From an interesting article in the Atlantic about how the crash will reshape America, there is this part about NYC. It made me a little less bearish about the coming decade here...
At first glance, few American cities
would seem to be more obviously threatened by the crash than New York.
The city shed almost 17,000 jobs in the financial industry alone from
October 2007 to October 2008, and Wall Street as we’ve known it has
ceased to exist. “Farewell Wall Street, hello Pudong?” begins a recent article by Marcus Gee in the Toronto Globe and Mail,
outlining the possibility that New York’s central role in global
finance may soon be usurped by Shanghai, Hong Kong, and other Asian and
Middle Eastern financial capitals.
This concern seems overheated. In his sweeping history, Capitals of Capital,
the economic historian Youssef Cassis chronicles the rise and decline
of global financial centers through recent centuries. Though the
history is long, it contains little drama: major shifts in capitalist
power centers occur at an almost geological pace.
Amsterdam stood at the center of the
world’s financial system in the 17th century; its place was taken by
London in the early 19th century, then New York in the 20th. Across
more than three centuries, no other city has topped the list of global
financial centers. Financial capitals have “remarkable longevity,”
Cassis writes, “in spite of the phases of boom and bust in the course
of their existence.”
The transition from one financial
center to another typically lags behind broader shifts in the economic
balance of power, Cassis suggests. Although the U.S. displaced England
as the world’s largest economy well before 1900, it was not until after
World War II that New York eclipsed London as the world’s preeminent
financial center (and even then, the eclipse was not complete; in
recent years, London has, by some measures, edged out New York). As
Asia has risen, Tokyo, Hong Kong, and Singapore have become major
financial centers—yet in size and scope, they still trail New York and
London by large margins.
In finance, “there is a huge network and agglomeration effect,” former assistant U.S. Treasury secretary Edwin Truman told The Christian Science Monitor
in October—an advantage that comes from having a large critical mass of
financial professionals, covering many different specialties, along
with lawyers, accountants, and others to support them, all in close
physical proximity. It is extremely difficult to build these dense
networks anew, and very hard for up-and-coming cities to take a
position at the height of global finance without them. “Hong Kong,
Shanghai, Singapore, and Tokyo are more important than they were 20
years ago,” Truman said. “But will they reach London and New York’s
dominance in another 20 years? I suspect not.” Hong Kong, for instance,
has a highly developed IPO market, but lacks many of the other
capabilities—such as bond, foreign-exchange, and commodities
trading—that make New York and London global financial powerhouses.
“A crucial contributory factor in the
financial centres’ development over the last two centuries, and even
longer,” writes Cassis, “is the arrival of new talent to replenish
their energy and their capacity to innovate.” All in all, most places
in Asia and the Middle East are still not as inviting to foreign
professionals as New York or London. Tokyo is a wonderful city, but
Japan remains among the least open of the advanced economies, and
admits fewer immigrants than any other member of the Organization for
Economic Cooperation and Development, a group of 30 market-oriented
democracies. Singapore remains for the time being a top-down, socially
engineered society. Dubai placed 44th in a recent ranking of global
financial centers, near Edinburgh, Bangkok, Lisbon, and Prague. New
York’s openness to talent and its critical mass of it—in and outside of
finance and banking—will ensure that it remains a global financial
center.
In the short run,
the most troubling question for New York is not how much of its finance
industry will move to other places, but how much will simply vanish
altogether. At the height of the recent bubble, Greater New York
depended on the financial sector for roughly 22 percent of local wages.
But most economists agree that by then the financial economy had become
bloated and overdeveloped. Thomas Philippon, a finance professor at New
York University, reckons that nationally, the share of GDP coming from
finance will probably be reduced from its recent peak of 8.3 percent to
perhaps 7 percent—I suspect it may fall farther, to perhaps as little
as 5 percent, roughly its contribution a generation ago. In either
case, it will be a big reduction, and a sizable portion of it will come
out of Manhattan.
Lean times
undoubtedly lie ahead for New York. But perhaps not as lean as you’d
think—and certainly not as lean as those that many lesser financial
outposts are likely to experience. Financial positions account for only
about 8 percent of the New York area’s jobs, not too far off the
national average of 5.5 percent. By contrast, they make up 28 percent
of all jobs in Bloomington-Normal, Illinois; 18 percent in Des Moines;
13 percent in Hartford; 10 percent in both Sioux Falls, South Dakota,
and Charlotte, North Carolina. Omaha, Nebraska; Macon, Georgia; and
Columbus, Ohio, all have a greater percentage of population working in
the financial sector than New York does.
New York is much, much more than a
financial center. It has been the nation’s largest city for roughly two
centuries, and today sits in America’s largest metropolitan area, as
the hub of the country’s largest mega-region. It is home to a diverse
and innovative economy built around a broad range of creative
industries, from media to design to arts and entertainment. It is home
to high-tech companies like Bloomberg, and boasts a thriving Google
outpost in its Chelsea neighborhood. Elizabeth Currid’s book, The Warhol Economy,
provides detailed evidence of New York’s diversity. Currid measured the
concentration of different types of jobs in New York relative to their
incidence in the U.S. economy as a whole. By this measure, New York is
more of a mecca for fashion designers, musicians, film directors,
artists, and—yes—psychiatrists than for financial professionals.
The great urbanist Jane Jacobs
was among the first to identify cities’ diverse economic and social
structures as the true engines of growth. Although the specialization
identified by Adam Smith creates powerful efficiency gains, Jacobs
argued that the jostling of many different professions and different
types of people, all in a dense environment, is an essential spur to
innovation—to the creation of things that are truly new. And
innovation, in the long run, is what keeps cities vital and relevant.
In this sense, the financial crisis may
ultimately help New York by reenergizing its creative economy. The
extraordinary income gains of investment bankers, traders, and
hedge-fund managers over the past two decades skewed the city’s economy
in some unhealthy ways. In 2005, I asked a top-ranking official at a
major investment bank whether the city’s rising real-estate prices were
affecting his company’s ability to attract global talent. He responded
simply: “We are the cause, not the effect, of the real-estate bubble.”
(As it turns out, he was only half right.) Stratospheric real-estate
prices have made New York less diverse over time, and arguably less
stimulating. When I asked Jacobs some years ago about the effects of
escalating real-estate prices on creativity, she told me, “When a place
gets boring, even the rich people leave.” With the hegemony of the
investment bankers over, New York now stands a better chance of
avoiding that sterile fate.
Recent Comments