A public-policy expert explains why some big cities are the best place for successful entrepreneurial commerce.
Think cities are death to entrepreneurial commerce? Then come see New York or L.A.
New York City's Avenue of the Americas may not be Main Street America, but for Sol Dutka there's no better place to build a fast-growing business. From his large office in a low-rise building in Chelsea, Dutka runs Audits & Surveys Worldwide, a market-research company with more than 600 employees in 60 countries.
With its concentration of ad agencies, designers, software writers, and media, Dutka's native city offers him a veritable cafeteria of talent and potential clients that would be all but impossible to assemble anywhere else. Although, like many New YorkÑbased companies, Audits & Surveys has been approached by states and municipalities with financially attractive incentives that would drastically cut Dutka's tax bill, property costs, and regulatory burden, he intends to stay put.
"To me, New York epitomizes the information and service economy," says Dutka, whose company racked up 1995 sales of nearly $60 million. "New York offers an environment that allows people to grow, to improve their skills. The universities are here, the computer schools -- you can find anything you want. In Springfield, Ill., it's just not the same. Sure, they have talented people -- but here we have them in depth."
* * *
The Valhalla Syndrome
The idea that major cities can be fertile soil for fast-growing businesses reeks of contrarianism. Disenchantment with cities has reached epidemic proportions -- even among city residents. In a recent survey conducted for the Regional Plan Association of New York, only one-third of the residents of metropolitan New York expressed satisfaction with their quality of life, less than any region in the country. And that discontent can be seen in the massive exodus of people (in the past four years more than 861,000 moved out of the New York City area alone), most of them to smaller cities and towns.
The problems facing companies in large metropolitan areas sometimes seem insurmountable. The cost of living in a city like Los Angeles or Philadelphia is as much as 30% above the national average; in Manhattan, it's more than 100% higher. The tax and regulatory burdens companies have to shoulder are also typically much heavier in cities than in small, hinterland communities. But one of the worst drawbacks is that as the major cities have become overpriced, they've become ever more plagued by poverty and despair. Since the urban riots of 1968, the cities' share of the population living beneath the poverty level has grown from 30% to 42% -- despite the expenditure of roughly $2.5 trillion on antipoverty and urban-aid programs.
It's no wonder, then, that quasi-rural "Valhallas" -- once out-of-the-way places like Lancaster, Pa.; Albuquerque, N. Mex.; and Huntsville, Ala. -- have been lionized in the press and among business-development professionals for providing the family-friendly and business-friendly environment no longer available in large metropolitan areas.
Yet even as the Valhalla syndrome captivates corporate executives and journalists as well as weary urbanites, there are signs that cities -- from New York and Philadelphia in the East to Los Angeles and San Francisco in the West -- are reinventing themselves. Equally important, the urban economies themselves appear to be undergoing an enormous, albeit painful, transformation.
As government, traditional middle-management, and mass-manufacturing jobs vanish from the urban landscape, new jobs are springing up in industries like entertainment, specialty manufacturing, international trade, and consulting. After a near-disastrous half decade marked by net job losses, New York City showed a net increase of some 34,000 jobs in 1994 and 1995, most of them in business services, the arts and culture, and tourism. In 1995 business-service employment in New York grew by 5,000 jobs, a healthy 2.2% gain, while film and video production made a gain of 10%.
The most persuasive evidence of an urban comeback, however, comes from the other coast. Last year both the San Francisco and San Jose areas generated legions of new jobs -- 20,000 in San Francisco and as many as 40,000 in the San Jose area. Those jobs cropped up largely in high-end business services and communications (which also happened in New York), as well as in high-tech manufacturing, which has hit a rebound. But the real surprise may be found in Los Angeles, which saw a boom in job growth in both 1994 and 1995. Last year at least 70,000 to 90,000 net new jobs were created in Los Angeles. As in New York, the job creators -- in fields such as international trade, services, and entertainment -- were finally beginning to exceed continued losses in middle management, government, aerospace, and traditional manufacturing jobs.
That certain industries are not only surviving but thriving in some cities reflects not so much the general competitive edge of cities as much as the specific strengths of individual urban regions. New York City, for example, is still the advertising, communications, and graphics mecca of North America. Southern California, with its talent in design and movie and television production, has emerged as the 20th century's global capital for mass culture. Madison Avenue hasn't moved to downtown Lancaster, nor has Hollywood shifted its center of operations to Phoenix or Boise.
At the same time, it's clear that some urban areas, particularly those without well-developed service-oriented industries, may not fare that well. "In this transition some cities may actually get worse," predicts Mitchell L. Moss, director of the Taub Urban Research Center at New York University's Wagner Graduate School of Public Service. "There's no reason for a Newark, a Camden, or a Detroit to get back. But there are cities that will flourish. They will be those that can attract people because of a particular industry, a university, an entertainment, something they can offer."
