Capital Of Capital
issue 178 - December 1987
Capital of Capital
A city is no stronger than its economy. But bankers and
investment brokers see themselves as players in a global economic
game. Walter Russell Mead argues that the human consequences
for cities like New York are catastrophic.
Yet only 12 years ago New York's future seemed bleak. Bear markets and inflation had ravaged the finance industry. The exploding costs of raw materials, especially oil, undermined traditional smokestack industries - the backbone of America's east coast economy.
To make matters worse years of irresponsible government had bankrupted the city treasury. An exodus of corporations from prime Manhattan office space jeopardized the city's long term future while falling real estate prices and a declining population threatened to torpedo the tax base.
While a desperate city laid off thousands of police, fire fighters and other public servants, politicians from other parts of the country lectured New Yorkers on their many sins. The New York Daily News, on learning that then President Ford had refused to help bail out the local government, summarized New Yorkers' feelings of fear and abandonment in the famous headline: 'Ford to NY: Drop Dead.'
But the city did not drop dead. A decade of belt-tightening austerity eventually led to fiscal stability. However the restraint was not without serious consequences: social services were cut to the bone and even today many are badly under funded.
Since 1980, commodity prices have fallen and financial markets have bloomed. The population of the city has stabilized and even begun to rise and a construction boom has added to Manhattan's vaunted skyline. New generations of immigrants (from the Dominican Republic, India, Korea and China) have brought new vitality to a once crumbling city.
The rich of all countries still come here to play and the poor still come to get rich. The city remains a worldwide symbol of modernity and enterprise. Yet New York's new prosperity has new and troubling features.
It is not merely that the new prosperity is uneven - inequality is as old as New York itself. Nor is it that the prosperity is uncertain - succeeding booms and busts are a regular feature of the city's history. What is different is that the new money has no connection with or interest in the city where it was made.
Historically, American millionaires have taken an intense, even an awkwardly fond interest in the cities where their fortunes were made. They built museums, opera houses and symphony halls: the Carnegies and the Mellons adorned Pittsburgh with universities and cultural institutions. The Fords, the Rockefellers and the Morgans sought to outdo their rivals in philanthropy as much as in profits.
But the old-style philanthropists were not entirely motivated by altruism and social ambition. There was a point to their generosity, as to most of the activities of these eminently practical men. Their interest in cities went beyond concert halls and art galleries. They were active in municipal politics and concerned with the economic and social conditions of their workers.
Wealth was still largely local in those days. Steel towns grew up near coal and ore deposits; other industries required waterways for access to raw materials. Still others could thrive only near existing towns with large markets within easy reach.
The rich had an interest in the conditions of the communities from which they drew their wealth. Their factories needed roads, harbors and bridges. Their workers, both blue and white collar, had cultural and physical needs which it was in the interest of the capitalist to meet. Take the local school system: local business magnates were keen to shift studies to their employment needs and to prevent schools from imbuing students with un-American values - whether socialism or Catholicism.
As a result, the conflict between capital and labor was usually played out on a field of compromise. In an era when neither capital nor labor was truly mobile, both parties recognized a necessity for mutual accommodation. Now capital is more mobile and the need for business to compromise with labor and cultivate local communities is steadily diminishing.
Roughly three million manufacturing jobs have moved from high-wage labor markets of Europe and America to low-wage havens in the Third World over the last decade. And the move is accelerating. Even Japan expects to lose 800,000 manufacturing jobs before 2000.
The same dramatic shift from manufacturing and raw materials to finance that helped create New York's 'new wave' prosperity has vastly accelerated the mobility of capital of all kinds. Today wealth moves around the world at the speed of light. seeking the greatest possible short-term profits. Gold has no fatherland. English. French, German. Japanese and American investors move their money wherever it will earn the best return regardless of the interests (and often the laws) of their native land.
At the moment much of this wealth pauses briefly in New York on its globe-girdling mission. It flows through the trading terminals and stock exchanges here, enriching all those with whom it comes into contact.
Yet this new wealth does not need New York. Dependent only on electronic communications, the traders and brokers could operate from anywhere in the world. Many of them do. In an era when companies may pull up stakes and move every decade, finance firms are even more mobile than most. It is easier to move a telephone than to move a steel mill.
The automation of most routine data processing operations and the computerization of record keeping have freed banks and investment firms from the enormous staffs of honest, trained clerks they once relied on. They do not look to secondary school graduates to provide a loyal and competent labor pool. They need a handful of janitors and mailroom clerks. Beyond that they rely on a national, and an international labor market to provide them with the high-flying, quick-thinking, well-trained workers they need.
The local social climate has little to do with these firms either. In the past manufacturing firms were not averse to stirring up a bit of ethnic conflict to divide workers and undercut unionization. Even so assembly line manufacturing requires a basic social order outside the factory to prevent chaos in it.
Not so for today's financial industry. A relatively small and sophisticated work force cares little for ethnic politics. Well paid yuppies can live in suburbs or buildings with private security forces, send their children to private schools, and commute back and forth to work using private cars.
The independence from local conditions is psychological as well. The currency trader or the funds manager needs an attitude that is free from parochialism. Kenichi Ohmae, one of Japan's best known management consultants, lambasts his compatriots for their backward and regressive ethnocentrism. He argues that Japanese multinationals will never gain a secure place in the world unless they become multinational first and Japanese second - like Swiss companies, or American.
The attitude that wants to make Kansas City the 'best darn town in America' has no place here. One can't make decisions on the basis of provincial loyalties. The development of truly global financial markets has taken us into an age of abstract capital' - which exists only to earn a return, not to make or buy anything real. Abstract capital moves everywhere and is home nowhere. It is purer than earlier forms of wealth, less tied to the muck and mush of everyday life with its compromises and conditions.
The 'new wave' finance industry has not so much ruined New York as ignored it. Most of the yuppie traders are simply ignorant of the city politics and needs. The schools can deteriorate, the homeless population grow - and the finance industry doesn't care. Real-estate developers have turned the city into a playground - not because the city's great financial firms are evil but because they're indifferent.
New York's cultural institutions have also suffered. The neglect is hard to spot at first. There are blockbuster shows in the museums, the art world is booming and well-publicized fund raisers have been held for institutions like the Public Library and the Metropolitan Museum.
Yet there is a pervasive sleaze to much of the fund raising and a shocking superficiality in the way the money is used. The vital branch system of the Public Library, the system on which most library users depend, operates at reduced hours starved for funds while craftsmen restore murals in the main building at 42nd and 5th. The Museum of Modern Art's renovation project was linked to a luxury apartment real-estate deal - 'Museum Towers' now overshadows the museum itself. Corporate logos loom ever larger on the city's cultural events. Arts funding has become crude corporate public relations.
The new trend is perhaps best seen in the South Street Seaport development. In theory, this complex of shops and arcades was built to support a museum that would preserve the memory of downtown New York's role as a seaport. Both physically and economically, the development has overshadowed the museum. Exhibits are scattered, almost invisible, among the Italian ice cream parlors and the 'fern bars'. The few remaining old buildings in the area are targeted for demolition by a developer inspired by the 'renaissance' brought on by the Seaport mall. Most nights of the week, hordes of drunken yuppies carouse through the seaport area, wining, dining and, as they say, 'networking' on the cobbled streets.
New York today is a place of two contrasting geographies. The concrete and asphalt grid of the actual city and rising above, the 'cyberspace' of the financiers - a world of spreadsheets and data bases buried in the steel and glass towers. For the moment, the two geographies exist side by side like horses and cows in the same meadow. It is a mirror image of conditions in the Third World, where Export Processing Zones exist as outposts of the international economy unconnected to their surroundings.
The situation is inherently unstable and some of the wisest observers of the financial world are well aware of this. Critics like Felix Rohatyn (sometimes mentioned as the next Democratic Secretary of the Treasury) tend to adopt the old-style capitalist view of the relationship between corporations and the city. Rohatyn played a key enforcer role in the consortium that averted municipal bankruptcy in the 1970's. His voice has been raised in protest, sometimes alone, against decaying city schools and collapsing civic spirit among the financial elite. Henry Kaufman of Salomon Brothers has also warned of the irresponsibility of contemporary finance. And Alfred Malabre, economics editor for The Wall Street Journal, has also warned that financial irresponsibility is preparing the way for massive political change.
Yet what is needed is a global perspective. To those caught up in it the fate of the financial industry does not appear to depend on the fate of New York. If anything the dependency is the other way around. A similar perspective has enabled the City of London to watch complacently as whole regions of the United Kingdom have sunk into decay and a whole generation has grown up in a mean, narrow world of diminished opportunity.
But ultimately fates are linked, the geographies do merge. There cannot be a strong financial economy without a strong real economy. Capital cannot range restlessly and irresponsibly through the world without creating conditions that challenge its continued existence. Yet this linkage is no longer obvious to the casual observer. The linkage was once apparent at the base of economic affairs. Now it appears at the apex as the end result, not the starting point, of political reflection.
Whether an industry and a class, intoxicated by profits and revelling in a new world of seemingly boundless opportunity, can bring itself to reflect soberly on its place in the world may seem doubtful. A financial crash followed by explosion of political opposition may have to occur before the connections become clear.
The 'global economy' has almost become a cliché. But the reality behind it has become the dominant political and economic fact of life - even in New York, the capital city of capital.
Walter Russell Mead is the author of Mortal Splendour: The American Empire in Transition, Houghton Mifflin 1987.
A SECOND LOOK
Editor: You imply that many people in the finance Industry earn their income illegally. That seems a crude way to make your point?
Mead: That was merely a light-hearted aside intended to be taken metaphorically rather than literally. The internationalization of the finance industry obviously doesn't depend on whether certain individuals act legally or illegally or whether their behaviour is ethical or unethical.
Editor: Your argument rests on the assumption that New York's 'new money' is actually made In the city and should therefore have some allegiance to it. But you also argue that finance capital has no national base. How can you have it both ways?
Mead: The computer terminals are in New York and the actions at those terminals make (as opposed to earns) the money. I don't see any obvious contradiction between asserting that the money happens to be made in one place though It could just as easily be made in another. Money has no fatherland it's true, but people must live somewhere. There has to be some level of social responsibility or even the computers won't work.
Editor: You suggest developments Iike South Street Seaport are a bad thing. But surely a new, revitalized Manhattan is better than a crumbling, crime-ridden slum?
Mead: My part of Manhattan is still a crumbling, crime-ridden slum. I can't afford to live in the areas that are being gentrified and not many medium income earners can. Areas like the South Street Seaport are designed for one class of people only: they are soulless yuppie showpieces.
Editor: You call for a 'global perspective' from the new finance Industry. But isn't that exactly what allows them to manoeuvre with such skill and success in world money markets?
Mead: The new money men have a sense of how to exploit the world economy but haven't focused on how to keep it stable and healthy. So their perspective is global in scope but limited to a small range of concerns. Just as industrial and financial barons in past generations concerned themselves with the development of national economies, today's global financiers must learn how to foster global development otherwise all of us will suffer.