Economic Development After The World Trade Center Disaster: Next Steps for New York’s Economy ANDREW WHITE: Welcome to the New School. I am the Director of the Center for New York City Affairs at the Milano Graduate School of Management and Urban Policy, which is part of the New School, and is based across the street. I’m glad all of you could make it.
Ten years ago, New York was in the midst of a truly horrendous period in its social and economic history. People in many neighborhoods, as we all know, were not safe walking to work, walking to the subways. It was a nightmarish way of life for people in a lot of low-income neighborhoods in New York. And the basis of their fear at that time wasn’t foreign terrorists, it was homegrown violence.
We came out of that period. And our culture was changed as a result of it and our economy ultimately improved. And for me, I think, one of the more impressive changes was the awe-inspiring community development movement that truly made a difference. And immigration also. Immigrants poured into New York at incredible rates and neighborhoods all over the city were revived like they hadn't been in decades.
Like many outer-borough neighborhoods, even the downtown Manhattan business district became more vibrant than it had been in modern memory, in the last few years. And now suddenly, in one day in September, the fear has returned and this time it isn’t just in low-income black and Latino neighborhoods. It’s not just low-income New Yorkers who feel fear about their daily lives anymore.
When I started the Center for an Urban Future, in the mid-1990s, over at City Limits, I gave it that name because I felt very deeply, very strongly that urban life, cities, work much better than sprawl. And that life and work in the city even in a time of trouble was so much more compelling and so much more appealing than life in antiseptic malls and suburban campuses. At that time I thought the gravest threat to the urban future was the insecurity and constant pain felt in the city’s most neglected neighborhoods. And a lot of the folks who helped create the Center for an Urban Future felt the same.
We focused on juvenile crime and child poverty and community-based economic development. At both that center and here at the New School where I’m working now, I’ve seen writers and speakers documenting improvements in so many of those areas over the last several years. We’ve also seen deterioration in some areas. But today, all of that looks very different. We accomplished so much in New York in the last decade and we were about to test whether those changes would hold up in an economic downturn. And then came the attacks and we’ve been thrown back into uncertainty. We still haven’t got a clue what the full implications are of the current situation in New York. We won’t really have a clue until history unfolds further.
But it is very clear now that economic development policy is front and center, and today we will begin to discuss and learn whether the old paradigms are permanently changed or not. This is clearly an opportunity for reframing economic development policy in New York. The question is how.
In the mayoral race a few weeks ago it suddenly became anathema to talk about rebuilding in any context outside of downtown. Outside of ground zero. Will that perceived political restriction hold? Will it suddenly become politically unacceptable to be talking about building in the outer boroughs or even building infrastructure outside of downtown? I’m looking forward to hearing what our panelists have to say about that.
I want to thank Neil Kleiman and Jonathan Bowles from the Center for an Urban Future, and their staff, for helping pull this together, and I want to thank Isabel Pradas from my staff for coordinating the Milano School’s end. And thanks to all of you for coming. At the end of this we will have a chance for questions and answers, with very concise questions. Most of the discussion is going to be among the panelists but your input is equally important.
I want to introduce Jonathan Bowles, research director for the Center for an Urban Future.
JONATHAN BOWLES: Good morning. Thank you Andrew and thanks to the Milano School for co-sponsoring this event with the Center for an Urban Future. Those who don’t know it, I will just reiterate what Andrew said, the Center is a policy institute based here in the City. It’s been around for about 5 years now. We try to impact policy debate in NYC by issuing reports about economic development, workforce development, higher education and other issues that are important to the City.
Given the tragic events of September 11th and the continuing repercussions on the City’s economy, we’ll be issuing several more reports about economic development, workforce development and other key issues that we have been focusing on. We will be issuing policy briefs and in the months ahead, we will be having several forums like this one on these important issues facing the City.
We’re now in the process of putting together the next set of forums and we want all of you to be there. In your packet you’ll find a form that will tell you how to sign up to get email updates from the Center for an Urban Future and it will tell you all about when and where and who the next panelists will be. So please look in your packet for the form to fill out to get on our email bulletins to find out about our next panel discussions.
Also in your packet, please be sure to look and you’ll find a new report that the Center is issuing together by Joel Kotkin, one of our esteemed panelists today, and the report is how NYC and other major cities across the country can continue to be hubs for technology industries and how they should go about doing that. And I’m sure we’ll all be talking a little bit about that today on the panel.
Finally, just the format of today’s event. We have a number of distinguished panelists and our goal is to keep things moving, keep it interesting, keep it lively. I’m not going to have opening statements from the panelists. We’re going to jump right into questions and answers beginning from our moderator, Leslie Eaton of The New York Times. The last half hour today, beginning at about 11:30, we’re going to talk questions and answers from the audience, and again since we have limited time and a lot of you want to ask questions, please keep your questions brief.
LESLIE EATON: There have been a lot of proposals for what we should do in the wake of the World Trade Center disaster and there are people who are focused on buildings. There are people who are focused on job creation. There are people who are focused on a high-speed rail line to Schenectady. And it’s becoming clear…the country is at war, the economy is in recession, Congress is not receptive to the laundry list approach. If each of you could pick one thing, just one thing, that we should be focused on, that New Yorkers should be focused on to fix up our economy in the wake of this terrible disaster, what would it be?
FRED SIEGEL: The one thing I would focus on is money, short-term money from Washington. We need the money very quickly. Small businesses are dying on the vine. They can’t wait, they can’t go through the SBA process. They need the money now. What is disturbing and what hasn’t been much reported in the papers but you can pick up in Washington, is the resistance is building to money for New York. What Leslie referred to is part of the problem. Pataki submitting a laundry list including a rail line from Schenectady to Canada. That just smells of pork to people in Congress. Not that they are opposed to it for their own districts but the whole country is going into recession.
And let me make just one larger point now. Some of you may have read the piece I did in the Times on this…the reason for keeping Guiliani on for 90 days was related to exactly this, getting the money flowing. Guiliani’s America’s mayor now. No one speaks ill of him anywhere in Washington. He is beloved. No new mayor, however effective they may be eventually can have the same kind of clout with Washington. As the rest of the country goes into recession, as the political cycle begins next year, it’s going to get harder and harder for New York to pull that money out of Washington.
The original $20 billion is actually $17.5 billion because we have to share it with Virginia and Pennsylvania. Now of that $17.5, $5 billion has to be actually subtracted from that for military purposes. That brings us down to $12.5 billion. Nowhere near what we really need and in this case justifiable deserve.
Now some people are chary of this, they say, “Aren’t we back to rattling the tin cup?” That’s something I talked about in my book. It’s not. This isn’t the Lindsey years when homemade disasters sent us into bankruptcy. I think the differences are all to obvious and the country realizes this. So the key issue, and I have a piece in today’s Post if anyone gets a chance to look at it, explaining why I think Green gets it on this and is starting off on the right foot, it’s to get this money flowing very quickly.
The next question…I know it’s the second part and maybe I can lead into other people, is what we do with it. How the money is used here in New York.
JOEL KOTKIN: I’ll take the segue from Fred. Basically, how do you spend the money? I’m coming from the outside, maybe sometimes that helps a little bit. I think one of the things we talked about in the paper and in an article that’s coming out in the Wall Street Journal is the idea that the money should be spent predominantly to keep the quality of life in New York in decent shape.
In other words, I wouldn’t emphasize big demonstration projects, new things, but actually getting the quality of life back. Getting the infrastructure built. And thinking about those things that actual businesses and individuals care about that are going to keep them in New York. The key issue for New York is going to be to continue to keep talented, creative people in the city so that they can generate the economy and then of course generate jobs for a broader population. That really is going to be the basic issues.
Ideas, for instance, of rebuilding the Towers are just absurd. First of all, I don’t know who would insure it. Talk to anybody in the insurance industry, and they will tell you, forget it. And frankly, the World Trade Center was part of a different paradigm of high-rise office construction that I don’t think is really going to be the wave of the future. New York is really going to have to be about making life better for people who want to be in New York and given all the attractions of New York, that will sustain and the economy will evolve. But you have to think about using the money for the basic services, the basic quality of life so that people don’t leave.
BOB FITCH: I think it’s obvious what the immediate concerns that policy-makers should have are. We need more money. We need to get Osama. And get rid of anthrax. I don’t think anybody would dispute those priorities. But I think that in terms of the broader economic policy the City has to focus on, I think there’s a huge obstacle that is not going to be discussed at least in the higher policy circles and that is the huge barrier to any kind of redevelopment thinking that exists when office rents are $76 a square foot in midtown and $72 a foot downtown.
Essentially what that means is that for each worker who takes up about 250 square feet of space, an employer is going to have to spend upwards of $20,000 before the employer pays the salary or takes care of any other costs. The upshot of that is that the type of people who could be here is going to be tremendously limited. Basically, to stockbrokers and people who service the “FIRE”, that is finance, insurance and real estate industries. So I think that the primary problem that any kind of turnaround strategy faces and I think that we should take Friendly Felix Rohaytan seriously when he says “This is the worst crisis that the City has ever faced.” That the major obstacle to rebuilding jobs and creating a more diverse economy is precisely that extremely high land costs, trying to get that land cost down and thinking in terms of alternative forms of development, which is something that Joel does. I think however rational those initiatives are, have to cope with the whole history of city planning, which has been to reject those initiatives and to focus on maintaining or expanding the value of land. The whole history of downtown represents an effort like King Kanute, to try to roll back the wave of New York City’s development uptown and try to generate massive subsidies for downtown development.
I think that we should be very careful against implementing any kinds of plans that would try to maintain rents at that astronomic and exclusive level.
ERROL LOUIS: I very much agree with Bob and would go further. The one main concern that I have is that while there’s been a lot of attention paid to rebuilding the physical infrastructure, there is an underlying extremely important question about rebuilding the civic infrastructure. And the values that we all have to take as key and worth fighting for and one has to actively fight for them in a situation where folks are talking about suspending or overturning elections…is that transparency. Inclusion. Some faithfulness and some faith in democracy and the inclusion of voices, including those of poor people, those in the informal sector, those who are not necessarily being noticed in all of this…who make up a big part of the City and who are going to have to be part of the recovery.
We, in this room, who are often not sitting at the table when these decisions are being made and when the billions are being fought over, we represent or in some cases are connected to or in many other cases are ourselves, people who have something to contribute and need to part of this. If we are going to rebuild the City, it should be all of us. It should be more than just buildings downtown.
I was downtown yesterday for a meeting and took the time to do a little shopping in the area and visit some of the places near where I used to work. And it’s striking. You go and you see who is behind the counter and you see who is in the shoeshine shop and you see who is being hurt by this stuff, cause it’s still pretty empty down there.
You read in the paper about numbers of jobs lost or of tens of thousands of people lining up for the jobs expo and so forth and the impact on neighborhoods isn’t clear yet. Over at PICCED we are going to try to see if we can get some proxies and get some data to do some mapping. And trace back to the neighborhoods what is the impact of losing so many jobs and losing so many businesses, many of which are again in the informal sector. There’s going to be a number and it’s going to be a high one, when the casualty count is declared over, of people who were undocumented workers who happened to be in and around the World Trade Center. What happens to those families? What happens to the neighborhoods that they came from?
I think it would be a serious and grievous mistake, in the rush to reconstitute certain vital elements of what was destroyed, to leave out some of the very, very important questions of environmental justice. Some of the regional questions that won’t go away, that are going to have to be dealt with and it passes by in sort of a smaller story at the bottom of the page that there were 15,000 people waiting to be processed for public assistance but the processing center was destroyed. Well, what happens to those folks? The pressure that is on the food pantries and on and on and on it goes. And some of the key questions back when there were surpluses at every level of government, before this thing happened, whatever happened to schools? Does this just not get talked about for five years or ten years or what? I think it’s really important that we try to constitute a tone that is inclusive. That has these issues where they should be, which is never that far out of our consciousness. We have immediate issues, we have intermediate term issues and then we have the long-term issues that we should be working on hard, no later than I would say next year.
EDWARD BLAKELY: Having been through this twice, I agree the most important thing is get money fast. Because in the San Francisco Bay area we got money the next day. That is really important. The second thing we did is we shored up the existing institutions because those that we lost, we knew they wouldn’t come back for at least one or two future business cycles. So we really have to do something for the arts and culture for this city, because those are institutions that are weak, that can remain strong and help the city, the civic life of the city and bring back vitality to the city. So I really concur with this notion of quality of life.
The third thing is the thing that’s held back downtown is transportation. And access. The businesses that we lost are gone. They have gone to Frankfurt, they’ve gone to India, they are gone. So building towers to bring them back is much like those people in whatever that country was that built an airport and hoped a plane would land. We have to plan for a set of industries that are not yet invented. And so to plan for the past and it seems like that’s what we’re trying to do, is a big mistake. Let’s shore up what we’ve got.
LESLIE EATON: We’ve talked a lot about money from Washington and it is important but we also know that right now Congress is obsessed with whether or not it is going to get anthrax. We know that Albany, if you wait for stuff to happen in Albany it’s like waiting for the glaciers to move. Are there things that we can do here, as New Yorkers that don’t rely on getting the federal funds? Are there steps that we can take to make things better for people faster?
FRED SIEGEL: I think the administration has been fairly effective in that regard. Yesterday’s job fair was a small example of that. But also loans, EDC loans, that bypass the SBA process and put money into people’s hands quickly. The trouble is, of course, that the City is running its own deficit. We were handed for recession before September 11th. Now we’re heading into a very deep recession. So politically, what the City can do is really not all that great, beyond what we’re doing right now.
I think what the City has to do, and I just want to pick up on a couple of things people have said…address what Ed Blakeley talked about…the transportation question. Part of the problem of lower Manhattan is transportation access. Before this, you couldn’t get there from Grand Center and there was talk for years of making a connection. Now the PATH trains are down, the subway lines under the World Train Center are down. If we rebuild, let’s rebuild in a way that the PATH trains, you can connect directly from the PATH trains onto the subways. And by the way, when we do that, let’s ask why the PATH fare is so heavily subsidized.
Bloomberg made a statement yesterday that the City should not be involved in partnerships with the state and the feds in redevelopment. That’s not possible because the land is owned by the state. Having said that, the shape the reconstruction takes will depend in part on how important the mayor is in that role. Again, why Guiliani had to stay for 90 days.
By the way, the state constitution has three provisions for just that kind of emergency. It would have been nice if the editorial boards reported on that.
But what does that mean? The City has been giving up authority over its economic development to the state and the Port Authority for 50 years. We gave up the airports in the 40s. A terrible mistake. Look at Chicago, the kind of money it makes. The question, who directs this, what role does the City have? I’m not sure that the City, in the short run, can do more than it’s doing now. What it has to do is lay out a set of arrangements whereby we have a major voice in what happens. I don’t want New Jersey, through the Port Authority, helping to design the future of lower Manhattan.
EDWARD BLAKELY: I think it wouldn’t be a bad idea to set up our own finance authority immediately. Bring Felix back. Or someone like him. Issue New York bonds that all of us could subscribe to. Have those bonds backed by the federal government and the state government so that we could get our own money. So it would show local effort. And redo the city’s budget five years out immediately. Because what people in Congress look at is what are you doing. That’s what we did in Oakland. We immediately drafted another budget, etc. L.A. put the freeway up, as you know, right away. Put together a whole process with housing and so forth. Immediately, so that people in the federal government thought L.A. was doing something to help itself.
We act like we are cripples. And that’s going to hurt us.
JOEL KOTKIN: Maybe I could talk a little bit about the experience we had in L.A., because even Oakland wasn’t quite as severe as what we went through in Los Angeles if you consider the riots and then the earthquake. That was quite a hit. We also had to abandon some well-conceived or deeply felt notions. For instance, we had this idea that downtown Los Angeles was going to be the next Manhattan. Our economy is, in many ways, as large as the New York economy. But what happened was when you’re faced with a crisis, you have to think differently.
New York is so under-utilized in terms of its geography. It’s part of the transportation problem. There is no reason why downtown Brooklyn is not a major business center.
What happened in Los Angeles after the earthquake was very interesting. First of all, the business center of the city became even multi-polared, which by the way has the advantage of making it much less vulnerable to being hit in one spot. So that even when the 10 freeway was down, the City functioned.
One of the critical things that I think we’ve seen since then is if you create good infrastructure, good civic institutions, take care of what government should do, the economy and entrepreneurs and people will figure out ways to do things on a grassroots level. So what happened in Los Angeles is the emphasis on downtown L.A., which was a massive subsidy we could not afford, changed. The business center moved to the San Fernando Valley, the San Gabriel Valley, which is sort of an annex of Taiwan. And also of course to the West Side of L.A., which is where the air is better and the rich people tended to live anyway.
At the same time downtown, which had been “abandoned” came back, driven by immigrant-based industries and it recreated itself. South L.A., in many ways, recreated itself. I think New Yorkers have to have faith in New Yorkers and in their ability, if the basic infrastructure and civic institutions are maintained, to reinvent the City in a different geography. The New York that existed a century ago, used its geography much more than it did today. My family is originally from Brooklyn. Brooklyn was more of a place with its own economy back in the 1920s, 30s and even before then. This over-concentration…I think Bob can really talk about it…makes no sense. It drives up rents and in the digital age, is really superfluous and I think that New Yorkers have to start by thinking a) differently about their geography and b) the other thing that they have to do is to say that New Yorkers are capable of reinventing New York.
BOB FITCH: I think that there’s two things that New Yorkers do superbly well. One is create centers and the other is borrow money. (laughter) What New York is not so good at, is paying the money back and creating peripheries that would relate to the center. And the two projects borrowing humungous amounts of money and creating centers, are directly related. And the lack of having a periphery is also tied to this idea of creating centers.
I wish, as a very short run maneuver, one thing that we could adopt is a kind of Confucian reform of language. Instead of saying, “Let’s create centers.” We should say, “Let’s create land monopolies. Let’s create highly subsidized land monopolies.” (laughter) People would have a grasp of whose interests were involved in the thing. (laughter)
And in terms of borrowing more money, we should look at the balance sheet we had today. The last time I looked, which was last year, there was about $45 billion that New York City owed. The state owed substantially more. And then there are all kinds of off budget…like late 1960s, early 1970s, entities that had been created like the Transitional Finance Authority, which was into folks for $3-4 billion and there are probably more of those that I haven’t been able to tease out. Nobody is going to lend New York City any more money. For a long time. On any kind of terms short of what the Five Families are willing to offer. (laughter) I have some ideas about what we can do in the interim. But I’ll move it along.
ERROL LOUIS: I wanted to underscore…disbursing is maybe too strong of a word but there are industries that didn’t go down on September 11th because they had their back office operation in downtown Brooklyn. Chase’s Global Processing is in downtown Brooklyn. Chase stayed online, a lot of the clearinghouse operations were being done in Brooklyn and so the system stayed intact and was much less disastrous than it might have been. That principle…it’s actually a relatively small point, but it’s an important one to understand, which is that if security comes to mean fortress-like architecture and lots of cameras and stuff like that, it kind of misses the point. Whereas putting different parts of key industries in different parts of the City, is an important part of security concern.
Beyond that, there are people, and this gets back to the question of the civic discussion and who is involved in it…you have an Adam Freedman, who has been talking for years now about under-utilized industrial space or potentially industrial space. You have the Environmental Justice activists who have been trying to reclaim brown fields and other under-utilized space all over the City, for years and years and years and years. And this would be exactly the wrong time to suppress those discussions and say, “Well, what we have to do is grab some money and go back downtown and try and spend it.”
I think it’s also very, very important that we look at specifics…I think the idea of a PATH to Subway linkage, free transfer or possibly nearly free transfer, is really important. But there has also been talk for a long time about extending the PATH train into downtown Brooklyn, if that is at all possible. There’s been talk about using the Hell Gate Bridge not just for commercial rail traffic but also for commuter traffic and bring that into Long Island City and try and use the region more effectively and more efficiently. These discussions…when I first heard about the proposal for a 90-day extension for the mayor, the only thing that I was thinking…and this just might be the political scientist in me…is that the budget is decided in the first three months of the year and that was simply a way to try to lock in budget priorities for the City going forward. And I think that is a mistake. I think that’s not the right way to do things, to have it all locked up and then turned over to we, who will have to live with the effects of it and try to make these things happen.
I think also to really rely on the entrepreneurial energy of the thousands of small businesses, not the Cantor Fitzgeralds that we know have an ability to recover and have claimed a great deal of the limelight and the concern and certainly on a human level that’s appropriate. But when it comes to the hundred plus thousand jobs and the vast majority of people who were affected by this, and the people who are going to have to…industry by industry and piece by piece and company by company and venture by venture…try and make some kind of recovery happen, there is so much that is far below the radar screen that we should all be concerned. And that’s the thing that concerns me most is that the folks that are going to be the front line troops, who are going to go out there and make this stuff happen, they are not coming in for the applications, much less worried about whether or not they are going to get approved and get the money. It’s not clear what’s happened to them.
You read these stories like…well, there’s thousands of black box car drivers and nobody knows what’s happening to them. These are folks who are in the $30,000 income range, if they work real hard. What happens to their neighborhood, what happens to them, what happens to the car? What do we do? Are we thinking about it? Is it on the agenda?
So I think we’ve got to spend a little time really making sure that we’ve got the right agenda and the right people at the table, as we try to push this thing forward.
LESLIE EATON: There’s been a tension in the City for a long time over…I guess I would say it’s jobs versus money. Wall Street is a very small number of jobs. There are a lot of people who feel very hostile to Wall Street. But they provide a huge amount of the taxes that we then use to pay for all of the people who work for the City, who provide services for all the rest of us. If we focus only on the small businesses, what do we do about the tax base? If we focus only on the tax base and the rich guys and Wall Street…or semi-rich guys in some of these cases…what do we do about all the people that Errol is talking about? Where do you come down on this?
Where do you come out on this, in this tension between tax revenues and Wall Street versus jobs and people?
FRED SIEGEL: I think it’s an artificial distinction. Most of the people who worked in the World Trade Center are not masters of the universe. They are middle to low end people, by and large, the vast bulk of the economic population of the World Trade Center. So part of what was so bizarre about Freddy Ferrer’s non-response to 9/11 was, a lot of the people that worked in the World Trade Center live in the Bronx. The people he was supposedly protecting. But look, we can talk all we want about manufacturing. It’s not coming back. You can’t have New York’s taxes costs, energy costs and regulations and have any sizable manufacturing. It’s simply not doable.
Adam Friedman was mentioned by Errol Louis. Adam Friedman tried to set up his own manufacturing enterprise in either the Bronx or Brooklyn. He couldn’t make it work financially. It’s not doable. I think the City would be much better off if we had a more diversified economy. But the reason we don’t is partly the kind of subsidies that Bob is talking about. I agree with that. But also the cost of city government. The cost of a welfare state in one city. We spend more on housing, the city does, than all the rest of the cities in the United States combined.
Of course we always have a housing shortage. Rethinking that. Asking why that is the case, might be useful but I think talk about those who have been left out…no one’s going to be left out here. If you don’t get this engine up and moving again, everyone is going to be hit. Everywhere in the City. The ripple effects are going to be enormous. And part of the reason for that is we’re caught in this ugly paradox: at the same time we’re going into a recession, rents should be dropping, the loss of housing, the loss of office space means that rents are staying up or in some cases, in some areas, even going up. So we are going to have the worst of both worlds. That’s why moving immediately to restore some level of business operation in lower Manhattan is essential.
Of the businesses that have left, 80% have moved somewhere else in Manhattan. If we want them to move to the outer boroughs…I live in Brooklyn and I’ve been a big proponent of silicon operations in Brooklyn. If we want to do that, we are going to have to make it viable for them in terms of taxes and tax abatements, etc., etc. Better yet, let’s lower the taxes, lower the cost of City government.
When Joel talks about L.A., the L.A. model doesn’t apply. L.A.’s costs aren’t remotely comparable to ours. When Los Angeles has an election, people don’t even notice it. The election in ’97, got a total of 27 minutes on prime time television for the entire course of the election. That’s less than one night on NY1. Politics is a big business in NY. And that’s why when Errol Louis talks about 90-day budget priorities, he is right but for the wrong reasons. The question question was, the whole opposition to Guiliani staying was, who’s going to cut the contracts. This is the biggest pot of gold since the 1930s. Contracts are the mother’s milk of politics. The idea that Guiliani might distribute them in a relatively…only relatively…objective fashion was certainly anathema to someone like Ramirez.
LESLIE EATON: I suspect someone wants to disagree?
ERROL LOUIS: Yeah. Just in a couple of points. When it comes to the question of industrial jobs, industrial viability and the desperate need to diversify the economy of this city, so there isn’t this heavy reliance on Wall Street, you do have examples. You have Brooklyn Mills, in Brooklyn, where you’ve got a garment incubator that’s been going fine with a relatively small amount of subsidy. They reclaimed an old factory and recovered what had been a long-time industry down there.
The same is true with the Greenpoint Manufacturing and Design Center. There are other examples as well. The point is, just as you don’t want to put all your eggs in one basket just to have it destroyed by a terrorist, economically you don’t want to do the same thing either. So that a downturn on Wall Street plunges the whole city into a weaker position and cuts into the tax revenue and takes away all of our priorities.
Politics…and if the need is for all of us to go about our lives and do what we do, then in a city that has a vibrant tradition of street fighting pluralism (as they call it), that we all have to do our part and we have to go out there and speak our piece. And simply not hide from the mayor, although he is a knight now. You don’t….it simply would be a betrayal of your neighborhood, of your values, of common sense, to just say, “Well, you know what, we’ll just sort of walk away and hand this over to this person.” Because as far as I can tell, when you look at hiring patterns, when you look at the various lawsuits that have come out of some of these hiring patterns over the years, I don’t see any reason to think that there would be a fair and equitable distribution of billions of dollars coming into this city. I just don’t see it. I would much rather trust an elected process so that even if you don’t like the outcome, at least you can throw the person out. And exercise the normal constitutional pressures to make the priorities come out the right way. I don’t see any reason to defer to someone, just because they have a high popularity rating and some good ideas and a lot of energy. That’s not nearly enough, that’s now how we do things in this country.
And then finally, I would say to the extent that we have all of this….well, there’s no nearly enough of it but Crane’s yesterday published a pretty good breakdown on future business districts. Sort of prospectively looking at what is being planned for Jamaica and what is going to happen in the HUB in the Bronx and so forth. And I think it’s important to look at those, again, with maximum creativity. We’d all like to say that these could all become high tech centers or they could all become one thing or another but we don’t know what the next big thing is going to be and we don’t know how or why it develops and we don’t know how it interacts with world markets and the immense about of immigration that we have.
So I think our job is to make it possible for the entrepreneurs and the risk-takers to go out there and make something happen. And that is supposed to be something that this city is good at.
JOEL KOTKIN: First of all, in terms of the L.A. model not being applicable, Fred. There are a lot of things that are applicable. First of all, Los Angeles does have relative to its hinterlands, actually, fairly high costs. California is not cheap. It’s not as expensive as NY but it certainly is not cheap. And I think that the idea of some sort of multi-polarity makes a lot of sense. And actually NY could just have multi-polarity connected by trains, instead of by freeways. I don’t understand why that could not conceivable work.
FRED SIEGEL: What percentage of its welfare cost does the City of Los Angeles pay?
JOEL KOTKIN: Well, it’s very different because the county controls it.
FRED SIEGEL: Zero?
JOEL KOTKIN: Right. Right. But nevertheless, if you live in Los Angeles County, you’re paying taxes to the state and to the county so the tax burden is still there.
FRED SIEGEL: And the size of the L.A. workforce?
(Many people asking him to “Come on.”)
FRED SIEGEL: I’m just asking Joel a question, what is the size of the L.A. workforce compared to the New York workforce? You wouldn’t want to give Rudy another 90 days, we’d much rather go down the tubes. It would be a much better idea.
LOTS OF “NO”S AND “COME ON.”
JOEL KOTKIN: I guess I’ve been in California too long and I’m probably too polite to be in New York. (laughter) (applause) Although my mother would say that it came from her, who still lives in New York. But anyway, I think what you have to look at is how can you begin to get a place where New York is competitive.
One of the things I think was done after the ’92 riots, and we did the New Economy Study, is we actually went out and talked to entrepreneurs and business people and asked them, “Why do you want to stay? Why do you want to leave? What are the things that are really bugging you?” Now we found out something really interesting. We found out that it wasn’t taxes and regulation, which is what the business “leadership” was telling us. It was the rudeness, the difficulty of dealing with city employees. That was what was really bothering them. It was the mood of negativity. It was basic services. For instance, someone would say, “I have a business in the City of Los Angeles. If there’s a crime, it takes a half hour for the L.A. P.D., but somebody who’s in the City of Vernon, which is right outside, it takes a 5-minute response.
Again, a lot of very basic things. And one of the things I would do is I would really look at doing some very serious audit of the New York economy asking the business owners and usually, when they say we’re going to include business, it means getting Wall Street bankers into a room. I would like to go and ask all different kinds of employers, from the big ones to the small ones, why are you here? Why are you thinking of leaving? Now, Fred mentioned a number about 80% going to Manhattan, but I happen to have a column on the Internet on real estate and work with a New York firm that does this….the number of long-term leases being signed in the periphery, by very big companies, is quite strong. And the plans to move out of the city are pretty intense and if I was involved in this city, whether it’s Guiliani or whoever is going to be mayor, I would want to know why businesses are thinking of leaving and what’s really bugging them. And you don’t necessarily know what that is. Because what may be bugging the Rudins and a few other big property owners, may not be what is bugging the guy with a 50-75 employee business. So I think one of the things that we all need to ask is, to go out and ask the actual decision-makers, who can move their businesses out or can expand, what is bugging them? What would make them stay? And that was one thing that I think Mayor Reardon, in Los Angeles, was much less of a bravado kind of a guy than Guiliani but in many quiet ways was very effective in doing.
BOB FITCH: I think the emphasis on asking the employers what the problem is, is certainly a good first step. But I think we have to recognize there are some industries in NYC…I would identify the garment industry as the best example…that have been headed on a wrong course the last 70 years. The peak employment in New York for the garment industry is about 270,000 and now it’s in the 30s. And the strategy has been to try to compete in the world marketplace using cheap labor, and we simply cycle in poorer and poorer immigrants to try to compete. We need to examine the industry in the context of the best practice in the world, which is not Los Angeles. Which is just about as bad in the garment industry as we have. Maybe a little better at…
JOEL KOTKIN: A little larger too.
BOB FITCH: Yeah, it’s larger and maybe a little less organized crime and more immigrants coming in from Third World countries. But basically the same game, that’s not working. And we should examine the French garment industry, the Italian garment industry, which sells…which exports clothes to us. And they manage to be able to pay their garment workers many multiples of what ours get and export clothes to us. I would just like to link this to the question of viability. It’s true, as Fred said, manufacturing is not viable. But if it’s not viable, we’re in terrible shape, because there’s a question of whether the financial industry is viable.
One minute on the viability of the financial industry. The whole premise of financial industry viability is as a global marketplace, as it were, is dependent on the strong U.S. dollar, which has somehow kept up despite $450 billion trade deficits and it’s not likely to continue. If a combination of the recession and this deficit were to continue, I think that it would call into question New York City’s viability as a global center and the likelihood of us being able to retain 185,000 stock brokers is not great. They may go the way of garment workers.
JOEL KOTKIN: I just want to add a little bit to his viability point, just for a second. And I travel around the country. I just came from Fargo, North Dakota, and I speak in all sorts of bizarre places, besides New York. And I think one of the things Bob didn’t touch on but I think is relevant is the role of technology increasingly, in having more and more parts of financial services go outside.
For instance, what I’ve noticed is many second-tier cities with much lower rents, much lower costs…I’m thinking of Kansas City, Tulsa, even to some extent, Hartford, are so much cheaper, so much easier (in some cases) to do business that companies…Fargo as well…that many functions can now be done remotely and eventually some of them will even be able to be done in the Third World. So many of those jobs that Fred was talking about in the World Trade Center that were done by working class New Yorkers, those are the jobs that are actually in some senses, most at risk. I think the very high-end jobs. The people who want to schmooze at fancy clubs and hang out in the restaurants and do big deals…those types of New Yorkers are less threatened. So I think that’s one thing to also think about with the financial service sector.
I was in Kansas City and the company on the retirement plans that does most of the processing, sends out the statements, they are in Kansas City, and they are growing. And I think that this is something also that New Yorkers have to think about….even of the financial escort…how much is not viable in a competitive sense with the rest of the country and the rest of the world.
EDWARD BLAKELY: I just want to underscore that. The movement that we saw at the World Trade Center was just an escalation. The movement that was going on already. We were losing this industry. Citicorp’s mortgage division is in St. Louis, outside of St. Louis. Many of the big banks…we don’t have very many banks here anymore…American banks at least…are already internationalized and globalized and they are moving their operations to the lowest cost place where people speak English. And this is important. A lot of transactions are now being done overnight in Singapore, in Malaysia, in India, etc., because the technology and the level of education and the wage rates, we are not competitive. There are people with BAs and MAs in other countries, who will take $15 as a huge amount of money for them. And that’s the head of the company. You go down, it’s $2 a hour for people with good educations. So we got to repair the education system because we are not going to make it in the low wage game. So education infrastructure is really important.
LESLIE EATON: When I’ve been talking to companies about what they are worried about right now, the main thing that they are worried about right now is not feeling safe. Not having their employees feel safe. Not being sure what could be done to make them feel safe. A lot of what has happened to NYC as Andrew said, to begin with, in the last decade, has come because we do feel safe here. And while you can joke, as I do sometimes, about the Guiliani administration having no economic development policy except crime reduction…it’s been a very successful strategy in its way.
What, if anything, do you think can be done to make people feel safe about being in New York?
FRED SIEGEL: I think first of all cities all across the country, ...people have just been talking about, it is going to affect not just New York but the whole country. L.A.X. was a target and the Sears Tower was evidently the object of another plan. Big cities all across the country are going to have their costs increase. In the case of New York we’re so much more expensive than all the other cities, except for San Francisco, which is really not a city, but just an adult playland. This is going to create enormous disadvantage for us.
What do we do? I think one proposal, which has come out of Commissioner Kerik and Ed Norris, the former Bratton guy, who is a very effective commissioner in Baltimore…local police are going to have to become much more involved in these issues.
Before there was an FBI, there was the New York City Police Department and much of the FBI was modeled, at its best, on the NYPD. The NYPD, for all its failings, has always been well ahead of the curve of police departments nationally. Go to other cities and you will be a little surprised at how much more professional NYPD is. Forget about the rudeness. I’m just talking about professional. So local cops are going to have to play a much bigger role in dealing with these issues. But much of this has to do with do the Canadians tighten up? Do the Canadians tighten up on their borders. I heard Senator Clinton this morning talking about the need to spend a great deal more money on the Canadian border. In the past, we’ve never worried about the Canadian border….when the Fineans were thinking of coming down in 1890, that was the last time we worried about an invasion from Canada.
So a lot of this is in the hands of the federal government. How effective a job they do in curbing what is happening and I have no idea of things like anthrax.
A last point on this in terms of safety, what Kerik has done in the last two years, the sort of gentrification of the Guiliani policing policies has been very good. Very thoughtful and I think fairly effective, from the surveys I’ve seen. I would hope and I assume if Green is mayor, that will essentially continue. So I think that’s one positive thing in our favor.
EDWARD BLAKELY: We’ve mentioned recession here. That’s a bigger fear than anything. Every time you say recession, you’re asking for one. We have to get the economic fear out first. So people can feel safe economically. And then the other fears are kind of what I call pandemic. Anything can happen anywhere. Oklahoma City, was anybody waiting for that in Oklahoma City? We go around the country and there have been a lot of things. Houston has a huge flood, practically wiped out the city. People in Houston aren’t fearful now. They’ve got a great mayor, Lee Brown. They are bringing it back. I think we just have to have confidence and yesterday we had another forum with Governor Carey and Ed Koch and Felix Rohatyn down the street, and they said, “We have to face fear and we can get rid of it.” Basically.
The police department, our public health systems are very good. If this happened in almost any other place in the world, outside of some places in Western Europe, there would be absolute panic. I feel relatively secure that our public health system works.
LESLIE EATON: But one difference between NY and Oklahoma City, is that we rely very heavily on tourism, especially to provide entry-level jobs for people who come here, who don’t speak English. And who have a hard time because there are no manufacturing jobs for them. Can we bring tourists back? Are there other jobs that we….
EDWARD BLAKELY: People aren’t going to San Francisco and they are not going to Tampa and they’re not going to other tourist centers either. I think we share this, as metropolitan areas.
JOEL KOTKIN: From what we’ve seen so far, from looking at the tourism numbers, I think you’re going to have somewhat of a change. One, I think you’re going to have more reliance on your local market. There is currently, right now, in California, an agreement between San Diego, Los Angeles and San Francisco, promoting where people can drive to places. What we’re seeing is…for instance, areas that people can drive to are probably going to do fairly well this year. In the Southern California area there’s Palm Springs, Santa Barbara, that’s where people are going. Instead of going someplace else.
Also, in terms of NY tourism, and I think this is something that hasn’t been brought up yet, huge question….I think you’re going to become more dependent, both as residents and tourists, on people without kids. New York was a place you would take kids to. I have a 7-year old who spent every Christmas since she was two, in New York. This year, the first time she won’t. Now, I may come myself and try to spend as much money as I can afford but I’m not going to take a little 7-year old girl, a) to an airport where there’s a 2-1/2 hour wait, because I know you want to talk about purgatories. (laughter) And I think New York is probably going to lose a little bit of what it had recaptured, which of course New Yorkers kvetched about anyway, about all the people from Iowa with their big clothes and their kids. Well, they are not going to be coming so much anymore.
And so New York is going to have appeal to a different kind of tourist and it’s going to have to….what you will have is somewhat of a substitution effect. New Yorkers won’t go someplace else so they’ll spend the money here. What we’re finding so far is places that appeal to local tourists and local spending are doing very, very well. Last weekend I was at the L.A. zoo, which is more L.A. people go to. It’s not something people go to L.A. for. It was packed. Carnie’s, which is a little hamburger stand on Ventura Boulevard, that my daughter particularly likes, lines around the block at 2:30. Guy next to me had just been at the Getty Center, it was the most busy weekend in the history of the Getty Center. I think you’re going to see a different pattern of your industry in which tourist dollars and entertainment dollars, dining dollars, are going to be spent more by New Yorkers and people in the metropolitan area.
EDWARD BLAKELY: But the hotels will be down the tubes.
JOEL KOTKIN: The hotels are going to have a rougher time, although you may get the phenomenon of some people from the suburbs saying, “I’m going to spend the weekend in the City.” And I think the tourists who don’t bring their children are going to come back. I think you’ll see more of that because people with kids are not going to want to travel very much.
BOB FITCH: I think that there’s very little that local authorities can do about the fear factor. I think that New York City will be more vulnerable to terrorism than cities like Kansas City or Akron. Terrorists are not going to want to send envelopes to Aunt Fern in Akron. They are going to want to send it to Tom Brokaw in Rockefeller Center.
Given that greater likelihood, it seems to me that in terms of fear, it’s really the federal agencies that are going to have to take care of that and our local people probably are not going to be mobilized for that kind of international effort. But I’m concerned about a model of economic development that presupposes that what we have here, as a result of the last century of development, is what we have to work with. And that the model that we’re dealing with is the kind of global food chain model. And we see ourselves as the top of this food chain. We are sort of the foxes that eat the rabbits, who eat the grass. And the idea is that we can only develop by breeding more foxes. But ultimately, there have to be more rabbits and there has to be more grass. And we have to think about that kind of development in New York City and not to be stuck at the level of luxury hotels, stock brokers and so forth. And these being the industries we have to develop.
These industries have a very great ceiling as a result of the fact of they’re being so highly specialized and that the rent that they pay is so very great. So I think admittedly the difficulty of conceiving how to redevelop the ecology of rabbits is not attractive but it’s absolutely necessary if we’re going to survive in New York City now.
LESLIE EATON: Bob, what does that mean? Do we subsidize rents so other kinds of people can be here?
BOB FITCH: We’re already doing that. We’re already subsidizing…just take the real estate industry. New York City started out in the 1930s to subsidize public housing for poor people. Then in the 50s and 60s, we started subsidizing, under the Mitchell Lama Program, housing for middle class and upper middle class people. With Battery Park City, we moved into $100 million a year subsidizes for very rich people. I think that’s what’s really not viable and I think that trying to pull together the best practice of manufacturing in other countries, where they rely much more on skill and much less on cheap labor. And they’ve developed these industries in advanced industrialized countries. We need to refocus our attention so that we’re concerned with that kind of problem rather than how can we direct more subsidizes and borrow more money to maintain $76 a square foot office rents in New York City.
And greater than that residential. Residential space now is $1,000 a square foot.
EDWARD BLAKELY: I just want to say something here that we haven’t thought about very much. And this is about Western Europe. The Western Europe population is going down and in the next 30 years, countries like Italy, for example, will have 20% less people than they have now. That means that there is going to be a lot of work that needs to be done in Italy and Italy has to face these two choices. And Germany and so forth. One, is sending some of the work to the United States or 2) importing more people from Africa. Those are the choices they really have. I suspect…and this is not a race statement here…I suspect there is going to be a preference, because we had a great immigration policy, of sending the work to the United States. And since they own a lot of the banks and financial institutions, we’re going to find work coming to the United States and we’re going to be a second back office, front office and so forth, for European work in a lot of areas, including the garment industry. We are going to become a fashion center, like Italy is, versus a production center.
LESLIE EATON: I guess we do have to face up to the question of the folks who are leaving. And they are leaving for a lot of reasons, one of which is that they can’t find the kind of space here that they want. It’s a lot cheaper to be outside of the city. Should we try and bring those people back? Should we try to get Dow Jones to say, “Bring everybody back to the World Financial Center. Don’t leave them all in beautiful South Brunswick.” There’s a lot of tension between people wanting to be clustered and wanting to be in Manhattan versus this new thing, “Oh, we should be as disbursed as possible so terrorists can’t get us.
ERROL LOUIS: I think you have to be clear that the dispersal is happening. There are stories that pop up saying they are signing leases in New Jersey or they are signing leases outside of the city. If it’s a 3-5 year lease, that probably makes sense. Because even if you wanted to come back, it’s going to take a few years to clear the rubble and make something happen and get the workforce reoriented and then maybe come back to Manhattan. So I think we should not assume that because someone is looking outside of the city, that it’s the worst thing in the world and they are never going to come back. I wouldn’t automatically assume that.
Secondly, I think there really is a greater understanding. For a lot of industries, banking in particular, you have requirements by the regulator, that you have backup systems. The trading floors are one thing, the backup trading floor that sat unused for ten years and suddenly sprang into life. That’s one scenario. But for ordinary commercial banking, you absolutely have to have backup scenarios. It has to be written out. It has to be approved. And so whether or not someone is planning to leave and never come back. Or leave and possibly set up a backup operation and then possibly come back. We also want to be clear on that too before we get too upset about it.
And then the other thing is as we were working with some businesses that were looking to recover from the disaster. They were in ground zero territory. And what surprised me was that it wasn’t a matter of trying to find a desk and a chair for every last person who had been there. In a lot of cases they broke up the operation fairly simply. Personnel doesn’t necessarily…in a bank the personnel department doesn’t necessarily need to be where the loan officers are. So what would happen is some of the payroll folks would go to Long Island City. And then some of the loan officers would maybe go to upper Manhattan. Or across the river. So I think here, as with everything else, if creativity is what the city specializes in, there will be a lot of it there too. I wouldn’t necessarily…I think the biggest mistake would be….especially when you’re dealing with traders and you’re dealing with the financial types, if you come and you look like you’re hungry and you look like you’re sweating and you look like you might throw a big, fat, unearned subsidy at them, yeah, they’ll take it. They will put you on the hook and they’ll say, “Yeah, you know what, we’re in Jersey right now, in Jersey City and yeah, we’re thinking of going to Florida. What are you going to do for me?”
I would do the same thing. It’s smart bargaining. I think it’s important that we have a grasp of what the real situation is and also on principle, try to subject it to some kind of discipline and some kind of a strategy.
BOB FITCH: In terms of who comes. I think that this is directly related to the city’s economic development policy. And the numbers are very striking. Of the 13 largest cit>: I think Bob made the right point. It’s not a question of people are going to stop coming. It’s a question of which people come. We can’t compete on the low end. It’s not viable. So given that, we have to attract higher-end immigrants who can move into the new industries.
EDWARD BLAKELY: Immigration in silicon valley is very high. It’s just a different kind of immigration.
FRED SIEGEL: Exactly.
EDWARD BLAKELY: And it’s from all over the world, including Mexico. But they have engineering degrees. But there are also people who don’t have engineering degrees as well. You still have a lot of service workers. I agree with you that we have to move the wage scale up, the education scale up and when people come here without an education, we don’t just have an obligation and a moral right…we have an economic urgency to give them an education because if we don’t we’ll be like Western Europe. We are aging fast too. That if we depended on the native, white population in this country, we would be in very bad shape, because the native, white population is way below replacement rate.
The African American population is at zero. Each generation of Mexican population emulates the existing population. So our population numbers don’t look good. If we didn’t have immigrants, we would be in trouble. So having educated immigrants and having the space for them makes a lot of sense. Because they don’t have the same opportunities at home but it links back to their home places. The transfer payments and so forth. Prop up the Dominican Republic and these countries. So we have to keep in mind that this is a world game.
I’m going to put something on the table here that nobody is going to like. And I guarantee it. We have to think of some form of regional economic sharing. It has to come soon. New York was a series of boroughs and so forth. New York was one of the progressive places that took Brooklyn and all these outlying communities in Queens, and made a big city. It was a region. New York is a regional city. Now we have to take the next step. Northern New Jersey. Okay? These economies are not separate. These workers don’t go to separate places. They don’t do separate things. We have to think of regional economic activities. I’m not talking about regional government. I’m talking about some sort of regional economic sharing. Single tax rates, etc. So that people don’t move because I can get a little cheaper tax deal here or this break there. Or I’m going to get this giveaway here or there.
That within this region, we have one uniform tax system. That tax system is levied uniformly. Money goes back to the jurisdictions on the basis of population and then a business makes a decision, not on a giveaway but what is best for it. And I think we have to