How does this sound for an economic development slogan: “Upstate New York, we’re just like everyplace else, except we’re older, we’re colder, we have lots of toxic contamination left over from the industrial era, we have high taxes not for services but to pay for the debts and pensions of the past, and we are highly unionized and expect higher pay and more restrictive work rules than other parts of the country.” Well, that’s the truth isn’t it? It isn’t the whole truth, not by a long shot. But if Upstate New York continues position itself in the economy based on being “just like everyplace else,” it is the only truth that matters.
The rest of the truth is located in the region’s older areas of settlement – those that have been fiscally exploited by those inside and outside, cordoned off and then abandoned. And the people who could take advantage of it are not the managers of branch plants seeking a cheap location, but entrepreneurs seeking a foothold in a place that provides a supportive environment.
For 30 years, Upstate has sought to keep what it was losing – unionized manufacturing jobs in large companies (headquartered elsewhere) that paid, according to an analysis in the book Power Failure, among the highest wages in the country, provided high benefits to boot, and provided the protection of restrictive work rules. Since large corporations were increasingly reluctant to provide those jobs, Upstate has turned to the state and local government, and private jobs subsidized by state and local government, instead. It was a good deal for some in the short run. In the long run, however, such jobs do not replicate, and tend to expire as soon as the public funding does. According to a quote from Jane Jacobs in that same book “heavy and unremitting subsidies are transactions of decline, and once adopted, the need for them grows greater with time, and the wherewithal for supplying them grows less.”
Meanwhile, existing Upstate cities and rural towns emptied out, with the region’s stagnant population moving to new suburban areas. The former were left with extensive pension costs, debts, and social service burdens, and an extensive infrastructure to maintain, all with a shrinking tax base. The latter had the cost of providing a new, duplicate set of infrastructure for the same population. For this, too, Upstate has increasingly turned to Downstate money. As inefficient as this development pattern may seem, it was the predominant and desired development pattern in the United States. Upstate had to be “just like everyplace else” to compete for branch plants and those who manage them.
Something, however, has changed in the past 30 years. After World War II, the United States was full of fiscally and economically viable urban neighborhoods, urban downtowns, and small rural villages, but a growing share of Americans wanted to live and work in suburban areas amenable to the automobile. The supply of viable urban America thus exceeded the demand, and the demand for suburban America exceeded the supply. Much of the existing United States, however, has been built in a suburban pattern since WWII, and the suburban life is now readily available everywhere. It is still what most people want, but the supply nonetheless exceeds the demand. Meanwhile, much of urban and rural America has essentially expired, economically and fiscally, and is kept on life support by transfer payments. For the small but growing number of people who want to live in such places and to be safe, have decent schools, and find a job or business opportunity, there are very few choices left. The demand exceeds the supply, and the cost of viable urban neighborhoods and downtowns is through the roof, not the least in Brooklyn where I live. There were once Brooklyn-like places everywhere. Now, they are hard to come by.
As I now work for a real estate analysis company, I can tell you that the real estate industry, from large corporate builders to small rehabbers, has responded by trying to re-create urban American in place, and to create a faux version in the suburbs, all across the country. Every region wants its Soho, its Williamsburg, its Park Slope in its central city – even Los Angeles. Everyone wants a place where young people with scarce skills and those who start new businesses will be attracted. Lifestyle centers and mixed-use developments are spreading post-War suburbs in almost all parts of the country. But it is a tough challenge. Moving to existing cities means dealing with the fiscal and social burdens that are concentrated there. Increasing densities in the suburbs could mean a development pattern that is too low density for walking and transit, but too high density for the automobile without horrific traffic congestion. The opportunity, however, is being pursued.
Except in Upstate New York, where people hate cities and dislike the people who live in them. And when something is done in the cities and small towns Upstate, it is state and local government, not entrepreneurs, taking the lead. With predictable results, as in the ferry from Rochester to Toronto, the Buffalo at-grade light rail line, the proposed massively subsidized shopping mall in Syracuse, etc. These debacles are a tradeoff for the more common pattern – the subsidy for suburban development.
The reliance on subsidies for the past, or soon to be past, extends to businesses and types of businesses. According to the New York Sun, The Luther Forest Technology Park in Saratoga County received substantial state and federal money to support site assembly, permitting, and infrastructure, and then the State of New York paid Advanced Micro Devices a billion dollars to show up and provide 1,200 jobs. Or maybe provide those jobs – the job gains promised in these deals tend not to actually arrive, and there is no guarantee the company will not import 1,200 already-trained workers from other states. Meanwhile, while New York’s farmers (like those elsewhere) are forever focused on the next federal handout, Business Week reports that much of the “organic” food for sale today really isn’t, because the demand far exceeds the supply. Another new opportunity that somehow isn’t being pursued, at least on a large scale.
After 9/11, financial regulators proposed requiring, for a few key transaction types, the development of duplicate computer systems and trading capabilities 400 miles away from New York City. In other words, they proposed change. I took out a compass to see what parts of the country were beyond 400 miles, and came up with Buffalo. I wondered if any leadership would emerge to create a small computer and trading colony there, allowing Wall Street firms to make employees an offer – if you want a big house and a low cost of living, go to Buffalo, but if you want to be where the action is, stay in New York. Instead, there was political outrage at the drain of jobs from New York City (take it from me I know the number of jobs involved was small), which led among other things to the firing of the head of the New York State Banking department, which had signed off on the proposal. Change was stopped in the short run, but not in the long run. The Daily News reports that Wall Street firms are now touring Northeast Pennsylvania and planning to create a “Wall Street West” back-up area there.
What economic initiative would I propose to create jobs for Upstate New York? None at all. It’s time for state government to stop “creating jobs,” and start making Upstate amenable to those who create their own jobs and, if they are successful, jobs for others – entrepreneurs. Most entrepreneurs will fail, and there is no way to tell which will succeed, so government cannot help them – until they no longer need help. The government could, however, stop taxing them to pay for its own economic development initiatives and subsidies to those with more political power, and provide more welcoming environment.
The fiscal changes I reviewed in the prior post, designed to give Upstate the option of having less expensive public services and to exempt the new and young from the burdens foisted on them by the past, would help. Reorganizing – seriously – older places that are no longer fiscally viable would help as well, by providing a low cost place for those willing to turn things around. Providing a choice of two competing public school systems, and private schools with certified teachers and approved textbooks paid for the state, as I have suggested, would give people a reason to live in places like Buffalo, Syracuse, and Rochester. A complete fiscal reorganization of such places akin to bankruptcy may or may not be required. It’s time for those who benefit from existing arrangements to accept that no one is going to show up and take a deal they never would have accepted themselves. The beneficiaries are fewer each year. Also helpful – marketing the Family Health Plus program to young entrepreneurs who were living to live at low income, something entirely possible in low-cost Upstate, while building their business. This was also suggested in a prior post.
A different attitude, however, would help most of all. There are people trying to do new things Upstate, but they are scattered and ignored, and there is little replication of their successes. Either Upstaters need to stop waiting around for a Governor or government program to provide them with jobs, or Upstate will have to attract new people who will take the initiative on their own. And the business leadership elected officials listen to ought to be those doing new things, not the corporate managers threatening to move out a few years earlier than they probably will anyway absent massive tax breaks and subsidies. It’s time for those other people Upstate to get a little attention, as well as a diminished level of fiscal harm. That would send a signal to others.
Elected officials can’t show up for a ribbon cutting when three people open a place of business that, more often than not, will close within five years. Entrepreneurial success is harder to measure, but perhaps measuring it would make it seem like more a viable option. The next Governor should have the New York State Department of Labor restart, or recreate, and being publishing a tabulation of new business activity similar to the program that its former employee Jay Mooney created (on his own time at my request) in the mid-1990s. That program showed how many business establishments with one or more employees opened and closed each year in every county in the state, along with a five year measure of the openings and jobs created in new establishments, the closing and jobs lost in existing establishments, and the net expansion and contraction of existing firms, all for different industries and establishment sizes. Today the headlines go to individual plant closings (possibly forestalled by subsidies) and plant openings (only due to subsidies). The longitudinal data, for the few who have seen it, presents a radically different view of what matters to the economy in the long run. Turnover in the economy is so large that all those state-subsidized special deals make little or no difference.
Upstate, however, suffers from an additional liability, which I will discuss in my next post. Getting around it would also require new thinking in the region.