America’s “Global” City

Abstract

An upsurge in the international flows of goods, capital, and people earned the decades around the turn of the twenty-first-century designation at the second great age of globalization. Sociologist Saskia Sassen’s analysis of how this powerful trend has affected the international hierarchy of cities, her “Global Cities” hypothesis, sheds considerable light on how New York City’s economy has changed over the past 40 years.

The consumer city, skilled city, and creative city frameworks all seek the causes of urban resurgence primarily in U.S. domestic developments. And, of course, the nationwide decrease in manufacturing employment, the build-out of the interstate highway system, the changing skill requirements demanded by urban occupations, the rising value of creativity in a rapidly evolving economy, and so on all influenced New York City. As had been the case throughout its history, however, more than for any other U.S. urban region, a complete understanding of New York’s economic trajectory around the turn of the twenty-first century must incorporate consideration of developments elsewhere in the world and of the manner in which the United States engaged with the global economy. During the decades following 1970, shifts in the global geographic distribution of people and economic activity and in America’s economic relationship with the rest of the world were profound and powerful.

The two phases of globalization that bracketed the twentieth century were similar in their fundamental manifestations. Both involved rapid expansions in global trade, in cross-border flows of capital, and in international migration of individuals and families. During the first phase of globalization New York City, as the nation’s busiest port and most active financial center and as the locational choice of a disproportionate share of the nation’s immigrant population, benefited from all three burgeoning flows. More recently, the growth of the trade in goods was a headwind for the City’s economy as foreign-made apparel replaced New York’s principal manufactured product on retailers’ racks. Other differences between Globalizations Mark I and Mark II will come to the fore as this chapter progresses.

The international influences on some cities’ recent histories are the subject of a fourth body of urban resurgence analysis: the global cities hypothesis. This line of thinking and the related “world cities” literature examine the impact of the increase in international goods and services trade and of international financial flows during the late twentieth century on cities and on the emerging global system of cities. World cities are loci of the international border-spanning command and control functions. Such activities have become increasingly important for the operation of a globalized economy in which “product chains”—the conceptualization, design, manufacturing, marketing, and distribution of individual tangible and intangible products—routinely run through many widely dispersed locations. In some cases, these activities are undertaken within a single multinational firm. Other products are designed, made, and sold by different enterprises under short- or long-term contractual arrangements.

As has been the case with national systems of cities, contemporary world cities form a hierarchy. Production coordination activities undertaken with successively greater economies of scale or greater economies of agglomeration take place higher in the global metropolitan ranking. At the pinnacle of this hierarchy are a very small number of places where the highest-order command and control functions can be executed with maximum achievable efficiency. It appears that these functions can only be performed effectively in places where the most highly qualified managerial, financial, legal, accounting, and marketing resources are all present and can engage with each other face-to-face (Friedmann, 1995; Sassen, 2001, p. 5). Scholars have developed a variety of ways of identifying world cities, of ordering them by rank, and, thereby, determining which are the global cities. These efforts will be discussed below. At this point, it will suffice to say that two cities, London and New York, invariably find their places near, if not at, the top of these hierarchies.

The global cities hypotheses do not account for all of the international sources of New York City’s resurgence. This literature focuses primarily on the implications of rapidly rising international flows of goods, services, capital, and ideas. Although some of the urban resurgence analyses note in passing that U.S. cities that have attracted the greatest number of immigrants have tended to perform relatively well economically, the effects of international human migration on cities’ economic fates have received relatively little detailed attention. International migration has been particularly important to New York City. Recall that the previous chapter closed with the question of why New York City’s population was larger in 2000 than it had been in 1960 while that of all other large northeastern cities, other than Columbus and Indianapolis, had declined. Figure 18.1 points toward one of the answers to that question. All of the cities represented in the chart, except, again, for the two annexation beneficiaries, lost native-born population between 1970 and 2000. In 2000, New York’s native-born population was 1.32 million or 20% smaller than it had been in 1970. Foreign-born populations increased in most cities over this period. But only in New York did the settlement of immigrants from abroad more than make up for the loss of native-born population. Between 1970 and 2000, the City’s foreign-born population increased by 1.43 million, a near doubling.

Fig. 18.1

Change in northeastern cities’ native and foreign-born populations, 1970–2000 (U.S. Census Bureau, 2018)

The task of this chapter is to examine the causes, manifestations, and effects of New York’s position as a global city. The next and final chapter will focus on the most powerful impetus boosting the City’s resurgence, namely its large, diverse, and rapidly growing foreign-born population.

Globalization, Global Cities, Global City

Globalization

World trade expanded faster than the global economy as a whole over the course of the decades after 1970 and especially so between 1993 and 2008 (Fig. 18.2).

Fig. 18.2

Total world trade (exports + imports), percent of global GDP (The World Bank, 2018)

International investment flows also grew rapidly, roughly in tandem with trade. Figure 18.3, which represents this expansion from a U.S.perspective, indicates that U.S. investments abroad (“Assets”) and foreigners’ investments in the United States (“Liabilities”) both grew much more rapidly than GDP, the latter somewhat faster than the former. The chart also divides international investments into two categories. Direct investments are purchases of physical or operational assets, such as real estate or whole companies. Portfolio investments are stocks, bonds, and other financial instruments purchased on securities exchanges or in over-the-counter transactions. For example, Apple’s 2002 acquisition of the German software company EMagic would have been recorded as an increase in U.S.-owned direct assets, while the People’s Bank of China’s purchase of U.S. Treasury Notes would have increased U.S. portfolio liabilities. The distinction will become important because the two categories of investments affect New York City’s economy in somewhat different ways.

Fig. 18.3

The U. S. international investment position: assets and liabilities, percent of GDP (Federal Reserve Bank of St. Louis, 2018; International Monetary Fund, 2018)

The developments leading to the late twentieth-century expansion of trade and financial flows included a decrease in intercontinental freight transport costs, “neoliberal” political shifts in country after country around the world, and the ramifications of rapidly rising oil prices.

Decreases in maritime shipping costs were modest and varied over time. The very real benefits of containerization technology, for example, were offset during the 1970s and 1980s by rising fuel costs and by the sluggish expansion of port facilities. Despite rising fuel prices, by contrast, the cost of delivering goods by air decreased rapidly as jet propulsion and jumbo-jet technology came into their own. Between 1972 and 2003, average air carrier revenue per cargo-ton kilometer declined by two-thirds. The impact of cheaper air freight costs on the value of goods shipped was particularly dramatic. Between 1970 and 2000, the proportion by value of U.S. intercontinental imports arriving by air rose from 12.0 to 36.0%. For exports, the equivalent figures were 19.5% in 1970 and 57.6% in 2000 (Hummels, 2007, pp. 133, 152).

Of the national political changes that facilitated the expansion of world trade, arguably, the most profound and far-reaching was China’s ideological shift, under Deng Xiaoping’s direction, from autarkic perpetual revolution to a market- and export-oriented development strategy. No doubt, too, Margaret Thatcher’s 1979 election in the UK, Ronald Reagan’s in the United States the next year, and similar shifts elsewhere also helped clear the way for the growth of international market transactions (Frieden, 2006, pp. 364–377).

Specific geopolitical events also provided the impetus for widespread economic reorientation. Arab oil exporters’ response to the third Arab–Israeli War in October 1973, the overthrow of the Iranian Shah in 1979, and Organization of Petroleum Exporting Countries’s (OPEC) success in limiting production led to oil price increases of more than a 1000% between 1970 and 1980. Jeffry Frieden encapsulated the impact of these developments on international economic relations succinctly. “The oil price explosion gave OPEC members far more money than they could spend, and they deposited much of it … into the world’s financial markets. International bankers were eager to lend OPEC’s ‘petrodollars,’ and among the principal users of these funds were the nonoil developing countries … which needed to pay for more expensive oil” (Frieden, 2006, p. 370). To service the debt they were incurring to buy oil, countries, both advanced and emerging, were pressed by creditors to boost foreign exchange earnings by increasing exports. The investments required to produce goods for export necessitated further fund-raising in international capital markets.

The ramifications of one characteristic of late twentieth-century globalization, in particular, conditioned the impact of these developments on the economies of some of the world’s largest cities. A very large proportion of late twentieth-century international trade and financial transactions has been taking place between, within, or on behalf of large multinational (or “transnational”) enterprises (“MNEs”). These are companies that, under single ownership, operate in two or more countries. Such businesses engaged in and, in some cases, dominated a few capital-intensive industries, such as petroleum extraction and refining, through most of the twentieth century. But MNEs have come to play a much larger—even dominant—role in a broad range of industries during the era of Globalization Mark II.

The reduction in transportation costs and the lowering of trade barriers, along with rapid advances in telecommunications and information processing technology, which facilitated more geographically extensive and intricate logistical arrangements, combined to encourage MNEs to “decentralize” their operations. That is, the developments that encouraged the growth of world trade and international finance also encouraged MNEs to position each separate phase of their production processes—product conceptualization, development, parts fabrication, final assembly, marketing, and final sales—in its most cost-advantageous location around the world.

As a result, by 2010 about 80% of the $19 trillion in total world exports involved MNEs on one or both sides of the transaction. International transfer of goods or services between two divisions or subsidiaries of a single MNE located in different countries accounted for one-third of all global exports. Another third involved “arm’s length” transactions between an MNE and another entity, which might itself also be an MNE. Transactions between an MNE and a joint venture partner, contractor, franchisee, licensee, or other related but not wholly owned affiliate (“non-equity mode,” or “NEM” affiliate) accounted for about 13% (United Nations Conference on Trade and Development (UNCTAD), 2013, p. 16).

The $2.5 trillion of 2010 international transactions with or between such NEM affiliates draws attention to another manifestation of global economic decentralization. In the past, all phases of the production, marketing, and distribution process would ordinarily have been executed through departments or wholly owned subsidiaries within a single company, often at a single centralized location. More recently many firms, especially those in industries subject to rapid technological change, to the vagaries of consumers’ tastes, or to complex governmental regulation have increasingly opted for more flexible modes of affiliation. A joint venture between Sony Corporation and the Shanghai Oriental Pearl Company to make and market PlayStation game consoles in China can be taken as a paradigm of such international inter-firm relationships. Computer hardware technology tends to change quickly and fashions in electronic gaming even more rapidly. Further, segments of the Chinese consumer economy are tightly regulated by the government; imports of game consoles were, in fact, banned from 2000 until January 2014 (Reuters, 2014). In international trade statistics payments from the Chinese partner to Sony may have been recorded as purchases of parts for assembly and/or as royalties for intellectual property between NEM affiliates.

Interactions between MNEs and their non-equity affiliates are not limited to direct product manufacturing or sales. Firms also routinely “outsource” essential management and control functions through long-term, stable, contractual relationships to such service providers as investment banks, law firms, accountants, and advertising and public relations agencies. This was a long-standing practice well before 1970. What has changed more recently is that the role of these external business service providers has expanded and become increasingly complicated and mutually interdependent in a world of decentralized and international production processes. Any given management decision of an MNE that manufactures and sells its products all around the world might require expert advice in some combination of labor and environmental regulations, trade and tax law, tax accounting, macroeconomic conditions, media market practices, consumer preferences, and so on in some combination of countries. The next decision might require a somewhat or very different combination of expertise with respect to a somewhat or very different combination of countries. And the information received from an expert in one specialty might necessitate getting additional input from some other authority.

It was and is unlikely, of course, that all of the requisite expertise on all relevant topics for all countries would have been available in any single location. It is not surprising, therefore, that international trade in business services expanded in tandem with goods trade. In fact, commercial services trade grew faster than goods trade. Total world goods exports grew at an average annual rate of 5.4% between 1988 and 2010 while total commercial services exports increased at 6.2 annually on average. And financial services exports rose at a 10.8% average annual rate (World Bank, 2018).

Indeed, the necessity of multidimensional, international service capabilities became particularly acute in the field of finance. The collapse of the postwar Bretton Woods regime of fixed exchange rates in 1971 complicated MNE’s decision making with respect to where to borrow money. For example, suppose a German automobile manufacturer is considering introducing a redesigned car to be manufactured in a new plant in the United States. In addition to all of the legal, accounting, and marketing issues that need to be considered, the question would arise as to whether to finance the project in Euros in the Frankfurt or London markets, in dollars in New York or London, or in some other currency in some other city. Dollars will be spent to build the plant, but the car company presumably reports its profits in Euros, while issuing in some third market might produce a lower all-in cost of funds even after taking into account the cost of hedging some or all of the resulting currency risk. All of these options would have to be evaluated, and only an investment bank active in financial markets around the world through the years after 1971 would possess the expertise needed to provide something close to the right answer.

Further, the market volatility and general financial turmoil engendered by the demise of Bretton Woods and the oil price increases posed new problems for borrowers and investors and demand for solutions. Meanwhile, the deregulation following on rightward political shifts permitted a wave of innovative product development in the financial services industry to supply solutions (or purported solutions) to these problems. The new products designed often involved transactions in multiple national financial markets as investment bankers and investors sought to register new securities in the venues—the Cayman Islands, the State of Delaware, Luxembourg, etc.—offering the friendliest combination of market conditions, tax treatment, and financial regulation. The team of experts needed to identify the optimal booking center for any given transaction and then to get the deal done may have been as large and diverse as a group recruited to analyze and execute a German automaker’s direct investment in a U.S. plant.

These conditions—the expansion of world trade and of international investment flows, the dominance of multinational enterprises in the execution of these activities, the critical role of high-level business service providers in the operation of the global economy, and the opportunities and challenges associated with the increased volume and complexity of financial transactions—combined to set the stage for the emergence of global cities.

Global Cities

The fundamental premises of the global cities hypothesis are that

• 1. The territorial and organizational “dispersal of current economic activity creates a need for expanded central control and management” (Sassen, 2001, p. 4),

• 2. These central functions are performed within dense geographic agglomerations of high-level business service providers with multinational expertise (Sassen, 2001, p. 127), and

• 3. Such agglomerations are only found in a very few, very large cities around the world (Sassen, 2001, p. 5).

It is only natural that the phrase “central control and management” is associated with the activities of corporate headquarters. After all, major business decisions are still made by top executives and boards of directors within companies’ head offices. And before the second era of globalization, most of the analytical work in support of senior executive decision making would have been undertaken in-house or, if this activity is “farmed out,” very close physically to the CEO’s office suite. It is apparently now less often the case, however, that the information corporate governors need is necessarily gathered and processed in close proximity to where their decisions are finalized. Over the past 30 or 40 years, global corporations have moved their official headquarters away from large cities, but the formulation of the expert advice MNE executives require takes place in dense geographic concentrations of diverse business service providers in a very small number of the world’s largest metropolitan areas.

The official headquarters of the world’s largest MNEs are much less concentrated in the world’s largest cities now than was the case early in the second globalization era. In 1984, the headquarters of 211 of the world’s largest companies were located in one or another of the world’s 17 largest cities. By 1999, the number of such big-city company headquarters had fallen to 56 (Sassen, 2001, p. 109).

By contrast, the activities of firms providing internationally oriented business services are highly concentrated in a few very large cities. In 2011, a large, international team of geographers, under the leadership of Peter Taylor, produced a thorough and detailed mapping of the multiple business locations across 525 cities of the world’s 75 leading financial services firms and 25 each of the leading law, advertising, accounting, and management consulting firms. The goal of the effort was to identify the principal nodes of these firms’ national, regional, and global networks. The presence of, say, the office of a global accounting firm in a city, weighted by the importance of the local office, and the number of other cities in which that firm has offices, adds to that place’s score as a network node. The “importance” weights range from zero (no presence) to five (global headquarters). Raw connectivity scores, the sums of weighted intra-firm interurban connections, are converted into index numbers. For each service sector and for all business service industries combined, the most connected of the 525 cities is assigned a score of 100 and other cities lower index numbers in proportion to their aggregate weighted connections (Taylor, Ni, Derudder, Huang, & Witlox, 2011). Table 18.1 presents the results of this analysis for the 25 highest-ranked cities with the greatest number of intra-firm, interurban connections in each of the five business services sectors and overall.

Table 18.1 Global network connectivity indexes for the 25 highest-ranked cities in each business services sector and overall (Taylor et al., 2011, pp. 50–60)

The results are consistent with the global cities premises. First, business service firms operate in agglomerations characterized by dense networks of interurban connections. The subset of the 175 global business service firms examined with at least a representative office in 25th-ranked Jakarta, Indonesia, for example, had among them a total of nearly 53,000 weighted connections.

Second, in all sectors but one connectivity scores drop sharply below the second-ranked city. The third-ranked city overall and in each sector except financial services is consistently more than 25% less connected than the top-ranked place.

Finally, dense, full-service agglomerations of globally connected firms are found only in London and New York. One or the other of these two ranks either first or second across all sectors, and no other city consistently appears in the top five across all sectoral rankings.

Peter Taylor’s team also examined global networks of media companies. Although a wave of mergers and acquisitions has produced a small number of huge media conglomerates—Comcast and British Sky Broadcasting, for example—these businesses tend not to open branch offices around the world and remain geographically anchored in their initial home market. Global connections among media companies tend to take the form of international acquisitions, joint ventures, and partnerships. To identify the nodes of these networks, the researchers tabulated international ownership relationships and revenue sources of the 25 largest global media conglomerates.

The results of this analysis confirmed New York City’s status as a global city par excellence. New York was the top-ranked city in terms of global media network connectivity and, therefore, had an index score of 1.00. Second-ranked London’s score was 0.72. Washington, DC, (index = 0.53) ranked fifth, and Los Angeles (index = 0.39), which has a reputation as a global media center, ranked 16th worldwide.

Careful empirical work confirms that the global cities framework identifies a true characteristic of current world economic geography. Agglomerations of multinational business service and media enterprises with tight, world-spanning connections exist in big cities worldwide. Service and media enterprises in two cities, in particular, have, by far, more such international connections than anywhere else. Those two cities are London and New York.

How has its status as one of two truly global cities affected the size and structure of New York City’s economy?

Global City

Between 1990 and 2008, prior to the onset of a severe recession, the total number of employed New York City residents, the local workforce, increased by 604,142 or by 19.5%.¹ This was considerably better than the job growth performance of most other large northeastern cities (Table 18.2).

Table 18.2 Percentage change in total employed persons and aggregate and per capita nominal disposable income for the central counties of large northeastern metropolitan areas, 1990–2008 (Bureau of Labor Statistics, 2018)

It is tempting to attribute this relatively strong performance to these years’ accelerated growth of international trade and financial flows in the context of New York’s stature as one of the world’s two unambiguously global cities. If, however, there is such a causal connection, it is neither direct nor obvious. For one thing, the broad economic sectors associated with global cities—finance, business services, media—did not make a disproportionate contribution to New York’s economic expansion. Combined total payroll employment in the three “globalization” sectors grew by 6.9% between 1990 and 2008, only slightly faster than the 6.6% rate at which total nonfarm payroll employment rose over this period. The only one of the three broadly defined sectors that grew substantially was business services, in which the number of jobs increased by 136,000 or by 29.2%. Aggregate employment in the media or information sectors was basically unchanged between 1990 and 2008, and the total number of jobs in financial activities actually decreased by 56,700 (10.9%) over the period.

The impact of the decrease in total financial service jobs on the overall economy was offset to some extent by changes in the composition employment within that sector from traditional commercial banking activities and into the creation, maintenance, and manipulation of financial instruments. Over the period under examination combined total local employment in “credit intermediation and related” industries, which consist for the most part of traditional commercial and savings banks, and in “insurance carriers and related” businesses decreased from 250,600 to 152,200. The contemporaneous 28,000 job increase in “financial investments and related activities including financial vehicles” from 160,000 to 188,000 did not make up in sheer numbers for the employment decrease in traditional banking and insurance. Jobs in the growing sector, however, were much higher paid than in the former. In 2001, average annual pay in the securities, commodities contracts, and investments industry in New York County was $250,502, more than twice as high as in traditional banking and 25% above what the average employee of insurance carriers earned (Bureau of Labor Statistics, 2018).

The shift to high-paying finance jobs seems, however, to have had little effect on broad measures of regional income or its distribution. Nominal per capita personal income received by New York City residents increased by about 99% between 1990 and 2008, which was a bit below the average for 15 large northeastern cities (Table 18.2).

Nor was the increase in the number of New Yorkers receiving extremely high incomes associated with an atypical increase local income inequality. Table 18.3 lists the Gini coefficients for the average U.S. county, New York City’s five Burroughs, an estimate of that statistic for the City as a whole, and for the central counties of 14 other large northeastern metropolitan areas. The Gini coefficient is a standard measure of inequality. It would have a value of 0.00 for a population in which everyone has exactly the same income and a value of 1.00 if one person has all the income and everyone else has none. By this measure, the distribution of income in New York City was somewhat more unequal than that of the nation as a whole or of most other large northeastern cities. Indeed, Manhattan’s Gini coefficient was the second highest among the 3100+ U.S. counties in both 1990 and 2000. But the change in New York’s Gini coefficient over this decade of pronounced globalization reflected about the same increase in inequality experienced pretty much across the board in the United States and in the 15 northeastern cities.

Table 18.3 Gini coefficients of household income in the central counties of large northeastern metropolitan areas, 1990–2010 (Bureau of Labor Statistics, 2018)

What effect, then, did accelerated globalization have on the overall economy of a paradigmatic global city? A broader perspective on changes in the industrial composition of employment in New York City points to an answer to this question. That answer, of course, raises some additional questions.

Base Multiplier Analysis Revisited

The first chapter of this book introduced the distinction between a city or region’s base, or export, industries, which produce goods and services sold mostly to nonresidents, and more purely local activities that serve the resident population. New Amsterdam’s most important base industry, by far, involved beaver pelts. Locally oriented activities included the production of consumer goods that were costly to transport over long distances. Through all of the twentieth and into the twenty-first centuries, the City’s base industries were commercial and financial services, media, and apparel.

Expansion of the base industries’ employment, and the associated population increase, will lead to more activity and employment in local industries, and the proportion between these two growth rates is referred to as the base multiplier. A city’s economy can expand either because its existing base industries grow, because a new local export industry emerges, or because its multiplier increases. It does not appear that any new export specialties emerged in New York City between 1990 and 2008. Specifically, all but one of the industries with local concentration ratios below 1.00 in 1990 and above that level in 2000 were in the areas of personal or health-care services. The exception was “Management of Companies and Enterprises,” which, as a separate industry, has been treated as an export sector for both years.

Between 1990 and 2008, the peak years of Globalization Mark II, total base industry employment remained roughly constant. Employment in the apparel industry continued to decline rapidly while the growth of some sectors of the commercial and financial service and media industries just about made up for the contraction of other service-export sectors. Table 18.4 presents the data that support these assertions.

Table 18.4 Employment, employment growth, and employment concentration for New York City base (or “export”) industries in 1990 and 2008 (Bureau of Labor Statistics, 2018)

The list of industries in Table 18.4 requires some justification because there is no definitive way of determining whether or not a particular activity in a particular place serves a market extending beyond its immediate region. Further, all businesses sell goods and/or services to both local residents and out-of-towners. Even a corner bodega will have sold something to an out-of-town visitor to the neighborhood, and even the most global investment bank will likely have more than a few customers who live in New York City. So, the list of sectors in Table 18.4 reflects some observation of statistics, some common sense, and some judgment calls. The statistics are the industrial concentration ratios. These are generally well above 1.00, indicating a high local concentration of activity and suggestive that the demand does not all come from the local market. A high concentration ratio is not, however, an unambiguous indicator of export industry status. The New York City concentration ratio for home health-care services was 1.66 in 1990 and 2.28 in 2008. The high concentration in this business may reflect public policy peculiarities of New York State health-care system or the agglomeration economies associated with naturally occurring retirement communities , but the statistics certainly do not reflect any large proportion of that service’s consumers living outside the New York City vicinity. A more ambiguous situation involves colleges, universities, and professional schools . The New York City concentration ratio for this growing sector was 2.3 in 1990 and 2.6 in 2008, and schools like Columbia and New York University attract students from around the nation and the world. Clearly, the output of New York’s higher education sector includes a substantial “export” component. Still, if we take into account the City University students, almost all of whom are New York area residents and who may account for as much as one-third of total local higher education enrollment, it is also clear that a very substantial proportion of the sector’s output serves local demand.

Alternative calculations based on versions of Table 18.4 with more inclusive lists of export sectors did not, however, change the fundamental nature of the conclusion. Aggregate base industry employment in New York City did not grow between 1990 and 2008. If anything, the total number of workers engaged in producing goods and services sold to nonresidents, including those services associated with New York’s role as a global city , decreased somewhat during the heyday of Globalization Mark II. Instead, the growth that did occur must have been induced by the increase in the base employment multiplier. Why and how did that happen?