Bill
de Blasio, with his victory in last Tuesdays Democratic mayoral primary, became
the locus of New Yorkers’ hopes and fears. His supporters believe that he will
be the first mayor in decades to do something about inequality, which he has
called “the central issue of our times.” His detractors raise the spectre of
class warfare. But decrying inequality on the campaign trail is one thing.
Actually doing something about it is infinitely harder.
In
part, this is because New York’s economy is absurdly dependent on its main
driver of inequality—the finance industry. Finance accounts for roughly forty
per cent of all the wages paid in Manhattan, and almost a quarter of the city’s
G.D.P. (That’s not even to mention the myriad businesses— high-priced law
firms, say—that service the financial hub.) Wall Street’s importance limits
what a mayor can do to reduce inequality from the top down. The same is true of
the city budget’s dependence on the wealthy—the top one per cent of earners
pay forty-three per cent of the city’s income tax. In other words, the rich we
will always have with us.
The
key to battling inequality therefore lies, as de Blasio has argued, in expanding
New York’s incredible shrinking middle class. Whereas the percentage of New
Yorkers in poverty is still roughly what it was in 1980, the percentage of New
Yorkers who are part of the middle class has fallen dramatically in the past
few decades. Middle-wage jobs have become harder to find: they dried up during
the recession and (unlike high- and low- wage jobs) didn’t come back during the
recovery. As a result, the city’s income distribution increasingly looks like
an hourglass: big at the top and the bottom, narrow in the middle.
Unfortunately,
no New York mayor can do much to counter the forces that have eroded the middle
class. There’s the disappearance of manufacturing jobs, the classic route into
the middle class. Between 1969 and 1999, New York lost four hundred thousand
such jobs, and as the jobs vanished so did the workers. (The population
decreased by eight hundred thousand during the seventies.) The decline in
manufacturing was partly the result of the factors that deindustrialized cities
across the Northeast and the Midwest, as new transportation networks and
cheaper labor lured industry first to the Sun Belt and then abroad. But it was
also driven by city policies that were designed to foster the growth of the
financial and real- estate industries, and the effects of those policies are
more or less irreversible. The city has tried to regenerate manufacturing in
places like the Brooklyn Navy Yard, but deindustrialization continues: between
2001 and 2011, New York lost fifty-one per cent of its remaining manufacturing
jobs.
Creating
middle-wage jobs is also a struggle because the cost of doing business here is
so high. Energy costs and taxes are steep, and rent is three times the national
average. This isn’t a problem for businesses (like banking and law) that make
big profits per employee; and businesses that have roots here (like publishing
and fashion) often just suck it up. But, for any business with a choice of
location, the cost of New York looks prohibitive.
Can
this dynamic be changed? The Bloomberg administration offered a host of
initiatives to diversify the mix of industries in the city. There were some
successes: television production and tourism rose sharply in the past decade.
But the rate of growth in new businesses has not been impressive, and the
high-tech industry, which everyone hopes will be the next big thing, still
accounts for just 2.5 per cent of all jobs. It’s hard to see how a new mayor
will do better. Raising taxes on the rich—as de Blasio has proposed doing, in
order to fund universal pre-K education—may be good social policy, but it’s not
going to create jobs. And universal pre-K obviously won’t have any impact on
the job market for a couple of decades. There are other proposals on the table:
rezoning, more loans to small business. But none of them are going to move the
needle much.
Another
reason that middle-class New Yorkers are struggling is the city’s high cost of
living, particularly housing. Thirty per cent of New Yorkers pay more than half
their income in housing costs. That’s one thing a mayor can do something about,
mainly by encouraging more housing development. Politics makes that hard,
though, because support for developers is often seen as anti-middle class. Any
attempt to reform the property-tax system would encounter a similar problem.
Currently, taxes are very low on single-family homes and very high on big
apartment buildings. That raises apartment rents and discourages apartment
construction. But, because changing the system would help rich landlords and
hurt middle-class homeowners, it’s politically hopeless.
The
prospect of de Blasio’s becoming the new mayor has many rich New Yorkers in a
tizzy. Yet it’s hard to see how they have much to fear (unless you think that
higher taxes are a disaster). A de Blasio administration would be very
different in tone from Bloomberg’s, and would push for some useful changes:
slightly higher taxes on the rich, an end to unnecessary corporate subsidies,
perhaps a living-wage ordinance. Most likely, though, New York’s economy in the
near future will look much the way it does now. Voters may have been looking
for dramatic change when they went to the polls last Tuesday. They aren’t
likely to get it.
New Yorker magazine, Sept 23, 2013
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