New York City - Fight or Flight?

Chief Executive (U.S.), May 1992 | Go to article overview

New York City - Fight or Flight?

When the sci-fi thriller Escape From New York hit movie theaters in 1981, its creators couldn't have known the title would capture the mood of the city s business climate a decade later. Recession has hit New York particularly hard: Nonagricultural employment nationwide fell 1.4 percent between June 1990 and November 1991, according to the Bureau of Labor Statistics. Private sector employment in New York, meanwhile, plunged a whopping 11 percent between April 1989 and February 1992.

Roundtable participants unanimously agree on the causes of New York s malaise: massive shrinkage in the financial services sector overspending, overtaxing, and a government long on bureaucracy and short on entrepreneurial verve. But the CE group vented particular ire toward David N. Dinkins, New York's mayor whose pandering to labor unions, bureaucrats, and strident special interest groups, they quip, has institutionalized a welfare state mentality and gained notoriety for the city as the last command economy in the Western Hemisphere apart from Cuba.

Participants also concur that New York's current crisis is even more serious than its brush with bankruptcy in 1975. Shifting demographics, they say, mean companies can no longer depend on a steady supply of educated high-quality workers. Crippled banks cannot back the city's commercial paper as they did in decades past. Advances in communications technology, too, have enabled more and more U.S. firms to flee New York for greener pastures in New Jersey and Connecticut. In that sense, New York represents a paradigm for other US. cities in trouble. Similar centrifugal forces are pulling apart Philadelphia, Detroit, and Chicago producing a bevy of corporate boomtowns in the suburbs. Likewise, these cities have shown a propensity to elect free-spending officials quick to dole out public assistance and other benefits.

Statistics bear out the severity of New York's financial crunch. Stephen G. Craig, an associate professor of economics at Hunter College, notes that New York's $3,000 per capita spending figure exceeds that of runner-up Los Angeles by 50 percent and outstrips the average of 10 other large cities by 75 percent (see chart on page 47).(Chart omitted) Per capita spending on lower-income assistance alone totals $1,084, four times the modern city average, Craig writes in The City Journal, a quarterly published by policy research concern Manhattan Institute. Spending on social services for the poor often comes at the expense of such basic services as police, sanitation, and education.

Sniper fire from a conservative think tank? Hardly. On the flip side of the spending coin--taxation--the bearer of bad news is none other than New York's comptroller Elizabeth Holtzman, liberal Democrat. According to a report by Holtzman's office, businesses and individuals in New York carry a state and local tax burden roughly twice that of other U.S. localities (see chart on page 47).(Chart omitted) When city taxes alone are tallied that burden swells to three times the nationwide average.

But perhaps most important, the report deals harshly with New York's propensity to close its budget gaps by raising taxes. It found that a rapid increase in taxes beginning in the 1960s contributed to the city's financial problems in the late 1970s. In addition, the study contends, state and local tax increases of $822 million and $974 million in fiscal 1991 and 1992, respectively, could lead to the loss of as many as 265,000 private sector jobs by 1994.

"Clearly raising taxes is not the way to go during a period of economic decline," says Stephen Kagann, chief economist with the comptrollers office.

Crawling from the wreckage in recent years--or planning to--have been a spate of large corporations, including pharmaceutical giant American Home Products, Swissair and the Tastee division of Stroehmann Bakeries. In 1963, 175 Fortune 500 companies had headquarters in New York. By 1990, that figure had dwindled to 48. …

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