Is New York the World's Premiere Global City?
A new study by the Economist Intelligence Unit ranks New York as the most competitive global city, finishing ahead of London, Singapore, Hong Kong, Tokyo, and other American cities, including Chicago (ranked 9th in the world) and Los Angeles (17th). All three American cities have actually moved higher on the list from previous years, meaning they’ve become more competitive.
The study appears during a New York mayoral race in which the candidates and the business community are debating the city’s future. While the outgoing Bloomberg administration argues that Gotham is in fine shape, having rebounded from the financial crash of 2008, critics point out that the city’s crucial finance industry is still shrinking, and that the city’s economy is not very good at nurturing new businesses. Meanwhile, Gotham’s tax burden relative to its economy is at a 20-year high, and migration data show firms are more likely to move jobs out of the city than into it. There are plenty of studies showing New York’s attractiveness is slipping against other American cities located in more vibrant regions, even as it gets high marks as a ‘global’ city.
The Economist study emphasizes the legacy of institutions, using phrases like "institutional character," "financial maturity" and "cultural character" to rank the players in a way that doesn’t necessarily capture change. To take one example, a quarter of a city’s score under the study’s rubric of ‘financial maturity’ is based on whether a nation’s national stock market is located there. New York can’t lose on that measure.
But New York’s benefits from the presence of its stock exchanges probably peaked 50 years ago and have been diminishing ever since. A new study by Joel Kotkin and Michael Shires on NewGeography.com, entitled "The Cities That Are Stealing Finance Jobs from New York," suggests that Gotham is having enormous trouble hanging onto its share of the nation’s finance business. The city ranks 52nd among 66 large American cities in financial services job growth, based on an index that measures both employment gains and the momentum of job shifts over the years. Some of leaders on the index are benefitting from the growth of regional institutions, like Capital One Financial and SunTrust, which alone account for about 15,000 jobs in greater Richmond, Va.
By contrast, New York City’s commercial bank sector peaked in the late 1980s with about 120,000 jobs and today employs 41,000 people. Big insurers once employed 103,000 people in New York; today, the industry provides jobs for just 33,000 in Gotham. Meanwhile, the city hasn’t regained the securities and commodities jobs it lost since the financial meltdown of 2008.
What’s happening in securities is part of a broader problem with job creation. A study several years ago of the dynamics of job creation in Gotham found that in a 15-year period from 1993 through 2008 (even before the impact of the financial crisis on employment, in other words), companies on balance moved 112,000 more jobs out of New York than they moved into the city. The city was also a net loser of 355,000 jobs generated by new businesses vs. jobs lost to firms disappearing. Only in jobs created by existing business did New York add a net of new employment, according to the study by the Empire Center for New York State Policy.
New York faces the dilemma of needing big institutions that have the power to compete globally, but also needing to nurture new firms and ideas. A study by Harvard economist Ed Glaeser and several colleagues found that over a 30 year period those American counties with the smallest businesses on average saw far greater jobs growth than other places. New York, by contrast, is dominated by bigger firms, the study found.
Similarly, a recent study by the Partnership for New York shows that small firms in Gotham don’t scale up at the same rate as firms elsewhere, and that the city’s firms lag businesses in other big American metro areas in turning new ideas into commercial successes. One reason is that the big, rich global firms that feel they need to be in New York are willing to pay an occupancy cost that many smaller firms cannot. The cost of starting a business in New York, for instance, is 1.5 times higher than the U.S. average, the Partnership study found.
Mayor Bloomberg has had some notable successes, including keeping crime falling. That alone has provided an economic boost by helping revive many residential and commercial areas and vastly expanding the city’s tourism business.
But under Bloomberg the city’s tax bite has risen relative to the size of the city’s economy to levels not seen since the early 1990s, according to a new article in City Journal by E.J. McMahon. At a time when states and cities are brawling to win jobs in a slow-growth environment, New York boasts some dizzyingly high tax rates. It has its own 8.85 percent top corporate tax rate, on top of the state’s 8.78 percent corporate tax, on top of the U.S. rate of 35 percent. Companies headquartered in Midtown Manhattan, meanwhile, pay on average three times more per square foot in property taxes than firms headquartered downtown in America’s other big cities. And under Bloomberg, the amount of money the city collects in fines and forfeitures, much of it paid by businesses, has increased by 75 percent, according to the Manhattan Institute’s Nicole Gelinas.
The city also taxes the middle class heavily. It collects about $900 a year more in taxes on a family earning $50,000 a year than the average of other big cities, according to a study by the chief financial officer of Washington, D.C., and nearly $1,800 a year more from a family earning $75,000 annually.
New York is not alone among America’s so-called global cities in fighting a rear-guard action for growth at home. Chicago has seen its share of globally-related employment decline even while it faces growing budgetary and social problems, including high crime, according to a Spring 2012 City Journal story by urbanist Aaron Renn. A 2011 study by demographer Wendell Cox noted that Los Angeles faced the same problems as New York in generating jobs from new firms.
By contrast, a study earlier this year by Kotkin for the Manhattan Institute, "America’s Growth Corridors," charted the gains of cities like Houston, Dallas, Memphis, Charlotte, Denver and Atlanta, all in regions that are bustling compared to the Northeast or the Midwest.
One of the differences between New York and many of the top global cities on the Economist list, places like Tokyo, Singapore and Paris, is that the others don’t face significant competition within their own borders for global business. By contrast, America may be emerging from the worldwide financial crisis as a more hotly competitive economy, one that features a host of increasingly important players who are challenging cities like New York for a good chunk of their business.
What’s good for America, though, is not necessarily a boon to Gotham.
This piece originally appeared in RealClearMarkets
This piece originally appeared in RealClearMarkets