The Towering Boondoggle

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Businesspeople, even very savvy ones, make economic mistakes. In 1899, Asa Candler, the owner of Coca-Cola, thought the soft drink’s future lay with the soda fountain and gave away the bottling rights. In the American folk memory the Ford Motor Company’s Edsel has become for corporate disasters what the Titanic is for shipwrecks. The reason for these lapses is simple enough. Humans are quirky, and predicting their future behavior, in the marketplace or anywhere else, is hard to do.

But capitalism forces businesspeople to try, and because their own future well-being depends on it, they try very hard. Politicians, however, don’t have to worry about market share or profits; they have to worry about getting reelected. That is why politicians have a far worse record in economic decision making than do businesspeople. Again the reason is simple: Politicians don’t really make economic decisions; they make political ones.

When politicians do make the sorts of decisions that capitalists should make instead, the results often make the Edsel seem like a good idea in comparison. Consider New York’s World Trade Center. It has been in the news lately because the Port Authority of New York and New Jersey, a joint venture of the two state governments that own the WTC, has been paralyzed. The governors of the two states are locked in a dispute over how much of the Port Authority’s vast pool of development money should be spent in each state. One of the decisions hanging fire is whether or not to sell the World Trade Center. In truth, it should never have been built.

The Port Authority was established in 1921 so that New York and New Jersey could develop to the fullest the potential of New York Harbor, which the two states share. Over the years the Port Authority built bridges, tunnels, airports, and communication and harbor facilities. But it suddenly found itself in the Manhattan real estate business because the chairman of the Chase Manhattan Bank wanted to protect his bank’s investment in its vast new downtown headquarters, completed in the early 1960s, and his family’s real estate holdings. The chairman of Chase Manhattan at the time was David Rockefeller, and he wanted to see downtown New York remade. Fortunately for him, his brother Nelson happened to be governor of New York, and Nelson Rockefeller never saw a megadevelopment project he didn’t want to build.

After a great deal of political horsetrading between the two states, the Port Authority was authorized to build in New York two skyscrapers, each taller and far more spacious than the Empire State Building. In exchange New Jersey’s chronically money-losing Hudson Tubes, a subway system connecting New Jersey with Manhattan, would be taken over by the Port Authority. In theory the profits from the World Trade Center would cover the losses of the Hudson Tubes.

The result was, from an engineering standpoint, a marvel. From an aesthetic one, however, it was at best a dubious achievement. The view of Manhattan as seen from the harbor had for decades been one of the world’s great vistas. But the huge bulk of the World Trade Center on the western edge made it look as if the entire island were about to capsize into the Hudson.

And from an economic standpoint the World Trade Center was an utter disaster. The complex was completed just as the deep recession of the mid1970s forced New York to the edge of bankruptcy. The vast supply of new office space in the World Trade Center overwhelmed demand in the downtown area. Had the state not been able to force many of its innumerable agencies to take space there, the Twin Towers would have been largely empty. Not until 1993—ironically the year it was bombed—did the World Trade Center begin to show a profit.

The World Trade Center, of course, is hardly New York State’s only big business mistake. The state has a rich tradition in this regard. The Erie Railway was New York’s World Trade Center of the 1830s. Curiously, it was the result of one of the best economic decisions ever made by the state of New York, the decision to build the Erie Canal. In order to secure the support of legislators from the Southern Tier, as the counties in New York bordering on Pennsylvania are called, Gov. DeWitt Clinton promised them an avenue of their own, once the canal was finished, built by or with the substantial aid of the state.

With the success of the Liverpool & Manchester Railway in England in 1830, the railroad craze was on, and the Southern Tier made it clear that a railroad was the sort or of avenue it wanted. But the success of the canal had changed the politics of New York State. The so-called canal ring, the legislators who came from the areas directly served by the canal, now controlled Albany and wanted no competition for their canal.