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Event - February 2000

Will the Boom Bust: Building a Broader Base for the New Economy

KEYNOTE ADDRESS: H. CARL McCALL

Tags: economic growth

It’s good to be back at the New School. I had the opportunity to speak here at the Kaplan Center last spring and we had a very productive discussion about New York’s future.

I’m glad to be back to continue that discussion and I can’t think of a better setting for today’s forum.

Some of the most compelling and transformative thinking about New York City is happening here at the Kaplan Center.

And that’s why it’s fitting that you’ve teamed up with the Center For An Urban Future because that organization has an equally progressive approach to studying the problems this city faces.

I appreciate the thought-provoking reports the Center has produced through the New York/New Jobs Project because these reports not only raise critical issues they develop innovative solutions to the challenges we face here in New York.

I’m here with you today because I believe we’re on the same page. We’re all searching for ways to help New York thrive and we all recognize that unless we change course ... our future will be uncertain at best.

Today I’d like to discuss some of the challenges we face and then offer some thoughts on how we should proceed to make sure New York is successful in the future.

This is a good time to talk about New York’s future.

Clearly the New York City economy is doing very well overall.

Our recovery has received a lot of attention and it really has been a great success story.

Crime rates have plummeted real estate continues to boom and Wall Street’s stellar performance has generated tremendous wealth and development.

And the effects of this performance have been significant resulting in record revenues and huge budget surpluses for the city and state.

So there’s a lot of good news out there.

But the fact is right now our economy depends on Wall Street—a very shaky foundation.

Unfortunately, the Wall Street boom has lulled us into complacency by overshadowing the risks involved and by hiding the problems that still exist.

For example we have to somehow come to grips with the fact that — despite the boom— the gap between rich and poor is larger than ever.

And we also need to recognize that for upstate communities Wall Street might as well be a million miles away: their economies haven’t felt even a slight echo of the boom.

If Upstate New York were a separate state it would rank 49th in the nation in job growth!

But despite these dark clouds more and more Wall Street is driving New York’s economic engine and hypnotizing our government leaders to proceed as though the boom will go on forever.

As the Center for an Urban Future brings up in “The Sector Solution” for all our current strength our dependence on Wall Street means that under the surface, New York’s economy is incredibly fragile.

And the only way we are going to shore ourselves up for the future is by taking a realistic look at our economy diversifying our economic development efforts by building up a range of industries and expanding our definition of economic development to include areas like education and housing.

To do this we need a plan.

We need to survey the needs of the state and design an economic blueprint that will strengthen New York for the long-term.

But right now we don’t have the leadership in government to do that especially on the state level.

Our leaders in Albany continue to operate on a short-sighted slipshod year-to-year basis.

At a time when we have the resources to lay a foundation for the long-term by investing in schools in infrastructure and economic development. Their dysfunction has given us late budgets, inequitable school aid, the repeal of the City commuter tax; the list goes on and on.

We need to do better than the annual horsetrading that gets our leaders to the next election cycle we need to grab hold of the reins and develop sound policies that will build our economy.

And. a clear way to start is by making better use of the state’s economic development resources.

Right now we’re spending $200 million a year on economic development programs but we don’t have a coordinated strategy about what we want those programs to achieve and we don’t have a way to measure how effective the funding is.

We are too focused on a few large companies and that increases our dependence and decreases the diversity of our economy.

For too long our strategy has been reactive—when large companies threaten to leave we panic and throw money at them often without guarantees about what we’ll get in return.

My office has done countless audits which show that the city and state aren’t accountable for evaluating economic development spending.

Time after time we find that there is no strategic approach, no tracking of jobs created, and when they can track the jobs invariably, promises have been broken.

Earlier this month our audit of Empire State Development’s job creation tracking revealed that ESD doesn’t document how many jobs are created, retained or lost as a result of state assistance.

And it was instructive that the agency’s response to the report said that it doesn’t set program goals because the outcome is, quote, “outside of its control.”

Well, guess what—that defense doesn’t cut it.

The taxpayers deserve some evidence that these programs are working and policymakers need benchmarks to figure out where to go from here.

The truth is the State is unable to provide reliable information about its economic development spending and this is unacceptable.

We need accountability from the people who are creating and implementing the programs.

We need to do better.

Clearly we need a comprehensive review of all existing economic development programs at the City and State levels.

And I think the Center’s recommendation for an Economic Status Report is a good idea. Before we can craft effective policies and programs we need an expansive and accurate economic picture of this City.

I’ve been working toward this goal with detailed economic reports of the boroughs — I brought copies of the Brooklyn and Queens reports with me today.

These reports give an overall economic outline of each borough’s economy looking at major indicators and highlighting strengths and weaknesses and we make recommendations about the areas the borough should focus on which industries are doing well and which areas have potential for growth.

The reports highlighted the fact that the City’s efforts have been far too focused on Manhattan and we’ve shown that for the City’s long-term health we need to get more resources to all the boroughs.

This kind of reporting should be encouraged on the City level. I think it would be an indispensable tool a blueprint for economic development for this City.

And I think that if the City were to do this it would help them move toward a sector-based approach as the Center’s report proposes.

Once we figure out where our strengths and weaknesses lie then we’ll be on our way to targeting several industries for assistance.

We need to focus our efforts on several sectors that will give this City a strong base a diverse array of growth industries—like biotech and new media companies—along with some of the more traditional sectors like manufacturing industries that have a presence here but may need assistance to help them expand.

We need to diversify our economic development portfolio and part of that means reaching out to communities and businesses that haven’t gotten a lot of assistance in the past.

I’m trying to help in this area by investing the Pension Fund in New York.

I believe that one of the reasons the Fund is so strong is because I’ve utilized the Pension fund to foster economic development in communities around the state especially in places that haven’t had much of a chance to compete before.

Let me give you a few examples.

Through the Community Preservation Corporation (CPC) Loan Purchase Program we have committed to purchasing up to $200 million in mortgages and developing affordable housing.

I’ve also invested the pension fund in small business growth and job creation.

One example is our arrangement with the New York Business Development Corporation (NYBDC).

We’ve put up $200 million to provide loans for working capital equipment or real property to small businesses that might otherwise be turned down by conventional lenders

And the most recent initiative is a commitment of $250 million to the New
York Venture Capital Program—and this program partners us with venture capital firms to help emerging businesses.

The Pension Fund is also involved with innovative real estate investments like the property we bought at 111 8th Avenue which has great telecom capabilities and is attracting a host of new businesses.

There is potential to do a great deal more through the Pension Fund we are always looking for new ideas for investment.

All of these programs are pieces of the puzzle to help shore up our economy in the future but we have to keep looking for more ways to create opportunities.

Yes we need to diversify our economy and at the same time we need to expand our definition of economic development.

As the Center’s report suggests we need to look at the supporting institutions that are essential to growth.

I’d like to suggest two such areas that need to become part of the economic development equation: education and housing.

I don’t need to tell this crowd that every economic opportunity begins with a good education.

But the fact is right now our leaders still see education as an expense and not an investment in our state’s future.

The fact is too many of our public schools are falling down and too many of our public universities are underfunded and inaccessible.

But despite this stark reality each year we have to fight for education dollars.

This year despite another multi-billion surplus in the State Budget the Governor has offered a proposal that again fails our children.

Some people are talking about the increases the Governor has proposed in the 2000 Education budget but the fact is current law calls for triple the increase that he has proposed. This budget, in effect, amounts to another cut in funding for our schools and as always the poorest schools will suffer most.

We’ve got to change direction. We simply must take the steps necessary to ensure that every child in every neighborhood in this city has access to an excellent public education.

And if our kids are going to be the leaders of the new global marketplace they’ve got to have more than a high school diploma.

The 21st century workforce is going to be increasingly dependent on higher education specialized training to provide the skills and knowledge that will be key to the new media and high-tech industries that are going to dominate the new economy.

And that means we need to reject the ongoing assault in Albany and at City Hall on CUNY and SUNY.

The Center for an Urban Future was right on target when it pointed out—in another report—that CUNY has the potential to be a tremendous boon to this city in terms of economic development.

It’s clear by jeopardizing CUNY’s mission of accessibility we’re not only denying opportunities we’re ignoring the City University’s huge potential to create a highly-trained workforce and draw jobs to the City.

We need to take steps now to make sure education at all levels is a key component of our economic development plans.

Another major problem across this city a situation that impacts our future economic health is our lack f affordable housing.

New York is ranked the most unaffordable rental housing market in the country for middle income earners and it is the second most expensive place to purchase a home after San Francisco.

As a result New York’s base of middle-income residents is eroding and this poses serious economic problems for us.

A few months ago I released a report that analyzes this situation and the findings of this report are very troubling.

Our research found that cost of living—especially housing—is one of the primary considerations for companies when they are deciding where to locate.

86% of the businesses and economic development organizations who responded to our survey said that the high cost and low availability of housing is a serious deterrent for companies considering staying or re-locating here.

Think about it—high housing prices translate into higher business costs because employers have to pay higher wages to attract and retain employees.

Unfortunately, the state has shown no leadership at all in housing policy.

Looking at the list of programs we still talk about—Mitchell-Lama, the Affordable Housing Corporation, the Housing Trust Fund all of these are at least 10 years old some of them have been around nearly 50 years!

But they haven’t seen a meaningful budget increase in years—the only time this Governor takes an interest in housing is when he’s looking for places to cut.

That’s why my office conducted this study to get people to recognize that housing is a key economic development issue and to start a public-private dialogue that will jump-start the process.

My friends we’ve got our work cut out for us on a lot of fronts.

We need to shore up our public education system we need to build up our infrastructure and our housing stock we need to target economic development resources.

All of us need to make a strong case to our elected leaders to do this.

We need to tell them that the only way New York will succeed is if they create a process that fosters thoughtful long-term decision-making.

And you are the best people to make that case.

Whether you are in academia government or a private think tank you understand these issues and their importance to our future.

That’s why you need to continue to bring your perspective to the table.

If the Center for an Urban Future keeps cranking out those excellent studies and if you all keep speaking out for sensible economic policies I’m confident we can change direction.

My friends we face many challenges but I’m still bullish on New York’s chances for success.

New York is still a place of tremendous talent and promise and if we stay vigilant we can create a New York our children will want to build futures in when they graduate a place that people from around the country will look to as a leader.

I look forward to continuing to work closely with you to achieve this common goal and I hope you’ll use my office as a resource for information and as a sounding board for new ideas.

Again, I want to thank you all for your leadership and for your commitment to a strong, prosperous future for New York.

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NEIL KLEIMAN: Good evening. I’m the director of the Center for an Urban Future and the moderator for tonight’s panel.

Many thanks to the Comptroller for starting off this panel discussion today. As some of you may know the Center for an Urban Future is a policy outfit that focuses more on political individuals than it does on partisan lines. And we gravitate towards electeds that are not afraid to articulate new, important and bold ideas and Carl McCall is certainly one of those political individuals so I’m glad that he could kick us off. And of course, the same holds for many of the people in his office that we’ve been working with, including Marcia Van Wagner, Lava Thimayya and Kathleen Grimm, who are here with us today. In terms of today’s talk, this is always an enjoyable time for us at the Center because we spend about six months squirreled away in our offices, writing these reports and then two or three months, talking to reporters, elected officials and others that are interested. And one night, for about an hour and a half, getting to hear what everyone thinks in a nice open discussion and that’s what we plan to do here tonight.

Just to tell you how we’re going to schedule our next hour and a half together, I’m going to introduce the panelists and then have them come up to the podium for about five minutes and either respond to the Comptroller’s remarks or to present their own feedback on the idea of sector development and the report that we just released called The Sector Solution.

First off, way down on the right is Michael Kane, who has been engaged in community an economic development for more than twenty five years. Initially working in Boston on community development, housing and tax issues. For the last fifteen years, Mr. Kane has worked both as a practitioner and as a consultant with Mt. Auburn Associates and has researched sectors in twenty states, including New York. He has also organized sectors, including plastics, metalworking, furniture, specialty foods and tourism.

Next to Michael is Ed Ott. Ed has been active in the labor movement for over thirty years and I first met Ed when he was working at the Communication Workers of America. He is now the director of public policy at the New York City Central Labor Council.

Next to Ed is Michael Lobdell, who has been with JP Morgan since 1979 and has filled a number of senior positions including Chief Operating Officer of Morgan’s Worldwide Investment Banking group. Currently Mr. Lobdell is the Managing Director and head of Investment Banking Industrials, responsible for Morgan’s investment banking franchise for industrial firms, which includes automotive, metals and transportation. And Mr. Lobdell is also a member of the New York City Investment Fund.

And of course, Walter Stafford rounds out our panel. He is a professor of Urban Planning and Public Policy at the Robert F. Wagner School of Public Service at New York University. He has been at NYU since 1992 and has previously taught at Columbia, Hunter College and the College of Old Westbury. Professor Stafford has spent considerable time studying the New York City labor market and is currently writing about New York City’s black civil society.

So I will now start it off by bringing Michael Kane up here to respond.

MICHAEL KANE: Thank you Neil. A couple of things I would like to suggest or throw out for consideration. If we all were public sector employees in New York City, trying to make a decision about sectors, there are two fundamental things that we have to answer or agree on. One is what sectors we want to invest in and that’s a very important consideration because the importance of sectors is not uniform. Some sectors are much more important, much more vital and have much more to offer in terms of good paying jobs and career choices than others. And then second, if we decide among six or seven in New York City that we want to invest in, how do we actually go about organizing sectors. It’s a consideration that I think we all need to acknowledge because the idea of organizing sectors is not something that is automatic or something that’s very simple. It takes a lot of strategy and tactics and I want to mention a couple of things in relation to that.

One is, I think the first consideration to follow up on the work that the Center for an Urban Future did with the biotechnology industry, is there needs to be some research done that defines, characterizes and quantifies a given sector. So what they did for biotechnology, we need to understand markets, customers, numbers of firms in the sector, annual revenues, kinds of jobs, the pay scales and structures just so we understand the nature of any given sector. That’s an important amount of research and it’s not just academic because it informs the kinds of investments that we’re going to make.

The investment in a sector is important because we, as public sector activists or practitioners, don’t have an awful lot of money to play with and so we have to make strategic interventions when we decide to organize sectors and invest in them. And clearly a couple of considerations here….and I can talk a little bit more about this…the quality of the jobs in the sector, the growth patterns. Is there a sector that really shows demonstrable growth over the last couple of years? Are there career paths? Are there investments that this sector is making on it’s own behalf. So there are considerations that we need to make and I would venture to say that the most important intervention that we could make, if we want to invest in a sector, is basically to hire organizers. The most difficult money to come by is to hire people that are actually going to go out and organize these sectors but it’s probably the most strategically important investment that we can make.

A couple of other quick things: sectors operate in different environments and with different cultures. Software and new media are radically different than plastics and metalworking. And understanding how those sector cultures function and operate are critically important. In terms of organizing a sector, our first belief is in the retail approach. You have to organize company by company, CEO by CEO and understand needs and opportunities with few preconceptions on your part, because companies want to know that you are listening to them and even though you’ve done your research, they want to know that their needs and priorities are going to drive the sector strategies.

Organizing a core leadership group that has to have a very heavy concentration of CEOs from an individual sector is critical. Without a good leadership base of CEOs from any given sector, it’s just not going to work. At the table, it needs to be labor, public sector people, universities, community colleges, employment and training, but there needs to be that core leadership group.

And then finally, if we decide to invest and we begin the organizing process, there’s a number of things that will probably emerge from the process that will drive the sector intervention and strategy. Cheap space, which is a premium here in New York. More demand-driven training, from employment and training providers and community colleges. Links with research institutions like the New School, are critical for companies in virtually all sectors and access to capital, I guess, would be another one.

ED OTT: Thank you. I don’t usually get to come down here that often so I thank the organizers of this forum for this opportunity. I work with the New York City Central Labor Council. I also would like to acknowledge my co-director at the Five Borough Institute. We’re an institute that is kind to labor, friendly to business and interested in the community that is struggling mightily with these questions for the last number of years. I would like to say a couple of things about some of the opening remarks and then a couple of points on the report that I find interesting.

I would agree with Comptroller McCall that education and housing certainly become a part of any discussion, sectoral or otherwise, in terms of the broad underpinnings of the City, in particular. And the State, as part of an infrastructure question. The New York State AFL-CIO wrote a report several years ago where we argued that we should, in fact, treat education as infrastructure. That, in fact, was probably the best way to use public dollars to help the business sector. I don’t think anybody is going to come here to invest in new businesses if they don’t believe that they can get a workforce and a professionally trained workforce that comes through the public school system. It adds too much to their costs to do it. Although we have learned over the years that employers are, in fact, the best trainers of specific functions and we try very hard through the Center or Worker Education and other elements in the City, to work with employers on transitioning workers to new atmospheres, as I call them. I’ll say this about the labor movement. We do not do transitions well. And we should understand that in any economic analysis that people are trying to do. And part of the reason why we don’t do transitions well is that we often represent the people who are going to be most greatly impacted by the changes. I’ve been in this movement thirty years, I lived through the transitions from industry, hard industries out in the 70s to broad changes in views of government’s role in the economy in the 80s and 90s. And I can tell you that I spent most of my adult life trying to defend workers against negative impacts by other people’s grand schemes. And not enough employers, not enough governments, not enough unions work hard enough to try to get the people that are there today in a certain type of technology or a certain type of economy and get there with them at the finish line and also at the starting line for something new.

We have to be much better if we want to have broad social support for innovative ideas in this City. Much better about reassuring people that they will have a lifetime of access to education, which this new global economy demands. We have to have strong public education from kindergarten all the way through to retirement. And in some cases after. And I don’t think any of these plans that we have seen being developed have struggled enough with this notion of reinforcing at the base. You also had a situation where you have many firms with no heir, that there is nobody to take over the firms and nobody looking to buy them. You have other firms that have been in the culture of the Manhattan printing industry for fifty years or more and they have no desire to even entertain going somewhere else. When we first sat the unions down in a room and said, “You’re going to lose this industry because of real estate pressure alone, if you don’t do something.” We had to first convince the union guys and then we had to go and convince the owners and the operators that they had to overcome fears that they had. Those owners in that industry are very uncomfortable trying to transition to something else and that something else may be in the Bronx, where the old Farberware plant is a perfect place to relocate that industry. There’s government money there willing to help them relocate. There’s public money and private investment money that will allow them to redevelop an area and move the entire industry there. About a third of that industry is unionized but we want the whole industry up there. It has to be done. But even with employers, this notion
of transitioning through these plans is going to be very difficult in this city.

I remember when Ed Koch offered the garment industry in midtown, when they were first viewing what was going to happen to Times Square, they offered them a big piece of Brooklyn for a dollar a year and they said “no.” And they said no because the culture of that industry was such that they couldn’t imagine themselves being anywhere else. You can’t be insensitive to the subjective in these plants and we have to really struggle with it. I sat with many people in this room during the last parts of the Dinkins administration and through the first parts of the current administration at City Hall, arguing about this question of preserving industrial land. Not letting it be taken away as of right, precisely because things like biotech were a real possibility of coming into this city and we were totally insensitive to the needs of that industry and where would they go if they came? We had the university infrastructure to compete with any other community in the world and we’re going to hold back the development of that industry and others because we made stupid public policy decisions.

Not everybody has to have a high rise house on the riverfront and not everybody has to be removed from the ugliness of industrial land. There are good, productive uses for it. We also removed the career ladders for some of the poorest communities of this city when we abandon industrial land and we should not forget that. It has to go through or it puts enormous pressure on the public sector. You want to transition out of welfare, you better make some room for private economy to develop something other than the FIRE industries or we’ll never get people really off of welfare.

I believe in a regional approach. I don’t think we can solve all of our economic development problems within the five boroughs and for the people on Long Island, the people of the City have to recognize that in many ways, in terms of efficiency, of the movement of goods and people, New York City and it’s infrastructure is a bottleneck to the development of Long Island. It is totally difficult and inefficient to move goods off of that island, even though they have some prime industrial space that could be utilized and we should think about it. Congressman Nadler spent ten years in the legislature in Albany and has been fighting in Congress to redevelop the rail and port system of this city on the City side and it’s still not too late but if we want to compete in a global economy, in a piece of this movement of good, we’re going to have to do it. And if we want to have a regional approach, including Long Island and parts of New England, this city is going to have to be (willing). As we move into this century, far more efficient in the movement of goods in and through the city or we will miss an opportunity to attract new businesses here.

Lastly, I want to make the point about this notion of retention and attracting of new businesses. And it’s importance with its links to education and housing. Housing for this labor movement has to always be in two parts. Affordable housing in this city, since I was a little kid, has always meant middle class housing. But most of the public housing for the poor in this city is 50 years old or older. And it needs to be recapitalized or we’ll end up doing what cities like Newark had to do and that’s dynamite it. And the woman who asked the question before about buildings being abandoned and in fact, those abandoned buildings not being put back on the market in some fashion, contribute to the rising cost of both residential and commercial real estate in this city. Well, if we let public housing go to seed, we will do two terrible things to this city. We will drive out our low cost labor more than we have to. And we will deprive this city of an opportunity for cultural diversity that it had when it had a strong blue collar working class sector. Public housing represents the last best efforts of this nation and this city to try to say that we could all live together and we should not abandon public housing.

Secondly, lower middle class housing, and Trump said this twelve years ago, so it’s not just some labor guy who read Karl Marx thirty years ago. You’re not going to do it without government money. You’re not going to do it without government money. There’s not enough profit in it. We might as well face it and if we want it, we’ve got to find a way to do it. We have to explore public options, cooperative options, we have to be willing to take bold initiatives and try them on a small scale and test them out and see if they work.

But let me point something out to you between housing and education. If I’m a business executive. I live in Minnesota. New York City comes to me and says, “You’ve got a nice little enterprise there. We’ve got a piece of industrial land for you. And we could put you there.” The guy goes down and does the math. He wants to live like he does in Minnesota, where his kids go to public schools, he owns a house on his $80,000, where a similar house, you come here you couldn’t touch for close to a half a million dollars and he’s going to have to be sending his kids to private school because he doesn’t trust that the public schools will give them an education. So he jots it all down and he figures out him, the rest of his executive class that he brings with him, he’s going to have to pay them $175,000 a year or their spouses and children aren’t going to come with them. You do affordable housing and you do public education, because it’s a real service to business and as we move forward into this century, business is going to call that card because the infrastructure in the suburbs and upstate….upstate people got fooled. Their economy didn’t recover because they bought into tax cut, tax cut, tax cut and those communities are not equipped to deal with the new industries. That’s why they didn’t recover. They took a short-sighted view. They took the quick buck in tax cuts and the piper’s being paid. This city can’t afford to make that mistake. We have to develop a progressive view of economic development that is compassionate at the base and realistic about who in this city is here. The arts, culture and entertainment industry has boomed and it has driven the hotel industry. But it is going through major business changes and we better understand that the creative side of that energy, where most of the work is and most of the attraction is, is being punished by real estate costs, and an indifference on the part of the government to subsidize them and if we leave it all to corporate culture and corporate entertainment, it will be much smaller in ten years. Much, much smaller.

MICHAEL LOBDELL: My name is Mike Lobdell and as Neil said my day job is running investment banking for industrials globally for JP Morgan. But the reason why I’m here is what I affectionately call my night job. I’m involved with the New York City Investment Fund effort. That Fund was established by Henry Kravis and Jerry Spire to create a fund which effectively went around to the City’s largest corporations, initially sixty three of them, and collected one million dollars a piece to effectively create a fund whose objective was to stimulate economic growth, jobs and development in the city and the five boroughs. Now one million dollars from sixty three companies is not a lot of money but what the Fund also did was get people like myself involved in our day jobs and taking the discipline of our day jobs to work and help make these investments and effectively use the business principles that we use every day, that we are taught in this school, other universities and are tested in our day jobs and put that to use to really come to a concept which you might call civic capitalism, where we’re taking our investment principles to achieve civic and community development objectives.

Since forming the Fund we’ve made thirty three investments. Approximately committed $30 million. Once again, not a lot of money but we’ve created over 6,500 jobs thus far and the multiplier effect and roll-on effect is quite profound. I do believe the sector approach has been absolutely the foundation of the Fund’s success and I also agree with a lot of the points in the report, not just because I was invited here to speak but I actually do.

In terms of the Fund we’ve really focused on six sectors: Healthcare and Services, Retail, Media and Entertainment, Finance/Insurance, Manufacturing and Telecommunications. And the real effort was to find sectors where we could make a difference in stimulating economic development in New York City. I chair the Media and Entertainment Sector Group and that sector group in the Fund, once again the concept of a network, is composed of leading investment banking professionals, but also people from industry that combine together to form a group where we look to enhance the economic development within the media and entertainment sector of the City.

I think it’s also important for individuals like myself at JP Morgan. I’m competing and trying to beat the lights out of Goldman Sachs but when we sit together in the Investment Fund we’re bringing our collective expertise to advance the mission of the Fund, which is truly important.

I think what I wanted to talk about, just briefly right now, is what are the tools and recipes for success for how we made some of these investments and how it has been a catalyst for economic development and growth in the City. It’s clear to me that the Media and Entertainment sector is right at the heart of New York City. When we think of Broadway shows, film, entertainment, the initial strategy within our sector group was to combine the “old media” with the “new media,” has the highest growth in jobs, ability to attract talent and huge economic knock-on effects. And quite frankly, the essence of this, through collaboration, is to make the pie bigger. Too many efforts in either philanthropic efforts, etc. have been somewhat binary. One investment is the sake of one investment. Our goal is to create a knock-on effect, because if the pie gets bigger, who cares about what slice of the pie you get, because we’re all doing much better and that’s the essence of the Fund. We really focused on three Cs, and that’s what I would like to leave you with: Capital, Commitment and Contacts. For our sector group to be effective, we needed a dedicated amount of capital, commitment of the professionals and a willingness to provide a network of contacts across industries, disciplines and locations to make the pie bigger for New York City.

What’s capital? We don’t have a lot of money. $63 million, I guess is up to slightly under $100 million now. But we want to be the enabling capital to start an investment. To give an entrepreneur the empowerment, the sponsorship to take the idea and enhance it and roll it out. We want to build momentum. We want to give them credibility. And in terms of finding this capital, we also want to make a return on the capital. It’s not that we’re going to have, in terms of traditional IBO etc. our return criteria might be lower, but we want to use that capital and use the investment discipline to give the entrepreneur the empowerment and actually get the money back and that instills a discipline that’s very important and may be missing from some of the other programs.

In terms of contacts, we have senior officers and representatives from many of the major companies in New York City. And those contacts and the breadth of knowledge that we can provide these entrepreneurs across these industries, is absolutely invaluable. In fact, it’s more important than a dollar’s worth of capital.

And finally, the commitment. We have to be committed not only from the board, sector groups, the individual professionals but committed to follow up these investments and help them. Because we have experienced some pretty good times and when the times get bad we still need to have the commitment to help these firms grow. And also the commitment from the Fund’s central staff, which Kathy Wylde here has been very crucial in keeping the commitment and working through and flowing and from keeping the Fund working.

I think the final point I want to say is, I think the new economy is all about collaboration. When we look at the past ten years ago, we always thought about our individual slices of the pie. What the Internet is teaching us, is you can collaborate and think horizontally. That working together for the same business success and shared mission, shared values, even when you may be competing in one part of it, once again, if you can make the pie bigger we're all going to be a lot bigger and that’s the essence of the sectorization and collaboration. People coming together with common goals and common focus to build the overall shape of the pie.

The Comptroller talked about the boom on Wall Street and the Internet and a lot of people can talk about that. I can talk about that too. But the one thing I don’t know is if these valuations are still going to last, but the one thing that’s critical and it’s critical to all of us that the Internet and the technology boom has had, it’s put ideas and it’s put empowerment in the individual people, no matter where they are in the empowerment zone, in universities, an idea can make a difference. And that’s the essence of a lot of what we’re talking about. If a since idea can produce evaluation to once again make the pie bigger and we can work together for sector strategy to provide the right attitude and supportive attitude around it, Silicon Valley in California has given that attitude. Silicon Alley in New York needs to gain that attitude. The sector approach will certainly do that if we all so our part to stimulate those ideas.

WALTER STAFFORD: I will be as brief as everyone else and that’s hard for a professor. Let me make three points. First of all, I certainly embrace the sector approach and I think we owe some acknowledgement to some people who have done this work before, notably Adam Friedman, who was doing this work some years ago at Ruth Messinger’s office on the diamond district and on the printing industry and has still been doing this work. But I would like to add another part to the discussion, which is implied but not necessarily brought out explicitly and that’s the role of race and gender. And I hate to be the person always bringing this up. I was on the city’s Economic Development Corporation’s board for a long time and every time I would raise my hand, they would know what I was about to say. And I’m on the Empowerment Zone board and I think I have to do the same thing there sometimes.

I think if you look at New York City’s economy, we’re really talking about three major sectors right now. We’re talking about a high wage sector that’s global in nature, where a lot of people are involved and a lot of conceptual industries. Many speakers have talked about that before. But the distinctive part of that, from the data we’ve been analyzing and I haven ’t had the advantage of Neil just going away and sitting down by myself….we’ve been working on this study for about two years, but what we’ve found is about 60-70% of that sector, by the way, is white. And even at the lowest levels of the jobs, it’s white. Blacks and Latinos are not getting those jobs, even at the lowest levels. And it’s very difficult to crack those sectors, by the way.

Then you have a medium wage sector, to some degree, which is the health industries and others, which basically offers a lot of opportunities for blacks and Latinos and Asians. The medium wage sector offers some opportunities for people of color to actually enter it but you have a low wage sector there where there’s a high turnover in terms of jobs and industries which are basically going in and out of business to a large degree. And within that sector, that’s where you find most of the people are earning less than $500 a week.

Now, I say all of that because we are also talking about the role of government. And one of the problems we face right now is that at the same time you have this high employment rate in New York City, which is highest for black women, by the way. And I think that’s very important. The employment rate in this city is highest for black women and that’s clearly an unusual reality, by the way. Because historically it was not black women who had the highest unemployment rate, it was generally black men. Maybe most of the black men are under-market but now you have black women followed by Latinos. And one of the reasons for that is there is more and more pressure on these women as they search for jobs but also changes in welfare reform and nobody knows where a large number of these women are going to go in this new arena that basically they are dealing with.

That leads me directly to another consideration and that is there’s been a downsizing in government also. While we talk about the role of government in this new comparative advantage of sector development, it’s not just government dealing with investment. It’s also government dealing with some part of maintaining some semblance of job development. It’s interesting, by the way, as we look for money from government for contracts and everything, that most of the agencies that give the highest numbers of contracts are also the agencies that are letting the largest numbers of people go. And it's also the agencies that have the highest proportion of workers who are people of color. So there’s a lot of nuances in this that we’re not really looking at in terms of, it seems to me.

But it’s downsizing within the government that seems to play a major consideration about where are these people, particularly women. In terms of sectors, I embrace this sector approach but I think that some other considerations would have to be added to that. And that’s the internal training within the sectors themselves. Within the high wage sectors in New York City, internal training, as everybody knows, is fairly well established. And studies have shown over and over that people of color within those industries, those highway industries, don’t necessarily get that internal training, so when there’s any downsizing within those highway industries, they are the first people to go But it seems to me as you look for sectors, you also have to look what kind of internal training modules do they have within them and what are the opportunities for moving within them?

The second consideration within the sectors is what are the ladders for mobility within them? It seems to me that we’re just going to go after sectors and track sectors without looking at what the internal ladders for mobility are, that we may be missing the point in terms of dealing with it.

The third consideration is whether or not people can move within jobs within those sectors or move to jobs outside those sectors if there is a downturn in the economy, which becomes important. It’s not enough to talk about attracting sectors and then at the same time if we have a downturn in the economy, the people are so specialized in their training that they can’t move other places, to a large degree.

The next consideration is what are the opportunities for development of industries, small industries or small businesses within lower income communities, that are connected to these new sectors? One of the ideas that we tried to embrace in the first plan for the empowerment zone, but not necessarily embrace in what they’re doing now, is that we tried our best to try to focus on what new businesses could be developed in Harlem that would link to clusters throughout the city and I agree the major part of these three Cs or four Cs are contacts. And the reality is, in the lower income communities there are no contacts. Let’s be real about that. We don’t have any contacts out there in the community and so how do you get those contacts to get inside of those sectors or clusters? Are these just going to be clusters or sectors to some degree, very alien from the people who basically need them. So I think part of that is, if you listen to Percy Sutton one time, is that people in these communities, more and more blacks and Latino are also wanting to develop small businesses that could be linked to these clusters. That’s one job.

A major part of that also is that whether or not new incubators and strategies can be developed to start new firms within those networks or clusters.

Finally, in all these discussions I hear things that we used to talk about five or six years ago have just been lost. Nobody mentions affirmative action anymore. I guess that’s out the window. Just gone. Nobody mentions that. Or first source agreements, about what can a city do in terms of requiring that if we do attract these kinds of industries or sectors, that we require that maybe they hire from a pool of workers and maybe I’m walking around with high-heeled boots on in the wrong century or something but it just seems to me that somehow or another we still have to keep some social consciousness about these things as we move towards these other sector agreements.

NEIL KLEIMAN: I think pretty much everybody has talked about it but just to clarify, when we talk about a sector strategy, it’s not a new economic program or funding stream or demonstration project. It’s really an entirely new framework or paradigm for looking at how you distribute economic development assistance in a region. In this case we were talking about New York City. What that framework says is not to look at distributing economic assistance one firm at a time or one company at a time but to do it by looking at your strengths and the possibilities for growth in an entire economic sector, whether it be biotechnology, manufacturing or software. That said, when it’s spelled out to someone I’ve really never come across anyone that disagreed with this framework. It makes common sense and more than that, we found when we started doing this report and this is happening in state capitals across the country and we found Republican and Democratic governors and officials from Connecticut to California and pretty much everywhere in between, that are embracing this strategy. And what we also found is pockets of this strategy working to great effect right now in New York. We’ve profiled sector examples in New York in other reports including the Garment Industry Development Corporation and some of the work that’s going on in the New Media industry and the Software industry. But you don’t see it systemically here in New York City so I guess my question to turn it back to the panel is why haven’t we been able to do that here in New York, regardless of the administration. And if you think we have, in what ways have we?

ED OTT: I think there’s a couple of reasons. We’re not having a discussion of the politics of these questions here and how people actually engage the process. But if you’re going to talk about the public aspect of it, it’s very political. I also think that the industries of this city, for a long time didn’t feel they had a place to go for assistance. The city is also…it’s also community by community, very fractured. Our frustration from the labor side is trying to get a project from being conceived to being built, becomes arduous. And if we feel that way, you can imagine how some business people feel, who are engaging the city for the first time and they want to become part of an existing industry or help start a new one. This city is layered on with bureaucracy and atomized in its political structure in a way that’s very, very hard to engage.

The thing I liked about the report is that in some ways the plan is very simple in its conception and it sounds like we could get it going but there is a few players in this room who know…..you’re going to go to an office and say, “Oh, you didn’t come to me first so now I’m not going to start.” (laughter) And that’s going to happen. And we’re going to have to find a way to overcome that. We’re talking in the labor movement, we’ve gone through a very difficult thirty years ourselves. And we have to change the culture of how we do things. We have to change the culture internally of our organizations and we have to change the culture of how labor engages other sectors. I think everyone involved in economic development is also going to have to understand that in this city we need a cultural seed change in order to begin to accomplish….it’s too damn hard to get anything done.

MICHAEL LOBDELL: I guess I would say I agree with that and a lot of my expertise is not dealing with a lot of the organizations that you just mentioned but I think that the line in the report that I like, that I thought was simple in its brilliance is, “A smart collaboration has a place right next to competition in today’s global economy.” And if we think of any of these programs….the Comptroller said are somewhat binary. They have been focused at one thing and if you think about collaboration. If we could use the programs to bring the water level up for everybody and everybody’s in their little boats, then the competitive differentiation in the companies can then be….from that level versus somebody getting a boat fix, getting it up to that level and so I think the smart collaboration and thinking horizontally across these programs is something that we’re not used to doing but interestingly enough, I think our kids are much more used to doing it.

WALTER STAFFORD: I would like to echo many of the comments. I think there
are several reasons that make New York City complex. Like what many other people have said. One is that there’s no connection or very little connection between economic development and job development. EDC and the Department of Employment have virtually no connection. So that means that if one is planning for these ideas of sector development, there is no joint planning. As far as the collaboration is concerned economic development decision making in this city is a relatively closed process. For a long time you could call EDC’s office and all you would get is an answering machine so I think with all due respect to the discussion about collaboration, that collaboration, to a large degree is occurring above the radar zone. It is occurring at some level with a large number…..you know, with that kind of money and many of the people who would benefit from that are just not privy to get involved in that discussion.

The next point I would like to make about the difficulty of New York City, and that is even though many of the sectors may be working in other places across the country, they have different kinds of agglomeration networks that have been built up over time. And some of that is by luck and some of that is because they have infrastructure and they have universities basically there. One can’t emulate Austin, Texas, that easily, by the way. Nor can one emulate Atlanta, Georgia, that easily. Atlanta, Georgia, has Georgia Tech and the state is investing a lot of money through Georgia Tech. Now, if we want to do that in New York City that means we have to think about our relationship with City College entirely differently and thinking about City College entirely differently means thinking about Harlem entirely differently. And I don’t know if people….as they say in Harlem….people downtown are ready to think about Harlem differently and in that way.

NEIL KLEIMAN: It seems to keep coming up again and again, we understand the
sector charge, we know what makes sense. One of the things we want to aim for is more collaboration and the City has a role to play in that collaboration. What would be the answer, if there is something we could do? Is this something that should come from EDC? Is this something that comes from the Mayor’s Office by borough? How do we begin to have more of that collaborative openness on the economies we need to key in on?

ED OTT: One thing that is very true in this city is that the non-profit sector is very organized. It is also very unionized. This is where the rights of workers really come in. One of what I consider unexpected returns you get in organized industry is that we drive the employers together. And I honestly believe this. (laughter) It’s part of what I talked about doing these transitions. The hospital is an industry in this city because we made
it one. They could not stand up to the union one by one so they had to get together.

On the Lower East Side a little local of Unite decides to go and stand up for some of the most underpaid, overexploited workers who work in greengrocers, and all of a sudden the Greengrocers Association of the Lower East Side….the employers have their own association.

You shouldn’t underestimate the benefits of the rights of workers. (laughter) We understand that we can’t stand up to the employers’ resources, so we pool ours and when we do they pool theirs. You wanted this process to go forward, strengthen the rights of workers to organize and allow people to stand up for themselves without loosing their jobs and you will see great benefits to the cultural base of the city.

WALTER STAFFORD: I just want to echo that but I think it’s also important to anticipate….try to figure out and anticipate what the employee needs are in the different sectors and basically survey them and then look at what’s going on in the community and bring in nonprofits in a different way. As we think about nonprofits, we also have to think beyond the union. That is the nonprofits in this city have been a growth industry but they are notoriously low paying sectors. And I think every time we say “fast growing” we get excited. At Wagner School everybody says “Let’s have nonprofit management.”

And I say “Why?” (laughter) And part of this idea is that everything that’s fast growing is good. But if you look at the nonprofit sector in and of itself, it’s low paying. It’s fighting the unions to a large degree. And I think you have to think about these things again. What employers need? Where can we take the modules, internal training modules, even if we can’t get poor people in there, and begin to shift them to places to think about what we can then bring workers into this new economy.

NEIL KLEIMAN: I think that’s a very good point in terms of what is it we want to be focusing on when we do engage in a sector strategy. It’s one of the areas that we’ve had the most difficulty internally grappling with, which is what is the criteria for the sectors that you focus on? And once you have that criteria, what is the criteria for the active engagement that occurs with the sector. Clearly New York has a mosaic of economic sectors that you could focus on. Ones that have potential for growth, ones that might not have potential for growth but currently sustain many jobs, like manufacturing. And ones that have thousands of jobs that with a little bit of push could grow much more. So how is it that you come up with that litmus test for the sectors that you want to focus on?

MICHAEL KANE: I think that the screening criteria is something that’s not rocket science. I think that can be with some forethought and insight, depth criteria can be developed. And some of it is fairly obvious. High wages, fairly good number of businesses and companies, diversity within the sector. I think those things need to be articulated and defined and I think in one place people need to get together and say, “Here is the criteria that you use.” But I think the trickier thing is to get this culture change that Ed mentioned, so that you have administration changes, you don’t have a shift in emphasis. It seems to me that bringing in the State of New York seems to get it in sectors and it’s actually fairly impressive. The Comptroller’s Office seems to get it and if you could get a group of interested leaders from a sector aligned with those folks and talk to the Mayor, in this case, his chief economic people and bash their heads.

But the reality here is sectors have been around for five to ten years. They are universally seen as the most profoundly strategic and most effective source and they are either going to get on board or somebody’s got to shame them into making the internal culture change.

MICHALE LOBDELL: It’s a large complex question. At least in my experience
and I would draw upon all sorts of coaching analogies because that’s another thing I love to do. But a lot of things go into how you define a sector, I think that’s right, how you’ve done it from economic analysis, you can certainly do that. But I think one of the things we often forget is who needs to be at the table in the beginning and what are the roles they have at the very beginning to move forward. And what typically happens is we don’t do a good enough job defining that and then all ogency, City EDC or even the State’s EDC is able to do with the limited funds that are budgeted to us on an annual basis. Because, again, it’s retail. It’s the large decisions that are made, legislatively, that impact the larger economy that moves everything.

That doesn’t mean that we should not look to use those resources more effectively year after year. That’s absolutely the case. We do that and we do try to do that. We do have the Comptroller and a large staff within the ESD that monitors the commitments that were made when the loans and grants were given in the first instance. We do follow up to see that the jobs over a five year period are created. That the loans that are in default are repaid. We do those things. But one should not lose sight of the fact that sectors are great. We’re into sectors. But in terms of the State agency….I can’t speak for the City…it’s those larger decisions, it’s the $700 million package of various incentives that has been recently announced for upstate New York. Those are the things that drive the economy and get businesses to go into those areas where we want them and to give a contrary view, even Senator Schumer has said, there’s no question that we’ve made tremendous progress, even upstate. Even upstate.

QUESTION:    I’m from the Manhattan Borough President’s office and I want to ask about workforce development and job training. As I see it workforce development and sector development should be intertwined. My reading of the new federal law, Workforce Investment Act, is that it mandates this connection. What do you see as the connection and how will the new federal law foster more collaboration?

ED OTT: The State is really up to the plate. We’re working with the Consortium for Education. We’re ready. It’s not going to cover every nook and cranny but we’re ready. We’re anticipating July to have things ready and hit the ground running and on the surface, everything gets tested by reality but on the surface of it, it looks like a far more efficient way to use those kinds of funds than we’ve had in the past. Hopefully this will work.

NEIL KLEIMAN: I’m glad you raised this issue. It’s a bit of a sneak preview for one of our next reports (laughter), which will be released later this spring and you said it much better than I could have said it, which is to focus really closely on the notion of workforce development and it’s fascinating when you read through a lot of our reports, we talk a lot about workforce development in the CUNY report but not so much in our economic development reports and that’s because we’ve fallen into the same bifurcation that exists within the field of economic development and workforce development. Unfortunately never the two shall cross and I think there’s a window of opportunity with the federal passage of the Workforce Investment Act, to take them up on their offer and I think you’re right that the sector approach would be a good fit. I’ll say once again, it is really just an organizing and framework principle and it fits perfectly with trying to connect to workforce development issues.

ED OTT: I don’t care where you come from in this city or from the State and frankly it