Manhattan Institute

Capital of the Cyber-Century

New York’s Amazon win was the result of decades of effort to become a technology leader.

There I was, standing in the center of the Palais des Festivals in Cannes, France, in February of 1996, wondering what I was doing there. I’d been persuaded to come to Cannes by the New York developer Bill Rudin, who had an empty building in Manhattan’s financial district that he thought he could fill with something called “new media” businesses. He and some economic-development officials from Lower Manhattan’s business-improvement district had traveled to a technology show in Cannes to pitch New York to this new breed of entrepreneur, and I had come along to see if this represented a new economic horizon for a city whose other top industries—manufacturing, banking, and Wall Street—had been shrinking. I was skeptical at first, largely because I couldn’t figure out exactly what many of the firms there did. But then they started showing up at Rudin’s booth—a Sardinian company that packaged content on CD-Roms, a Hong Kong firm that produced an interactive Pink Panther game, a German publisher looking to convert print to digital. They were all intrigued at the notion of expanding into the U.S. and mildly impressed that someone from the country’s finance capital was looking for their business. Still, it seemed like small potatoes to me, jobs in the dozens rather than thousands.

Nobody who was on that trip could have imagined a day like last Tuesday, when Amazon announced that it was bringing 25,000 high-paying jobs to New York, cementing the city’s reputation as a world leader in technology. Lost amid the reaction—which ranged from canned outrage over tax incentives to worries over how the deal might test the city’s infrastructure and indignation at how all those good jobs might just worsen inequality—was New York’s achievement. Amazon’s decision was not the product of luck, or some happenstance of the digital age. Slightly more than two decades ago, a small group of true believers—developers, investors, entrepreneurs, and local officials—got the wild idea that New York could, indeed needed to, diversify its economy by grabbing a piece of this strange new digital world. That effort never stopped, even after billions of dollars of investment disappeared in the technology-stock bust of the late 1990s, or after the devastation to Lower Manhattan in September 2001, or in the aftermath of the 2008 financial crisis. Aided by governors and mayors of both parties and, most crucially, by the general and remarkable revival of the entire city, the relentless effort has paid far more dividends than even the most optimistic of us could have imagined in 1996. With the Amazon deal, which many experts say makes the city a true rival to Silicon Valley, it’s worth remembering just how improbable such an outcome seemed just 20 years ago.

The building that Rudin was trying to make attractive to European digital companies back in 1996 epitomized New York’s problems. The former home of Drexel Burnham Lambert, it had been empty since the firm, home of junk-bond king Michael Milken, had gone bankrupt in the wake of Milken’s indictment for securities fraud in 1989, leaving Rudin without a tenant in a difficult marketplace. Wall Street had gone on a wild ride since the late 1970s: it had more than doubled its New York jobs, but, in the wake of the financial scandals surrounding Drexel and the market crash of October 1987, financial firms had shed some 32,000 jobs, leaving plenty of empty space in Lower Manhattan that some experts predicted would never find suitable tenants. The outlook was so bad that in the mid-1990s, the city and state created incentives for owners to transform some of their older commercial towers into apartments, a bet on the future of downtown as a residential district. At the same time, Rudy Giuliani’s administration offered other building owners tax deals if they would transform their office towers into Internet-ready, “plug ’n’ go” spaces that new media firms could occupy immediately. Nobody was much worried back then about big incentive deals for the companies themselves. Most were too small to attract much notice in the press.

Skeptics vastly outnumbered the believers because the hurdles were significant. New York didn’t boast the technology talent of Silicon Valley, and what talent the city did have preferred the money paid by Wall Street firms, then urgently trying to upgrade their computer systems to meet the demands of the new online world. While New York had plenty of investment capital, many investors had little expertise in finding and nurturing small tech firms. At the same time, the very notion of the city or state putting economic-development resources toward a speculative new industry, one whose leaders didn’t have much clout in New York, was controversial. Much of the city and state’s efforts, by contrast, were devoted to saving manufacturing—a priority of the city’s powerful private-sector unions, and thus a preoccupation of New York’s political class.

Still, the city made progress. The emphasis on residential redevelopment in Lower Manhattan spurred commercial deals, too, because many techies moved to the city, and they were looking for a neighborhood, not a business district for their firms. At the same time, investors got smart to the new industry as they recognized its potential. Gradually, something dubbed Silicon Alley emerged. From 1995 to 2000, city employment in technology industries increased fivefold, from 27,000 to 138,000. Venture capitalists, meanwhile, began pouring money into city firms—$185 million in 1997, then $287 million the next year. Perhaps most astounding: in 1999, technology companies, led by Internet firms, rented 3.8 million square feet of office space—the second-biggest category, behind finance.

Nothing about the rise of the digital world has been simple or straightforward, however, and that includes New York’s role in it. Whole companies disappeared almost overnight in the Nasdaq meltdown, and some of those that survived in New York found themselves homeless with the devastation to Lower Manhattan after the World Trade Center attacks of 9/11. For a still-fragile industry, these seemed like lethal blows. But the 1990s had spawned a technology community that had put down roots in New York. The entrepreneurs, workers, and investors didn’t disappear. They reemerged with new companies, following the industry as it evolved. A community of so-called angel investors emerged. As big companies from around the country and the world have done for decades, the giants of the digital age began opening and expanding outposts in New York. Indeed, lost in the Amazon announcement is the fact that Google, which has been expanding its presence in the city for years and now has 7,000 workers here, owns enough office space to accommodate 20,000.

A crucial component of this growth has been New York’s overall upward trajectory. The Bloomberg administration, picking up where Giuliani left off, took economic growth as a necessary given in New York and worked to prepare the way for it by, for instance, investing in expansion of the subway system to set the stage for the development of the far West Side of Manhattan. Convinced that institutions of higher education were also crucial to local development, the Bloomberg team set up a competitive-bidding process that resulted in a joint venture of Cornell University and Techion—Israel Institute of Technology coming to Roosevelt Island. Their winning bid includes a university and business-incubator. The school’s dean sits on the board of Amazon, an indication of how important big tech firms see local institutions of higher learning that can provide them with trained workers.

In the multifaceted world of technology companies, much has changed since the mid-1990s. Firms like Amazon and Google are now so big that they can bring thousands of jobs to an area. Their size also helps make them controversial, so that pretty much wherever they go, they bring with them not only opportunity but also dissension. Amazon didn’t help its cause by creating a national competition for these jobs, eliciting hundreds of bids, only to make obvious final choices: New York and the Washington metro area.

We can speculate endlessly about whether Amazon would have come to New York without the incentives that the state and city offered, though they are actually modest within the context of local government budgets and less than what others were proffering. In the end, however, considering how much New York wastes in useless economic-development investment—the so-called Buffalo Billion seems to have evaporated without much evidence of doing any good—Amazon will almost certainly prove a very good deal for New York. Governor Andrew Cuomo and Mayor Bill de Blasio recognized as much, and have made sure that their progressive allies can’t derail this agreement by trying to squeeze the big retailer, as they squeeze virtually every company that wants to grow in New York, with demands for “investments” that often amount to little more than payoffs to the local political class.

If, as City Journal has often written, the revival of New York City is the most important urban-revival story of the second half of the twentieth-century in America, then the rise of technology in Gotham, providing a challenge to Silicon Valley, is the most important economic chapter in the city’s revival, outranked in importance only by the decline in crime that was so fundamental to the city’s rebirth.

We often complain that our politicians act with short-term interests in mind. They do that, however, because that’s usually how we judge them. But transformative economic change takes decades. It’s worth remembering that New York’s road to Amazon started taking shape years ago, thanks to the efforts and vision of many people, few of whom got any credit last week.

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