One could ask—and many did, even pre-pandemic—why people bother with New York City. The rents are blisteringly expensive; the food isn’t cheap; the subways and airports are an embarrassment, despite some of the highest tax rates in the United States; and long lines, once confined to the most popular midtown nightclubs, have now become a fixture of even the corner grocery store. Yet people kept on coming, many inspired by the city’s familiar message: “If I can make it there, I’ll make it anywhere.”
Those words, made famous by Frank Sinatra, also contain a subtle warning for New York: if its residents can make it anywhere, then they might also choose to leave someday. Over the last two decades, that wasn’t much of a concern, as professionals kept flooding into downtown Manhattan and across Brooklyn. Events this past year, though, will test the mettle of the city’s government in controlling the New York City exodus. Already, more than half a million residents, on some estimates, have packed their bags and headed elsewhere.
As economist Edward Glaeser mapped out in The Triumph of the City, aggregating talented individuals into specific areas leads to positive spillover effects for the economy because those talents interact more readily, sparking creativity, and they also spend money on local businesses and services (as per economist Enrico Moretti). What happens, though, when brilliant and ambitious minds no longer need to concentrate in one place to work their magic—when flexible and remote work gives almost anywhere on earth potential access to the best jobs of the knowledge economy? Will New York City be able to compete on quality of life, amenities, and other factors to maintain its restless talent base?
As New York pivots into the 2021 mayoral election, no industry is more important as a bellwether of the city’s future success than technology. Silicon Valley may get all the glory, but New York is arguably the world’s most technologically driven urban economy. It’s not just centered on local startup successes like Datadog and Flatiron Health or the employment growth at large tech companies like Google and Facebook. Technology is the foundation for New York’s supremacy in industries as diverse as financial services, health, media, and consulting.
New York has been blessed to have this economic foundation in such a grim period. The pandemic has been disastrous for hotels and tourism, event productions, cultural institutions, and gastronomy—all mainstays of the city’s economy. Yet tech has proved not just resilient but dynamic, performing better in 2020 than practically any other year in modern memory.
The tech industry, however, is a double-edged sword. The qualities that make it resilient and flexible in the face of Covid-19 also mean that tech jobs can sprout up anywhere; the city’s swarm of knowledge workers can all relocate by hopping on an outbound flight at JFK. What has taken New York decades to build could evaporate in just months. The city can no longer take for granted that it is a global magnet for tech talent—or frankly, for any kind of talent. As we head into one of the most challenging fiscal environments that state and local governments have faced in years, the next mayor cannot play defense by fortifying stagnant and declining industries. The city needs an aggressive strategy to expand its investment in the tech sector.
First and foremost, the next mayor must resist the temptation to extract the tech industry’s wealth and success via higher taxation.
Startups and venture capitalists have been aggressively expanding for more than a decade, dating back to Michael Bloomberg’s administration, but the past two years have brought unequivocal proof of the city’s success in catalyzing one of the world’s strongest innovation ecosystems. Peloton, a local consumer-exercise hardware company founded in 2012, debuted on Nasdaq in late 2019 at an $8 billion valuation, only to see its value soar during the pandemic to more than $20 billion. In enterprise software, Datadog, a cloud-monitoring platform launched a decade ago, debuted around the same time at a similar valuation, at $7.8 billion; by late 2020, it had grown in value to more than $28 billion.
Other New York City tech successes abound. Insurtech startup Lemonade went public in July 2020, at $1.6 billion before doubling its valuation on its first day of trading. Online used-car marketplace Vroom, launched on Nasdaq in June 2020 at $2.5 billion, is trading at more than $5 billion. In 2018, cancer-research service Flatiron Health sold to Roche for $2.1 billion, while AT&T bought AppNexus, a programmatic advertising platform, for slightly less, according to reports.
These multibillion-dollar success stories across industries as diverse as consumer hardware, cancer research, enterprise IT infrastructure, and advertising show not only the depth of New York’s startup talent base but also its versatility. These successes demonstrate to venture capitalists that serious money can be made with the city’s startups, and they signal to ambitious entrepreneurs that New York can compete directly with Silicon Valley in terms of forging pathways to business success.
It’s vital that New York not squander this achievement. The city will be sorely tempted to drain off some of the tech industry’s value to plug holes in the municipal budget. The tech industry already pays a large share of taxes, though, and it also has the intrinsic flexibility allowing it to migrate to any place that offers a better deal. So the next mayor would be wise to leave the industry mostly alone.
Any new mayoral initiative should start with the principle to “do no harm” to the tech sector. Unfortunately, local and state officials have been muddling their message on this score. The Amazon HQ2 imbroglio left a deep stain on the city’s reputation as a tech powerhouse. New York City and State governments initially prepared an economic-development package to attract tens of thousands of Amazon jobs to Long Island City, sending a clear message that the city wanted to host the best of American industry. Then the message disintegrated after months of opposition from public officials, incumbent industries, unions, and activists. Amazon took its new headquarters elsewhere.
“The city can no longer take for granted that it is a global magnet for tech talent—or frankly, for any kind of talent.”
Though the Amazon HQ2 collapse sent a bad signal about New York’s business climate, it did force policymakers to consider alternatives to the mega-project approach to growth. As tech itself has repeatedly proved, smart people working on small projects can rapidly grow into thousands of people working on some of the most valuable companies in the world. The key factor is continuing to attract the world’s best talent to the city. To ensure that happens, the next mayor must develop an ambitious talent strategy in what suddenly has become an ultra-competitive marketplace.
Pre-pandemic, New York City and State lagged national population-growth figures. Total population growth was up 2 percent for the entire decade across the city (compared with nationwide growth of 6.3 percent), while New York State was one of just ten states to lose population, according to an Empire Center analysis. And that was before the coronavirus, which appears to have accelerated the outmigration of New Yorkers to other regions.
That’s not all that the pandemic has done. The shuttering of offices has compelled firms to learn how to operate, and build, with an entirely remote workforce. New York’s tech economy, along with its professional services economy more broadly, will never be the same. While some knowledge workers will still choose to concentrate in vibrant ecosystems, the forces that attracted these workers to New York may be weaker today than they have ever been. In addition, the pandemic has practically halted global migration, one of the reasons for the tech industry’s success in New York.
The next mayor must transform how local government thinks about talent in tech, and in general. Attracting the kinds of workers who generate the incomes to pay for the city’s extensive public services will require a careful strategy.
First, the city should identify key benchmarks to grade the city’s talent base and identify where its efforts are flagging. How well does the city retain new university graduates? Which companies draw the most talent, and which seem to lose local talent to other cities? Are some industries expecting waves of retirements, which will make it necessary to entice more experienced hires to the region? Is New York consistently losing talent to certain regions or geographies? Are the right skills taught in the city’s colleges and universities? Without comprehensive data and regular reporting, no talent-acquisition strategy can succeed.
Second, the next mayor needs to weigh the trade-offs involved in crafting such a strategy. As dynamic as New York is, it cannot be all things to all people in all industries. A talent strategy should identify three to five growth verticals within the tech industry where deeper concentration could jump-start the growth that was evident before Covid-19. City officials should work with public-private partnerships to build up the right messaging and incentives to ensure that these workers and entrepreneurs come to New York and stay.
Finally, the next mayor will have to work with Washington on modernizing our immigration laws to ensure that America—and, by extension, New York—remains the global hub for tech talent that it has been for the past few decades. Countries like Estonia, Singapore, and Barbados are experimenting with digital entrepreneurship visas, remote work permits, and other immigration innovations to adapt to the opportunities presented by the Covid-19 crisis. The United States must not allow other nations to claim the mantle of leadership in this area.
A talent strategy, no matter how brilliant and well implemented, cannot compensate for the basic economics of a free market. Covid-19 and the rush to remote work have suddenly opened up geographies across the United States to jobs that were once the exclusive domain of Gotham denizens. A software engineer on Wall Street can now work just as easily from Wisconsin as he can from Long Island.
Even under lockdown, New York has some of the best urban amenities and neighborhoods in the world. Those features come at an exorbitant price, however: the city’s cost of living is among the highest in the United States—even globally, by some measures. The tech industry may pay some of the highest salaries available in the labor marketplace, but that doesn’t mean that tech employees want to spend so much of their hard-earned cash on stratospheric housing costs. For knowledge workers toiling in tiny apartments and new families looking for a backyard and space, the compromises that the city forces on residents look increasingly unattractive.
Covid-19 may have dampened New York’s growth economy, but it also presents an opportunity. Now that the regular drudgery of commuting into Manhattan no longer limits tech workers to a handful of convenient hot spots, a wealth of neighborhoods and so-called transit deserts—formerly overlooked for investment and development—could become, with the right strategy, desirable.
From Staten Island and Far Rockaway to Bayside and Coney Island, many areas exist where strategic investment in quality of life, amenities, and rezoning could lead to more economically vibrant neighborhoods that would appeal to current residents and newcomers alike. This includes more outright housing units, retail modulated for a post-pandemic world, and commercial workplaces attractive for a range of industries, including, but not exclusive to, knowledge workers.
The next mayor needs a careful plan for zoning, place-making, and urban design. The dividing lines between residential neighborhoods and central business districts like downtown and midtown Manhattan were already blurring prior to Covid-19, with the rise of coworking and live/work apartments. Now the lines will be even murkier, with many more professionals working permanently from their homes or in their neighborhoods.
Zoning for commercial and residential buildings should be updated to reflect these new habits. That means more mixed-use zoning, so that professional offices may be coterminous with individual apartments.
Neighborhoods will become much more vital throughout the day, as workers stay home. Commuter neighborhoods in Manhattan will increasingly transition into neighborhoods where residents expect robust amenities throughout the day. Knowledge workers will want great coffee shops, alluring restaurants, vibrant parks, and other urban amenities. These new businesses will require investments in rezoning as well as incentives for real-estate development.
In New York, fights over these issues tend to be protracted, but they are vital to solve if the city is to remain an attractive destination for the best technology leaders in the world.
The next mayor also needs to invest aggressively in emerging critical technologies to propel the concentration of talent and venture capital into the next generation of experimental industries.
We’ve already seen how such an approach has worked before, in cybersecurity. In one of New York’s better economic-development plans in recent years, the city invested more than $30 million to back an initiative, which included heavy participation from industry, to catalyze new startups, create a shared workplace for cybersecurity professionals, and launch a joint industry-university education program to establish an academic pathway into the industry. Though cybersecurity was already a burgeoning market for New York City, the investment has the potential to accelerate the growth of an industry well positioned to thrive in the coming decades.
Other industries are ripe for investment. Telecom firms are beginning a decade-long transition to 5G wireless technologies expected to bring better service and bandwidth for mobile customers, powering everything from high-definition video to autonomous cars. New York already has a major wireless research hub at New York University, as well as COSMOS, a federal government test bed for 5G near Columbia University. The city can further strengthen this sector with strategic investment.
Meantime, interest is growing in the use of machine-learning techniques to improve biotechnology and health-care delivery. This sector could see tens of billions of dollars in private investment this decade, and New York already has the ingredients to be a leader: it hosts one of the top universities in the field, Rockefeller University; has one of the most expansive hospital systems in the world; and is located near one of the pharmaceutical industry’s most important hubs, just across the Hudson River in New Jersey. Targeted investment in this industry could put New York ahead of the pack.
Finally, New York should create more experimental districts where startups can build the future in areas as diverse as autonomous vehicles and transportation; rocketry and space; next-generation semiconductors, manufacturing, and quantum computing; and agriculture and food tech. Safety must always be a priority, of course, but imaginative ways exist to identify sites across the city that could function as experimental hubs, giving the city an edge in future technologies.
Better incentives—and willingness to deregulate and offer more flexibility to startups pioneering new business models in the face of entrenched incumbents—would help the local tech industry get a leg up on domestic and international competitors.
The tech sector may not be the answer to all of New York’s problems, but it is a vital, robust, and lucrative industry, poised to grow even more this decade, offering high-paying jobs and filling municipal coffers with tax revenue. Helping the industry thrive is critical to New York’s future, particularly as more and more cities globally target it for their own purposes. The city starts with a strong foundation and some notable recent successes, but lots more needs to be done.
Covid-19 might have changed the calculus for many about work and home life, but old truths still hold: an affordable, high-quality city, filled with talented people working on cutting-edge tech, remains a highway to fiscal strength. If New York implements the right policies and makes the right investments, once people make it here, they won’t want to make it anywhere else.
Top Photo: Peloton, a local consumer-exercise hardware company, debuted on Nasdaq in late 2019 with an $8 billion valuation, and saw its value soar during the pandemic to more than $20 billion. (MARK LENNIHAN/AP PHOTO)