Why the Big Apple Is No Economic Model for L.A.

While the New York media have relentlessly trumpeted California’s demise, the Northeast is the last place that should celebrate California’s economic difficulties. Starting from virtually the same non-farm employment base, New York City-area job losses during the recession exceeded those in all Los Angeles County by more than 53,000. And Los Angeles County itself accounted for 75% of California’s total job losses.

The true cover story of the recent recession should have been the continuing industrial dysfunction of America’s largest metropolis. While many California politicians seem strangely beguiled by economic policies that were born in the East, New York City, after decades of decline, could only watch helplessly as it hemorrhaged another 12% of its employment base in the early 1990s. Far from seeking insight from the architects of such a woeful economy, the most important lesson for California is to understand, then avoid the political pathologies behind New York’s industrial paralysis.

New York’s collapse was especially poignant because it followed years of spectacular decline, interrupted only briefly by the financial-services boomlet of the mid-1980s. Between 1970-90, more than 573,000 people left New York City, the second-largest population exodus suffered by any U.S. metropolitan region. By contrast, Los Angeles gained 673,000 new residents in the same interval--highest in the nation.

In 1951, New York was home to nearly 1.1 million manufacturing jobs, easily the largest such concentration in the world. By the end of the recession, about 300,000 manufacturing jobs remained, a meager 9% of the city’s total employment. More than 640,000 manufacturing jobs--18% of total employment--survived the recession in Los Angeles County.

At least 50% of the 446,000 jobs lost in Los Angeles County during the recession were directly caused by the federal government’s defense cuts--not by adverse economic fundamentals. Deindustrialized New York had almost no defense-industry exposure. Yet, it still experienced a staggering decline of 509,000 jobs spread among its business service, finance, insurance and real estate, non-durable manufacturing, construction, retail and wholesale trade and durable manufacturing sectors.

At the root of New York’s continuing demise is an elitist industrial ideology embraced by an enduring political coalition. As early as the mid-’60s, New York’s leaders were indifferent to what they saw as “crummy” jobs in such then-flourishing sectors as garments, metalworking and sophisticated electronics. Instead, they wanted to build a “post-industrial” society centered on “high-tech” financial services and tourism, coupled with aggressive welfare relief. Out of these ideas grew the narrow coalition that still dominates New York--large developers and Wall Street mandarins, the 450,000-member municipal employee and construction unions that serve them, and the welfare-dependent underclass.

As New York relentlessly pursued its post-industrial fantasy, unrepresented but critical parts of the economy like manufacturing were zoned, regulated and taxed, with virtually nothing gained in return. Hundreds of thousands of manufacturing and other jobs left the area, severely reducing the standard of living for all but the privileged business elite.

Particularly hard hit were immigrants. In 1960, before its industrial base was decimated, New York’s Latino population enjoyed relatively high income levels and work-force participation rates. By the end of the 1980s, as hundreds of thousands of immigrants, especially from Puerto Rico, found little or no options for upward mobility, New York’s Latino poverty rates were well above the national norm. Even the region’s more prosperous Asians earned 1990 median household incomes nearly 3% less than the U.S. standard for their group.

In contrast, Latino and Asian immigrants in California and Los Angeles County, which accounted for nearly all the region’s nearly 1.4 million population increase in the 1980s, did not find a stagnant industrial base. Provided with substantial market, capital and employment opportunities, California’s male Latinos had the highest labor-participation rates in the country. College-education rates for Asians and Latinos increased two to three times faster than for the state as a whole, and, by 1990, each group’s median household incomes were 8% to 21% greater than comparable national figures.

Unfortunately, California’s political elites, still panicked by the recession, are offering many of the same policies that crippled the nation’s largest city. A powerful coalition of utilities, universities and national labs, defense companies and public-employee unions has all but convinced policy-makers on both sides of the political aisle that the state’s economic future lies in fostering a high-tech wonderland of subsidized transportation or environmentally safe “green” industries. As in New York, such thriving industries as garments or textiles, employing hundreds of thousands and providing crucial entry-level jobs, are relentlessly regulated, taxed and and deprecated as offering only “lousy” jobs.

California’s leadership also seems evenly split between two equally counterproductive views of the state’s legal immigrants and resident ethnic groups as either welfare cheats or an exploited underclass in need of a huge extension of welfare benefits. Although these views start from opposite ends of the political spectrum, they both encourage the same confrontational, tribalistic politics that helped destroy the New York economy.

Why pin California’s economic future to perhaps the world’s leading model of urban decline? Why not instead develop a political vision reflective of the state’s rapidly changing economy and demographics? The key elements of such a vision would be a commitment to cultivate the private-sector economy as the centerpiece of wealth creation; to provide the necessary public resources to all groups who act consistent with this goal; to cut government where public activities are counterproductive to quality private-sector expansion, and to collectively deal with the truly dispossessed who cannot help themselves in the private economy.

This is precisely the progressive, economically vital political agenda that New York’s elite, even after years of grinding failure, has been utterly unable to articulate. True, no one in California has yet proved up to the task. But the possibility that the state will generate leaders with the will to foster growth and opportunity, rather than the decline and stagnation that seems New York’s tragic legacy, still remains the promise of California.*