Angry New Yorker

Monday, September 08, 2003
City Is Told to Abandon Its 'Doomed' Tactics of Encouraging Growth
September 8, 2003, By JANNY SCOTT, New York Times

Arguing that the industries upon which New York City has depended for its economic well-being have been losing ground and are unlikely to generate many new jobs in future, a new study [available here; and here {PDF version}]suggests that New York's longtime approach to economic development is obsolete and must be reconceived.

The study, financed by the Rockefeller Foundation and written by a nonprofit group called the Center for an Urban Future, says the city should abandon the "doomed strategy" of favoring a few industries like finance — an approach the study says has left the city increasingly vulnerable to economic shifts.

City resources should go instead to improving the climate for small businesses and entrepreneurs, tapping the immigrant population as well as academic and research institutions, and improving basic services so the middle class will not leave the city, according to the study, to be released today.

"Start small," the report urges. Large firms are decentralizing operations and adding new jobs elsewhere, and New York's future growth will depend on "whether it can restore its entrepreneurial vitality and create a better environment for smaller firms to grow and prosper."

The recommendations run counter to the city's practice of using tax abatements and real estate development subsidies to keep big companies in New York. That tactic became common in the 1990's as competition among the city, its suburbs and other places intensified.

Several economists and others who have seen the report said the recommendations were sound. Some said they also seemed consistent with some recent moves by the administration of Mayor Michael R. Bloomberg toward delineating a clear strategy and diversifying the economy.

"The city has never had a clear economic development strategy," said Kathryn S. Wylde, president of the Partnership for New York City, a business group. "The city's strategy has been real-estate-driven and has been reactive to the threat of corporate move-outs and job losses rather than job creation."

David Hochman, a consultant with the Technology Partnership Practice at the Battelle Memorial Institute, who worked on a similar report for the city in 2000, said: "It's really only in times of downturn that people get creative, get thoughtful about what needs to be done next. This would be a great road map to start with."

The deputy mayor for economic development and rebuilding, Daniel L. Doctoroff, said the administration was already doing many things recommended in the new study. For example, it has taken steps to improve the business climate and cultivate business districts far beyond Midtown Manhattan through projects in such places as downtown Flushing, Long Island City, Harlem and the Hub area of the Bronx.

In addition, he said, the administration has overhauled what is now called the Department of Small Business Services and has taken steps to give immigrant- and minority-owned businesses better access to contracts. The city is opening small-business satellite centers in each borough, offering advice on such things as financing, negotiating the bureaucracy and other aspects of starting and running businesses.

"We've essentially stopped" the longtime practice of favoring a relatively small number of large companies with tax abatements and subsidies, Mr. Doctoroff said. "We have basically ended the era of corporate welfare, basically paying people to stay."

The study, based on an analysis of census and economic data and interviews with business leaders, developers, ethnographers, government officials and others, was conducted over the past year by the center, a nonprofit policy institute that examines economic and work force development issues in New York.

Jonathan Bowles, the group's research director and a writer of the report, said the center was told to take "a real hard look at the city's economy in the post-9/11 world." The aim was to explore in a comprehensive way the long-term economic, demographic and political challenges facing New York.

Of the city's attitude in the past, Mr. Bowles said: "There was sort of an arrogant policy that we don't need to look at the future because we've already got Wall Street and we're the media capital. What more do we need? As long as we hang on to what we've got, the rest will fall into place."

The group found that the finance, insurance and real estate industries, which accounted for one in six of all city jobs in 2000, were rapidly losing jobs and market share to other places. New York City accounted for 36 percent of all securities industry jobs in the country in 1987; its share has since dropped to 23 percent, the report says.

Other important industries, including professional and business services and technology, have trailed the country and the region in job creation. The city accounted for 60 percent of the region's jobs in professional and business services in 1970; by 2000, that was down to 45 percent.

As large firms everywhere have decentralized, cities like Los Angeles have benefited by the rise of small, home-grown businesses, the study says. But New York "has become one of the worst environments for entrepreneurs and growing firms," the report says, citing rankings by groups like the National Commission on Entrepreneurship and declines in venture capital investments.

One big problem for growing businesses is high real estate costs, which the study traces in part to the city's practice of subsidizing the real estate costs of large employers. The report says the practice has distorted the "real estate market in ways that actually inhibit the development of new businesses and the retention of lower-margin industries."

In addition, the study says: "Businesses in New York also face a daunting regulatory environment in which firms are required to get licenses and permits from as many as a half-dozen agencies, most of which are understaffed and few of which coordinate with each other. It's no wonder that a cottage industry of fixers and go-betweens has developed in the city."

The study recommends that the city work harder to help growing businesses thrive, in part by addressing "the fundamental issues hampering business growth in the city, such as permitting, business taxes and policies that spur exorbitant real estate speculation."

The city should also do more to encourage the growth of immigrant and minority-owned businesses, the study says, perhaps by following the example of cities like Los Angeles and Houston. According to the report, those two cities rebuilt their economies in recent decades in part by diversifying, reducing regulatory hurdles and helping immigrant-run businesses to develop.

In addition, the city should extend its economic development efforts beyond large-scale commercial projects in Manhattan to include neighborhoods in all five boroughs, the study recommends. It notes that the Bloomberg administration is already working to develop viable and more affordable business districts in Downtown Brooklyn, as well as Long Island City and Flushing, Queens.

Finally, the report suggests that the city support policies that will help retain middle-class residents. It should follow through with plans to increase the housing stock. And it should use scarce city resources to maintain and improve basic services like law enforcement, sanitation, public transit, education, parks and the infrastructure.

The report states, "This vision should begin with the premise that blindly following the post-1950's strategy of ever-intensifying real estate speculation, over-concentration on selected sectors and `Capital of the World' rhetoric will erode the city's overall competitiveness even further, strain the city's financial resources and widen the gap between rich and poor."

Copyright 2003 The New York Times Company

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