how moscow is becoming a capitalist mega-city · how moscow is becoming a capitalist mega-city ......

How Moscow is becoming a capitalistmega-city

Vladimir Kolossov and John O’Loughlin

Introduction

Poststructuralism and non-representationaltheories, the ideas of Manuel Castells aboutthe transformation of the space of places into thespace of flows and about the Informational City(Castells 1989, 1996), as well as the progress ofworld-systems theory due to the work ofImmanuel Wallerstein, Peter Taylor and others(Knox and Taylor 1995, Taylor 1993, Waller-stein 1979), have contributedto the appearance of newideas about the connectivitybetween large cities and tothe development of the con-cept of world cities as foci ofmajor interactions in the glo-balised world and closelyrelated networks. JohnFriedmann (1986, 1995), Sas-kia Sassen (1991) and othershave proposed criteria for‘‘world cities’’, but for a longtime there was almost noempirical work by whichthese criteria could bechecked and applied to con-crete materials. Existing sta-tistics are really ‘‘state-istics’’(state-based) and give almostno information about con-nections in world city networks.

In the 1990s, rankings of world cities werebased mainly on expert estimations, and thehierarchy of major international economic andfinancial centres proposed by different authorswidely varied. In the 16 most important pub-

lications, 79 cities have been identified as worldcities, and only four cities always appeared in alllists and in the top category – London, NewYork, Paris, and Tokyo (Taylor 2003).

Nevertheless, little by little, methods allow-ing understanding of the place of large cities inglobal and national urban systems have beenworked out:

1. analysing airline passenger traffic, internationalrailway and phone traf-fic, etc. (Keeling 1995,Kolossov 2001, Thrift1989);

2. studying the location ofthe headquarters ofmultinational corpora-tions (MNCs) and theterritorial range of theiractivity, their presenceand the embeddednesswithin the nationaleconomy and its inter-action with local busi-ness (Hall 1966, Hymer1972);

3. revealing the role ofworld cities in thenew territorial divisionof labour (Friedmann1986, Frobel et al.1980);

4. identifying the position of world cities ascentres of research, places of internationalmeetings and contacts, the hubs of NGOsnetworks, and the major source of social andcultural innovations;

Professor Vladimir Kolossov is Directorof the Centre of Geopolitical Studies ofthe Institute of Geography of the RussianAcademy of Sciences in Moscow. He isalso Chair of the International Geogra-phical Union Commission on PoliticalGeography. His most recent publicationsare Geopolitics and Political Geography(with Nikolai Mironenko, 2001) andWorld in the Eyes of Russian Citizens:Myths and Foreign Policy (ed., 2003).Email: [email protected] O’Loughlin is Professor of Geogra-phy in the Institute of Behavioral Scienceat the University of Colorado, Boulder.His research interests are in spatial statis-tical analysis and the political geographyof the Former Soviet Union, especiallylocal democracy, Russian geopolitics, andnationalism. He is Editor of PoliticalGeography.Email: [email protected]

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5. considering the development of business (orproducer) services (Sassen, 1991, 1995). Thevery strategy of global business services firmsand their brand image are based on a similarservice offered in all the countries in whichthey work. In a world city, firms providingknowledge-based (professional and creative)services are a crucial activity necessary todecision-making in MNC headquarters, in-ternational organisations, etc. The develop-ment of global business services networks ismade possible by technological advances incomputing and communications.

The latter approach is widely used by theGlobalisation and World Cities Study Groupat the University of Loughborough, UK(GaWC) created by Peter Taylor. The membersof GaWChave collected data on the networks ofa selection of advanced global business servicescompanies in more than 300 major world cities,which allowed them to propose the first typologybased on concrete empirical evidence and toreveal the network of connections between them(Beaverstock et al. 1999, 2000).

Moscow has always been a priori consideredas one of the important world cities, but in theSoviet time its inclusion was mostly based onpolitical criteria and the world geopolitical role ofthe Soviet Union as a superpower. Later, in thefirst classifications of world cities based onstatistical evidence, Moscow also received thehighest rank among all post-socialist cities (Bea-verstock et al. 1999). But since the disintegrationof theUSSR, under the conditions of transition tomarket economy, the character of its involvementin global networks has dramatically changed.

The objective of this paper is, first, toexamine the relationship between post-Soviettransition and the place of Moscow amongworld cities and, second, the relationship be-tween its new functions as an emergent worldcity and the evolution of its inner economic andsocial structures.

Globalisation and post-communist transformations:Moscow among world cities

In their factor analysis of corporate servicecomplexes of 53 European cities, Taylor and

Hoyler (2000) distinguished ‘‘alpha’’ world citiesof the European major spine – London, Paris,Frankfurt, Milan – and ‘‘beta’’ world cities likeMadrid, Zurich, Brussels, highlighted by apronounced presence of banking/finance firmsor accountancy in the corporate mix. Moscow,showing a pretty varied profile with relativelyhigh levels of location for banking, accountancyand generally ‘‘all sectors taking advantage ofthe new market opportunities consequent fromthe collapse of the Soviet block’’, is included inthe Eastern European cluster of ‘‘beta’’ worldcities. In Fossaert’s (2001) spatial extension ofthis European analysis for the world system,Moscow is again one of five cities within a‘‘Europe in transition’’ zone. Fossaert concludesthat, while Moscow is now integrated into theEuropean (and by extension) world system ofcities, the economic returns to Western firmshave been small, fleeting and unpredictable.More than many other world cities, Moscow isdifferentiated from its neighbouring regions(Ioffe and Nefedova 1998).

Nevertheless, by the end of 2002, two thirdsof the world’s largest companies in the financialsector had offices, subsidiaries or partner com-panies in Moscow (Gritsai 2003). According tothe data of the GaWC, the Russian capital hasthe 34th rank by connectivity in global businessservices networks among 300 world majorcentres – before Washington, Warsaw andBerlin, but slightly behind Prague (Taylor2003). Taylor and Walker (2001) argue that therole of Moscow in Eastern Europe is similar tothat of Tokyo in East Asia. The Japanese capitalnow has to share Pacific Asia office headquarterswith Hong Kong and Singapore, andMoscow isno longer the major centre for the whole ofEastern Europe. But it remains by far the mostimportant economic hub of the vast nationalterritory and to some extent of the post-Sovietspace. In particular, in CIS countries, Moscow isthe most important centre of advisory andproject-based activities, which practically donot depend on proximity to the client and arestrongly concentrated in the Russian capital.

Moscow is attaining the status of aninternational financial centre, at least in theCIS financial markets. The international activityof Moscow banks has increased considerably. Anumber of Moscow banks stand a good chanceof becoming transnational. Across the Russian

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Federation, Vneshtorgbank has a traditionallyextensive network and has recently openedbranches inHungary, India, Italy,Cyprus, China,the US, Turkey, Czech Republic, and Switzer-land.Moscow Savings Bank has opened an officein the Netherlands. Since 1991, many Moscowbanks have managed to establish correspondentrelations with the leading banks of the westerncountries and have become members of interna-tional settlement and information systems(SWIFT, Reuters, etc.). Foreign banks are notactively advancing into Moscow’s financial mar-kets since decisions taken by the Russian govern-ment restrict the operations of foreign banks inRussia for the period of transition. The CentralBank of Russia has confined the proportion offoreign banks in the amount of the country’sbanking capital to 12%. Most leading foreignbanks have offices in Moscow, along with theoffices of international financial institutions(World Bank, European Bank of Reconstructionand Development, etc.), but no bank is admittedto normal banking operations with Muscovites.

However, though in post-Soviet capitals thenumber of global business services companies’branches is much smaller than in Moscow, therole of Moscow in banking and advertising ac-tivities in the CIS is not so visible. Dependingmore on the national legislation and bankingsystems, and the national mass media, thesecompanies act mostly on a national basis.Accountants and, to some extent, insurancecompanies, the activities of which are morerelated with routine operations and proximity tothe client, also tend to have hierarchicallyorganised national systems of offices.

Thus, the main conclusion of an analysis ofthe activity of the global business services firmsin the post-Soviet space is that their concentra-tion in Moscow is quite high, especially takinginto account the fact that Moscow has emergedas a large international centre only over the lastdecade, having long been the capital of a self-isolated, almost autarchic state behind the ironcurtain. At the CIS scale, Moscow also generallyremains central, despite the challenge of Kievand Almaty (Gritsai 2003, Van der Wusten-Gritsai 2004).

At the national scale, Moscow remains byfar the most attractive location for businessservices. Almost all the foreign business servicescompanies have located their main regional

offices or subsidiaries in Moscow and only someof them have later established extra branchesand subdivisions in other big Russian cities. InRussia, business services are strongly concen-trated in Moscow providing about 30–45% ofnational employment in this sector. However,Moscow is still well behind the advanced West-ern global cities by its share in total employment:7–10% in 1993 and 11–14% in 1998 (Gritsai1996, 1997).

Moscow is making important steps on theway to the club of world cities by becoming acommand and control centre shaping society inthe beginning of the newmillennium. At least onthe scale of the former Soviet Union, the city is amajor business and international political cen-tre, and firms likeRAOGazprom (gas), LUKOil(oil), RAO EES Rossii (electricity), Rostelekom(telecommunications) and some banks havevirtually become transnational companies, eventhough they are less powerful than the leadingWestern ones. Moscow also remains Russia’smajor international aviation hubwith 73%of alltraffic, down from about 82% in Soviet times(Aviatsionno-Kosmicheskii Spravochnik StranSNG i Baltii, 1998/99).

At the same time, as the key node ofRussia’s international relations, Moscow in-creasingly looks to the major cities of the West.For example, over the last decade, the number ofair flights linking Moscow directly with cities inthe US has more than quadrupled and hasreached about 40 connections a week, while withWestern European cities, flights have increasedby more than one and a half times (about 430connections a week). By 1996, for the first time inRussian civil aviation history, the number ofpassengers at the Moscow international hub (aswell as the St. Petersburg hub) exceededdomestic passenger numbers. Comparing 1997to 1985, the numbers give a clear indication ofthe reorientation of Russia. In 1985, 86% offlights from Russia were to Soviet republics; by1997, this ratio had fallen to 34%. In contrast,the proportion of flights to East-Central Europerose from 7% to 9%, with the biggest increasescoming in flights to Western Europe (up from4% to 28%) and Asia (up from 1.5% to 26%).Proportions for the other world regions (lessthan 1%) were unchanged.

In summer, 60.5% of all regular interna-tional flight connections per week (arrivals and

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departures, except CIS countries) linked Mos-cow airports with destinations in WesternEurope (Table 1). Frankfurt, London, and Paris(with 7.6% of connections each), Berlin (6.5%)and Stockholm (5.4%) were the top trafficnodes. By contrast, despite geographic propin-quity and historical ties, only 21.2% linkedMoscow to Eastern andCentral European cities.Other world regions, with the exception of theMiddle East including Israel, maintained fewconnections. Though traffic was lighter in thewinter season, these regional ratios are main-tained. Since international traffic is growingrapidly year-on-year (up 6.8% in 2001 –‘‘Sheremetyevo traffic’’ Moscow Times, January21, 2002, p. 8), a much-needed expansion andmodernisation of the 1980-era airport isplanned.

Another commonly used indicator of inter-national linkages is telephone traffic. Though itis possible to agree with the reservations ofBeaverstock et al. (2000) about the difficulty ofseparating business from personal traffic in bothtelephone and air traffic, the data clearlyindicate the variable strength of Moscow’sexternal relationships. In 1998, telephone trafficwith the ‘‘far abroad’’ (beyond the borders of theformer Soviet Union) reached half of totalforeign traffic. As in air travel, Germanyprovides the focus of the traffic with the ‘‘farabroad’’, maintaining its position from 1994with over 10% of all calls (Table 2). Otherwestern countries with strong business andpersonal (through emigration) links with Mos-cow also predominate in the links (the US,France, Italy, and the UK). Little evidenceremains of the strong economic and political

links of Soviet times; of the former Communiststates, only Yugoslavia, Vietnam, the CzechRepublic, Poland, Bulgaria, and Hungary havemore than 1% of contemporary Moscow tele-phone calls. The Russian capital finds itselfincreasingly incorporated into the complicatedsystem of interaction between the leading linksof the world system of cities (Kolossov 2000,Kolossov and Vendina 1997).

A characteristic feature ofMoscow over thelast few decades has been an unusual combina-tion of concentrated political power (though thisdates back to Tsarist times), decision-makingfunctions, control and management and a highemployment rate in science and high-techindustries on the one hand, and a concentrationof outdated industry, including metallurgy,weaving industry, and chemical industries onthe other (Lappo 1992, Lappo et al. 1988).Available statistical data show hyper-concentra-tion of commercial and go-between functions inthe capital. (For comparison, Moscow has 7.1%of Russia’s population.) In 1999–2000, Moscowcompanies accounted for more than 38% of allcurrency income from export of goods andservices, while the city’s industrial productioncomprised only a small part of the Russian total(5%). Moscow banks account for 65–80% of allforeign currency operations. Moscow accumu-lated 27.8% of foreign investments in thecountry between 1991 and 1998 and, in 1998,56% of joint ventures registered in Russia werebased in Moscow, with foreign partnershipscontributing more than 80% of them. (All thesestatistics are from the City of Moscow website:www.mos.ru). Overall, out of 89 Russianregions, Moscow city received 16.7% of allinvestment in Russia with another 5% going tothe Moscow region (the oblast surrounding thecity) in 1998. In contrast, St. Petersburg receivedonly 3% (Anon. 1999).

Further evidence of Moscow’s primacy isreadily available. The city accounts for 13.8% ofRussian Gross Domestic Product and 28.7% ofretail turnover. In late 2003, GDP in Russia wasexpected to be up 6.6%, helped by high worldoil prices (Le Monde, 3.12.2003, supplement‘‘Economie’’). In 2001, more than 3000 repre-sentatives of foreign companies were officiallyregistered in Moscow. The capital is by far themain donor to the federal budget and providedin the first years of the millennium more than

Table 1. Total international connections from Moscow’sSheremetyevo Airport (except CIS destinations)

Destinations Summer 2000 Winter 01–02

Western Europe 978 664East-Central Europe 342 269Latin America 22 4East and South-east Asia 97 94South Asia 47 30Africa 10 2Middle East-North Africa 54 70North America 66 62Total Foreign Destinations 1616 1195

Source: Sheremetyevo Airport flight guides, Summer 2000and Winter 2001–02.


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30% of its tax revenue; moreover, Moscow’scontribution has considerably grown since 1993,when it reached 11%, explained by the locationof major national companies’ headquarters inthe city. Per capita gross regional product ofMoscow is the largest among Russian regions(behind Tiumen oblast where oil production isdominant) and more than twice the nationalaverage (Ponomarenko 2000). Per capita incomein Moscow in 2000 was almost four times thenational average, up from 1995–1996 when theratio was 3:1.

However, the situation is gradually chan-ging, especially since the 1998 crisis, whichstimulated export and production of import-replacing goods in the provinces. The crisisprovoked a redistribution of foreign investmentsin favour of the provinces: in 1996, the share ofMoscow in total investment reached 66.0% andin 1997, 67.4%, but in 1998 it had decreased to48.9%. In January–June 2000, it droppedfurther to 32.5%. In the same period, theshare of Moscow in direct foreign investmentswas about 26% – much less than only threeyears before, though still much higher thanthe capital’s share of population. There has beena continued decrease of Moscow’s contributionto the federal budget, although not as pro-nounced as the drop in the share of foreigninvestments.

In the 1990s, the economy of Moscowsurvived a period of rapid restructuring. At theend of the decade, the structure of employment

had become much more similar to major worldmetropolises than ten years before, asMoscow isprogressively losing its importance as an indus-trial centre. For political reasons, the Sovietleadership did its best to keep a large working-class population in the capital. In the 1970s and1980s, economists and even the city authoritiesrealised that it was necessary to withdrawobsolete, polluting and labour-consumingbranches of industry from Moscow and thata certain de-industrialisation had become un-avoidable. 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 (Table3). At the all-Russian scale, the specialisation ofMoscow (measured as ratio of employed personsin the given branch to the ratio of this activity inRussia as a whole) was in research (the capitalcontains more than one-third of Russiansemployed in this sector), banking and insurance,telecommunications, and construction. By theend of the decade, the re-structuring of employ-ment was dramatic and the cost of such rapidtransformations was high, including crisis in themost modern, high-tech branches of industryand declining scientific activity.

The position of Moscow is dominant invirtually all indicators relating to the financialand banking system. In 1999, the city’s share offinancial employment reached 19.1%. Of the top50 banks in Russia in 2003 (ranked by capitalmeasured in roubles), 44 are based in Moscow

Table 2. Moscow international phone traffic, 1994 and 1998 (% of total traffic with ‘‘far abroad’’)

More than 10% 10–5% 5–3% 3–1% 1–0.5%

1994 Germany, USA UK, Italy,France

Finland,Austria,Switzerland,Poland

Turkey, Israel,Netherlands,Yugoslavia, India,Hungary, Belgium,Spain, Bulgaria, China,Sweden, Greece, Cyprus,Czech Republic, UAE,Denmark

Japan, Croatia,SingaporeSlovakia,Norway

1998 Germany USA, UK,Italy

France,Yugoslavia,Vietnam,Turkey

China,Israel, Czech Republic,Poland, Switzerland,Finland, India,Netherlands, Austria,Hungary, Bulgaria,Cyprus, Greece,Belgium, Sweden

Pakistan, UnitedArab Emirates,Syria, Denmark,Japan, Slovakia,Korea, Croatia,Iran


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(one based in Ufa held 14th position, and thenext non-Muscovite bank, the largest in St.Petersburg, held only the 21st rank), a clearindication of its primacy in banking activity.Huge amounts are accumulated in Moscowbanks: by 1995,Moscow’s share of total Russianbank assets amounted to 83.2%. Even the 1998financial crisis did not shake the monopoly ofMoscow banks. In 2003, the share of Moscowbanks in the total capital of the first 50 bankseven rose to 92.7%, not including the oldest andby far the largest bank of Russia – the stateSberbank (Savings Bank), which controls thebulk of banking operations with individuals.The Moscow ratio reaches 94.7% if Sberbank isincluded (200 krupeishikh, 2003, http://invest.antax.ru/doc/articles/reit_banks).

During the immediate post-perestroikaperiod (1992–1998), Moscow acted as a go-between for Russia’s regions and the advancedcountries of the West. The lion’s share ofpurchase-and-sale deals for primary goods andother materials were concluded in Moscow.Various consumer items were channelled toMoscow: its share in officially registered retailturnover is many times its ratio of the country’spopulation, and between 1992 and 1999, it rosefrom 16% to 29.6% of the Russian total. In1999, the capital’s share in the turnover ofpersonal services reached 28% and Moscowaccounts for 41% of all purchases of foreignexchanges by individuals. Thus, within a shorttime, Moscow managed to take advantage of itsobjectively favourable position as a centralisedprimate city to establish control, in the newcapitalist conditions, over huge financial andcommodity flows. Supporting the conclusions inTaylor and Hoyler (2000), Moscow’s role as aneconomic node between the West and Russiawas not only noticeable locally but also in the

capitals of neighbouring countries, among them,Tallinn (Estonia), Riga (Latvia), Helsinki (Fin-land), Warsaw (Poland), andKiev (Ukraine). Ofcourse, such a hypertrophy of Moscow’s func-tions as an intermediary between Russia and theinternational market, as well as its absolutedominance of the national financial market, willweaken with further improvement of the eco-nomic situation in the country. Moreover,Russia’s economy can be stable only if itdevelops a balanced network of regional me-tropolises. It is certainly likely, however, that thecapital will keep its unique position for a longtime (Treivish and Nefedova 2000). By 2003,there were no visible signs of waning dominance.

The average income gap between Mus-covites and other Russians was (late 2000) about4 to 1 (and according to calculations of theMoscow city government, as much as 7 to 1). Asin many other capitalist countries, new and old,regional economic disparities in Russia seem tobe strengthening under contemporary globalisa-tion (Agnew 2000).

Globalisation and innerchanges in Moscow

Globalisation takes place in cities and citiesembody and reflect globalisation (Short andKim 1999). Contemporary urban dynamics,especially in world cities, are to a wider extentdetermined by their international functions. Thetransformation of the urban environment shapesthe manifestations of globalisation dependingon the city’s history, traditions, culture, mor-phology and other local conditions (Argenbright2004, Taylor and Derudder 2003). World citiesand particularly the capitals as hubs of exchangeand centres of economic and political controlhave become symbols of their new power, likethe towers and skyscrapers of business districts.

Historical destinies of major cities in theglobal context depend on stiff competitionamong them as they vie for new investors andfunctions, and look for a broader influence(Harvey 1989b, O’Connor 2003). To withstandsuch challenges and keep the status acquiredearlier, cities launch ambitious and expensiveprograms of remodelling city centres in order tore-create their favourable image. To facilitate

Table 3. Proportion of persons employed by sector (as %of total employment)

Principal sectors of employment 1990 1993 1999

Primary and secondary 54.3 49.8 29.0of which industry 23.8 21.9 14.3Tertiary 45.7 50.2 71.0of which trade 9.8 12.7 18.0of which finance and real estate 0.5 1.3 2.7

Source: compiled from various official statistical publica-tions.


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A shopping gallery in Moscow, October 2001. Ludovic/REA


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these changes, the paradigm of the city manage-ment system is altered and transits from ‘‘tra-ditional’’ to a so-called ‘‘entrepreneurial’’ man-agement. This strategy usually involves (1)public-private partnerships; (2) a market-ori-ented nature for the entire activity; (3) assump-tion by the municipalities of part of the riskassociated with private investments; and (4)participation of the local state in partnershipwith real estate interests (Harvey 1989a).

The impact of globalisation on the socialstructure of world cities is two-fold. On the onehand, the growing social, ethnic and culturalmixing of population is a necessary element tothe functioning of a world city. On the otherhand, globalisation strongly increases socialpolarisation and segregation, and creates newphysical barriers and obstacles within the city(O’Loughlin and Friedrichs 1996, Sassen 1994,2002, Smith 2003).

The incomes of Moscow residents are diffi-cult to estimate correctly. Only 11% of respon-dents to a poll conducted in 2001 by the authors(with fellow researchers Yu. Averin, G. Butyrinand O. Vendina) rated their families’ materialconditions as ‘‘good’’ or ‘‘very good’’, while 55%said they were ‘‘average’’. The rest (34%) ratedthem ‘‘poor’’ (27%) or ‘‘very poor’’ (7%).

According to world city theory, globalisa-tion shapes two poles: high-skilled and well-paidstaff engaged in management and businessservices, and a low-skilled and to a large extentimmigrant workforce serving the needs ofprofessionals, along with remaining industrialworkers. States and municipalities are increas-ingly unable and reluctant to cover socialexpenses involved in improving city centresand contributing to the increase of the interna-tional competitiveness of a world city.

The government of Moscow declares thatthe objective of its policy is two-fold: first, tomake the city more comfortable for its inhabi-tants and visitors by regulating and directlysubsidising the distribution of a part of newhousing and encouraging new ‘‘civilised’’ formsof retail trade and service – shopping centres,‘‘hypermarkets’’, etc. Second, it believes itnecessary to make the city more attractive forinvestments and business – both domestic andforeign – by creating business complexes, tradecentres, new hotels, luxury office buildings, andmodern infrastructure. But in fact, the city

authorities privilege the interests of the newmiddle class engaged mostly in globally orientedsectors of the economy while also forming thevanguard of cosmopolitan consumerism. Forexample, facing the alternative between thedevelopment of new high speed metro lines andof other kinds of public transportation, and theconstruction of intra-urban motorways in theinterests of the new middle class, the Luzhkovadministration seems to be opting for the secondsolution. Along these motorways, large super-markets destined mainly for these social strataare mushrooming. The transformation of land-use patterns also matches the interests of the newmiddle class. It entails fundamental changes inthe social fabric of a city, because the space ofthe new classes overlaps the places of others wholack social and geographical mobility, anddeeply affects the image of the capital and theidentity of its dwellers. Luzhkov is criticised forclassic Russian megalomania and excessive‘‘global’’ ambitions. Critics claim that, insteadof wasting public money in erecting prestigiousbusiness centres and huge monuments of doubt-ful artistic value, the administration shoulddirect the city’s money to the construction ofcheap housing, the improvement of secondaryeducation and health care, etc. (Argenbright2002, 2004).

Architectural planning or real estate com-panies, by coordinating diverse areas of activity,from project inception to final implementation,meet growing consumer demand, but, even withstate or municipal participation, private compa-nies do not pursue altruistic social goals, butrather give preference to corporate interests.This is particularly evident in the centre ofMoscow where ‘‘elite’’ office-cum-residencecomplexes are under construction. These devel-opments comprise a group of buildings with acomplete range of residential and businessfunctions and a well-developed infrastructurein the form of garages, swimming pools, gyms,security, playgrounds, etc. The urban environ-ment of the centre is being fragmented. Someblocks like a series of housing-office complexesin Sretenka (northern part of the centre city) areturning into a ‘‘packaged product’’, beingoriented to a particular kind of activity for aspecific group of visitors-residents, who aregrowing increasingly isolated in self-containedcommunities. Ordinary Muscovites find them-


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selves total strangers in these developments and,typically, they are not admitted. The socio-political climate in the capital is thus quicklyturning the urban environment into a source ofland-use conflicts.

Is the entrepreneurial approach as de-scribed by Harvey (1989a), which reflects therejection of traditional city management strat-egy, triumphing in the Russian capital? It is hardto give an unambiguous answer to this question.The improvement of business services infra-structure, holding the long-awaited promise ofsubstantial political and economic benefits toRussia as a whole, lies behind the concertedeffort of the state, the city and private capital inan entrepreneurial effort in Harvey’s sense. Butit is obvious that a specific Moscow vision of thepublic-private relationship has evolved underthe aegis of Mayor Yuri Luzhkov, who was re-elected in December 2003 for a third term, asconsiderable controls and constraints have beenimposed by the municipality on urban land useand 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 worldeconomy, specifically as an Informational Citythat has all the necessary managerial, financial,information, and service infrastructure.

In so doing, the Moscow city government,following the initiative of the Mayor, is takingan active part in this process, seeking to establishpurposefully up-to-date business districts inspecific locations (Pagonis and Thornley 2000).A number of large projects realised in recentyears (the Manezh Square shopping centrebeside Red Square completed in 1997, the Christthe Saviour Cathedral destroyed by the Stalinregime in 1932 and re-inaugurated in 2000nearby, remodelling the city centre districts ofArbat and Sretenka, and restructuring of theKremlin island, and the international officequarter, ‘‘Moscow City’’, four kilometres westof the Kremlin along the Moscow river) have allinvolved huge public involvement on the part ofthe Moscow city government. The ambitiousThird Motorway Ring project including a longtunnel under the historical blocks of Lefortovo,which cost several billion dollars, was completedin late 2003. Nearly all ambitious projects areassociated with this public-private partnershipstrategy – for example, the proposed construc-

tion of the high-speed railroad from the centre ofMoscow to Sheremetyevo airport, the businessairport at Tushino, etc.

For post-Soviet Moscow, trade has as-sumed the function of the primary motivatingforce – not only in entrepreneurial activity, butalso in urban development. Trade in general,and shop windows in particular, generate acertain street atmosphere constituting one of thecrucial factors that form the image of a place.The correlation between the prestige of a placeand the concentration of the new tertiary andquaternary economy is obvious. By and large,the spatial picture of the distribution of shops ischaracterised by dominance of the centre, wherethe number of street traders and trading firms ismany times greater than the outskirts. MayorLuzhkov is successfully trying to upgrade thekiosks, getting rid of them as urban blight andprogressively replacing them with pavilions andshopping malls. In 2000, there were alreadyabout 24,000 shops; the 10,600 kiosks inMoscow and the 223 surviving street marketsmainly served people with limited incomes.

Networks of supermarkets and departmentstores, recently built in cooperation with thelargest European companies, are a recent devel-opment. Sixteen big department stores of thePerekrestok (Cross-Road) network, 5 Ram-stores, and two stores of IKEA (a Swedishfurniture chain), are open or under construction.These and other retail initiatives have caused aretail boom. By early 2002, Moscow had just300,000 square metres of ‘‘civilised retail space’’(supermarkets, hypermarkets, and shoppingcentres) but nearly double that amount will beconstructed. This spurt is partly generated by agrowing retail splurge by Russians (incomes arerising about 9% per year) and mostly by arenewed interest by Western companies inRussia. Between 1998 and 1999, the averageMuscovite’s income plummeted from $8000 to$2800 but by 2001 it had recovered to $5970.Since Moscow has only 35 m2 of ‘‘civilised retailspace’’ per resident (compared with 174 inPrague, 217 in Warsaw, 275 in London and398 in Paris, according to Jones, Lang, LaSalleConsultants), there is a lot of opportunity forgrowth. Furthermore, Muscovites spend 80% oftheir income on retail consumer goods (thefigure in London is 38% and in Prague 40%),with two-thirds of this expenditure still going to


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kiosks and outdoor markets. This explains theeffort mentioned earlier to close 106 of the city’soutdoor markets (all figures from Startseva2001; see also Kolossov et al. 2002).

The finance and credit sector, the mostcrucial and sprawling industry, required specificlocations. In terms of the number of commercialbanks per capita of the population, Moscow isfar ahead of the provinces, with one commercialbank in the capital for every 8,900 Muscovites,six and half times the Russian average. Mus-covites are now provided with banks andbanking institutions at a level comparablewithmanyWestern countries. InWest Germany,for example, in 1990, there was one bankinginstitution per 9000 people. However, as far asthe diversity of facilities offered is concerned,Moscow banks still lag behind those in theWest.

Moscow’s historic core is clearly visible asthe zone of concentration and highest activity inthe banking sphere. While seeking to gain aplace in the centre of the city, the banks competesuccessfully with other, less prosperous andpowerful spheres of activity, forcing them outof their long-standing locations. Trading andretail firms are sometimes unable to compete forspace with the banks. There is little doubt thatthe remodelling of old premises for bank officesmarked the beginning of the widespread archi-tectural transformation of Moscow’s core thatwe witness today. Moscow’s pre-Revolutionaryheritage has had a notable effect upon theaccommodation of banks. Nearly all formerbank buildings have revived their functions,often after more than 75 years of Communistcontrol. As a rule, these buildings house theheadquarters of major commercial banks, set upwith the participation of the federal state capital.Moreover, they have been centres of attractionfor the establishment of new banks nearby.

The location of ‘‘sectoral’’ banks, estab-lished on the basis of their connections to stateministries and departments, almost invariablycorresponds to the location of their founders.The same goes for the location of some banks oflarge enterprises and organisations. Usually,such banks are housed in the buildings ownedby their sponsors, and as a result, are scatteredover the city.

The unusually high concentration of bankoffices is indicative of the high prestige ofparticular Moscow districts, coinciding with

the districts where expensive stores are concen-trated. Outside the centre of Moscow, as well ason the outskirts of the city, there also emergenotable points of banking activity growth. Butas yet, none of these outlying districts can matchthe centre in terms of attraction or the level ofbank concentrations.

Many of the firms dealing in businessservices were initially set up jointly with statebodies since relations with the ‘‘parent’’ organi-sation at the outset assisted a new company topromote business technically as well as admin-istratively, such as in leasing an office at anacceptable price. Therefore, most firms of thisnature are accommodated in the buildings of the‘‘parent’’ organisations. For example, numerousTV advertising agencies are located at theOstankino TVCentre.When firms started ‘‘fromscratch’’, with little initial capital, they werecontent to have modest offices. Their mainsuppliers were various ‘‘lower-quality’’ minis-tries, hotels or even guest-houses, researchinstitutes, computer centres or educationalestablishments conveniently located in the city,with an infrastructure dating back to Soviettimes but offering lower leasing rates. Thespatial picture of business service location thusreveals distinct territorial preferences. In addi-tion to the centre, these are located in the South-Western sector of the capital, which, like the tailof a comet, stretches from the compact businesscore, similar to it in terms of the density andvariety of the facilities offered. There are tworeasons for such a magnetic attraction to theSouth-West: first, a high concentration there ofscientific research institutes dating from Soviettimes and, second, the social pattern of thepopulation, which is dominated by individualswith a higher education, engaged in intellectual-scientific activities (Vendina 1996, 1997).

As potential business districts, locationsconveniently sited at the crossing of transportroutes outside the historical part of Moscow areprime targets. These neighbourhoods have someprerequisites for the emergence of crucial busi-ness functions already available – advancedtrade, exhibition complexes, individual businesscentres, headquarters of major firms, and exist-ing hotels. However, these areas are not yetcompact enough, the available business facilitiesare insufficient, and the local urban environmentremains unattractive.


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Scattered throughout the Moscow land-scape, in which business facilities abound, thereare numerous gaps so far impenetrable tobusiness activity. These are the areas wherecrucial military-command and government cen-tres are located, including the General Staff, theMinistry of Defence, and major governmentministries. Bastions of the command and admin-istrative system in the Soviet past, the districtsthey command are still excluded from the city’svital space, remaining as stern and unconquer-able as ever (Kolossov et al. 2002).

Contemporary Moscow urban planningpractice is clearly aimed at taking advantage ofthe benefits of linking Moscow, as the key eco-nomic centre in Russia, to the world economy.The master plan of Moscow’s development to2020, adopted in 2000 and tying together thesocial, economic and functional problems ofdevelopment, has now been succeeded byprograms envisaging priority development andrenovation of its component parts. TheMoscowcity government is seeking access to resourcesfrom the private sector but, at the same time, theLuzhkov administration wants to establish itscontrol over the most profitable spheres of theurban economy. This long-standing urbanplanning tradition, dating back to Soviet times,does not allow market processes to developspontaneously and freely since tradition imposessubstantial regulations, which are often used toensure participation of the city in economicprojects or at least, in the distribution of theirresults. Whether such a policy is justified by theneed to combine the private interests of investorswith the collective interests of city residentsremains an open question. Proposed projects areevaluated in terms of ‘‘value for the city’’, andthe direct participation of the local state inimplementing many projects, and in the devel-opment of programs and proposals, promotesthe capital’s business sphere by urban planninginstitutions (Anon. 2001). Moreover, the tradi-tions and accumulated experience of urbanplanning solutions of the Communist periodimpede the progress of the entrepreneurialmentality. There is a temptation to transformold ideas and projects to accord with the newcapitalist realities, with unexpected results.

A characteristic example of the new think-ing is ‘‘Project proposals for the development ofa system of city centres’’ (Proektnye predlozhenia

po razvitiu sistemy gorodskikh tsentrov), sub-mitted by the Moscow Master Plan Institute tothe Moscow Government in May 1996 as aconcept of territorial development for businessimprovement districts in Moscow. The historiccore of the city is regarded in an undifferentiatedmanner; it is assumed that all of it will beconverted into a business district. The formertown centres (dozens of planning districts) are‘‘assigned’’ the roles of intra-urban businesscentres. Over the past few years, they havebecome the focal points of spontaneous tradedevelopment, with street markets and kiosks nearMetro stations regarded as local business centres.

Although the use of a marketing approachto city development started some years ago, itsstrong and weak points are already obvious. Thestrong points include mobilisation of variousfinancial sources and the creative potential ofurban planners for genuine reconstruction andenhancement of city services and utilities. Theobvious weakness is that projects are corporate,costly, and ignorant of the social situation.Furthermore, the citizens of Moscow often haveno say in the decisions that are made. Attemptsto solve these problems using relatively tradi-tional methods of planning consist of pursuing a‘‘city for residence’’ policy (locating homes sideby side with offices), with entertainment facil-ities, prestigious residential houses, trade zones,cultural and leisure centres intended primarilyfor the ‘‘day-time’’ population of the city. Such apolicy is designed to safeguard the city centrefrom ‘‘privatisation’’, to try to reconstruct afunctionally interrelated urban environment bylinking areas closed to the public with attractivecommunity spaces. However, despite theseplans, the ‘‘dual city’’ phenomenon (Mollenkopfand Castells 1991) is quickly being constitutedin Moscow.

Conclusion

Moscow is becoming increasingly like otherworld cities, especially in the factors governinglocation choices for business services that arepart of the international network of economicactivity. Changing paradigms in the systems ofcity management, involving a transition fromplan (government)-based methods of manage-ment to entrepreneurial methods, have resulted


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in positive and negative consequences in Mos-cow. Russia’s capital is faced with virtually thesame phenomena that are observed in all majorWestern cities that have entered the era of aninformational society (O’Loughlin 1992).

At the same time, the processes of globali-sation affecting Moscow are modified by aspecific cultural heritage – related, in particular,with traditions of political centralisation – bythe spectacular speed of transformations, by thedifficult national context of the last decade, andby other factors. It is possible to distinguishseveral social and urban cleavages determiningthe evolution of the Russian capital:

1. development at present versus the Sovietpast;

2. development at present versus the pre-Sovietcultural and urban heritage;

3. ‘‘winners’’ versus ‘‘losers’’ (social polarisa-tion and progressing segregation in the post-Soviet years);

4. Moscow (as the capital and the leading,richest entity in the Russian Federation)versus the rest of Russia and Moscow versusthe federal government (Kolossov 1997);

5. the city of Moscow versus the Moscow region(a separate but closely interdependent entitywithin the Russian Federation, where a largepart of theMoscow agglomeration is situated);

6. globalisation and ‘‘world-citification’’ versusthe hypertrophy of the capital at the nationalscale; Russians versus foreigners, etc.

Moscow is clearly going through a specificperiod of its history which can be called re-foundation and defined as the transition to a newurbanmodel and to a newway of life by a part ofthe population, or by most residents, whichtranslation is related to a radical political and/orgeopolitical shift. Interestingly, Moscow enteredthe period of re-foundation practically at thesame time as a number of other world cities,where its consequences are now even morepronounced – Shanghai, Hong Kong, Teheran,and Cairo. Globalisation is an important causeof urban re-foundation and accelerates it (Haer-inger 2002, 2003).

The adverse world city consequence forMoscow lies in the rapid and basically unplannedgrowth of superstructure functions – manage-ment, high-order facilities, trade in exclusive

items, and elite housing. In contrast, basicfunctions (production and research) are declin-ing. The current reconstruction in the capitalinvolves only a part of urban districts. Above all,the historic centre of Moscow has capturednearly 40% of capital investment and construc-tion, although it accounts for only 6.4% of thetotal city area and its population does not exceed8%. We can expect further depopulation of thecentre, if the experience of central city neigh-bourhoods is typical (O’Loughlin et al. 1997,Pavlovskaya and Hanson 2001). A characteristicopinion is that of Moscow’s chief architect:‘‘Administration in the city centre must berepresented by organisations at the federal level,trade must only be available in the form ofleisure, as a big signboard for all to see ratherthan a street with shops; all housing should be inthe attics.’’ (Domnysheva 1996). The new busi-ness and political elite have expropriated therehabilitated areas of the centre and this courseof development is leading to the establishment ofa ‘‘super-city’’ within Moscow. This ‘‘dual city’’is remaking a totally different centre in terms ofcontents (higher-order functions), but it also isacquiring a new post-Soviet look.

The positive results of ‘‘world-citification’’consist in the provision of new services andutilities, the building of an attractive image ofthe city in the world economy, a growing varietyof architectural forms that are completelydifferent from the mediocre Soviet stereotypes,and the growth of diversified services aimed ataccommodating both individuals and busi-nesses. The main problem of the new emergingstrategy of urban development is to combine thetasks of attracting investors and improving theinvestment climate with social programmes tocompensate for the consequences of economicrestructuring in the city. It is impossible to shiftthis burden onto the shoulders of entrepreneurs.A fully-fledged programme is required thatincorporates all the participants of city life andtakes their respective interests into account.Priority must be given in this respect to theinterests of Moscow as a city whose growth is ameans for an economic breakthrough and ofreaching the world market for Russia. There-fore, even though they attract harsh criticismfrom the public for being too costly, ambitiousprojects like ‘‘Manezh Square’’ (a luxuriousshopping complex next to Red Square) and


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‘‘Moscow City’’ (a business office complex) arecrucial in changing the image of the city and inattracting foreign capital investments to Russia.

The strategic interests of economic growthnecessitate concentration of resources for thedevelopment of the most promising businessimprovement districts. The office boom shouldnot eclipse the interests of the population as awhole. The most attractive and prestigioussections of the city must be accessible to thegeneral public and they should not be turnedinto citadels for the well-to-do as has happenedinWestern cities. Gated communities with armedguards have made their appearance in the high-prestige Moscow neighbourhoods. As housingfacilities become dominated over time by elitehousing, the system of services should includetrade and services to accommodate differentstrata of the population, including culture andentertainment, trade and service firms.

Moscow has now appeared on the lists ofworld cities after three-quarters of a centuryisolated from the capitalist world-economy.

Unlike Western cities, social polarisation ishappening quickly in Moscow as the cityauthorities have been unwilling or unable totackle the ‘‘dual city’’ phenomenon that israpidly developing and is especially visible inthe centre and certain key business districts.While historic buildings are being gentrified toWestern standards of taste and quality, tracts ofthe housing stock in the city are being allowed todecay. Moscow is a model for other formerSoviet cities. Its experiences are being repeatedin dozens of cities across Russia, although at asmaller scale and with a sizeable time lag. Theentrepreneurial strategy of Mayor Yuri Luzh-kov has been successful in centering Moscow asthe link between the Russian economy and therest of the world economy, and the politicalsupport for this strategy still seems solid in theabsence of any credible opposition or alternativemodel of development. Whether Moscow endsup more like Rio de Janeiro or Frankfurt is stillan open question but an important one for thefuture of Russia and the world system.

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