Steven Malanga

The New New Left

Thomas Chen, the founder of Crystal Door and Window in College Point, Queens, came to America and got a job as an apartment-building superintendent when he found he couldn't stand working in a Chinese restaurant. He started making and installing window bars and gates during the late 1980s, when crime in the city was spiraling out of control. Soon he had a thriving side business, and in 1990 he opened Crystal with just a handful of employees. Today the firm employs 250 production workers in a 210,000-square-foot facility in Queens and is well known in the local Chinese community as a reliable employer. Many of the plant's workers have moved into neighboring Flushing to be near the factory. 'Most of our workers are immigrants, and many have been with us almost from the beginning,' says Chen. 'They are extremely loyal.'

Although this 1990s entrepreneurial boom is a pure product of the free market, government policies nevertheless permitted it to take off, just as they aborted it in the 1980s—and the contrast between the two eras is an instructive one for policymakers to consider now. In the devastating recession of the late 1980s, when small neighborhood establishments were already struggling, government hikes in business taxes and fees to close budget gaps sent firms of all types reeling, and the Dinkins administration further crushed small businesses by burying them under a mountain of tickets for commercial violations. Spurred on by high quotas, inspectors from the sanitation, consumer affairs, and fire departments blitzed neighborhood businesses, collecting an additional $20 million in fines and fees in fiscal 1992 alone.

These tickets added a sometimes crushing price to the cost of doing business, especially for neighborhood retailers. For instance, every sanitation violation for an empty bottle of Night Train Express dropped by a passing derelict in front of a store brought a $50 fine, and after a dozen violations, the fine quadrupled to $200. At one point the Small Business Congress, a lobbying group formed to protest the blitz, counted more than 100 Korean grocers paying $200 per ticket. This shakedown sparked bitterness among stores struggling to survive; storeowners wondered if the city even wanted them.

The overall effect on small business was devastating. In 1991 alone, evictions of small firms for nonpayment of rent doubled. Not surprisingly, minority business growth slowed appreciably. From 1987 to 1992, the number of minority firms in Gotham grew by just 20 percent, less than half the national gain—and much of New York’s paltry increase came from new Asian businesses serving the city's growing Chinese and Korean communities. By contrast, the city's tiny black-owned business community—just 2,371 firms employing 8,779 people—actually shrank under Dinkins, even though the city's first black mayor provided special support to them in the form of micro-loans, special grants, and set-aside programs that gave minority firms a 10 percent price advantage when bidding for city contracts.

The Giuliani administration took a far different approach, focusing on broader policies that support the overall economy, like tax cuts and public safety, rather than relying on programs aimed at particular groups. Mayor Giuliani reversed the city's course on taxes—cutting key levies, including some crucial to small business, like the unincorporated business tax, the sales tax on clothing, and the tax on commercial rents, which reduced rents by 4.25 percent everywhere except Manhattan’s main business districts.

Giuliani had proclaimed that his most important economic tool would be to lower crime in the city, a policy crucial to the economic revival in the outer boroughs, where the drug trade had ravaged retail strips, and theft, muggings, and vandalism had drained the life out of manufacturing zones. A 1989 study found that 83 percent of the city’s small firms reported being victimized by crime in the preceding three years and that one in five were considering leaving the city as a result, while 11 percent said they had scrapped expansion plans.

Today, the story is dramatically different, as the revival of a two-mile strip of Franklin Avenue in Crown Heights shows. Drug dealers had taken over much of the Brooklyn strip by the early 1990s, driving away stores and frightening residents. But by the end of 1996, crime had fallen 45 percent, and hopeful local residents and community groups began to visit owners of boarded-up storefronts and encourage them to try to lease their properties again. Slowly, stores started coming back to life. 'In our first 16 months we attracted 22 new stores,' says Evangeline Porter, head of the community association in the mostly black neighborhood. Many of these stores belonged to local residents who liked what they saw happening around them. Ann Marie Fraser, an accountant who had lived in the neighborhood for 20 years but operated a storefront tax service elsewhere in Brooklyn, decided to relocate to Franklin Avenue in 1999. 'I could see the changes in the neighborhood, like the new residents—white, Asian, Latino. We hadn’t seen anything like that in years,' she says now. Fraser's was the first new business on a block with four boarded-up stores. Now all the other shops have been rented, too. 'I'm hoping for 500 new clients this tax season,' Fraser says.

New York accomplished all this even while it was abondoning a Dinkins-era program to aid minorities through affirmative-action contracting, which gave minority firms an advantage in securing city work. Mayor Giuliani ended the city's minority contracting program in 1994, claiming that such special perquisites were unfair and ineffective in helping minority firms. Instead, he argued, minority firms would benefit from a better overall economic climate, and he was undeniably correct. In the mid-1990s, minority businesses in New York spectacularly outperformed those in cities with minority contracting quotas and preferences. In Houston, for instance, a city that has emphasized set-aside programs for 17 years, the ranks of minority entrepreneurs increased a wan 11 percent between 1993 and 1997, compared with the 80 percent gain in New York. In Atlanta, two decades of set-aside programs have benefited only the small group of privileged vendors who land plum government contracts. Atlanta's minority businesses and sole proprietors increased at only half the pace of New York's gain in the last economic census.