The Hard Truth About New York

You can listen to the boosters talk about the rebuilding of the Twin Towers. Or you can face the truth: New York is in danger of tipping over.

In the weeks following September 11, New York newspapers ran stories about various "plans" for rebuilding the World Trade Center: Some of the papers ran architectural sketches of what the new towers might look like. Prospective developers were asked to comment. No less a fool than Donald Trump was quoted at length about how it should be done.

It was an odd bit of boosterism, since all involved (the newspapers, developers, politicians, and various commentators) understood perfectly well that the World Trade Center would never be rebuilt -- could never be rebuilt -- because no insurance company in the world would ever underwrite such a risk. And even if there was an insurer willing to underwrite such a risk, no company in the world would take office space anywhere north of the "new" World Trade Center's 50th floor.

The stories about rebuilding the World Trade Center come less frequently now, but they still pop up from time to time. They are emblematic of New York's denial -- everybody's denial -- about the reality of the city's near future.

The fact is, the city is in for a very bad run. New York is estimated to be $4 billion in the red as of this writing -- and that amount is likely to rise to $6 billion. As the city's fear-driven economy continues its slide and as tax receipts consequently fall, the current $4 billion shortfall will probably double in 6 to 12 months. New York's annual budget is roughly $40 billion. Does anyone believe that the newly elected mayor will go to the policemen's union, the firefighters' union, or the rescue workers' union and say, "Guess what? You'll have to take a 25% pay cut"? Does anyone believe that the next mayor will turn to the teachers' union and the sanitation workers' union and say, "We can't cut police and fire, so we're going to have to cut your wages and benefits by two-thirds"?

The "solution" will be higher taxes. The commuter tax, repealed three years ago, will be reinstated. The sales tax will be hiked. Various usage fees will increase. And all of that -- and more -- will not be enough to cover the shortfall. To cover the shortfall, New York must get an average of $1,000 more from its 10 million regular consumers. That's simply too much to expect, given the current economic realities. It wasn't too much when all of the hotels were filled, when the restaurants were putting tables out on the street to accommodate the crowds, and when Broadway shows had lines around the block. But those days are long gone -- in fact, they started to fade well before September 11. People now come to New York to see ground zero, not Riverdance. And they don't feel like eating afterward.

There's a tipping point to everything, and New York is in danger of tipping over. In the wake of September 11, the financial-services industry has begun to decamp to Connecticut and New Jersey. The stock exchanges will have to build virtual and redundant systems away from Manhattan. Truth be told, the only reason financial-services companies are in New York is because every other financial-services company is there. If Citigroup, Merrill Lynch, and Morgan Stanley move half of their operations to Stamford, Connecticut, then a kind of critical mass will be there. Once that starts to happen, it takes on a life of its own -- and all of a sudden, being in New York, which once seemed so essential, will not seem so important anymore. Fidelity does just fine in Boston.

Before the Internet, you really did have to be there to play the game. But you don't now. Think about the news business, another huge New York employer. When the World Trade Center towers came crashing down, the offices of the Wall Street Journal (located across the street at the World Financial Center) suffered collateral damage. Meanwhile, editors and reporters, working with cell phones, beepers, and email, regrouped in cyberspace and put out the next day's edition without missing a beat. They didn't need to reside at the World Financial Center. The lesson was quickly learned: A month later, Peter Kann, who runs Dow Jones (which owns the Journal), announced that more than half of the Journal's New York staff would be relocated to New Jersey.

In the 1950s and 1960s, white flight from "inner cities" transformed the American landscape. In this decade, byte flight, fueled by fears of terrorism, will do the same. And nowhere will this occur faster than in New York. This is the truest thing that I can tell you: All of those commuters who ride trains, subways, and buses, and who drive their cars into Manhattan, don't want to do it anymore. If it were possible, they would work anywhere else but there.

This is New York's next major problem. Businesses that want to hold on to their most talented and dedicated employees will have to start accommodating them by offering the option of working in an office park in the Jersey suburbs, or in a Stamford or Greenwich, Connecticut or White Plains, New York office. Commercial real estate in Connecticut towns like Danbury and Norwalk can be had for one-third of what it will soon cost in downtown Manhattan (when the new, post-September 11 insurance rates kick in). If you're Merrill Lynch, saving tens of millions of dollars on real estate and related costs and making most of your workforce feel better about coming to work is a package deal that will be hard to pass up. Before September 11, most of the New York workforce would never have tolerated being transferred to a place like Norwalk. Now vast numbers of them want to be transferred.

That's what September 11 did to New York. It broke the virtuous circle where money and talent fed off of each other, attracting ever more money and talent. And it revealed a simple fact of corporate risk management: Concentrating all of your assets in one place doesn't make sense. The story of Cantor Fitzgerald -- on September 10, the company had 1,000 people working in New York, and by noon the next day, 700 were gone -- was the lesson learned at the corporate-leadership level. Risk management requires reconfiguration, a new allocation of resources, a new strategy to safeguard your scarcest resource: people. It is logic -- not negativity -- to suggest that New York's share of those scarce resources can and will be diminished.

So there are hard times ahead. It's considered bad manners to say that. The official line is that the city has never been safer, that we're "coming back" stronger than ever. But it does not feel that way, especially when the subway stops for no reason, or when the sirens wail as police cars go hurtling down the avenues. It doesn't feel that way at all.

What will bring New York back? It won't be something engineered by the elite. The governmental elite are, post-Giuliani, a mishmash of second-rate minds and third-rate hacks. The business elite can't engineer a rebound; as noted earlier, prudence requires that they at least partially bail out. The media elite can't jump-start themselves, much less a city -- and it's not really their function to do that anyway. The universities and hospitals can't get it done, because they don't have the juice necessary to be dynamic.

The people at the grassroots level will be the ones to bring the city back. Great cities hold together after catastrophes in large measure because the people who live there make that choice: They simply refuse to give up. This was true of Berlin, London, and Tokyo after World War II. It will likely be true of New York after September 11.

The idea of New York is fundamentally life affirming. It states that we can live and work together in relative harmony and go as far as our talents allow. The idea of New York is about hope, promise, and aspiration. Those are powerful forces that, over time, will not be denied. New York will come back after a swoon, because the people who choose to live there will simply refuse to give up or give in. They will hold fast to the idea of New York and, in so doing, ensure its survival -- and eventually its renaissance.

John Ellis (jellis@fastcompany.com) is a writer and consultant based in New York.

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