The Best Stuff on Earth?
Why, it's Made in New York, of Course
New York City is well-known as a center for finance, culture and
media. But, technological advances and the demand for specialty
goods has fostered a renaissance in the city's high-value manufacturing
sector. New York City houses some of the world's most innovative
manufacturing firms, such as Nicole Miller, a leading designer and
producer of women's clothing; Dakota Jackson, Inc. a pioneer in
the use of advanced technologies to design and make furniture; and
AMPF, one of the world's foremost manufacturers of picture frames
to the art world.
Many New York manufacturing firms, initially created to serve local
markets, have evolved into global export firms; for example, William
Greenberg Desserts of Manhattan, famous for its kosher baked goods,
has grown from a local bakery into an international producer of
specialty desserts; Skilled immigrants have also fueled the revival
of small-scale manufacturing; Doreen Interiors, founded by an immigrant
from Yemen, has been responsible for designing the interiors of
luxury hotels and resorts across the country. And the Garment Industry
Development Corporation has recently established a new center in
Chinatown to assist immigrant entrepreneurs and workers in the ladies
apparel industry.
Information technologies have also generated new opportunities
for customized, printing and publishing in New York City. Digital
Ink, located on Varick Street in what was once the branch office
of a commercial bank, uses new digital printing and color separation
and scanning technologies to do short-run, on-demand printing for
entertainment firms.
Wait a second. Weren't manufacturing jobs in New York supposed
to be a thing of the past? The data sure seems to say so.
At its peak in the 1950s, New York had over 950,000 manufacturing
jobs. In the four decades since, the city has lost some two-thirds
of those jobs.
In fact, the decline once seemed so steady and inexorable that
local policymakers concluded that there was no future for manufacturing
in New York City. They concentrated their economic development efforts
on other sectors, such as financial and business services, where
New York is perceived to retain a competitive advantage.
Such a focus, however, proves to be short-sighted. A study conducted
at the Taub Urban Research Center at NYU's Wagner School of Public
Service suggests that the true portrait is more complex, and there
is much reason for optimism.
Forty Years of Decline
An examination of the recent history of manufacturing in New York
reveals not a monolithic trend of job loss but, in fact, two divergent,
simultaneous trends:
A continued loss of jobs in industries that produce high-volume,
standardized goods in which competition is largely based on unit
price; and the persistence and growth of firms that make more specialized
products, that have close ties to New York-area markets, and that
compete primarily on the basis of factors such as design quality,
customer service and quick turnaround time.
Despite the losses over the past 40 years. New York still has 280,000
manufacturing jobs within its borders.
In the early 1960s, New York City was not only the leading location
for corporate headquarters, financial services, international trade
and travel, and the arts, it was also a major manufacturing center.
One of every 20 Americans then employed in manufacturing worked
in New York. In the years since. New York has retained its leadership
role in headquarters siting, financial services and the arts. But,
it has lost more than 650,000 of its manufacturing jobs. Today fewer
than one in 60 American manufacturing workers are employed in New
York City.
What happened?
Improvements in transportation since World War II has been one
important factor. The interstate highway system, new shipping technologies
and the growth of commercial aviation obviated the need for manufacturers
to locate in cities, close to their major markets. This enabled
businesses to look for other locations with cheaper land, energy
and labor. Changes in mass production have been another factor.
Manufacturing plant designs that stress large plants laid out on
one level, rather than a vertical factory layout, put cities at
a disadvantage.
As a result of these changes, some industries have become particularly
prone to leaving central cities.
New York City's experience is strikingly consistent with other,
older central cities. On average, older urban areas lost 58 percent
of their manufacturing jobs between 1958 and 1987, suggesting that
broader economic forces, not local policies and practices, are principally
to blame.
New York's Manufacturing Survivors - Who They Are
With all the bad news, it would be easy to conclude that no manufacturers
have been left standing. However, as our dinner party demonstrates,
that is not so. The survivors largely fall into five broad categories:
The Fashion-related Industries. New York, a sophisticated
city with a sophisticated fashion sense, remains the country's leading
apparel manufacturing center. This industry, which also includes
jewelry and cosmetics manufacturers and makers of specialized equipment,
such as mannequins, is the largest part of the city's manufacturing
sector, employing in 1992 100,000 workers, more than a third of
all manufacturing jobs.
Other Design-based Manufacturing Industries. This cluster,
which employs some 17,000 workers, includes producers of textiles,
furniture, luggage, electric lighting equipment, and toys and sporting
goods. These industries locate in New York for reasons similar to
fashion-related businesses. As a result, the city's assets in terms
of access to design talent, information about market trends and
a sophisticated customer base are important.
Suppliers to New York's Service Industries. These firms,
which employ 26,000 people, have primary customers concentrated
in the city. These manufacturers include specialty printers serving
the financial and advertising industries; producers of medical instruments
and supplies; and makers of goods for New York's art industries,
including scenery, costumes, audio equipment and picture frames.
These businesses rely on close proximity to customers, quick response
and excellent service to maintain a competitive advantage. In many
cases their customers are relatively insensitive to price, focusing
instead on speed and quality of service.
Companies Serving Local Markets. These businesses, which
employ 34,000 workers, remain in New York to serve local markets.
Largely part of the service industry, they include publishers of
local newspapers, makers of food products and suppliers of building
products to the local construction industry. These firms should
be considered at serious risk for moving outside the city to lower-cost
suburbs, especially those which need to expand physically.
Residual Firms. This cluster includes all other firms that
stay in New York after their original rationale for being here has
been greatly weakened. Reasons for remaining might include unamortized
investments in a New York plant, a reluctance to disrupt or lose
an experienced workforce, or simply the personal preferences of
the owner or chief executive. This group should be considered at
high risk for decline.
Why They Stay
A review of the main surviving industry clusters suggests several
key reasons why manufacturing activity, despite its precipitous
decline in recent decades, is likely to persist in New York. These
include:
Specialized Markets. For some manufacturers, a New York
City location offers access to specialized markets that could not
be served as effectively from elsewhere. These can be as varied
as the market for financial printing or the market for kosher desserts.
Competition Based on Quality and Service Rather Than Price.
These firms compete primarily on the quality of their product design
and workmanship, and the strength of their customer service, including
quick response time.
Growth of Highly Productive Specialty Manufacturing. Increasingly,
production has moved in the direction of small, specialized plants
focusing on small-batch outputs and able to move rapidly in and
out of particular market niches.
Network Advantages. In some industries, a New York address
enables firms to take advantage of beneficial networks. The successful
launch of a line of garments, for example, might require the combined
efforts of a textile designer, a textile manufacturer, a garment
designer, a garment manufacturer and retailers.
Labor Force Advantages. Companies in our study placed a
high value on maintaining their existing skilled workforce, access
to a large pool of blue-collar workers and the availability of a
large immigrant labor pool.
Transportation advantages. New York City's extensive mass
transit system is a crucial factor for many manufacturers. It assures
access to a large pool of blue-collar workers.
The New Manufacturing Entrepreneurs
New York's future in manufacturing depends not only on the survival
of existing firms but on the development of new ones. An analysis
of unpublished Census Bureau data on the Characteristics of Business
Owners (CBO) indicates surprisingly strong recent growth. The data
suggest that despite all the problems associated with manufacturing
in New York, the city does provide fertile ground for new, small
manufacturing enterprises.
The most striking feature of the CBO data which shows there were
at least 7,600 small manufacturing firms in the city is the recent
high rate of formation of new manufacturing firms in New York City.
In 1987, 55 percent of all small manufacturers had been started
within the previous three years; by contrast, only 38 percent of
such businesses had been started nationally And, encouragingly.
New York City had a better survival rate for young firms: in 1991,96
percent of small manufacturing operations started between 1984 and
1987 were still in business, compared to 78 percent outside New
York.
New York's small manufacturers are not like those elsewhere. The
data show owners of new manufacturing firms in New York are younger,
more likely to be women, and far more likely to be a minority or
an immigrant.
Local and State Government: Partner or Obstacle?
Clearly, there are opportunities for manufacturing to grow and
thrive in New York City. The question is, at the highest levels
of leadership, is the city taking advantage of these opportunities?
As part of our study, we asked manufacturing executives to assess
whether local and state government were providing an environment
conducive to new manufacturing activities. Many characterized government
as an obstacle. They expressed five principal areas of concern.
Policies That Raise the Cost of Doing Business. Manufacturers'
complaints about high New York State and City taxes were common,
and the city's commercial rent tax was a target of particular criticism.
The Difficulty of Expanding in New York City. This is a
significant issue, since it gives impetus for relocating. The problems
cited included the lengthy, unpredictable permitting and regulatory
approval processes.
Difficulties in Accessing Economic Development and Training
Programs. New York City and State have a variety of programs
to assist small businesses. Some of the manufacturers surveyed have
found these programs quite helpful. However, others said they found
dealing with the economic development agencies difficult.
Concerns about Workforce Quality, Public Education and Training
Programs. While many manufacturers cite access to a large labor
pool or their desire to hold on to a trained workforce as one of
the most important advantages of a New York City location, many
also express concern about workforce quality. They cited the low
skill levels and lack of preparedness for work among recent public
school graduates, and mixed experiences with publicly funded worker
training programs.
Unsupportive State and Local Procurement Policies. Several
manufacturers state and local governments do too little to support
local businesses.
Fostering Growth
Local policies made by elected officials were not the reason New
York lost manufacturing jobs over the last 40 years. But they may
make all the difference in the world between fostering or stifling
new manufacturing enterprises in coming decades, and the future
need not be a continuation of the grim past. However, in the end,
the entire responsibility cannot rest with government. Manufacturers
have a responsibility to help themselves. They should form a roundtable
or similar organization to insure that their issues are addressed.
Conclusion
The two basic trends of the recent past in manufacturing will continue:
industries that mass-produce standardized goods will continue to
decline, while more specialized firms will thrive. However, it is
important that policymakers not make easy assumptions; sources of
competitive advantage are not static. They need to recognize the
impact on manufacturing of other trends, such as New York's increasingly
foreign-born population, the growth of export trade.
Mayor Giuliani has recognized the importance of manufacturing.
In a 1996 address, he acknowledged the potential of manufacturing.
He called for new policies to help industry start and expand in
New York.
New York will not regain its position of 40 years ago as a major
center of manufacturing employment regardless of local policies
or investments. But manufacturing in New York is not doomed to extinction.
In fact, the city should be striving to make a 'Made in New York'
label a virtual brand name, one synonymous with top quality, high-end
design and the best customer service. This sector of the local economy
should not be written off.
Originally published in Stern Business, Fall
1997
The Stern School of Business
New York University