A super column from super economist Ed Galesar. He says Finance-heavy New York must recapture its economic diversity.
New York City has become too dependent on the financial industry. In 2008, 44 percent of Manhattan wages were earned by workers in finance and insurance; the following year, even after the financial crisis and economic downturn had battered the industry, that share stood at a still-enormous 37 percent. And the track record of one-industry towns isn’t good. No matter how loudly Chrysler’s provocative Super Bowl ad heralded Detroit’s comeback, the Motor City’s population dropped by a quarter over the last decade and now stands at 39 percent of its 1950 peak. In Russia, Soviet-era monocities like Norilsk, a mining hub, are emblems of urban decline. Economic data, bearing out what those examples suggest, show a positive link between industrial diversity and long-run urban success.
New York shouldn’t try to hold finance back, of course, but it should try to reduce the cost and regulatory barriers that limit the growth of other sectors. If Gotham hopes to keep playing its historical role in leading the world’s economy, it needs to welcome companies in other fields—most likely, technology, business services, and a broad range of information-intensive industries.
What follows is an interesting history of NY and businesses in the city. It was quite diverse earlier and hence managed to grow. This Wall Streetization of NY is a recent development..
Finance has existed in New York for centuries, but its current dominance dates to the late 1970s, when it was a crucial component of the troubled city’s resurgence. Over the next few decades, Manhattan financiers pioneered innovations—quantitative approaches to evaluating risk; ever-larger leveraged buyouts; the securitization revolution—that made finance considerably more lucrative. Just as Henry Ford’s immense success had led automobile production to dominate early-twentieth-century Detroit, Wall Street earnings meant that finance played an ever-larger role in late-twentieth-century and early-twenty-first-century New York.
And just like Detroit’s auto industry, New York finance became concentrated in fewer, bigger firms. In 1998, Manhattan had 7,313 establishments in the narrower financial sector that the U.S. Census calls “securities, commodity contracts, investments,” and each employed an average of 22.4 workers. By 2008, Manhattan was down to 4,919 firms in that sector, with an average of 40.3 workers apiece. During the same ten-year period, the number of companies in that sector with more than 1,000 workers rose from 19 to 33.
Read on. We need to identify someone like Glaesar in our Universities to write about Indian cities. Fascinating to read always. For instance, I would imagine similar history of Mumbai as well. Though it is known for its finacnial industry like NY, it has many other industries as well like films, media, television, shipping etc. Most corporate headquarters are located in Mumbai. Like NY, Textiles used to be a major industry in Mumbai as well but declined. This was taken over by other industries. It is this diverse business aspect of Mumbai which keeps the city going despite its really poor infrastructure.
Answers to such qs: How big is finance in Mumbai compared to other sectors? How does this picture look relative to NY? Should be interesting to look…
An urban economist with a historian perspective can bring some fascinating explanations.