The 109th mayor of New York had death on his mind as he stepped forward to take the oath of office. “So let me be clear. When I said we would take dead aim at the Tale of Two Cities, I meant it. And we will do it.” His remarks left unclear exactly what was meant by the statement, “We will do it.” The 108th mayor of New York, a billionaire who sat sullenly nearby avoiding eye contact, was perhaps wondering at that moment whether his successor knew that Charles Dickens’s A Tale of Two Cities ends with an innocent man being led to the guillotine.
The purpose of the speakers who joined the new mayor on the podium that day was to substantiate the charges. The first, a songwriter, railed against the tragic role the city played in contributing to the nation’s prison population. Heads nodded mechanically in assent, blissfully oblivious to the fact that the city had remarkably accomplished the reverse: a huge reduction in the number of people in prison and on probation and parole. But truth was no more the purpose of this highly scripted proceeding than justice is the point of a North Korean show trial. This was a propaganda event, and there could be no ambiguity about the policy of the new leader.
So a youth poet described a metropolis plagued by classism and a preacher wearing a black hat sanctified the justice by praying to emancipate city-dwellers from the “plantation” called New York City. When it was over, the guests with privileged seats receded behind a blue curtain backing the stage. The rest of New York trudged off to face a very frigid day, uncertain whether they might be entering the spring of hope or the winter of despair.
Bill de Blasio’s triumph reflects a warning shot fired across the balconies of New York’s gilded elite. It also represents a challenge to the future of New York—not just the economic vitality of New York, but the very idea of New York. To understand why, you have to go back to the beginning.
The earliest Dutch settlement on the island we now call Manhattan did not appear at first to have a promising future. Much of the land was swampy and insect-infested, and the portion of the terrain that was dry was rocky and difficult to farm. The indigenous Indians generally steered clear of the place. This place was not naturally destined for greatness. But there was a new and growing Dutch settlement at Fort Orange—later to be known as Albany—and fur traders up and down the Hudson were doing a booming trade with the Indians. In the early 1600s, the Dutch decided a small fort was needed at the tip of the island. The north side of the settlement was protected by an earthen wall, a location that became Wall Street, itself a designation that came to mean something far bigger. It became a place where the buying and selling of things developed into a transcendent art. It became the place where capitalism’s temple, the New York Stock Exchange, was built.
The significance of financial services to New York’s economy is tough to overstate. Even after its recent contraction, Wall Street still generates nearly half of all wages paid in New York City, despite having less than 15 percent of the total jobs. The concentration of Wall Street firms and their highly paid workers create several derivative effects that drive additional engines in the local economy. The highly priced lawyers and accountants and service firms that support the finance industry are like the sea birds that follow a fishing boat back to the pier after a successful day on the water. You won’t have one without the other. Similarly, the jobs in construction, real estate, retail stores, restaurants and entertainment venues depend critically on the fortunes of their most well-heeled customers. But New York is more than Wall Street. It is also the place where the world’s wealthy come to mingle, work and live and where millions of tourists visit to bask and marvel at the enormity of it all.
The debate over New York’s future boils down to a simple question: Is the concentration of extreme wealth in this city an affront to notions of fairness and social justice because it accentuates a Tale of Two Cities and the distinction between rich and poor? Or would it be a stroke of luck, as the previous mayor believed, if all the billionaires on Earth decided to set up housekeeping in the city?
JUST FOR A moment, take away the high concentration of financiers that make New York the preferred place for capital-raising to happen. Assume an end to the trend of several decades that have encouraged well-off commuters to both work and live in New York. Take away the park-view co-ops of Fifth Avenue that sell for tens of millions of dollars. Take away the media glitz of charity fundraisers stacked high with celebrity. Take away the dreams of every kid looking to land his first job in New York because that is where you can get rich beyond your dreams. Take away the throngs of tourists who visit New York because, well, because it is New York. What do you have left?
You have a place that looks a lot like Philadelphia—a large eastern city on the water with interesting history and fiscal imbalances that seem to defy solutions. Philadelphia is mostly a Tale of One City. Lacking New York’s high taxes on large numbers of high wage earners, the city is able to budget $3.6 billion in spending to support its 1.5 million residents. New York City’s government, by contrast, is able to spend three-and-a-half times as much per capita, $70 billion on its 8.3 million citizens. New York is a place where trickle-down economics (supplemented by high taxes on high incomes) is a highly effective model for channeling resources to benefit its most disadvantaged.
Imagining a future New York without its acute concentration of wealth and with plunging resources to spend on its disadvantaged is actually not a fanciful exercise. Already, the large banks that represented the old epicenter of finance are morphing into more tightly regulated, less profitable and smaller entities. In their wake, a large, new generation of smaller and nimbler risk and profit-seeking firms are blossoming. And these firms don’t need to be located in New York for reasons of convenience or continuity. Southern Connecticut, Texas and London all have compelling lifestyle and economic attractions for this new wave of financiers who operate in a brave new world that is digitally hyper-linked. This trickle-out trend of wealth leaving New York is already underway. The question is whether it becomes a flood.
Scott Sipprelle is a venture capitalist who formerly located his investment business in New York City.