Economic Geography

A world transformed
It is commonplace to look back over the past 100 years for crucial turning 
points or moments that mark the long-term structural transformation of modern
economies (Webber and Rigby 1997). Just as Berle and Means’ (1933) model of
early twentieth century capitalism resonates today in studies of economic geo-
graphy and corporate governance, Clark and Hebb (2004), Galbraith (1967) and
Shonfeld (1965) set-out the logic of the Keynesian state and its relationship 
with managerial capitalism that remains important for economic geography.
Nevertheless, it would appear that structural change has gathered pace over the
past decades with a crucial turning point around the early 1970s marking the 
on-set of more than a decade of macro-economic instability. By the 1980s,
corporate restructuring had become the single most important story about the
transformation of the economic landscape, putting in play the role and status of
whole sectors of industry, where they were located, and their relationship with
what was now an independent financial sector (Clark et al. 2006). The 1990s
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overturned the world of production to become world of market speculation
where, at one point, just one high-tech firm was worth more than half a dozen
of the world’s largest industrial conglomerates.
My argument in favour of the geography of global finance is about the impor-
tance of financial flows. It is also about the role of financial institutions that now
occupy the centre stage of modern capitalism rather than being whispers heard
offstage and outside of the intellectual purview of theorists. At each and every
moment in the evolution of twentieth century capitalism, financial markets and
institutions have played crucial roles in either prompting or facilitating economic
change. This was certainly true during the 1920s and 1930s even if, in the years
immediately after the Second World War, the political economy of corporate
capitalism was deliberately conceived to constrain the influence of financial
markets. Not only was the 1980s corporate restructuring fuelled by the burgeon-
ing growth of financial assets, the high-tech bubble economy of the 1990s was
made possible by massive inflows of financial assets to business angels through to
the IPO market and beyond (Babcock-Lumish 2004). The intersection between 
the knowledge economy and financial innovation has become an important refer-
ence point for economic development policy in the European Union, Asia and
Latin America.
The history of the nineteenth century can be written as a history of financial
instability, economic insecurity, and the emergence of the nation-state (Bayly
2003). These elements of history can be woven together to create one meta-
narrative such that the nascent nation-state gathered power and legitimacy over
the first half of the twentieth century in the shadows cast by financial turmoil and
the resultant economic insecurity. Even now, financial markets are greatly
distrusted by many in continental Europe who associate ‘irrational exuberance’
with fascism and war (Clark 2003). The dominance of the nation-state in many
western economies in the decades following the end of the Second World War
can be traced, in part, to distrust of markets and the consequent absorption of
financial and productive assets within the Keynesian state. Yet, at the time when
the nation-state claimed a pivotal role in economic management, its powers (if
not its legitimacy) were being surpassed by increasing volumes of international
trade and the rise of a new kind of financial sector shorn of past alliances with the
nation-state and with corporate capitalism. For those untutored in the debates of
the 1960s, 1970s and the 1980s over the role of the state, the world of financial
markets seems as natural as globalization.
There is a deep and intimate relationship between financial markets and glob-
alization. Most obviously, the former makes the latter possible in the sense that
trade through currency transaction is a necessary function for the exchange of
commodities. But we also know that the daily volume of foreign exchange deal-
ing is many, many times greater than that required by commodity trade; trillions
of dollars are traded against a handful of currencies seeking momentary advan-
tage in a system of relative pricing that shows little rhyme or reason if judged
against whole countries’ current and future prospects. A massive industry has
developed around the arbitrage of currency risk and return where each and every
Setting the agenda
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trade begets a myriad of trades aimed at dispersing risk. Convention would have
it that this kind of trade and the dispersal of risk contributes to financial instabil-
ity. But it is equally possible that the pricing of tiny gaps in the market and the
virtual and simultaneous spreading of risks across other traders and around the
world actually contributes to financial stability. Commonplace stories of global
financial instability do not take seriously the institutional management of risk
around the world on a 24-hour basis (see Clark and Thrift 2004 and compare
with Schoenberger 2000).
At the other end of the geographical scale, finance is increasingly the engine
driving urban structure and differentiation. For many years, urban development
was about the leverage of the public sector for private interest believing that the
former was the most important source of investment in urban infrastructure –
something that could not be priced or at least traded in the same way that
currencies and commodities can be traded. However, it is increasingly apparent
that governments are unable to provide the necessary volume and value of 
capital for new investment in urban infrastructure let alone regeneration of invest-
ments that, in many cases, go back at least a century if not two centuries past. In
part, this is because of political constraints on the tax-raising capacity of national
and local governments. In part, this is also because governments are increasingly
caught between profound trade-offs such as expenditure on the education of the
young and expenditure on the health care of the elderly (Clark 2000). Political
constraints on tax-raising capacity have forced governments to rethink the virtues
of financial markets, while financial institutions have become better able at pricing
and distributing the risk associated with spatially fixed infrastructure investments.
Whatever the consequences for equity, financial markets are quietly re-making
modern cities (Babcock-Lumish and Clark 2005).
The nation-state as the banker of first call (smoothing the path of transactions,
local and global), a presumption that informs much of the debate about the role
of the state over the period 1950 to about 1980, is now a chimera. The nation-
state and its representatives at the local level face an ever-tightening fiscal squeeze
between competing generations’ claims on limited tax revenue. The role of the
state is as a regulator of financial markets and institutions, more focused upon
ensuring capital adequacy and adequate mechanisms of risk-management than
making up the difference where capital markets discriminate against certain groups
in favour of other groups (local and global).