Why New York has proven so resilient through the generations
When I was in fourth grade, I saw the headline “Ford to City: Drop Dead” glaring up from the New York Daily News in a York Avenue convenience store. The specter of urban doom collided with my daily quest for mass-produced confectionary. In the New York of 1975, kids bought candy — ideally flavored and colored with an exuberant cocktail of chemicals — in tiny shops watched over by keen-eyed, probably armed owners, who perched behind a counter and were ready to yell at any small child who spent too much time with a Captain America comic. The prevalence of these effort-intensive, secure retailers reflected the disorder of the time; we may see their resurgence if today’s capital-intensive chain stores can’t deal with today’s new wave of larceny.
New York often felt like it was doomed and in need of a superhero in 1975. The city’s business model was built around manufacturing industries, like the garment sector, and it was broken. Six hundred thousand jobs vanished between 1969 and 1976. Urban spaces designed around 19th century transportation technologies — such as the subway and the elevator — seemed passe in car-crazed post-war America. Between 1960 and 1975, the number of murders in New York quadrupled from 390 to 1,645. Mayor John Lindsay’s progressive dreams ended in a financial morass that left his successor, Abe Beame, unable to pay the City’s bills.
Yet New York escaped a doom loop, while other erstwhile urban giants did not. Why did Gotham (and Seattle and Boston) come back after the 1970s while Detroit (and Cleveland and St. Louis) did not?
What makes cities great
Urban reinvention is not mysterious. Put enough human capital, enough people with intellectual horsepower and far-ranging experience in an environment that allows innovation and, with a little luck, an economic miracle will occur. Human capital was the biggest difference between New York City and its midwestern competitors in 1975.
Detroit had been an economic superstar, but its success was based on a single industry with three giant firms. High union wages induced teenagers to drop out of high school. Workers on a General Motors assembly line were highly skilled; they knew how to operate sophisticated machinery safely and efficiently. Yet these skills were focused on the methods used in one firm and one industry. How could they adapt when that firm faltered? Formal schooling is more general-purpose, which makes it easier to switch across settings. Entrepreneurial talent is more flexible still.
New York had a stronger formal education sector and a wider variety of more entrepreneurial industries. Even though more people made garments in New York than cars in Detroit, New York’s larger scale enabled it to remain more economically diverse when the tides shifted. More than 120,000 New Yorkers worked in printing and publishing in 1960. The city was packed with corporate headquarters — my mother worked in one — and these benefited from proximity to New York’s panoply of business service providers, such as the advertising geniuses of Madison Avenue. The parents of my childhood friends were litigators, composers and philosophers. They ran publishing houses and worked on Wall Street.
Put enough human capital, enough people with intellectual horsepower and far-ranging experience, in an environment that allows innovation and, with a little luck, an economic miracle will occur.
Diversity provides strength not only because it offers urban workers a portfolio of possible employers, but because, as Jane Jacobs and Marty Weitzman both argued, new ideas come from combining old ideas. A rich mixture of urban activities makes it easy for insight to hop from one field to another.
Jacobs illustrated this process with the story of Ida Rosenthal, the co-founder of Maidenform, who built a better bra because she was a dress-maker and knew what would make her garments look better. Similarly, Michael Bloomberg became a spectacular information technology entrepreneur because he had run Salomon Brothers’ trading floor and knew what traders wanted on their desks.
In 1961, the economist Ben Chinitz grappled with why New York City had outperformed Pittsburgh over the prior 30 years. Chinitz pointed to entrepreneurial human capital. New York’s garment industry was packed with small firms; Detroit’s steel industry was not. Chinitz then argued that “the son of a salaried executive is less likely to be sensitive to opportunities wholly unrelated to his father’s field than the son of an independent entrepreneur,” which suggests that entrepreneurial talent empowers reinvention. A large literature now documents that employment expands more in places with initially smaller firms.
New York’s post-1975 comeback benefitted from the glamor of fashion moguls such as Donna Karan, Calvin Klein and Ralph Lauren, but it owes even more to the children and grandchildren of garment entrepreneurs who became titans in other fields, such as the financier Sanford Weill and the hotelier Ian Schrager.
While thousands left New York because of the apparently doom-foreboding horrors of the 1970s, thousands also stayed and even came because of the beautiful things that were happening in the same city.
The power of fun and beauty
New York’s entrepreneurs, especially those who operate restaurants, night clubs and art galleries, also made the city fun. That fun helped keep innovative people in New York despite crime and near-bankruptcy.
In 1977, the Son of Sam stalked his victims, looters smashed through the city during a blackout, and the nation watched the Bronx burn during a World Series game. In the same year, Studio 54 became the partying epicenter of the planet. When Billy Joel played Carnegie Hall in June, you could hear songs from “an album that you can’t find anywhere,” like “Just the Way You Are” and “She’s Got a Way.” The now-iconic River Café also opened in the summer of 1977 on the Brooklyn Waterfront.
While thousands left New York because of the apparently doom-foreboding horrors of the 1970s, thousands also stayed and even came because of the beautiful things that were happening in the same city.
The critical safety valve for cities is the price of real estate. When things start going wrong, prices plummet and bargain-hunters move in. Between 1974 and 1980, inflation-adjusted real estate prices in New York fell by almost one half. My parents could only afford our lovely if modest two-bedroom apartment because it was the summer of 1977 and the City was almost bankrupt. Many of my friends also grew up in homes acquired during the city’s great fire sale.
The city had great cultural assets, and was offering access to them at bargain prices. Human capital remained in the city, and it created a new wealth machine. In the 1980s, financial innovation banished all fears of urban collapse.
Why were the 1980s such a remarkable period for finance in New York City? Increasing mathematical sophistication made it easier for investors to assess the risk and return unorthodox debt instruments. An increased openness to innovative investments then enabled Wall Street entrepreneurs to innovate with junk bonds and mortgage-backed securities. The availability of such financing then led other entrepreneurs to other innovative activities, like hostile takeovers of massive underperforming companies. That chain of invention may have eventually morphed into a bubble, but it generated huge returns for the financiers involved and for the city as a whole.
The role of government, and the future
But did the government play a central role in New York’s reinvention between 1975 and 1990? The murder rate was higher in 1988 than it had been in 1977, which suggests that public safety wasn’t leading the city’s turnaround. The River Café took 12 years to permit, implying that the City wasn’t making it easy for would-be entertainment entrepreneurs.
Then and now, New York is a highly regulated city. Centuries of New York insiders have created rules, including rent control legislation, and those rules, as Mancus Olsen famously wrote in “The Rise and Decline of Nations,” “slow down a society’s capacity to adopt new technologies and to reallocate resources in response to changing conditions.” Ken Auletta’s trenchant “The Streets Were Paved with Gold” described a New York City that became captured by insiders, and that problem has only worsened over the subsequent four decades.
Irrational exuberance can be a great leadership asset in troubled settings, as long as grown-ups are in charge of the purse strings.
In at least one important area — illegal lofts — New York City’s inability to enforce the law undid many of the negative effects of its over-regulation. Just like today, downtown New York in the 1960s and 1970s had too much space of one kind (industrial) and too little space of another kind (residential). Legally converting an industrial loft into an apartment was time-consuming and expensive, and so by 1983, one legal scholar notes “tens of thousands of people, primarily tenants, are illegally occupying lofts.” Mayor Adams’ “City of Yes” rezoning plans — two of three pieces of which have become law, with the biggest fight on housing still to come — are the current attempt to make the City’s terribly overrestrictive zoning code more flexible.
Yet despite the regulations and the persistently high crime levels, New York City first stabilized and then soared.
Ed Koch was an effective cheerleader for New York, waving on the sneaker brigade that continued to walk to work despite the 1980 transit strike. Irrational exuberance can be a great leadership asset in troubled settings, as long as grown-ups are in charge of the purse strings.
After the City’s near bankruptcy, fiscal control passed to Felix Rohatyn and the Municipal Assistance Corporation. Everything calmed down, and New York City’s financial innovators continued to churn out cash. The public sector did not generate the city’s comeback, but if bankruptcy had occurred and crime had gotten even worse, then perhaps the public sector could have killed the comeback.
The making of an economic miracle requires a strong preexisting talent pool, and a location attractive enough to retain some of that talent, and New York had that in 1975. Does it have those same ingredients today?
The industrial base narrowed between the 1970s and 2007, largely because of the remarkable success of finance. New York has a growing technology sector, including both startups and major outposts of the Silicon Valley giants. The city is still full of small firms.
Is New York City as exciting as it was in the 1970s? No 57-year-old can judge fairly whether his hometown is as fun as it was in his youth. In the 1970s, DJ Kool Herk practically invented hip-hop throwing parties in his Bronx Apartment. Maybe the music of the future is being invented right now in a rave being held in an empty Midtown office.
The logic of the doom loop is that declining prices make it hard to fund City services, especially safety, which deteriorate still further. Yet our current real estate prices today are far higher, relative to any benchmark, than they were in the 1970s, and our crime rates are far lower. That should give the bright minds of New York plenty of time to work the next economic miracle that will power the city’s next comeback.