A Review of Fear City: New York’s Fiscal Crisis and The Rise of Austerity Politics by Kim Phillips-Fein
Michelle Esther O’Brien
Department of Sociology, New York University
This article reviews the Marxist literature on the New York City fiscal crisis of 1975, putting into context the recent narrative history Fear City: New York’s Fiscal Crisis and the Rise of Austerity Politics by Kim Phillips-Fein. I argue the most influential account of the fiscal crisis, that provided by David Harvey’s A Brief History of Neoliberalism, can obscure the causes driving the generalisation of austerity politics. Instead, I turn to Robert Brenner’s account of the crisis as rooted in a global overcapacity in manufacturing. Phillips-Fein makes a valuable contribution in detailing how crisis organises elites, and how austerity can come to be seen as inevitable by social democrats.
neoliberalism – austerity – New York City – fiscal crisis – social democracy – Kim Phillips-Fein – Robert Brenner – David Harvey
Kim Phillips-Fein, (2017) Fear City: New York’s Fiscal Crisis and the Rise of Austerity Politics, New York, NY: Metropolitan Books.
On 25 March 1976, student and faculty protestors occupied Hostos Community College of the City University of New York (CUNY) in the Bronx, New York. The working-class Puerto Rican activists, representative of the demographic of the school, were attempting to halt the school’s closure. They seized the custodial keys, wrapped chains and deadbolts around the building’s entrances, and barricaded doors with furniture. On the roof, student-government officers set up look-outs for police. In the President’s office, students set up a child-care centre. They hosted radical film screenings and teach-ins at the occupied school, and held discussions on a more dramatic revisioning of the school’s administration. On April 4, they were evicted by police, but by that summer the state legislature was to pass a measure that provided funding specifically ear-marked for Hostos. The same bill that saved Hostos, however, introduced tuition fees for the first time at New York City’s public university system.
Eugenio María de Hostos Community College had been opened in an abandoned tyre factory only six years previously, explicitly oriented towards Puerto Rican and other Spanish-speaking youth of New York. Hostos’s opening was part of a broader series of progressive changes which CUNY had implemented in response to mobilisations by Black and Puerto Rican students. Since its founding in 1847, CUNY had been free, designed to be accessible to working-class immigrants. Free higher education was one of the outstanding features of New York City, but prior to the 1960s its benefits were only readily accessible to white students. Inspired and shaped by the Civil Rights, Black Power, and Puerto Rican nationalist movements, student protests through the late 1960s successfully opened up the city’s schools to larger numbers of students of colour. Among the victories of anti-racist student mobilisations was the establishment of Medgar Evers College in Brooklyn, oriented to African-American students, and Hostos in the Bronx.
The occupation at Hostos was one of many protests against cuts to city-funded programmes throughout the city in 1975 and 1976, forced by events that came to be known as the New York City fiscal crisis. Six months prior to the occupation of Hostos, in October 1975, an alternative response to this fiscal crisis was evidenced in the teachers’ union president Albert Shanker’s capitulation in using union pension funds to purchase bonds issued by the city, their employer. At the end of 1974, the New York City government was running out of money. Financial executives cast increasing suspicion on the city’s years of heavy borrowing to fund its array of programmes on a dwindling tax base. With the global economic downturn of 1974, the financial firms that had long facilitated city borrowing now balked. Neither the New York State nor the Federal government was willing to lend the city bailout funds. Encouraged by the NYS Governor and the US President, a group of financial executives stepped forward to offer a solution: New York City needed to abandon its longstanding liberal, social-democratic legacy, to drastically cut its employees and programmes, and to adopt genuinely balanced budgets. Once the city had made dramatic enough changes, they argued, this would restore investor confidence in purchasing city bonds, and put the city on a sounder fiscal footing. The first configuration of financial intervention in the city was the Municipal Assistance Corporation (MAC), an entity composed of concerned financial executives that would play a determining role in city budgets, and in turn sell new, more reliable, bonds to investors. Initially, however, too few investors in the bond market were willing to purchasing MAC’s bonds.
Instead, MAC turned to the unions of the city’s own employees. Public-sector union presidents became convinced that bankruptcy of the city could mean an annulment of their collective bargaining agreements, and be a potential disaster for their members. (Their assessment of the dangers of bankruptcy in this political context were never tested or clear.) Beginning with AFSCME District Council 37, the unions devoted their own pension funds to purchasing MAC bonds at a moment when no other government entity or private-sector assistance was forthcoming. Through the autumn of 1975, the United Federation of Teachers (UFT), representing all teaching employees of the city’s Department of Education, was in contentious contract negotiations with the city, battling massive teacher lay-offs and dramatic increases in classroom size. UFT president Albert Shanker balked at joining AFSCME in purchasing the city’s bonds.
On the evening of October 16, the executive board of the UFT voted not to purchase the bonds, citing concern about the wisdom of investing a massive sum of member pensions in unstable, fiscally-unsound city bonds. They left unstated the potential conflict of interests arising from the UFT having a considerable fiscal stake in their employer, or how this might be an abandonment of potential leverage over the contract-negotiation process. With the UFT pulling out, it seemed certain to all that the city was entering fully into default.
City-government officials spent all night planning how to proceed with default and steps towards filing for formal bankruptcy. That morning, the city stopped exchanging bonds that had become due. The city’s default was world news, horrifying officials across the US and Europe, and sending markets reeling. The night before, the Governor called Shanker’s personal friend, real-estate developer Richard Ravitch, to convince Shanker to change his mind. A police car had rushed Ravitch to Shanker’s apartment late that night. They talked through the night, and again the next day. In her 2017 book Fear City: New York’s Fiscal Crisis and the Rise of Austerity Politics, Kim Phillips-Fein writes:
Shanker went back to the governor’s office to meet the press around two in the afternoon. As he spoke to the reporters, looking worn and exhausted, he made it clear he was under pressure far more intense than he had ever anticipated. He still thought the mayor and the governor had been ‘extremely destructive’ to the school system and the entire frame of collective bargaining through their unilateral cuts. His union, he insisted, had been the victim of ‘blackmail.’ But it was an unusual sort of coercion, for no single individual could be blamed. ‘Look,’ Shanker told the crowd, ‘the pressure is not from the Governor, and it’s not from the Mayor. The pressure is from the situation.’ (p. 175.)
Ultimately, public-sector city unions would purchase $2.5 billion in MAC bonds, more than any other buyer. Bailing out the city led city unions to largely abandon an unwavering opposition to austerity cuts, and brought the interests of union presidents in line with those of financial executives in insisting on fiscal restraint.
Following World War II, New York City had the most comprehensive public goods available anywhere in the US: public hospitals and accessible health insurance, public housing and rent control, a cheap subway system, free high-culture public entertainment, comprehensive public libraries, and an unusually generous welfare system. All these programmes were accessible to the city’s poor and working-class people, including the city’s large immigrant and Jewish populations. These programmes were made possible by the political strength of the city’s working class, highly organised in unusually militant labour unions. Various policies limited access to these benefits for the city’s growing Black and Puerto Rican populations. In the 1960s, these communities successfully organised to gain access to the city’s social goods – to CUNY, to public-sector jobs, to trade-union power, and to welfare support. Yet the fiscal crisis put these programmes under unprecedented attack.
Through the 1960s, the city’s budgets had come under increasing strain. While Phillips-Fein only briefly outlines the prior causes of the fiscal crisis, other sources have identified them in more detail. New York, the largest manufacturing centre in the country following the war, had deindustrialised much earlier and more rapidly than other cities. Industrial firms and many workers moved to the suburbs through the 1950s and 1960s. The financial industries and corporate headquarters of firms left in Manhattan used their political leverage to decrease their own tax burden. Through the late 1960s and early 1970s, the city had managed the decrease in the tax base through a significant growth in short-term loans and creative accounting. Through their refusal to purchase further debt at the end of 1974, the city’s banks had precipitated the crisis.
What followed was a year of high drama, and one of the most written-about and debated events in what came to be called the advent of neoliberalism. Financial executives and political elites began to see the crisis as an opportunity to forge a new political path for New York, and ultimately the country. Introducing tuition fees at CUNY was just one instance of a massive realignment of city policy away from meeting the needs of the city’s poor and working classes, and towards prioritising the interests of financial-services firms and professional elites. It was a turning point for American capitalism, and the political orientation of capitalist elites.
The narrative details of these two anecdotes – the Hostos occupation on the one hand, Shanker being pressured into purchasing city bonds on the other – are examples of the significant contributions offered by Fear City. The book’s name is taken from a campaign by the New York Police Department against lay-offs: flyers were distributed to tourists warning them they should take care in visiting ‘Fear City’, given the city government’s lack of commitment to public safety. In the myriad published accounts of the crisis, none have previously offered the rich description and riveting intrigue of Phillips-Fein’s writing. Addressing what could have been taken to be an already over-saturated topic, Phillips-Fein manages to make it refreshing and lively.
Phillips-Fein’s account is centred on a narrative of city-government political decision-making between 1974 and 1977. The book effectively depicts the changing temperament and expectations of actors as the crisis unfolded. What had seemed impossible at one point would abruptly shift, and suddenly felt inevitable. The Mayor, union presidents, the Comptroller, key financial executives – all were constantly revising their political calculus, their hopes and fears, and the range of what they believed they could accomplish. The first two-thirds of the book centres on the dramatic interplay between the city’s elites. The last section of the book centres on popular-resistance struggles in the face of the crisis, ranging from the protest at Hostos (dominating the chapter on CUNY) to an entire chapter on the 16-month occupation of a firehouse in Greenpoint-Williamsburg to stop its closure. Phillips-Fein demonstrates throughout a political sympathy for the city’s working-class movements, an appreciation of the city’s remarkable social-democratic programmes, and a recognition that events were the result of political decisions that could have been made differently.
Phillips-Fein’s extensive narrative does not include any major new theoretical arguments as to the causes of the crisis, nor as to its relevance for understanding the emergence of austerity politics. She features several highlights from the extensive resistance to budget cuts, but does not offer a systematic mapping of the city’s progressive movements, nor any speculation regarding what might have enabled these movements to be successful in halting austerity. The book traces Mayor Abraham Beame’s changing understanding of what the city was facing – from what he saw as a mean-spirited and unnecessary capital strike to an inevitable and necessary reckoning – without offering a fleshed-out independent assessment of these structural conditions. Instead, the new material is focused on the actors themselves: their biographical backgrounds, their personal networks, their changing motivations and worldviews, their concrete actions and the consequences. These actors she follows include a few social-movement leaders, mid-level financial executives, labour-union presidents and city-government officers. At this level of abstraction, her work is remarkable and successful.
If Phillips-Fein had chosen to make a new contribution to a structural understanding of the crisis, she would have had to contend with an already-crowded landscape of four decades of Marxist literature. For a time, New York’s fiscal crisis was a favourite topic of Marxist analysis, and has repeatedly surfaced as a concern to Marxist scholars.
In the midst of the city’s financial crunch, many critical and thoughtful accounts tried to make sense of its dramatic political implications. Published in 1977, immediately after the crisis, The Fiscal Crisis of American Cities collects many of the era’s social-democratic commentators’ analyses of the causes and implications of the crisis. Some of these writers built dynamic careers critically responding to the political events the crisis engendered, including Francis Fox Piven, Kirkpatrick Sale, Robert Fitch, John H. Mollenkopf and William K. Tabb. Though written before the full political implications of the crisis became clear, this collection correctly assessed that city government was no longer an economically viable vehicle for progressive social-welfare initiatives. Suburbanisation and sunbelt migration of both firms and the middle class meant social welfare could only be sustained through taxation that extended beyond the borders of cities. Phillips-Fein echoes these conclusions when she briefly sketches one of her only counterfactual scenarios: ‘One can even imagine that the fiscal crisis could have prompted some effort to redraw the boundaries between cities and their suburbs in ways that might make more resources available for city governments’ (p. 314).
Two of the book-length accounts subsequently written by the contributors to The Fiscal Crisis of American Cities are worth highlighting. William K. Tabb published the most thorough Marxist account of the crisis in 1982 with The Long Default. Tabb offers clear evidence challenging the growing conservative narratives of the crisis, rejecting accounts that blame greedy labour unions, lazy poor people of colour, or liberal indulgence. He traces the circulation of accounts of New York’s experience on the national political stage. Tabb makes the strongest claims for an alternative to the political conditions created by the crisis, concluding that locally-controlled institutions, a liberal–labour coalition infused with other social movements, and a ‘much wider concept of economic democracy’ could pursue national economic redistributive policies (p. 127).
Robert Fitch’s account of the fiscal crisis took a new tack, explicitly blaming the financial executives who had helped shaped city planning in the 1950s and 1960s, provocatively titling his book The Assassination of New York. The book’s sensational cover featured Chase Bank president David Rockefeller driving a bulldozer through the city, figuratively representing his considerable role in forcing the city’s rapid deindustrialisation. My own independent research in the Rockefeller archives has corroborated Fitch’s accusations: In the two decades prior to the fiscal crisis, Rockefeller and others set out to remake New York by actively displacing manufacturing, wholesale and shipping firms from the city, and driving a massive office-building construction boom. Rockefeller envisioned a city that would someday serve as the financial headquarters for a world increasingly dependent on global trade. Fitch, writing at the beginning of the 1990s, could not yet easily have seen how remarkably successful this vision would become through the city’s boom in the 1990s and 2000s, no matter how grossly unequal the rewards of that growth would prove.
The 2000s saw another new wave of research and commentary. Joshua Freeman’s Working Class New York, clearly a major influence on Phillips-Fein, put the crisis in the remarkable context of New York’s postwar ‘social-democratic polity’. Phillips-Fein broadly shares Freeman’s political framework and analytical lens, and her work could be seen as a much more detailed elaboration of the one chapter of Working Class New York wherein Freeman describes the years of the crisis itself.
In 2007, labour scholar and activist Kim Moody published another history with New Press, this time fiercely criticising the complicity of organised labour in the crisis, analysing the subsequent rightward turn of the city’s Democratic Party elites. Like Moody, Phillips-Fein discusses the move of the municipal labour-union leadership to invest $2.5 billion of their union’s own pension funds in bailing out their employer, the city. This was a considerable amount in terms of the budget figures of the time, and literally saved the city from bankruptcy. Moody is particularly horrified by union presidents such as Shanker using pension funds to bail out the city, and how thoroughly this compromised their ability to effectively oppose austerity. For Moody, affiliated with the union-dissident journal Labor Notes, this was an almost inevitable betrayal by union bureaucrats of their members. Phillips-Fein, deploying a different political lens, emphasises the immediate events and psychology of these figures, as evidenced by Shanker’s case.
The most influential Marxist account of the New York City fiscal crisis, however, was made in four short pages. David Harvey’s 2005 A Brief History of Neoliberalism has been much more widely read and cited than any other book discussing the topic. Harvey repeats much of what has already widely been said about the crisis: the causal importance of deindustrialisation, suburbanisation and the onset of the 1974 recession, and citing Freeman in calling it a ‘counterrevolution from above’. It ‘amounted to a coup by the financial institutions’ that left working-class life in New York in a shambles. While many commentators saw the events in New York as a precursor to the turn against social services on the part of Thatcher and Reagan, Harvey’s account most dramatically locates New York as the world-historic turning point of a new, neoliberal era.
Harvey memorably calls the fiscal crisis an effort to ‘restore class power’, his recurring definition of neoliberalism. Harvey’s influential book understands neoliberalism as a political project of capitalist elites. Business firms and their ideological and political allies advanced a successful political project through the 1970s and 1980s to roll back social democracy, concentrate political power, and institute policies to redistribute wealth upwards. New York City’s fiscal crisis easily matches this narrative, given the obvious and visible collusion of financial executives and political elites in transforming the city’s political future. Harvey is correct in drawing a link from the ‘coup’ of New York’s fiscal crisis to the role of business mobilisation in backing Thatcher and Reagan’s attack on organised labour, and the new political common sense of inescapable austerity. This was a helpful lens for a generation of anti-capitalist activists, influential in the rise of Occupy Wall Street and in contemporary European popular mobilisation against austerity.
Phillips-Fein certainly provides ample material to substantiate such a framework. The decision-making of specific investment firms clearly precipitated the crisis. By all accounts, the Ford administration held off from bailing out the city as a calculated political decision to indicate a new, more lean future for the Federal government, other regional and city governments, and America’s working class. Phillips-Fein focuses on the members of the Ford administration who actively pushed the policy approach of punishing New York City for its liberal excesses. Three subsequently played major roles in Washington politics: Alan Greenspan, Donald Rumsfeld, and Dick Cheney. Ford could have chosen to bail out New York with no immediate consequences; that he chose not to was motivated by a class-based political project. Present-day Americans live in a country remade by the political rule of the very people who facilitated that decision.
Unfortunately, however, the centrality of New York to Harvey’s narrative of neoliberalism obscures as much as it elucidates. Both New York’s deindustrialisation and its turn towards fiscal austerity were pursued by powerful political elites, and it is easy to trace similar movements of the capitalist class in pursuing austerity elsewhere. But today, four decades later, the politics of austerity have become more broadly generalised, suggesting much deeper structural roots. Though the turn away from social democracy, regulated labour markets, and expansive welfare programmes came slowly to some countries, and more rapidly to others, it came inevitably in one form or another. Nearly the only countries remaining that have successfully expanded their welfare-state programmes in the last twenty years are those with access to considerable oil revenue: Venezuela, Iran, Norway and, in a very different sense, the gulf states. In those countries that have maintained some measure of social democracy, such as Sweden, governments have developed other polices to pursue the same goals of labour-market activation and flexibilisation that characterise anglophone neoliberalism. By emphasising a coup by ‘a powerful cabal of investment bankers’, Harvey’s account, and in other ways the entire literature on New York’s fiscal crisis, can give rise to an inadequate understanding of what drives neoliberal policy.
Since the mid-1970s, across a wide range of very different political conditions, in country after country, state officials occupying positions of national power have nearly all drawn the same conclusion: social-democratic programmes and sustained wage increases can no longer fuel a virtuous cycle of Keynesian economic growth. Neoliberal think-tanks, supply-side monetarist economists, and business coalitions did not stage a coup in every nation; but they did consistently offer a novel solution to a genuine, unresolved structural crisis faced by capitalist states. The expression, ‘There is no alternative’, popularised by Margaret Thatcher, had previously been declared by the Manhattan Borough President in 1975 at the inception of MAC (p. 126). Before their defeat, the contemporaneous insurgency and resistance of working-class movements insisted that there was an alternative. Now, with the world transformed, we are confronted by the question of why we in fact see so very few alternatives in capitalist state policy. How can we understand and explain the near-ubiquity of neoliberalism and austerity?
Phillips-Fein does not deal with such questions. But interestingly the narrative, psychologically-grounded details of her account do contribute an important component to the enrichment of our understanding. It is here her work makes its most unexpected and significant theoretical contribution. Phillips-Fein, by tracing the changing expectations of the actors themselves, sharply illustrates that they were facing considerable structural pressures. Shanker citing ‘the pressure from the situation’ described the experience of every government and union official as they faced an escalating hopelessness they could see no other way out of. This situation was not simply engineered by capitalist financiers. Those financial executives directly involved in the restructuring of the city were clearly acting from a class-based worldview, one that saw elite participation and elite interests as the appropriate future for the city. But they also faced their own structural conditions in the form of market pressures, particularly an increasingly-global capitalist credit market. The Municipal Assistance Corporation, the initial board of corporate executives who had taken on the task of saving the city, was at first unable to sell bonds to anyone but the labour unions. The extent of the requisite austerity measures implemented by the city was not determined by any one political actor, but by signalling to a much vaster and anonymous world of investors that the city was on a sounder financial footing.
In responding to the markets, finance executives and other elites of the city were able to act politically in novel and bold ways, ways most of them had not previously foreseen. Capitalist elites did not simply engineer the crisis; their interests and strategies were organised by it. Phillips-Fein writes:
There was no premeditated plan to seize and transform New York’s government, nor were the actors who gained power during the crisis simply acting upon an ideology constructed in the abstract. But the scare of the near-bankruptcy brought together the elite groups within the city, and enabled them to act in concert in ways that otherwise would have proved difficult to attain. (p. 306.)
This isn’t simply an offhanded claim; it is demonstrated in the blow-by-blow account of events she traces throughout the book.
Marxist accounts of the world economy are divided on whether capitalism enjoyed a full recovery following the mid-1970s recession. Some, most notably the ongoing work of Robert Brenner, argue it did not. For Brenner, overcapacity in manufacturing through the entry of Japan, Germany and later successive waves of other exporting nations has created a persistent suppression of the average rate of profit. The apparent economic recoveries since then have been successively weaker, driven by commodity and investment bubbles, and do not reflect capitalism’s escape from a basic structural weakness. In 1999, Historical Materialism featured a lively debate on a New Left Review essay from the previous year outlining Brenner’s argument. This later became the most extensive account of this framework, The Economics of Global Turbulence. If Brenner is correct, and the underlying structure of the world capitalist economy has been in four decades of tumultuous and worsening crisis, it is less surprising that nation after nation has had to adopt measures that shift the cost of the crisis onto workers and the poor. Phillips-Fein adds to this an illuminating case study on how actors otherwise sympathetic to social-democratic policies might face objective conditions in which they can see no alternative, and how capitalist actors may be galvanised, politicised and structurally organised by the conditions of crisis.
This is not to say, of course, that the claims of neoliberal economists should be taken seriously at face-value, nor that the representatives of the working class should continue to capitulate to neoliberalism at every turn. Nor would I argue that social democrats in New York and elsewhere could not have pursued a far more left-wing, militant way out of the crisis through an encroachment on private investment. It is to suggest, however, that a certain form of the social-democratic state, resting on an expanding and profitable industrial economy, is no longer as politically viable as some may hope. The occupying students of Hostos in 1976, and the others fighting cuts throughout the city, saved many programmes in the course of their struggle. Yet they faced underlying structural, economic conditions that posed considerable obstacles to preserving the full range of social goods New Yorkers had enjoyed. Phillips-Fein, in offering a thoroughly political and interpersonal account of one of the major events of American capitalism, unexpectedly offers us a necessary understanding of how such conditions come to be seen as insurmountable to some, and as a new opportunity to others.
Alcaly, Roger and David Mermelstein (eds.) 1977, The Fiscal Crisis of American Cities, New York, NY: Vintage.
Brenner, Robert 1998, ‘The Economics of Global Turbulence (Special Issue)’, New Left Review, I, 229, available at: <https://newleftreview.org/issues/I229/articles/robert-brenner-the-econo…;.
Brenner, Robert 2002, The Boom and the Bubble: The US in the World Economy, London: Verso.
Brenner, Robert 2006, The Economics of Global Turbulence: The Advanced Capitalist Economies from Long Boom to Long Downturn, 1945–2005, London: Verso.
Brenner, Robert 2009, ‘What Is Good for Goldman Sachs Is Good for America: The Origins of the Present Crisis’, 2 October, Los Angeles, CA: UCLA Center for Social Theory and Comparative History, available at: <https://escholarship.org/uc/item/0sg0782h>.
Fitch, Robert 1993, The Assassination of New York, London: Verso.
Freeman, Joshua B. 2000, Working Class New York: Life and Labor Since World War II, New York, NY: The New Press.
Harvey, David 2005, A Brief History of Neoliberalism, New York, NY: Oxford University Press.
Moody, Kim 2007, From Welfare State to Real Estate: Regime Change in New York City, 1974 to the Present, New York, NY: The New Press.
Phillips-Fein, Kim 2017, Fear City: New York’s Fiscal Crisis and the Rise of Austerity Politics, New York, NY: Metropolitan Books.
Tabb, William 1982, The Long Default: New York City and the Urban Fiscal Crisis, New York, NY: Monthly Review Press.
 See, for instance, Freeman 2000; Moody 2007; Tabb 1982.
 Alcaly and Mermelstein (eds.) 1977.
 Tabb 1982.
 Fitch 1993.
 Freeman 2000.
 Moody 2007.
 Harvey 2005. At the time of writing, Google Scholar gives it 17,730 citations; Freeman gets 258, Fitch 198, Tabb 166, Alcaly and Mermelstein 110, and Moody 88. At the time of writing, Phillips-Fein has received only one.
 Harvey 2005, p. 46.
 Harvey 2005, p. 45.
 Harvey 2005, p. 45.
 See Historical Materialism, Volume 4, Issue 1, pp. 9–180.
 Brenner 1998; See also Brenner 2002, 2006 and 2009.