Big government stepped in to replace the upstate private economy that Governor Nelson Rockefeller (right, with his successor, Hugh Carey) taxed into oblivion.
AP PhotosBig government stepped in to replace the upstate private economy that Governor Nelson Rockefeller (right, with his successor, Hugh Carey) taxed into oblivion.

June’s coup in Albany, which saw two of the most corrupt state senators—in a body renowned for malfeasance—switch allegiance, shifting control of the state senate from the Democrats to the Republicans, has produced an outpouring of rhetoric denouncing the two politicians as turncoats. The focus on Pedro Espada, a Bronx poverty pimp famed for flouting the campaign-finance and residency laws, and Hiram Monserrate of Queens, most recently in the news for allegedly slashing his girlfriend’s face, has made it seem as though the shift in party balance is a matter of prime importance. It’s not. Regardless of which party controls the senate, New York’s preeminent interest groups will continue to be the true source of government power.

Our difficulties, as the Founding Fathers would have understood, are more fundamental than political jockeying between parties. In New York, the mainspring of political accountability, the clash of economic interest with competing economic interest, has rusted away. The problem of highly organized, largely unopposed interest groups’ overwhelming New York’s broad public interest is very old—it was discussed in The Federalist Papers—but its current form is a new development. James Madison’s Federalist No. 10, the template of the American political system, warned the “People of the State of New York” about the “violence of faction”—the seizing of government control by powerful special interests hostile to the “permanent and aggregate interests of the community.” Madison understood that “liberty is to faction as air is to fire,” so interest groups could never be eliminated without stamping out freedom itself. But if factions were sufficiently numerous and diverse, he argued, narrow interest would clash with narrow interest, with none gaining the upper hand, and the broader public interest—and republican government—would be protected from oppression.

The outlays in the new state and city budgets underscore New York’s Madisonian deficit. In Albany, spurred on by the growing might of the union-funded Working Families Party, already-lavish public spending is set to grow 8.5 percent in the next fiscal year, even as the private-sector economy suffers a severe contraction, tax revenues shrink, and inflation hovers near zero. Public spending in New York City will grow a more modest but still troubling 3.3 percent, pushed in part by Mayor Michael Bloomberg’s desire to secure the unions’ support for his reelection.

This spending spree will almost surely produce fiscal crises in the state and city in the near future. Yet such is the power of New York’s dominant faction, which largely determines who gets elected and unelected, that most of the politicians are unconcerned. “Majority members in both houses have learned . . . over decades that persistent debt burdens do not increase electoral risk,” observes Gerald Benjamin, a political scientist at SUNY New Paltz. The city is little different: there have been years during which a city council member was more likely to be murdered than to lose a reelection bid.

It wasn’t always like this. Fifty years ago, New York’s economic interests were far more varied, producing a more diversified, Madisonian politics. True, Gotham was the New Deal city, confident that government had an answer to every social problem. Democrats long ruled its politics. But the Democrats of Tammany Hall still represented a variety of interests and could sometimes lose elections, as when they were defeated by Fiorello La Guardia in 1933. This state of affairs lasted until the sixties, when the public-employee unions replaced Tammany as the basis of the Democratic Party, withering the city’s political culture.

At the state level, what long preserved a Madisonian politics in New York were vigorous upstate business interests. Buffalo, for instance, had steel and aerospace; Syracuse, air conditioners; the capital area, electric engines; the Hudson Valley, business machines; and Rochester, cameras, copiers, and lenses. Acutely sensitive to cost, this business class joined with rural and agricultural interests to support Republicans and conservative Democrats who fought to constrain Albany’s spending and taxing, countering, to some degree, downstate’s more liberal influence.

Two forces undermined this alignment. The first was increasing economic competition—first national, in the fifties, and then global, in the mid-seventies—for upstate New York’s industries and the rest of the Great Lakes manufacturing region. But of the entire Rust Belt, upstate proved least able to adapt to the new challenges, thanks to the second explosive force: the runaway spending and punitive taxing of Republican governor Nelson Rockefeller, who held office from 1959 to 1973. Rocky became a kind of cartoon version of Franklin Delano Roosevelt. Ceaselessly searching for new crises on which to exercise his mastery, he entered office with a state budget of $2 billion; a decade and a half later, it had swelled to $6.7 billion—a 300 percent increase when adjusted for inflation. Taxes went up even more—700 percent—over the same period. By 1975, New York had gone from about tenth in the nation in combined state and local taxes to first.

The upstate alliance wasn’t powerful enough to stop Rockefeller’s massive expansion of government and was, in fact, undone by it, as was upstate itself. Burdened by the heavy taxes and by a welter of rigid new state business regulations, upstate bled employers and jobs. If you count New York north of greater Gotham as a separate state, it has ranked between 46th and 50th in the U.S. in job growth over the past 40 years. Buffalo, Elmira, Rochester, Syracuse, and Utica all suffer from 25 percent–plus poverty rates; much of rural upstate has sunk into Appalachian hardship. The young and talented have left the region in droves.

Big government, and the special interests that feed off it, have stepped in to replace the shrinking private-sector economy. A quarter of all new upstate employment over the last two decades has been in government-subsidized jobs, paid for by local property taxes more than twice the national average and by—until the day before yesterday—state tax revenues generated by Wall Street profits. For a while, it was possible to bathe upstate’s increasing reliance on transfer payments from New York City in the elevated rhetoric of Governor Mario Cuomo, who termed the northgoing aid an expression of the caring “New York idea.” But the tubercular glow faded, and upstate became increasingly aware of its dependence on the city. In the blunt words of one upstate Democratic assemblyman, Gotham was the region’s “cash cow.”

New York City could afford to be so generous. The tax cuts of the Reagan revolution, economic globalization, and, in the nineties, Mayor Rudolph Giuliani’s policing revolution, all helped Wall Street boom and the city thrive, despite its union-dominated politics. (Now, of course, the financial sector has radically contracted, thanks in part to its self-destructive penchant for financial engineering.) In a paradox insufficiently appreciated, the Wall Street boom funded the government spending boom that funded the public-sector unions, whose ever-mounting imposed costs drove businesses out of New York.

As if out of Madison’s darkest dreams, New York’s well-to-do public-sector unions—with their phone banks, massive Election Day get-out-the-vote efforts, and ad campaigns—have only grown mightier with each passing year. Political success for New York pols rests on keeping the most powerful pressure groups happy by spending more than the state or city can afford. This explains why only one in ten political contests in the New York State Legislature is won with under 60 percent of the vote.

New York’s reigning city and state politicians have mastered what Madison called “the vicious arts by which elections are too often carried.” There is a direct relationship between New York State’s top-tier spending rate, compared with that of other states, and its bottom-tier voting rate, which is partly the result of political gamesmanship designed to reduce voter turnout. New York State has the country’s thorniest ballot-access laws, New York City has campaign-finance laws that enshrine public-sector privileges, and both city and state practice gerrymandering that produces un-American virtual representation by race. Add the only-in-New-York proliferation of pressure groups in the guise of third parties that rent their ballot lines to cross-endorse major-party candidates, and the upshot is that contested legislative races are rare both in Albany, where a Soviet-like 98 percent of incumbent lawmakers wind up returned to office, and in city hall. Occasionally, it is true, there are competitive elections for governor—usually after an incumbent has served three terms, though next year will be different, given David Paterson’s unpopularity—and we may eventually see one for mayor, if Bloomberg doesn’t install himself for life.

Meanwhile, virtually every political force other than the unions has been emptied of substance, particularly in Albany. The Business Council of New York State, once an influential group representing Fortune 500 CEOs, has none of its former clout. These days, businesses, if they’re powerful enough, push for tax-incentive deals for themselves instead of pursuing shared interests with other firms. Through the vehicle of Empire Zones (tax-incentive agreements supposedly targeted to depressed areas), well-connected firms can basically set their own tax rates, negotiated by state legislators doubling as their lobbyists—or is it the other way around? Administered via the tax code, these deals are never voted on and are shielded from public scrutiny. A dual disaster, they produce few new jobs but relieve what might otherwise be broader business pressure on the state to ease up on taxes. If a company faces a threat or is pursuing state subsidies, it can briefly establish a strong presence in the capital—but the business lobbying comes and goes, while the unions pushing for ever more education and health-care spending are permanent fixtures.

In the city, the New York City Partnership does represent real-estate interests at city hall. But in general, only business organizations powerful enough to cut their own deals with the mayor have seats at the political table.

Small and medium-size firms find themselves as marginalized as ordinary citizen taxpayers, especially on a city council that doesn’t represent districts so much as ethnic, racial, and, above all, public-sector union concerns.

Political parties have also become increasingly irrelevant in post-Madisonian New York. The Democratic Party today is less influential than the public-sector unions. A particularly striking illustration came in 2001, when Democratic mayoral candidate Mark Green tried to make some accommodation with New York City’s weakened economy after September 11. An alliance of Al Sharpton–led racial groups and the hospital workers’ union promptly cut Green down with accusations that the longtime left-liberal was a racist, tipping the race to Bloomberg, who has since accommodated them. Green’s defeat was a lesson not soon forgotten.

As for the Republicans, corruption scandals in their former stronghold of Nassau County, the declining upstate population, and a statewide outmigration of the middle class have left the GOP a shell of a party, as beholden to the special interests as the Democrats. In Albany, Democrats and Republicans alike cut deals with the health-care industry and the education unions, so that regardless of which party has power, spending on health care and schools continues to outpace all other states—with no discernible public benefit.

Bloomberg himself exemplifies the hollowing-out of the parties. A self-described liberal Democrat who rented the Republican line to run for election in 2001, he won reelection as a nominal Republican, then left the party to play with a presidential run as an independent, and has now returned—after the repeal of the term limits that would have forced him out of office—to the GOP. He has purchased the cult-connected Independence Party line along the way. And while he has never been able to secure the Democratic or Working Families Party lines, Bloomberg has amassed enough influence among the municipal unions to marginalize Democratic nominees, both by denying them the WFP’s endorsement and by gathering endorsements from prominent Democrats.

The coming years will test New York’s legendary ability to reinvent itself. Without fundamental changes, the regeneration of the city and state economies, shorn of Wall Street’s extraordinary profits, is hard to conceive. If the Madisonian tensions essential for a healthy society are to be restored, reformers must recognize that political and economic reforms are inextricably intertwined. In a continuous pas de deux, New York’s future industries depend on restoring political accountability, which in turn depends on the creation of new industries that can furnish alternate perspectives.

At present, a clear and quick path to restoring a vibrant politics isn’t obvious. Governor Paterson, who signed off on record outlays, has at least acknowledged New York’s spending pathology. “If we limit the appropriations,” he said, “we will bring a whole new value system to Albany.” Paterson has recently proposed to curb the influence of the spending interests by tying the growth of state spending (locally generated revenues, as opposed to funds from the Obama stimulus) to the inflation rate. It’s a good idea, in principle. If enacted, it would, as Paterson notes, “change how Albany thinks, acts, and does business” by forcing government “to live within its means.” Yet even were such a law somehow passed, the public-sector unions would work ceaselessly, and probably successfully, to overturn it. To make such a measure meaningful would require putting it in the state constitution.

That would be no small task. To become law, a constitutional amendment first requires majority approval in both houses of the legislature. Then, after the next election, the amendment needs to go before the legislature a second time. Should the amendment again pass both houses, the public would vote on it in a referendum. Since the Sheldon Silver–led assembly is essentially a subsidiary of the public-sector interests, it’s hard to see how an amendment limiting spending could get past even the first stage of legislative approval.

But there is a way around the legislature: a constitutional convention. The state held three during the twentieth century. Every 20 years, voters get the opportunity to vote directly on whether to hold a convention—which might be a means to begin restoring a Madisonian balance in New York. The next opportunity, however, isn’t until 2017. For now, reformers should work ceaselessly at ripping off the disguise that cloaks the rule of faction and the reality of decline in the rhetoric of compassion.


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