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Jewish World Review August 9, 2000 / 8 Menachem-Av, 5760

Amity Shlaes

Amity Shlaes
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Silicon Alley Secrets

Why has grimy New York become a high-tech star? -- NEW YORK doesn't always keep up with the rest of the country in periods of prosperity. Back in the early 1990s, for example, when the economy was moving into recovery, the financial centre proved disconcertingly slow at adding jobs.

At the time, and later, many suspected that the old model of financial capital-cum-port might be outdated. After all, the argument ran, who needs a city to run a fax- or e-business when it is so much comfier for the family to work out in Napa Valley, or off the ranch in Montana? Back offices too were said to be better sited far away, where cheap and educated labour supplies were available. They couldn't have been more wrong.

First came the rise of Manhattan's "Silicon Alley," proving that lower crime and proximity to a financial center is also a draw for the modern business model. Since then the boom has spread to the city's outer boroughs, over to Jersey City on the other side of the Hudson, and even upstate to Dutchess and Ulster counties, leading the tech world to dub greater New York "Silicon Alley Valley."

Mark Goloven, regional economist for Chase, notes that upstate New York, which long suffered from stubborn unemployment, is now seeing strong job growth. A new multi-company tech center at an old IBM facility is, for example, generating fresh jobs in Ulster County. In other words, Northern Ireland's software industry will have to continue to boom if it is to keep up with its namesake.

But the most astounding story remains the city. It had virtually no "new media" jobs as recently as 1994, now counts more jobs in this category than in the construction industry.

An analysis by the not-for-profit Citizens Budget Commission revealed that New York had more registered domain names than any other city in the country.

And some of this summer's new numbers reveal that New York is even growing faster than the rest of the country. The nationwide National Association of Purchasing Managers' key monthly manufacturing index has, for example shown successive drops every month since March. New York-specific job data culled by the very-same NAPM shows Gotham still blasting heavenward. For the period of March to June, the city's manufacturing index increased 1.7 per cent, before angling upward another 2.2 per cent in July.

An article published this week in the quarterly City Journal* offers some interesting insights as to why grimy old New York has become such a high-tech star. The first is the valuable labour supply resulting from heavy immigration. Today a full 40 per cent of New Yorkers are foreign born, the highest level since 1910. These workers, many of them relatively educated, have been crucial to New York growth, and even drawing companies that would have settled elsewhere to the city.

"New York city has a wealth of human capital, supplying us with multinational and diverse employees," Uruguyan born Fernando Espuelas told the City Journal. After founding Star Media Network, a provider of internet services to Latinos and Portugese speakers, Mr Espuelas and his partners moved Star Media to Manhattan from Connecticut.

Another reason for the boom has been the desire for old-fashioned Wall Street or City of London-style proximity. "If you are 45 minutes from your clients in this industry you get the business. If you are three hours away, you don't," William Schrader of PSINet told City Journal.

Given the cliche that today, you can site a business anywhere, it is particularly surprising to find executives in virtual businesses insisting that they need the presence of a physical market place. Yet that is what the Silicon Alley model seems to be saying.

There is evidence too that New York's new e-job base may weather downturns better than new economy firms in other parts of the nation. A PricewaterhouseCoopers study covered in City Journal showed that more than half of New York's New Media businesses were already in the black by 1998, a favourable ratio given that many e-businesses this summer are running on fumes. This though is not to say that New York is invulnerable. The city would be growing even faster, some observers argue, if not for its heavy tax burden, ranked in the top ten of the 50 states. New York for example imposes a commercial rent tax on firms. It is the only city with such a tax in the nation. (DoubleClick will pay about $2.8m in rent tax over the next 15 years). The best thing the city can do to keep Silicon Alley Valley shining would be to reduce such levies.

JWR contributor Amity Shlaes is a columnist for Financial Times . Her latest book is The Greedy Hand: How Taxes Drive Americans Crazy and What to Do About It. Send your comments by clicking here.


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