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Industries That Got Away

by Jaime Adame and Mark Berkey-Gerard, Mar 08, 2004
 
 

New York was a refuge for Eric Kandel, who arrived in the city as a child after fleeing the Nazis, and grew up in Brooklyn, where his parents ran a clothing store on Church Avenue. It was in New York that he first found he had a mind for science. It was in New York that he received most of his education. And it was in New York that, as a professor at Columbia University, he did the research on memory that resulted in his being awarded, in 2000, the Nobel Prize for Medicine.

But the company based on Kandel's discoveries, which is called Memory Pharmaceuticals and has attracted more than $88 million in private financing, is not in New York. It and its 76 employees are across the river in Montvale, New Jersey.

"Because the company couldn’t find space here, we lost it," said Kathryn Wylde of the Partnership for New York City.

Wylde was testifying at a recent hearing on how to bring in, and keep, emerging industries. It is a common lament that New York has not been doing a very good job of this, and the biotech industry as a whole might stand at the top of a list of missed economic opportunities. But it does not stand alone.

At a time when the rest of the nation is worried about jobs shifting overseas, the city long has had experience with whole industries moving out (and taking the jobs with them), dating back at least to the early 20th century, when the film production industry, which was based in New York, moved to its new headquarters in Hollywood, California. And the city - like many urban areas across the country - has seen its manufacturing industries steadily decline.

More recently, New York lost millions of dollars and thousands of jobs when the dot-com boom went bust. The cruise ship industry, long a vital cog in the tourist trade, has recently begun to seek out other ports. And the city’s airports and cargo industry, national industries that New York once dominated, are rapidly losing jobs and business.

All this matters because, as many critics point out, the city needs all the industries it can get; its reliance on Wall Street makes it too vulnerable to fluctuations in the stock market.

"It’s becoming increasingly clear that New York City desperately needs to diversify its economy," said Jonathan Bowles of the Center for an Urban Future, "and, more importantly, needs to identify new sources of employment growth in the decades ahead."

It would be too simple to blame the city government for missed opportunities. Some of what is happening may be beyond the city's control. And, putting aside general long-term strategies (such as beefing up education and job-training programs), there is certainly an argument to be made that sometimes the government's wisest course of action when faced with a new or departing company is to do nothing. There is, after all, substantial risk involved in the courting of any one industry, especially since such seduction often involves dangling large amounts of taxpayers' money. Bubbles burst; companies can implode; projected economic benefits might never materialize.

The Bloomberg administration is publicly committed to taking action, but says it is changing the focus of economic development in the city.

"We've essentially stopped the longtime practice of favoring a relatively small number of large companies with tax abatements and subsidies," Daniel Doctoroff, the deputy mayor of economic development, told the New York Times. "We have basically ended the era of corporate welfare, basically paying people to stay."

In its place, they are overhauling the Department of Small Business to make it easier for new companies to get city contracts, and promoting outer-borough business districts.

Nevertheless, in a study released last year, Bowles argued that New York City has lost traditional industries faster than other places, and has not attracted new ones to take their place.

BIOTECH

Those New Yorkers who think they know nothing about the biotechnology industry have only to look to the trial of Martha Stewart, which ended last week in her conviction. The case revolved around her sale of stock in a company called ImClone System, whose viability seemed to be slipping until last month, when the Food and Drug Administration finally granted approval for its cancer-fighting drug. ImClone is one of New York's largest biotech companies, employing about 200 people.

Many think that New York City should be a center of the burgeoning biotech industry, an industry with well-paying jobs whose revenues nationwide have more than quadrupled in the past decade, to some $35 billion in 2001, according to industry statistics. The city has 46 medical schools and major research facilities. In the decade of the 1990s, according to one study, scientists in the New York City region earned the highest number of biotechnology-related patents - some 6,800. The next highest was San Francisco, which had fewer than 4,000. In 2002, educational institutions such as Columbia, Mt. Sinai and Yeshiva University received more than $740 million in government grants from the National Institutes of Health.

Yet, a study released this month by the the trade group New York Biotechnology Association put the number of biotech companies in New York City at about 34 with 1,350 employees. By contrast, Massachusetts, mostly in and around Boston, had 250 companies with 25,000 employees; the Bay Area in California had some 71,000 jobs. What's more, another study published in 2002 by the Brookings Center on Urban and Metropolitan Policy found that San Diego, Seattle and Raleigh-Durham were the other metropolitan regions that had managed significant growth in the biotech industry -- not New York City.

Lack of Laboratories

The main reason for the city's lag, according to critics, seems to be a lack of space for laboratories.

A study by the New York City Investment Fund in 2001 called for one million new square feet in laboratory space, which would be possible with about $300 million in public funding.

Since the study, about 10,000 square feet of lab space has been completed, opening last month at the SUNY-Downstate Advanced Biotechnology Incubator in Brooklyn, with the help of $4.4 million in state funding; another 13,000 square feet of space is scheduled to open there in September. The Lower Manhattan Bioscience Project, brainchild of the New York Bioscience Initiative, seeks to create 300,000 square feet in lab space for biotech companies, though the project would cost far more than the $5 million in state funding that has been granted. City officials have poured their efforts into designating seven zones in the city that could be converted into suitable space for biotech companies, though they have no definite timetables for specific sites.

There is ample evidence, however, that a lack of lab space is not the only reason for the stunted industry in the city.

Case Study: Tenants at Audubon Park

More than eight years ago, Governor George Pataki came to Washington Heights to open the city’s first biomedical research and biotechnology park, called the Audubon Business and Technology Center, developed by Columbia University at a cost of $28 million. The city and state picked up more than two-thirds of that hefty tab.

There were five companies that were initially in talks to move into the facility. A ten-year lease couldn’t keep one of those companies, Dobelle Institute, from leaving for Portugal, where it has developed artificial vision technology that is commercially available in Europe.

Two other companies, Fluid Motion Biotechnologies Inc. and Health Sciences Consultant Group Inc. seem to have dissipated. Another, Vitex, after collecting almost $250,000 in New York State grant money, reportedly relocated its headquarters to Waterville, Massachusetts, a suburb of Boston. The company reportedly has about 80 employees.

Of the five original prospective tenants, then, only one, Ortec International, remains in the city - and it reportedly employs just 35 full-time employees.

A current Audubon tenant, Acceptys, which is working on developing human antibody therapies, does not sound too happy either. In an article called "Starting A Biotech Company in New York," (in pdf format), Acceptys head Daniel Devine advised would-be entrepreneurs to expect some serious hardships if they decide to locate in New York City. "Don’t expect anything from the city," Devine wrote. "It wants to help, but can’t do so effectively." Devine thought it "very unlikely" that his company will keep its research facilities in the city; the cost of living, he said, is just too high to attract researchers.

Fierce Competition

Part of the problem is the fierce competition. From Singapore to Iowa, governments have launched major efforts to lure biotech to their area, in what some critics such as economist Joseph Cortright consider a misplaced "herd mentality" for an industry that employs about 190,000 people nation-wide, according to industry statistics, which is no more jobs than those in more predictable industries, such as the toy and sporting goods industry.

New York's biotech boosters, however, are not discouraged. They insist that patience is key, as several New York City-based companies are now nearing the end of clinical trials (which typically last more than seven years) that could lead to government approval of their biologics and perhaps spur some growth in the New York City biotech industry.

"I think the lack of a strong biotech industry here is largely a matter of historical accident and misperception," Harold Varmus, another Nobel laureate, wrote in the Times a couple of years ago. "Yet the prospects for biotechnology here could change, rapidly and dramatically, if we decided to promote our many strengths."

CRUISE SHIPS: HELLO, BAYONNE

The cruise industry began in New York, with the first ship offering passenger service between New York and England setting off in 1818. The industry largely catered to the wealthy until recent years, during which the industry has seen explosive growth.

Cruise ships left a port in the United States 6.5 million times in 2002, and cruise ship lines are pouring money into new ships, with about a dozen of them reportedly scheduled to make their maiden voyages this year. The Queen Mary 2, which will travel between New York and England, is billed as the largest and most expensive liner ever built - weighing 151,400 tons and costing $800 million. The industry has always dovetailed nicely with the city's tourism industry, making the city a natural port for cruise ships, and as a result annual revenues are put by the city at $600 million, and jobs at 3,300.

So it came as a jolt when, in December, the Royal Caribbean Cruises -- one of the three companies that make up the bulk of cruises departing from New York City - announced plans to dock two ships in Bayonne, including the mammoth Voyager of the Seas, which holds more than 3,000 passengers

The port facilities on the West Side of Manhattan are simply not big enough or new enough to accommodate the cruise ships that once carried several hundred passengers but now routinely carry several thousand. "When these new larger ships dock at the passenger ship terminal, space that in the past could berth two ships will only be able to accommodate one," Kate Ascher of the NYC Economic Development Corporation testified last month at a hearing on the industry.

The facilities, built in the 1930s, have not undergone a major renovation since the 1970s. Since taking over the port in 1996 from the Port Authority, the city has invested money into the facility only for emergency repairs and to stabilize the aging structure, which is in danger of sinking into the Hudson River.

It is not just the port itself, but the area around it. "On busy days last year, the terminal handled over 18,000 people," Ascher said. "On these days, traffic is backed up along the West Side highway, and shuttle buses and taxis cannot access the site, resulting in long delays, missed flight connections, and angry passengers."

In an attempt to stem further migration, the city announced a $50 million renovation of the port facilities. The city currently is deciding how to handle the size problem. A temporary facility off the coast of Brooklyn is being planned that would allow the larger ships to dock more comfortably, while an upgrade to the West Side facility would allow the cruise companies to keep a Manhattan home base. It would cost an estimated $250 million over ten years to complete these projects, according to Ascher. The city plans to announce its final plans this spring.

"What we don’t want is to look at our waterfront a decade from now, watching cruise ships depart from other nearby homeports and kick ourselves, saying ‘we coulda been a contender,’" said Craig Hammerman, district manager of Brooklyn Community Board 6, in testimony last month before the City Council, perhaps intentionally echoing Marlon Brando's comments during the days of a very different waterfront.

City officials are, again, optimistic about the future. They say that the number of passengers that pass through the West Side terminal has jumped from 400,000 in the 1990s to nearly 900,000 last year, and expect the number to increase to 1.7 million by 2010.

This depends, though, on the amount of investment, and it is not clear whether the cruise industry itself will be willing to pitch in financially, though Carnival Cruise Lines did propose building a $100 million passenger terminal on Pier 7 in Brooklyn a year ago, a plan that the city rejected, at least for the moment.

WHATEVER HAPPENED TO SILICON ALLEY?

At the height of the boom, in 1999, the New York New Media Association, a trade association, said that Silicon Alley - the name (a take-off on Silicon Valley in California) given to the cyber businesses that had largely set up shop below 23rd Street -- employed more than 100,000 people in the city, and had created an entire culture of the young, the intelligent... and the rich.

A few months ago, the New York New Media Association announced that it itself is going out of business. And it lasted longer than most.

When technology stocks collapsed in 2000, many of the high-tech businesses were exposed as mere ideas with no plan for producing a profit. Most of New York’s new media companies disappeared as quickly as they were born.

But the dot-com bust, some argue, was ultimately not a bad thing. It helped the city in the long run by weeding out the failures from the real businesses.

"The technology sector is not going to go away," Bruce Bernstein, president of the New York Software Industry Association told the New York Times. "Instead it will shake out some of the most extravagant pure Internet plays."

Information technology is still an industry that offers the possibility of job growth in New York. And the lure of Silicon Alley induced the city to upgrade some of its crumbling infrastructure.

It was during the dot-com boom that the Giuliani administration created a city agency of technology and came up with the idea of laying fiber-optic cable in the city’s underground abandoned pipes. The city also created programs like “Digital Districts”with hi-tech wired office space for technology businesses and tax breaks for business that relocate to these areas. Mayor Michael Bloomberg - who made his billions in the information technology industry - has continued that push in the hopes of attracting new businesses in the future.

AGING AIRPORTS AND AIR CARGO

For much of the last half century, LaGuardia and John F. Kennedy airports have been among the busiest in the country, and the air cargo industry in New York, the most lucrative.

The city’s airports employ nearly 50,000 people and thousands more related jobs like restaurant and hotel workers, warehouse employees, truck drivers, cab drivers and government workers in the surrounding area.

In the last decade, however, the cities airports have lost business and jobs at a dramatic rate, according to a report by the Center for an Urban Future.

Both JFK and LaGuardia have seen the number of passengers they see each day decrease. In 1991, JFK was the nation’s seventh busiest passenger airport in the country; a decade later it dropped to 14th. During the same time, LaGuardia dropped from 15th to the 22nd among the nation’s airports. The overall decline in air travel after September 11, 2001 hurt New York City particularly hard.

In 2002, 10,000 airport-related jobs in the city were eliminated - more than any other industry in the city.

The most critical area in aviation for jobs and business however is the cargo industry - shipping of domestic and international packages.

Kennedy was once the busiest cargo airport in the world, today it has dropped to number five in the country. This has happened at a time when the cargo business is booming.

In the last ten years, cargo traffic increased by 79 percent at Newark International Airport, by 68 percent at Miami International Airport and 49 percent at Chicago O’Hare Airport. During the same period, cargo traffic at JFK grew only by 26 percent.

New York City is falling behind other cities because its airports, warehouses, and most of all, its highways are outdated. The Van Wyck Expressway and the Belt Parkway - the only major highways leading to Kennedy Airport are often jammed up with traffic.

The city is trying to upgrade its airports. It recently completed the AirTrain, which will hopefully ease some traffic congestion. Kennedy has built two new terminals and LaGuardia is upgrading. But unclogging New York City’s highways are a long-term problem that will continue to cost jobs and business.

GOVERNMENT’S ROLE

Proponents for business say there is much the city government can do to help attract and keep companies in the city -- streamlining regulations, upgrading technology and the city’s infrastructure, and creating better partnerships between educational institutions and business. Improving schools, reducing crime, and building affordable housing are also critical to making the city a place where people want to live and work.

However, some economic hardships - September 11, a national recession, a war overseas, a blackout - cannot be overcome by city or state government programs.

And when the city is competing with other cities or suburbs that offer large inexpensive space in hi-tech office parks, New York still relies on the less tangible qualities of life in the "greatest city in the world" to attract business and jobs.

"Perfect we're not," Mayor Bloomberg likes to say, "but who would want to live elsewhere?"

RELATED LINKS

New York City Economic Development Corporation
Center for an Urban Future
Partnership for New York City


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