Newsweek The Big Apple's Big Problem

New York City

When Michael Bloomberg stood on the steps of City Hall last week to be sworn in for a third term as New York City's mayor, he spoke in upbeat terms about the challenges ahead. The situation, however, is far more difficult than he portrays it. American financial power has shifted from New York to Washington, while global clout moves toward Singapore, Hong Kong, and Shanghai. Even if the local economy rebounds, the traditional media industries that employ many of Bloomberg's influential constituents likely will continue to decline. New Yorkers have long had an outsize view of their city; historically, its mayors have touted mottos that encouraged that view, from Rudy Giuliani's "capital of the world" to Mike Bloomberg's "luxury city." But as Bloomberg begins his new term, New York needs to reexamine its core economic strategy.

A good first step would be to recognize that the world owes New York nothing. The city cannot simply rely on inertia and the disbursements of Wall Street megabonuses to save its economy. Instead, it needs to rebuild its middle-class neighborhoods and diversify toward a wide range of industries that can capitalize on the city's unique advantages—including its appeal to immigrants; the port; and its leadership in design, culture, and high-end professional services.

It's also time to get rid of the Sex and the City image and start making New York a city where people can have both sex and children. This will become more important as the millennial generation enters its late 20s and early 30s later this decade. This is when many young migrants to the city, including upwardly mobile immigrants, typically become ex–New Yorkers.

Despite all the "back to the city" hype, New York over the past decade suffered one of the highest rates of out-migration of any region in the country. Young singles may come to New York, but many leave as they get older and have families. An analysis by the city controller's office in 2005 found that people leaving the city were three times more likely to have children than those arriving.

If New York is to thrive, it will need to keep more of these largely middle-class families. To do that, it needs to diversify its economy beyond Wall Street, which in 2007 provided roughly 35 percent of all income earned in the city. Since the recession, the city has lost 40,000 financial-service jobs, but the industry has been quietly downsizing for years: over the past two decades, more than 100,000 financial-services jobs have disappeared from New York. In good years, financial services provided an enormous cash engine, but it can no longer provide enough jobs. According to an analysis by the Praxis Strategy Group, finance now accounts for barely one in eight jobs in New York City. Most job growth has come instead in lower-paying professions like health care and tourism.

To become economically sustainable, New York needs to create policies that help encourage development in areas where its less wealthy citizens live. Most outsiders identify New York almost exclusively with Manhattan, yet roughly three out of four New Yorkers actually live in the outer boroughs: Queens, Brooklyn, Staten Island, and the Bronx. Neighborhoods like Bay Ridge, Whitestone, Flatbush, Howard Beach, and Middle Village are really New York's middle-class bastions.