The Devastation Of New York City's Economy
/A big theme in the current election cycle is the plight of the workers and the towns that have seen their factories close and their jobs move elsewhere, often to China or Mexico. I have written about some of these towns on this blog, including Galesburg, Illinois here, and Van Wert, Ohio here. On a larger scale, Detroit and Cleveland could also be cited. Appealing to the displaced workers left behind in such towns is a focus of the campaigns of all of the remaining presidential contenders.
But I would argue that, over the course of my lifetime, no town has seen its economy devastated to nearly the extent that the economy of New York City has been devastated.
But wait a minute, you say -- isn't New York City's economy doing rather well these days? I didn't say that it wasn't. What I said was that New York City's economy has been devastated, and devastated more than the economy of just about any other town, over the course of my lifetime. Do you think there is something inconsistent between an economy being devastated and the same economy doing rather well? If so, why? I don't think there is any inconsistency. Indeed, I would say that for an economy to be doing well thirty or fifty years from now, a nearly essential pre-condition is that it get thoroughly devastated on an ongoing basis between now and then. You may not want the devastation to happen all at once, but you definitely want it to happen.
Let us consider the extent of the devastation of the New York City economy over the course of the past 60 years or so. If you are not familiar with this story, it is a real eye-opener.
- According to the story linked above, in 2004 Galesburg, IL, lost its biggest employer, a Maytag factory, to Mexico. Really? Let's talk about real devastation: manufacturing in New York City. In the 1950s there were around one million manufacturing jobs in this city. This New York Times article from 2000 gives a figure of 37,000 manufacturing businesses in New York City in the aftermath of World War II. An article here from 1993 by Samuel Ehrenhalt in the Monthly Labor Review traces some of the intervening history. By 1980 the number of manufacturing jobs in NYC had shrunk by around half, to about 500,000. By 1991 it was 184,000. Today it's about 70,000. This decline is not one lousy factory, it's thousands upon thousands of companies, completely wiped out. The iconic New York City manufacturing industry was lady's apparel. Have you ever seen one of those pictures of the rows and rows of women in a New York City garment center loft hunched over their sewing machines making clothing for the world? Ehrenhalt gives figures of 231,000 such jobs in New York City in 1966, and 84,000 in 1991. (And of course he talks about how important it is for these jobs to be "preserved"; they weren't.) ABC News here gives a number under 20,000 for 2011, and without doubt it's even lower today. The remaining apparel manufacturing in New York today is for very specialized things like Broadway show costumes. Believe me, nothing in your wardrobe was made in New York City. Undoubtedly, most of your clothes were made in places like China and Mexico, if not Thailand, Sri Lanka or Bengladesh.
- If there's one thing that New York City is known for in the world it's having the world's most spectacular port. The port is the reason the City is here. The New York Times article linked above gives a figure of 400,000 jobs in New York City in the 1940s and 50s in "port-dependent" businesses, including 14,000 sailors and deckhands, 36,000 longshoremen, 40,000 in port-related trucking and warehouse operations, 30,000 in ship construction and repair, and so forth. Try even to find any of that today. There are no piers handling freight at all in Manhattan, and only the most minimal amount in Brooklyn and Queens. Such ocean freight operations as continue to exist in the region are in New Jersey, and highly automated at that. The number of "port-dependent" jobs in the City is at best 5% of what the number was at its peak.
- How about "wholesale trade"? According to a chart in Ehrenhalt's article, that was the single largest industry category of employment in New York City in 1960, with 315,000 employees. By 1991, "wholesale trade" didn't even make it into the top ten industries, and employed fewer than 90,000. Believe me, it hasn't come back. Hey, we "cut out the middleman"!
- Surely retail is an industry that New York City continues to be known for. People from all over the world come here to shop, and the iconic New York City retail institution is the big department store. Stores like B. Altman, Gimbels, Bonwit Teller, Best & Co., Arnold Constable, Abraham & Strauss (Brooklyn) and Gertz (Queens) are well-known names. Oh, they're all gone. Today we're basically down to four full-scale department stores, but actually two of them are part of one company (Macy's and Bloomingdale's) and the other two are part of one other company (Lord & Taylor's and Saks), so it's really only two; and both are struggling to hang on amid big sales declines attributed to the growth of internet retailing.
- But what about headquarters of major companies? When Fortune first started putting out the 500 list in the 50s, about a quarter of those top companies had their headquarters in New York. By 2012 it was down to 43 (and most of them are different companies). And in many cases it was the biggest and most prominent companies with the biggest staffs that picked up and moved. Take the oil industry. Here is a New York Times summary of the relocation of that industry out of New York in the 70s and 80s. In the mid-80s Exxon had its headquarters and some 4000 employees in a gigantic office building on 6th Avenue that was part of the Rockefeller Center complex. In 1987 they picked up and moved to Texas. Mobil (then a different company from Exxon) had an almost-as-big building and staff on 42nd Street across from Grand Central. In the same 1987 they moved to Virginia. Texaco occupied a big chunk of the Chrysler Building, another huge building next to Grand Central. They moved to Westchester in 1977 (and later merged with Chevron and went to California). Shell went in stages in the 70s and 80s to Houston. The big office building at 70 Pine Street in the financial district was built as the headquarters of the Cities Service company, later Citgo. They got bought by the government of Venezuela in the 80s, and we know where that has gone since. Citgo had moved out of 70 Pine Street even before that, and today that building is undergoing a residential conversion. As just one example in the non-oil category, AT&T (then the dominant monopoly national operator of land-line phone service) in the late 70s contracted to build a fancy new headquarters at 550 Madison Avenue. Here is a history of that building at Wikipedia. AT&T hadn't even finished the building when in 1982 they were forced by the government to divest all their regional operating companies and downsize drastically. They never even completely moved in, and began transferring operations to New Jersey and subleasing the space, mostly to Sony. By the 90s AT&T was long gone, and the building was known as the Sony building. Sony was then flying high, but in the intervening 20 years Sony has also hit hard times and has gradually downsized. Today there is talk of 550 Madison also undergoing residential conversion, although most recently it seems that those plans may be shelved. AT&T? They are very largely a mobil phone company and are based in Dallas.
- Surely the big investment banks are and always have been the backbone of the New York economy? Actually, prior to 2008 there were five of them (Goldman Sachs, Morgan Stanley, Lehman Brothers, Merrill Lynch, and Bear Stearns). Three of the five promptly went broke. Only GS and MS survived largely intact. Bear Stearns mostly disappeared, with some pieces picked up by Chase; Lehman also mostly went away, although substantial pieces got bought by Barclays; and Merrill Lynch did the best of the three, largely bought by Bank of America. Lots and lots of people got laid off.
Whew! Is there anything at all left intact of the New York City economy from 60 years ago? Really, not much at all. And I challenge the people of any other city or town in this country to show that their economy has been more devastated than ours.
But yes, the economy is doing rather well. The number of jobs in the City hit 3,720,600 in the latest (March) figures from the New York State Department of Labor. This is a record high number since anyone started keeping track. The unemployment rate was a very-respectable 5.5%, and the labor force participation rate (16+) was 58.2% (which is a few points behind the national average, but a substantial uptick for the City over recent years).
And thank God that all those old terrible jobs were wiped out! There would have been no one to take the new and much better jobs! Those hundreds of thousands of women hunched over their sewing machines made minimum wage back when the minimum wage was barely $1 per hour. Yes, not every newly-created job pays more than every job that was lost, but overall the newly-created jobs are far, far better. Not only do they pay better overall, but there is much, much less hard physical labor and there are far more comfortable working environments.
So what the heck are all the new jobs? Certainly, I could give lots of examples. "Business services" is a general description of the kinds of things that people do who work in office buildings -- things like accounting, auditing, law, advertising, consulting, publishing. There's a huge "tech" sector that didn't exist at all 20 years ago and was only getting started 10 years ago; and that sector consists of hundreds of companies doing wildly different things. The hot new thing in the office market is for an entrepreneur to set up a few floors of an office building as "shared space" and sublet units to dozens of small and start-up companies. Indeed, that's the kind of place where I have my office. Oh, there's also a big government and healthcare sector (much bigger than I think appropriate).
But the real question is, does it even matter what all the companies are that hire all the people? It's almost a certainty that by 60 years from now the large majority of them will be gone. So what? If you want to have a successful economy 60 years from now, the only thing that really matters is the new companies that get created between now and then. That's how it works. Look at what has happened to the New York City economy over the last 60 years, and ask yourself if you would really have wanted a government using its coercive powers to somehow force the "preservation" of all the old jobs and prevent the moving to China and other foreign countries of what really were the very worst and lowest-wage jobs. This, of course, is what all of our presidential candidates are proposing.