Capitalist urbanization in the post-neoliberal and de-globalizing world economy: A minor critical engagement with VIP-Urbanism literature

Abstract

The special issue “Contesting VIP Urbanism” includes timely analytical interventions to contest an increasing tendency to luxury investments in many capitalist cities of the past decades. This essay raises some theoretical and empirical questions concerning the present state of globalization and neoliberalism as two defining characteristics of an era of the global capitalist economy in which both the tendency toward VIP-Urbanism and the approaches criticizing it arise. It aims to extend the discussion on contesting the tendency toward VIP-Urbanism by drawing attention to questions regarding the role of macroeconomic structural forces that enable or hinder urban governance. In response to the changing historical context, the essay proposes developing a multi-scalar and inter-sectoral framework, which also includes reintroducing the national level into urban geographic inquiry to contextualize micro dynamics of investments over individual land plots by individual investors.

Introduction

We witness an increasing tendency to particular types of luxury investments in many capitalist cities of the past decades, conceptualized as VIP-Urbanism (Lauermann and Mallak, 2023). This essay raises some theoretical and empirical questions concerning the present state of globalization and neoliberalism as two defining characteristics of an era of the global capitalist economy in which both the tendency toward VIP-Urbanism and the approaches criticizing it arise.

The concept of VIP-Urbanism “stems from the observation of the fact that in capitalist cities ordinary and de-jure urban planning rules are frequently contradicted or substituted by de-facto systems practiced by or targeted to elite investors” (Briata and Di Vita, 2023: 2). Literature investigating the tendency to VIP-Urbanism, such as the articles in this recent special issue, extensively discuss (neoliberal) ideological forces that inform institutional and regulatory frameworks favoring aggressively pro-market, even elitist investment choices at the expense of potential pro-welfare decisions that may improve the ordinary denizens’ everyday lives in “a two-tiered system of urban governance” in many capitalist cities (Briata and Di Vita, 2023; Caimanque and López-Morales, 2023; Lauermann and Mallak, 2023: 645; Smitha, 2023; Tedesco et al., 2024). These studies meticulously dissect and explain prevalent institutional mechanisms of neoliberal and entrepreneurial urban governance, from place-marketing, lobbying, zoning, and public–private partnerships (Briata and Di Vita, 2023: 2; Lauermann and Mallak, 2023: 650; Smitha, 2023: 2) to borderline “illegal” practices of “tax avoidance through real estate” by globalized networks of real estate and financial corporations (Lauermann and Mallak, 2023: 657). It is also demonstrated that processes of VIP-Urbanisms are driven by increasing inter-urban competition to attract “global capital” by facilitating and promoting “luxury real estate” for the “global super-rich” in the globalized, neoliberal world economy (Briata and Di Vita, 2023: 2–3).

These are timely analytical interventions, especially given the current turbulent financial markets and corresponding monetary policies in advanced capitalist economies following the pandemic. It is now common knowledge that everyday denizens, especially the low-income, have struggled with the ramifications of such strategies over the past decades. Many of these ramifications were tragically exposed during the pandemic as many low-income households were, in effect, trapped in densely populated, ghetto-like residential areas without adequate access to affordable healthcare systems. And the most recent economic volatilities will only intensify the already-extensive inequalities.

Against the backdrop of the changing structures of the global capitalist economy, identified by many as the fall of both globalization and neoliberalism (Roberts, 2022), and their associated scholarship on what this changing context means for geographic research (e.g. Alami, 2023), this essay aims to draw attention to a set of questions regarding the role of macroeconomic structural forces that enable or hinder urban governance with implications for how elite urbanism can be contested. Firstly, why did the ideological structure of neoliberalism become dominant in the urban governance of the past four decades, and what economic forces made it a strategy of choice? Secondly, is the driving force of such a widespread tendency in urban governance to favor luxury investments entirely ideological, or are there economic structural forces that warrant such tendencies? That is not to say that the economic question is absent in the literature. However, the literature extensively analyzes and conceptualizes the economic ramifications of this ideological transformation to explain “how the economic and spatial landscape of cities in the advanced capitalist world are refashioned” by this ideological transformation (Smitha, 2023: 2). That is, economic relations (particularly at the local level) are analyzed as the consequences of the change in regulatory regimes and “management culture” of “elite centric” neoliberal ideology to promote “the culture of VIP-Urbanism” (Smitha, 2023: 3). By discussing these questions, the essay proposes building blocks to extend the critique of capitalist urbanization and relate it more to the imperatives of the post-neoliberal and de-globalizing world economy. The essay's central argument is that the changing global economic context calls for adjusting our analytical starting points, including (a) reintroducing the role of the national level in the analysis, (b) rethinking the impacts of de-globalization and the fall of neoliberalism on future investment patterns, and lastly, (c) rethinking previous theoretical turns that favor institutional and agential approaches over structural economic explanations.

Underlying economic theories for and against the tendency toward VIP-Urbanism

Elite-driven practices in urban and housing provision have dominated capitalist cities since the late twentieth century (Peterson, 2024). Informed by neoclassical (microeconomic) theory, policies have been adjusted and modified to attract private investments in the context of rapidly falling welfare expenditure in low-income neighborhoods (from housing to transport, healthcare, and education). The microeconomic approach relies upon firm-level evaluations of market expectations using cost–benefit analysis for policy recommendations and supply–demand equilibrium to analyze pricing patterns (Bassett and Short, 1980). The market forces of supply and demand, therefore, function as a tool to reward the most efficient investors instead of some preplanned public policy (Shaikh, 2016). The core assumption is that both investors and consumers behave according to a trade-off between investment costs and their budget, and property prices are driven by the dynamics of supply and demand, that is, if the prices are going up, it means there is a disequilibrium in terms of higher demand to supply ratio and vice versa (Alonso, 1964).

The heterodox critiques of the neoclassical approach draw attention to the social ramifications of a fully market-regulated urban economy, such as spatial inequalities and marginalization. Especially (but not exclusively) in housing studies literature to explain the causes of the process, geographers began with analyzing institutional and regulatory frameworks that facilitate the pro-market approaches primarily at the micro-spatial, that is, plot level (Moreno Zacarés, 2024a). The dominant heterodox approach in urban research explains the reasons for the ubiquity of such frameworks across the advanced capitalist world by referring to the rise of market fundamentalism of the neoliberal ideology since the late 1970s (Berry, 2014). However, their explanation of investors’ behavior is similar to that of pro-market explanations. It is explained at the firm level, driven by short-term expected financial returns, that is, speculative investments in real estate. Again, the speculative behavior, it is argued, is encouraged and facilitated by the neoliberal ideology and its associated financialization of not just the formal capitalist economy but also everyday life.

In the literature I discuss here, the critique of VIP-Urbanism and luxury real estate is well-rooted in such heterodox economic theories. Both Kalecki (2009 [1969]: 97) and Keynes (1964: 47–48) stressed that in the context of falling demand from middle-to-low-income consumers, investors can (and frequently do) switch to luxury markets to counteract the negative impacts of the potential fall in demand from those parts of the population and maintain their expected profit rates. This assessment is accurate with one caveat: for Keynes and Kalecki, these market-switching practices are historically contingent on fluctuations of demand and do not represent a long-term persistent trend. That means that, at least theoretically, we should expect a slowing down of the trend in VIP-Urbanism if the underlying economic context changes.

Global economic context for the rise of VIP-Urbanism since the late twentieth century

VIP-Urbanism has flourished in the neoliberal era and its associated globalization of the world economy. And its rise, in turn, is explained as a consequence of the neoliberal and globalized world economy by its critics. Let me introduce the two concepts and outline some empirical implications of the changing dynamics of the global capitalist economy for urban research in the future.

Globalization

Globalization involved extensive offshoring of manufacturing production from the advanced capitalist world primarily to areas with cheaper labor and (more) flexible labor laws (Peck, 2017; Post, 2023). This large-scale offshoring process created an intense competitive context for capitalist cities in the Global North to attract investments, thereby increasing employment, resulting from waves of de-industrialization as more and more manufacturing investments tended to switch to the Global South. The inter-urban rivalry for elite (transnational) real estate investments that VIP-Urbanism literature analyzes aims to explain this trend (Briata and Di Vita, 2023).

In response to this rapidly expanding globalization, urban radical geographers of the neoliberal era turned their focus on questioning what many labeled methodological nationalism in the context of an increasingly globalized world economy. In this context, even David Harvey was criticized for putting too much emphasis on the national level trends and variables and ignoring micro-spatial and agential processes of urban governance and spatial change (see Wyly et al. 2009).

But as noted above, as far as the global capitalist economy is concerned, things are beginning to change, and not for the better. In the new world economy that is taking shape before our eyes, where fierce and increasingly violent geopolitical rivalries and protectionist (even nationalist) strategies dominate the global power struggles, the ideals of neoliberalism and its associated globalization seem to belong to a distant past (Roberts, 2022). Last May, the US national security adviser, Jake Sullivan, declared the end of “ideas that championed tax cutting and deregulation, privatization over public action, and trade liberalization as an end in itself,” and the beginning of a new era “defined by geopolitical and security competition,” admittedly against China (Sullivan, 2023).

Without reading too much into Bidenomics and its hypothetical impacts on the world economy, it should be noted that the recent intense and dangerously escalating geopolitical conflicts, together with rapid declines in major indicators of globalization since 2015, call for adjusting some of our analytical points of departure including underestimating the impacts of economic structures at the national level on local investments and decision-making. To name a few, I shall list rapid falls in foreign direct investments (falling from over 2 trillion USD in 2006 to less than 1 trillion USD in 2018) (IMF, 2023: 77; UNCTAD, 2023), slower pace of growth and income convergence among richer and poorer countries (IMF, 2023: 29), declining ratio of exports to gross domestic product (at the global level) (falling from 61% in 2008 to 56% in 2020) (IMF, 2023: 29), rising tariffs, particularly ensued from US–China trade war that began in 2017 (PIIE, 2024) and a highly likely European Union–China trade war (The Economist, 2023), as well as rapidly rising global military spending (Watterton, 2023: 188).

It could (and I dare say should) be convincingly argued that even at the peak of globalization in the late 1990s, nation-states never entirely lost their relevance for economic geographic analysis, as contributions to this special issue also show (Slobodian, 2023). But the changing contours of the capitalist global economy once again (with the so-called de-globalization or slowbalization) demands a thorough revision of our approach toward urban inquiry and begin questioning the presumptions that best pertain to the previous era.

Neoliberalism

The next crucial variable is neoliberalism. It is a “rascal concept” (Peck et al., 2018) with no clear-cut “blueprint” (Peck, 2010), and that has led different theorists to attach different meanings to it (Fine and Saad-Filho, 2017). It is, nonetheless, commonly defined by urban geographers as “a form of government that relies on market-based incentives, that is, price signals, to achieve its ends” (Barnes and Christophers, 2018: 11). Writing after the Great Recession of 2008, Jamie Peck shrewdly predicted that although “the practice of neoliberal statecraft is inescapably, and profoundly, marked by compromise, calculation, and contradiction” (Peck, 2010: 106), the crisis seems “less and less like a ‘normal crisis’” and neoliberal governance “may indeed have entered its zombie phase” (Peck, 2010: 109). Fourteen years later, the picture seems much clearer when even top-ranked officials such as Sullivan safely announce the end of neoliberalism as we know it, and no one finds it preposterous (Sullivan, 2023).

But what does this structural crisis of neoliberalism mean for future strategies? In order to answer this question, we need to address two structural questions concerning the rise of neoliberalism: (a) what economic forces contextualized its rise in the 1970s? And (b) were policymakers aware of these economic forces, and if so, did their knowledge inform their policies?

To answer the first question, Michael Roberts (2019, 2021) evaluates the legacy and future of neoliberalism by investigating the preconditions of its rise in the first place. And he does so by looking at three variables: general profitability, profitability of the manufacturing sector, and productivity. He assesses that neoliberalism helped improve general profitability, while its records on improving the other two were mixed in that manufacturing profitability was not improved, and productivity was only improved in some sectors such as information and communications technology. Therefore, certain crucial aspects of the neoliberal era (such as privatizations, deregulations, and long working days that directly correspond to manufacturing profitability and productivity) will likely remain pertinent for now.

Two years ago, in his extensive archival study of economic policymakers of the Thatcher administration, Jack Copley (2022) showed that not only were they crucially aware of the need to improve manufacturing profitability, but also the shift toward financialization was not their first policy choice as they finally landed on it after an intense round of trial and error and experimentation with different policies, of which the eventually victorious financialization was the one that promised potential in restoring profits. That is a telling case that shows urban policymakers, and strategists are affected by such economic conflicts at the national level, and their policy choices are modified according to macroeconomic pressures. The most successful strategies will be those informed by the knowledge of economic structures at both national and city levels.

Building blocks of a complementary conceptual framework to critique VIP-Urbanism

So, if we agree that our time is marked by two significant turning points (de-globalization and the beginning of the fall of neoliberalism), then we need to start rethinking their impacts on future patterns of urban investments. To that end, I propose developing a multi-scalar and inter-sectoral framework, which also includes reintroducing the national level into urban geographic inquiry to contextualize micro dynamics of investments over individual land plots by individual investors. To illustrate: the geopolitical implications of trade wars and rising protectionism seem self-evident. But they also have economic implications in terms of industrial restructuring and that has implications for future urban and regional economic development and investment patterns in cities of the Global North as well as the Global South.

Another example to show the significance of a multi-scalar and inter-sectoral framework in this new economic context is the housing sector. The housing sector is a good example because its multifaceted and scalar problems are already well-known (Allegra et al., 2020; Zhang, 2020). It, therefore, should be obvious to assume that housing problems cannot be explained (and tackled) in isolation from broader socioeconomic developments, such as improving wages and employment opportunities, attracting investments, and analyzing profit expectations of both producers and consumers beyond its sectoral limits. That is of utmost importance, especially today, as continuous problems of affordability have now been coupled with financial and regulatory turbulence, for example, hiking interest rates and inflation, in the context of stagnant wages and disinvestments in construction.

Urban economy and investment flows to urban land are no different in that they are, too, driven by economic forces beyond the city's borders. And urban governance is to be curbed by the pressure from these economic forces at national and even international levels (Brenner, 2019). This process is, of course, sensitive to the context in that the mechanisms that connect local policymaking to national (or international) economic forces are different in each case. But the overall logic remains true that policies are repeatedly adjusted and revised to keep the capitalist economy healthy, that is, to keep the manufacturing sector profitable, aggregate investments high, and the economy growing (Shaikh, 2016; Tapia, 2018). At the city level, there are context-dependent mechanisms: cities depend on the central state's financial support to fund their social and welfare projects and on structural patterns of employment and income levels over which they have no immediate control. This risk of a scalar trap by “avoiding the influential role of the national state and transnational interests in the city” is noticed in the literature, and these conflicting interests are analyzed as “entrepreneurial forms of governance,” “transnational economic power,” and “normative and state power frameworks” (Caimanque and López-Morales, 2023: 4).

Moreno Zacarés (2024b) proposed a framework to this end and suggested that land rent theory be used as a mechanism to connect macro-dynamics of capital accumulation to micro-spatial and regulatory processes (inspired by Robert Brenner's concept of social property relations). I have also proposed a framework to incorporate Marx's concept of absolute rent as a conceptual tool to do the same (Farahani, 2021). This framework aims to theorize absolute rent as a macroeconomic mechanism to relate investments on urban land to inter-sectoral competition at the whole economy level. Land rent is an excess profit rate in land-based ventures. Its fluctuations depend on temporal rises in sectoral expected profit rates measured by Shaikh's (2016: 68) incremental profit rates (“the change in gross profits divided by the gross investment in the previous year”). The aim is to explain investment flows to urban land as nonlinear and historically contingent.

Such analytical frameworks are inspired by classical political economy and its emphasis on economic structures and macro-dynamics of capital accumulation. In urban economic geography, especially in the 1970s and 1980s, the radical geography tradition championed this approach with extensive theoretical and empirical interventions, including early works of Harvey (1978, 1982, 1985), Richard Peet (1975, 1977), and others to incorporate what Kevin Cox (2013) calls “structured coherence” into the urban analysis. Since the late-1980s, however, at least empirical contributions began to fade in favor of institutional, agential, and micro-spatial approaches (Moreno Zacarés, 2024a). The contextual turning points in the global capitalist economy might justify rethinking this shift.

Final remarks

This essay calls for extending the discussion on contesting the tendency toward VIP-Urbanism to incorporate the changing historical context marked by the fall of globalization and neoliberalism. The existing literature on VIP-Urbanism contextualizes this tendency in a global, neoliberal world economy. But the changing context calls for further theorization and rethinking of some of our central presumptions. The fact is that identifying which aspects of such strategies remain relevant and contesting them requires a systematic and thorough knowledge of economic structures that made it (and its underlying ideological justification) a viable alternative. The building blocks of a multi-scalar and inter-sectoral framework proposed in this essay aim to extend the critique and relate it to the changing historical context.