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Posted: Apr 29, 2012, 8:09 PM
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Join Date: Aug 2002
Location: Toronto
Posts: 31,520
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NYC is too dependent on the financial industry, and should diversify
Wall Street Isn’t Enough
By Edward L. Glaeser
Read More: http://www.city-journal.org/2012/22_2_ny-finance.html
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In 2008, 44 percent of Manhattan wages were earned by workers in finance and insurance; the following year, even after the financial crisis and economic downturn had battered the industry, that share stood at a still-enormous 37 percent. And the track record of one-industry towns isn’t good.
- No matter how loudly Chrysler’s provocative Super Bowl ad heralded Detroit’s comeback, the Motor City’s population dropped by a quarter over the last decade and now stands at 39 percent of its 1950 peak. In Russia, Soviet-era monocities like Norilsk, a mining hub, are emblems of urban decline. Economic data, bearing out what those examples suggest, show a positive link between industrial diversity and long-run urban success. New York shouldn’t try to hold finance back, of course, but it should try to reduce the cost and regulatory barriers that limit the growth of other sectors.
- I spent my childhood in Manhattan, from 1967 until 1984. New York’s economy was far more diverse then than it is today. My friends’ parents were hardly a proper cross-section of the city, but they nevertheless represented a remarkable array of different industries: there were editors and philosophers, art dealers and jewelers, judges and doctors. Show-business parents, including Broadway composers and a character actor best known for a modest role in Shaft, added glamour. Developers and landlords added grit. I can’t recall a single investment banker in the bunch. But then, the city had been diverse for centuries.
- The most important reason for New York’s continuing economic diversity was the city’s massive scale, which generated plenty of homegrown entrepreneurship and attracted entrepreneurs from elsewhere as well. New York was an early hub of automobile production and the film industry, for example, and though they eventually left town, they helped make the city diverse during their early years. Even when companies were born in the Midwest, their chieftains often moved their headquarters to New York to be part of a great agglomeration of business services and financiers, as John D. Rockefeller did with Standard Oil in 1885. The oil industry’s presence in New York infused the city with a little prospecting swagger and gave the oil industry a taste for culture, explaining why Mobil financed Masterpiece Theater programs for years.
- Most of America’s older ports—Boston, Philadelphia, Baltimore, San Francisco—shared New York’s industrial variety. America’s inland cities were another story. Most of them exploded in the nineteenth century because they offered a huge natural advantage that couldn’t be ignored, such as nearby coal mines or cornfields. St. Louis, Cincinnati, Chicago, and Minneapolis, all in the grain business in a big way, were dominated by agriculture-related firms. These inland cities became even less diverse in the early twentieth century, when the country moved to manufacturing. Industry located in the inland metropolises for several reasons: sometimes to be near local entrepreneurs, like Henry Ford; sometimes because the older ports were too pricey for the acreage-intensive manufacturing of large industrial products; and sometimes because industry needed local inputs that were easily available in the Rust Belt.
- Finance has existed in New York for centuries, but its current dominance dates to the late 1970s, when it was a crucial component of the troubled city’s resurgence. Over the next few decades, Manhattan financiers pioneered innovations—quantitative approaches to evaluating risk; ever-larger leveraged buyouts; the securitization revolution—that made finance considerably more lucrative. Just as Henry Ford’s immense success had led automobile production to dominate early-twentieth-century Detroit, Wall Street earnings meant that finance played an ever-larger role in late-twentieth-century and early-twenty-first-century New York. And just like Detroit’s auto industry, New York finance became concentrated in fewer, bigger firms.
- As finance’s success drove up rents, many businesses in other sectors had to leave Manhattan. Between 1998 and 2008, the island lost more than 75,000 jobs in manufacturing, transportation and warehousing, and wholesale trade. Offsetting that decline was a gain of more than 100,000 jobs in consumer industries— retail, food and accommodation, and arts and entertainment—catering to well-heeled residents and tourists. (While that’s diversification of a sort, it’s hard to imagine that Manhattan can sustain itself primarily as an entertainment hub.)
- Other economists and urbanists, however, argue that a city’s long-term success depends on its hosting many industries, since real breakthroughs pull ideas from more than one field. More than 40 years ago, Jane Jacobs argued in The Economy of Cities that new ideas came from combining old ideas. Nighttime baseball combines baseball with electric lighting; graphic computer interfaces merge old-fashioned pictures with basic computing functions. Michael Bloomberg became a high-tech billionaire not in Silicon Valley but in New York, thanks to his firsthand knowledge of what technology a stock trader needed at his desk. To innovate, in Jacobs’s view, you often need to borrow the insights of another occupation—and since diverse cities contain many occupations, they should encourage more leaps of insight.
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New York officials hope that a planned applied-science campus on Roosevelt Island will foster the growth of a new industry.
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