GaWC Research Bulletin 101

This Research Bulletin has been published in D Felsenstein, E W Schamp and A Shachar (eds) (2002) Emerging Nodes in the Global Economy: Frankfurt and Tel Aviv Compared Dordrecht: Kluwer Academic Publishers, pp. 1-8.

Please refer to the published version when quoting the paper.

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Emerging Nodes in the Global Economy: An Introduction

D. Felsenstein, E.W. Schamp and A. Shachar

NODES, NETWORKS AND FLOWS IN THE GLOBAL ECONOMY

The ‘global economy’ is increasingly perceived as a catch-all phrase. It evokes vastly divergent emotions ranging from resentment and anger over poverty and sustainability to pride and admiration over technological progress and human ingenuity. For all its fuzziness (Markusen, 1999), globalization does however convey two major shifts that pervade much of the economic and spatial change taking place in the world economy. The first relates to the notion of scale. Whether distance has died or simply been minimized (Cairncross, 1997), globalization has redrawn the limits on spatial interaction. The second relates to the seamlessness of the world economy. Globalization has led to the obliteration or neglect of borders. A truly global economy implies the unfettered flows of people, goods and services for whom regional or national boundaries are increasingly irrelevant.

Both of these processes impact on places. Paradoxically, they lead to the glorification of some, such as the global or world cities, and the demise of others. At one and the same time, the uniqueness of some locations is highlighted while the identities of many others are merged into an amorphous mass. But just how different is this to the ‘global economy’ of previous eras? Did not previous rounds of globalization, from the Renaissance to the Industrial Revolution have similar effects both on the scale of interactions and the flows between locations and on the fortunes of those places in which they originated?

The answer to this question underlies the motif of this volume. While the contemporary global economy may be doing very much the same as in the past but at greater intensity, the nature of relations between the places comprising the global economy has changed radically. The rise to prominence of Florence in the Renaissance period or Manchester in the Industrial Revolution simply served to elevate these locations within the given hierarchy of global places. The role, fate and fortune of places was determined by their place in this hierarchy. The implicit theme of this book is that the perception of the global economy as an hierarchical structure is of limited utility. While hierarchies have formed the mainstay of explanatory frameworks in economic geography ranging from central place theory, through location theory and core-periphery relations, we suggest that this construct breaks down when faced with phenomena that are structured as networks. Many of the contemporary processes driving the global economy are inherently network-based. The network metaphor therefore forms the main unifying concept of this volume.

While the network has been used increasingly as an explanatory framework in studies of social, economic and spatial relations (Cooke, 1988; DeBresson and Amesse, 1991; Powell, 1990), less attention has been focused on the functions of the nodes that comprise the network. Our conception of the roles of cities in global networks differs from that adopted in recent studies. For us, these nodes are not ‘mid-level’ places in a global hierarchy (Sassen 2002) or ‘second-tier’ cities beyond the metropolitan area (Markusen, Lee and DiGiovanna 1999). Rather, they are temporal and volatile forms of engagement with the global economy conducted from key locations. Due to the network structure in which they are organized, the same place can function at one and the same time as global node and a parochial location.

Our central thesis is that in the current round of globalization, places (cities, metropolitan areas or city-regions) selectively function as nodes within networks. In this respect, we draw on the network paradigm that sees synergetic relations between places in a manner similar to those between firms (Camagni, 1993; Camagni and Salone, 1993). We do not attempt to formalize the resultant network topography but in common with this literature we recognize that the network relations of places are not independent of the firms located in these places (Taylor, 2001). Consequently, our approach is to analyze the process of network formation through in-depth studies of leading sectors in two different contexts. On this basis we extract more general insights into the operation of networks and the functioning of nodes, for example, network formation drawing on the case of high tech nodes (Chapter 6).

The notion of a ‘node’ implies constant interaction with other units such as places, firms, households etc. The value of a node lies in its connectivity with other nodes. The denser the level of inter-connectedness the more receiving, transmitting and processing the node can accomplish. Underlying this conceptualization of places as nodes, is the recognition that places come to be characterized by the specialized economic function that they fulfill in the global economy.

The implications of this perspective are far reaching. First, this view suggests a relational view of the global economy (Beaverstock, Smith, Taylor, Walker and Lorimer, 2000). The importance and centrality of a node is defined by its relations to other nodes. The upshot of this view, is that static rankings based on leading indicators while highly prevalent in the literature, are less than adequate. Instead, it is more useful to look at interaction between nodes by observing the flows between them. Movement of capital, telecommunications traffic, international investment, market information, cultural goods and highly skilled labor can all be used to proxy these flows. The boundaries of these flows define the topography of the network. The efficiency gains derived from organizing interaction as a network rather than as a hierarchy, derive from the increasing returns that network organization affords. This point is developed further below (Chapter 6). However, at this juncture it is poignant to note that proximity is not a sine qua non of network formation and there is even empirical evidence that supports the contention that geographical dispersion makes for greater network efficiency (Kilkenny, 2000). A further important theme arising from a network perspective is that node centrality in a network derives from relations with other nodes. The more the interaction, the more central the node. This emphasis on the role of returns to scale should hardly be ignored. It links network formation to a burgeoning literature that emphasizes the role of increasing returns in urban and metropolitan development (Krugman, 1991).

Second, we posit a high degree of flexibility and temporality in the economic functioning of places. The prominence (or decline of a node) is not necessarily contingent on the attributes of the node itself. Nodes assume different levels of importance over time determined by their interactions with other nodes. Thus places functioning as nodes are less likely to be subject to the vagaries of technological lock-in and path dependence than places whose centrality is determined by their position in the urban hierarchy. This is not to say that historic accidents and idiosyncratic events cannot trigger off a unique growth process of a node in a given place. Rather, we are simply asserting that in a network configuration, the chances of a whole system locking-in to a sub-optimal form of operation is much less likely than in a tightly structured and hierarchical chain of interactions.

Third, the network approach broadly ascribes to the ‘space of flows’ thesis (Castells, 1989, 1996). The level, frequency and intensity of flows between nodes, defines their place in the global economy. Places are defined by "what flows through them, rather than what is fixed within them" (Beaverstock et al., 2000, p.47) These flows can relate to skilled labor (Chapter 6), international finance (Chapter 5), foreign direct investment (Chapter 4) and so on. It is important however, not to over-state the role of flows. Nodes are also real places with distinctive characteristics, development histories and attributes that distinguish them from each other. Their emergence on the global arena is as likely to affect their urban development as it is their economic development. As both a repository of flows and a very real location, a tension can exist in the emerging node. In certain instances the flow aspect dominates, as argued for example in the Israeli high tech case (Chapter 6). In other instances, the concrete place function determines the character of the node, as in the case of activity grounded in physical movement of goods (Chapters 7,9) or the consumption of tourism or cultural amenities (Chapters10-12).

Fourth, a stress on nodes suggests multi-positioning in the global economy. If networks govern the interaction between places, then places can be global in one respect and local in another. The same location can engage in multiple roles, functioning as a global node in a given network but as a parochial center in other aspects of its economic development. It is this potential dualism that gives nodes their particular identity despite the global forces fashioning (and homogenizing) them. Given the process-led focus of our investigation, we treat Frankfurt and Tel Aviv as the prism through which these developments can be viewed. For this reason we are less interested in accurately delimiting the spatial boundaries of the nodes. In general we adopt the metropolitan region or city-region definition as the spatial unit of analysis (Scott, 2001). Our focus on process rather than particular city development per se, also highlights the direction of causality in the relationship between globalization and node emergence. On the one hand, we recognize the primordial relationship in which global forces cause the emergence of nodes and view nodes as a reflection of these forces. On the other hand, cognizant of nodes as concrete locations, we acknowledge that they can also play an active role in shaping future rounds of globalization.

FRANKFURT AND TEL AVIV AS EMERGING NODES

In terms of static indicators of centrality, Frankfurt and Tel Aviv share some common features within their national economies. The Frankfurt metropolitan region (the city of Frankfurt and the Rhein-Main area) houses 4.7 million people and over 1.7 million employees. The city itself has 650,000 inhabitants and 450,000 workers and serves as the center of a grid-like network of urban sub-centers. These span an area of 5,000 sq. km. stretching from Giessen in the north to Darmstadt in the south and from Mainz in the west to Hanau in the east. This area accounts for about 3 percent of Germany’s total land cover and contains roughly 6 percent of both national population and employment. The Frankfurt region, including the cities of Frankfurt, Offenbach and Darmstadt, accounts for over 7 percent of Germany’s GDP (Eurostat 1999). While Frankfurt has successfully repositioned itself as a central node both at the national and European scale (Chapter 2), its centrality as a business and commercial center is increasingly challenged by other German cities, primarily Hamburg and Munich and potentially, Berlin (Beaverstock, Hoyler, Pain and Taylor, 2001)

Compared to Frankfurt, the Tel Aviv metropolitan enjoys an even more primate position within the Israeli economy. Metropolitan Tel Aviv spans an area of over 1,500 sq. km. and administratively comprises the Tel Aviv district, the Central district and the smaller Ashdod area. Again, this area is a poly-nucleated urban network with Tel Aviv at its center and surrounded by a string of medium sized cities from Netanya in the North to Ashdod in the South and Kfar Saba and Modiin in the east. The over-riding dominance of the Tel Aviv metropolitan region is reflected in its share of the national economy. Comprising less than 7 percent of the land coverage, it nevertheless houses 43 percent of population and 54 percent of the labor force (CBS, 2001). While regional GDP figures are not available, estimates of Tel Aviv and Central district GDP for 2000, based on imputing from long-term extrapolations (Mazor and Sverdlov, 1997), suggest that the two areas together account for close to half of national GDP.

On the basis of size and global profile, Frankfurt and Tel Aviv would seem to have very little in common. Frankfurt features prominently on global lists of ‘places rated’ and is grounded in a vast hinterland market. Tel Aviv on the other hand, has been described as located at the ‘deadend of the global economy’ (Kipnis, 2001) and its global presence is based on penetrating global networks in order to compensate for a miniscule local market. A definitive inventory of global cities lists Frankfurt as a second level location (behind London, Paris, Tokyo and New York) and on a par with the likes of Chicago, Hong Kong Los Angeles Milan and Singapore (Beaverstock, Smith and Taylor, 1999). In contrast, Tel Aviv is six rungs below on the global cities ladder on equal footing with places such as Athens, Dublin, Helsinki New Delhi Philadelphia and Vienna. However, in view of the process orientation of this volume, highlighting the differences in static attributes across the two locations, would seem to miss the point. We are more interested in how places generate a selective global presence and hook into worldwide networks. As such, this book consciously presents examples of nodes at different stages in their emergence.

A consequence of this approach is that our interest in Frankfurt and Tel Aviv relates less to their present or future ranking on the global cities roster and more to the process in which they develop ‘global’ profiles. Despite the spate of recent interest in ‘global’ cities (Beaverstock, 2002; Marcuse and van Kempen, 2000; Moulaert, 2000; Sassen, 2002; Short and Kim, 1999), the approach of this volume is not to focus on the two cities per se, but to use them as a filter for observing how conditions of globalization cause metropolitan change. Intra-urban change and micro-geography are important as consequences of the workings of global networks.

We characterize Frankfurt and Tel Aviv as ‘emerging’ nodes. This is in keeping with our stress on defining nodes via their flow characteristics. It conveys the idea that the ascendancy of a node within a network is both dynamic and temporal. Flows of information, capital and investment are inherently volatile. An important node location can easily be by-passed in a network structure and the flows re-routed. In addition nodes can adopt multi-functions exhibiting global profiles in some economic activities and particularly local growth trajectories, in others. Both Frankfurt and Tel Aviv aptly illustrate this dualism. In contrast, truly global places, such as New York and Tokyo exhibit global profiles across a whole range of activities. Emerging node status is thus a stage rather than a permanent state. Recent interest in ‘mid-range’ global cities such as Shanghai, Sao Paulo and Hong Kong (see Sassen, 2002) or ‘second tier cities’ such as Taejon or Seattle (Markusen et. al., 1999) generally relates to the function of a place within a fixed urban hierarchy. The approach posited here, suggests alternatively, that places operate simultaneously in a variety of organizational structures, many of them loose, horizontal and in a state of constant flux.

Finally, given the foregoing, the case for labeling Frankfurt and Tel Aviv as ‘nodes’ should now be apparent. Despite the obvious differences in urban scale and level of development, both places exhibit the attributes necessary to qualify for node status. Both are driven by leading sectors that area heavily flow-based. In both instances, the temporality and volatility of their present leading economic functions are evident (Keil and Ronneberger, 2000; Schamp, 2001, 2002; Kipnis, 2002). Furthermore, the present status of both Frankfurt and Tel Aviv has been fashioned by both flow attributes and concrete place-based attributes and unique historical and institutional conditions. In the case of Frankfurt, the vast strides towards European integration have served to bolster the city’s position as a global financial node. In the case of Tel Aviv, the development of military industries and the close synergies between army and civilian industry within the city, have helped consolidate its high tech node status. Finally, both places exhibit the attribute of multi-positioning, exhibiting both global and parochial features.

THE ORGANIZATION OF THIS BOOK

The genesis of this book was in a three-year collaborative research program on ‘Emerging Nodes in a Global System: Internationalization and Urban Development in the Tel Aviv and Rhine-Main (Frankfurt) Areas’. This was funded by the German Israeli Foundation for Scientific Research and Development (GIF) and brought together research teams from the Department of Economic Geography, University of Frankfurt and the Department of Geography, Hebrew University of Jerusalem. The result was a unique opportunity to explore a key issue in globalization utilizing diverse methodological approaches and research styles. All the findings reported below represent original work conducted within the framework of this project.

The volume is organized around a series of leading themes associated with globalization and all impacting on the development of emerging nodes. At the outset, Section I examines the metropolitan structure of the emerging node and the relationship between urban development and economic development. Inevitably, this involves some form of economic restructuring that leaves an imprint on the physical development of the metropolitan area. The drivers of the node economy are then analyzed in Section II. While this section stresses the processes operating, such as the entry of foreign direct investment and the development of international finance, the sectoral expression of these processes is also given due attention. Leading sectors are intimately associated with the emergence of a node economy and the process of globalization. With respect to Frankfurt, this is particularly evident in the banking and airport sectors. In the case of Tel Aviv, high tech has been the vanguard sector for entry into global networks. The tertiarization of the node economy forms the next major area for examination and is presented in Section III. Sassen (1991, 1994) has stressed the characterization of global cities through producer-driven services and especially advanced producer services (such as accounting, management consulting, advertising, and logistics activities). The role of these sectors as entry points to global networks, is illustrated in the case of Frankfurt and Tel Aviv.

Finally, echoing the arguments of the ‘consumer city’ thesis (Glaeser, Kolko and Saiz, 2001), we address the question of reciprocity between economic globalization and consumption-driven globalization in Section IV. This complementarity is illustrated by highlighting incipient globalization in the arts and cultural sector in Tel Aviv and amenity-led tourism in both Frankfurt and Tel Aviv. The later refers not just to the origin of visitors to both cities, but to globalization and homogenization processes occurring within the tourism sector such as the internationalization of hotel chains and of the convention and trade fair markets.

While the volume is inherently comparative in approach, no attempt has been made to produce ‘mirror image’ pieces for each of the case study cities. Rather than force the issues into an analogical straight-jacket, we have chosen those processes and the sectors in which they are manifest, in order to highlight complimentary and sometimes contradictory outcomes. In certain instances, this leads itself to natural comparisons, as in the case of global trends in the tourism sector in both Frankfurt and Tel Aviv (Chapters 10 and 11). In other instances, entry into global networks is so heavily identified with unique ‘flagship’ sectors such as banking in Frankfurt (Chapter 5) and high tech in Tel Aviv (Chapter 6), so as to render any form of comparison futile. Sometimes, the issue at stake may be comparable (such as metropolitan restructuring) but its spatial scale in the two locations is very different (Chapters 2 and 3). Even when sectoral comparisons may ostensibly be evident, their expression in each of the two nodes can diverge dramatically. This is the case with respect to the delivery of market information. In Frankfurt this is expressed in the concrete existence of the node as a market place and logistics hub (Chapter 9). For Tel Aviv it is reflected in a flurry of merger and acquisition activity amongst the leading producer service firms eager to access global markets (Chapter 8). The very different historical circumstances, institutional contexts and market environments, as outlined above, therefore make for a rich, yet eclectic, collection of research issues. This is also reflected in the varied research styles employed, combining both qualitative and quantitative methods. The juxtaposition of two rather different emerging nodes is not for the purpose of deriving universal generalities with respect to node emergence. Rather, it serves to highlight the multiple routes that generate node formation and development and allows for the systematic examination of differences between the different pathways taken.

Finally, the production of a volume such as this involves no small measure of international co-ordination. Despite the availability of facilitating technologies that allow for problem-free file transfer between academic nodes, the human element is still decisive in ensuring the smooth management of material and its up-grading to camera-ready copy. To that end, we are indebted to many individuals who assisted along the way. Geremy Forman style-edited many of the manuscripts and Sara Höfler translated some of the German texts. Heike Bertram and Helmut Nuhn provided valuable input to Chapter 7, Daniel Freeman assisted with the input-output estimates that appear in Chapter 12 and Vivien Lo contributed some important suggestions for Chapter 13. Finally, Michal Stern efficiently handled all file conversions and formatting of the final manuscript and Tamar Sofer of the cartographic laboratory in the Department of Geography at Hebrew University conceived and executed the cover design.

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