Will New York’s Economy Strangle Itself With Success?

Big cities have been on a bit of a roll in recent years. But sometimes you can have too much success, as we may be seeing in the case of New York. This week the New York Times reported that finance firms are moving mid-level jobs away from Wall Street to places like Salt Lake City and Charlotte.

There’s a lot going on here. First, a lot this is driven by New York’s success, not its failure. New York is increasingly valuable as a site of high end production. As a result, lower value activities get squeezed out and replaced with higher ones. Despite the exodus of Wall Street jobs, New York City has been booming, and a stat from last year showed that the city was within 60,000 jobs of its all time employment high. This sort of churn is somewhat normal when high value and lower value economic geographies come into contact within the same physical space, as I noted regarding California in “Migration: Geographies in Conflict.”

It might be tempting for city leaders to actually celebrate this, but they shouldn’t. In a city that is desperate for middle class jobs, these are white collar middle class positions that are being lost. New York has stunningly high levels of income inequality – Joel Kotkin has noted it is the same as Namibia’s – and this can’t be making it any better.

Also, is there any precedent for a city being successful and dynamic, over a longer term purely as a production center for ultra-high end activities (with perhaps an associated servant class)? Sure, places like Aspen can do it. Imperial capitals seem to have been able to do something of the sort. Perhaps that’s how New York’s leaders like to see their city, but they are taking an awful risk.

New York is too concentrated in high end activities already, notably the high end of finance, as Ed Glaeser noted in his article “Wall Street Is Not Enough.” This renders it extremely vulnerable to downturns in that sector.

It might seem like exporting finance jobs would be part of that re-balancing, but when they are lower end positions, all you are doing is re-concentrating finance at more elite levels. Because to these types of businesses cost is almost literally no object, they have driven the cost of New York real estate through the roof.

When one industry becomes super-dominant in a neighborhood, Jane Jacobs noted it could lead to a situation she called “the self-destruction of diversity,” where a particular type of user – generally banks – gobble up the land and ultimate sterilize what formerly drew them to the area.

I wrote about this in regard to Chicago in a speculative piece called “Chicago: Corporate Headquarters and the Global City” in which I note a flow of corporate headquarters back into global cities, albeit reconstituted executive headquarters only).

This puts the bigger cities in a tough spot. They have to continue to go up the value chain because smaller cities are rapidly eroding their competitive advantage at lower ends. Ultimately we’ll see where this leads but I don’t think it’s healthy in the long term at all. Figuring this out is just one piece of the rebuilding our overall economy for the 21st century that needs to be accomplished.

Aaron M. Renn is an independent writer on urban affairs based in the Midwest. This piece originally appeared at The Urbanophile