The love that consumers have for Amazon did not translate into support for bringing half the company’s HQ2 to Long Island City among many New Yorkers – including some elected officials representing Western Queens and the newly charged progressive left. While there’s a likelihood that Amazon’s footprint in New York City will still grow, the lost promise of 25,000 jobs is a setback to the city’s hopes of capitalizing on the growth of the tech sector. But the city’s strategy of building a major tech industry was the right one and it should work even harder at it going forward.
Understanding the tech sector in New York requires going back to the mid-1990s dot-com boom. Across the country, towns and cities developed strategies to lure high-tech companies. In Kingston, New York, IBM had settled in, injecting an annual $2.5 billion into the economy of the region only to leave a few years later. Other cities relied too much on internet startups that were doomed by the internet bust in 2001.
New York City suffered a similar fate, due to a different dependency. Silicon Alley, clustered along Broadway in Flatiron and in close proximity to Madison Avenue, relied heavily on media and advertising technology. In 1999, over 500 startups were founded, and by the next year only a few dozen survived in the crash.
The dot-com bust epitomized the early years of the new tech economy. But where Kingston struggled to regain its footing, New York flourished in its revival. In the years following Sept. 11, 2001 – and with then-Mayor Bloomberg and Deputy Mayor Dan Doctoroff fearing a recession – New York City planners prudently sought to bulwark the economy from external forces. A blue-ribbon panel of business, labor, academic and political leaders organized by U.S. Sen. Charles Schumer had released a report focused on addressing the economic needs of the city and its shortage of office space. It would set the groundwork for the city’s efforts to transition New York from its “FIRE” – finance, insurance, real estate – economy to a focus on “ICE” – innovation, culture and education.
Over the next decade as tech in the city grew to become home to the second offices of Silicon Valley’s tech behemoths, and as companies headquartered in New York City like Gilt, Tumblr and AppNexus emerged, it also grew around its strengths in fashion, media and advertising. In the aftermath of the 2008 financial crisis, city officials once again sought diversification for a city dependent on Wall Street and doubled down on using the “ICE” economic model.
New York City’s Economic Development Corporation, or NYCEDC, identified the biggest challenge for tech’s growth and for tech companies: finding brilliant engineers. Rather than filling office space with growing startups, it beckoned these companies and then ensured they would stay by supplying them with talent. The city would make a massive investment into its human capital by attempting to attract a top-tier tech university through a global competition, Applied Sciences NYC. It established a new university, Cornell-Technion, as well as New York University’s Center for Urban Science and Progress and Columbia University’s Institute for Data Science and Engineering. The colleges would join other existing programs to ensure a robust pipeline of engineers.
Today, tech in New York state has expanded faster than any other sector since the Great Depression, comprising 326,000 jobs at over 9,300 tech companies. This is the third largest number of tech workers in any state, behind only Texas and the lead, California, at 880,000 jobs. The growth rate, at 25.5 percent between 2010 and 2016, is impressive enough, but the average tech salary has grown at three times the rate of any other industry in the city. Salaries in New York City’s tech sector average a cool $147,000 annually.
These numbers speak to one thing: The technology sector cannot be ignored. It has played a key role in New York City’s recovery since 2008 as well as its explosive growth. Nationally, the digital economy has been growing at triple the pace – 5.6 percent – of U.S. GDP over the past 10 years compared with 1.5 percent of the economy at large. It is a crucial part of what has driven the stock market to all-time highs and the economy to full employment.
But in the past 100 years, New York City and New York state have never birthed a major tech company on the level of Facebook or Google, and so it has remained second to Silicon Valley. Besides IBM, which was founded in upstate New York in 1911 and is currently headquartered in Armonk, New York, with only a fraction of its workforce there, it doesn’t have the sheer number of these massive world-changing companies as California does.
New York state’s efforts to foster the tech sector has focused on New York City, “Tech Valley,” Buffalo and, recently, Syracuse. “Tech Valley,” an out-of-date marketing name to describe the high-tech corridor encompassing the Capital District and Hudson Valley, boasts a world-competitive semiconductor industry and is the second great example of planning that has worked – though it came at a cost. In 2009, GlobalFoundries’ $4.2 billion chip plant opened in Malta. At the time, it included the largest cash grant incentive package in the history of New York and the United States. Close to $1.4 billion in a mixture of cash and tax incentives were provided to produce 1,400 jobs. Those jobs later quadrupled directly and indirectly and the investment by into the fabrication plant doubled to $15 billion over the years. In that case, New York state didn’t even compete only with other American states and cities, but with China, Singapore, Russia and Brazil, all of which offered comparable incentives. Even Israel has doled out incentives for Intel, underscoring that, in a highly globalized world, any region is a competitor.
Many regions seeking to advance their own tech clusters may falter or fail – Syracuse’s Surge could – but the economic underpinnings of local and regional systems will be bound to tech as the diffusion of technology enterprises and startups move into second-tier regions and cities. Tech-based economic development strategies should be incorporated into the toolkit of city officials and urban planners throughout the state. Developing a culture of entrepreneurship and risk, as well as networks of mentors and investors, is often realized through accelerators, incubators and coworking spaces.
But other strategies are integral to the development of innovation economies: Focusing on ensuring there is ample tech talent – and not just through universities, but also through “code schools”; ensuring that research and development occurs and that there is tech transfer, where new technology can go to market; defining regional strengths and existing industries as competitive advantages, where opportunities for tech-tethering can be advanced; investing in early-stage and maturing companies through “evergreen” funds supported by government that continually reinvest; and incentivizing large-scale technology projects where the measurable economic impact will be compelling. Incentives, though not ideal, are an unavoidable reality, but when approached correctly within tech-based planning, can be immensely positive for a region’s economy and provide win-win scenarios for the public and private sectors.
New York City, though booming by all metrics, shouldn’t ease up on the gas pedal when it comes to tech. If Amazon is gone, it should find a better partner to grow high-paying jobs and transition New Yorkers into the innovation economy.