The Historical Roots of New York City’s Growing Tech Economy

December 4, 2015

This feature is part of an ongoing RSF blog series, Work in Progress, which highlights some of the research of our current class of Visiting Scholars.

It may be Silicon Valley that has become synonymous with technological innovation, but over the last decade, some of the most high-profile and successful tech companies—including Tumblr, Venmo, Birchbox, and Etsy—have made their home across the country, in New York City. Now the second largest in the U.S., Manhattan’s tech economy flourished unexpectedly in the wake of the Great Recession, at a time when many Silicon Valley firms were struggling. What factors account for the surprising growth of a tech industry in a city better known as a center of finance, media, and real estate?

During his time in residence, Visiting Scholar Victor Nee (Cornell University) is analyzing data from a three-year research project on the emergence of the new tech industry in lower Manhattan following the Great Recession. Among other factors, he is investigating how the high level of immigrant involvement in this industry has shaped its rapid expansion, as well as the ways in which political and economic institutions aided the growth of the Manhattan tech economy.

In a new interview with the Foundation, Nee discussed the historical precedents of New York’s tech boom and how norms of cooperation among tech workers and entrepreneurs helped jumpstart a new tech economy.

Q. Your current research explores the growth of a new tech economy in lower Manhattan, which you have identified as a bottom-up phenomenon that now makes up the second largest tech economy in the U.S. What factors gave rise to the relatively rapid emergence of these startups? Why was New York an ideal spot for tech firms to prosper, especially in the wake of the recession?

Nee: We can begin by situating the growth of New York’s tech industry within the city’s exceptional history as an important center of commerce. The city has always been quick to adapt to changing circumstances—it was first established as New Amsterdam in 1624 as a colony of the Dutch, and from there evolved into a great port city serving the transatlantic trade. Innovations in commerce organized by New York merchants further turned the city into a hub for the Caribbean sugar trade and the cotton trade. And the latter eventually provided a base for the garment industry.

The geography of Manhattan has allowed for a high degree of face-to-face cooperation and rapid movement of information. Furthermore, in each phase of the city’s history, New York entrepreneurs have innovated in small measures to jumpstart new industries. Isaac Singer, for example, helped establish New York as the center of the garment industry by innovating to produce ready-made clothes using a factory system. Then, when manufacturing declined in New York and Europe, and was replaced by financial services, New York became the center of finance.

The rise of technology-enabled services in New York during and after the Great Recession is thus part of city’s long history and reflects its remarkable capacity to use small innovations as the basis for its advantage in new sectors. Today most of the New York-based tech startups have the advantage of not having to invent the technology they use—instead, they use open access technology to service existing industries in New York. The proximity of the tech firms to finance additionally gives the industry access to venture capital and angel investors. And early on, the growth of this industry was encouraged by Mayor Bloomberg’s office and the Economic Development Corporation, which set aside office space for entrepreneurs, plus $3 million of initial seed money, which was matched 7 to 1 by industry.

Q. Your research has focused on the tech meetup as an important site for information-sharing among professionals in New York’s tech economy. What kinds of norms are established in these meetups, and how have they helped shape and expand the tech economy?

As mentioned previously, New York provided certain favorable background conditions for the flourishing of this new economy: the close physical proximity of people and businesses to each other within Manhattan, human capital in the form of large numbers of young professionals, and access to economic capital via banks and financial services in lower Manhattan. But what really spurred the tech industry’s growth was the high level of cooperation among the first tech workers who established firms. Specifically, these workers cooperated to build a series of economic institutions that would sustain and promote the rapid development of the tech economy. The main one was the New York Tech Meetup, but these employees also shared accelerators, codes, and office space that provided startup firms with inexpensive places to set up.

This type of bottom-up cooperation has been crucial in the self-organization of this new tech economy. The very pronounced tendency of people in this industry to be helpful, to share information, and to aid each other in all the key areas of setting up firms, has enabled new tech startups to flourish.

Q. You found that a significant percentage of New York’s tech workforce are first or second generation immigrants. How does their profile differ from that of the immigrants working in Silicon Valley, and how has immigrant participation shaped the new workforce?

Silicon Valley has a higher percentage of Asian immigrants because the firms based there are more hardware focused, and thereby more reliant on engineers. New York’s tech economy, by contrast, is much more focused on software and application, and the use of open access technology. As a result, you tend to see fewer Asian immigrants acting as CEOs of New York tech firms (14% of New York tech CEOs are Asian, compared to over 30% in Silicon Valley).

Yet, in our study, we found that we found that 66% of our sample—which includes half the CEOs of tech firms that were started in New York City after the recession—were of immigrant background. 27% of these were first generation immigrants, and the rest were second generation. Unlike Silicon Valley, where you find a high concentration of Asian immigrants, the immigrants in the New York tech workforce are from all over the glove, including Europe, South Africa, and the Middle East. New York has historically been a destination city for immigrants, and it’s striking how this new economy continues to benefit from a high percentage of immigrants.

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