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Autumn 1990
   
Is New York Going Down the Tubes?
Peter D. Salins
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Predicting New York City’s imminent demise has been a popular pastime for several decades. New York’s prospects appeared particularly gloomy during its brush with bankruptcy in the early 1970s, and cries of doom are being heard once again today. But even before 1972, and even during the recent economic boom, few prophets were very bullish about the future of America’s largest metropolis. Why does New York seem to be forever “going down the tubes”? And is its long-prophesied doom finally at hand?

Well, everything is relative. Urban America is a troubled enterprise everywhere, so the most critical measure of New York’s future is whether the city is losing ground relative to its municipal peers or near peers. By that measure, at least, New York is not going down the tubes. It possesses the strongest municipal economy in the nation, perhaps the strongest in the world. Its economic strengths are precisely in those industries that will increasingly dominate the world economy. Like all central cities in U.S. metropolitan areas, New York continues to lose segments of its economy to its own or other suburbs, but at a lower rate than other large American cities do. What it retains is the “crème de la crème” of urban jobs.

New York’s economy cannot and will not die, even if it continues to be battered by the most egregious external economic shocks, by the social ills that afflict all American cities, and by the mistakes of a well-meaning but disoriented public sector. The question is not whether New York will survive, but will New York thrive?

For the city is subject as never before to entropic social forces that blight the lives of millions of New Yorkers and impose great fiscal burdens on the treasury and taxpayers. Especially sad is the visible decline in the city’s “quality of life,” which owes as much to the city government’s misconceived policies as to the underlying problems they are meant to address. But precisely because so many of New York’s difficulties are self-imposed it has more leeway than most U.S. cities to revive its fortunes. Far less than most cities is New York’s future hostage to forces beyond its control.

Urban blight, urban promise

True the city is a “leader” in many urban problems. Even the crime rate, which was previously lower than that of many large American cities (in 1985, New York had half the crime rate of Portland, Oregon), has soared, advancing New York to fourth place in mugging among major cities and right behind Los Angeles in murder, and Detroit in assault. Vagrants, if not actually more numerous here than in most cities, are more visible and threatening to public order. The AIDS crisis, our most frightening health problem, has afflicted New York more severely than any city in the nation, both relatively and in absolute terms.

New York’s general housing quality is well below that of most other cities as measured by extremely low vacancy rates, higher rents at the margin, and the general senility of an aging and crumbling housing stock. The city’s poverty rate is up and rising, more families are breaking up, more teenagers are single parents, more youngsters skip school, more children are abused, neglected, or in foster care, and more babies have become murder victims.

All this might be taken in stride if New York continued to enjoy robust economic growth, with all the attendant effervescence that characterized its yuppie-dominated lifestyle markets from restaurants to real estate. But the recent less-than-rosy economic statistics seem to justify the fears fueled by the stock market crash, which resulted in the loss of 26,000 financial industry jobs, the demise of some of the city’s most venerable department stores, and not least, the collapse of the real estate market.

Alongside these obvious problems, however, New York has a few unique and enduring, even growing, strengths.

The gorgeous mosaic: Most other large American cities are ethnically bi- or tripolar: usually black, Hispanic, and white. Some, like Los Angeles and San Francisco, also have a significant complement of Asian-Americans. Only New York, however, truly has a gorgeous mosaic of ethnic, racial, and linguistic affiliations. With a rapidly growing Asian population dominated by the Chinese, and a great many new European immigrants from Italy, Ireland, and the U.S.S.R., between 25 and 30 percent of the population of New York is foreign born, far more than any other city. The benefits of New York’s enhanced ethnic mix include not only the energy and vitality of the immigrants, but the depolarization of racial politics. Notwithstanding such celebrated racial incidents as Howard Beach and Bensonhurst, and the steady media drumbeat proclaiming a “city on the edge,” New York is neither black enough (24 percent) nor white enough (46 percent) for these tensions to mean as much as they might in, say, Chicago.

Home to the elite: No other U.S. city can match New York in the high proportion of the metropolitan economic and cultural elite that actually resides in the city, especially its core. Defining and measuring elites is a difficult task. But a suggestive statistic is that of the region’s 2.1 million college-educated adults, nearly 800,000 live in New York City, arguably the highest such ratio among America’s metropolitan areas. In spite of some muttering about their bags being packed, most New Yorkers still could not see themselves living anywhere else. Those New Yorkers who sooner or later flee to the suburbs would be suburb-bound even if New York were much improved. Even the most pleasant central cities such as Seattle or San Francisco lose their natural suburbanites to the dream of that semi-rural Elysium that suburbia promises but never quite delivers. Dyed-in-the-wool urbanites, however, will not trade America’s only world-class city for a parking place at the mall.

Urbanity: No other city possesses New York’s urbanity. Urbanity is an elusive idea, but it can be seen in New York’s 45 professional theater productions running simultaneously, its 400 art galleries, its 25,000 serious restaurants, and myriad other cultural, retail, and entertainment activities that place New York a quantum leap ahead of other cities. It can be seen in the size and sophistication of its architecture, old and new, which has actually improved in the last decade; in the grandeur of its public spaces and thoroughfares, many of which have been recently enhanced; in the stylishness of dress and manner of its elites, which has gained added lustre from the growing army of yuppies. New York’s urbanity is mirrored in its citizens’ enlightened attitudes: their exceptional tolerance of social diversity, bizarre behavior, and even of the disagreeable aspects of contemporary big city life. New Yorkers also continue to be more knowing and demanding than other Americans, an irritating characteristic, no doubt, but a mark of their urbanity.

Opportunity: New York, even with a stagnant economy, continues to offer more opportunities in every sphere of urban life than any other city in the U.S. It offers more economic opportunities for the ambitious, more social opportunities for the sociable, more purchasing opportunities for its consumers, more educational opportunities for seekers of careers or knowledge, more creative opportunities for artists, performers, and writers, and more specialized services for all the individuals and businesses that need but cannot find them anywhere else.

Add up New York’s pluses and minuses, and what do you get? A city typical in its share of urban problems, but unique in its attractions, a potent combination. In the end, however, to assess New York’s prospects means to forecast its economic future. The question, How is New York’s economy doing? must be countered with another: Compared to where? One can look at New York City’s municipal economy and compare it to that of other American cities. Or one can look at New York’s success in the nationwide struggle between central cities and their metropolitan suburbs. Too frequently, popular discussions of New York’s prospects confuse these two contexts.

Most central cities in the U.S. are losing ground to their suburbs. Their growth is constrained, after all, by the limits of their municipal boundaries. In nearly all American cities routine jobs move to the suburbs, where there is room for workers and workplaces alike, at reasonable prices, while only those requiring the special resources of the city stay in town. In nearly all American cities the middle-aged and the middle classes flee to the suburbs while the cities retain the young, the old, the poor, and the odd.

In most large American cities, central business districts filled with new office buildings and other commercial developments are surrounded by physical and social decline. When metropolitan areas grow rapidly, their central cities grow slowly. When metro areas grow slowly, their central cities wither. Every U.S. metro area shows a widening gap between the incomes of city residents and suburbanites, and a concentration of blacks and Latinos in core cities.

Against this backdrop, New York looks quite healthy indeed. Since 1976, for example, the greater New York region has gained 2.3 million jobs, growing by 28 percent. New York City, while far from keeping pace, nevertheless gained 500,000 jobs, posting a robust growth rate of 13.5 percent. All of New York City’s economic growth had to take place within its fixed 300-square-mile, densely populated, municipal domain. The suburbs, on the other hand, grew by adding hundreds of square miles of new urbanization. In the city-suburb competition New York has been doing exceedingly well.

One of the more thoughtful economic forecasters, the Regional Plan Association, thinks the city will continue to grow. According to its projections, the 24 county New York metropolitan regional economy will grow by 19 percent (or two million jobs) over the next 25 years. New York City will grow 14 percent, gaining over 570,000 new jobs, though its population is projected to increase far more slowly than the metro area’s. In other words, the city’s significantly larger economic base will be supporting a proportionately smaller population. The rich should get richer while the poor should more easily find jobs or gain public assistance.

Even more remarkable is the absolute size of New York’s economy and what that portends for its future. New York City has been for the past 150 years, and will probably continue to be for the next 150 years, America’s premier urban economy. New York’s nearly 4.2 million jobs exceed the combined total in municipal Los Angeles, Chicago, and Philadelphia (cities number 2, 3, and 5). Just the incremental gain in New York City jobs since 1976 exceeds the entire number of jobs to be found in all but six American cities.

New York’s economic future lies just where it should: with the growing world information economy. Since the crash of 1987, local euphoria over New York’s growing prominence as a financial center has been replaced by much handwringing. But the financial markets will recover in the natural course of the business cycle. More importantly, New York’s role as a financial center is only one aspect of what is far and away the nation’s most powerful information economy. Industries engaged in the processing, dispensing, or packaging of information other than financial services (advertising, law, publishing, TV and radio, management consulting, accounting, public relations, computer services, etc.) have been the fastest growing segments of New York’s industrial mix. Other growing New York industry sectors, such as health services, also owe their fortunes to their information functions: The health industry has been growing not because there are more sick New Yorkers, but because New York is a world leader in health research facilities.

Some pessimists concede that New York enjoys a huge comparative advantage in information industries today, but argue that the information revolution itself will allow these industries to migrate elsewhere. New technology does make it possible to conduct business from the hinterland. On the other hand, two economic exigencies assure that the most sensitive segments of the information economy must remain or grow in New York. One is the “agglomeration” effect that weaves the various information industries into an economic web that cannot be disaggregated and that is too large to move en masse. The other is the perishability of the most sensitive kinds of information such as “insider” tips (legal or not), rarefied and rapidly shifting tastes, personal contact with the most prominent figures in a wide variety of fields, the daily immersion in a dense, diverse, and highly charged “ambience” of information.

The facts seem to speak for themselves. New York’s economy has been subject to volatile swings in the business cycle since 1963. From 1963 to 1969 the city gained nearly 300,000 jobs. In the following eight years it lost over 500,000 jobs only to gain nearly all of them back by 1988. Yet throughout these vicissitudes of the business cycle, New York’s information-sensitive industries grew without interruption, gaining about 600,000 jobs since 1963.

The two cities

One last variant of the down-the-tubes scenario is the “two cities” thesis. Its adherents argue that even a robust economy cannot save New York’s poor, nor the rest of the city from the predations of its poor. The underclass, left out of the economic loop, will eventually sap the city’s entire economic enterprise.

The two cities hypothesis rests on two mistaken assumptions. The first is that the poor have been excluded from New York’s economic boom. The second is that there is an underclass-free Elysium to which New York’s information industries can flee.

At 4.9 percent, New York has one of the lowest big city unemployment rates in the nation; three-quarters of the city’s new jobs since 1976, many in the information sector, have gone to New York City residents. Many information jobs require relatively low skills. In any case, most of the predecessors of today’s underclass were never well represented in manufacturing or the other components of the city’s old “lowtech” economic base. The supposed “mismatch” between New York’s high-tech jobs and low-tech workers is largely a myth.

The city has been shedding all along those industries that seek a middle-class suburban work force, and yet its economy has grown. The industries that remain need a large city, and many need New York. Many depend on a low-wage, unskilled work force. Moreover, the other central cities that might compete with New York for these industries would give them scant relief from the problems of the underclass.

Nevertheless, New York displays an alarming array of social pathologies that appear to threaten its future economic vitality and most certainly blight its current quality of life. These difficulties give rise to calls for the city and state governments to “do something.” As a matter of fact, both the city and state already do a great deal, much of it not very helpful in resolving the city’s paradox of pathology amidst plenty.

This is the city’s public sector dilemma in a nutshell: New York neglects its traditional municipal responsibilities—education, police, fire, sanitation, and infrastructure—as it becomes ever more deeply involved in underwriting an inordinate level of social and health services, and subsidizing local housing, transportation, and other consumer goods. To pay for this expanded repertoire of untraditional municipal activities, the city levies the heaviest local taxes in the nation, at nearly $1,600 per capita, 60 percent greater than the burden of the next most heavily taxed major city. To make things worse, it taxes most heavily the businesses that are its economic future. New York business taxes are over three times greater, per capita, than those of Chicago and Los Angeles.

During times of rapid economic growth, the city can barely balance its out-sized public expenditures with its outsized taxes. During every cyclical downturn, it faces a fiscal Armageddon, forcing it to choose among politically untenable cuts in social services and subsidies; cuts in essential housekeeping functions; and, most ultimately destructive, increases in business taxes. After each downward cyclical swing, things get worse: The neglect of traditional services imposes heavy catch-up costs, the city’s open-ended social burdens remain or increase, the business climate grows ever colder.

No other American city funds anything like New York’s 19-unit Health and Hospitals Corporation. No other city funds so many unreimbursed (by state or federal governments) welfare and social service programs. No other city subsidizes its public transportation system out of its own revenues at the level New York does. No other city is committed to providing shelter to every person who requests it. As for regular housing assistance, New York spends more of its own revenues on housing than all other U.S. cities combined, and according to proclamations by its present and previous Mayors, is proud of this fact.

At the same time, few cities in New York’s league, here or abroad, can boast of such decrepit, pothole-ridden roads, such crumbling bridges or water and sewer mains, or such neglected, grassless parks. Nor are many cities outside the third world as dirty or as graffiti-scarred as this one. Other cities have schools as troubled as New York’s, and police departments that are far more corrupt. But New York’s particular tragedy is that 30 years ago the city’s services were so well managed that they served as models for other cities, not object lessons in failure.

Nor have the city’s untraditional priorities purchased much relief from social pathology. New York may not be much worse off than other major U.S. cities when it comes to the underclass, but it is not visibly better off. Nor can we say that without its extraordinary expenditures New York’s social malaise would be even deeper, because many city programs, conspicuously its housing policies, clearly have made things worse.

The future of the city

New York’s albatross is also an opportunity. We have made our own problems; we can unmake them. During the last fiscal crisis in 1975, the city was able to undertake an enormous public sector restructuring in just six months. It shed one of its great institutional fiscal burdens, the city university, which cost the city then about what the city hospitals cost today. It raised the subway fare. It tightened welfare eligibility. It even repealed a few of its most onerous business taxes. All of this was done under the multiple pressures embodied in imminent municipal bankruptcy, intense prodding from New York State and its governor, Hugh Carey, and conditions imposed by the Federal government in exchange for its loan guarantees.

For better or worse, New York does not today face such a clear and present threat as bankruptcy posed in 1974. Nevertheless, the city can no more successfully buck the normal exigencies of municipal government than the countries of Eastern Europe can ignore the imperatives of the modern economy. If the governments of New York City and State were to respond today with the vigor and resolution of 15 years ago, the New York City economy, which otherwise is slated to stumble along far below its potential, might actually take off.

What needs to be done? I hesitate to offer quick policy fixes. The city should aim, however, at the following:

* Reduce the tax burden on businesses in New York to the level that prevails, say, in Los Angeles (which has a per capita tax burden one-third of New York’s). This might require higher residential property taxes, but should be done mainly through aggregate tax reduction.

* Shed the costliest burdens not typically borne by even the largest other American cities. This might mean giving up the fiscal support of the hospital system, eliminating the transit subsidy, or getting out of the housing development business. It might also mean operating all of New York’s services more efficiently. In 1957, when New York’s population was 700,000 larger than today, and when its schools educated 200,000 more youngsters, the New York-based city and state governments employed fewer than 400,000 people. Today they employ nearly 600,000.

* Deliver first-rate traditional municipal services, especially those that visibly affect the city’s quality of life. That means good schools, good roads and bridges, restored sewer and water facilities, clean streets, well-maintained parks, and effective or at least visible police protection. Even during the current fiscal slump, scaling back on these activities is, economically speaking, the most stupid of policy responses.

New York is not going down the tubes. But there is a world of difference between survival and prosperity. The city’s policies may cost it only 100,000 jobs today. The city’s policies may only make New York look a lot worse in the eyes of its countrymen than the underlying facts warrant. The city’s priorities may only make daily life unnecessarily a chore and a misery for its citizens. That New York City’s mismanagement is not apt to be fatal, given its powerful economy, is not an argument for accepting mediocrity. New York today faces the stark prospects and choices of a fiscal crisis nearly as severe as the one that fifteen years ago almost precipitated its bankruptcy. But the current crisis is also an opportunity. If the city seized this opportunity to get its public sector act together, not only would it dispel the gloomy going-down-the-tubes notion, it might even permit New York to emerge once again as America’s most envied city.

 

 

 
The budget isn't balanced, the streets aren't paved with gold, or much else, but New York City's best years could be just around the corner.
City Journal Autumn 1990.
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