New York’s Coming Hangover
To its powerful media and financial elites, New York has been crowned, in Vanity Fair’s phrase, “the champagne city.” Yet as the full weight of a growing global financial contraction extending beyond Asia to now encompass Russia, Latin America and Africa begins to be fully felt, the epicenter of the city’s economy, Wall Street, could become as wobbly as a Bowery drunk.
Although a declining Dow is hardly reason for celebration in Los Angeles or anywhere else, no city has developed a greater dependency on the financial markets as the primary source of wealth creation than New York.
In the bull market of the 1980s, according to a recent report by State Comptroller H. Carl McCall, Wall Street accounted for 23 percent of the city’s income growth. In this decade’s bull market, the financial sector contributed a remarkable 56 percent of New York’s earnings increase.
Even at its height, this lopsided situation has produced an economy that far more than the oft-cited L.A. class divisions has become largely a tale of two distinct cities.
On the one hand, financial-sector compensation soared last year, with the average bonus at Wall Street firms reaching $280,000, over $120,000 more than the previous year.
On the other hand, that increase was five times the average wage for New York workers. Indeed, despite the financial-sector surge, unemployment in New York has remained among the highest in the nation roughly 1.5 and 2 points higher than Los Angeles and job growth is generally among the weakest.
As a result of these disparities, according to a recent study by the Center for Budget and Policy Priorities, New York now has the largest gap in incomes between its wealthiest and poorest 20 percent. The differential between the middle class and the affluent was also the greatest in the nation by far.
If things have not been great for working-class and poor New Yorkers, yuppie-dominated Manhattan has been living up to its “champagne city” image. In 1997 this one borough with less than one-third New York’s population accounted for an amazing $130 billion out of the city’s $163 billion payroll. Manhattan finance-sector payrolls alone were greater than the entire combined wages for the Bronx, Brooklyn, Queens and Staten Island.
Not surprisingly, rents and prices for Manhattan apartments have climbed to record levels, and expense-account restaurants are filled to overflowing. Newly rich financiers buy luxury cars and imbibe the finest wines, cigars and liquors with an abandon not seen since the mid-’80s.
Manhattan’s recovery has been accompanied by some real improvements in both its image and quality of life due in no small part to the tough anti-crime measures implemented by Mayor Rudy Giuliani. Under the brash and often bullying mayor, New York has been able to present itself as the true “comeback” city in America so much so that Giuliani felt he could afford to let the Grammys return to Los Angeles when the event’s organizers dared annoy him.
Even the once obstreperous New York media which also doubles as the nation’s as well has been tamed by the mayor and his public relations guru, Howard Rubinstein, to an extent unimaginable in Los Angeles, where bashing the city remains the favorite media sport. The willingness of the New York communications industry to play along with the “champagne city” image also has benefited from having a mayor, however unpleasant, who is capable of stringing more than one sentence together at a time.
This combination of communications dominance, safer streets and the Wall Street boom has helped other sectors of the economy, such as tourism and entertainment, while enhancing the prestige of new industries, like multimedia.
Yet in real economic terms, these much-hyped sectors are relatively insignificant compared to the impact of any significant weakening in financial services.
Tragically, New York’s heightened susceptibility to the natural “boom-bust” cycle of the financial markets may be as much a product of misguided public policy as economic inevitability. As recently as the early ’60s, notes New York author and historian Robert Fitch, the city weathered market downturns because its economic base included thriving manufacturing, warehousing and other small-business-dominated sectors. In many ways, the old New York economy looked a lot more like Los Angeles today a beehive of small, often ethnically run factories and niche businesses covering a staggering array of fields.
But whereas these smaller industries have continued to thrive in Southern California, New York seems to have all but waged war on them. Since the 1960s, New York officials have lavished tax breaks and infrastructure to the elite financial sector while taxing, regulating and generally ignoring other parts of the economy. Most directly devastated has been manufacturing employment, which has dropped from 610,000 jobs in 1980 to just 250,000 today.
“It’s a monoculture that’s developed as a long-term trend,” notes New York economist and author Robert Fitch. “It’s like they are using defoliants. They’ve defoliated every other part of the economy.”
Yet few among New York’s political or economic elites see this lack of bottom-up diversity as a problem. Even with a Wall Street retreat in the offing, landlords and city officials continue to seek ways of forcing out even profitable blue-collar sectors. One example is printing, which despite revenues last year of almost $2 billion in Manhattan alone, has been pushed off the island in order to make way for favored office, media and upscale housing uses.
“Fewer and fewer people feel they can remain in Manhattan,” Stuart Leventhal, executive vice president of Empire Graphics, one of the city’s fastest-growing graphics firms, told me in his office located in the flourishing Varick Street district. “There’s a feeling that the real estate interests don’t want printers and related businesses around there.”
Fitch suggests these attitudes reflect a New York elite so committed to this finance-driven “monoculture” that they no longer comprehend the need for economic diversity. The troubles in Hong Kong and Tokyo further enhance Wall Street’s self image as the lodestone of the economic universe. As one commentator in The New York Times reported recently, “The important thing is that New York is in the game and calling the plays.”
But positive “spin,” that quintessential New York asset, may not be enough to save the city from global economic forces. Like a quarterback without an adequate phalanx of linemen, New York could soon be thrown for a major loss perhaps mirroring the catastrophic downturns of the ’70s and late ’80s unless other sectors of the economy, particularly in the outer boroughs, can provide some protection.
As Los Angeles learned during the aerospace bust of the early ’90s, over-dependency on one industry, no matter how “high tech,” high paying or glamorous, can develop into a dangerous addiction with often toxic consequences.
Joel Kotkin, a senior fellow with the Pepperdine Institute for Public Policy and research fellow with the Reason Public Policy Institute, is a native New Yorker.
