Global Cities survey 2011: New York is on top despite Wall Street’s woes
New York City tops Euromoney’s inaugural survey as the world’s most competitive financial centre and the top city in which to do business. But will mounting regulation and anti-bank sentiment prompt the city’s financial institutions to leave? Helen Avery reports.
PORTRAYED BY THE mainstream media as the epicentre of the global economic crisis, New York City has, over the past three years, had its reputation dented. The smell of success and money that passengers disembarking planes at JFK would claim to experience is a little less acute these days.
And the 1,000 plus protesters occupying Zuccotti Park near Wall Street calling for domestic political and economic change have brought a sense of conflict in a city that usually demonstrates solidarity.
However, New York City has continued to attract talent, business and investment, and global corporations and financial institutions canvassed in Euromoney’s inaugural cities surveyrank New York as the best city in the world to do business.
When it comes to availability of employees, New York is voted as the best among the big global financial centres. Unlike in other recessions, when people left New York to move to more affordable states, in this downturn New York’s workforce grew, says James Brown, a labour analyst at the New York State Department of Labor.
"As a US resident you look around the country at where the opportunities are, and they are in New York," he says. "Other states that would traditionally benefit from a recession in attracting people out of New York have, in this cycle, too many issues of their own with foreclosures and unemployment. New York, by comparison, has fared reasonably well."
Ross de Vol, chief research officer at the Milken Institute, agrees. "The great recession hit many places that had been experiencing strong growth, such as Florida, Arizona, southern California and Nevada," he says. "They had been attracting migration from the Northeast but no longer have the pull because of the lack of job growth. Also, mobility in general in the US and globally has been hampered in regions where people are upside down on mortgages and therefore cannot move."
Unemployment in New York City is around 8% from a peak of 10% in September 2009, with a workforce of almost 4 million. The national unemployment rate is 9% (although those figures do not include residents who have not looked for work in over four weeks). Analysts say the rate is likely to be higher as some people have become discouraged and have given up looking for employment, but on a relative basis New York City joblessness is still lower than in many cities in the US.
Productivity per worker in the state is also higher than in any other US state. In 2009, the average worker in New York State added $90,484 to GDP compared with a national average of $74,559. This relatively high productivity, says James Parrot, deputy director and chief economist at the Fiscal Policy Institute in New York, is partly attributable to the dense concentration of the population and the synergies among industries. The city and its region’s infrastructure and mass transit system also increase productivity. New York City was voted as second to Shanghai globally for hard infrastructure.
New York also benefits from being a magnet for young people. "Young college graduates are flocking to New York," says Parrott. "In an economy that is moribund nationally they want to go where the opportunities and excitement are."
De Vol says that on a global stage New York tops London for attracting younger people. "New York is a 24/7 city. There is a lot to do there, and when it comes to work the best and the brightest of the younger generation are prepared to go there and work there very hard for 15 years."
Bob Steel, the deputy mayor for economic development for New York City, says the ability of the city to attract young entrepreneurial energy is one of its selling points. "New York has a history of being successful, and so has a strong underlying engine of mature long-standing business, but it also has an energy similar to developing economies in terms of drive, innovation and entrepreneurship."
Indeed, this year New York overtook Boston to be second only to Silicon Valley in the US for attracting venture capital money. Steel says: "Bank lending is still sluggish, but venture capital is here and we have thought about how to be supportive to that. When people consider starting companies they tend to think of Boulder, Austin or Seattle but now parts of New York City are hotbeds of start-ups. The Flatiron district has a lot of hi-tech firms, and Dumbo in Brooklyn is home to a lot of start-up companies."
Indeed, Manhattan is usually considered the place for businesses in New York, while an increasing number of smaller firms are setting up in Brooklyn. An incubator building was established this year in Dumbo providing space to start-up businesses and entrepreneurs in financial services, media, the environment, bioscience and fashion. It is the ninth such incubator project in the city.
Survey respondents ranked New York City as top for technology and innovation, with Singapore and Hong Kong ranking second and third respectively. Steel says the economy is more diverse in New York than people think, and the city is trying to diversify further. It is working on a project to attract a new or expanded applied science campus to boost the hi-tech sector in New York.
Financial capital of the world
The main industries in New York remain finance-related. The City’s four main industries are financial services (including real estate and insurance), healthcare, professional services and retail. The city ranks top globally in Euromoney’s survey for financial competitiveness and breadth of financial services.
"New York has a very large infrastructure supporting the financial services industry, it has global connections, and it is close to Washington, DC, both in terms of geography and relationships," says de Vol. It is hard to argue against the idea that for any global or domestic financial services firm, a New York presence is essential.
There are concerns, however, that growing animosity towards the banking sector, coupled with onerous regulation, might encourage financial services firms to leave the city.
The number of those employed in financial services in New York City has been falling. In 1990, 411,000 people worked in finance or insurance in New York City, according to the New York State Department of Labor. This year that figure is 311,000 and several more thousand jobs are expected to be lost as the investment banks make further cuts.
Anecdotal evidence suggests that the financial services industry is gradually moving out of New York. "Goldman Sachs has moved people to New Jersey and also to Utah. Citi has people now in South Dakota and Florida. And all these and all the large financial institutions are moving jobs to Asia and Europe," says Dick Bove, senior analyst at Rochdale Securities.
He argues that New York is no longer a friendly environment for financial services companies to do business. Media reports of anti-banker sentiment in Zuccotti Park would appear to support this point. Protesters, though, say that is not the message they wish to convey.
One protester at Occupy Wall Street says the anti-bank sentiment that the media proclaims the protesters to be communicating is misplaced. "This is not a personal attack at bankers, and we aren’t saying that investment banks should not exist. We’re not stupid. We need investment banks. We need capital to be invested in businesses. What we are hoping for is that the protests will draw attention to the fact that the masses want political and economic change. Part of that includes reassessing how investment banking works in this country. If in its current state investment banking is more detrimental to the US than it is helpful, then something has gone awry and needs to be changed."
But beyond protesters, Bove says, politicians are playing a dangerous game by backing anti-bank regulation to win votes. "New York is something of an enigma in that it seems to want to penalize the very industry that it relies on. You don’t find Texans driving the energy industry out of Texas; or Californians driving entertainment out of Hollywood; or Michigan trying to get rid of its auto industry. Boston is not trying to cripple the mutual fund industry even though people lost billions of dollars," he says.
Bove is referring to political backing for increased capital requirements that would put the largest banks, which are based in New York, under pressure. For New York City, Wall Street has been a large contributor to tax revenues but its contribution has been falling as bonuses have fallen and lay-offs risen.
According to the Office of the State Comptroller, Wall Street’s share of the City tax revenues was 13% (around $5 billion) before the crisis and 7% in the city fiscal year 2010. For New York State, Wall Street is even more valuable as it currently provides 15% of all tax revenue, from 20% pre-crisis. Given that New York City is predicted to have a budget deficit next year of between $2 billion and $4 billion, it needs to hold on to its financial services industry.
But deputy mayor Steel rebuts the notion that New York will lose its standing as the financial capital. Given his background it is natural that he will be understanding and supportive of the financial sector. Steel was formerly the chief executive and president of Wachovia, leading the firm through the merger with Wells Fargo, and before that served on the board of directors at Barclays and as vice-chair at Goldman Sachs.
"We don’t take for granted that these firms choose New York City to be located in and we have to give them good value for money," he says. "And we have to make it attractive for people to live, work and visit here. The cyclical aspects of financial services lead to reductions in some business lines. But in asset management, which is still strong, and M&A, we have seen small firms start up."
De Vol believes New York will continue to be the financial capital in spite of the regulatory burden. He says: "Some of the Fed regulations post-Enron harmed the attractiveness of New York. While New York was hit by Sarbanes-Oxley and the move to launch IPOs offshore, its biggest competitor, London, was harmed by transaction taxes, allowing New York to stay ahead. The Dodd-Frank regulations may again reduce New York’s competitiveness on a global scale, but where would affected businesses go? It is unlikely financial businesses will move to London, and even though Germany’s economy is strong and has a solid sovereign rating, it is doubtful that Frankfurt will attract business at the expense of New York."
Parrott agrees that New York will retain its position as the business capital. "While there are always examples of companies leaving New York City, there are also many companies moving here or expanding," he says. "There is little concern for New York that there will be a trend for companies to leave. The biggest concern for New York City businesses is the weakness of the broader economy. The critical question is when will the economy get back on a sustainable path? If that happens, almost all of the other challenges facing businesses in New York City are just easier to overcome."
De Vol says the rise of Asia will be the long-term challenge for New York. In the survey Singapore, Hong Kong and Shanghai ranked fourth, sixth and ninth respectively in the top 10 rankings for cities globally.
"Inevitably more money will flow there as China has a quasi-reserve currency in the future," says de Vol. "We will see more financial services migrate there. The very high-end businesses, such as private equity and some investment banking, will probably remain in New York, but the opportunities for overall investment banking growth will be in Asia."
Gap between New York's poor and rich
New York has been a beneficiary of globalization and its role as a financial capital but it still has its socio-economic problems. Poverty levels, for example, have not improved during the globalization movement and income polarization is even starker. In 1990, 1% of earners accounted for 20% of all income in New York City. In 2007 (the latest statistics available) the top 1% of earners accounted for 44% of all income earned.
"In terms of income polarization, New York City is one of the most unequal cities in the world," says James Parrot, deputy director and chief economist at the Fiscal Policy Institute in New York "So while the strength of the local economy is boosted by the high-income earners, there should be better ways of ensuring people on the bottom are supported."
He points to low wages as one of the key problems. "Some 18% of the New York State population earn less than $10 an hour," he says. "The minimum wage level here is the same as at the Federal Level – even though 18 other states have a higher minimum wage. It is very difficult for hardworking people to have a decent standard of living in the city."