February 27, 2003

THE OLD ECONOMY, THE NEW ECONOMY AND MAYOR BILLIONAIRE

By James Eugene*

This week, I want to flesh out some ideas that I have touched briefly in earlier columns but which deserve some fuller attention.

If I have one major concern about Mayor Billionaire, it is his ability to see the global city economy (I know! "Global city" economy - what is Eugene talking about?). My concern is New York City's ability to compete with other cities for business.

There is a strong chain of thought that the intellectuals like to discuss which I think is flat out boneheaded. That thought is that New York City does not need to worry about cost as much as other locales. The argument goes that New York City is moving towards a new higher end economy and that people will pay more to be here because they benefit from the advantages that New York City provides. These advantages include an educated workforce, cultural institutions, a good technology infrastructure, a superior transportation infrastructure, and excellent educational institutions. The benefits from these advantages are so striking that high-end businesses will stay here even if the costs are higher because they can generate higher revenues than if they were in Plano, Texas. (Remember when JC Penney moved there from NYC?)

Now all this is wonderful and good. And the move towards a higher end economy has been ongoing in New York City for over thirty years. Many credit this move as the reason why New York City, unlike other major urban centers like Detroit, has continued to thrive despite the loss of major corporations to other parts of the region or country. Thus, city policy makers and the intellectual think-tanks (whether university affiliated or not) ignore the old economy. While the think tanks may have the luxury of doing this, the city fathers ignore the old economy at their peril.

The reason why I defend the old economy is quite simple. It accounts for an impressive number of jobs. Officially, manufacturing in this city accounts for around 300,000 jobs - fully ten percent of the City's private sector workforce, and more manufacturing jobs than the state of Connecticut. I say officially because the number is probably higher. One factor to keep in mind in City employment statistics is that they do not include illegal aliens. In some sectors, illegal aliens account for substantial numbers of private sector employment. For example, in the needle trades, Chinese and Hispanic illegals account for the entire workforce of some businesses.

Thus, while official employment in manufacturing has shrunk (from 1 million in 1960 to the above figure) the real employment figure is somewhat higher. (I remember asking a U.S. Bureau of Labor Statistics officer in the early 1990's if illegal aliens were counted in their employment figures. When he said "no", I tried to find any government official who would give me a figure on illegal alien employment. Stunningly, no one could even venture a guess. One Federal Reserve Bank official said he would just guess at a half-million jobs! To this date, I know of no study that has reviewed the issue.)

Those 300,000 jobs are just one part of the "old economy". Other sectors account for additional jobs - jobs that are probably disproportionately held by people who actually live in New York City. (Question for you oh Mayor Billionaire: How many of the City's new economy jobs are held by workers who live in the leafy suburbs of Westchester, Nassau and New Jersey and how many of the City's old economy jobs are held by the middle and working classes of Brooklyn, Queens and the Bronx?)

While in City government, I remember working on new media issues. One of the complaints from this industry was that the City focused on manufacturing and not their industry (although the City had begun a host of initiatives to focus on new media). Prestigious economists rallied around their cause claiming this was the job generating industry and forget about manufacturers. When the bubble went burst at the end of 2000, all of a sudden these economists were nowhere to be found.

To buttress that it is possible to make the old economy flourish in New York City, note the following. In 1995, the City enacted a series of incentives designed to assist manufacturing. These incentives made the City cost competitive with the surrounding region. Manufacturing then experienced something it had not experienced since 1960… the number of manufacturing jobs in New York City actually increased. So cost does matter and New York City can make things happen for the old economy… if it wants to.

Here is where I would rather have a politician than a businessman as Mayor. A businessman looks at the City's economy exactly like Mayor Billionaire. The future is in the high-end economy. The high-end economy is not as cost sensitive. Let's promote the high-end economy and if we need to raise taxes, it won't matter to them. The politician looks and sees significant segments of the population and their economies that he is hurting by not being cost sensitive and he becomes cost sensitive. (Remember I said sometime back that Mayors Koch, Dinkins and Giuliani would never have gotten away with or asked for an 18.5% property tax increase.) Moreover, a politician does not just minimize a significant portion of the economy, especially a segment that employs a significant amount of poor and immigrants in a city of immigrants and struggling families.

In this instance, I will say that Mayor Billionaire's wealth and business background get in the way of sound public policy. One might be able to argue the merits of a tax increase, but one cannot simply dismiss a major segment of the City's economy. I would call that economic suicide, but Mayor Billionaire would survive such a tragedy. However, significant portions of our City will not, making dismissing such a segment a more culpable act.

A SAFE BET.

I am willing to say, with all certainty that the State budget will not be passed by its legally mandated date. Thank you, again, to the leadership of Governor Patacuomo.

And by the way, do any of you know the legally mandated date? Hint: it is not April 1, 2003. (By the way, the last Governor to pass a budget by April 1…. The Great Liberal Governor.)

JUST AS SAFE A BET.

I am willing to say, with all certainty that the State budget will not be passed by April 1, 2003. Thank you, again, to the leadership of Governor Patacuomo.

* James Eugene is the pseudonym of a veteran of NYC government affairs. Inside The Big Apple will appear exclusively on the Empire Page. If you want to send tips or column ideas to James Eugene, email them to jameseugene@empirepage.com.