Cities Need Leaders . . .
By Joel Kotkin
When entrepreneur Richard Riordan became Mayor of Los Angeles in 1993, he confronted a city still smoldering from the previous year’s riots. Yet the Mayor saw the collapse of Los Angeles’s business elite as perhaps his greatest long-term problem. Large firms were leaving the city, and those that remained increasingly believed L.A. was becoming, as one top Disney executive put it, "a third world" country. "As things were changing, and getting worse, the ceos in L.A. lost their power and their commitment," the 66-year-old Riordan recalled as we walked around his lush Brentwood neighborhood. "When the older guys gave up, there was no leadership, no strong group who considered commitment to the city and philanthropy important."
Los Angeles, a community whose old elites had brought forth a mega-city on semi-desert land now seemed leaderless. Nothing so epitomized the vast power vacuum as a series of projects—once touted by the civic leadership—that stood underfinanced, unapproved, or in limbo. They included the proposed $200 million Disney Hall, a new cathedral, a downtown sports arena, and the Alameda Corridor, a cargo transportation link between the central warehouse district and the nation’s largest port.
Five years later all those projects are either essentially funded or under construction. To revive Disney Hall, hundreds of millions of dollars in private contributions have been committed, not only from the usually diffident Disney Corporation but also from powerful new players such as SunAmerica’s Eli Broad, shopping center magnate Ron Burckle, and the Times-Mirror Corporation. Most of these donors were cajoled by the Mayor himself.
"You have to have a core of people who enjoy power and exercising it," explained Riordan, a native of Flushing, Queens. "Back in the ’50s it was a Committee of 25. They had the ability to make things move. Now we’re showing people again that being committed to the city and to charity is a good thing. We are trying to lead by example."
Raising the issue of leadership may disquiet some members of the business community. The radical sociologist C. Wright Mills once observed, "American men of power tend to deny, by convention, they are powerful." Attempting to exercise local leadership can be particularly troublesome in these radically egalitarian, highly litigious times. It seems easier to lose oneself in the daily running of a business or to speechify on a national stage than to work to better a particular neighborhood or region.
Yet a region’s business leadership must play an important role, or that region will face long-term decline. "A business aristocracy that hoards its own privileges at the expense of the exercise of power marks the decline of modern liberal democracy in the West," argues sociologist E. Digby Baltzell. This doesn’t mean business should dominate all decision-making, but one fact is inescapable: Engaged commercial elites are inevitably the prime drivers behind economic growth and wealth creation.
Ever since villagers herded into something that resembled a city, this pattern has held true. In his classic work, A Study of History, Arnold Toynbee attributes the development of successful societies, and cities, to the ability of their ruling elites to meet current challenges and anticipate future ones. "All growth originates with creative individuals or small minorities of individuals," he declared, suggesting that it was the elites, not the masses, who were critical in helping societies to meet new challenges.
In ancient Athens, Aristotle compared citizens’ personal interest in the community to that of sailors seeking to bring their ship safely to port. When this strong sense of civic commitment—based on family, religion, and tradition—collapsed in the Greek city-states in the last centuries before Christ, those city-states ended up collapsing. Then came the rise of Rome, greatest of the city-states, which later also collapsed when the rich no longer sought to lead society but contented themselves instead with personal enrichment while shirking public responsibilities.
Likewise in America, entrepreneurs paced the development of our early trading cities—Boston, New York, Philadelphia, Savannah, Baltimore, Charleston—and also played a critical role in the Revolution. In nineteenth-century America, urban centers flourished along with business elites who developed civic projects reflecting both their own ascendancy and that of their cities; these projects included New York’s Central Park and Columbia University. Although a huge gap separated New York’s ruling circles from the vast majority of that city’s residents in the nineteenth century, many projects promoted by the elites—such as the Croton water system, completed in 1842, the paving of Broadway, and the new sewer and police systems—improved the lives of the working and middle classes.
Ultimately, American urban elites lost their political power after the electorate was reshaped by massive waves of immigrants, mostly Irish, German, and later Italian. Unable to keep political control, New York’s "bluebloods" forged a tacit alliance with the immigrant-dominated Tammany Hall—an alliance that persisted into the late 1950s. It survived, says Ed Costikiyan, a former Tammany Hall leader, because the powerful men who dominated New York—Rockefellers, Vanderbilts, Fricks, Morgans—sought to erect private monuments to their economic power rather than construct great public buildings. "For the most part business didn’t care about the governance of the city," explains Costikiyan, now a well-regarded lawyer. "They didn’t care much who was Mayor. If they really wanted something, they’d just ask for it, but that was about it."
Costikiyan traces the current decline of civic elites in larger cities to the 1930s and the rise of the federal bureaucracy. Reliance on local economies and local wealth generation began to be supplanted by a growing dependence on federal monies. At the same time, the increasing importance of national affiliations in the postwar era eroded local affinities. When elites sent their children away to schools favored by their counterparts across the country, connection to the local community weakened. For example, elite Philadelphians, Baltzell suggests, grew increasingly attached to their class rather than their city, with disastrous consequences for the region.
For a while, federal help was promoted as the answer. Aid to older cities rose by over 300 percent during the 1970s, but it dropped under Reagan, and as the Washington lifeline became ever weaker, taxes and borrowing by local government rose, making the cities even less competitive. By 1996 the highest costs of doing business were in traditional big cities.
In some places, such as Cleveland, strong business leadership worked to stave off economic collapse. After the 1977 election of populist mayor Dennis Kucinich, the reeling economy (the city lost 131,000 manufacturing jobs from 1947-82) brought Cleveland to bankruptcy. A city that had boasted the third largest concentration of Fortune 1000 firms lost a full third of them in the 1970s.
The Mayor’s rhetoric did not exactly encourage businesses to stay. "Unless the banks begin to respond to the needs of Cleveland residents," Kucinich warned, "a tremendous uprising of anger and bitterness will be directed against them." But some business leaders, such as former Eaton Corporation president E. Mandell DeWindt, were not about to be chased out of town by the brash 31-year-old "Dennis the Menace." In 1979 they plucked Lieutenant Governor George Voinovich, a Republican from Cleveland’s ethnic neighborhoods, to run against Kucinich. Voinovich won and—with the support of some 90 leaders from companies such as trw, Nestlé, and Bank One gathered under the umbrella organization Cleveland Tomorrow—he initiated a series of economic development reforms and downtown projects like the Rock & Roll Hall of Fame that helped Cleveland recover from its seemingly inevitable decline.
Still, the payoff from Cleveland’s much-heralded "turnaround" has been less impressive than widely assumed. Job losses have continued, albeit at a slower rate, and the poverty rate has grown substantially. "We didn’t create a booming economy, but we found a reason to exist," says Richard Shatten, former executive director of Cleveland Tomorrow and now professor of public policy at Case Western Reserve University.
Such corporate-led efforts are becoming increasingly problematic. As major firms become more reliant on external capital and markets, many executives face pressures that work against their involvement in local issues. "Globalization has changed people’s loyalties," observes Mike Bowlin, president of arco, traditionally a linchpin of the L.A. establishment. "Twenty years ago arco had Los Angeles in its heart, and we were more of a regional company. Today our operations are all over the country and the world. So the shareholders have to ask, Why is Los Angeles more important to you than Singapore?"
Many of today’s corporate executives grew up in the "me" culture of the 1960s and reject out of hand the old standards of noblesse oblige. Often they seem willing to shift their headquarters closer to where they live and play, usually enclaves far removed from the city. "That’s always the big joke in the real estate business," says Randy Strait of Houston’s Trans-western Property Company. "You try to find out where the chairman lives and show him a building nearby."
Even those who stay, Costikiyan notes, tend to be less committed to the city than was true in the past. It’s not unusual for top New York executives to establish homes in Florida and other warm-weather places—spurred in part by much lower income and estate taxes—well before retirement and to consider those their preferred domiciles.
Costikiyan adds that the changing character of the New York economy, increasingly dominated by Wall Street financial interests, has also weakened the ties of business elites to the city. Such giants as J.C. Penney, W.R. Grace, American Airlines, Mobil, and Atlantic Richfield have all followed the national tide to the South and West. Wall Street, which remains as Manhattan’s bulwark, is by nature a "transactional" community, with most of its funds and profits originating from investments elsewhere. So its ties, Costikiyan says, "tend to be pretty tenuous."
In contrast to the decline of elites in cities like New York and Los Angeles, many smaller cities have developed effective leadership. A classic example is the Research Triangle area of North Carolina, where almost three decades ago a combination of local business, government, and academic planners set out to develop an eight-mile-long series of industrial parks within close range of Duke, the University of North Carolina, and North Carolina State.
To a New Yorker, Raleigh-Durham might seem duller than dull, and insufferably provincial. "Twenty years ago, you’d ask for lox here and people would tell you that the hardware store was down the street," recalls John Kasarda, President of the Kenan Institute at the University of North Carolina. But for firms such as ibm, Burroughs Wellcome, and Northern Telecom, the Triangle’s planned environment has proven ideal for attracting skilled technical workers.
The ascendancy of once-peripheral areas will likely accelerate with advances in communications and transportation. Digital technology allows information to be transmitted from remote locations with ever greater ease. Mid-size cities such as Portland, Charlotte, and Orlando now boast direct flights to cities in Asia, Europe, or Latin America. Partly because of their scale, mid-size cities benefit from a more tight-knit leadership. "We have a great sense of common purpose that holds us together here," says Pat Davis, a Seattle port commissioner. "People here know each other. It’s easier to cooperate and not attack each other if you’ve been serving on committees together."
Such a small-town sensibility links the fate of companies to their regions. The development of Microsoft’s highly centralized command structure in suburban Redmond reinforces previous decisions by Puget Sound companies to put their main facilities close to home, despite that region’s relatively high taxes and soaring property values. Job growth in the Seattle area has averaged nearly 3 percent a year for much of this decade.
The new crop of Seattle billionaires, represented by individuals like Microsoft co-founder Paul Allen, bankrolls not only a host of small technology firms but also the local football team, the Seattle Seahawks, and a $250 million restoration of downtown’s old Union Station. Eric Scigliano, senior editor of the alternative Seattle Weekly, adds that the "downtown establishment has done an excellent job of bringing the heretics from the media or smaller companies into their club."
Elites in cities well below the top of the population rankings are often adept at regional boosterism. Brad Bertoch, president of the Wayne Brown Institute, a Salt Lake City organization that promotes the region’s high-tech industry, sees this as the product of consensus-building among local media, political, and business leaders. Successful local entrepreneurs are regularly lionized in the press and at local business conferences. In such an atmosphere, virtually the entire business community becomes an adjunct of the promotional machine. "The modus operandi here," Bertoch admits, "is an ounce of perception is worth a pound of performance."
Perhaps the most cohesive elite is in Atlanta. Ever since the 1960s a unified, promotion-oriented business leadership, anchored by such companies as Coca-Cola and until recently cnn, has boosted the region as among the best for business. Though the city itself is among the poorest and most crime-ridden in America, the region has projected a progressive, prosperous image to the rest of the world. Indeed, from 1980-94, the Atlanta region’s population grew more than twice as fast as that of Los Angeles and almost ten times as fast as metropolitan New York’s, even though the city proper continued to lose residents.
Business consultant Otis White, president of Community Leadership, a consultant group in nearby Decatur, says greater Atlanta’s continuing success stems from a strong commitment among its business leaders—with the assent of the political and media elites—to present their region in the best possible light. The city’s key players, including both the largely black political establishment and the major corporations, have cooperated on endeavors such as the Olympics, mass transit, and construction of the new Turner Field.
For mega-cities such as New York and Los Angeles, the ability to compete with smaller cities will hinge on the capacity to reinvigorate the local elite. In Mayor Riordan’s case, this has meant trying to identify new leaders. The recent creation of the Los Angeles Business Advisors (laba), including ceos from over a dozen leading regional employers, has been effective in rallying corporate support for projects such as the Disney concert hall, the new downtown arena, and charter reform. But no group has been able to exercise power on the magnitude of the old elites. "Los Angeles is not like Dallas or [like] Los Angeles was in the period of the Committee of 25," observes arco’s Michael Bowlin, a laba member. "You can’t run a city like this with 20 white middle-aged leaders. A lot of people wouldn’t trust them."
Laba has failed to connect with the entertainment industry—arguably Los Angeles’s ascendant economic force. Like Wall Street, Hollywood is led by individuals who are highly cosmopolitan and usually lacking in strong local attachments. They can be generous, but they have mostly focused on specific causes such as aids, the ucla Medical Center, Cedars-Sinai Hospital, the Museum of Tolerance, and the Simon Wiesenthal Center, rather than on the fate of the region.
Affinities that are likely to be stronger, and ultimately more reliable, can be found in other sections of L.A.’s information economy, including theme park design and multimedia. Regional trade organizations such as the Themed Entertainment Industry Association, and Lawnmower, a 500-company multimedia networking group, have begun to flourish. As in other parts of the emerging economy, members of these groups tend to come from small, even tiny organizations. "In an industry like this one, you have to create a community before you can build a career, a product, or a company," explains Lawnmower founder Jim Jonassen.
Spurred by the economic crisis of the early 1990s, more conventional industries have also established sector-based organizations, ranging from the Toy Industry Association of Southern California to the Food Industry Business Roundtable. They have become increasingly involved not only in "networking" but in lobbying political leaders and establishing a higher public profile for their industries.
In some cases, they tackle problems common to their industries; this June the California Fashion Association announced plans to begin offering health insurance to garment workers employed by their member companies. "We are pointed at as a sweatshop industry, an industry that doesn’t care about its workers," observes the Association’s Ilse Metchek. "This is the most effective, immediate thing we can do—making health care affordable and available for every worker in the garment industry."
Workforce development is another activity of these industry networks. The Industrial Leadership Council, for example, an association of small manufacturers, has set up training programs for machinists. Several animation firms, including Disney, Sony, and Dreamworks, have sponsored programs in animation and other entertainment-related trades at local schools.
At the same time, the burgeoning minority population—during the 1990s the L.A. region has led the nation in Asian and Latino growth—points to the rising importance of another kind of network, one based on ethnic affinities. Each ethnic group has its own set of challenges relating to governmental contracting, discrimination, immigration laws, educational commitments, or other matters. In some places, such as Chinatown, East Los Angeles, Westminister, and Santa Ana, minority business organizations constitute an increasingly critical element in the emerging economic leadership. Although few minority entrepreneurs feel openly excluded, many believe that mainstream business organizations like the L.A. Chamber of Commerce have been slow to recognize the increasing role of minorities, and women, in the region’s new economy. "What you have are thousands of Guatemalans, Salvadorans, and Koreans with small businesses," says Wes Ru, who has started several manufacturing firms in the tough Pico Union neighborhood west of downtown L.A. This economic reality is different from the past, Ru says, "but it’s the basis of something very vibrant."
These disparate ethnic, industrial, and sub-regional groups represent the true dynamism of business leadership in the huge diverse metropolitan regions of America. As these linkages grow over time, they could provide the basis for a new kind of concert of economic interests. Functioning as an informal "network of networks," this new model would function in an ad hoc manner, with groups working together when necessary, separately when appropriate. It is not a model that will thrill those who seek a return to a more homogeneous or politically "balanced" kind of leadership. But it could prove essential to what Toynbee defined as the true mission of successful elites—to help their communities, cities, and regions meet the challenges of a new era.
Joel Kotkin is a senior fellow at the Pepperdine Institute for Public Policy. He recently completed a study of urban leadership for the La Jolla Institute.
THE AMERICAN ENTERPRISE, SEPTEMBER/OCTOBER 1998
