Creative Class

Michael Lind argues New York and London are in for the biggest fall:

New York, London, and other financial centers were heavily dependent on financial-sector profits. Throw in the technology-driven collapse of the publishing and broadcast industries headquartered in such places, and those cities are likely to suffer devastating blows. Capitals of both politics and commerce, such as Paris and Tokyo, will adjust the best in the new state-capitalist world. Purely commercial centers such as New York and Frankfurt will suffer the most. Without the obscenely rich investment bankers and the legions of well-paid retainers who supported their lifestyles, formerly flourishing parts of these former financial capitals may become as derelict as Detroit or the crumbling industrial towns of northern Britain and Germany’s Ruhr region.

Not so fast.

NYC and London are much more than financial centers – and always have been. Sure, finance generated a lot of income, especially in the top ranks, but the data show that greater NY is not overly dependent on finance and has significant capabilities across a broad range of creative industries. Ed Glaeser has advanced several compelling explanations for why NYC’s unemployment has remained relatively low in the face of what was supposed to be devastating losses from the financial crisis, With Washington, D.C. in its mega-region gambit, New York will do just fine even if you believe Lind about the coming era of “state capitalism.”

London is admittedly more finance-dependent, but it too has considerable capabilities in media, entertainment, fashion, and as a draw for global talent. How many other cities around the world can say that? And both NYC and London have withstood far more serious blows and and emerged stronger and more resilient, as Youssef Cassis’ landmark study of global financial centers shows.

Paris and Tokyo are much more likely to lose as the global city system consolidates. This year’s edition of the Global Financial Centres Index shows NYC and London consolidating their hold on global finance in the heat of the crisis, while Paris and Tokyo are getting clobbered.

The winners in the new era of capitalism are more likely than not to share the same fundamental characteristics that have defined leading-edge global cities in previous capitalist epochs – the economic benefits of diversity and openness in attracting talent, and of density and speed in mixing to create new innovations, new firms, and new industries. Those advantages will only compound in the future.

When I wrote it way back in 2005, I argued that the biggest competitive threat facing the U.S. – and in fact the key to economic competitiveness – is the continued ability to attract global talent. Many simply smirked – thinking not a problem, really, because the world is flat – in a flat world after all, you no longer have to emigrate in order to innovate. Check out this ABC News Report:

Job losses and fears of a recession could lead more foreign workers and students in the United States to move back to their home countries – and that has some economic observers worried.
Vivek Wadhwa, an executive resident at Duke University and a senior research associate at Harvard, believes that the United States is headed for a massive reverse brain drain … “It’s a ticking time bomb for the U.S.,” the former entrepreneur said. “If they [foreign nationals] go back to their home countries, not only will we lose critical talent we need for the future, we will also bolster our competition.” … In the current climate, when hiring has declined, visa restrictions – which make it harder for workers to stay in the U.S. without a job – create significant challenges for foreign workers. … Large companies that traditionally recruited foreign talent on visas has declined as many have cut back on hiring. … Foreign students and workers tend to go back to their home after a certain period of time – often because of family – but that trend is likely to accelerate.

It’s usually the best and brightest who come to U.S. universities to study, and when they go back to their home countries, they tend to move to industries that compete with those in the United States, such as engineering, information technology and research and development.”They are fueling the rise of India and China,” said Wadhwa, who predicts that in the next five years, 100,000 Indian and Chinese workers and students will move back. That would be a considerable number, given that it matches the amount who have left over the last 20 years. But it is not just the economic downturn and visa issues that are keeping foreigners from working in the United States. Educators say opportunities abroad, specifically in Asia, also are luring both foreigners and U.S. citizens.

Economic and financial crises are one thing. But they hurt far worse when they begin to redirect the global flow of talent. In his seminal history of global economic and financial centers, Capital of Capitals, Youssef Cassis argues that the shift from one economic and financial center to another usually requires a catacylismic event like a war or economic crisis and  accompanying restrictions on global inflows of talent. The financial crisis is really just the tip of the proverbial iceberg.