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Mark Twain and New York in the 1990s.

It has been suggested that at this point in the national economic cycle, at a moment of sharpening international and regional competition, it would be helpful to have an overview of New York City's current prospects; and I am happy to oblige.

My first thought was to recall that great urban philosopher Mark Twain, who could have been speaking of New York when he said, "The reports of my death have been greatly exaggerated."

The endless litany of problems we hear would lead one to think that weeds will soon grow on the thoroughfares of every old city. The nationwide exodus from center city to suburb or from the old, cold Northeast to the new, warm Southwest is today's "conventional wisdom." Every periodical (and conference) tells us that new technologies permit brainworkers to locate anywhere they wish; that the federal government drastically short-changes New York, taking billions more in taxes than it sends back in any form; that the feds saddle the center cities with expensive unfunded mandates they simply cannot afford; and on and on...

Yet there clearly is another side to the story. Right before our eyes, for example, Los Angeles, in many ways a West Coast version of New York, is getting its act together after devastating urban riots and the earthquakes, floods and painful economic turmoil all California went through. Even Washington, DC, that textbook case of how not to run a city, got a cautiously optimistic forecast this month from the respected Brookings Institution, after an all-day conference analyzing the problems of that troubled city.

So, obviously, the question is more complex than it appears. We all know that cities ebb and flow, that remarkable recuperative powers can come into play if the fundamentals are right, and that major economic or social forces working just beneath the surface can have impacts over time that are hard to discern in the short-run. The profound technological, economic and social changes taking place in the world today are powerful and relentless; but we have entered a period in which New York's many present advantages could permit our city to benefit rather than lose by them, if we are wise enough to capitalize on our strengths and minimize our weaknesses.

Our weaknesses are real, but to a great extent they reflect "self-inflicted wounds." Our strengths are real, too; and we should not lose sight of them.

Over half of all the securities transactions in the world take place in Manhattan's exchanges, and more foreign companies are listed on our exchanges than on those of London, Frankfurt, Paris and Tokyo combined. We have the world's largest concentration of corporate management services, including the head offices of 12 of the 20 largest international law firms, and the head offices of five of the world's six largest accounting firms. Creativity-based industries such as advertising, broadcasting and publishing are all concentrated here, and New York's dazzling array of cultural institutions that nurture and stimulate these industries are without peer.

The newest addition, the New York Public Library's SIBL (a remarkable "state of the art" science, industry and business library) will prove to be another wonderful resource, helping to transform information into knowledge.

Many of us were delighted but not surprised recently when Coopers and Lybrand released an in-depth report on what it called New York's emerging cyber-industry, which did not even exist a decade ago. It is called New Media activity, and is concentrated in Manhattan south of 41st Street in what is becoming known as "Silicon Alley."

New Media involves firms specializing in entertainment software, Online/Internet services, CD-ROM title developers, Web site designers and the like. Coopers estimates New Media employment in the New York area at over 70,000 today, up from under 30,000 in 1992. By 1998, these hard - nosed accounting types expect area-wide employment in this field to be between 110,000 and 190,000 jobs. Four billion dollars in gross revenues were already generated by this industry in 1995 in the metropolitan area; and, as Senator Everett Dirksen said, "A billion here, a billion there, and before you know it, you're talking real money!" This baby industry's growth days are still ahead, as it focuses on the advertising, marketing, entertainment and education sectors; and the outlook is exciting.

But let us return to an orderly discussion of New York's future, a future which will depend on how successfully we react to forces over which we have no control.

The national recession that began in the late 1980s struck our area earlier, harder and deeper than any other part of the country, costing our region over three quarters of a million jobs; and our recovery has been slower and more sluggish than elsewhere. In effect, we have "given back" most of the economic gains of the 1980s.

But the lessons learned, however painful, may prove helpful in the long-run. That is the heart of the matter; and there are indications that we are learning them.

The two chief lessons are that our public expenditures must shift from consumption to investment and that investing in human capital is as important as investing in physical capital.

As in all futures, there is a "best case," "worst case" and probable compromise somewhere in between. The worst case, on which I won't dwell, could come to pass if we don't reverse some of the savagely destructive policies which have hamstrung us in the past, but which can be remedied. The "best case," on the other hand, would require a degree of public understanding and public support that are highly unlikely, given the spirit of the times.

Nineteenth Century Paris transformed itself under Baron von Haussman; New York built its highways and parks under Robert Moses; Rome had its Pope Sixtus V; and classical Athens, its Pericles. But those leaders did not have the handicaps of a society in which veto power is widespread and affirmative power is feeble, or in which it often seems that everyone thinks of personal rights and no one of obligations for the general good.

If a worst case can be avoided, and if the best is not achievable, even a probable compromise can turn out to be a fairly good one that will still leave New York the center of a world economy based on information and ideas; a national magnet for the most dynamic and creative individuals our society produces. And from a real estate standpoint, a fine place to build, buy and invest.

In discussing where New York is going, let me begin with where it was and where it is today.

The day I took off my Korean War Air Force blues to enter the real estate field in 1954, New York City had approximately a million blue collar jobs and some 300,000 people on welfare. Today the numbers are reversed, with a million on welfare and some 300,000 in manufacturing jobs. Most of those lost 700,000 blue collar jobs are unlikely to return because it is cheaper and more efficient to manufacture elsewhere. The high cost of our electricity and our high taxes are enough to be discouraging. What manufacturing and assemblage does take place in New York in the future will probably be high value-added activity such as electronic medical instrumentation.

That raises the question of our million people on welfare. Few doubt that a significant percentage of them could be productive, tax-paying members of an increasingly skilled labor force, if our educational system had not failed so dismally to educate them.

True, our very best schools, like Stuyvesant High School, which consistently leads the nation in the Westinghouse Science Talent Search; or the Mott Hall Intermediate School of Central Harlem, whose chess team is number one in the nation, are excellent. But the public educational system as a whole is deplorable, and the results speak for themselves.

A study for the Tri-State United Way estimated that 22 percent of our region's population, including 18 percent of its adults, are functionally illiterate. The report estimates that we are adding some 70,000 more adult illiterates each year, and that our present number of illiterates in the region is about 4.5 million. (The Regional Plan Association puts the number of illiterates at 3 million, which is bad enough.)

A June 1995 report by the New York City Department of Employment states that among all occupation groups, 10 percent of employees and 31 percent of job applicants were "lacking in basic skills," and that 11 percent of employees and 45 percent of job applicants were "deficient in linguistic skills."

We are harvesting the results of a public school system that believes in "social promotions," the practice of promoting and graduating students who don't deserve to pass; a school system that is reluctant to remove students whose violent or disruptive behavior destroys the learning atmosphere for others; a system whose ineffective 130,000 student "special education" program and whose multi-year bilingual programs are considered educational disasters; a system whose vaunted decentralization is a sham in which budgeting, personnel, and other significant decisions are made by a cumbersome, centralized bureaucracy far removed from the schools themselves; a school system which often seems to reward failure and punish success; and, saddest of all, a school system whose chief concerns are widely perceived to focus less on the needs of the children served and more on the concerns of the adults who work for the system.

The charge is sometimes made that lack of money is the key educational problem, yet all comparative studies of private religious schools with public schools show religious schools achieving better results at a fraction of the per capita costs, even when these schools serve identical populations.

The Rand Corporation recently showed that, with students from the same socio-economic backgrounds, New York's Catholic schools spent $2,000 a year less per child to produce students who, on average, perform one grade higher and have SAT scores 170 points higher. And that figure is adjusted to compare "apples with apples."

On the site, public schools are gasping for cash. Harlem's Mott Hall School, for example, with national championship chess teams and the city's highest reading scores, has no auditorium, no outdoor playground and no real gymnasium. It lacks money for Xerox paper and the basic equipment that normal public schools take for granted. But there is no way of knowing if additional funds granted to our inept school system would actually show up on the site where they are desperately needed.

By investing more money and certainly more practical attention to reading, writing and counting skills, New York City could dramatically improve the effectiveness of its school system and thereby have a profound and positive effect on its economic and social future.

At one time, City College of New York was famous for the Nobel Prize winners it produced. Not now. Perhaps some day the old rigorous standards can be re-instituted. We did it once, and we can do it again.

In a brilliant essay entitled, "Defining Deviancy Down," Senator Daniel Patrick Moynihan made the point that we get less today because we accept less; that if we reintroduced the behavioral standards of the past, along with the sense of pride and of shame that enforced them internally, everyone would benefit.

Let me touch on the difficult question of ethnicity. Historically, education has been the vehicle by which minority groups have entered the mainstream of American life, and education is likely to remain the royal road to satisfying and productive professional careers and personal lives. On the one hand, we know that some 75 percent of all net new employment in New York since 1992 has called for a college education. On the other hand, we know that there is virtually no economic role in modern life for high school drop-outs. I do not profess to have a solution to the problem of racism and prejudice in American life, but certainly making available - and incubating the strong desire for - a first-rate education for all our citizens is the best recipe we know of for social harmony and economic growth. Educated people have higher hopes, higher aspirations and greater determination to achieve them. And when they succeed, the entire society benefits.

Housing is another subject in which comparison between the past and present could provide us with a guide for the future; and it is another instance of a "self-inflicted wound."

Before World War II, New York City was famous for its rental housing stock of unparalleled size, quality and value. In some years, as many as 100,000 new units a year were built. Many thousands of SROs (single room occupancy) housed single, working people.

Many of today's homeless would be in SROs, if only we had them. In 1960, New York had 150,000 SRO units. Today, it has fewer than 20,000. Good new SROs are being built elsewhere in the nation, and we should create them here - safe, clean and inexpensive units that fill an important need.

Today, with its 50-year history of World War II "emergency" rent controls and massive local governmental intervention in the housing market, New York City has the lowest vacancy rate in the nation, the highest rate of deterioration and abandonment, new construction production averaging only 10,000 units a year for a population of some 7.5 million people, and housing costs that are the highest in the nation.

To achieve this heart-breaking result, our city government dissipates approximately $800,000,000, yes, eight hundred million dollars a year, on its various housing programs.

For example, when every other city in the country forecloses on a dwelling unit for non-payment of taxes, it promptly auctions that unit off to private purchasers. When New York City forecloses on dwellings, it rehabilitates them at an aggregate cost of over 100 million dollars per year, then not only does not collect real estate taxes on them, but rents them out at a substantial loss, aggregating another 200 million dollars per year.

If New York would, in the future, merely return to its pre-World War II housing policies (including screening all disruptive tenants from public housing), it would dramatically increase the quality and quantity of its housing stock, and it would also save three-quarters of a billion dollars a year in the process. This savings could be used to lower business taxes and thereby increase the economic viability of the city, or it could be invested in our human capital by education or professional training. It is all do-able.

Transportation is another subject in which we can learn by comparing the past with the present.

Between World War I and World War II, we invested in the construction and quality maintenance of bridges, tunnels, subways, airports and highways. In recent years, our political leaders primarily help their constituents to consume transportation by subsidizing transit fares.

A classic case was that of Mayor Robert Wagner, who floated a large bond issue to build a Second Avenue subway, but used the proceeds to keep the city-wide subway fare at 5 cents for a few more years. Today, we have neither the five-cent fare nor the Second Avenue subway.

Similarly, the exciting Westway project, whose impact on Manhattan in the 20th century would have been comparable to that of Central Park in the 19th, was traded in for the mess of pottage of a brief additional subsidy for mass transit.

Today, important new mass transit lines to JFK and LaGuardia Airports could be financed by instituting tolls on the 59th Street Bridge and by reducing the outrageously high subsidy to New Jersey PATH riders to Manhattan.

The new Regional Plan Association program includes mass transit to the airports among its goals; I would give it the highest priority, and do it now.

In retrospect, we can thank heaven for Dick Ravitch and Bob Kiley, who, with important support from Mayor Wagner's son Robert, Jr., rehabilitated our crumbling mass transit lines which had been brought to a state of near collapse by years of deferred maintenance. Our transportation system is now in reasonably good repair, and we are ready to start thinking of expansion and growth.

Two additional subjects that affect the future of New York are direct opposites they are crime and the arts. One repels, while the other attracts residents and visitors to the city; and both are success stories.

Fear of physical harm is the greatest single factor in making people avoid a street, a neighborhood or a city. New York's recent remarkable progress in not only diminishing crime itself, but also the fear of crime, has been a spectacular achievement. We now know that public disorder and crime go hand in hand. By doing away with graffiti and vandalism in public places, by enforcing anti-panhandling and loitering laws, by breaking up intense concentrations of pornographic activity, and by having police more visible, Mayor Giuliani has conveyed the feeling that the general public has "reclaimed the streets" from menace and threat. And by the introduction of BID's (Business Improvement Districts) to areas that had been treated like orphans, we have brought back local control in a highly successful way.

Business Improvement Districts (BIDs) are an idea whose time has come. Their great success, in some 1,000 instances throughout the country, has been replicated in New York's 34 BIDs, most notably in Bryant Park and around Grand Central Station. Thirty-nine more BIDs are in the works, and the sooner they start the better.

In essence, BIDs focus neighborhood attention, energy and funds on neighborhood problems with excellent results. Streets are swept, graffiti removed, parks and public spaces are monitored, and so forth. In theory, BIDs should not be necessary, but until the City itself can provide those services, BIDs have proved to be God-sends that have helped dramatically to improve the quality of life in New York.

By encouraging cultural activities generally and entertainment activity in places like Times Square, the city is helping the $9 billion dollar a year arts world to flourish and the multi-billion dollar tourism industry to surge as well.

Safety, culture and entertainment add immeasurably to that indefinable "quality of life" that helps attract and retain in New York the world's most talented, creative, energetic, entrepreneurial and dynamic people. They are New York's primary advantage as a global center of finance, communication, culture and ideas.

I've covered a lot of ground, but one of the thorniest problems I've saved for last, and that is the question of taxes and the cost of doing business here.

If we can get good value for our educational dollar; if we get New York out of the housing business; if we re-orient our social service expenditures away from subsidizing dependent, marginal lives and toward investing in human capital; if we invest more in our physical infrastructure and subsidize use less; if we keep improving the sense of safety and the quality of social and intellectual life, we should be able not only to reduce the cost of living, working, and playing here, but also encourage the public to feel that what we pay in taxes is clearly worth it.

In short, to permit us to achieve and maintain our position as the center of the emerging new world of ideas, our quality of life must go up; and the cost of doing business here must go down, both in the city and throughout the metropolitan region.

The future of the region and the city are inextricably linked. Not nations, not cities, but regions will be the dominant entities in the years ahead; and it is worth noting that, in the case of New York City, roughly one-third of the city's income ends up in the pockets of commuters.

In the years ahead, one hopes that cooperation, not the present beggar-thy-neighbor competition, will mark relationships within the region, since city and suburbs share a common destiny.

And that destiny will be bright if New York continues to attract and retain the world's most productive people.

Our urban philosopher, Mark Twain, once spoke of the calm confidence of "a true Christian gentleman holding four aces." As far as productive people go, New York does hold four aces!
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Title Annotation:Focus on: Banking & Financing.
Author:Rose, Daniel
Publication:Real Estate Weekly
Date:May 22, 1996
Previous Article:Money for something: equity kicks for a price.
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