창작과 비평

[David Harvey] Realization Crises and The Transformation of Daily Life



David Harvey

Distinguished Professor of anthropology and geography at the Graduate Center of the City University of New York (CUNY).


*The following presentation was made at the Korea Press Center in Seoul, South Korea, 21 June 2016 and its Korean translation was published in The Quarterly Changbi (Autumn 2016).  ⓒ David Harvey 2016




I want to start with a simple fact, which astonished me and continues to astonish me. Between 1900 and 1999, the United States consumed, according to the U.S. Geological Survey, 4,500 million tons of cement. Between 2011 and 2013, China consumed 6,500 million tons of cement. In three years, the Chinese consumed around 40% more cement than the United States had consumed in the whole of the preceding century. That is a scale of magnitude of spreading cement around which is quite unprecedented. Those of us who live in the United States have seen plenty of cement used over our lifetimes. But what has happened in China is extraordinary. And you can just imagine what some of the environmental, political, and social consequences might be. So the question I want to ask is: why did this happen?


I should first make clear, lest I be misinterpreted, that if this fact elicits some critical commentary on my part then this does not mean I am anti-Chinese. I have to say this because in these times there is a tendency to explain what is happening in the world in terms of national rivalries and the goods and bads of national behaviors and policies. In the political world of the United States, China is frequently blamed for many of our problems (unemployment, loss of good jobs and the like). The fact that this huge use of cement occurs in China is incidental to my argument. Though I do not exculpate state policies entirely, the problems that arise are primarily those generated out of the contradictions of capital. I am anti-capital but not anti-Chinese.


I also want to signal a mild complaint about how the social sciences work these days. When I first got into academia, we were obsessed with the question, why? We spent a lot of time on that question and we often made some pretty flamboyant and speculative guesses —sometimes, I must admit, far-fetched and totally unsubstantiated and in some instances arising out of a rather dogmatic Marxist reading of capitalism’s history. But since the1970s, there has been a gradual shift of emphasis. Less and less do researchers ask, “why?” Instead, they ask, “how and where?”


Concentrating on how and where has helped a great deal to deepen our understandings. It leaves us much better equipped to unravel the intricacies of how things actually happen. It frees us from the chains of dogmatic assertions. We no longer presume some grand explanation, like the compelling force of class struggle or crude functionalist theories of state action. Instead we describe in detail how it is that, say, the developers get together with the lawyers and the construction companies, with the financiers, landowners and state officials to launch fantastic megaprojects that require a lot of cement even as they spark protests from evicted homeowners and tenants from this or that space in the city, as well as from citizens in general who believe it would be better to spend the money and resources on more socially beneficial investments. We pay far closer attention to local conditions. We are much more sensitive to cultural and environmental differences. The “where” matters. But this also has some perverse consequences. It introduces national character into the debate (e.g. in the case of Greece) in ways that can mask what the underlying dynamic of endless capital accumulation is about and the social consequences it produces. None of this, furthermore, requires a grasp of grand theories. Indeed, attachment to such theories might seems to get in the way of pursuing the details of the how and why. Following Foucault, we become sceptics of all metatheories.


But maybe we have gone too far in this direction, concentrating a bit too much on “how?” and “where?” to the point where we forget entirely to ask “why?” We ignore the power of metatheory on principle rather than as a convenient practice in certain research situations. Whenever I ask somebody who has been very deeply involved in a "how and where?" story “why did it happen?” then the answer nearly always comes back: “it's complicated” as if that in itself is an adequate answer. My answer is, “yes, I know it's complicated. But you've also got to tell me why. And if you can't do that because you are so totally wrapped up in the complications of the how and where, then maybe you should re-think your research strategy.” Exploring metatheories in relation to particular instances might help ask deeper questions. And those questions, thoughtfully pursued, may lead to deeper understandings. I hope in what follows to show how this might be so.


So why has all of that cement been spread around In China? Cement is used in construction. This obviously means a massive investment in the creation of built environments, in urbanization and the construction of physical infrastructures. There has been an immense amount of that going on world wide in recent times – I see evidence of it in almost every city I have visited in the last few years - but China stands out in the data as by far the most spectacular example.


It is not only cement that is involved in construction. There has been an enormous expansion of steel production and use in China. More than half of the world's steel output and use has taken place in China in recent years. That required a vast amount of iron ore to make the steel. Many other materials, like copper, sand, and minerals of all sorts, are being consumed at unprecedented rates world-wide. China has been consuming at least half and in some instances 60% or 70% of the world's key mineral resources over the last few years.


Raw material prices have, until recently, tended to soar. Mining activity has been accelerating everywhere. The terms of trade for raw material producers have tended to turn positive over the last twenty years or so, for the first time in many a year. From India to Latin America and Australia, whole mountains are being moved in the search for minerals, with all sorts of political, economic and environmental consequences. So the question of why China has been involved in such a huge expansion of its urbanization and infrastructural investment has global ramifications. It is undoubtedly, however, one of the reasons that a troubled global capitalism has survived as well as it has these last few years. I am pretty sure that the leadership in Beijing did not set out to save global capitalism from a great depression, but this is an effect of what happened in China particularly since 2008 when the global economy went into a tail spin.


To explain this, I have to dig into the how and where of what happened. In 2007- 2008, there was a financial crisis which originated in the USA. Because it originated in the USA it was defined as a global crisis. Other crises could occur in Southeast Asia in 1997-98. They were defined as regional crises. But in the same way the United States likes to call its baseball championships a World Series so it likes to refer to its crises as world crises too. And there is a certain truth to this. The US still has one of the largest and most influential economies in the world. While it is no longer the case, as the saying once had it, that if General Motors sneezes the world catches cold, it is certainly the case that major disruptions emanating from the US will have far-reaching global consequences. There is considerable evidence also, that faced with crisis conditions, US institutions and policy makers actively sought to disperse their effects around the world by globalizing it. In so doing they used many of the multilateral financial institutions and financial inter-relations to do their bidding.


The crisis of 2007-8 was in the first instance quite localized. It originated particularly in the South and Southwest United States and it largely arose out of intense speculation in housing and property markets in those regions. Speculative money poured into US property markets (as it also did in a few other places such as Ireland and Spain) when the stock market crashed in 2001. The world was awash with surplus liquidity at that time and much of it was absorbed in property markets forcing prices up and up. When the speculative housing bubble burst, there was a foreclosure crisis on housing loans. A “fictitious demand” had been created by offering sub-prime mortgage finance to people who had very little credit-worthiness. Property values collapsed in these regions in 2007 and many people lost their homes. People who have been foreclosed upon and who are unemployed don't go out and buy things. So the consumer market in the United States collapsed and many people lost their jobs. But the primary supplier to that consumer market was China. This was one link whereby the local crisis went global. The other link was through the financial system. The financial institutions had so structured the mortgage debt on housing as to be able to pass it on to others as an investment yielding good returns that were supposedly as “safe as houses.” But many of the mortgages were not secured by ability to pay, Anyone who had been gulled into investing in the new financial instruments lost money. The banks who held a serious part of the debt were threatened with failure and tightened credit including credit to consumers everywhere. Consumers who have just lost a lot of money and their jobs, and who can’t get credit certainly don’t go out and buy things. The weakness in the US consumer goods market spread and deepened. The downward spiral threatened to engulf the whole world in depression.


China suddenly found its export industries contracting if not collapsing in 2008. A twenty percent or more drop in exports occurred in a matter of months. Chinese statistics are notoriously unreliable as to what is real and what is not. But by some accounts, something like 30 million jobs were lost in China through the collapse of export markets in 2008-9. This is a huge job loss. If the real number was, say, 20 million the job loss was still huge. The Chinese government has traditionally been very nervous about potential social unrest. And with 30 million unemployed workers, this was a rather dangerous situation to be in. I believe the Chinese Government did what it did mainly to avert that obvious danger.


By the end of 2009, a joint report from the IMF and the ILO tallied up estimates of the global net job losses from the crisis. The United States had the largest losses. China only had a net job loss of about 3 million. Somehow or other, China managed to absorb 27 million people in the labor market in the space of about one year. This is an astounding and totally unprecedented performance.


How did they absorb such vast amounts of surplus labour so fast? It seems the central government basically told everybody to get out and lend and create as many projects and megaprojects as possible. Everything from regional to local to national endeavors were put to work. The banks were told to lend without restraint. In the United States, when Federal Reserve and the US Treasury gave money to the banks to lend, the banks ignored the instruction. In the US, the government does not have power over the banks. The banks used much of the money they were given to retire their bad debts and even buy back their own stock. The Chinese banking system does not work in the same way. If the bankers are told by the Central Government to lend, they lend. And they evidently did, incidentally making a lot of people ultra wealthy in the process.


So China absorbed a massive amount of labour by launching a huge urbanization and infrastructure development program, building whole new cities, integrating the space economy of the nation with highways and high speed rail networks, connecting southern and northern markets in a much stronger way, developing the interior of China so that the coast and the interior were much more matched together. While clearly the Central Government had wanted to do something like this for some time (plans were laid for the high speed rail network during the 1990s), the Chinese Government mobilized everything it could to absorb the surplus and potentially restive labour force because it probably thought it had to if it was to survive politically. In 2007 there were zero miles of highspeed rail but by 2015 there were 12,000 miles or so linking all the major cities together at 300 km an hour. Again, this by any standard was a phenomenal performance.


I am here reminded of what the United States did after World War II. The US economy needed to absorb a huge increase in productive capacity created during World War 2 and create well-paying jobs for a large number of Veterans returning from the war. If the Vets returned to the United States to be faced with unemployment on the scale of the 1930s, then there would surely be serious political and economic consequences. The problem for the US capitalist state and class was: how do we not go back into Depression? How do we actually absorb all of that productive capacity in ways which are going to be profitable and satisfy the wants and needs of a vast army of demobilized military? What would happen if the returning Vets faced a return to depression conditions, when the war against fascism had been fought in alliance with the Soviet Union?


One answer was the repression of all left-wing thinking through a fierce anti-communist movement known as McCarthyism. But that in itself could not have succeeded as well as it did without solving the economic problem. The US economy had to expand rapidly enough to absorb the surpluses of capital and labour. In part this was done through US imperialism, the Cold War (also anti-communist) and a vast expansion of militarism. These all certainly played a role. But in themselves these were not enough. The US was a largely self-contained economy not that much dependent on foreign trade. The expansion had to be internal to the United States itself.


The big thing accomplished after 1945 in the United States was a huge wave of investments in the built environment, in urbanization and in physical and to some extent social infrastructures (e.g. the higher education system). The interstate highway system pulled together the West coast and the South and spatially integrated the US economy in new ways. Los Angeles was an ordinary size city in 1945 but by 1970 it had become a huge megalopolis. Metropolitan areas were totally re-engineered with transport and highways and automobiles and suburbs and the development of a whole new suburban lifestyle (celebrated in popular TV sit-coms like The Brady Bunch or I Love Lucy). Well-paid jobs were required to support the effective demand for a suburban lifestyle. Labour and capital came to an uneasy compromise at the urging of the state apparatus in which a white working class made economic gains even as minorities (e.g. African Americans) were left out. As a result, the 1950s and 1960s were, in many respects, the golden years of capital accumulation in the USA. Very high rates of growth, a satisfactory situation for a white working class even as a powerful civil rights movement and uprisings in the central cities showed that all was not well for the African American and immigrant populations left behind. But the aggregate effect was to solve the overaccumulation problem through urbanization and investments in the built environment. As a Federal Reserve Report later put it, the United States has the habit of “getting out of crises by building houses and filling them with things.” My point, as we shall see, is that this is also how capital gets into crises as well.


In response to the crisis of employment in 2008, the Chinese in effect did much the same as the US had done after World War II, but did it much faster and at a far higher rate. This change of scale is very important to remark. I had come across this same strategy of using urbanization to solve economic and political problems several times before. The economic crisis of 1848 prompted working class and bourgeois revolutions in Paris. Both failed and Louis Napoleon took absolute power in a coup d’état in 1852 and declared himself Emperor in 1854. Louis knew that he would not last long unless he put labour and capital back to work. A fan of the utopian theories of Saint Simon, he initiated a lot of public works projects to be funded by associated capital. To this end he brought Haussmann to Paris to plan and rebuild the city. This was one way in which the surplus labor and surplus capital was profitably absorbed. The French economy flourished. Capital and labour were fully and profitably employed creating the new boulevards, department stores and the like. Daily life in the city was transformed into the consumerism of the city of light. The crisis of overaccumulation of both capital and labour in the period after 1848 was solved by transformations in lifestyle as well as transformations in the built environment. We still see the consequences of this effort when we walk Haussmann’s boulevards today. But the scale at which this was done was nowhere near that accomplished in the US after 1945 which was in turn nowhere near the scale and speed of transformation that has recently occurred in China.


In all this, there was an underlying problem. The new constructions had to be debt-financed. New institutions and methods of financing had to be created to sustain the effort in each case. A new kind of credit-driven banking became more prominent in Paris. But at a certain point debt creation and skepticism as to the value that stood behind the debt came to the fore. The debt crisis of 1867-8 in Paris engulfed not only the speculative financial institutions but also the finances of the city and Haussmann was forced to resign. The city was mired in debt and close to bankruptcy. Unemployment and unrest ensued In Paris. Louis Bonaparte sought to save himself by a nationalist strategy that led into the Franco-Prussian War of 1870-71. He lost the war and fled to England. In the wake of the war and the German siege of Paris the inhabitants made their own revolution – the Paris Commune of 1871 - one of the greatest urban uprisings in human history. The people took back “their” city from the bourgeoisie and the capitalists who had plundered it.


Solving the overaccumulation problem through rapid urbanization comes at a certain cost. In both the Paris and the United States cases, it meant relying heavily upon debt finance and the deployment of fictitious capitals. In the United States, new mortgage finance and other institutions had been put in place in the 1930s but even greater levels of state intervention occurred after 1945. The system worked well for a time but stresses were evident as early as 1967. The whole process came to a crashing halt with the property market collapse and the technical bankruptcy of New York City (one of the largest public budgets in the capitalist world at that time) in 1973-5. This initiated a period of serious recession and capitalist restructuring not only in the United States. The general crisis of the 1970s affected Britain, Europe, North America as well as many other countries such as Australia and Latin America. In somewhat similar fashion, the crash of the US stock market in 2001 led money to flee the stock market and produce the property market boom that helped sustain global capitalism up until the Lehmann Brothers collapse of 2008. The Lehman Brothers collapse had effect throughout the global financial system.


China likewise debt-financed its way out of its difficulties in 2008. But unlike Greece and other places, China didn't debt-finance using dollars or euros. It had enough foreign exchange surplus from the United States to be insulated from foreign pressures. China could borrow in its own currency. The great advantage of this is you can always issue more money and if necessary inflate away the debt and recapitalize the banking system (as happened at the end of the 1990s). China moved from a fairly low debt to GDP ratio to one of the highest in the world by 2015. A hidden banking system came into being to cover over many of the gaps in finance and hide a lot of the debt obligations. It doubled its ratio of debt to GDP in about six years through this huge urbanization and infrastructural investment surge. Reports circulated suggesting many municipal and local governments were effectively bankrupt by 2013 and the condition of some lending institutions was dire. Nevertheless, it was still the case that about a quarter of Chinese GDP was taken up by housing construction alone. When all the other investments in the built environment were added in, about half of Chinese economic activity and growth was arising out of re-shaping the built environment. Hence all that production and consumption of cement and steel. The China, ike the US before it, was avoiding recession and a potential depression along with the political threat of widespread unemployment “by building houses and filling them with things.”


This was the Chinese answer to what might have been a very serious depression in 2008. This was not an answer, however, unique to China. There were attempt to emulate it elsewhere. Turkey, for example, which went through a crisis in 2001, got out of the problems of 2007-8 through the same kind of huge expansion in its urbanization. New airport, a third bridge over the Bosphorus, the urbanization of the northern part of the Bosphorus to create a city of some 45 million people. Every city in Turkey showed evidence of a strong building boom. Turkey, largely as a result of this, was little affected by the crash of 2008 (although it, too, saw its export industries suffer). Turkey had the second highest growth rate, after China during this post-2008 period. Spectacular urbanization in the Gulf States also absorbed a lot of surplus capital. In the main urban centers property markets quickly revived for the upper income brackets after 2009. New York City and London soon were experiencing property revivals in high-end construction even in the absence of any investment in affordable housing for the less well off.


Anybody who supplied China with the necessary raw materials, like copper, iron ore, and the like, came out of the crisis of 2008 pretty well. Most of Latin America, which was full of raw materials recovered relatively quickly from the 2007-8 crisis. In addition, Latin America turned itself into one vast soybean plantation, basically, for the China trade. It switched its allegiances in terms of global trade to the Pacific and to Asia. The depression, which affected the United States and elsewhere, didn't really affect Latin America to the same degree. It was relatively mild. Mineral rich Australia likewise thrived.


In Brazil, besides having raw materials, they also did the same thing the Chinese had done. President Lula, when the crisis hit, said, we're going to build a million houses, low-income houses for the poor. That program, Mi Casa Mi Vida, became part of the Brazilian answer to what was a rather shallow depression in 2007- 2008. Unfortunately, as often happens, what the Brazilians did was basically give the money to the construction companies. They didn't ask them to urbanize in any sensible kind of way. So construction companies just built shoddy housing in bad environments without any kind of infrastructures. They didn't build a city. They didn't build a liveable urbanization. They just built houses and dumped them down wherever they could find a place to put them. Of course, that did absorb capital and labor. But it didn't actually create a decent living environment for anybody.


When we step back and look at this world in aggregate during this period then a strange dichotomy becomes apparent. There is this vast urban and infrastructural expansion going on in China, with outliers in other countries like Turkey or in other sectors (like high-end condo construction for the rich in major urban centers around the world). Many countries were enabled by these strategies to recover quickly from the effects of the crisis of 2007-8. In the United States and Europe, however, we find a commitment to the politics of austerity which locked their economies into no growth. In this part of the world, the politics of neoliberal orthodoxy and austerity were, for the most part for ideological reasons, tightened. This contrasted with a Keynesian style expansion of China. The world effectively divided into two camps. The Chinese camp expanded through broadly Keynesian practices that depended upon demand creation led by the state and the West contracted through its dedication to supply side management that focused on fiscal practices of debt reduction. Public policies and politics were differentially shaped accordingly. The Chinese camp effectively rescued capitalism from a deep depression threat through massive urbanization and investment in infrastructures.


But as happened to Haussmann in 1867 and as happened to the grand suburbanization spree at the end of the 1960s in the USA, all good things come to an end. China in the years since 2013 has been increasingly exhibiting signs that its solution is running out of steam, that there is chronic overproduction and overaccumulation in the built environment, that its economy is burdened by vast holdings of non-earning assets and that the returns from the undoubted improvements in productivity are just not there. It may no longer be possible to continue down the path of endless expansion of investments in housing and other physical infrastructures (as happened in the USA after 1968 and to Haussmann in Paris after 1867). Since 2013, China has pursued an “on again and off-again” approach to its expansionary ambitions, sometimes curbing infrastructural investments only to switch them back on again when conditions looked bad. The simplest (an undoubtedly crude) was to look at the problem is that in the early stages of the investment wave when a third of Chinese GDP went into fixed capital infrastuctures then the growth rate stood well above 10 percent (sometimes as high as 12 percent) but as conditions became more fraught after 2007 the expansion of the allocation to fixed capital investments to half of GDP has generated a falling growth rate down according to official statistics closer to 6 percent (with some outside analysts suggesting in reality it is far lower). The rate of return is falling fast and indebtedness is rising faster and faster.


Ventures of this sort elsewhere have also run into difficulties. Dubai World went bankrupt and had to be bailed out. The Turkish boom has been cut short, foreign investors are bailing out and empty apartment blocks litter the land.


It is simply not possible to continue such strategies for ever, and the volatility in fortunes is marked. As the construction boom recedes, surplus productive capacity in, for example, cement and steel production, becomes a problem. The global demand for raw materials slackens and the terms of trade for raw material producers turn unfavorable. Two or three years ago Brazil was flush with money. Now it is in recession. The money has dried up. Politically everything is also falling apart.Ecuador was doing great until a couple of years ago. They were building highways, shopping malls and high rise condominiums along with a new airport on the back of high prices in extractive industries. I couldn't figure out how this related to their great vision to pursue “Buen Vivir” rather than economic growth. But no matter, that was what they were doing. All of that has now come to an end. Since 2014 most of Latin America has seen deepening economic distress. And a substantial part of the reason is because the China market is not so vigorous anymore. The slackening of demand from China has had negative effects elsewhere. Even Germany, which exports high tech machine tools and equipment to China, has felt the draught.


In this way, the crisis tendencies of capital have been moving around. This is where the macro-theory proves helpful. It helps us understand why crisis tendencies necessarily move around geographically, from one part of the world to another and sectorally from one industry to another. A housing crisis in the American South and West, creates a financial crisis in New York and London, which becomes a credit crunch across Europe and North America which is solved by the proliferation of sovereign debt crises which produce cascading crises in the living standards of the people. At the end of the day it is the people who pay and the people who suffer while capital is rescued. Just look at the case of Greece.


As crises get moved around, they are subject to interpretation by the media and by popular common sense explanations as having different causalities. In the Greek crisis, the fight with the Germans occurred because the many Germans believed the Greeks were lazy and culturally backward. Very simplistic explanations circulate, e.g. the crisis is due to immigrants (very common theme in Europe and the USA) or lazy welfare cheats and unfair foreign competition (e.g. from China!!). Scapegoat and blame everyone and everything, except capital!


The thesis I am proposing here is not only that crises get moved around, but that crises are embedded in the very structures of what capital accumulation is about. This is where some consideration of macrotheory is helpful. My thinking here is guided in part by a reconsideration of Marx's theory of value. In going back over this, I find that Marx is interested not only in value, but in anti-value. The idea of anti-value is simple. A capitalist invests in producing a commodity and the commodity has a potential value. But if nobody wants, needs or desires the commodity then it has no value. The history of capital is, therefore, about the production of new wants, needs and desires. And this is what the transformation of Paris and the building of the suburbs in the United States entailed. And it is what is happening so dramatically in contemporary China. The cultural and psychological jump from peasant life in a village without any mobility to whizzing around the country at 300 km an hour is huge. Without this, what seemed like socially necessary labour time becomes socially unnecessary labour time. From this also derives a theory of devaluation of capital as an answer to overaccumulation. Surplus capital and labour may be absorbed by investments in infrastructures and the built environment but the result may be the creation of excess productive capacity. The result is devaluation. This is the problem that is clearly haunting China right now. Anti-value is everywhere. If it cannot be redeemed by new value production, the result is devaluation.


I am struck here by a powerful analogy. The physicists explain the birth of the universe in terms of the clash of matter and anti-matter. Marx explains the dynamics of capitalism in terms of the dynamic relationalities of value and anti-value. This may be also what Schumpeter meant by the term “creative destruc