2011

Lucas Neo Shao Rong S9006708G NTU HS1003 Tutorial 4

GLOBALIZED CITIES
Social problems in a global context: The study of a globalized city

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RIO DE JANEIRO Under the mandate of environmental protection, construction of a 3.5m wall began around the favela of Dona Marta in 2009, with plans to wall off Rios other favelas underway; residents claim the walls purpose is to segregate them from the proper city (Regalado 2009). Evidently, the state considers these favelas an urban problem. Favela is the Brazilian term for informal settlement; some characteristics are the lack of or poor accessibility to basic infrastructure such as piped water, electricity and sanitation; illegal construction and insecurity of tenure. As of 2005, Rio has the most extensive favela population in Brazil, with 752 favelas occupied by 1.1 million inhabitants; additionally, growth rates in favelas from 2000 to 2005 were 6 times non-favela population (Perlman 2007:6). As the poor are unable to afford adequate housing in Rio, poverty and favela growth are interlinked. The municipality of Rio has 6 million inhabitants; 12.3% live below the national poverty line of R$221.40 a month (Xavier and Magalhaes 2003:15). Correspondingly, a high degree of inequality exists in Rio; as a measure of income inequality, Rios 0.616 out of 1 score on the Gini index is worse than the nations 0.593 aggregate (Perlman 2007:5). Conjointly, the richest 1% in Rio commands 12% of total income, while the bottom 50% earns only 13% (Xavier and Magalhaes 2003:6). Coupled with poverty and inequality, is the high crime rates in Rio; homicide rates of 33 per 100,000 people in Rio (USA Today 2009) is five times higher than the global rate of 6.9 per 100,000 (The Economist 2011). Additionally, drug gangs control just below 50% of the slums, while militia, consisting of thugs and retired policemen control another 50%; the state controls a mere 5% of the favelas (Abdala 2011). The presence of drug gangs and acute homicide rates signify the worrying crime levels present in Rio. Accompanying poverty, inequality and crime is the large informal sector. According to Brazils institute of geography and statistics (IBGE), 41.1% of Rios population is formally employed while 34.1% is involved in the informal sector (IBGE 2007). These informally employed personnel pose a problem as they do not pay taxes, declare their incomes and are not monitored by any institution. As presented, the socio-economic problems of poverty, inequality, crime and large informal sector are prevalent in Rio. These problems are often synonymously linked with favela growth in a perpetuating cycle; poverty, crime and informality results in favela growth and

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vice versa. More importantly, is the discussion on globalisation processes that have led to the emergence and continuation of such problems.

THE GLOBAL CITY MODEL Globalisation is defined as the transplanetary process or set of processes involving increasing liquidity and the growing multi-directional flows of people, objects, places, and information as well as the structures they encounter and create (Ritzer 2011:2). The concept of the global city first introduced in 1991 by Saskia Sassen is a result of globalisations increasing strength which undermines the state as a spatial unit, entailing the supremacy of a contemporary structure organised around the global; a structure that consequently demands a physically distinct architectural form tailored for its global activity (Sassen 2005:28). A.T. Kearneys (2010) global cities index ranks Rio de Janeiro 49th. In the following paragraphs, several concepts from this model are accompanied by examples in Rio to give a sociological explanation to Rios classification as a global city and the accompanying socio-economic problems it has encountered. Firstly, territorial diffusion of economic activities arising from globalisation has amplified the complexity of central corporate operations which has subsequently compelled corporations to outsource some operations to highly specialised firms (Sassen 2005:28). Dutch energy giant Shell, listed 2nd in the Fortune 500 list (Cable News Network 2011) has its Brazilian headquarters in Rio; exemplifying the diffusion of economic activity to Rio. Hamilton Lane, one of the internationally largest private equity firms managing more than $17 billion in assets also has an office in Rio (Hurrell 2011). As an investment firm, Hamilton Lanes office in Rio is sourced by many large and medium sized corporations to handle their financial investments. Next, complex services coupling market uncertainty and speed of transaction subjects these firms to agglomeration economies, such that their participation in the intense information cycle is interdependent on their location in the city; this is underscored by another hypothesis which cites this specialised services sector as the exclusive advantage of global cities (Sassen 2005:29). Baker & McKenzie is the worlds biggest law firm whose office in Rio competently represented national petroleum giant Petrobras in an arbitration against Kellog

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Brown & Root LLC (Baker & McKenzie 2011). Baker & McKenzies headquarters in Rio promoted networking and was poised to take up this eminent case, denoting the importance of its location within Rio. The models sixth hypothesis theorizes that the advancing concentration of such firms in global cities entails increasing value and number of highly-skilled professionals which exacerbates socio-economic inequality (Sassen 2005:30). Rio has 8 out of the top 10 science and technology schools in Brazil generating an extensive number of graduates bolstering the ranks of professionals in specialised firms (Global Services 2010). Nevertheless, the proportion of Rios population with less than primary education is 49% while university graduates comprise 12% (London School of Economics 2009:42). These firms would choose to employ from the 12% highly educated individuals who have requisite knowledge and skills necessary to perform the specialised operations instead of the 49% majority; resulting in unemployment, self-employment or employment in low-skilled low-wage sectors. The poor, unable to afford adequate housing resort to informal settlements, and contribute to favela expansion. What results is socio-economic polarisation in Rio, as the presence of specialised firms provides an entry point for the small number of better educated individuals to enter better wage sectors of the economy, while the lower educated majority are disadvantaged and relegated to eke out other methods of economic survival. Lastly, relatively lower profit rates of several economic activities compared to specialised firms renders them unable to compete effectively for resources within the city, leading to their decline or transition to the informal sector (Sassen 2005:30). According to the Federation of Industries of the State of Rio de Janeiro (FIRJAN), services and trade are more profitable, garnering 57.5% of total GDP while industry captures only 26.7% (FIRJAN 2011). Consequently, the service and commerce sector accounts for 89% of total employment, while 11% is attributed to manufacturing (London School of Economics 2009:25). This signifies the distribution of human capital between the sectors in accordance to GDP contribution. Individuals unable to enter the high-wage service sector would seek employment in lowerwage industry, become self-employed or enter the informal sector. These hypotheses delineate the characteristics constituting the global city. Juxtaposed with examples, it is apparent that Rio does have the components and problems befitting the global

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city model which then aptly explains the presence of favelas in Rio and the subsequent socioeconomic complications of poverty and polarisation that has arisen.

GLOBALISATION Real Estate Rio de Janeiro has a shortage of over 505,000 housing units (Xavier and Magalhaes 2003:7); the physical representation of this problem manifests through favela area occupying 6.3% of Rios total land (Xavier and Magalhaes 2003:8). This problem has existed for decades, with insufficient housing leading to the persistence of favela expansion in Rio. As a global city experiencing increasing financial, information and migration flows as by-products of globalisation, the housing problem in Rio has been magnified and perpetuated. As the biggest Latin American economy, Brazils forecast is highly optimistic. Rio; second largest contributor to Brazils economy; upcoming host of the 2016 Summer Olympics and 2014 FIFA World Cup has attracted global attention. Indeed, the importance of Rios is undeniable and the interconnectedness globalisation brings has intensified financial and human capital flows into Rio. Lloyds of London, a British insurance exchange chose Rio over Sao Paulo as the location for its Brazilian headquarters and industry experts forecasts a $10 billion increase in foreign investment within 2012 (The Wall Street Journal 2010). Correspondingly, there were 2 times more working visas approved for Rio than Sao Paulo, indicating the increasing inflow of workers to Rio (Rio Business 2010:9). This influx of companies and workers require locations for offices and housing, which correlates to the increasing demand for real estate in Rio. Globalisation has also eased methods of purchasing property; a host of property companies with a plethora of internet advertisements providing comprehensive details on location and prices. Coupled with the interconnectedness of financial institutions promoting ease of capital transfer, individuals can easily purchase property in Rio. As demand outstrips supply, prices have simultaneously escalated; in 2010, prime office space in Rio was $1,321, ranking it 4th most expensive in the world (Latin Business Chronicle 2011). Likewise, average real estate prices in Rio reached R$5,610 per square metre in 2011; a 16.1% increase over 2010 (Sainte Croix 2011). Undeniably, the

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intensification of processes of globalisation as a result of Rios global city status has escalated real estate prices. More importantly, the average monthly income in Rio was R$1,225 (IBGE 2007), while labourers earning the minimum salary gross R$545 (Oliveira 2011). Effectively, such income levels restrict the majority of Brazilians in Rio from purchasing real estate; those living in favelas cannot move out, and individuals without housing most often resort to informal settlements. This poses as a limitation to social mobility for the poor, while richer individuals participating in the property market accumulate more wealth, thus eventually worsening the socio-economic polarisation prevalent in Rio.

Drug Factions As illegal and informal settlements, favelas were not recognised by the Rio government and initially excluded from the city maps. In effect, favelas were self-policing and enforce their own forms of justice. In Rio, the majority of the favelas are controlled by any of the three biggest drug factions (Phillips 2009). Globalisation and the increasing interconnectedness has allowed illegal goods such as drugs and weapons to be smuggled with increasing ease Such goods has allowed drug factions to gain unprecedented power in the favelas, consolidating them as permanent settlements in Rios urban landscape. There are neither weapons manufacturers nor coca fields in Rio; but drug profits are rising, and these factions are becoming better armed to fend off police raids on the favelas. Illicit transportation and information exchange methods have burgeoned as a result of globalisation; most drugs are smuggled from Columbia and Peru (Phillips 2011) while sophisticated weapons including anti-aircraft guns and automatic rifles destined for Bolivian and Argentinean armies are diverted to Rio (Phillips 2009). The drug trade flourishes with a kilogram of cocaine costing R$3,000 at the border but sold for R$25,000 in Rio (Phillips 2011). With the presence of drug factions in the mainly poor favela zones, such lucrative opportunity increasingly lures the poor to join these drug factions as a pathway to upward social mobility. Indeed, seizing one kilogram of cocaine was rare, but of late the average is between 20 to 30 kilograms; occasionally reaching 300 kilograms (Phillips 2011). The poor share Brazilian societys goal of upward social mobility but lack the resources to attain this

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goal through legitimate means such as quality education; what is accessible is the prevalent drug trade in Rio. This has integrated the drug factions into favela society. As the drug factions accumulate wealth, weapons and gain full control over most of the favelas, their ability to resist local law enforcement has advanced; drug factions often have better weapons than the police. With their occupation, drug factions have effectively solidified these formerly temporary settlements to become permanent, eventually espousing the prevalence of these favelas.

CONCLUSION The socio-economic problems of poverty, inequality and crime interlinked with favela growth are evident in Rio. The global cities model provides a sociological explanation on how Rios global city status has resulted in socio-economic polarisation which subsequently results in the aforementioned problems. More importantly, globalisation has impacted the housing market in Rio and also allowed drug factions to rise in influence. As globalisation accelerates, these factors simultaneously advance, further exacerbating the socio-economic problems in Rio.

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REFERENCES Abdala, Vitor. 2011. In Rio, 95% of Favelas Are Controlled by Drug Lords and PoliceConnected Thugs. BrazzilMag, November 4. (http://www.brazzilmag.com/component/content/article/104-november-2011/12751-in-rio95-of-favelas-are-controlled-by-drug-lords-and-police-connected-thugs.html). Accessed 6 November 2011. Baker & McKenzie. 2011. Baker & McKenzie Successfully Represents Petrobas in USD200 Million Arbitration Award. October 14. (http://www.bakermckenzie.com/news/BMPetrobas200MillionArbitration/). Accessed 7 November 2011. Cable News Network. 2011. Global 500. (http://money.cnn.com/magazines/fortune/global500/2011/full_list/index.html). Accessed 7 November 2011. Federation of Industries of the State of Rio de Janeiro. 2011. Rio in figures. (http://www.firjan.org.br/data/pages/2C908CE92593A8810125B15DE2B00200.htm). Accessed 7 November 2011. Global Services. 2010. Rio de Janeiro, Brazil: Attractive for High-value Services. December 20. (http://www.globalservicesmedia.com/Destinations/Latin-America/Rio-deJaneiro,-Brazil:Attractive-for-High-value-Services/25/20/0/GS10122089054). Accessed 7 November 2011. Hales, Mike, Samantha King, and Andres Mendoza Pena. 2010. The A.T. Kearney Global Cities Index 2010. (http://www.atkearney.com/images/global/pdf/Urban_EliteGCI_2010.pdf). Accessed 7 November 2011. Hurrell, Fiona. 2011. US Firm Hamilton Lane Opens Office in Rio. The Rio Times, November 1. (http://riotimesonline.com/brazil-news/rio-business/us-firm-hamilton-laneopens-office-in-rio/). Accessed 7 November 2011.

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Instituto Brasileiro de Geografia e Estatstica. 2007. Unemployment rate in Rio de Janeiro was 6.9% in November (http://www.ibge.gov.br/english/presidencia/noticias/noticia_visualiza.php?id_noticia=785 &id_pagina=1). Accessed 6 November 2011. Latin Business Chronicle. 2011. Brazil: Real Estate Bubble? March 25. (http://www.latinbusinesschronicle.com/app/article.aspx?id=4829). Accessed 7 November 2011. London School of Economics. 2009. Cities and Social Equity: Inequality, territory, and urban form. (http://urbanage.net/downloads/2009/09/SouthAmericaReport/CSE_Detailed_Report.pdf). Accessed 7 November 2011. Oliveira, Viviane. 2011. Real Estate Speculation in Mare. Viva Favela, October 13. (http://rioonwatch.org/?p=2050). Accessed 7 November 2011. Perlman, Janice. 2006. Globalization and the Urban Poor. Research paper. (http://www.wider.unu.edu/publications/working-papers/researchpapers/2007/en_GB/rp2007-76/). Accessed 6 November 2011. Phillips, Tom. 2009. Twelve dead and helicopter downed as Rio de Janeiro drug gangs go to war. Guardian, October 17. (http://www.guardian.co.uk/world/2009/oct/17/rio-favelaviolence-helicopter). Accessed 8 November 2011. Phillips, Tom. 2011. Rio drug trade turns Amazon city into crime capital. Guardian, January 4. (http://www.guardian.co.uk/world/2011/jan/04/rio-drug-trade-amazon-manaus). Accessed 8 November 2011. Regaldo, Antonio. 2009. Walls Around Rio's Slums Protect Trees But Don't Inspire Much Hugging. The Wall Street Journal, June 15. (http://online.wsj.com/article/SB124501964322813585.html). Accessed 6 November 2011. Rio Business. 2010. Rio de Janeiro - Investments and Opportunities. (http://www.mdic.gov.br/sistemas_web/renai/public/arquivo/arq1295895090.pdf). Accessed 7 November 2011.

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Ritzer, George. 2011. Globalisation: the essentials / George Ritzer. Chichester, West Sussex, Malden, MA: Wiley-Blackwell. Sainte Croix, Sarah. 2011. Square Meter Costs in Rio Outpace SP. The Rio Times, August 2. (http://riotimesonline.com/brazil-news/rio-real-estate/rio-square-meter-costs-outpace-s/). Accessed 7 November 2011. Sassen, Saskia. 2005. The Global City: Introducing a Concept. Brown Journal of World Affairs 11(2):27-43 (http://ehis.ebscohost.com.ezlibproxy1.ntu.edu.sg/eds/detail?vid=4&hid=102&sid=4fac550 d-3f27-46fc-bb03744bf1038380%40sessionmgr110&bdata=JnNpdGU9ZWRzLWxpdmUmc2NvcGU9c2l0Z Q%3d%3d#db=buh&AN=16746411). Accessed 7 November 2011. The Economist. 2011. Murder most foul. October 6. (http://www.economist.com/blogs/dailychart/2011/10/homicide-rates). Accessed 6 November 2011. The Wall Street Journal. 2010. Burgeoning City Is Poised to Be a Magnet for Foreign Funds. March 31, pp. B7. (http://www.equityinternational.com/wp-content/uploads/03-311010_WSJ_Investing%20In%20Rio.pdf). Accessed 7 November 2011. USA Today. 2009. Rio shrugs off crime question in Olympic bid. September 19. (http://www.usatoday.com/sports/olympics/2009-09-19-rio-crime_N.htm). Accessed 6 November 2011. Xavier, Helia Nacif and Fernanda Magalhaes. 2003. Urban Slums report: The Case of Rio De Janeiro, Brazil. (http://www.ucl.ac.uk/dpu-projects/Global_Report/pdfs/Rio.pdf). Accessed 6 November 2011.