development is clear, but what the authors of this Report do not consider is how neoliberalism uses uneven geographical development as a means to promote the universality of its own world project, which has nothing to do with the well-being of the whole of humanity but everything to do with the enhancement of dominant forms of class power. One of the ways in which the rich get richer, for example, is through speculation in asset values. One kind of asset that works beautifully to that purpose is precisely the increasingly deregulated land and property markets that have underpinned so many financial excesses over the years (viz., Japan in the 1980s and the USA now). Markets of this sort have a Ponzi-like character: invest in them and prices go up which encourages more investment until the bubble pops. Meanwhile the poor become homeless and affordable housing disappears.

While the reintroduction of the production of space, place and environment into the analysis is surely as welcome as it is absolutely necessary, the grounding of this Report in conventional neoclassical and neoliberal nostrums unfortunately renders it useless for confronting the difficulties we face in these tumultuous times. Regrettably, the hegemony of the ways of thinking portrayed in this Report is part of the problem rather than a template for solutions. It does not, after all, take a mathematically sophisticated economist to recognize the fundamental irrationality of escalating homelessness and the emergence of tent cities in the United States in the midst of a landscape of innumerable foreclosed upon and abandoned houses. Nor will it require a policy maker to concede that the invasion of such abandoned buildings by those in need is an appropriate and humane response that deserves massive public support.

Chamberlin, E. (1942) The Theory of Monopolistic Competition: A Re-Orientation of the Theory of Value. Cambridge, MA: Hasrvard University Press.
Chinitz, B. (1961) ‘Contrasts in Agglomeration: New York and Pittsburgh’, American Economic Review 51: 279–89.
Elyachar, J. (2005) Markets of Dispossession: NGOs, Economic Development and the State in Cairo. Durham, NC: Duke University Press.
Harrison, B. (1974) Urban Economic Development, Suburbanization, Minority Employment and the Condition of the Central City. Washington, DC: Urban Institute.
Hoover, E.M. (1937) Location Theory and the Shoe and Leather Industries. Cambridge, MA: Harvard University Press.
Hotelling, H. (1990) The Collected Economics Articles of Harold Hotelling. New York: Springer Verlag.
Koopmans, T. and A. Beckman (1957) ‘Assignment Problems and the Location of Economic Activities’, Econometrica 25: 53–76.
Krugman, P. (1995) Development, Geography and Economic Theory. Cambridge, MA: MIT Press.
Losch, A. (1954) The Economics of Location (W.Woglom trans). New Haven, CT: Yale University Press.
Marshall, A. and M. Paley (1881) The Economics of Industry. London: Macmillan.
Myrdal, G. (1957) Economic Theory and Underdeveloped Regions. London: Duckworth.
United Nations Development Programme (1996) Human Development Report. New York: Oxford University Press.
Von Thunen, J-H. (1966) Isolated State (Carla Wartanberg trans). Oxford: Pergamon Press.
Weber, A. (1965 [1929]) Theory of the Location of Industries (K. Friedrich trans). Chicago, IL: Chicago University Press.
Wise, M. (1949) ‘On the Evolution of the Jewellery and Gun Quarters in Birmingham’, Institute of British Geographers, Transactions and Papers 15: 59–72.

David Harvey is Distinguished Professor of Anthropology at the Graduate Center, City University of New York, 365 Fifth Avenue, New York, NY 10016-4309. His most recent books are A Brief History of Neoliberalism (Oxford University Press, 2005) and Cosmopolitanism and the Geographies of Freedom (Columbia University Press, 2009).