Big cities have been on a bit of a roll in recent years. But sometimes you can have too much success, as we may be seeing in the case of New York. This week the New York Times reported that finance firms are moving mid-level jobs away from Wall Street to places like Salt Lake City and Charlotte.
There’s a lot going on here. First, a lot this is driven by New York’s success, not its failure. New York is increasingly valuable as a site of high end production. As a result, lower value activities get squeezed out and replaced with higher ones. Despite the exodus of Wall Street jobs, New York City has been booming, and a stat from last year showed that the city was within 60,000 jobs of its all time employment high. This sort of churn is somewhat normal when high value and lower value economic geographies come into contact within the same physical space, as I noted regarding California in “Migration: Geographies in Conflict.”
It might be tempting for city leaders to actually celebrate this, but they shouldn’t. In a city that is desperate for middle class jobs, these are white collar middle class positions that are being lost. New York has stunningly high levels of income inequality – Joel Kotkin has noted it is the same as Namibia’s – and this can’t be making it any better.
Also, is there any precedent for a city being successful and dynamic, over a longer term purely as a production center for ultra-high end activities (with perhaps an associated servant class)? Sure, places like Aspen can do it. Imperial capitals seem to have been able to do something of the sort. Perhaps that’s how New York’s leaders like to see their city, but they are taking an awful risk.
New York is too concentrated in high end activities already, notably the high end of finance, as Ed Glaeser noted in his article “Wall Street Is Not Enough.” This renders it extremely vulnerable to downturns in that sector.
It might seem like exporting finance jobs would be part of that re-balancing, but when they are lower end positions, all you are doing is re-concentrating finance at more elite levels. Because to these types of businesses cost is almost literally no object, they have driven the cost of New York real estate through the roof.
When one industry becomes super-dominant in a neighborhood, Jane Jacobs noted it could lead to a situation she called “the self-destruction of diversity,” where a particular type of user – generally banks – gobble up the land and ultimate sterilize what formerly drew them to the area.
I wrote about this in regard to Chicago in a speculative piece called “Preventing the Self-Destruction of Diversity” in which I worried that redevelopment of lower rent Class B and C buildings in the Loop as condos or something would end up pushing out all but high end uses by destroying lower priced office space. It’s easy to imagine something similar in New York. It’s interesting that the new industries the city is targeting – like high tech – are also high end businesses, which can afford finance type rents and/or don’t need much space.
Maybe New York thinks it’s ok to specialize purely as a high value production center. Bloomberg took a lot of flak for calling New York a “luxury city” but it’s a simple statement of fact. No one will ever choose to do business there because it’s low cost.
On the other hand, often even high end businesses don’t always start out that way. New firms and industries often need moderate rent zones to get off the ground, and/or access to an ecosystem that relies on mid to lower value businesses, such as legacy craft industries. (Think American Apparel and other fashion businesses in LA and to a lesser extent New York that take advantage of the fabrication capabilities in those places). Jacobs also noted the advantage of big cities in having the most diverse set of industries and suppliers, which isn’t an advantage if you no longer have them because they can’t afford to be in business. A lot of the great cultural movements in New York were likewise enabled by neighborhoods with cheap rents – neighborhoods that are long gone from much of the city.
If I were New York I would not be sanguine about losing middle class jobs and people, or take too much comfort in the flourishing of ultra-high end business. There’s clearly a lot the city can do to broaden the economic base, even if they are politically challenging in practice. For example, making it easier to build in New York is something that economists like Ryan Avent have been pounding the table on for some time. Clearly with prices up, the market is signalling a need for new supply. Another thing might be fixing New York’s notorious small business climate, where the regulatory environment may well be the worst in America.
Another thing this article highlights is how smaller cities are viable locations for much higher end activities than many would ever have believed possible. It is now possible to do almost anything but the highest end activities in places like Charlotte, Salt Lake City, Nashville, Austin, Indianapolis, Kansas City, Cincinnati, etc. They have upgraded their workforce, infrastructure, and amenities such that they can compete at a level few would have thought possible 20 years ago. And they do it while still delivering rock bottom pricing and a general lack of big city traffic and taxes.
The biggest cities can no longer rely on keeping the bulk of employment just because they have the headquarters. And increasingly this even goes for professional services business, where a lot of the routine work is outsourced either overseas or to near-shore domestic locations. (I wrote a bit about this phenomenon in a piece called “Chicago: Corporate Headquarters and the Global City” in which I note a flow of corporate headquarters back into global cities, albeit reconstituted executive headquarters only).
This puts the bigger cities in a tough spot. They have to continue to go up the value chain because smaller cities are rapidly eroding their competitive advantage at lower ends. Ultimately we’ll see where this leads but I don’t think it’s healthy in the long term at all. Figuring this out is just one piece of the rebuilding our overall economy for the 21st century that needs to be accomplished.