NYC is too dependent on the financial industry, and should diversify

[M II A II R II K]

Wall Street Isn’t Enough


By Edward L. Glaeser

Read More: http://www.city-journal.org/2012/22_2_ny-finance.html

.....

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.

[jd3189]

Yep, most of the Ivy League graduates just end up as financial assistants to Wall Street gurus. As long as the other boroughs continue to gain more importance, NYC will most likely have to offer more specialties. I'm going to Columbia after my bachelor years to gain a MD. If they are still thinking of putting a hospital/medical facility in the new WTC, I'm in.

[mhays]

I wouldn't worry too much. A high-desire place like Manhattan will stay relatively full as long as the desire is there.

Of course it needs very high rents to make the economics of development work. But the existing stuff will be occupied. If 20% of the payroll went away tomorrow, obviously rents would drop but a lot of people would jump at the new deals.

[1Boston]

I think in 20-25 years NY can definitely dominate the current tech hubs in the US if they keep at it, but i think that NY will always be known for its finance industry

[10023]

New York is a financial center, it always has been and always will be. Secondary to this is media, but that's a far less profitable business overall.

And there's a bit of a paradox involved in that, as long as Wall Street continues to thrive, the city will be too expensive for certain other industries to locate here. But if Wall Street falters (not for a couple of years of crisis, but begins a secular decline), the city can attract other industries to take its place.

I don't see that happening though. The business of providing and allocating capital will not go away, and it has no real reason to leave NYC.

[brickell]

Shouldn't all cities diversify?
If it only it was so easy. But as has been said, probably a bit easier for NYC than Miami or San Diego.

[BevoLJ]

I have always kinda felt NYC was pretty diverse. Was a bit surprised to see that 37% of the jobs in NYC were in finance, and that was even up to 44% a few years ago. If I would have guessed it would have been way off @ something like 20-25%.

What are some of the more diverse 1M+ cities?

If 37% of NYC jobs are in finance then I would guess that LA would be far more diverse and NYC has fared far better than LA throughout this recession. Dallas is also pretty diverse, though it fared extremely well. So don't really know what those two examples would tell me. lol.

[the urban politician]

Originally Posted by 10023

New York is a financial center, it always has been and always will be. Secondary to this is media, but that's a far less profitable business overall.

And there's a bit of a paradox involved in that, as long as Wall Street continues to thrive, the city will be too expensive for certain other industries to locate here. But if Wall Street falters (not for a couple of years of crisis, but begins a secular decline), the city can attract other industries to take its place.

I don't see that happening though. The business of providing and allocating capital will not go away, and it has no real reason to leave NYC.

^ And as long as the American public bails out its premiere industry when they screw up, NYC should be just fine

[sukwoo]

Originally Posted by BevoLJ

I have always kinda felt NYC was pretty diverse. Was a bit surprised to see that 37% of the jobs in NYC were in finance, and that was even up to 44% a few years ago. If I would have guessed it would have been way off @ something like 20-25%.

Its not 37% of jobs, its 37% of wages. One upper level hedge fund dude earns as much as several thousand baristas combined.

[Jelly Roll]

Originally Posted by BevoLJ

I have always kinda felt NYC was pretty diverse. Was a bit surprised to see that 37% of the jobs in NYC were in finance, and that was even up to 44% a few years ago. If I would have guessed it would have been way off @ something like 20-25%.

What are some of the more diverse 1M+ cities?

If 37% of NYC jobs are in finance then I would guess that LA would be far more diverse and NYC has fared far better than LA throughout this recession. Dallas is also pretty diverse, though it fared extremely well. So don't really know what those two examples would tell me. lol.

Is the 37% just for Manhattan or all of NYC?

[sofresh808]

Originally Posted by Jelly Roll

Is the 37% just for Manhattan or all of NYC?

Article says Manhattan in first line. I don't think anyone in NYC is surprised by this, and as others mentioned, I don't see this changing drastically in the near future. Can't really compare it to cities dominated by a commodity or tourism, I think it's far more stable.

[RobertWalpole]

This article is ridiculous. NY is the media capital of the US (all four networks are based here), the publishing capital, the advertising capital, home to the UN....

[hammersklavier]

Both Boston and Philadelphia have mixed economies based on eds-and-meds with a sizable tech sector (and Philadelphia also has a sizable media sector), and both seem to be weathering the recession just fine.

Cities like Phoenix and Las Vegas are the one-trick ponies of the last round of urbanization. Vegas is a live-entertainment city and much of Phoenix's economy is dependent on its local building industry. Neither are faring all that well.

[10023]

Originally Posted by hammersklavier

Cities like Phoenix and Las Vegas are the one-trick ponies of the last round of urbanization. Vegas is a live-entertainment city and much of Phoenix's economy is dependent on its local building industry. Neither are faring all that well.

Phoenix is basically a Ponzi scheme. The whole economy is based on having more and more people move there, requiring construction of new homes and infrastructure. Eventually that migration stops and there's nothing to sustain the place.

Las Vegas is basically the same thing, but in addition whores itself out as Disneyland for grown-ups, so it's probably marginally better off long-term as it has some raison d'être.

[tech12]

Originally Posted by BevoLJ

What are some of the more diverse 1M+ cities?

I'd say the Bay Area has a pretty diverse economy.

The tech industry is of course the biggest sector (including computer stuff and other electronics, internet stuff, and biotechnology), but the Bay also has a large financial sector (Well's Fargo, Bank of The West, Charles Schwab, Bank of The Orient, First Republic Bank, PayPal, the US Mint, etc), health care/biomedical/pharmaceuticals (McKesson, Kaiser Permanente, Genentech, Gilead Sciences, etc), construction/engineering (Bechtel, Webcor, Gensler, Swinerton, URS, T. Y. Lin International), food (wine production, Ghirardelli, C&H Cane Sugar, Del Monte Foods, Columbus foods, PowerBar, Clif Bar, Odwalla, Jamba Juice, Black Angus Steakhouse, Shasta Beverages, See's Candies, Jelly Belly, Peet's Coffee, Häagen-Dazs Ice Cream, Dreyer's Ice Cream, etc), energy (PG&E, Chevron + 5 sizable oil refineries), retail and apparel (Gap, Levi Strauss & Co., Ross stores, Orchard Hardware, Safeway, Old Navy, etc, the North Face, Bebe, Jansport, etc) entertainment (Pixar, Lucasfilm, Electronic Arts, Netflix, Pandora, Dreamworks Animation, Sony Computer Entertainment, Dolby Laboratories), transportation (Gillig Corporation, Virgin America), manufacturing (Tesla Motors, Clorox + a bunch of the aforementioned electronics, food, and clothing stuff) and of course tourism is big too.

It's kind of confusing trying to get this info from Wikipedia, in terms of the different categories and what they should be called, but I tried.

This is one topic where a ranking of cities would actually be interesting.

[mhays]

Seattle is diversified, but not as much as we'd like.

Boeing/suppliers and Microsoft/Amazon/tech are two ace pitchers. The military is our star left tackle, to mix a metaphor. Retailers like Costco, Nordstrom, and Starbucks (and Amazon) are our flashy skill players. Seattle has more than our share of high profile HQs even with Boeing "gone" leaving only its 80,000 good remaining salaries.

But with big individual payrolls comes big risk. Boeing rises and falls by tens of thousands during any up/down period. Microsoft is still growing but that's a risk. Amazon is turning into a juggernaut but it's still a risk. The military can move a carrier group or a few Army brigades elsewhere at any time.

We're doing ok on diversification. Several tech sectors are strong, such as photos, gaming, mid-majors like Expedia, and second offices of SF firms like Google (big), Adobe (big), and Facebook (small but growing quickly). Biotech isn't as big as we'd like on the for-profit side, but it's going very well with non-profit research institutions, which fill millions of square feet on the fringes of Downtown. Tourism is doing well as Seattle seems to be emerging as more of a destination city, including a growing Asian component.

[iheartthed]

Originally Posted by 10023

New York is a financial center, it always has been and always will be. Secondary to this is media, but that's a far less profitable business overall.

And there's a bit of a paradox involved in that, as long as Wall Street continues to thrive, the city will be too expensive for certain other industries to locate here. But if Wall Street falters (not for a couple of years of crisis, but begins a secular decline), the city can attract other industries to take its place.

I don't see that happening though. The business of providing and allocating capital will not go away, and it has no real reason to leave NYC.

New York has always been a financial center but forty years ago finance was not the city's largest industry.

[sukwoo]

Originally Posted by iheartthed

New York has always been a financial center but forty years ago finance was not the city's largest industry.

Forty years ago finance was not this country's largest industry.

[hammersklavier]

The nature of the country's largest industry seems to change based on the time period. In 1900 the transportation sector--dominated by the railroads--was arguably the country's largest industry. A century before that, farming was.

[iheartthed]

Originally Posted by sukwoo

Forty years ago finance was not this country's largest industry.

Nor is it today.