The Impact of New York City's Economy

Instructor: James Walsh

M.B.A. Veteran Business and Economics teacher at a number of community colleges and in the for profit sector.

This lesson explores the economic history of New York City and its outsize impact on the rest of America. We will cover its stages of development from a transportation hub and manufacturing center in the 19th century, to the center of the information economy that it is today.

Transportation Hub

The modern economy of New York City began to emerge in the 1800s. New York had unique natural advantages that allowed it to become the leading port city in America. It was more centrally located than Boston or Charleston, an advantage if you wanted to ship from Europe to one location that could serve the entire United States. Another is that the Port of New York is simply deeper than any other port on the East Coast, and it's also naturally protected from storms and ice by Staten Island and the Brooklyn peninsula. The depth of the port mattered a great deal as trans-oceanic commerce was growing rapidly and ships were getting bigger and heavier. A hub and spoke system emerged where New York was the hub, and goods were collected from there and distributed to the spokes, which were the other states and territories of the U.S.

This hub and spoke system flourished during the 19th century. Cotton and tobacco from the southern states were shipped to New York, where they were loaded onto larger ships for the trip to Europe. For the return trip, the ship was loaded with a variety of manufactured goods and textiles to be brought back to New York. The European goods were then distributed to other parts of the U.S. from New York. New York became the most populous city in the U.S., and by 1860 its port was the most important port. To this day, the city has the largest population of any city in the country.

Manufacturing City

New York City also emerged as a manufacturing center in the 1800s. It started with sugar refining in the 1700s. Raw sugar was transported from the Caribbean to the Port of New York, where sugar refineries naturally emerged. Scale economies are important in sugar production because cane sugar is bulky and expensive to transport. Refining it in large quantities into the much smaller bags of finished product that could then be distributed made more sense than transporting the cane to smaller refineries around the country. For these reasons, New York became the central sugar refiner for the whole country.

As the 1800s progressed, another industry rose to dominance in New York: the garment trade. England had long had the advantage in garment production from early industrialization, but things began to change. The invention of the sewing machine in 1846 changed the technology and made the mass production of ready-to-wear clothing feasible. And where better for this to take place than in New York City, since the textiles needed for production were being shipped there from England already! Soon an entire section of the city became known as the 'garment district,' which made clothing for all of America.

The needle and button is a reminder of the history of the garment trade in New York City
Fashion district

A third manufacturing category, printing and publishing, had an unusual and interesting start. It seems that pirated copies of the latest sensational novels in London were finding their way into the holds of cargo ships bound for New York. Entrepreneurs quickly grabbed them up and printed copies for distribution in America. Soon both pirated and legitimate American work were being printed and published in New York.

Immigration and Diversity

The growth of these three manufacturing sectors would require a large number of laborers to work in the factories. That problem solved itself quickly, as immigration from Europe to the U.S. skyrocketed after the Civil War. During the 1870s, America saw around half a million immigrants per year, but immigration peaked between 1903 and 1912 as over 12 million Europeans left their homeland due to famines and impending war.

The overwhelming majority of these immigrants passed through the Port of New York. Many of them stayed right there, as immigrants of all races and nationalities were welcomed in the city and state. Historically, many of the colonies were founded by different religious groups fleeing persecution in Europe. For example, Pennsylvania was a Quaker state, Maryland a Catholic one. New York, on the other hand, had no dominant religion. It welcomed the best and brightest from all religions, and this carried over into a racial and ethnic tolerance that gave it a real competitive advantage over other cities in attracting the brightest minds from all over the world.

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