The Global Financial Crisis and Restructuring

  • 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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  • 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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