Daniel L. Feldman

How to Revive New York’s Non-Financial Sectors

In New York State Government, Policy on August 8, 2010 at 5:01 pm

Let’s go a little deeper into this question of letting wealthy hedge fund managers pay much lower tax rates than the rest of us. Assuming Congress continues their federal tax break, New York would, indeed, risk their flight out of New York altogether should it impose a higher state tax. But that raises a much larger question. Does New York have to be so much at the mercy of the financial sector, or so dependent on it that it cannot afford to risk the occasional departure of some its wealthiest practitioners? The answer is no.

For a number of years, Cassandras have warned that New York was allowing itself to become much too dependent on the FIRE (finance, insurance, and real estate) sector.  [A 1999 report acknowledges, but underestimates the problem.]

What happened to New York’s great garment industry, printing industry, and many other kinds of light manufacturing? The common answer is that we lost them to competition from lower-wage areas of the country, and then the world.  But New York lost hundreds of thousands of manufacturing jobs in the 1970s as a result of the decline of its preeminence as a freight transportation center.

Yes, that’s hundreds of thousands – when today, a loss of 2000 jobs is considered a disaster, and politicians thirst for the opportunity to claim credit for bringing in a few hundreds jobs.

In the mid-19th century, and probably through the 1950s, more freight came through the Port of New York than through the rest of the country’s ports put together.   Cargo crossed the Hudson by “carfloats” – barges that carried railway cars, from and to the railheads in New Jersey, hundreds of them every day.  Cargo came directly by rail across the Poughkeepsie Bridge. It came in, either for consumption by New Yorkers and other Americans east of the Hudson, or for shipment to Europe by freighters docked in Brooklyn or Manhattan, and it went out, from New York manufacturers by rail to markets in the west.

But New York’s political leadership took the Port for granted. New York City imposed a four percent railroad cargo transfer tax on the gross receipts (not the profits) of freight moved from one kind of carrier to another, from rail to ship, say; the Poughkeepsie Bridge burned down in 1974 and was not replaced; and we made a deal that allowed the Port Authority to give the container port to New Jersey and the World Trade Center to New York.  Results? New York manufacturers face a competitive disadvantages with manufacturers in any city that did not have to pay truckers to sit on the Gowanus Parkway or the Cross Bronx Expressway for hours in order to get their cargo to the railhead in New Jersey; and New York consumers have to pay a premium for products shipped to them over the same routes in the other direction.

For over thirty years Member of Congress Jerrold Nadler has urged the construction of a rail freight tunnel under the Hudson. Nothing could revive New York’s economy more effectively, making New York manufacturers competitive once again, easing pollution, and lowering prices for consumers east of the river.

New York has fallen prey to the notion that only the highest-end businesses should thrive here: the FIRE sector, and maybe medical services and high-tech. But New York has always thrived, and has only thrived, because ambitious poor people come here to improve their lives. They may become great entrepreneurs or doctors or artists some day, but first they need good entry-level jobs, which manufacturing used to provide and could again.

New York does not have to remain at the mercy of the FIRE sector. With a revived manufacturing sector, we would not need to say “how high?” when the hedge fund managers say “jump.”

You may be thinking that what is wrong with New York in this way is a synecdoche for what is wrong with the United States: we produce too little in the way of real things, with our mostly unproductive financial sector – the big casino – gobbling up way too much money, time, and talent. You’re right.

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