Delivered at the Woodrow Wilson International Center for Scholars, Washington, D.C., May 26, 1993:

What do we mean by a “world city”? A current book on New York City, edited by Martin Shefter, is titled Capital of the American Century: The National and International Influence of New York City. The American Century ran from 1945 to . . . well, there is some indeterminacy as to its completion. But the United States is still the most powerful country—economically, militarily, diplomatically—in the world, and its culture is as significant as that of any other country in the world. The Capital of the American Century would surely qualify as a “world city.” But is New York City eligible for the title “Capital of the American Century”? New York’s role as a capital of anything is somewhat clouded. It is not the capital of the United States, not even the capital of New York State, yet the book’s title does claim that New York is a city of world significance—and not because the United Nations is located here.

The title evokes Walter Benjamin’s reference to Paris as the “Capital of the Nineteenth Century.” Paris made its claim because of the significant world events that began there and influenced all of Europe, and because of the worldwide significance of its culture, even as France’s military, economic, and diplomatic power declined. Each world city makes a claim on a different basis; I believe New York’s was based on two factors: the preeminence of the United States in the world economy and the significance of New York City as the place where key decisions affecting that economy—not the political decisions, but the decisions implied by its role as the center of financial markets—were taken. But of course other elements contributed—its population, twice the size of the next American city; its role as the great immigrant city in a great immigrant nation; its increasing attractiveness in the course of the nineteenth and twentieth centuries to those who made American art, music, and literature a significant force in world culture and to those who carried on the business of culture. And one can add other elements, such as its monuments and icons. New York would be less of a world city without the Statue of Liberty. Indeed, Capital of the American Century bears on its cover a photograph of the Statue of Liberty, with the World Trade Center in the background.

When I ask what is the fate of New York as a world city, what I have in mind is its capacity to play in the league of world cities. I think of a world city primarily as a hub of transactions in an internationally enmeshed economy. And the question asks: Whatever happens throughout the world economy, will New York remain a city in which much of consequence will take place?

We know that the headquarters of most large companies have already moved from New York. But that has been going on for decades. We also know that the banks, law firms, and accounting firms they deal with, as well as many of the people who design their new out-of-town headquarters and logos—in short, the entire multifarious system of support for business—remain centered in New York. The city also contains the major centers of mass media and the major cultural institutions that the rich and powerful will want to group around them—or group themselves around. All these are part of what makes a world city.

Some decline from New York’s eminent position has a certain inevitability. There is such a thing as the sweep of world history, in which Japan closes the distance between itself and what is still the world’s largest economy, in which we surprisingly find huge China joining the little Asian dragons on the heels of Japan, in which a European Community, with an economy much larger than that of the United States, comes into being. Along with these global trends, there are others, in our own country, that must affect New York and its fate. New York has the same population, more or less, that it had in 1930 or 1940—rather remarkable, since most old northeastern industrial cities have lost a great part of their populations. But in the meantime, the rest of the population of the United States has doubled, and New York’s weight in the United States—in particular its political weight, which is reckoned in large part by numbers—has been much reduced. In 1970, New York was still the largest state, and half its population lived in New York City. Today New York is far outdistanced by California, and New York City is a smaller share of the state’s population. The city’s role in the state government, which exercises so much power over its political and financial affairs, is reduced, as is its role in the Federal Government.

But it remains a center of world significance in the roles that have come to define a great world city. It is where one goes to consummate the largest deals, to gain access to the largest pools of capital; it is home to the largest news-gathering institutions, a place of access to the most immediate commercial intelligence in a host of fields. It is a headquarters, if not of many industrial corporations, then of the service and financial industries and of the new consumption industries that produce and market images, music, and information. These are industries whose sales and significance rival those of the old ones—steel, railroads, mineral extraction, and mass manufacture—that made the United States the largest economy in the world at the turn of the century. The giants of the Industrial Age, regardless of where their facilities were located, came to New York to transact their most important business. So do the new industries that are replacing them.

New York became a remarkably distinctive and powerful icon of such transactions. With its awe-inspiring collection of skyscrapers, its great bridges, its huge railroad terminals, and its vast underground transit system, New York emerged as the very symbol of modernity and mega-urbanism. If one sees an art or photography exhibition on “the city,” almost anywhere, one can be sure images of New York will predominate.

A city can live, of course, without emblems or icons. But a world city gains identity and pride by the immediate recognizability of such symbols. For New York, they are the product of a distinctive site transformed by great works of man. In recent years, unfortunately, emblems such as skyscrapers, bridges, the Statue of Liberty, and the grand entrance to New York Harbor—all the things we saw in the movies of the 1930s and 1940s—have been joined by new emblems: garbage-strewn streets, graffiti-marred subways and buildings, half-abandoned housing, an ever more visible disturbed and derelict population.

It is true that superficially similar images of the underside of urban life were once prominent in movies of New York, and as recognizable as its skyscrapers: the crowded tenements, the slums from which came gangsters and prizefighters. But there was a certain romance and glamour in the city of slums and poverty then; there is none, alas, in the pictures we now see projected against the background of a world city—the images of housing projects and drug use and meaningless crime. Undoubtedly, to speak of movies and their characterization of New York seems frivolous when we consider the economic and political problems of New York. Yet one should not underestimate the power of these images in affecting where people and businesses locate themselves. After all, as we have been told so often by the analysts of the information revolution, they can do it anywhere.

Where people and businesses will locate themselves is the key question when we consider the fate of New York as a world city. Where will immigrants, with great skills or hardly any, settle? Where will entrepreneurs start up? Where will people of talent in a host of fields go to realize it? Where will major financial and service and media institutions locate themselves? (We can kiss manufacturing goodbye: it employed 30 percent of the city workforce in 1960, but only 11 percent in 1990.) Images of the quality of life, as well as real levels of crime and taxes and services, will play a role. It is in connection with these decisions of hundreds of thousands of individuals to come, to stay, to invest, that one is concerned about the future of New York as a world city.

New York City is now going through hard times, as is Southern California, as are London and Paris, as is even, by its standards, Tokyo. But, unless we are on the verge of a shift in the cyclical pattern of economic development that no one of consequence expects, there will be recovery of a sort. The Wall Street Journal tells us that knowing investors with deep pockets are now looking at urban real estate again. Those of us who sometimes wonder what can possibly happen to those enormous office buildings when the back-office operations shift to New Jersey, or when electronic trading makes the markets unnecessary, will probably soon be revealed as pessimists, as these huge buildings, their values driven way down and rents reduced, fill up again.

New York has recovered in the past from disastrous downturns. In the 1980s it recovered from the crisis of the mid-1970s, which brought it to the edge of bankruptcy. The loss of 600,000 jobs in the 1970s was two-thirds made up with a gain of 400,000 jobs in the 1980s; the loss of 700,000 people in the 1970s was somewhat made up with an increase in population of 200,000 in the 1980s. (With immigration and social disorder hiding a good number of people from the census taker, the recovery in population might have been greater than the census records show.) Undoubtedly there will be some kind of recovery in the 1990s.

But at the same time, we are becoming more aware of conditions that have taken on a kind of permanence and that hobble New York by placing enormous and largely unnecessary obstacles in the way of its performing as a world city—or even as a reasonably efficient city. The distinctive political culture of New York City, seconded by that of New York State, has produced a structure of business disincentives unique in the United States, and unique, too, when contrasted with the league of world cities in which New York has to play. New York City’s taxes, city and state, are overwhelming; its public services perform poorly; it seems to have lost the ability to maintain and extend the facilities the city needs to perform effectively.

I am saying nothing new, but the evidence for these things becomes stronger and stronger. Whatever else is not working in New York, research on the city is flourishing. In such sources as the admirable series of studies by Charles Brecher and Raymond Horton on New York City’s budget and services, Setting Municipal Priorities; in their recent capstone to the project, Power Failure (from which the statistics I have just cited come); in the City Journal; and in a variety of other studies, we have a sharper light on New York than we have had in some decades.

I conclude from these studies that New York’s government, as defined by how it spends its money and what it tries to do, underwent a massive change in the 1960s, as a result of which it still suffers. I would define that change in one sentence: New York stopped trying to do well the kinds of things a city can do, and started trying to do the kinds of things a city cannot do. The things a city can do include keeping its streets and bridges in repair, building new facilities to accommodate new needs and a shifting population, picking up the garbage, and policing the public environment. Among the things it can’t do are redistributing income on a large scale and solving the social and personal problems of people who, for whatever reason, are engaged in self-destructive behavior—resisting school, taking to drugs and crime, indulging in self-gratification at the expense of their children, their families, their neighbors. I realize this distinction is much too crude, too broad, but on the whole, I believe, it will hold.

Consider the evidence on how New York shifted from the things it can do to the things it can’t do. In Power Failure, Brecher and Horton take 1960 as a comparison date. That was the year when Wallace Sayre and Herbert Kaufman’s massive study, Governing New York City, was published. Sayre and Kaufman’s book ended on a note of self-satisfaction; its last paragraph is worth quoting in full:

The most lasting impressions created by a systematic analysis of New York City’s political and governmental system as a whole are its democratic virtues: its qualities of openness, its commitments to bargaining and accommodation among participants, its receptivity to new participants, its opportunities for the exercise of leadership by an unmatched variety and number of the city’s residents, new and old. Defects accompany these virtues, and in some situations overshadow them, but the City of New York can confidently ask: What other large American city is as democratically and as well governed?

Brecher and Horton quote this summing up, but they then go on to tell us they would be hard put to say the same thing today.

Consider first the pattern of public spending by the city over these thirty years. For the first half of this period, we learn, spending rose at an astonishing rate—in constant dollars, it tripled over 15 years. During this same period the population of the city declined substantially. What could have occasioned this remarkable increase in public spending? The increase could not, of course, be maintained; it was checked by the economic crisis of 1975. Spending declined somewhat, in constant dollars, until it began rising in 1983, to reach the 1975 level in 1990. It is as if the tripling of expenditure in those 15 years, 1960 to 1975, had established a new norm, and even if the city was driven away from it for a while by threat of bankruptcy, it strove mightily to return.

But in addition to the simple volume of public spending, we must look at its relation to the local economy. Was New York becoming so much richer that it could indulge itself in a much higher level of public spending? Brecher and Horton estimate the amount of city spending as a percentage of “local value added” (one measure of the size of the local economy). In 1961 this proportion was under 10 percent. It rose steadily, reaching 22 percent in 1975. The crisis then forced government spending down to a low of 17 percent of local value added in 1983, when it began rising again. It reached 19 percent in 1989. Again, a new norm had been established: city spending amounts to one-fifth of local value added.

It is astonishing that after 1960 city spending rose from one-tenth of local value added to more than one-fifth, and that, despite great economic difficulties since, this has remained the norm. The Wall Street Journal often points out that the Federal Government, after all the permutations and changes in its tax policies, takes one-fifth of the gross national product, year in and year out, whether under Republican or Democratic administrations. It seems that whatever the tax structure and rates, people manage to avoid contributing more than one-fifth of the national income to the Federal Government. The citizens of New York are less successful. In 15 years the city’s political system managed to double its exactions from the people of New York. On top of that, the city is located in New York State, which has one of the heaviest tax burdens in the nation.

It would be superfluous to add that there was no observable improvement in the functioning of the city as a result of all this. Where, then, did the money go? It went to what Brecher and Horton call, quite directly, “primarily redistributive functions.” This included public assistance, health, social services, and housing. From 26 percent of New York City’s expenditures in 1961, “redistribution” rose to 36 percent in 1969—from a quarter to more than a third—and it has stayed at close to one-third of the city’s expenditures, just as total expenditures as a proportion of local value added have stayed at close to one-fifth: another norm established.

Where did this increase in spending on redistribution come from? Largely from two sources: a reduction in what Brecher and Horton call “development,” from 11 percent in 1961 down to 6 percent in 1969 (it did struggle back to regain the loss); and from what the authors call “other allocative functions “—that is, the regular work of city government, such as sanitation and fire fighting (but not including criminal justice or education), which dropped from 22 percent of all city expenditures in 1961 to 18 percent in 1969, and to 15 percent in 1975. (There has been some recovery in the percentage of money that goes to these basic functions since.) It is hard to avoid the conclusion that something drastic happened in the 1960s.

What could explain these seismic shifts in the city’s spending? One thing that we know happened was that money from the Federal Government began to flow more freely to cities (and states) for various social policies we can call redistributive. The cities were encouraged to go into such activities, tempted into a level of expenditure they could not maintain except by raising taxes. In Brecher and Horton’s book we learn that intergovernmental aid (state as well as federal), 18 percent of city expenditures in 1961, rose to almost 40 percent in 1979, before going down to 31 percent in 1990. That is 31 percent of a level of expenditure that was triple that of 1961. Federal subsidies may explain why the city went into this business with such enthusiasm, but why did it not reduce its commitment when federal aid was cut back?

Was New York inescapably driven to this expenditure because it had become a poorer city? By various measures, one notes no marked increase in the percentage of the population in poverty while expenditures were shooting up: it was 16 percent in 1960, 15 percent in 1970. It did rise to 20 percent in 1980 and a peak of 24 percent in 1986, but came down to 19 percent in 1990. New York did become a somewhat poorer city, but the great increase in expenditure came while poverty was falling. Of course, many other things were happening: a great outflow of the older white population in the 1960s and 1970s, an inflow of Caribbean, Hispanic, and Asian immigrants. This might well have required a higher level of redistributive expenditure; it could also have been taken as a signal that belt-tightening was necessary. In any case, the argument that New York’s expenditures rose to accommodate an increase in poverty will not hold for the mostly prosperous 1960s, when New York’s welfare population tripled, to about a million—again, a new norm of city life.

How was this expenditure maintained? By the development of the most complex, irritating, and, indeed, destructive tax system of any city. Most city budgets are maintained principally by property taxes. In 1961, New York was more like other cities—64 percent of its tax revenue came from property taxes. But there then began an inexorable growth of those special New York City taxes that seem almost designed to drive business out: the city personal income tax, the commercial rent tax, the business income tax, the sales tax. By 1990, the property tax accounted for only 44 percent of city tax revenues.

One must now speak of another new norm, established in the 1960s, that maintains this perverse system: the norm of city employment. There are 325,000 or so city jobs at any given time. In 1960, government jobs (almost all city jobs) accounted for 11.5 percent of all jobs in the city; this figure rose to 14.4 percent by 1969, during a decade in which the total number of jobs citywide increased 16 percent. Government employment rose yet further to 17 percent of all jobs in 1977, while the total number of jobs dropped almost 20 percent. In 1990, before the recession had bitten hard, the public sector again accounted for 17 percent of all jobs. The number dropped during the crisis beginning in 1975, but snapped back in the 1980s. It was never evident that the growth in employment did the city all that much good.

If one asks what maintains the new norms, it is not hard to find the answer: 85,000 teachers are a more powerful force in the city today than 45,000 were when Sayre and Kaufman wrote. The city population and public school enrollment have remained pretty much the same, while the number of school-system employees has doubled. And so with other unionized city employees.

“Redistribution” suggests handouts to the poor, and indeed some redistributive expenditures consist of cash payments to the poor. But far more go for salaries to those who serve the poor. Redistribution meant a huge increase in the number of city employees and in their influence over city decisions. As The Economist sardonically notes, only $3 billion of the $14.5 billion the city spends on social and medical services goes to the poor in direct payments. “That leaves $11.5 billion to be handled by umpteen intermediaries.”

This analysis could be repeated for New York State. One might think that if New York City spends so much, it must be because New York State spends so little, forcing the city to spend more for what should be state functions. There is something to this: Medicaid, for example, is entirely covered by the state in most places, but not in New York. Still, the state is as much enchanted as the city with the idea of an activist government dealing energetically with poverty and other social problems. New York State is notorious for its high taxes. The 1960s were not an era of restrained expenditure in the New York State of Nelson Rockefeller—college campuses sprouted like weeds across the state, and a good part of central Albany was leveled for the awful Albany Mall. And in the 1980s, while New York City gradually recovered to the levels of expenditure it had attained in the 1960s, New York State increased spending much more.

The 1980s saw an amazing explosion of state spending, even though New York was already well ahead of most other states. In 1983, Edwin Rubenstein tells us, New York State already spent 29 percent more per capita, and 13.8 percent more relative to personal income, than the average of the other states. During the next eight years state spending rose 91 percent. By 1988, the state was spending 47.3 percent more per capita than the average of the other 49 states, and 24.4 percent more relative to personal income.

The money, Rubenstein notes, goes primarily to three areas: education, on which New York regularly spends more than virtually any other state; welfare, on which New York’s spending is first in the nation as a percentage of personal income; and Medicaid, where New York also leads the nation. Perhaps New York’s people are poorer and sicker—but New York’s welfare and Medicaid spending for 1986-1987, state and local, was almost twice as high on a per capita basis as the national average, even taking into account such factors as population characteristics, crime rates, and high local salary levels, according to an analysis by Robert W. Rafuse Jr. of the Advisory Committee of Intergovernmental Relations.

Naturally, this means that New York has far more state and local workers than the nation as a whole—634 per ten thousand residents versus 494 in the other states. This does not mean that in those areas where one can judge quality, New York is ahead. The Empire State, for example, leads the nation in the percentage of its bridges in the federal-aid highway system that are structurally deficient and in need of repair—56 percent, against a national figure of 13 percent. In New York State, as in New York City, there is an irredeemable attachment to doing the things that can’t be done very well, while those that can be done—like repairing the bridges—are considered old hat, hardly relevant to New York’s deep social problems.

New York City’s massive social problems, which scarcely need be rehearsed here, are themselves a constant menace to its capacity to act as a home base for economic activity. From the humblest taxi driver or storekeeper to the grandest international corporation, all are threatened by the city’s public disorder. But the problem has been compounded by the city’s pouring resources into problems on which it can make little or no headway, adding to the injury of social disorder the insult of heavy and unmatched taxation.

The argument for the primacy of greater expenditure on social problems is easily made: there are so many of them, they are so urgent. If a probation officer has a caseload of 160, for example, wouldn’t things be better if it were 80—or why not 40? It is not easy to know what conclusions to draw from the fact that, after doubling or tripling expenditure on a problem, one has detected no particular improvement. Would another doubling help? Possibly.

On the other hand, a sharp reduction in expenditures does not seem to hurt. The recent experience of Massachusetts, which has had to tighten its belt severely and has had a governor willing to do it, is some evidence for that. And when the city workforce underwent a sudden and precipitate decline beginning in 1975, no one noticed that the problems became any worse. (One must agree, however, that they were no better, either.)

For some problems, one doesn’t know what to do, even with great resources. I am skeptical, for example, that we know much about solving drug addiction, which contributes mightily to crime, homelessness, and dependency. I wonder even how much worse off the poor were when we were spending a few billion less on Medicaid.

This is not an easy argument to make, but I am willing to make it because there are things that the city, in principle, knows how to do, once did better, and doesn’t do well anymore: fix up and maintain the streets, bridges, and tunnels; collect the garbage; maintain the water system—all the essentials of city living.

Beyond that, there are things the city did until about thirty or forty years ago and now can’t do at all: extend the subways; build new bridges, tunnels, and other facilities. All this was once done with a celerity that is, in these latter days, unbelievable. The city suffers from a garbage crisis. In 1979, the mayor proposed to build eight giant incinerators; 14 years later, the first has yet to be started, while the only remaining landfill will not be able to take any more refuse in only a few years. When I say these are the things the city can do, I contrast the doable against the uncertain efforts to solve social problems—drug treatment, rehabilitating criminals, changing the capacities and motives of people on welfare. We do know how to build. We can estimate the costs and time to completion; there is no way to do that with social problems.

It is true that in New York City today, as in so many other cities, knowing how is not enough: there is an enormous distrust of government, and community groups have developed skills in agitation and obstruction they did not have when Sayre and Kaufman wrote about New York City. But it would be a counsel of despair to say that even the things that can be done technically cannot be done politically. There must be a way in which Westway or its equivalent can be built, in which public transit connections to the airports can be built, in which the crowded tunnel connections to New Jersey can be supplemented, in which better garbage collection and disposal systems can be created, in which great monuments of the sort we once built can again be erected. Ominously, we see all these things being done in the other world cities that are New York’s competitors. If it is to remain a world city, New York must find the political leaders who can do them here.


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