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April 18, 2000
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About the speaker: Saskia Sassen is Professor of Sociology at the University of Chicago and Centennial Visiting Professor at the London School of Economics. Her most recent books are Guests and Aliens (New Press, 1999) and Globalization and its Discontents (New Press, 1998). |
Fully updated editions of The Global City (Princeton University Press) and Cities in a World Economy (Pine Forge/Sage) will be released in 2000, as will her edited volume Cities and their cross-border networks (sponsored by the United Nations University). Currently, she is completing a research project on ?Governance and Accountability in a Global Economy.? Sassen?s numerous publications have been translated into ten languages. She is a Member of the Council on Foreign Relations and a Visiting Fellow of the American Bar Foundation.
Rapporteur's Report
Understanding the global information economy, argued Saskia Sassen at the outset of her presentation, "demands?a reinventing of the categories through which we understand it, a reshuffling of the data sets." Strictly technical interpretations of the underlying infrastructure, though commonplace, lead us in the wrong direction when we seek to answer questions of location and organization. The data of the information economy may travel on a electronic network that confounds traditional notions of place, but the people, firms, and social networks that comprise that economy are indeed constrained by its organizational architecture.
Understanding the global information economy "demands a reinventing of the categories through which we understand it, a reshuffling of the data sets."
Conventional wisdom often suggests that information-age firms can locate anywhere they please, but Sassen argued that firms in the information industry have varying degrees of mobility depending on their products and organizational structure. One category of firms?those with either highly standardized or highly specialized products?does enjoy the freedom to locate its operations and workers almost anywhere. Firms that produce standardized goods or do very routine work have many locational options; data entry and simple manufacturing, for instance, can be moved to wherever labor costs are lowest. Similarly, those that do highly specialized work?e.g., software or multimedia design?can also locate wherever they like, using information and communication technologies to market their products around the world.
A second type of firm also enjoys considerable mobility but is somewhat constrained by the availability of information infrastructure. Large, global firms with operations around the world can often locate their headquarters wherever they choose. A firm with affiliates in thirty different countries, for instance, must do business under thirty different accounting and legal systems, an operation too complex for it to manage in-house. Such firms increasingly outsource these business functions to local service firms, giving the headquarters the freedom to locate wherever is most convenient. A global auto manufacturer, for instance, can just as easily direct its operations from Europe or Asia as it can from the United States. The locational flexibility of corporate headquarters is not absolute, however; only certain cities offer the information infrastructure necessary for managing a global corporation. The auto manufacturer above can be based in Detroit, Frankfurt, or Tokyo, but not rural West Virginia or rural China. "To have hypermobility of capital you need capital fixity," Sassen argued. "To have instantaneous transmission around the globe you need a certain amount of materiality, which will tend to be highly concentrated."
A third type of information-age firm, which is ironically the most embedded in the information economy, also faces the most distinctive set of locational constraints. Small, specialized firms providing accounting, legal, or financial services are deeply embedded in networks that are essential to their operation. The network as a whole is not particularly constrained by location?it would function effectively if picked up and moved somewhere else?but any individual firm cannot separate itself from this geographically based network and still survive.
This dynamic produces a collective action problem in the information economy. São Paulo, Brazil, for instance, has emerged as the business and financial center for the South American common market, Mercosur, even though it is a more dangerous and generally less desirable city to live in than Argentina?s capital, Buenos Aires. Both cities offer the infrastructure to support global transactions, but firms pay a premium in security costs to locate their employees in São Paulo. Each firm there, however, is embedded in a financial and business network that is essential to its operation; to shift the capitol of Mercosur to Buenos Aires, the entire network of firms would have to relocate. Absent such collective action, which would be near impossible to orchestrate, firms remain in the less ideal city of São Paulo. "The level of organizational complexity that is embedded in a business center, in a financial center," argued Sassen, "actually emerges as an enormously important variable for firms to maximize the benefits that they can derive from?these technologies."
Shifting to the composition of the global information economy, Sassen focused on the finance industry, which she saw as the epitome of information-age business. Here, Sassen argued that traditional economic categories and metrics have proved insufficient and inaccurate in describing operation and determining value. Pointing to the recent extreme fluctuations in American stock markets, where losses in one day reached a significant percentage of U.S. Gross Domestic Product, she noted that valuation in finance has diverged from the measurement of GDP. The textbook definition of finance treats it as a service industry, she argued, but it is also becoming its own commodity industry, driven by the buying and selling of financial instruments. These new dynamics suggest the future composition of the information economy.
"The level of organizational complexity that is embedded in a business center, in a financial center, emerges as an enormously important variable for firms to maximize the benefits that they can derive from these technologies."
In the Q&A session following Sassen?s presentation, several members of the audience noted the similarity between locational constraints ofnetworked service firms in the information economy and the historical "clustering" of manufacturing firms at the height of the industrial revolution. One suggested that the central element running through the two phenomena was the importance of people to any kind of economic activity. Just as the valuable skills of a "community of practice" were central to clustering in the industrial age, so too knowledge?embodied in the individuals that comprise networks?is essential to geographical constraints in the information economy. Sassen acknowledged similarities between the two, but pointed to several differences. First, the speed and interconnectivity of the information economy operate on a different order of magnitude than in industrial clusters. Second, the draw of an information-age network is based on a more complex interaction than simply the knowledge of individuals?it depends on the marriage of information with interpretation and judgement, and a unique mix of people, firms and their combined capabilities.
In closing, moderator William Drake asked Sassen for her recommendations on policy frameworks that developing countries could adopt to attract footloose or "network loose" global capital and thus foster economic dynamism in the information age. Sassen responded that no single policy could ensure economic success. She did note, however, that the dominant economic model emerging in developing countries is one of privatization?a model that raises the question of how the state will continue to provide for public goods. In this sense, she argued, the existing framework of privatized economies and competitive states is not adequate; we must tame the enormous privatized capacity of the state. As for the developing world fostering economic dynamism through deliberate policy, "the best solution?is multiple, cross-border, highly specialized [economic] regimes, rather than?encompassing generalism" as have most developing countries to date.
Report prepared by Taylor Boas