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It was a beautiful fall morning, the sunshine lighting a blue sky above the skyscrapers of Manhattan, commuters hurrying through the streets and subways to work, at 8:45 a.m. on September 11, 2001. Then, one minute later, the first plane hit the North Tower of the World Trade Center, and everything changed. When the second plane hit the South Tower 16 minutes later, it was clear that we were under attack, at war, even as office workers fled the burning buildings and New York fire fighters streamed in. The terrorists had chosen to attack Washington--the Pentagon and the building United Flight 93 was heading toward when heroes brought it down--and New York, the greatest city in the nation and the world, to inflict the greatest possible damage on our country. Yet the people of New York, like those at the Pentagon and on United 93, responded with the courage and determination, the devotion to duty and the willingness to take the initiative that made this city and this country great. Fire fighters and police officers and rescue workers risked death to help others. Strangers helped strangers. People who had no experience with disaster figured out how to cope and help others. Millions volunteered to give blood, send in money, or provide food and supplies. The Wall Street Journal, headquartered across the street from the World Trade Center, scrambled to put out a newspaper that was distributed at the regular time across the nation the next day. In less than a week the New York Stock Exchange was reopened. Mayor Rudolph Giuliani worked tirelessly to share with the nation the tragic news of deaths and to assert the determination to recover.

The bravery, the determination, the generosity that the world saw on that terrible day and the days after were some of the same qualities that had, over the centuries, made New York what it is--America's largest city, its financial capital, its center of arts and letters and media and its largest immigrant destination. New York's achievements were not inevitable. They happened because New Yorkers--and not least those people from elsewhere who opted to become New Yorkers--worked to make them happen. They did it in a city that has a certain enduring character that goes back to its birth as the 17th century Dutch colony of Nieuw Amsterdam. Simon Schama's The Embarrassment of Riches paints a picture of the old world Amsterdam: the richest city in the world; full of people who work hard all day and stay up late at night, smoke too much tobacco and drink too much coffee and gin, but are dazzlingly smart and shrewd; people who know their way around every corner of the globe and can make fine aesthetic discriminations, but are attached to their uncomfortable, crowded, bad-smelling city. They were merchants and manipulators with no aristocratic pedigree, welcoming any religious or ethnic group who can achieve and accumulate and show good taste, cherishing education and culture but indifferent to credentials. Probably fewer than 2% of today's New Yorkers are descended from the Dutch of Nieuw Amsterdam, but the character of the place endures in daily life and in the workings of its great institutions, and helps explain its miraculous growth. Combine Amsterdam and America: Dutch character with British-born political freedoms and American military strength and you have the opportunity to build a city-state that can lead the world--and be the natural target of terrorists who hate that civilization.

New York was not always the nation's leader. In 1776 it was only the seventh most populous colony. Only in the 19th century did the descendants of Dutch patroons, Huguenot refugees, British West Indies traders and Yankee farmers become the nation's most successful merchants and capitalists, forging the first routes to the great American interior through the valleys of the Hudson and the Mohawk, and building grand brownstone mansions on broad midtown Manhattan avenues. That early diversity provides one clue to New York's success: if New York has been cynical, ready to cooperate with Loyalists and Revolutionaries, depending on who was ahead, it has also been tolerant, ready to accept anyone smart or rich enough to be counted a success. It has been propelled upward at each stage--forging ahead of London as a financial and manufacturing center by the first World War, and staying ahead of surging Chicago--by incorporating every wave of immigrants and consistently rewarding intelligence and hard work, with no concern about preserving hierarchies.

New York's success has been a product not only of market economics, but of government--and politics. The Iroquois, the most deeply-rooted and militarily strong Native Americans, kept in place for 100 years by an alliance with British troops, were driven out of most of Upstate New York after the Revolution. The Erie Canal, which connected western New York State with the Hudson River, was the project of Governor DeWitt Clinton's state government. And New York led the nation in political innovation: Martin Van Buren's Albany Regency was the first state political machine, an ally of New York City's Tammany Hall; Van Buren invented or institutionalized the Democratic party, the national convention and the inaugural parade. His adversaries, Thurlow Weed and William Seward, formed the Whig party and ultimately became Republicans; noting that Van Buren's Democrats were winning large margins from Irish Catholics and other immigrants, they too made bids for the newcomers' votes. Both parties served the function of mediating between the divergent interests of the New York City masses and Upstate New York's farmers and burghers, a conflict still evident in New York between city and country, immigrant and native, Catholic and Protestant, the Big Apple and the apple-knockers.

Both parties also worked to protect New Yorkers against the untrammeled workings of free economic and political markets. Old-line Democrats embarked on an unprecedented, labor-intensive building of infrastructure, of bridges and tunnels that made Greater New York possible, from the time of Mayor Abram Hewitt, elected in 1886 over the single-taxer Henry George and the young Theodore Roosevelt, up through the time of Governor Al Smith in the 1920s and his protégé Robert Moses, who built bridges, tunnels, highways, beaches and two World's Fairs up through the 1960s. Progressive Republicans, from Theodore Roosevelt through Elihu Root and Henry Stimson, worked to create civil service laws and bureaucratized purchasing and spending to protect taxpayers from corrupt party machines. The Democratic Tammany machine led by Charles F. Murphy and the talented young men he advanced, Al Smith and Robert Wagner, responded to the shocking 1911 Triangle Shirtwaist fire (when hundreds of women jumped 11 floors to their death because fire escapes were blocked) by passing labor and safety measures. The results included minimum wages, maximum work hours, working-conditions regulations, encouragement of unions and state-owned electric utilities--the prototype 20 years later of the New Deal and the first American welfare state. In years after, New York pioneered public housing and fair housing laws, industry-wide unions (in the garment trades), increased minimum wages, rent control and dairy price controls to help both New York City tenants and Upstate farmers.

Statewide elections were exceedingly close, with Democrats carrying the New York City Catholic vote and Republicans winning Protestants Upstate. Swing votes were cast by the 2 million Jewish immigrants and their children, who supported a generous welfare state but mistrusted the Tammany machine and valued civil rights. The politician who combined these appeals most cannily was Fiorello LaGuardia: a nominal Republican but almost a socialist, an Episcopalian who was half-Jewish as well as Italian, and who, as mayor of New York City from 1933-45, built much of the public housing and many of the civic monuments that still stand. But both parties produced politicians whose positions appealed to these swing voters, politicians who became nationally prominent and often presidential candidates at a time when the national media was much more concentrated in Manhattan than today: Democrats Al Smith, Robert Wagner, Franklin D. Roosevelt and Averell Harriman; Republicans Thomas Dewey, Wendell Willkie, Dwight Eisenhower (a New Yorker as president of Columbia University when he was elected president in 1952) and Nelson Rockefeller.

The polity that these men built was productive, generous, tolerant and closely regulated. In an America where people were becoming used to working in big units--employed by big corporations, represented by big unions, regulated by big government--this kind of New York was a natural leader. The financial dominance of Wall Street and the big banks was protected by federal regulation. The high-tech thrust of America in the mid-20th century was directed by big companies headquartered in New York's suburbs or Upstate: General Electric and IBM, Eastman Kodak and Xerox. This New York took for granted the productivity of its thousands of entrepreneurs and the high skills of its largely immigrant-born, public and Catholic school-educated work force. It was blasé about its own miraculous infrastructure--the bridges and subways, electronic cables and electric wires connecting it better than any place else with every corner of the world.

But in the last quarter of the 20th century New York's public strengths became weaknesses. The state that was clearly the national leader of a big-unit America lost the leadership of a country where growth now occurs in small economic units, where flexibility and adaptability are more important than centralized planning. The institutions, practices and infrastructure which helped produce its successes became ossified and brittle and in decline. Welfare-state benefits became too expensive, measures meant to protect against corruption stifled innovation, and both failed to achieve their objectives--ghettos throbbed with the pains of disorganization, and payoffs and rackets remained part of the everyday cost of doing business in New York as in no other place in the country. The noble aim of creating a public sector which would guarantee cheap rents, top-notch public schools and colleges, and public hospitals, instead guaranteed that none of these will be readily available: Rent control kept housing scarce, school bureaucracies stifled good teaching, public hospitals rationed care down. The attempt to create a fail-safe government produced a government that was sure to fail. The government that intended to aid growth seemed to be cutting it off--not completely, but enough to explain why New York state, which grew 32% in population from 1940 to 1965, grew only 2% from 1965 to 1997, while California was growing about 74% and Texas about 87%, making both larger now than New York.

People and businesses started voting with their feet, especially during the terms of Mayor John Lindsay, a liberal Republican who caved into municipal unions' demands and borrowed against next year's revenues to pay this year's bills. That brought the city to the brink of bankruptcy in 1975, two years after he left office. In the 1970s, the population of New York, city and state, dropped by 1 million--an unprecedented hemorrhage of talent and productivity. Retrenchment followed the mid-1970s bankruptcy crisis. Private financiers and the state government took control of city government, cut spending and negotiated cutbacks in jobs and salaries with public employees' unions. Wall Street boomed in the 1980s and Manhattan once again brimmed over with confidence. Some taxes were cut under Mayor (1978-90) Edward Koch and Governor (1983-95) Mario Cuomo, public employee unions were for a time reined in, rational management was installed. But institutional problems remained. New York's legislature remained unusually tightly controlled by the two chambers' leaders, the Democratic Assembly Speaker from New York City and the Republican state Senate President from Upstate, and these leaders engaged in classic political logrolling, lavishing taxpayers' dollars on each other's pet projects. Public employee unions reestablished their stranglehold. The mild recession of the early 1990s struck New York with great force: A private sector that had grown little if at all outside Wall Street could no longer finance the countercyclically growing demands of its oversized welfare state, while big companies Upstate--Xerox, Kodak, IBM--suffered serious reverses.

By the end of the 1990s New York seemed to have adapted and changed. Mayor Rudolph Giuliani, first elected in 1993, cut crime and welfare rolls in half and cut hard deals with the unions. Governor George Pataki, first elected in 1994, came into office and imposed huge tax and spending cuts in 1995. Wall Street and the financial services industry boomed in the late 1990s, to the point that the jobs lost in the 1990-94 recession were replaced. Then came September 11. Giuliani, under a cloud in his last months in office as his marriage collapsed publicly and he withdrew from the 2000 Senate race against Hillary Rodham Clinton, became a national hero. Americans who had heard about his successes in cutting crime and welfare dependency saw him in action and were impressed. Pataki also performed well in the national spotlight. But New York faced an economic downturn and a turn in the course of government. Despite heroic efforts at recovery, Manhattan and New York lost 200,000 jobs between 2001 and 2002. Downtown real estate values tumbled, as financial services firms decentralized and sought office space elsewhere. Giuliani was term-limited, and all the leading contestants were well to his left. Media billionaire Michael Bloomberg, long a Democrat, became a Republican and spent $70 million of his own money on the campaign, and beat Public Advocate Mark Green 45.1%-44.5%. Pataki, running for reelection in 2002, made a $1.8 billion deal with the hospital workers' union and insured that he would be reelected without serious opposition. Bloomberg, faced with a fiscal crunch in 2002, increased property taxes 18% and raised other taxes as well. In his third term as governor, Pataki tried to hold down spending, but big tax increases, supported by Assembly Democrats and Senate Republicans, were passed over his veto. The lessons of the 1970s, 1980s and 1990s seemed to have been forgotten.

New York does continue to grow, but sluggishly. New York City had more than 8 million people in the 2000 Census--8,008,000, more than the previous high, in 1950, of 7,984,000; that was up to 8,104,000 in the 2004 Census estimate. Some 36% of its residents in 2000 were born in other countries--almost as high as the 1910 peak of 41%. Immigrants have been streaming into outer borough neighborhoods, creating new businesses, churches and neighborhood institutions--Caribbean blacks in Flatbush, Chinese in Flushing and Borough Park, Colombians in Corona, Pakistanis in Jackson Heights, Greeks in Astoria, Russians in Brighton Beach. But as historian Fred Siegel points out, the outer boroughs are increasingly dependent on public sector jobs, with one-third of jobs in Brooklyn and half in the Bronx directly dependent on the city or state governments. Higher taxes will tend to squeeze out private sector jobs there even as the financial services industry is failing to provide the growth it did in the 1990s. An especially heavy burden is New York's Medicaid program, designed by Nelson Rockefeller in 1966 to be far more generous than any other state's and requiring local governments to spend money as mandated by the state. The good news is that this Medicaid spending provides a lot of jobs, including many for immigrants: hospitals are major employers in the outer boroughs. The bad news is that it tends to squeeze the life out of the private sector. The financial services industry was a huge cash cow for Medicaid in the 1990s. But the cash cow's milk production is not guaranteed and it can move across state lines, as financial services businesses have since September 11.

Upstate New York has serious problems as well. Burdened with a state tax system constructed to support New York City's welfare state, it has been at a substantial disadvantage with nearby Northeastern states, not to mention the Sun Belt, in attracting jobs. Up through the 1980s paternalistic big corporations like IBM, Kodak and Xerox were the bedrock of the Upstate economy. But in an increasingly competitive America, these corporations faltered and cut payrolls, while big steel plants in the Niagara Frontier area around Buffalo were closed. That pattern accelerated after September 11. Kodak, hard hit by competition from digital cameras, employed 60,000 people in the Rochester area in 1981; by 2005 that was down to 15,000. Xerox jobs in the area fell from 16,000 to 8,000. Steel jobs have been disappearing in Buffalo, to the point that the mayor proposed that the city be absorbed into Erie County. The Carrier air conditioning plant in Syracuse in 2004 was scheduled to be closed down. Schenectady, the birthplace of General Electric, was running out of cash as GE demanded that workers there increase their productivity. Between 1990 and 2004, 21 of Upstate New York's 50 counties lost population; only one, Saratoga County outside Albany, gained more than 10%. During that period Upstate's population grew only 1%, compared to 11% for New York City and 9% for its suburbs.

In the first half of the twentieth century, New York politics was a battle between the Democratic city, with more than half the state's population then, and Republican Upstate. As previously noted, Jewish voters, concentrated in the city and moored to neither party, provided critical swing votes. In the post-World War II period, the suburbs grew and tended to produce small Republican majorities. Today the picture is different. In national politics, George W. Bush, even with his improved 2004 showing here, lost New York City 75%-24% and trailed very narrowly in the suburbs (47%-51%) and Upstate (48.5%-49.5%). Large numbers of Jewish and black voters have turned Westchester from a Republican to a Democratic county; the Upstate counties containing Buffalo, Rochester, Syracuse, Albany and Binghamton produced Democratic margins to counterbalance Republican margins in smaller counties. Another pattern emerged in 2004, when Democratic Senator Charles Schumer was reelected against a lightly financed Republican with 71% of the vote; he got 86% in the city, 66% in the suburbs and 63% in Upstate. Two Democrats would like to emulate that pattern in 2006: Schumer's junior colleague Clinton and Attorney General Eliot Spitzer, who announced his candidacy for governor in February 2005. Whether they will depends on how strong their opposition is, particularly on whether Pataki runs for a fourth term, and whether they polarize the New York electorate so much that any opponent will get a large share of the vote, as may or may not be the case with Clinton.