I Love L.A.

Why Los Angeles is quickly replacing New York City as the economic capital of America in 1989.

Tweet

Why Los Angeles is fast replacing New York City as the economic capital of America

When New York City native Albert Boyars shipped out with the navy during World War II, his will specified that if Boyars were killed in action he'd be buried under the trolley tracks in Times Square. But today Boyars -- like many involved in New York's small-business community -- finds his company handicapped by conditions fostered by the very city he loves.

Beset by proposed rent increases that would total 350%, Boyars's company, Trans-Lux Corp., last January shut down its popular multiscreen show, The New York Experience, after 15 years of operation and more than 6 million customers. Boyars is now looking for another venue for the show. "We just can't do it here anymore," he says.

Boyars's case is not an exceptional one. Once the center of a vibrant and creative entrepreneurial community, New York's smaller companies are often squeezed out now as a handful of corporations, banks, insurance, and other financial-services companies govern the city's economy. As a result, New York -- long the cultural and financial center of American life -- is rapidly losing its primacy.

Across the country another city tells a radically different story. Los Angeles was long regarded as Tinseltown, a sprawling company town for the Hollywood fantasy factories. But in recent years Los Angeles has developed into a leading center for art, fashion, and advertising -- industries once dominated by New York City.

This shift from New York to Los Angeles reflects what Washington Post senior writer Joel Garreau calls the "edge city" phenomenon: entrepreneurs looking to start companies in suburban settings as opposed to downtown centers. While New York has become ever more dependent on the fading powers of Wall Street and the Fortune 500, Los Angeles's economy thrives on a mix of small, fast-growing companies, a high rate of new business formations, and new jobs. And at a time when manufacturing activities are becoming a driving force for economic growth, southern California boasts the nation's largest and most vigorous industrial economy (see chart page 3).

Propelled by the growth of trade with Asia and increased immigration, southern California is rapidly replacing New York as the new center for international commerce. The port of Los Angeles-Long Beach is now, in terms of the value of goods handled, the nation's largest. Los Angeles's downtown, once deteriorating, now bustles with new construction projects, many of them financed by Japanese and other foreign investors.

"New York's going to remain a great city, but 20 years down the road, things may change," believes Sam Ehrenhalt, commissioner for the New York region of the federal Bureau of Labor Statistics (BLS). "Los Angeles has the raw physical energy and, if they harness that, it will become the true world city."

Until the October 1987 stock-market crash, New York City's economy seemed buoyant even with its weakened small-business sector. But while small business accounted for nearly two-thirds of all new private-sector jobs nationwide between 1978 and 1986, entrepreneurial companies accounted for only about one-fifth of New York's new private-sector jobs from '78 to '87. Almost all of the city's growth came from its large financial firms and those ser-vice businesses, like law and consulting, that feed from the paper economy. "It was easy to become service oriented with all these service giants around," notes Lee Smith, an economic adviser to New York governor Mario Cuomo. "We had this transaction-based economy that helped keep the hotels filled, the printing firms busy, and the lawyers happy."

This success, Smith points out, conditioned New York's political leadership to regard lightly the slow decline of its small-business community. Big business was the future, and the city lavished tax abatements and other breaks on such giants as Chase Manhattan and NBC in order to keep them from leaving their high-rent Manhattan towers. City leaders looked the other way as soaring rents and energy costs strangled many smaller, nonfinancial companies, ranging from photography studios and ethnic restaurants to theater companies.

Perhaps the most severe damage took place in New York's once large industrial sector. For nearly a century the city was an energetic national center for smaller, specialized manufacturing concerns. Over the past decade alone, it has experienced a 30% drop in manufacturing employment, a reversal even more severe than that felt in the Rust Belt. From 1985 to '87, as the nation gained 243,000 new manufacturing jobs, New York City's industrial sector atrophied. Its industrial firms laid off 6% of their employees.

 1 | 2 | 3  NEXT