Sunday, April 10, 2016

Chicago: Where Globalization Fears to Tread

Almost a decade ago, I spoke with someone who helped shape Chicago into (in the Saskia Sassen sense of the term) a global city. I was bullish on Pittsburgh. He tried to curb my enthusiasm. No way, no how could Pittsburgh pull a Chicago. Luckily for Pittsburgh, he was right.

Pulling a Chicago carries a different connotation these days. It's much closer to Rust Belt failure than Rust Belt savior. It's more Detroit than Pittsburgh. Could Chicago pull a Pittsburgh? I doubt it.

Chicago went all in on its global self with massive expenditures on world class amenities. By every account I am aware of, the gambit worked. Globalization had its way with the urban core. The crown jewel of the Rust Belt, the city sucked up all the talent in between the coasts. Middle America could be cosmopolitan, too.

Chicago ... you have a Houston problem. Chicago is no longer the only global game not on the Atlantic or Pacific seaboard. The Texas Triangle beckons Iowa college grads. Regional hubs such as Minneapolis or Kansas City offer a step up from Des Moines. Heck, even Des Moines offers a step up from Des Moines just a decade ago. Cut Chicago out of the migratory loop, lose nothing in the experience.

To be sure, the talent still streams into Global Chicago. But this influx doesn't scale. Those still moving there are chasing yesterday, the 1990s. The region has hit peak globalization:

"Until a year and a half ago, Chicago's rates of home price appreciation were comparable with the rest of the US," Stiff said.

But since early 2015, "Chicago has slowed down significantly," he said, suggesting that the area's slow job growth has been a drag on the housing market's recovery.

In the global core, Chicago still looks good. But that global core no longer can carry the region, let alone the state. The architects of Global Chicago sold the city's soul for a magic Bean that benefited a few and left most others behind. Globalization didn't trickle down. It moved on.


D Holmes said...

I wonder whether Chicago’s focus on its global core was really the problem. My sense is that the combined fiscal disaster at both the city and state level are a major factor in its recent underperformance. The globalization amenities may have contributed to the fiscal problems at the city level, but I don’t think they were the major cause of the city's fiscal problems.

Chicago also has enormous legacy problems associated with large areas of concentrated urban poverty (in particular in African American neighborhoods) and the need to create hundreds of thousands of replacement jobs paying a decent wage for former manufacturing workers lacking a university degree. Did Pittsburgh’s renaissance provide a solution for these types of legacy problems? I'm curious as to whether you've come across an example of any major U.S. city that has effectively addressed the problem of concentrated urban poverty or creating large numbers of well-paying replacement jobs for former manufacturing workers lacking university degrees. I’ve yet to come across a convincing example.

Jim Russell said...

The globalization amenities may have contributed to the fiscal problems at the city level, but I don’t think they were the major cause of the city's fiscal problems

Many cities have an underfunded pension problem. The manufacturing boom towns are paying for services and infrastructure from the population peak. Sun Belt boom towns in Texas (e.g. Houston, Dallas, and Austin) are in trouble, too. But Chicago is the worst of the bunch. I'm suggesting that the consumer city expenditures are to blame for the acute fiscal mess. Chicago spent money on pretty things with a quick return instead of doing the hard work of bringing more of the city back.

Concerning economic restructuring, no city has managed the boom all that well. The problem in Rust Belt cities (Baltimore is a great example) is the focus on managing decline while globalization takes hold in the urban core. The community has to endeavor to spread the producer city benefits instead of chasing showcase amenities. It's a difficult problem to address. But that's no excuse to blow scarce resources on world class amenities.

Drew said...

Hi Jim,

I understand your frustration with blowing "scarce resources on world class amenities."

But can you answer D Holmes and provide a counter example of a city that took care of the basics and thus had good results for the non-global former industrial workers?

We can appreciate that metropolitan areas should eat their vegetables instead of going after that Creative Class cake, but is there an example of an industrial city that did that? Eds and Meds may provide an economic core for now, but doesn't do much for the majority.


Jim Russell said...

Hi Drew,

I see two types of economic restructuring initiatives. Some regions primarily pursue consumer city (amenities-driven economic development). Portland, Oregon is a good (and successful) example. Some regions primarily pursue producer city. Stuttgart, Germany is a good (and successful) example. You can read more about those two ends of the economic restructuring continuum, "Regional Competitiveness and Quality of Life: The Case of Portland and Stuttgart."

Instead of Stuttgart, I often contrast Portland (consumer) with Pittsburgh (producer). However, Pittsburgh did make a big amenities push with Mayor Tom Murphy. Plenty of Creative Class cake to eat there and some good things came from those efforts. There were boondoggles, too. That wasn't the thrust of the economic restructuring, which came from CMU and Richard Cyert. The goal was to transition from an economy centered around manufacturing to one around software. That didn't really work out, at least how it was on the drawing board. The transformation occurred regardless and is the current centerpiece of the city's vitality.

I recommend a region pursue a producer city agenda, not a consumer city agenda. Creative Class cake will never do much for the majority. However, producer city could. Pittsburgh is working on that now. I'm on the fence about whether or not such efforts are too late. I'm much more optimistic about Cleveland, whose producer city is just in the revving stage. I look at Baltimore and Chicago as what not to do. They are too late and over-invested in consumer city. Atlanta seems hell bent on going down that path. The result will be greater segregation and inequality. That's what Creative Class cake is.

Lacustrine said...

Hi Jim,

"I'm suggesting that the consumer city expenditures are to blame for the acute fiscal mess."

Do you have any budget analysis that could flesh this out? I can't claim deep expertise, but I've read multiple Chicago budgets and, far as I can tell, consumer city expenditures seem to be a rounding error. I thought maybe they were hiding in TIFs off-budget, but I checked and the grand TIF total (much of which isn't spent on the consumer-city) is ~5% relative to the regular city budget.

The budgets suggest public-sector unions are the main spending consideration; doesn't seem particularly close either. However, expenditures might not be the crux at all, as according to ballotpedia, Chicago and Illinois both have very typical spending per capita for a top-100 city and its state (low, in fact, adjusted for size). I don't know but I'd like to.

Another track: what if the characteristics and relative sizes of the universities are a key factor? UChicago and Northwestern have been complete non-entities regarding tech transfer/employment, in a metro four times the size as CMU's, and after those two Chicago has a steep drop-off. Obviously Chicago has connections with surrounding Big10 tech powerhouses, but I remember a research paper claimed that universities outside a metro area had no effect on metro tech performance (unlike in Europe).

Jim Russell said...

Do you have any budget analysis that could flesh this out?

I do not. In fact, thinking through Chicago's legacy costs, I'm overstating the case. The city has lost 1 million people or so from its peak. For pensions, the demographics are upside down. This same Rust Belt story is told in many places. That said, consumer city amenities aren't free and the ROI is suspect. The urban core of Chicago is an impressive palace of globalization. But it doesn't offer enough counter to the crushing legacy costs.

Why isn't Chicago more like Boston? Perhaps this is the more interesting question. Every city chases amenities and would kill to have what Chicago has. In poo-pooing the Bean, I'm burying the lede.

Lacustrine said...

"consumer city amenities aren't free and the ROI is suspect" fair enough.

Boston: I know nothing beyond a few minutes Googling, but as of 2013 (newsmax, Boston pensions 7th worst among cities) and 2014 (boston globe, urban institute rates Mass pensions worst among states), it's not immune.

The patterns are not obvious to me, pensions seem highly idiosyncratic.