For lovers of cities, the 1995 New York budget is an epochal event. It raises, in an immediate, practical way, fundamental questions about what cities are for. It waves aside 30 years of settled agreement about the proper relation of the urban rich to the urban poor. No wonder it has caused such an outcry.

The worldview underlying Mayor Giuliani’s budget is one City Journal shares. It rests on an urban philosophy we have outlined in countless stories. Since all the debate so far over the budget has taken place on the surface, in terms belonging to the old urban paradigm, it’s important to step back and clarify just what is at issue.

The budget, critics charge, is "hard" and "mean," its $1.3 billion in cuts falling squarely on the backs of the poor, for whom it will be "devastating." To be sure, since 57 percent of the total cuts will come out of welfare and health care spending, the budget represents not just an across-the-board spending shrinkage or an attempt to make government more efficient but a genuine shift in priorities away from spending on the poor. This is a wise and proper policy choice.

New York City can’t afford to spend ten times more on welfare and four times more on public hospitals than typical large American cities. We can’t afford to have 21.4 percent of the labor force working for the government and the publicly funded social services part of the economy. The taxes necessary to maintain this level of support are so high that they drive away the businesses that create the wealth necessary to pay for all this.

This problem isn’t peculiar to New York. In a global economy, it is a worldwide phenomenon. Industries and capital can now move anywhere, whether to low-tax, low-regulation North Carolina?or to India, with its platoons of low-wage, high-skill workers, from actuaries to engineers. The result is that cities, even countries, that make it expensive or hard to do business are having to adjust radically to the competitive reality. Sweden, with crippling interest rates and a vertiginous budget deficit, is having to shrink its famous welfare state. Germany, with labor costs inflated by costly apprenticeship and unemployment insurance programs, is seeing factories decamp to the lower-cost Czech Republic. Even Japan is having to rethink its lifetime-employment policies, its overmanned factories outgunned by leaner operations elsewhere. Around the world, economic pressures are eroding corporate and government welfarism, and New York isn’t exempt.

But, it is said, New York is losing the traditional generosity that made it special: according to a New York Times report, "Mr. Giuliani may have placed in jeopardy the city’s soul, the urban largesse that has defined New York and made it the world’s destination." In fact, what made the city a magnet to the poor was precisely the opportunity its vigorously expanding economy held out, not a system of support for the unproductive. Its generosity consisted of a free school system that provided all children with the training to seize opportunity in an open economy. It consisted of an excellent, free college, so that talented poor kids could rise as high as their drive would take them. It consisted of parks and libraries, of a police and legal system, that belonged to them as well as to the rich. All this largesse, by cultivating the city’s human capital, augmented rather than diminished the common wealth. By contrast, a contracting economy deprives the poor of the opportunity that is the most precious gift cities give them.

America has redefined generosity to the poor during the last 30 years, and mounting failure and social pathology among the beneficiaries of the modern welfare system?while the immigrant poor untouched by that system succeed?suggest that kind of largesse has done more harm than good. Treating the poor as victims rather than as equal citizens disables people from taking advantage of opportunities, it turns out. Beginning to dismantle that system is a step toward strengthening the kind of community in which the poor can put their poverty behind them.


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