The New York Sun - February 19, 2004

The Capital of What?

iewed from the perspective of job growth, New York City ranks among the worst metropolitan economies in the nation. It was 62nd out of the 67 largest cities in the nation and 225th out of 276 places ranked overall.

Not a great showing for a city that thinks the world revolves around it and that, according to its mayor, anyone with brains wants to be in.

So why the dismal ranking? This occurred because a forthcoming survey by Inc. Magazine decided to focus overwhelmingly on what would seem the best measure of overall entrepreneurial dynamism¾job growth.

Now some might challenge this assumption. Jobs are not all equal, after all, and perhaps you don’t need a lot of low-wage employment. All you need, some suggest, is enough to employ the “creative class” and all will be fine.

We chose to disagree with this elitist notion. Jobs, after all, are what drive economies and provide the first steps to upward mobility. It also turns out that areas that are creating jobs fastest, such as Atlanta, various Florida cities, and San Bernardino-Riverside, Calif. are for the most part creating jobs more rapidly as well in areas — such as information and financial services — that New York boosters claim to be its unique bailiwick.

So why the grim news now? Part of it may be that New York is not used to being judged by essentially objective bases. After all, as Robert Moses once remarked, it’s a place “where something superlative happens every day.”And it still does, but superlatives are not stopping job growth, even in key sectors, from moving elsewhere.

City officials, of course, were “shocked, shocked” by the rankings, as we expected they would be. For years, New York City has gloated about its high rankings in numerous magazine studies. Even in the worst of times, and well into the late 1990s, publications such as Fortune would rank Gotham as among the best cities for business in the country.

In reviewing these and other studies, we have often found that subjective biases about “quality of life” or executives’ perceptions played a critical role. Perhaps not surprisingly, the cities liked by New York–based reporters, many of them products of elite colleges, were either New York–like — Seattle, San Francisco, Boston — or overgrown college towns like Raleigh-Durham, N.C.

When we focused on job growth, a lot of what Houston real estate mogul Andrew Segal calls “ugly ducklings” have shown surprising luster.

Our top tier of large cities includes unfashionable places such as San Bernardino-Riverside, Fresno, Sioux Falls, South Dakota, and Green Bay, Wis. These places tend be affordable, business-friendly and perhaps a little less conceited than their counterparts in Gotham.

The other growth centers were concentrated in the Southeast, including No. 1: Atlanta, the sprawling giant of the region.The state of Florida dominated the list — Orlando, Jacksonville, Sarasota, Palm Beach, Ft. Lauderdale, St. Myers, and Tampa were all in the top tier. Other standouts included San Antonio, which seems to have benefited from both corporate restructuring and the spike in military spending.

Executives in these places tend to be in a host of industries, and they are almost invariably enthusiastic about where they do business.

“This place is amazing,”noted Ray Wallace, the president of W. Ray Wallace, a fast-growing firm that does financial consulting from suburban Alpharetta, Ga.

“The opportunities are there and small businesses are here. People from all over the South come to Atlanta like to a Mecca. They come because the opportunities are here.”

New York may still be a mecca for hipsters, glitterati, and Eurotrash, but not many entrepreneurs are likely to speak of it as “Mecca.” Taxes, prices, and regulations associated with places such as New York, San Francisco, and Boston may have much to do with their dismal, close-to-the-bottom ratings.

Entrepreneurs in the growth cities also tended to like the housing-cost structure that made it easy to recruit and retain talent past their 20s — a major problem facing New York employers.

“San Antonio is a very good sell for families,” the CEO of Info-Secure, a database security firm with 145 employees,Keith Frederick, said.

“You can get a new three-bedroom starter house here with a two-car garage for $60,000.”

Mr. Frederick added that affordability, when added to such things as good schools and a pleasant physical environment also creates interesting pockets of talent.Cheap areas are not attractive only to dullards and menial workers, as some sophisticates on the coast suppose.

“It’s actually a super environment for operational experience,” Mr. Frederick said. “This is one of the few places I can get the kind of talent I need.”

To anyone who travels this country, and speaks to someone other than art-dealers or reporters, these trends are not surprising. Perhaps New York officials don’t get out much.

The city’s commissioner for small business services, Robert Walsh, blasted the report in Newsday for ignoring “the factors that make New York the capital of the world.” He called attention as well to the “greatest concentration of talent” in the nation that he claims for New York City and to the fact that Wall Street is having “its best year” in three.

If anything indicates municipal myopia, it is such comments. New York may have a lot of talent, but many other places now have equal or higher ratios of educated people, including the city’s own suburbs. Wall Street may be growing, but New York’s financial service sector has been a laggard for over a decade in job creation, dropping by 10% since 1998. In contrast, Charlotte gained 34%, and West Palm Beach and San Antonio gained 18% each.

Perhaps more revealing was New York’s relative underperformance in the critical business and professional service area. When corporate relocations and financial shocks make the traditional “capital of the world” rhetoric ring a bit hollow, city boosters always point to this growing sector. By this I mean growing elsewhere, because between 1998 and 2003, New York did not grow at all in this sector. In contrast, Atlanta expanded by 11%, Orlando 30%, West Palm Beach more than 40%, and even little Sioux Falls by 13%.

Perhaps most revealing, however, was not the relative growth far away from town, but the remarkable performance of several areas in the metropolitan area — notably northern New Jersey, Long Island, and the upper Hudson Valley. These areas all ranked among the top tier of job-creating areas, including in the high-end financial and business service areas. Rather than worry so much about being “capital of the world,” maybe city officials should start wondering if New York can remain “capital of greater New York” for much longer.

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