How Moscow is becoming a capitalist mega‐city

How Moscow is becoming a capitalist mega-city Vladimir Kolossov and John O’Loughlin Introduction lications, 79 cities have been identified as world cities, and only four cities always appeared in all lists and in the top category – London, New York, Paris, and Tokyo (Taylor 2003). Nevertheless, little by little, methods allowing understanding of the place of large cities in global and national urban systems have been worked out: Poststructuralism and non-representational theories, the ideas of Manuel Castells about the transformation of the space of places into the space of flows and about the Informational City (Castells 1989, 1996), as well as the progress of world-systems theory due to the work of Immanuel Wallerstein, Peter Taylor and others (Knox and Taylor 1995, Taylor 1993, Waller- 1. analysing airline passenger traffic, international railway and phone trafstein 1979), have contributed fic, etc. (Keeling 1995, to the appearance of new Professor Vladimir Kolossov is Director Kolossov 2001, Thrift ideas about the connectivity of the Centre of Geopolitical Studies of 1989); between large cities and to the Institute of Geography of the Russian Academy of Sciences in Moscow. He is the development of the con2. studying the location of also Chair of the International Geogracept of world cities as foci of the headquarters of phical Union Commission on Political major interactions in the glomultinational corporaGeography. His most recent publications balised world and closely tions (MNCs) and the are Geopolitics and Political Geography related networks. John territorial range of their (with Nikolai Mironenko, 2001) and World in the Eyes of Russian Citizens: Friedmann (1986, 1995), Sasactivity, their presence Myths and Foreign Policy (ed., 2003). kia Sassen (1991) and others and the embeddedness Email: [email protected] have proposed criteria for within the national John O’Loughlin is Professor of Geogra‘‘world cities’’, but for a long economy and its interphy in the Institute of Behavioral Science time there was almost no action with local busiat the University of Colorado, Boulder. empirical work by which ness (Hall 1966, Hymer His research interests are in spatial statistical analysis and the political geography these criteria could be 1972); of the Former Soviet Union, especially checked and applied to con3. revealing the role of local democracy, Russian geopolitics, and crete materials. Existing staworld cities in the nationalism. He is Editor of Political tistics are really ‘‘state-istics’’ new territorial division Geography. (state-based) and give almost of labour (Friedmann Email: [email protected] no information about con1986, Fröbel et al. nections in world city networks. 1980); In the 1990s, rankings of world cities were 4. identifying the position of world cities as based mainly on expert estimations, and the centres of research, places of international hierarchy of major international economic and meetings and contacts, the hubs of NGOs financial centres proposed by different authors networks, and the major source of social and widely varied. In the 16 most important pubcultural innovations; ISSJ 181 r UNESCO 2004. Published by Blackwell Publishing Ltd., 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA. 414 5. considering the development of business (or producer) services (Sassen, 1991, 1995). The very strategy of global business services firms and their brand image are based on a similar service offered in all the countries in which they work. In a world city, firms providing knowledge-based (professional and creative) services are a crucial activity necessary to decision-making in MNC headquarters, international organisations, etc. The development of global business services networks is made possible by technological advances in computing and communications. The latter approach is widely used by the Globalisation and World Cities Study Group at the University of Loughborough, UK (GaWC) created by Peter Taylor. The members of GaWC have collected data on the networks of a selection of advanced global business services companies in more than 300 major world cities, which allowed them to propose the first typology based on concrete empirical evidence and to reveal the network of connections between them (Beaverstock et al. 1999, 2000). Moscow has always been a priori considered as one of the important world cities, but in the Soviet time its inclusion was mostly based on political criteria and the world geopolitical role of the Soviet Union as a superpower. Later, in the first classifications of world cities based on statistical evidence, Moscow also received the highest rank among all post-socialist cities (Beaverstock et al. 1999). But since the disintegration of the USSR, under the conditions of transition to market economy, the character of its involvement in global networks has dramatically changed. The objective of this paper is, first, to examine the relationship between post-Soviet transition and the place of Moscow among world cities and, second, the relationship between its new functions as an emergent world city and the evolution of its inner economic and social structures. Globalisation and postcommunist transformations: Moscow among world cities In their factor analysis of corporate service complexes of 53 European cities, Taylor and r UNESCO 2004. Vladimir Kolossov and John O’Loughlin Hoyler (2000) distinguished ‘‘alpha’’ world cities of the European major spine – London, Paris, Frankfurt, Milan – and ‘‘beta’’ world cities like Madrid, Zurich, Brussels, highlighted by a pronounced presence of banking/finance firms or accountancy in the corporate mix. Moscow, showing a pretty varied profile with relatively high levels of location for banking, accountancy and generally ‘‘all sectors taking advantage of the new market opportunities consequent from the collapse of the Soviet block’’, is included in the Eastern European cluster of ‘‘beta’’ world cities. In Fossaert’s (2001) spatial extension of this European analysis for the world system, Moscow is again one of five cities within a ‘‘Europe in transition’’ zone. Fossaert concludes that, while Moscow is now integrated into the European (and by extension) world system of cities, the economic returns to Western firms have been small, fleeting and unpredictable. More than many other world cities, Moscow is differentiated from its neighbouring regions (Ioffe and Nefedova 1998). Nevertheless, by the end of 2002, two thirds of the world’s largest companies in the financial sector had offices, subsidiaries or partner companies in Moscow (Gritsai 2003). According to the data of the GaWC, the Russian capital has the 34th rank by connectivity in global business services networks among 300 world major centres – before Washington, Warsaw and Berlin, but slightly behind Prague (Taylor 2003). Taylor and Walker (2001) argue that the role of Moscow in Eastern Europe is similar to that of Tokyo in East Asia. The Japanese capital now has to share Pacific Asia office headquarters with Hong Kong and Singapore, and Moscow is no longer the major centre for the whole of Eastern Europe. But it remains by far the most important economic hub of the vast national territory and to some extent of the post-Soviet space. In particular, in CIS countries, Moscow is the most important centre of advisory and project-based activities, which practically do not depend on proximity to the client and are strongly concentrated in the Russian capital. Moscow is attaining the status of an international financial centre, at least in the CIS financial markets. The international activity of Moscow banks has increased considerably. A number of Moscow banks stand a good chance of becoming transnational. Across the Russian How Moscow is becoming a capitalist mega-city Federation, Vneshtorgbank has a traditionally extensive network and has recently opened branches in Hungary, India, Italy, Cyprus, China, the US, Turkey, Czech Republic, and Switzerland. Moscow Savings Bank has opened an office in the Netherlands. Since 1991, many Moscow banks have managed to establish correspondent relations with the leading banks of the western countries and have become members of international settlement and information systems (SWIFT, Reuters, etc.). Foreign banks are not actively advancing into Moscow’s financial markets since decisions taken by the Russian government restrict the operations of foreign banks in Russia for the period of transition. The Central Bank of Russia has confined the proportion of foreign banks in the amount of the country’s banking capital to 12%. Most leading foreign banks have offices in Moscow, along with the offices of international financial institutions (World Bank, European Bank of Reconstruction and Development, etc.), but no bank is admitted to normal banking operations with Muscovites. However, though in post-Soviet capitals the number of global business services companies’ branches is much smaller than in Moscow, the role of Moscow in banking and advertising activities in the CIS is not so visible. Depending more on the national legislation and banking systems, and the national mass media, these companies act mostly on a national basis. Accountants and, to some extent, insurance companies, the activities of which are more related with routine operations and proximity to the client, also tend to have hierarchically organised national systems of offices. Thus, the main conclusion of an analysis of the activity of the global business services firms in the post-Soviet space is that their concentration in Moscow is quite high, especially taking into account the fact that Moscow has emerged as a large international centre only over the last decade, having long been the capital of a selfisolated, almost autarchic state behind the iron curtain. At the CIS scale, Moscow also generally remains central, despite the challenge of Kiev and Almaty (Gritsai 2003, Van der WustenGritsai 2004). At the national scale, Moscow remains by far the most attractive location for business services. Almost all the foreign business services companies have located their main regional r UNESCO 2004. 415 offices or subsidiaries in Moscow and only some of them have later established extra branches and subdivisions in other big Russian cities. In Russia, business services are strongly concentrated in Moscow providing about 30–45% of national employment in this sector. However, Moscow is still well behind the advanced Western global cities by its share in total employment: 7–10% in 1993 and 11–14% in 1998 (Gritsai 1996, 1997). Moscow is making important steps on the way to the club of world cities by becoming a command and control centre shaping society in the beginning of the new millennium. At least on the scale of the former Soviet Union, the city is a major business and international political centre, and firms like RAO Gazprom (gas), LUKOil (oil), RAO EES Rossii (electricity), Rostelekom (telecommunications) and some banks have virtually become transnational companies, even though they are less powerful than the leading Western ones. Moscow also remains Russia’s major international aviation hub with 73% of all traffic, down from about 82% in Soviet times (Aviatsionno-Kosmicheskii Spravochnik Stran SNG i Baltii, 1998/99). At the same time, as the key node of Russia’s international relations, Moscow increasingly looks to the major cities of the West. For example, over the last decade, the number of air flights linking Moscow directly with cities in the US has more than quadrupled and has reached about 40 connections a week, while with Western European cities, flights have increased by more than one and a half times (about 430 connections a week). By 1996, for the first time in Russian civil aviation history, the number of passengers at the Moscow international hub (as well as the St. Petersburg hub) exceeded domestic passenger numbers. Comparing 1997 to 1985, the numbers give a clear indication of the reorientation of Russia. In 1985, 86% of flights from Russia were to Soviet republics; by 1997, this ratio had fallen to 34%. In contrast, the proportion of flights to East-Central Europe rose from 7% to 9%, with the biggest increases coming in flights to Western Europe (up from 4% to 28%) and Asia (up from 1.5% to 26%). Proportions for the other world regions (less than 1%) were unchanged. In summer, 60.5% of all regular international flight connections per week (arrivals and 416 Vladimir Kolossov and John O’Loughlin departures, except CIS countries) linked Moscow airports with destinations in Western Europe (Table 1). Frankfurt, London, and Paris (with 7.6% of connections each), Berlin (6.5%) and Stockholm (5.4%) were the top traffic nodes. By contrast, despite geographic propinquity and historical ties, only 21.2% linked Moscow to Eastern and Central European cities. Other world regions, with the exception of the Middle East including Israel, maintained few connections. Though traffic was lighter in the winter season, these regional ratios are maintained. Since international traffic is growing rapidly year-on-year (up 6.8% in 2001 – ‘‘Sheremetyevo traffic’’ Moscow Times, January 21, 2002, p. 8), a much-needed expansion and modernisation of the 1980-era airport is planned. Another commonly used indicator of international linkages is telephone traffic. Though it is possible to agree with the reservations of Beaverstock et al. (2000) about the difficulty of separating business from personal traffic in both telephone and air traffic, the data clearly indicate the variable strength of Moscow’s external relationships. In 1998, telephone traffic with the ‘‘far abroad’’ (beyond the borders of the former Soviet Union) reached half of total foreign traffic. As in air travel, Germany provides the focus of the traffic with the ‘‘far abroad’’, maintaining its position from 1994 with over 10% of all calls (Table 2). Other western countries with strong business and personal (through emigration) links with Moscow also predominate in the links (the US, France, Italy, and the UK). Little evidence remains of the strong economic and political Table 1. Total international connections from Moscow’s Sheremetyevo Airport (except CIS destinations) Destinations Western Europe East-Central Europe Latin America East and South-east Asia South Asia Africa Middle East-North Africa North America Total Foreign Destinations Summer 2000 Winter 01–02 978 342 22 97 47 10 54 66 1616 664 269 4 94 30 2 70 62 1195 Source: Sheremetyevo Airport flight guides, Summer 2000 and Winter 2001–02. r UNESCO 2004. links of Soviet times; of the former Communist states, only Yugoslavia, Vietnam, the Czech Republic, Poland, Bulgaria, and Hungary have more than 1% of contemporary Moscow telephone calls. The Russian capital finds itself increasingly incorporated into the complicated system of interaction between the leading links of the world system of cities (Kolossov 2000, Kolossov and Vendina 1997). A characteristic feature of Moscow over the last few decades has been an unusual combination of concentrated political power (though this dates back to Tsarist times), decision-making functions, control and management and a high employment rate in science and high-tech industries on the one hand, and a concentration of outdated industry, including metallurgy, weaving industry, and chemical industries on the other (Lappo 1992, Lappo et al. 1988). Available statistical data show hyper-concentration of commercial and go-between functions in the capital. (For comparison, Moscow has 7.1% of Russia’s population.) In 1999–2000, Moscow companies accounted for more than 38% of all currency income from export of goods and services, while the city’s industrial production comprised only a small part of the Russian total (5%). Moscow banks account for 65–80% of all foreign currency operations. Moscow accumulated 27.8% of foreign investments in the country between 1991 and 1998 and, in 1998, 56% of joint ventures registered in Russia were based in Moscow, with foreign partnerships contributing more than 80% of them. (All these statistics are from the City of Moscow website: www.mos.ru). Overall, out of 89 Russian regions, Moscow city received 16.7% of all investment in Russia with another 5% going to the Moscow region (the oblast surrounding the city) in 1998. In contrast, St. Petersburg received only 3% (Anon. 1999). Further evidence of Moscow’s primacy is readily available. The city accounts for 13.8% of Russian Gross Domestic Product and 28.7% of retail turnover. In late 2003, GDP in Russia was expected to be up 6.6%, helped by high world oil prices (Le Monde, 3.12.2003, supple´ment ‘‘Économie’’). In 2001, more than 3000 representatives of foreign companies were officially registered in Moscow. The capital is by far the main donor to the federal budget and provided in the first years of the millennium more than 417 How Moscow is becoming a capitalist mega-city Table 2. Moscow international phone traffic, 1994 and 1998 (% of total traffic with ‘‘far abroad’’) More than 10% 10–5% 5–3% 1994 Germany, USA UK, Italy, France Finland, Austria, Switzerland, Poland 1998 Germany USA, UK, Italy France, Yugoslavia, Vietnam, Turkey 30% of its tax revenue; moreover, Moscow’s contribution has considerably grown since 1993, when it reached 11%, explained by the location of major national companies’ headquarters in the city. Per capita gross regional product of Moscow is the largest among Russian regions (behind Tiumen oblast where oil production is dominant) and more than twice the national average (Ponomarenko 2000). Per capita income in Moscow in 2000 was almost four times the national average, up from 1995–1996 when the ratio was 3:1. However, the situation is gradually changing, especially since the 1998 crisis, which stimulated export and production of importreplacing goods in the provinces. The crisis provoked a redistribution of foreign investments in favour of the provinces: in 1996, the share of Moscow in total investment reached 66.0% and in 1997, 67.4%, but in 1998 it had decreased to 48.9%. In January–June 2000, it dropped further to 32.5%. In the same period, the share of Moscow in direct foreign investments was about 26% – much less than only three years before, though still much higher than the capital’s share of population. There has been a continued decrease of Moscow’s contribution to the federal budget, although not as pronounced as the drop in the share of foreign investments. In the 1990s, the economy of Moscow survived a period of rapid restructuring. At the end of the decade, the structure of employment r UNESCO 2004. 3–1% Turkey, Israel, Netherlands, Yugoslavia, India, Hungary, Belgium, Spain, Bulgaria, China, Sweden, Greece, Cyprus, Czech Republic, UAE, Denmark China, Israel, Czech Republic, Poland, Switzerland, Finland, India, Netherlands, Austria, Hungary, Bulgaria, Cyprus, Greece, Belgium, Sweden 1–0.5% Japan, Croatia, Singapore Slovakia, Norway Pakistan, United Arab Emirates, Syria, Denmark, Japan, Slovakia, Korea, Croatia, Iran had become much more similar to major world metropolises than ten years before, as Moscow is progressively losing its importance as an industrial centre. For political reasons, the Soviet leadership did its best to keep a large workingclass population in the capital. In the 1970s and 1980s, economists and even the city authorities realised that it was necessary to withdraw obsolete, polluting and labour-consuming branches of industry from Moscow and that a certain de-industrialisation had become unavoidable. Hence, this process was slow but, under unregulated market conditions after 1991, it sharply accelerated. By the end of the decade, tertiary functions definitely dominated (Table 3). At the all-Russian scale, the specialisation of Moscow (measured as ratio of employed persons in the given branch to the ratio of this activity in Russia as a whole) was in research (the capital contains more than one-third of Russians employed in this sector), banking and insurance, telecommunications, and construction. By the end of the decade, the re-structuring of employment was dramatic and the cost of such rapid transformations was high, including crisis in the most modern, high-tech branches of industry and declining scientific activity. The position of Moscow is dominant in virtually all indicators relating to the financial and banking system. In 1999, the city’s share of financial employment reached 19.1%. Of the top 50 banks in Russia in 2003 (ranked by capital measured in roubles), 44 are based in Moscow 418 Vladimir Kolossov and John O’Loughlin Table 3. Proportion of persons employed by sector (as % of total employment) Principal sectors of employment 1990 1993 1999 Primary and secondary of which industry Tertiary of which trade of which finance and real estate 54.3 23.8 45.7 9.8 0.5 49.8 21.9 50.2 12.7 1.3 29.0 14.3 71.0 18.0 2.7 Source: compiled from various official statistical publications. (one based in Ufa held 14th position, and the next non-Muscovite bank, the largest in St. Petersburg, held only the 21st rank), a clear indication of its primacy in banking activity. Huge amounts are accumulated in Moscow banks: by 1995, Moscow’s share of total Russian bank assets amounted to 83.2%. Even the 1998 financial crisis did not shake the monopoly of Moscow banks. In 2003, the share of Moscow banks in the total capital of the first 50 banks even rose to 92.7%, not including the oldest and by far the largest bank of Russia – the state Sberbank (Savings Bank), which controls the bulk of banking operations with individuals. The Moscow ratio reaches 94.7% if Sberbank is included (200 krupeishikh, 2003, http://invest. antax.ru/doc/articles/reit_banks). During the immediate post-perestroika period (1992–1998), Moscow acted as a gobetween for Russia’s regions and the advanced countries of the West. The lion’s share of purchase-and-sale deals for primary goods and other materials were concluded in Moscow. Various consumer items were channelled to Moscow: its share in officially registered retail turnover is many times its ratio of the country’s population, and between 1992 and 1999, it rose from 16% to 29.6% of the Russian total. In 1999, the capital’s share in the turnover of personal services reached 28% and Moscow accounts for 41% of all purchases of foreign exchanges by individuals. Thus, within a short time, Moscow managed to take advantage of its objectively favourable position as a centralised primate city to establish control, in the new capitalist conditions, over huge financial and commodity flows. Supporting the conclusions in Taylor and Hoyler (2000), Moscow’s role as an economic node between the West and Russia was not only noticeable locally but also in the r UNESCO 2004. capitals of neighbouring countries, among them, Tallinn (Estonia), Riga (Latvia), Helsinki (Finland), Warsaw (Poland), and Kiev (Ukraine). Of course, such a hypertrophy of Moscow’s functions as an intermediary between Russia and the international market, as well as its absolute dominance of the national financial market, will weaken with further improvement of the economic situation in the country. Moreover, Russia’s economy can be stable only if it develops a balanced network of regional metropolises. It is certainly likely, however, that the capital will keep its unique position for a long time (Treivish and Nefedova 2000). By 2003, there were no visible signs of waning dominance. The average income gap between Muscovites and other Russians was (late 2000) about 4 to 1 (and according to calculations of the Moscow city government, as much as 7 to 1). As in many other capitalist countries, new and old, regional economic disparities in Russia seem to be strengthening under contemporary globalisation (Agnew 2000). Globalisation and inner changes in Moscow Globalisation takes place in cities and cities embody and reflect globalisation (Short and Kim 1999). Contemporary urban dynamics, especially in world cities, are to a wider extent determined by their international functions. The transformation of the urban environment shapes the manifestations of globalisation depending on the city’s history, traditions, culture, morphology and other local conditions (Argenbright 2004, Taylor and Derudder 2003). World cities and particularly the capitals as hubs of exchange and centres of economic and political control have become symbols of their new power, like the towers and skyscrapers of business districts. Historical destinies of major cities in the global context depend on stiff competition among them as they vie for new investors and functions, and look for a broader influence (Harvey 1989b, O’Connor 2003). To withstand such challenges and keep the status acquired earlier, cities launch ambitious and expensive programs of remodelling city centres in order to re-create their favourable image. To facilitate How Moscow is becoming a capitalist mega-city A shopping gallery in Moscow, October 2001. Ludovic/REA r UNESCO 2004. 419 420 these changes, the paradigm of the city management system is altered and transits from ‘‘traditional’’ to a so-called ‘‘entrepreneurial’’ management. This strategy usually involves (1) public-private partnerships; (2) a market-oriented nature for the entire activity; (3) assumption by the municipalities of part of the risk associated with private investments; and (4) participation of the local state in partnership with real estate interests (Harvey 1989a). The impact of globalisation on the social structure of world cities is two-fold. On the one hand, the growing social, ethnic and cultural mixing of population is a necessary element to the functioning of a world city. On the other hand, globalisation strongly increases social polarisation and segregation, and creates new physical barriers and obstacles within the city (O’Loughlin and Friedrichs 1996, Sassen 1994, 2002, Smith 2003). The incomes of Moscow residents are difficult to estimate correctly. Only 11% of respondents to a poll conducted in 2001 by the authors (with fellow researchers Yu. Averin, G. Butyrin and O. Vendina) rated their families’ material conditions as ‘‘good’’ or ‘‘very good’’, while 55% said they were ‘‘average’’. The rest (34%) rated them ‘‘poor’’ (27%) or ‘‘very poor’’ (7%). According to world city theory, globalisation shapes two poles: high-skilled and well-paid staff engaged in management and business services, and a low-skilled and to a large extent immigrant workforce serving the needs of professionals, along with remaining industrial workers. States and municipalities are increasingly unable and reluctant to cover social expenses involved in improving city centres and contributing to the increase of the international competitiveness of a world city. The government of Moscow declares that the objective of its policy is two-fold: first, to make the city more comfortable for its inhabitants and visitors by regulating and directly subsidising the distribution of a part of new housing and encouraging new ‘‘civilised’’ forms of retail trade and service – shopping centres, ‘‘hypermarkets’’, etc. Second, it believes it necessary to make the city more attractive for investments and business – both domestic and foreign – by creating business complexes, trade centres, new hotels, luxury office buildings, and modern infrastructure. But in fact, the city r UNESCO 2004. Vladimir Kolossov and John O’Loughlin authorities privilege the interests of the new middle class engaged mostly in globally oriented sectors of the economy while also forming the vanguard of cosmopolitan consumerism. For example, facing the alternative between the development of new high speed metro lines and of other kinds of public transportation, and the construction of intra-urban motorways in the interests of the new middle class, the Luzhkov administration seems to be opting for the second solution. Along these motorways, large supermarkets destined mainly for these social strata are mushrooming. The transformation of landuse patterns also matches the interests of the new middle class. It entails fundamental changes in the social fabric of a city, because the space of the new classes overlaps the places of others who lack social and geographical mobility, and deeply affects the image of the capital and the identity of its dwellers. Luzhkov is criticised for classic Russian megalomania and excessive ‘‘global’’ ambitions. Critics claim that, instead of wasting public money in erecting prestigious business centres and huge monuments of doubtful artistic value, the administration should direct the city’s money to the construction of cheap housing, the improvement of secondary education and health care, etc. (Argenbright 2002, 2004). Architectural planning or real estate companies, by coordinating diverse areas of activity, from project inception to final implementation, meet growing consumer demand, but, even with state or municipal participation, private companies do not pursue altruistic social goals, but rather give preference to corporate interests. This is particularly evident in the centre of Moscow where ‘‘elite’’ office-cum-residence complexes are under construction. These developments comprise a group of buildings with a complete range of residential and business functions and a well-developed infrastructure in the form of garages, swimming pools, gyms, security, playgrounds, etc. The urban environment of the centre is being fragmented. Some blocks like a series of housing-office complexes in Sretenka (northern part of the centre city) are turning into a ‘‘packaged product’’, being oriented to a particular kind of activity for a specific group of visitors-residents, who are growing increasingly isolated in self-contained communities. Ordinary Muscovites find them- How Moscow is becoming a capitalist mega-city selves total strangers in these developments and, typically, they are not admitted. The sociopolitical climate in the capital is thus quickly turning the urban environment into a source of land-use conflicts. Is the entrepreneurial approach as described by Harvey (1989a), which reflects the rejection of traditional city management strategy, triumphing in the Russian capital? It is hard to give an unambiguous answer to this question. The improvement of business services infrastructure, holding the long-awaited promise of substantial political and economic benefits to Russia as a whole, lies behind the concerted effort of the state, the city and private capital in an entrepreneurial effort in Harvey’s sense. But it is obvious that a specific Moscow vision of the public-private relationship has evolved under the aegis of Mayor Yuri Luzhkov, who was reelected in December 2003 for a third term, as considerable controls and constraints have been imposed by the municipality on urban land use and the market economy (Gubanov 1999, Pagonis and Thornley 2000). In a bid to avoid, or at least to minimise, undesirable competition, Moscow is trying hard to integrate into the world economy, specifically as an Informational City that has all the necessary managerial, financial, information, and service infrastructure. In so doing, the Moscow city government, following the initiative of the Mayor, is taking an active part in this process, seeking to establish purposefully up-to-date business districts in specific locations (Pagonis and Thornley 2000). A number of large projects realised in recent years (the Manezh Square shopping centre beside Red Square completed in 1997, the Christ the Saviour Cathedral destroyed by the Stalin regime in 1932 and re-inaugurated in 2000 nearby, remodelling the city centre districts of Arbat and Sretenka, and restructuring of the Kremlin island, and the international office quarter, ‘‘Moscow City’’, four kilometres west of the Kremlin along the Moscow river) have all involved huge public involvement on the part of the Moscow city government. The ambitious Third Motorway Ring project including a long tunnel under the historical blocks of Lefortovo, which cost several billion dollars, was completed in late 2003. Nearly all ambitious projects are associated with this public-private partnership strategy – for example, the proposed construc- r UNESCO 2004. 421 tion of the high-speed railroad from the centre of Moscow to Sheremetyevo airport, the business airport at Tushino, etc. For post-Soviet Moscow, trade has assumed the function of the primary motivating force – not only in entrepreneurial activity, but also in urban development. Trade in general, and shop windows in particular, generate a certain street atmosphere constituting one of the crucial factors that form the image of a place. The correlation between the prestige of a place and the concentration of the new tertiary and quaternary economy is obvious. By and large, the spatial picture of the distribution of shops is characterised by dominance of the centre, where the number of street traders and trading firms is many times greater than the outskirts. Mayor Luzhkov is successfully trying to upgrade the kiosks, getting rid of them as urban blight and progressively replacing them with pavilions and shopping malls. In 2000, there were already about 24,000 shops; the 10,600 kiosks in Moscow and the 223 surviving street markets mainly served people with limited incomes. Networks of supermarkets and department stores, recently built in cooperation with the largest European companies, are a recent development. Sixteen big department stores of the Perekrestok (Cross-Road) network, 5 Ramstores, and two stores of IKEA (a Swedish furniture chain), are open or under construction. These and other retail initiatives have caused a retail boom. By early 2002, Moscow had just 300,000 square metres of ‘‘civilised retail space’’ (supermarkets, hypermarkets, and shopping centres) but nearly double that amount will be constructed. This spurt is partly generated by a growing retail splurge by Russians (incomes are rising about 9% per year) and mostly by a renewed interest by Western companies in Russia. Between 1998 and 1999, the average Muscovite’s income plummeted from $8000 to $2800 but by 2001 it had recovered to $5970. Since Moscow has only 35 m2 of ‘‘civilised retail space’’ per resident (compared with 174 in Prague, 217 in Warsaw, 275 in London and 398 in Paris, according to Jones, Lang, LaSalle Consultants), there is a lot of opportunity for growth. Furthermore, Muscovites spend 80% of their income on retail consumer goods (the figure in London is 38% and in Prague 40%), with two-thirds of this expenditure still going to 422 kiosks and outdoor markets. This explains the effort mentioned earlier to close 106 of the city’s outdoor markets (all figures from Startseva 2001; see also Kolossov et al. 2002). The finance and credit sector, the most crucial and sprawling industry, required specific locations. In terms of the number of commercial banks per capita of the population, Moscow is far ahead of the provinces, with one commercial bank in the capital for every 8,900 Muscovites, six and half times the Russian average. Muscovites are now provided with banks and banking institutions at a level comparable with many Western countries. In West Germany, for example, in 1990, there was one banking institution per 9000 people. However, as far as the diversity of facilities offered is concerned, Moscow banks still lag behind those in the West. Moscow’s historic core is clearly visible as the zone of concentration and highest activity in the banking sphere. While seeking to gain a place in the centre of the city, the banks compete successfully with other, less prosperous and powerful spheres of activity, forcing them out of their long-standing locations. Trading and retail firms are sometimes unable to compete for space with the banks. There is little doubt that the remodelling of old premises for bank offices marked the beginning of the widespread architectural transformation of Moscow’s core that we witness today. Moscow’s pre-Revolutionary heritage has had a notable effect upon the accommodation of banks. Nearly all former bank buildings have revived their functions, often after more than 75 years of Communist control. As a rule, these buildings house the headquarters of major commercial banks, set up with the participation of the federal state capital. Moreover, they have been centres of attraction for the establishment of new banks nearby. The location of ‘‘sectoral’’ banks, established on the basis of their connections to state ministries and departments, almost invariably corresponds to the location of their founders. The same goes for the location of some banks of large enterprises and organisations. Usually, such banks are housed in the buildings owned by their sponsors, and as a result, are scattered over the city. The unusually high concentration of bank offices is indicative of the high prestige of particular Moscow districts, coinciding with r UNESCO 2004. Vladimir Kolossov and John O’Loughlin the districts where expensive stores are concentrated. Outside the centre of Moscow, as well as on the outskirts of the city, there also emerge notable points of banking activity growth. But as yet, none of these outlying districts can match the centre in terms of attraction or the level of bank concentrations. Many of the firms dealing in business services were initially set up jointly with state bodies since relations with the ‘‘parent’’ organisation at the outset assisted a new company to promote business technically as well as administratively, such as in leasing an office at an acceptable price. Therefore, most firms of this nature are accommodated in the buildings of the ‘‘parent’’ organisations. For example, numerous TV advertising agencies are located at the Ostankino TV Centre. When firms started ‘‘from scratch’’, with little initial capital, they were content to have modest offices. Their main suppliers were various ‘‘lower-quality’’ ministries, hotels or even guest-houses, research institutes, computer centres or educational establishments conveniently located in the city, with an infrastructure dating back to Soviet times but offering lower leasing rates. The spatial picture of business service location thus reveals distinct territorial preferences. In addition to the centre, these are located in the SouthWestern sector of the capital, which, like the tail of a comet, stretches from the compact business core, similar to it in terms of the density and variety of the facilities offered. There are two reasons for such a magnetic attraction to the South-West: first, a high concentration there of scientific research institutes dating from Soviet times and, second, the social pattern of the population, which is dominated by individuals with a higher education, engaged in intellectualscientific activities (Vendina 1996, 1997). As potential business districts, locations conveniently sited at the crossing of transport routes outside the historical part of Moscow are prime targets. These neighbourhoods have some prerequisites for the emergence of crucial business functions already available – advanced trade, exhibition complexes, individual business centres, headquarters of major firms, and existing hotels. However, these areas are not yet compact enough, the available business facilities are insufficient, and the local urban environment remains unattractive. 423 How Moscow is becoming a capitalist mega-city Scattered throughout the Moscow landscape, in which business facilities abound, there are numerous gaps so far impenetrable to business activity. These are the areas where crucial military-command and government centres are located, including the General Staff, the Ministry of Defence, and major government ministries. Bastions of the command and administrative system in the Soviet past, the districts they command are still excluded from the city’s vital space, remaining as stern and unconquerable as ever (Kolossov et al. 2002). Contemporary Moscow urban planning practice is clearly aimed at taking advantage of the benefits of linking Moscow, as the key economic centre in Russia, to the world economy. The master plan of Moscow’s development to 2020, adopted in 2000 and tying together the social, economic and functional problems of development, has now been succeeded by programs envisaging priority development and renovation of its component parts. The Moscow city government is seeking access to resources from the private sector but, at the same time, the Luzhkov administration wants to establish its control over the most profitable spheres of the urban economy. This long-standing urban planning tradition, dating back to Soviet times, does not allow market processes to develop spontaneously and freely since tradition imposes substantial regulations, which are often used to ensure participation of the city in economic projects or at least, in the distribution of their results. Whether such a policy is justified by the need to combine the private interests of investors with the collective interests of city residents remains an open question. Proposed projects are evaluated in terms of ‘‘value for the city’’, and the direct participation of the local state in implementing many projects, and in the development of programs and proposals, promotes the capital’s business sphere by urban planning institutions (Anon. 2001). Moreover, the traditions and accumulated experience of urban planning solutions of the Communist period impede the progress of the entrepreneurial mentality. There is a temptation to transform old ideas and projects to accord with the new capitalist realities, with unexpected results. A characteristic example of the new thinking is ‘‘Project proposals for the development of a system of city centres’’ (Proektnye predlozhenia r UNESCO 2004. po razvitiu sistemy gorodskikh tsentrov), submitted by the Moscow Master Plan Institute to the Moscow Government in May 1996 as a concept of territorial development for business improvement districts in Moscow. The historic core of the city is regarded in an undifferentiated manner; it is assumed that all of it will be converted into a business district. The former town centres (dozens of planning districts) are ‘‘assigned’’ the roles of intra-urban business centres. Over the past few years, they have become the focal points of spontaneous trade development, with street markets and kiosks near Metro stations regarded as local business centres. Although the use of a marketing approach to city development started some years ago, its strong and weak points are already obvious. The strong points include mobilisation of various financial sources and the creative potential of urban planners for genuine reconstruction and enhancement of city services and utilities. The obvious weakness is that projects are corporate, costly, and ignorant of the social situation. Furthermore, the citizens of Moscow often have no say in the decisions that are made. Attempts to solve these problems using relatively traditional methods of planning consist of pursuing a ‘‘city for residence’’ policy (locating homes side by side with offices), with entertainment facilities, prestigious residential houses, trade zones, cultural and leisure centres intended primarily for the ‘‘day-time’’ population of the city. Such a policy is designed to safeguard the city centre from ‘‘privatisation’’, to try to reconstruct a functionally interrelated urban environment by linking areas closed to the public with attractive community spaces. However, despite these plans, the ‘‘dual city’’ phenomenon (Mollenkopf and Castells 1991) is quickly being constituted in Moscow. Conclusion Moscow is becoming increasingly like other world cities, especially in the factors governing location choices for business services that are part of the international network of economic activity. Changing paradigms in the systems of city management, involving a transition from plan (government)-based methods of management to entrepreneurial methods, have resulted 424 in positive and negative consequences in Moscow. Russia’s capital is faced with virtually the same phenomena that are observed in all major Western cities that have entered the era of an informational society (O’Loughlin 1992). At the same time, the processes of globalisation affecting Moscow are modified by a specific cultural heritage – related, in particular, with traditions of political centralisation – by the spectacular speed of transformations, by the difficult national context of the last decade, and by other factors. It is possible to distinguish several social and urban cleavages determining the evolution of the Russian capital: 1. development at present versus the Soviet past; 2. development at present versus the pre-Soviet cultural and urban heritage; 3. ‘‘winners’’ versus ‘‘losers’’ (social polarisation and progressing segregation in the postSoviet years); 4. Moscow (as the capital and the leading, richest entity in the Russian Federation) versus the rest of Russia and Moscow versus the federal government (Kolossov 1997); 5. the city of Moscow versus the Moscow region (a separate but closely interdependent entity within the Russian Federation, where a large part of the Moscow agglomeration is situated); 6. globalisation and ‘‘world-citification’’ versus the hypertrophy of the capital at the national scale; Russians versus foreigners, etc. Moscow is clearly going through a specific period of its history which can be called refoundation and defined as the transition to a new urban model and to a new way of life by a part of the population, or by most residents, which translation is related to a radical political and/or geopolitical shift. Interestingly, Moscow entered the period of re-foundation practically at the same time as a number of other world cities, where its consequences are now even more pronounced – Shanghai, Hong Kong, Teheran, and Cairo. Globalisation is an important cause of urban re-foundation and accelerates it (Haeringer 2002, 2003). The adverse world city consequence for Moscow lies in the rapid and basically unplanned growth of superstructure functions – management, high-order facilities, trade in exclusive r UNESCO 2004. Vladimir Kolossov and John O’Loughlin items, and elite housing. In contrast, basic functions (production and research) are declining. The current reconstruction in the capital involves only a part of urban districts. Above all, the historic centre of Moscow has captured nearly 40% of capital investment and construction, although it accounts for only 6.4% of the total city area and its population does not exceed 8%. We can expect further depopulation of the centre, if the experience of central city neighbourhoods is typical (O’Loughlin et al. 1997, Pavlovskaya and Hanson 2001). A characteristic opinion is that of Moscow’s chief architect: ‘‘Administration in the city centre must be represented by organisations at the federal level, trade must only be available in the form of leisure, as a big signboard for all to see rather than a street with shops; all housing should be in the attics.’’ (Domnysheva 1996). The new business and political elite have expropriated the rehabilitated areas of the centre and this course of development is leading to the establishment of a ‘‘super-city’’ within Moscow. This ‘‘dual city’’ is remaking a totally different centre in terms of contents (higher-order functions), but it also is acquiring a new post-Soviet look. The positive results of ‘‘world-citification’’ consist in the provision of new services and utilities, the building of an attractive image of the city in the world economy, a growing variety of architectural forms that are completely different from the mediocre Soviet stereotypes, and the growth of diversified services aimed at accommodating both individuals and businesses. The main problem of the new emerging strategy of urban development is to combine the tasks of attracting investors and improving the investment climate with social programmes to compensate for the consequences of economic restructuring in the city. It is impossible to shift this burden onto the shoulders of entrepreneurs. A fully-fledged programme is required that incorporates all the participants of city life and takes their respective interests into account. Priority must be given in this respect to the interests of Moscow as a city whose growth is a means for an economic breakthrough and of reaching the world market for Russia. Therefore, even though they attract harsh criticism from the public for being too costly, ambitious projects like ‘‘Manezh Square’’ (a luxurious shopping complex next to Red Square) and 425 How Moscow is becoming a capitalist mega-city ‘‘Moscow City’’ (a business office complex) are crucial in changing the image of the city and in attracting foreign capital investments to Russia. The strategic interests of economic growth necessitate concentration of resources for the development of the most promising business improvement districts. The office boom should not eclipse the interests of the population as a whole. The most attractive and prestigious sections of the city must be accessible to the general public and they should not be turned into citadels for the well-to-do as has happened in Western cities. Gated communities with armed guards have made their appearance in the highprestige Moscow neighbourhoods. As housing facilities become dominated over time by elite housing, the system of services should include trade and services to accommodate different strata of the population, including culture and entertainment, trade and service firms. Moscow has now appeared on the lists of world cities after three-quarters of a century isolated from the capitalist world-economy. Unlike Western cities, social polarisation is happening quickly in Moscow as the city authorities have been unwilling or unable to tackle the ‘‘dual city’’ phenomenon that is rapidly developing and is especially visible in the centre and certain key business districts. While historic buildings are being gentrified to Western standards of taste and quality, tracts of the housing stock in the city are being allowed to decay. Moscow is a model for other former Soviet cities. 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