Why Companies Are Fleeing the Cities

LONG exposure has inured New York City dwellers to daily outrages of high cost and crime, filth and crowding, discourtesy and inconvenience. Increasingly, the traumas of life in Manhattan are becoming more than many major companies are willing to bear. In the past four years, 22 large firms have moved their headquarters out of the city, and at least eleven more have made definite plans to depart (see box). Another two dozen are seriously considering whether or not to leave. Still other companies--including A.T. & T., Borden. Eastern Air Lines,Grolier, Mobil Oil and Uniroyal--have kept their home offices in Manhattan but have moved or soon will move a significant part of their staffs out of town. The figures, compiled by TIME with the aid of the Fantus Co., a leading adviser to companies considering relocation, show that the exodus from Manhattan is speeding up ominously. Fantus Chairman Leonard Yaseen says that "three-quarters of the top 200 companies in New York City are either moving or thinking of moving."

The dispersal takes several directions. The oil industry is moving out of New York to Houston, and at least nine trade associations have shifted their head offices to the Washington, D.C., area in the past two years. The overwhelming majority of the movers are heading for the nearby suburbs.

Skirting Bankruptcy. All the familiar ills of the city play a part in the decisions to move: the housing shortage, spastic transit facilities, increasing air pollution, drug addiction, burglaries and muggings, low-caliber public schools, public-be-damned municipal employees. Probably the most common complaint is the astronomical (and still soaring) cost of living and doing business in Manhattan. Almost everything is more expensive than anywhere else in the U.S.: rents, land, labor, taxes, meals, entertainment and even some forms of genteel bribery. The Bureau of Labor Statistics calculates that living in the New York City area costs executives 16% more than in Los Angeles or Chicago. 20% more than in Detroit. 28% more than in Dallas. Young executives are more and more reluctant to accept a transfer to New York, a move once coveted as the badge of success. At General Telephone & Electronics Corp., which will go to Stamford, Conn., in 1973, the rate of refusal was 1 in 20 in 1968; it rose to 1 in 2 last year.

Though companies are always reluctant to move, the frustrations pile up to a point that overcomes the traditional advantage of operating in the heart of the metropolis: quick access to other people and specialized services. "Thievery, thievery, thievery." says James W. Kettle, senior vice president of Stauffer Chemical Co. "We lose clocks, typewriters and adding machines. Secretaries lose handbags. We've had five bombing threats lately. It's hard for anybody to get to work on time. When customers phone us with an order, they can't even get through to our switchboard."

Even with the defections, Mayor John Lindsay's city runs no immediate risk of losing its standing as the nation's corporate capital. Of the 500 largest industrial companies, as measured in last May's FORTUNE list, 125 have their headquarters in Manhattan. The growing exodus, however, hits troubled New York City where it hurts the most: in prestige and the pocketbook. Already skirting municipal bankruptcy, despite the highest per capita tax load in the U.S., the city cannot afford a commercial hemorrhage. Trade and finance are the city's lifeblood, the main creators of new jobs and a major source of taxes, nourishing its coffers as well as its culture. Unless the outward migration of offices is reversed, even federal revenue sharing seems unlikely to keep New York from losing its economic vitality along with its solvency.

Like Pompeii. Companies are also departing a few other big cities. Last year 43 firms moved from St. Louis to its suburbs in spite of the city's effort to retain them by making tax concessions. In Detroit, the migration has turned into such a stampede that former Mayor Jerome Cavanagh cracks that he plans trips to "Detroit's sister cities--Nagasaki and Pompeii." Pan American and Delta airlines recently shifted their downtown sales and reservations offices to suburban Southfield, which has also attracted the headquarters of Advance Mortgage Corp. The publishing firm of R. I. Polk and the Michigan Automobile Club are about to quit the city. Circus World is moving its toy warehouse from the fringe of the ghetto to Royal Oak to escape break-ins (80 in six months), fire bombs, sniper bullets, and what President Sidney Rubin calls "almost continual stoning." Laments Rubin: "We had to put our crews on 24-hour shifts to protect the property. No private security patrol would take us as a client. We feared for the safety of our employees."

The crushing blow to civic pride fell when William Ford (brother of Henry) announced that he would move his football Lions to suburban Pontiac. Only the certain wrath of city officials keeps J.L. Hudson Co. from shutting its main department store, which suffered $9,000,000 worth of pilferage last year. "We would close the downtown store in a minute if we could do it without being crucified," admits one Hudson executive. With mordant humor, a banner at a recent press-club banquet asked: WILL THE LAST COMPANY TO LEAVE DETROIT PLEASE TURN OFF THE LIGHTS?

Company-losing cities have several difficulties in common. All are old as U.S. cities go; all are financially strapped and suffering from a physical decay that urban renewal has attacked but failed to cure. All the loser cities have experienced racial strife along with a rapid increase in their black populations. Businessmen are now simply following the white middle class to suburbia. Understandable as their individual decisions are, they are widening the chasm of race and class in many U.S. metropolitan areas.

Phantom Work. In New York, all the problems are magnified. During the 1960s, for example, the city lost some 617,000 white residents with a median education of 11.9 years, but gained 579,000 blacks, most of whom have significantly less schooling. Many of the newcomers are ill trained to hold office jobs. At the same time, with Manhattan's glamour fading, fewer well-trained young women move to the city looking for a career--or a husband. So there is an acute shortage of clerical workers, especially secretaries.

Executives frequently complain about low productivity among clerical help of all races. Many large companies now experience a 50% annual turnover of some types of office workers. The cumulative result, insists Fantus' Yaseen, is "the phantom work week." Theoretically, most female office employees in New York City work 35 hours a week (v. about 40 hours in most areas outside the Northeast), but Yaseen contends that coffee breaks, tardiness, absences, holidays and goofing off reduce actual working time to about 24 1/2 hours.

Last year he moved most of Fantus' operations to South Orange, N.J., because "in Manhattan I couldn't hire clerical people who could spell the names of cities, or who knew what state Los Angeles is in."

Executives of companies that have taken the suburban leap insist that it was worthwhile. Management morale and office productivity rise, they say, and frequently costs are cut or checked. Donald M. Kendall, president of Pep siCo Inc., points to an annual saving of $1,500,000 on space alone at the com pany's new headquarters in suburban Purchase, N.Y. At American Can Co., which moved a year ago to a 180-acre of fice campus in Greenwich, Conn., Vice President Melvin M. Nield says: "On every count it has worked better than we expected." "This is an easier way to operate a business," says Kendrick R. Wilson, chairman of Avco, which moved to Greenwich in 1969. "I'm putting in at least an hour a day more at work, and two hours' less commuting. What I like best is that when the end of the day comes, I can look out the window and think -- and not have to worry about that damned train schedule or traffic on the throughway."

The Counterattack. Whether suburbia will retain its allure has become a topic of rancorous debate. Mayor Lindsay and other officials argue that suburban towns lack low-priced housing, mass transportation and enough space to accommodate more than a token number of big companies. For the long run, suburban resistance to paperwork factories may prove to be an important obstacle to corporate moves. Rezoning is already becoming hard to ar range in sylvan locations. If companies continue to for sake Manhattan, says D. Kenneth Patfon, New York City's economic development administrator, "we will Los Angelesize our land, Balkanize our region's finances and South African ize our economy."

The location of expanding office activities may well be a key determinant of the nation's urban condition -- municipal solvency, racial har mony, environmental ame nity and economic efficiency -- for the rest of the century.

In a major study early this year, the privately financed Regional Plan Association predicted that if present eco nomic trends continue, white-collar employment in the U.S. by 1980"will exceed all other kinds of jobs combined. Partly because many companies are expected to expand even though numbers of others may depart, the R.P.A. forecasts, Manhattan may gain 500,000 office jobs by the end of the century; but surrounding cities may add twice that number. The pattern of this growth, the association warned, "can either save the cities or destroy the countryside."

Red Tape. Instead of scattering their suburban offices on parklike campuses, the association contends, companies should concentrate them in clusters, preferably in such existing centers as Poughkeepsie or Bridgeport, where they require only one-twentieth as much land and can be served by mass transit. Even in Manhattan, where an office worker needs only 1% as much land as in suburban office parks, congestion could be avoided by better planning. "If offices bypass city centers," predicts Morris Crawford, chairman both of the R.P.A. and front-ranking Bowery Savings Bank, "all institutions will gradually turn their backs on the older cities and the people who cannot afford to leave them."

As long as central cities stagger under today's burdens of poverty and crime, and strangle their own renewal with red tape, Crawford concedes, corporations are likely to continue moving out. After all, companies make a choice based on conditions that they cannot individually change. The voracious space demands of the private auto, the great northward movement of poor and undereducated blacks, the ugly repercussions of heroin addiction do not necessarily mean that some big cities must wither away. But urban problems require a much greater --and better coordinated--counterattack by government at all levels before private enterprise can be expected to risk more than token resources in the salvation effort.

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