If the ‘titan’ US economy is still its testing ground, capitalism is in long-term trouble
WHAT KIND of crisis are we in? The dominant frame of mind is still that the global economy had a nasty accident in 2007 but that the crisis is not systemic. It is essentially a problem of peripheral economies, such as us and the Greeks. If these bad apples can be prevented from spreading their infection, the system will recover and everything will be as before.
But what if Ireland, Greece and Portugal are not the sources of infection, but mere symptoms of a deeper malaise? Usually, if you want to convince yourself that capitalism is still working, a visit to the US will do the trick. For all the talk of the rise of China and India, it is still the centre of gravity of the global economy, still the titan with the strength to break whatever chains may seem to bind it. But a recent visit to the east coast of America suggested that if the US is still the testing ground, the system of which it is the supreme embodiment is in long-term trouble.
The best way of grasping what is happening in the US is to look at the huge metropolitan areas that account for the vast bulk of its economic dynamism. On their own, big US cities make up some of the world’s largest economies. If they were countries, New York would rank 13th in the world, Los Angeles 18th and Chicago 21st. Even Washington DC has an economy larger than Norway’s, Austria’s or South Africa’s. Ireland’s GDP is about the same as that of Minneapolis or Detroit.
Between eight and nine in every 10 jobs created in the US are in the big cities. These cities aren’t just crucial to the American economy, however. They are the engines of globalisation. They soak up immigrants and exports from every continent. The capital they generate fuels investment around the world, including, of course, Ireland. If they’re in trouble, then so is the whole model of economic globalisation.
And they are in trouble. Not all of them, by any means. The cities with thriving economies – Houston, Oklahoma City, El Paso – tend to be the ones that benefit most from high commodity prices and rapid population growth due to immigration. But a very significant number of big US cities are in a crisis that is not going to end any time soon.
Many of these great urban centres have ceased to be engines of growth in employment. They have lost staggering numbers of jobs during the recession that started with the subprime mortgage crisis of 2007: Detroit has lost 323,400 jobs; New York 385,200. At the end of 2007, just 50 US metropolitan areas had unemployment rates of more than 6 per cent. The corresponding figure now is 331.
The crisis isn’t just the familiar one of the de-industrialised American rustbelt in the midwest. Of the 25 metropolitan areas with the highest unemployment, 13 are in California and seven are in the “sunshine states” of Florida, Nevada and Arizona. There are Californian cities like Fresno and Modesto with unemployment rates even higher than Ireland’s.
The mainstream view is that this is tough, but not untypical. It’s what happens in recessions and the US has shown an extraordinary capacity to bounce back from those before.
But the real story is that it is now being acknowledged that dozens of major US cities will not get back to the levels of employment they had before the subprime crisis hit any time this decade. In some cases, it will be after 2021 before they have recovered completely.
A recent report by the United States Conference of Mayors (.usmayors.org/metroeconomies/ 2011/report.pdf) shows that nearly 50 major US cities will have to wait at least a decade to get back all the jobs they’ve lost in the crisis. They include big names like Cleveland and Dayton, Detroit and Reno, Atlantic City and Sacramento. In these places, the famous elasticity of the US economy seems to have snapped.
The problem isn’t just economic, it’s also political. US politics has been dragged so far to the right that very few elected officials dare to say that city governments need money to invest and that the only place they can get it is from taxes.
Cities and states have $2 trillion in debt and there have been predictions from respectable sources that up to 100 cities are close to bankruptcy. With the brief era of fiscal stimulus coming to an end, these cities are, in effect, on their own. The federal government won’t bail them out and their state governors can’t do so, even if they wanted to. Already, schools are being closed, teachers made redundant, and basic services such as road maintenance are being more or less abandoned. Meanwhile, 44.5 million Americans are on food stamps – one person in seven and a 64 per cent increase since March 2008.
This doesn’t mean that the US is about to collapse. But surely it suggests that the crisis in neo-liberal capitalism is about much more than little rogue economies such as ours.