(2003-01-30) Nyc Economic Development

William Tucker on NYC Economic Development/Urban Design efforts. "Trying to attract out-of-town businesses is a losing game," says David Birch, founder of ArcAnalytics, a Cambridge Ma, research firm... Instead, successful cities start and grow new businesses. "Our studies show all job creation is being done by small companies with less than 100 employees," says Birch. "The Fortune 500 has actually lost jobs over the last 20 years."... What's interesting is that New York doesn't do badly in what Arc calls "significant startups" (SmallCo) - companies less than ten years old employing at least five people... Our problem is that, because of the city and state's unique tax burden, these new enterprises usually leave as soon as they start to expand... Perhaps the most disastrous policy has been the city's refusal to honor the Internal Revenue Service's "SubchapterS" classification, which allows startup corporations to avoid the double taxation of corporate dividends. New York City is the only jurisdiction in the country that squeezes startups in this fashion... Says Rad Chillarege, founder of IBM's Center for Software Engineering. "The next stage (of the Information Economy) is going to be applying that technology to other businesses. For this you need a confluence of different industries. But that's exactly New York's strength."