CITY in Conversation Part Three: The Financialised University
Costas Lapavitsas, Michael Edwards, Louis Moreno, Joe Penny, Debbie Humphry, Bob Catterall.
Louis (L): One way we can explain what is happening in relation to the transformation of profit, for example, is to look at the production of built environments. The housing system is one example. Another example is the university system. This actually is an interesting way of plotting the transformation from the 1970s through to the current day, because you can see how these social institutions — which were established with a progressive ideology about widening access to higher education — become, at certain critical junctures, an opportunity for profiteering. The institutions become a ‘sector’ identified as fertile, ready for financial profit to be extracted. You can then begin to look at shifts in building typologies, management practices, outsourcing contracts, and how these are connected to new circuits of profit relating to the provision of education, the building, housing and facilities management, etc.
This perspective is more than just saying that we are dominated by financialisation, but is about seeing how finanicalisation is constructed, where financial profit-seeking and financial rent-seeking emerges in a moment of experimentation. And from here you can look at how these moments of financial experimentation in the urban landscape are also potentially moments of social struggle. This takes the global concept of financialisation to the level of the city and you can develop a form of analysis that communicates to people in their everyday lives as it grounds theory in their struggles.
So I would say the university system at the moment is one of the apparatuses which enables financial profit extraction, seeing students as consumers of housing, as consumers of debt to pay tuition fees, and all the associated income flows that go through the students, so you can see it as a moment of expansion. Also in a moment of potential crisis.
Costas (C): How does this affect the urban spaces?
L: Well student housing, the quality of student life.
C: Are you saying anything more than that universities have expanded, they need more space, they need more buildings? Is there anything more than the bare fact that universities have more students who need to be housed?
Debbie (D): But it’s about some people extracting maximum amount of profit out of those processes. So extracting maximum amount of profit out of student housing. And student housing is a kind explosion of real estate, a niche market. And that’s what the rent strikes were all about. I saw a really interesting Real Media film about the UCL rent strikes (Real Media 2016). Basically the company (Universities Partnerships Programme) that were providing student accommodation at really expensive rates, also funded the think tank, Policy Connect, which are lobbying government to increase the size of student loans, as well as enforcing tougher debt collection. In other words the same company that is profiting from student rents, is lobbying to increase the student loans in order to pay for it. And then you have protest in space, so that changes the production of urban space. The same with labour relations. So now you have cleaners and caretakers being outsourced to private companies, exploiting labour for profit, and it’s all being bidded down, and people are probably on zero hour contracts. I guess you have different forms of capitalism going on at the same time. And then there’s universities where they fight for the living wage, so there’s struggles in space. There’s lots of struggles in universities around labour and contracts and wages – and pensions. People are producing space in response to financial changes.
C: So if there was no financialisation, what form would the process have taken? What would have been the results of an expansion of the higher education sector?
Michael (M): well I would say an expansion of higher education in Britain was mainly geared at bringing more British students into the university system, and we know that those would have to be middle income and lower income mostly, because the high income ones are in university already. That certainly has supported luxury student housing. It also would have prompted the university authorities to invest in these massive physical development programmes – building marble courtyards – I mean you walk into University College and they are spending millions on very lavish, expensive construction, because this will improve student experience, and this will attract more rich kids from China and Nigeria and countries of the world where there are rich kids, desperate to be educated. So it’s sort of reinforcing the mechanism of student debt, for the tuition fees. To create the money these massive construction expansion. So can you imagine expanding universities without these lending opportunities for financial institutions?
C: Basically you are imagining a university sector where students have state support and student housing is provided through public mechanisms.
M: Or what happens for example in Germany or Italy, most students would live at home with their families and study in their nearest university, which is very common in many parts of Europe.
C: Financialization, then, has allowed for profit to be made by the developers who have constructed these things under the current circumstances?
M: Yes sure.
C: And the banks that have financed the developers have taken some part of the profits? And they might also be the same banks that provided the loans to students and others to go to university?
M: Yes.
D: Is the money that comes in from students fees invested by the University into financial circuits?
C: A large part of those fees basically covers the costs of universities.
D: So is not about money being extracted and invested into other markets?
C: That depends on how the University will manage its income from fees. I mean, it has to pay wages, make sure that its buildings function properly, and so on. It will also service its own debts to financial institutions, thus directing a part of the fee income into the financial circuits.
L: Again the university is an interesting example to look at because you could see universities at the centre of other institutions.
Look at King’s Cross in London which is a very interesting example because of the way the art college — Central St Martins — relocated to Kings Cross and provided a way of socially ensuring that that site was buoyant [for the pension fund investing in it] through a very precarious moment of that 2008 crisis. What the university provided was not just ground rent, profit from rent, it provided a form of urban consumption, which primed investor confidence. And that image of confidence was represented by a particular type of urban consumer. The ‘art student’ represents the image of speculative confidence, imbuing a particular part of London with a set of lifestyles, a crowd of behaviours and atmospheres, an exciting atmosphere. They give an urban speculation a cultural form of collateral. They provide an image of the realisation of financial profit at some future point.
But what I meant by crisis was something more specific. Although there are a number of struggles right now, most crucially the cleaners’s struggles which Debbie mentioned, what I actually meant was crisis in a more specific sense. Crisis in the identity of universities, manifested in the way that universities are being governed, and the way they are being managed. Because I think there is a crisis which manifests precisely in the way these universities see themselves as businesses, in how they see themselves as real estate enterprises, in how they see themselves as a vanguard of a new global knowledge economy. Even though they are always trying to reinvent this narrative because the ‘knowledge economy’ ideology seems a bit early 2000s ! So the university is in crisis in the way that it intervenes in society as an institution, and this is because it is flooded by the circuit of surplus capital, and is overrun by middle managers and intermediaries all looking to take a cut, by collecting and managing fees, rents, interest payments, the management of university assets, etc. Financialisation of education manifests a crisis in the social provision of knowledge, and the influence of finance capital is therefore an effect of a wider crisis in the way that a university thinks about its role in (the social).
C: I think that’s a good way of understanding how financialisation works. Basically, the organizing mechanisms of finance are brought to bear on a very different activity which in its own nature it not even capitalistic. Universities are of themselves places for people to study and be educated, they do not easily admit the logic of capital in their organisation. But we have the situation in this country in which universities are forced to become like enterprises, they are forced to submit to financial imperatives. Not necessarily because they seek financial profit but often simply just to undertake their basic functions. They have to raise income from students, who might well borrow the money. They have to invest in real estate and pay ground rent. They also have to borrow from banks and other institutions as well as managing reserves invested in financial assets. The are gradually permeated by the logic of finance, the logic of returns, which then results in seeing the various parts of a university as ‘profit centres’ that must manage their course offerings as ‘products’ that generate returns. All that is supposed to result in ‘efficiency’, but the efficiency of a place of learning is a very different thing from the efficiency of a body that is properly based on the logic of finance. The result is an absurdity, a Frankenstein.
Joe (J): and to some extent it starts with austerity, a form of austerity which is the funding for these institutions is no longer coming through national taxation, it’s no longer giving grants, so that’s where it starts the process off, and then financialisation becomes a fix, it becomes a way of keeping the institution alive. And then the institution works as an institution, because it has to survive, and it embodies financial logics and practices and processes in order to survive, in order to reproduce itself. And I don’t think these public institutions are ever acting only as a capitalist enterprise, because often they are only doing this to fulfil their public or social goal. So a local authority doesn’t get into the real estate game because it’s interested in making a profit, simply, for its own sake. It does it in order to then fill in potholes, to provide libraries, or build more ‘affordable’ housing. In the same way that universities becomes financialised, not because everyone there enjoys making loads of money, although of course they do then tend to hire people who are good at making money and enjoy making money. So that’s a sociological point that I think then changes things: public institutions think ‘we need to make money to survive, in order to do all the things we want to do’; we then start to create a system in the organization, where you have all the people that want to keep the ethos that the university or the local authority was supposed to be about – providing education, providing social services, whatever it is – but they become subordinated to this other group of people within the institution, who have been brought in without a history or a knowledge of that ethos, but with the capabilities of acting like good capitalists, making shed loads of money for the organization. And then you start getting a disjuncture between those two. It’s kind of Bourdieu’s left-hand and right-hand of the state.
M: And they adopt the language and the techniques of private business to an extreme degree so all the land and buildings and libraries and so on become assets, and have to be maximised and optimized, and traded off against this and that.
J: And the social purposes and social goals are only useful insofar as then they can be seen in relation to profit-making as well. So then you’ll have the situation where each public service then starts to think of itself in isolation from the organization, and how you generate extra profits. So a library has to be more than a library, it has to be a hub, it must have a café, it has to become financially self-sustaining. It also has to be able to offer space for micro-entrepreneurs, and this starts to colonise down, the logics, the way of thinking.
C: I fully agree, I think that’s what it is. Effectively you are putting a carapace of financial logic over something which isn’t of its own nature capitalistic. And it begins to imbibe some of that, it begins to behave in that way, even though by its own nature it’s not that. Some of the perverse results of that are clear, we see them all the time in the practice of universities. After all, in a proper capitalist enterprise, whatever it might be, which gets profit out of creating or circulating value, we have a self-sustaining process. Otherwise it isn’t capitalism, it cannot be. You have capital, you do something with it, you get profit, it becomes more capital, and so on, it reproduces itself. But if the activity is not capitalistic, then there is a problem because you are forcing it to behave in a way that is not in its nature. Universities are a good example. They’re not businesses, they cannot generate surpluses systematically, they are not by nature capable of reproducing themselves on an ever-larger scale through accumulation. And what is the result of forcing the logic of finance over them? In the UK at least, a large array of universities are effectively bankrupt, the sector as a whole is in deep financial trouble, and the student body is hugely laden with debts that will probably never be repaid in full. And that it without even considering the mental and psychological damage that the burden of debt does to young people and its implications for work in the future.
M: and also in the United States, and I guess it would be the same here, that these young people leaving the University with all this debt, can’t behave in the required way. They can’t take out mortgages to buy housing. They can’t pay for pensions. So other industries find that they no longer have an obedient population of customers, because they are all screwed by their debt.
L: That could be the source for a new kind of housing bubble. If you have a property bubble in student housing which bursts, it’ll all be based around the fact that you’ve constructed a system based on a growing demand for student housing, but this system is built on making going to university un-affordable for many people. We haven’t yet seen it, but the student housing property bubble might collapse. London hasn’t seen a major property bubble explode since the early 90s. But if you were thinking about these things it wouldn’t just be residential and commercial, it would be this new sector as well
C: It might well turn out that way in the London housing market. But since you mentioned the United States, which experienced a great crisis in 2007-2009, it is worth noting that the decade that followed is the first period in the post-war years in which mortgage borrowing as a proportion of disposable income, has fallen sharply in the United States. There is some widespread confusion on this issue because absolute levels of mortgage lending have actually recovered by now, in fact they’ve gone above their pre-crisis level. However, the real measure of mortgage debt is its proportion to disposable income, and that is nowhere near the peak of 2007 when the crisis burst out. And that to me is indicative of a deep change in outlook among US households with regard to housing. The crisis was a powerful historical shock.
L: So mortgages since the crash have…
C: … decreased, as a proportion of disposable income, which has increased during the last 10 years. The proportion of mortgages to disposable income is what we should be looking at, and its decline in the USA is the first time that it has occurred in the post-war years, certainly on anything approaching the current scale.
J: But there is also some really interesting work being done by Desiree Fields in Sheffield, she looks a lot at institutional financialisation, after the crisis, in family rental properties, so a lot of the homes that were foreclosed on, then people like Blackstone have been buying them up and renting them out. Because there is a growing market in the United States for family rental, so it’s not necessarily that financialisation is retreating, but maybe it’s switching from owner occupier mortgages to institutional investment in rentals.
C: It’s an interesting point. But then you will get a different type of financialisation. In any case, the exposure of US households to the formal financial system for housing has declined in relative terms. That’s an important point. I am not suggesting that financialization is going away, of course. The US economy remains financialised, but its form and the burden on households is changing.
D: If you look at London the proportion of someone’s income being spent on private rental sector, which is a massively increasing sector in London, it’s going up. So it’s really high. So that indicates a higher burden in the household. So there’s less home-ownership, more private renting (which is linked into financialisation) and the proportion of the income being spent on private rent is high. So that would support the argument that it’s shifting to there being more landlordism in fact, as opposed to individual mortgages.
C: There is also something very old about this. These forms of landlordism in urban real estate used to be called ‘Rachmanism’, with the concentration of large volumes of housing in a few hands. Under current conditions, the landlords would often be large outfits that would be heavily financed by banks. The landlord buys the property, collects the rents, speculates in real estate prices, and pays the interest to the banks.
D: And the properties are paid for by people’s income, people’s rent.
C: Indeed, the final payer of interest to the banks in many instances would be the tenants – the household or whoever pays the ground rent out of which the bank receives its own profits. This is, of course, financial expropriation of personal income on a grand scale, but done quite differently from the situation in which large numbers of households would borrow directly from banks to buy houses, and would then pay interest out of their income. That would still be financial expropriation but through different channels.
M: It’s David Harvey’s kind of “switching”. The financials are moving their investment from one kind of housing investment to another to another in a very adept way.
C: Of course that’s the implication of the crisis. It’s one thing to lend money to a thousand individuals households to buy their own homes, quite another to lend the money to one landlord who is going to buy a thousand houses and let them out to households.
L: But one of the cultural implications is the process you described, Joe — the way a local authority or university begins to improvise what it thinks a business is, how it behaves, in order to ensure that it has the revenue flows, that it is competitive and all of that. All that kind of stuff you can see working at the level of how individuals act and behave as well. Not in the sense of being entrepreneurs in the way Thatcher and also Tony Blair wanted to see households and individuals behave. It’s more about how to present yourself to the world, as if you were presenting yourself as a kind of firm, as an enterprise. And I think this sort of dimension is interesting because this is where it connects to Costas’s analysis of culture and the questions of Adorno and Marx on fetishism.
Bibliography
The meeting was set up as a discussion of
Lapavitsas, C, (2016) Marxist Monetary Theory,Verso -, 2016 – now in 2018 Haymarket paperback – and especially Chapter 1, Money as Art.
Moreno, L (2018) Always Crashing in the Same City: Real Estate, Psychic Capital and Planetary Desire CITY, 22(1),Feb.2018
Other References:
Ball, M., V. Bentivegna, M. Edwards and M. Folin, Eds. (2018) Land Rent, Housing and Urban Planning: a European perspective London, Routledge Revivals (reprint of 1985 original) https://www.routledge.com/Land-Rent-Housing-and-Urban-Planning-A-European-Perspective/Ball-Edwards-Bentivegna-Folin/p/book/9781138494435
Bank Job (2018). https://bankjob.pictures/bank/
The bank is also a key part of the feature documentary film ‘Bank Job’
Beswick, J. and J. Penny (2018) Demolishing the Present to Sell off the Future? The Emergence of ‘Financialized Municipal Entrepreneurialism’ in London, IJURR, 42, 2 https://onlinelibrary.wiley.com/doi/abs/10.1111/1468-2427.12612?af=R
BISS Bartlett International Summer Schools on the Production of the Built Environment, annual Proceedings 1979-96 of which only one, 1993, is online https://michaeledwardstemp.files.wordpress.com/2008/05/biss15.pdf
It contains a complete index to the series.
Centre for Cities. (2018) Cities Outlook 2018. Centre for Cities. Report
Edwards, M (2002) Wealth creation and poverty creation: global-local interactions in the economy of London. City 6.1, 25-42. ISSN: 1360-4813 http://dx.doi.org/10.1080/13604810220142826
Edwards, M (2006) Hamlet without the prince: whatever happened to capital in Working Capital? City 10(2), 197-204. ISSN: 1360-4813 https://www.tandfonline.com/doi/full/10.1080/13604810600736800
Edwards, M. (2016a) The Housing Crisis and London, in Special Feature on London edited by Anna Minton and Paul Watt, City, 20, 2, 222-237, at http://www.tandfonline.com/doi/full/10.1080/13604813.2016.1145947
Edwards. M. (2016b) The housing crisis: too difficult or a great opportunity? Soundings Issue: 62: Alternatives to neoliberalism, 23-42, free download at https://www.lwbooks.co.uk/soundings/62/the-housing-crisis-too-difficult-or-great-opportunity
Edwards, M (2018) Density Limit is Essential, submission to the consultation on the draft London Plan, https://michaeledwards.org.uk/2018/02/28/density-limit-is-essential
Desiree Fields (2018) Constructing a New Asset Class: Property-led Financial Accumulation after the Crisis, Economic Geography, 94:2, 118-140,
https://www.tandfonline.com/doi/full/10.1080/00130095.2017.1397492
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Real Media (2016) The UCL rent strike. The UCL rent strike – A Real Media film
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