The Global Financial Crisis and Restructuring
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- Created by: sikemi__
- Created on: 30-05-21 13:31
Housing crisis
- Subprime mortgages enabled damaging bubbles in housing market as demand increased
- Traded on global markets so crisis grew and affected many national banking systems
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Financial crisis in the UK
- 2007-08 crisis in the banking sector
- Policymakers (govt) bail out creditors (banks)
- E.g. Northern Rock which was nationalised in 2008 (4th biggest bank in UK)
- Both policy and economic theory (self regulating markets) was unable to cope with this - the state was needed to moderate
- The state ends up in debt (Sovereign State Crisis - Blyth, 2013)
- This then leads into a local state crisis (Kitson et al, 2011)
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Implications of financial crisis - labour market
- Labour market
- Unemployment (uneven distribution regionally) - but official stats claimed it was 3.8%
- So what was actually happening was underemployment, with people working 1h/wk or zero hours contracts (but wanting to work more), people pushed into consulting jobs, self employment or entrepreneurship
- Results in falling real wages (majority of people in poverty were allso now in work) and the longest decline in living standards for over a century
- Changes in the structure of work
- Growth in male part time work and female full time work
- Decline in the role of unions for both the private and public sector
Why did the restructuring of UK labour markets occur?
- UK labour markets were relatively deregulated when compared to rest of Europe
- Declining influence of trade unions means workers no longer had power to negotiate for good pay and contracts
- Globalisation and deindustrialisation led to firms being able to have a spatial fix and relocate many well paid manufacturing jobs
- Declining wage share of workers, growing profit share for shareholders and executives
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Increase in inequality
- If you are dependent on income, you will be worse off than those dependent on wealth (Piketty)
- The New Economy/Great Moderation had several good indicators for wealth accumulation but not for working conditions, exacerbating wage inequality
- Flexible labour markets (flexible work vs contracts) and low wages
- Policy response - austerity which further intensifies inequality
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Uber as a new paradigm for Ford
- Platform technology - disrupting old models (once fixed price has been paid, marginal price is very small), mobile technologies play a significant role in delivery of services (monopoly created as it is difficult to break in)
- Flexible for users - convenience, perceived safety, improved quality of service
- But challenges employment models
- Uber workers classed as self employed contractors (but recent Supreme Court ruling states that they are workers not contractors)
- Automated manager
- No guaranteed income
- Uber doesn't own any cars, have drivers or offer benefits
- Vacuuming money out of local economy (Donald)
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Implications of financial crisis - welfare
- US (1980s) - Reagan allows state to experiment with Workfare
- US (1996) - Clinton welfare reform - need a job or to be searching for one constantly as a prerequisite for aid
- UK (1997) - Blair's New Deal promised greater support to return to work but requires applicnts to be in work, training or volunteering
- UK (2012) - Welfare Reform Act 2012 targets the scope of entitlement and value of benefits (tighter eligibility restrictions, raising financial incentives for out of work claimants to take a job)
- All show increased conditionality of help to unemployed - both countries devised a tax credit to those on low incomes
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Implications of financial crisis - local state
- Restructuring of local state
- Between 2010/11 to 2015/16, govt funding reduced - 37% real term reduction in local govt spending (NAO) - difficult to choose what to stop funding
- In the US, crisis (bankruptcies) was pushed down to local govt - severe cuts to public services (worse as not a centralised govt so fractured response)
- E.g. Detroit
- Population declined by 1/4 million from 2000 o 2010
- Bankruptcy declared in 2013 (largest municipal bankruptcy filing in US history at about $18-20 billion)
- Collapse of some municipal govts
- Police required, fights over pensions
- E.g. Flint (had an emergency manager)
- Water crisis - years of abandonment and disinvestment
- Fiscal crisis - emergency manager switched water source from Lake Heron to Flint River in 2014
- Find that new water supply is contaminated with lead - over 10,000 children exposed to water which can cause brain and nervous system damage, slow growth and development
- Official response was sluggish but finally $400 million used to replace pipes, purchase filters and bottled water and provide children's healthcare and lawsuits
- Strong links to race and class - 'historical, structural and systemic racism combined with implicit bias' (Weaver, Mayor)
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Restructuring after the crisis
Every crisis leads to a range of restructuring
- Restructuring after Fordism
- Deindustrialisation and (private sector) deunionisation
- Unemployment and flexibility
- Reduction in size and scope of welfare state
- Restructuring after global Financial Crisis
- Contraction of state
- Fundamental changes in redistribution
- Rise of deunionised state (public sector)
- Unemployment and intensification of precarious work
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Conclusions
- Every economic crisis is followed by restructuring
- Revival of regime theory gives us a way to theorise structural changes we are witnessing after 2007-08 financial criss
- Banking crisis and global financial slowdown had major implications for debt burden of sovereign states, local govts and individuals
- Labour markets reflect this with rise of unemployment and flexible labour markets, making workers more insecure and precarious
- Shift in levels of income and wealth inequality
- New paradigmatic firm = Uber (Uberist Age?)
- Political and state restructuring clear too, especially in local state
- Structure of state changes too - decline of welfare state
- Evidence from US shows how restructuring was pushed onto local govt and exacerbated class and racial inequalities
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