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NYC Should Rethink its Economic Development Strategy, Study Says

September 12, 2003

A new study examining the post-Sept. 11 economy of New York argues the city's traditional approach to economic development, one which has banked on a few favored sectors such as financial and business services, is outdated and should be reconceived.

Engine Failure, a report funded by the Rockefeller Foundation, states that many of New York's troubling trends predate the terrorist attacks on the World Trade Center. Such trends – the FIRE (Finance, Insurance and Real Estate) sector losing jobs and market share to the surrounding region and other major cities, among them – were only accelerated by the after-effects of the Sept. 11 attacks and gains in telecommunications technology. Thus, New York's normally reliable industries are expected to produce minimal employment growth in the coming years.

Some of Engine Failure's key findings include:

  • New York's share of jobs in the nation's securities industry declined from 36 percent in 1987 to 23 percent in 2002. Since 1987, only 3 percent of all new jobs in the sector nationwide were created in New York State.
  • During the last 12 years, professional and business services – New York's largest sector – grew nearly twice as fast in New Jersey and almost three times as fast in the U.S. than it did in the five boroughs.
  • Many of the city's most successful high-tech companies have moved to the suburbs. In 2002, only eight of the 15 largest software firms in the region were located in New York.
  • Manufacturing jobs declined by 3 percent nationally during the 1990s, but by 33 percent in New York. The sector accounts for just 6 percent of all jobs in New York, compared to 18 percent of all jobs in Los Angeles and 17 percent in Chicago.
  • New York has the lowest "growth company index" of any of the 14 labor market areas in the U.S. with populations of 3 million or more, according to a 2002 ranking by the National Commission on Entrepreneurship.

Advances in technology, the study observes, have enabled firms greater flexibility in choosing whether to create or reallocate new positions, and many companies are increasing revenues without increasing their workforce. The result has been a rise in the number of firms outsourcing high-end service operations such as software programming. In addition, growing broadband and wireless telecommunications services have allowed more workers to stay at home, "miles away from their clients in Manhattan."

To recharge the New York economy, Engine Failure suggests that city officials pursue policies that help to retain fast-growing companies and sectors. It recommends creating a better climate for New York's entrepreneurs and small businesses, maximizing the potential of the neighborhoods and boroughs other than Manhattan, and making better use of the city's human assets. New York also must do more to preserve its immigrant- and minority-owned businesses, which have experienced significant outmigration in the last decade.

Engine Failure was conducted over an eight-month period, during which interviews were held with business owners, developers, ethnographers, government officials and others from across the five boroughs. The report is available at http://www.nycfuture.org/.

New York