Amidst lingering growth in the advanced economies, global cities are opting for leaders who seek to reduce these cities' reliance on financial services. New York City heralds the trend.
The next New York City mayoral election is scheduled to occur on Nov. 5, 2013. The incumbent mayor, billionaire Michael Bloomberg can no longer seek re-election to a fourth term in office.
If no candidate obtains 40 percent of the vote in the September primaries, a runoff between the top two finishers will be held on Oct. 1. What is fairly certain, however, is that the next mayor of New York City will be a progressive liberal.
The red thread
Until recently, the polls were led by Christine Quinn, a Democratic politician and speaker of the New York City Council. While known for a commitment to many social causes, Quinn, the city's first female and openly gay speaker, presents herself as a results-oriented professional.
In a recent poll, the city's public advocate, Bill de Blasio, took the lead. In the past races, his efforts to improve public schools and less fortunate New Yorkers have been supported through the years by The New York Times, and the city's middle-left Democratic elite, including previous Public Advocate Betsy Gotbaum, the late former Mayor Ed Koch, former Gov. Mario Cuomo, billionaire George Soros, and Rev. Al Sharpton.
There is also the former comptroller and 2009 Democratic candidate William Thompson. As the city's chief financial officer, he diversified the pension portfolio from primarily public equities into private equity, real estate and other asset classes, tripling assets managed by minority and women-owned firms. In 2010, he joined a leading underwriter of municipal bonds.
Other candidates—the self-destructive sexting engine Anthony Weiner, current Comptroller John Liu, Giuliani's former right-hand Republican Joseph J. Lhota and John A. Catsimatidis, CEO of the largest grocery chain in Manhattan—have not been major players in the race.
Despite their great diversity, however, the leading mayoral candidates share a common denominator. In an era of lingering growth, the old financial "masters of the universe" are being replaced with socially minded liberals. It is a historical reset.
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The reliance on finance
After World War II, most European capitals, London's City and Tokyo were devastated. In contrast, New York City emerged as the international center of the postwar order, with the U.N. headquarters, the mid-Manhattan building boom, the nascent media capital, powerful exporters, the world's financial engine and lucrative property markets.
By the 1970s, America's diminished growth prospects and the rise of global challenger cities, coupled with surging social welfare costs, drove New York City to the edge of bankruptcy. When the city sought aid from Washington, President Gerald Ford pledged he would veto any bailout.
The era of Ed Koch in the 1980s was a time of restrained optimism and polarization, along with a booming Wall Street and homeless in the streets. The rebound came only with Rudy Giuliani in the 1990s, when globalization and a technology boom enabled Wall Street's resurgence, revitalization of Times Square, and the concentration of financial services, corporate headquarters and new infrastructure in New York City.
After the terrorist attacks of Sept. 11, 2001, lower Manhattan suffered a temporary exodus of business. However, Michael Bloomberg focused the city on private-public building projects which led to a residential construction boom. As a result, the city's $6 billion deficit turned into a $3 billion surplus.
In New York City, Koch challenged business. Giuliani worked with business. Bloomberg wanted business to lead. But there was a price for New York City's renaissance. It became increasingly dependent on financial markets.
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When New York City almost defaulted in the 1970s, only 14 percent of total earnings in financial services came from financial services. In the Koch era, this share increased to more than 20 percent. With Bloomberg, it soared to almost 35 percent.
The reliance on the financial sector is great as long as Wall Street booms. But if the financial sector goes bust, the city will pay the bill.
Hedging bets
Unsurprisingly, most contemporary global cities, including New York City and London, are struggling to hedge their bets by diversifying their industrial structure. Historically, this translates to a dramatic shift.
In the early 1990s, sociologist Saskia Sassen suggested that "global cities" are metropolises, in which "finance and specialized service industries have restructured the urban social and economic order." The examples included New York, London, Tokyo, Frankfurt and Paris—that is, the metropolises of the major advanced economies.
Today—two decades later—the idea of global cities is fading away, however. As income growth is stagnating in advanced-country metropolises but continues to increase in emerging-country megacities, the differences between the two sets of cities are decreasing over time.
Second, emerging megacities—from Shanghai and Beijing, Shenzhen and Chongqing, New Delhi and Mumbai, to Rio de Janeiro and São Paulo, Moscow and St. Petersburg—are unlikely to imitate blindly the Western urban centers. After all, their average per capita level is still significantly lower than counterparts in advanced metropolises.
Third, many new megacities may be destined to benefit from financial industries, but they must also avoid excessive reliance on them. Accordingly, Shanghai is not just expanding its nascent global financial hub, which will include a convertible renminbi around 2015, but it is also building a free trade zone and boosting manufacturing and service industries.
In fast-paced New York City, rankings in the mayoral race can shift overnight. But what may be far more important is the structural shift from the past laissez-faire business leadership to more progressive business cooperation. It heralds new winds in all advanced metropolises.
Dan Steinbock is research director of International Business at India, China, and America Institute (USA), and a visiting fellow at Shanghai Institutes for International Studies (China) and the EU Center (Singapore). See http://www.differencegroup.net.