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Saturday, February 28th, 2009

Chicago: Reconnecting the Hinterland, Part 2B – On Innovation

The is the last in my series on reconnecting Chicago with its natural city-region in the greater Midwest. But it really has nothing to do specifically with Chicago, or even the Midwest. It deals, rather, with innovation generally.

I discussed how companies were outsourcing offshore, with a big driver being labor arbitrage. But as with all trends, labor arbitrage contains within it the seeds of a successful counter strategy. That counter strategy is innovation.

It’s been noted before that industries with access to large quantities of cheap labor tend not to see productivity increases. There is simply no driver for it. We see this here in the offshore trend. I look at my own technology industry and can’t help but noticing that there appear to have been few if any basic improvements in productivity over my 15+ years of experience in mainline software development. That is, it still more or less takes the same number of man hours to develop a given piece of functionality as it did back in the day. And this is after multiple generations of technology. There have been cost reductions to be sure, but those have come via things like labor arbitrage and hardware cost efficiencies, not reducing man hours.

But as we’ve seen the rise of offshore development, we’re seeing something interesting happen on shore. As onshore talent suddenly found itself operating at a distinct cost disadvantage versus offshore, that cost pressure brought innovation to the way software is developed, which in turn has led to radical reductions in cost and speed to market for certain classes of software. This has been driven by two basic items: open source software/cloud computing and a new agile methodologies.

The first item has more or less made it free to start a software business. You no longer need to worry about expensive software licenses, hardware purchases, or hosting fees. Your entire technology stack is open source software available at zero cost. And you can host your application for next to nothing on a service like Amazon’s EC2. Whereas even a few years ago starting a software business almost required some level of outside funding, the raising and deployment of which sucked up huge amounts of management time and came with unpleasant strings attached, now the basic environment is more or less free.

The second is about a whole new way of writing software, one that is about small, talented teams who work closely with the end user of the software to rapidly create products and refine them over time. It uses new development frameworks like Ruby on Rails; new agile, iterative development processes that focus on delivering more of what you want (i.e., running code) and less of what you don’t want (i.e., paperwork and feature bloat); and a new staffing model built on high-skill developers who also have the people skills necessary to work directly with customers and users. This is a killer combination, perhaps best exemplified by its chief exponent, Chicago development shop 37 Signals. They literally wrote the book on this – their “Getting Real” is an absolute must read for anyone in the field, as is their blog “Signal vs. Noise“.

This 1-2 punch is revolutionizing software development, especially for software as a service and for departmental type applications. I wouldn’t be surprised to see it completely displace traditional approaches for these classes of apps in coming years. This shows that the rise of offshore software development does not necessarily mean the end of the onshore developer. It only forced those developers to get creative and innovate. (I should note, it also disrupts the venture capital model, since people wanting to launch software businesses no longer need to beg for money to do so. They can look for funding only when they need cash to scale a proven successful business – and will have much more negotiating leverage when they do so).

This isn’t only true in the software field. We’ve also seen it in the manufacturing space. The collapse of employment in the manufacturing field in the Midwest is not primarily the result of production moving offshore. Rather, it comes from onshore productivity improvements that resulted from low cost competition. That competition forced onshore companies to innovate and get lean and mean. The United States is in no danger of not making things any more. Far from it. Until the onset of the recession, which is crimping output worldwide, the United States continued to set records for industrial production year and on year. Here is a graph from the Federal Reserve:

Shaded areas are recessions. Click to enlarge.

The Midwest produces as much industrial output as it ever did. Even in the 2000′s, non-high tech production has held its ground in America. It just does it with far fewer workers than it did in the past. That’s a key challenge facing the Midwest. It’s not that it can no longer make things or grow things, but that these no longer require large number of unskilled workers to do so. It’s just the same with the software development example I gave previously.

Innovation doesn’t necessarily solve the employment challenge, but imagine where we would be without it? It would be game over. Granted that it doesn’t solve all of our challenges, it does show that America and the Midwest can compete in the innovation game when forced to. Much of this manufacturing productivity gain has taken place in the Midwest. And as I noted, 37 Signals is based in Chicago, making the Midwest an epicenter of the new software business model.

I believe that this shows the future generally. There won’t be as many plants employing thousands. Rather it is going to be a large ecosytem of smaller, high value added businesses that in aggregate add up to a lot of jobs. I again think of the motorports industry in Indianapolis. This cluster has few individual large employers, but collectively employs north of 8,000 in the metro area with high average wages. This is the model of the future, and the Midwest has to figure out how to adapt to it.

So how do we do that? How do we become a more innovative economy? As many have noted, the Midwest has been low on innovation for some time. It had big ideas back in the agro-industrial awakening in America, but then became content with what it had. Over time, it lost those innovative fires and became not just unable, but in a very real way unwilling to change to adapt to changing times. Even Chicago I took to task in the setup to this series for simply riding the trends rather than defining what it means to be a successful city properly so-called in the 21st century. Becoming once again a locus of innovation is key for the Midwest to survive in the future.

Easier said than done perhaps. How do we get there? What holds us back? What are the barriers to innovation? I have some thoughts on this to share.

Firstly, let me say that perhaps counter-intuitively, what might seem the hardest part of innovation – coming up with new ideas – is actually the easiest part. I continue to be amazed at the quality and quantity of the good ideas I run across every day here in the Midwest. The real question isn’t why don’t we have any good ideas to try, but why don’t we actually try them. This to me is the key challenge to solve. There is no end of people out there selling innovation methodologies trying to help people become more innovative. Clearly people recognize the innovation imperative. But the problem isn’t ideas, it’s bringing those ideas to reality. This points us in the direction of the real problem place. It’s not innovation per se, but the barriers that keep innovative thinking from finding its way into practice.

Beyond just the simple fact that people don’t like change, a not insignificant point, here are some things that tend to act to hold us back from realizing innovation. To build an innovative business, city, or region, these are the problems that need to be looked at and figured out.

1. The risk paradox. As a contrarian sort of guy, I’ve said before that we should invert the world. Our strengths are our weaknesses, our weaknesses strengths. In this context, to the extent that we are already successful doing things one way, it creates an enormous barrier to us doing things a different way. Whereas, if we are already failing, the cost of trying something new is much lower. People talk about building on assets. But though assets are good to have, they also hold us back. Cities and companies defend their existing businesses and assets if they have them instead of figuring out what they need to do to be successful tomorrow and the next day. They make decisions they would not be making if they didn’t have success to defend.

It should be no surprise to hear the anecdotes of successful entrepreneurs who started businesses after losing their job or going bankrupt. These people had less to lose than the guy who would be quitting his six figure position to start a risky endeavor. ROI is return on investment. But investment is not fixed. For someone who has to give up something successful in the present to undertake something risky, part of the investment is what you are giving up. This means the return needs to be that much higher to justify the risk, creating a structural barrier to entry to the new and innovative for the successful.

I don’t know that this problem can ever be solved since it seems to be fundamentally rational. However, I think we can change the culture to remove the stigma of failure and also to figure out how to encourage those who are in plainly untenable positions to be willing to change. It strikes me that it generally takes a catastrophic loss to get people to change their ways. Slow decline doesn’t seem to do it. People like to try to cling to what they have to the bitter end. Again, it is not surprising to me to hear so many people who found religion say that they “hit rock bottom” before they turned to God. It seems to only be in these desperate situations that people are willing to try going in a different way. Why is that? I wish I knew. So many small manufacturing towns in the Midwest need radical changes in public policy, but only a handful of them show any signs of doing so. I think it is notable that it is Youngstown, which was completely ravaged by the collapse of the steel industry, that decided to think the unthinkable and embark on a planned shrinkage plan. Again, it was Pittsburgh, a city that lost practically its entire industrial base, that dared to go off in a new direction. If only we could get places to see the value of a different way before it came to that position.

2. It takes a village (or at least a team). Having an idea is only one part of what it takes to make it real. The skill of having ideas is distinct from that of bringing them into being. I continue to see small companies started by small teams of four people. That seems to be about the right number needed to bring the right blend of skills – technical, organizational, operational, sales, financial, etc – needed to create a real business. If the guy with the idea doesn’t meet like minded people with complementary skills that he can trust and who are likewise interested in doing something with it, it can die on the vine.

The same thing is true inside organizations. Having an idea doesn’t mean that you’ve got the political or organizational savvy to figure out how to bring it to be inside of a large, complex organization. The best idea guy in the company might not have the greatest executive polish, might not be able to sell it to the investment committee, etc. So again, great ideas might perish because the person putting them forward doesn’t have the right profile to make them happen.

3. The problem of politics. Strategies and approaches don’t just happen. The happen in the context of a political process. This is true in both communities and in companies. The status quo is probably associated with a particular set of leaders whose credibility went into getting them pushed through. Doing something different means that leader is exposed to incredible pressure for “backtracking” or “admitting failure”. This often means that new ideas are judged not so much on their merits as by who is pushing them. People in different political camps might oppose it just for that reason as much as any other.

It takes a unique leader to change an organization from the inside. That’s why you so often see that it takes an outsider coming in to create real change. That outsider isn’t personally invested in the policies of the past. To me one of the most compelling business stories remains Andy Grove’s recounting of he and Gordon Moore sitting in the office as their memory chip business was getting crushed and asking themselves, “If the Board fired us, what would the new guy do after he walked in that door?” The answer was clearly to get out of the memory chip business. So they asked themselves, “Why can’t we get up, walk out of this room, walk back in that door and do the same thing?” And that’s what they did. Their willingness to abandon a business that they viewed as core to Intel’s very being led to that company becoming one of the long run, sustainable tech business successes as opposed to yet another piece of road kill.

4. The tyranny of the organization chart. Whether or not an idea finds acceptance is as often as not driven by the perceptions of the credibility of the person making it. This means ideas that originate in lower levels of organizations seldom get a hearing because of the organizational status of the person who has it.

I like to get out and meet people, and I continue to be amazed at the people I come across from various organizations that are among the smartest and most innovative thinkers I’ve met. But few of them are taken seriously by their own organizations. To avoid exposing the guilty, I won’t give examples, but will say I know multiple folks who have managed to build significant external credibility in the world at large but have little to no credibility at their own companies.

Again, this is a simple matter of organizational dynamics. What you say in an organization is viewed through the lens of the box you occupy on the org chart. For people at junior levels of the organization, that means that they will likely never have opportunities to present new ideas, probably will be too afraid to fully voice them if they do, and will likely have them rejected in any case. It’s tough to imagine the CEO of a company taking advice on how to run the place from a middle manager. It just doesn’t happen. And that’s regardless of how good that middle manager’s ideas might be. As with many things, myths show us the unpleasant truths about the world. Few people ever believe their Cassandras.

That’s a huge reason companies so often turn to outside advice. An outsider is not burdened by having the millstone of the organization chart around his or her neck. That person’s credibility is judged differently, and the person asking for the advice is much more likely to be receptive. When the outsider sits across the desk from the CEO, it’s very different from a junior manager sitting across the same desk, no matter whether the ideas be exactly the same.

This might be the most interesting of all problems. Most large organizations have enormous talent at all levels. The question is, how do you harness that talent for the benefit of the organization without obliterating an organizational hierarchy that servers real and legitimate functions? This is a question worth serious study.

I think this goes to show the problems facing the innovator, business, city, or region. In short, nearly all of the problems of innovation are problems of organizational dynamics. Innovation is man’s natural state. But culture and organization conspire to suppress it.

Despite my rhetoric about the Midwest being out of ideas, that’s not strictly true. I’m absolutely convinced that the Midwest has the talent and the ideas necessary to innovate and to be successful in the 21st century world. The problem is that they imprisoned inside a culture and civic organizational structure that renders them impotent. It’s like I said before of Silicon Valley, the real secret to Silicon Valley isn’t having great universities, tons of venture capital, or organizations that push a high tech strategy. It is the social structures that enable rapid innovation. Without those social structures, the Midwest can raise VC funds and support university technology transfer programs till the cows come home, but it is not going to have the hoped for results.

This is the challenge facing the Midwest and its companies. Every place has a culture, but it is almost always an organic thing that grew over time without any deliberate attempt to shape it. Every place has organizational structure, but organizational theory is not high on most political or business leaders’ list. But that is what we need to do to move the ball forward and adapt to a rapidly changing world. Because if the Midwest ever figures out how to out innovate and move faster than the rest of the world, then it will find a way to prosper no matter which way the 21st century takes us. If not….

I won’t pretend these are easy problems to solve, but this is where we need to look if we want to re-energize our economy and our businesses through innovation.

More in This Series

The Setup: Chicago – a Declaration of Independence
Part 1A – Metropolitan Linkages
Part 1B – High Speed Rail
Part 2A – Onshore Outsourcing

Friday, February 27th, 2009

GaWC Issues New Global City List

The folks at the Globalization and World City Research Network recently issued their 2008 list of world cities. This is exactly the sort of ranking that is great for getting people arguing. Here is the chart:

Click for higher resolution. Here is how the Midwestern cities I cover in this blog sorted out:

Keep in mind the methodology is based on some sort of a network model based on office locations of producer services firms or something. I saw a lot of debate on this list on the internet critiquing the results, but if you are confident in your model and confident in your data, then you can’t just reject the results because you don’t like them.

This is the sort of league table that likes to get people arguing, but as has been noted previously, world cities aren’t all in direct competition. They specialize in various things. And the real key is whether a city is overall successful and produces the kind of life its citizens want. But this is certainly one interesting dimension of the world.

On a related note, I saw a column on Mead Johnson’s IPO and its impending headquarters relocation to Chicago from Evansville . I found this Indiana based column highly revealing. The various Indiana people quoted dismissed this move as about the “ego of the executives” access to “rich and prestigious” people or being close to the CFO’s house rather than any real business imperative.

While there is no denying that the residential preference of executives matters in where companies locate, the line of thinking in this column expresses a dangerous naiveté about the way the world works today. What’s more, it illustrates the way Midwesterners too often think about economic setbacks, namely that they are the result of someone wrongheaded or malicious decisions as opposed to macroeconomic trends and forces. Kudos to the Mayor of Evansville for not falling into this trap.

I previously documented this case in my posting “Corporate Headquarters and the Global City“. To summarize, globalization generates far flung networks of firms, which require new producer and financial services to organize and manage. These are increasingly concentrated in global cities. That is what allowed those cities to grow and prosper, even as their traditional corporate HQ count declined. The growth was coming from new producer services firms.

Today we are seeing that access to those firms is drawing back headquarters to the city, albeit not the traditional headquarters with thousands of employees. Rather, it is a thin executive headquarters of just those people who need close contact with these other firms. Mead Johnson falls into that category. So does SABMiller, which recently said it was moving a small headquarters function to Chicago from Milwaukee.

Since these service firms are concentrated in fields like law, accountancy, and consulting, you would think most cities could supply them since most cities have law firms and such. But the nature of the services is different. It isn’t just a difference in scale, it’s a difference in kind. As I said before, Columbus’ law firms serve that city and Ohio. Chicago’s serve the world for certain types of practice areas.

This brings us back to what I said previously about trying to re-establish the hierarchical subdivision of labor. First I should stress that this is not about abandoning anything anyone is doing today. I’m not saying any city out there can’t compete in the sectors they are pursuing. Rather, it’s about an additional ability to tap into that global service firm network in a way that you couldn’t do before.

Whatever the case, dismissing the impact of globalization as merely about executive ego is not healthy for creating economy strategies to prosper in the new environment. We’ve got to figure out how to play and win with the new rules of the game, not sit on the sidelines and sulk.

Wednesday, February 25th, 2009

Building New Audiences for Our Classical Music Institutions

(I recently had the privilege of attending my first ever live performance of Bach’s Mass in B Minor, one of the all time greatest compositions, courtesy of Music of the Baroque. This company is one of Chicago’s great cultural institutions. I remember the first time I went to see one of their performances at a local church. I was expecting a “rag-tag fugitive fleet” of an ensemble. When I got there and saw them up on stage in full white tie ready for action, the message was very clear: we’re serious about what we do and ready to deliver. And do they. But while they are excellent musically, their shows also depress me in a way, since at 39 I’m usually one of the few “younger” people in attendance. I’d estimate only around 15% of their attendees are under the age of 55. What does this mean for the future of MOB and others like them? It’s hugely concerning to me personally. So while I’m sure no one wants to read yet another post on this topic, their recent show inspired me to weave together a couple of pieces I wrote a while back on building new audiences for classical music. Keep in mind, this is an older piece, though the recommendations at the end are new).

Drew McManus, who runs a blog called Adaptistration, is publicizing Take a Friend to the Orchestra Week (TAFTO). The idea is that an existing patron, by sponsoring someone new to orchestra attendance, will create another classical music fan. It’s an excellent idea and one I heartily support, though one I think is likely to bear only limited fruit in building sustainable audiences for the long term.

The premise if TAFTO seems to be that if we expose people to classical music, they will like it. This is based on two assumptions that I think are both flawed:

1. Gaining an appreciation for classical music requires no work or effort, merely exposure. (There is some debate on this point, granted. Guest blogger Marc Geelhoed suggests having your guests listen to a recording several times casually before attending, suggesting at least some effort. I certainly support this. Alex Shapiro suggests that a raw, unmediated experience, where the music does the talking for itself, will do the trick).

2. Large numbers of people, probably a majority of people, are likely to enjoy classical music and even become big fans if they can only be introduced to it.

The easiest refutation of these is merely to look at what existing classical music fans listen to. It’s a largely static core repertoire of the major symphonic composers. There is little music frequently programmed prior to the time of Handel and Bach. Very little contemporary music is programmed. Even when these items are programmed, they are not nearly as popular as the traditional pieces.

The logic of TAFTO would suggest that we should have a classical music fan base that enjoys the full spectrum of Western art music. Home CD collections should be equally as full of Josquin and Palestrina as they are of Beethoven and Brahms. Modern compositions should be widely listened to and appreciated. Yet neither of these are the case. Why might that be? Some possibilities:

- Concert goers are not familiar with this work. That seems dubious. It is unlikely that regular symphony patrons have never encountered any works in these styles before. Remember, the logic is that attending once can hook you.

- Early and contemporary music are of lower quality and desirability than the Classical and Romantic eras. This is a defensible position, but I’ve yet to hear anyone seriously advocate it.

- Early and contemporary music is far more difficult to appreciate than the core repertoire. Again, defensible, but anyone making this argument has some explaining to do to convince us.

If seasoned classical music fans won’t try something new, or don’t like substantial amounts of music outside the core repertoire (which is, IMO, the real crisis facing classical music today), why would we think someone with no background at all in classical music will attend a symphony concert and get hooked? I wouldn’t take that bet.

I suppose one could argue that existing concert goers are more conservative or set in their ways than total newbies, but this suggests that the public at large is actually more musically discerning than the existing classical music patron base, and somehow perhaps represent a better audience. (If that’s the case, then don’t start them with Beethoven, go straight to Boulez and let your audience for new music be made up of total newcomers to the field). Again, this is a position one can argue, but I’d like to see someone explicitly make it.

I for one believe that gaining an appreciation of classical music takes time and effort. Not a Ph.D. in musicology, but at least some level of desire and investment of time to make it happen. We live in an era that is divorced from the aesthetic, intellectual, spiritual, and social context of the time that music was created. That creates a chasm that has to be crossed in order to access the riches beyond. Remember how people reacted to Beethoven’s works when they were expecting Classical era compositions. And even then the public had the advantage of familiarity with much of Beethoven’s musical language. For someone who’s never really listened to a classical piece before, there are some things it would be helpful to get up to speed on first.

Try to image someone whose musical background consists entirely of classical music. Now drop that person into a hip hop show cold. How likely is it that person is going to come away a fan? Not likely. That doesn’t mean this person can’t gain an appreciation for hip hop. But dropping him into an Eminem show with no prep probably isn’t going to do it.

I also don’t believe that, due to reasons of taste and inclination, the majority of the public will ever have any serious interest in classical music. Yes, they might enjoy hearing the William Tell Overture, or attend an outdoor summer performance of Beethoven’s 9th every now and again. But they are unlikely to be your core, engaged audience going forward. The sad fact is that with limited exception, the high arts have always largely appealed to a fairly select audience, usually those whose social position gave them the impetus (or obligation) and freedom to indulge it.

Let’s put this aside for now and just say that everyone can learn to appreciate classical music at some level. If they won’t be your regularly masterworks series subscriber, maybe they will at least come once or twice a year. The key is, given that there is no longer a social expectation of familiarity with classical music as part of being a generally cultured person, how do we build the interest?

I’ll use my own person path to exhibit this. I grew up with almost no exposure to classical music and never played an instrument, not even in high school band. In college, I ended up working for over two years at a classical music radio station, a position I pursued only because of my interest in audio engineering.

My favorite time to work was during the Metropolitan Opera broadcasts on Saturday. You see, the opera was a continuous three hour chunk of network time, and I could just turn the monitor down to a low level to make sure we were still on air and read a book or study. In my entire time working at the station, I never gained an appreciation for classical music, even though I was exposed to countless hours of it. I was not only surrounded by it, I was surrounded by people from the music school who were obviously passionate about it. But it made no impact.

How did I learn to like classical music? Well, later in my 20′s I dated someone who loved opera and had a subscription. I went with her for two seasons. Later, after breaking up, I subscribed myself. Why I don’t know, because I didn’t like it all that much, truthfully. But by my fourth season, I finally “got it”. Part of this is because I got a course on tape (courtesy of new girlfriend who was now attending with me!) about opera that explained to me what was really going on and gave me my bearings. It was almost as if I had a zen-like flash of insight. It was like flipping a switch and somehow it all made sense. From there I branched out into other areas of classical music.

I think to really make a classical music fan, you need to get someone to the point where their switch flips, and this requires both a guide and some willingness to study and keep at it until you get it. I don’t think mere exposure is the answer. (Perhaps learning to play music will take you there – as a non-musician, I don’t know). I do think it takes some amount of desire and work on the part of someone to learn to appreciate classical music. Even to this day, when going to see an opera for the first time, I buy a CD and listen to it three times: one to just put the music in my head, another with the libretto in hand to follow along with, and a third to drive it all home.

Most people, I suspect, aren’t willing to make that investment. So I believe the classical music base will continue to be made up of a relatively small segment of any given community. Naturally arts groups will never say that, because without a mandate for serving the broader community, a lot of their funding would be in jeopardy, but it is the truth just the same. So these orchestras will duly spend time and money on outreach and putting on mini-operas for the kids. While this is good PR, I doubt it will have much long term impact on attendance. They are soil fertilizing techniques that I approve of, they set the stage later for possibly tuning in, but they won’t be sufficient by themselves.

What else is needed?

I do think there is something to this notion of an apprenticeship, of being guided to it by someone who is already “in the club” so to speak. This is both to get over the intimidation factor (e.g., understanding the protocol of concerts) and to explain what the heck is going on (e.g., a bit about who Mozart was, the classical era, and the basis of the symphonic form). But contrary to popular belief, I don’t believe that accessibility is all that important and may in fact be harmful. Rather, we should try to play up the idea of exclusivity, albeit an exclusivity that is available to anyone who wants to put in the effort. Look at almost any activity or interest that appeals to a limited group: pens, high end bespoke tailoring, modern furnishings, raw denim, mechanical watches, wine, skateboarding, you name it. All of them rely on a sort of insider knowledge to render them the province of a self-selected elite. But they are reasonably approachable. They create the idea of this exclusive club, use that aspiration to attract you, then slowly guide you in, letting the committed through the door while weeding out the pretenders.

In short, classical music should sell itself as a luxury lifestyle product. That doesn’t mean superficial consumption for the rich, it means appealing to the connoisseur in a spirit of genuine connoisseurship. And the great news is that if someone is a connoisseur of one thing, they are much more likely to become a connoisseur of another. So you’ve got a ready made audience out there of people who enjoy all the things I listed above and way more I didn’t. And what’s more, once people like this get into something, they really get into it and really do want to understand the ins and outs in a deep and rich way. In fact, they often become obsessive. (Sound familiar to any classical music folks out there???)

You might also notice that luxury brands apart from the ultra-elite usually have a few products that are accessible financially to the masses to get people interested and hooked. Then people can move up the food chain as their wallets and inclination allows. Similarly, classical music has to be able to find some entry level membership that lets people get in the door and gives them a path to move up. But you can’t lose site of the exclusivity factor. Positioning classical music as a totally mass market product “for everyone” only diminishes its appeal. You need exclusivity, the entry point, the “guide” to help you in, and the upwards path. If this sounds familiar, that’s because it is an almost universal template.

I should also note that this approach is very in line with the trend that hit in earnest in the mid-90′s of the fragmentation of the great American common culture in favor of a multiverse of niche cultures.

As always I can’t promise this is the answer, but the way I figure it, it can’t work any worse than what we’ve got now. And by the way, the same logic applies to getting existing classical fans to try new things as well – though I suspect that really is an even harder journey given the number of years current listening habits have been “burned in” for many of them.

(At a future date I’ll add another installment with some additional thoughts. But to cap this off, I thought I would tout one other Chicago institution whose season is upcoming. This is the Chicago Opera Theater. The COT is arguably America’s most important opera company. I feel that strongly about the work they are doing. Brian Dickie and company accomplish miracles on a shoe string budget. They’ve pulled off what others have only dreamed of doing – creating opera that is fresh, new, and of the now, attracting a new, younger audience without turning off the existing one, and doing it with largely contemporary and baroque works. If I had to choose between keeping my Lyric tickets or my COT tickets, the COT would win hands down. Like all arts institutions, they are getting hit by the economy, so our support is doubly needed at this time. That goes for all our arts organizations in all our cities).

Sunday, February 22nd, 2009

Chicago: Reconnecting the Hinterland 2A – Onshore Outsourcing

This the third installment of my four part series about ideas to create competitive advantage through reconnecting Chicago with its traditional greater Midwestern city-region. (Essential background reading is in Chicago: A Declaration of Independence. Part 1a is on Metropolitan Connections. Part 1b is on High Speed Rail).

To refresh, in my kickoff of the year of celebrating the 100th anniversary of the Burnham Plan in Chicago, I argued that while Chicago was performing well in a globalized world, it was only riding the wave of globalization and wasn’t defining its own uniquely successful future, one where it first and most fully grasped the implications of our new world. I also promised ideas on where to look to do that, starting with re-embracing its own unique culture and identity, resisting homogenization. My second idea was around re-engaging with the greater Midwest. It’s been widely noted that globalization has worked to separate global cities from their traditional city-regions. Indeed, Chicago and others have almost deliberately turned their back on their past in this manner to focus exclusively on the global conversation. With most global cities doing that, the question immediately comes to mind: is there overlooked opportunity in the hinterland?

There’s no doubt that globalization has hit the Midwest hard, putting a big dent in its traditional agricultural and manufacturing industries. What’s more, now services businesses are often made up of tradeable commodities that can be sent off shore too. This includes anything from answering phones to writing computer software to interpreting X-rays. We’ve seen the rise of agriculture in Brazil, IT and BPO in India, and manufacturing in China and to date the flow has largely been one way: from the United States and other high wage nations to low wage nations.

However, every action provokes a reaction. Any self-reinforcing trend like offshoring often contains within it the seeds of, if not its own destruction, at least structural weakness that leaves it vulnerable to competitors that figure out how to adapt to the new world. We’re already seeing signs of some slow down and indeed even occasional reversals of the offshore trend. I believe that there may be opportunities to leverage more onshore delivery of outsources services and that the Midwest is well positioned to take advantage of this. What’s more, if the structures emerge the right way, we could indeed see some possibility for competitive advantage for Chicago and its Midwest eco-system. Again, I’m not giving “The Answer” here, only exploring the problem and solution space.

Let’s put aside for the moment asking why people outsource, but restrict our inquiry only to why they do it offshore. One reason is access to talent. Countries like India have huge pools of highly skilled, highly educated workers. Access to that talent is important in certain industries. However, I think this has only limited applicability and that the bulk of the rationale for offshoring is based on labor and regulatory arbitrage.

The bottom line is that the Midwest is in competition with labor overseas that makes a fraction of the domestic rate. That problem is obvious. But the regulatory arbitrage point is less commonly thought about. As we got richer as a country, we were able to afford things that in previous generations might have been considered unobtainable luxuries: clean air and water, safe workplaces, protections from labor exploitation, ensuring that heavy industries and other uses don’t harm our neighborhoods. These have all brought enormous improvements in the environment of the United States and the quality of life that we have here.

The problem is that since there is greater global tradeability of goods and services, there is a choice between a highly regulated system like that of the United States and Europe and places like China, which is less the Far East than the Wild West. They want a freeway, airport or new building? Just sieze the land, kick out the current occupants, and build it. Belch fumes into the air and poison the water. Borderline enslave your workers in terrible conditions. Corruption is rampant. It’s easy to criticize these developing nations for doing this, though we should keep in mind that we ourselves did all of this during our industrialization and development phase.

All of our regulations have benefits, but also impose enormous costs. That’s to some extent ok when you are only competiting within the club of people with similar regulations, but when you are competing against people without the same regard for the benefits of regulation and thus don’t have them, this obviously puts the domestic market at a disadvantage. Again, it’s easy to criticize companies for doing this, but realistically they would soon find themselves out of business if they did not because of competitive pressures. Only laws restricting tradeability or some type of cartel or collusion could prevent this.

Ironically, as we’ve put in place rules to protect things we value, the result of it has been to push production to places with few if any rules, actually creating a net negative result. This has interesting moral dimensions. Is it right for us to effectively export huge amounts of pollution and labor exploitation to other countries simply because we aren’t willing to put up with slightly dirtier air here?

It’s an interesting question but not one I’m going to explore here. I will however point you at a must-read article in this quarter’s City Journal (the magazine of the center-right, free market think tank the Manhattan Institute). Harvard economist Ed Glaeser has another one of his masterworks. He calculates the carbon footpoint of various cities and cities versus suburbs. What he finds is that California cities have nearly the lowest carbon footprints out there. Part of that is due to favorable climate, but some of it to green policies. However, this same spirit leads them to put the nation’s toughest restrictions on development. This leads to the again the paradoxical result that pro-environment rules lead to an anti-environmental result because it forces development to places with higher carbon footprints. Per Glaeser, we should be building skyscrapers in California, not sprawl elsewhere. But watch residents rail against the “Manhattanization” of San Francisco. The fact is, to reduce carbon emissions, we should take a very pro-growth stance in a place like California. And we should be encouraging more urban growth generally since cities usualy have smaller carbon footprints than suburbs. (Interestingly, Chicago has a slightly higher carbon footprint than its suburbs).

I think a similar thing is at work in the outsourcing space. To create a better environmental result, we should be seeking to do more outsourcing close to home. This would also provide jobs at home. I believe that means having the courage to re-evaluate our regulatory systems. It is very clear that we can never and should never go back to the ways of the past. But we can definitely start taking a more realistic look at things and go forward with a pro-business mindset. Because if we want to do the right thing by the planet as a whole, we’d do more production at home where we know the worst abuses will be prevented.

Others suggest that we should seek to write environmental and labor rules into international trade agreements. While there may be scope for including some basic minimum conditions here, writing US level rules into trade agreements is simply the institution of non-tariff barriers to trade.

Let me be very clear on my own view, especially since I am very concerned about things like what globalization has done to our communities, the environment, worker rights, etc. Namely, I believe free trade is the best policy. The answer is not to cut off trade, which has enormous benefits for us as a society.

One serious problem is that few of the advocates for free market or new economy type economic policies ever make an argument about why it is good for the average joe. It’s always couched in purely theoretical terms, often by a smarmy, smart alecky guy in a suit on TV who talks a good game of creative destruction but doesn’t appear to have any concern that it will affect him personally. Similarly for things like “creative class” policies and talent acquisition strategies. It’s pretty clear they are great for the people who are pushing them, for the creative elite and others like them, but how does it benefit everyone else?

People without college degrees in rural areas, small manufacturing cities or are urban areas never seem to directly factor into these equations. And I’m here to tell you that there is serious desperation time going on out there for people in many of these places. I grew up in a rural community with no money. My Indianapolis residence is in a primarily low income area. I’ve seen it up close. I know that for many folks in these places things are tight even when times are good. And there are a lot of people right now on the brink of losing everything. This economy is only bringing into relief what’s been going on in slow motion in many communities for a really long time. So when I see people like that meltdown guy at the Merc on You Tube I want to punch him in the mouth. He’s Exhibit A in what I’m talking about. That guy has no idea what tough times are. And while many of the folks out there watching on TV at home may not be that highly educated, may not have refined food palates or sophisticated cultural tastes, I can tell you this, they ain’t dumb. Richard Longworth said it best in his book when he noted that they are well aware that globalization’s winners never spend a minute thinking about its losers.

Hey, the poor we will always have with us. There will always be individual winners and losers. We’re never going to have perfect society. But we’ve got to have a true American commonwealth, one where we all believe we are basically in this thing together, with prosperity broadly shared and costs broadly borne. I believe we are failing on both of those fronts, which is not a recipe for a stable society.

What’s desperately needed today is a new approach to policy and positioning. We’ve got to find a way to promote policies that are rooted in sound economics (e.g., free trade) yet are infused with a progressive ethos and a true, genuine passion for the welfare of the average and not so well off Americans, not just the elite. People who are able to think hard about the very real challenges we face to which we don’t have all the answers yet, and can make the case for good policy through how it affects a broad base positively in a more tangible and real way than we are doing now.

I’m inspired for this by 19th century social reformer Henry George. He’s best known for his belief in land value taxation. But he was also one of the most passionate defenders of free trade and free markets out there. His book Protection or Free Trade is still one of the all time greats on the topic. However, unlike the vast bulk of free traders, he defended it based on how it benefitted the common man, showing how almost all trade restrictions of his day mostly benefitted the wealthy and robber barons at the expense of everyone else. I also continue to be inspired by socialist Eugene V. Debs. I’m no socialist, but I can appreciate anyone who acts with such genuine regard uplifting the rank and file.

This doesn’t mean we have to avoid unpleasant facts. Far from it. We have to be willing to tell the truth and deliver bad news. The small town is probably not coming back. Small manufacturing cities that are hoping for the next Honda plant to arrive probably hope in vain. Many places need to shrink significantly and people have to be willing to move in search of economic opportunity.

But I also think that there’s scope to think of new ways to link these traditional labor forces to jobs in the new economy. That is the subject of this posting. And we have to make the case to people in a very tangible in real way they can connect to about why they should support it. Sorry for such a long warm up.

Going back to our offshore situation, labor arbitrage is a big part of the equation. However, low cost labor isn’t always what it is cracked up to be. For one thing, as there has been a great surge of offshoring, this has unsurprisingly raised market pay for many of the jobs in the target countries. We’ll see what the economy does, but double digit wage inflation is a fact of life. Also, especially for many entry level type tasks in the BPO world such as call centers, finance and accounting processing, etc., we see in an offshore environment that despite cheap labor, there continue to be significant non-labor costs such as buildings. And there are a ton of intangible costs such as currency risk to manage, time zone challenges and the strain that puts on workers, uncertain political and legal environments, poor infrastructure, the high cost of physical transportation or telecommunications, the high cost of travel, etc. Add them up and these are substantial. So a domestic operation competiting in this environment does not need to pay the exact same wages to win the work. If it can eliminate many of these other costs and risks, it might be able to get away with paying a bit more for people.

Indeed, we are already seeing some pull back on offshoring, especially in the call center space. I’m sure some of this is a bit of cultural bias, but clearly the language issue and the fact that the people answering the phones sometimes don’t have any personal experience with the products and services they are supporting makes this legitimately frustrating. I know that both AT&T and Dell have pulled some call center ops back onshore for example. Also, I’ve seen other examples. IBM recently announced a center in Dubuque, Iowa that will employ 1,300 people, for example.

I believe the Midwest is well positioned to compete for these type of operations, particularly in the BPO space. Why? Low labor costs and low costs of doing business. While I don’t believe that the Midwest will ever be able to compete purely a race to the bottom in costs, clearly its relative position domestically here is a good thing. There are lots of places in the Midwest like Dubuque where people have deep roots and want to stay and so will probably be willing to work for relatively less pay if it means they don’t have to move. Let’s not overstate the case, since the South is also very cheap, indeed cheaper in some respects. But it certainly puts the Midwest in the game.

If I were a Midwest state, one of the strategies I would be working on is how to focus on luring BPO processing centers. Indeed, this might be one area for pan-Midwest collaboration in marketing the region as they place to do outsourcing on a domestic basis.

You might be wondering by now where Chicago fits into all this. The answer is that I believe that there may be opportunity for Chicago’s companies to take advantage of that re-created hierarchical subdivion of labor that I talked about in part one and extend it to the next level. This exploits one of the interesting things about Chicago, namely that the “cost gradient” plunges dramatically at the end of the Chicago metro area.

I would be interested in seeing academic research modeled on central place theory that tracked the cost of living, wages, cost of doing business or some other interesting metrics in various radiuses around the central point of various cities. This could be mapped into a 3D topology like one of Richard Florida’s “spike charts”. My hypothesis that I’d like to test is that Chicago has an extremely steep slope to this, and that indeed, once you hit the edge of the metro region, cost falls of the cliff. Where else can you go from relatively pricey (though still not bad compared to the coasts) operations in one of the world’s most elite global cities (Chicago) to the least expensive major city in America to live (Indianapolis) in just three hours by car? If there are some tasks to which there is some level of intermediate benefit between total face to face and total virtualization, then this cost gradient could be a source of competitive advantage for business in Chicago.

I will give one example. There is a Fortune 500 company in Chicago that has long maintained an F&A operations center in Danville, Illinois. This center provides very needed jobs for that community as well as allowing the company to operate at extremely competitive rates. (Presumably they would have offshored it by now if not). Danville is 2.5 hours from Chicago. This lets Chicago based and ops-center based management shuttle back and forth regulary at very low cost and low investment of time. It’s an easy day trip. So you get some of the benefits of the face to face interaction, such as in person relationship building and knowing first hand how things work while maintaining cost competitiveness. And your operations are time zone advantaged, there’s no currency risk, etc. A possible win-win for the Midwest?

Again, it’s a hypothesis to test and an idea to try, but not a guarantee. I can see why it has some prima facie reason for success however.

What I described was what you might call a “two tier” model, with a Chicago hub and a satellite elsewhere. I can see some of this, but it is probably restricted to places within 3.5 to 4 hours drive. Another model is what I call the “three tier” model, and involves extending the hierarchical subdivision I talked about earlier to another level.

The idea I gave was in legal services where a Chicago firm would take the lead and do the orchestration and most complex work, while regional firms in Milwaukee or Indianapolis handled some more routine components of the work at a much lower price point, enabling the combined team to offer a lower blended rate to the client. This generalizes to “most high value, complex work in the Chicago Loop where the high costs are justified; lower-value but still work requiring significant creativity and skill done in a secondary market; with face to face interaction providing advantages and enabled by high speed rail.” The high speed rail part is conceivably secondary for Milwaukee and Indy, where day trips by car are feasibly if unpleasant, but it is probably a requirement elsewhere unless air service radically changes.

The extension of the model goes something like this. You add in a BPO center in a smaller satellite city within commute distance of the secondary city like Milwaukee or Indy. This could either be directly a two-tier arragement with that city, or part of a three tier arrangement with Chicago.

Again, I’ll use Indianapolis as an example. It’s conveniently ringed with small manfacturing cities that are hurting but are nevertheless within commuting distance. Imagine a company based in Chicago or with a Midwest HQ there. It also has an Indianapolis operation that services the local Indiana market and also does some of the high skill but lower value added work I mentioned previously. And there is some type of BPO operation – call center, HR, F&A, etc – in, say, Anderson, a small manufacturing city that has been hard it by the decline of the auto industry.

Now, Anderson is a very low cost place to do business. There are a lot of people who live there and love it and don’t want to leave. So the jobs would be welcome. However, some of the management positions might involve recruiting people from outside the community with specialized skills. As we know, people with that profile today more often prefer a major urban environment, which is why we see such differentials in educational attainment between these types of places. The beauty of Anderson, however, is that these management recruits can easily live in suburban Fishers or even the city of Indianapolis and commute to Anderson. Indeed, I know people who do it today. This gives Anderson an ability to tap into that management talent for the facility in a way that a more remote city far from a metro area would not. I saw previously some comments from leaders in Anderson that they were unhappy that some employees at a new local Nestle plant had chosen to live in Fishers. But the proximity to Fishers is a source of advantage, not of loss. Anderson can potentially attract employers partially because the workers have access to a more suburban environment if that is what they want. It broadens the potential labor pool and makes Anderson more attractive as a location.

So now you’ve got your HQ and top value added in Chicago. You’ve got secondary ops in Indy. And tertiary ops in Anderson. People can regularly travel back and forth between Indy and Chicago (via HSR, plane, or car) for the important face to face interaction. Plus, the Indy office can oversee the BPO operations in Anderson, and provide the urban environment that allows you to recruit specialized management talent to that facility. The BPO center management can travel to or stay in Indy easily to meet with people from the HQ operation. So it is very easy for people for all three people to get together in person at low cost.

If, and this is a big if, that geographic proximity and potential for frequent but not daily face to face interaction means something, this could give Chicago a competitive advantage through a cost structure, access to talent, and organizational simplification that you can’t get elsewhere. Plus, of course, Indy and Anderson both benefit too. That’s the key, to me, and why I would love to be able to see something like this work. It links the fortunes of the knowledge workers in the global city of Chicago with those of the knowledge workers in the regional city of Indianapolis and the people working in BPO centers in Anderson.

This is the linkage we need to be able to draw for people. Even without this hierarchical relationship, we can give some examples. I will pick one. Medco is locating America’s largest mail order pharmacy facility in Whitestown, Indiana outside of Indianapolis. Why did this company locate there? Two reasons were cited in the paper as to why Indy got the facility. One was it’s ability to accommodate the required regulatory changes rapidly. Two was the fact that Medco thought Indianapolis wasn’t just a cheap place to locate, but had a fun downtown where Medco could bring customers and entertain them at night after giving them tours of the facility during the day.

If you think about an operation like Medco, it will employ a lot of six figure pharamcists. You need to be in a major metro for that. But for every pharmacist, there are also lots of other technician jobs that carry decent wages but are accessible to people with a basic education. The pharamcists in Whitestown might mostly choose to live in Boone County or closer into the city. But I can see the technician jobs – and shipping/receiving and other jobs – appealing to people in a broad radius of the facility, often into areas where people need work badly.

That’s the link – and why it is important not just for the fortunate few but for the whole greater Central Indiana community that the Indianapolis life sciences strategy succeed, that the city succeed in luring the highly educated, and that the urban core prosper. Many people see swanky steakhouses downtown and wonder why the ability to wine and dine fat cat corporate executives is important. Well, if you are a single mother with a high school education in Clinton County and can get a good job as a technician at Medco, it matters to you. Now clearly Medco will be a highly automated facility and I don’t know how many non-pharmacist jobs there will be. But with a reported average salary of $53,000, that’s probably a leverage ratio of 3 or 4 to one.

Now of course none of this might work in real life. I’m just thinking out loud and throwing out ideas. However, it is notable that Business Week magazine just listed Indianapolis as one of 21 hot spots for outsourcing, one of only ten in the Americas, along with places like Curitiba and Buenos Aires.

So how would we action this? Good question. One way would be for various Chicago corporate networking or trade associations to hold discussions on the possibilities with their counterparts in secondary markets, academics, and economic development people from the states. Yes, this might be one of those conferences I like to make fun of at times. Explore the issue and see if there is a way to make it work. One way for states to promote it is through requiring “offsets” as part of government contracts that focus on this area. Indiana again provides an example here. When the state privatized FSSA operations, IBM agreed to create a 500 person call center in Delaware County.

Again, to me the real advantage somes not from just having some centers here and there with jobs because the Midwest is cheap. It is about exploiting the cost gradient and finding niches where you can have jobs that aren’t in the Loop, but nevertheless benefit from frequent though not daily face to face interaction. The potential for using high speed rail to enable this is an interesting thought, but potentially it could work for closer in places like Milwaukee and Indianapolis without it. The idea is to create a structural competitive advantage through exploiting this for Chicago and its “ecosystem” of nearby cities in a reinvigorated hierarchical subdivision of work.

As always, I welcome your reactions. My goal is to provoke thought and discussion.

My final installment will focus on one of the interesting implications of labor arbitrage as a value creation strategy and how it opens the door for a competitive response based on innovation.

Wednesday, February 18th, 2009

Midwest Miscellany

You’ve probably read this already, but Richard Florida has a cover story in the Atlantic Monthly, along with a companion interview. And there’s an interesting interactive map with it too.

Oh, and since I wrote about high speed rail recently, here’s a USA Today article that suggests President Obama already sees high speed rail as one of his legacies. Apparently Rahm Emmanuel was instrumental in getting $9.3 billion for high speed rail put into the stimulus.

Here’s a tough one from St. Louis – and alas around the country. Transit ridership surged last year, but transit systems are cutting back because of the economic downturn. St. Louis is axing service at 2,300 bus stops to save money.

Transit in Chicago is funded, apart from fares, mostly by a mixture of sales and transfer taxes, both of which are getting hammered by the economy. This creates yet another financial crisis for the agency, with a projected $213 million deficit. Buckle up, it’s going to be a bumpy ride. (Commentary on this from Chicago Carless).

Here’s an interesting story. People promoting an extension of the South Shore Line from Northwest Indiana to Chicago want to do their own population projections and not rely on figures from the Indiana Business Research Center. I don’t think this is such a bad idea. I don’t know if the IBRC has been the source or not, but I’ve seen some studies where the population forecasts where far too low. On the other hand, people doing studies need to be sure to rely on objective figures and not commission “home cooking” for their project.

INDOT received a Record of Decision from the FHWA allowing it to proceed with design and implementation of the US 31 freeway upgraded in Hamilton County north of Indianapolis. Definitely a needed project that overall looks like a winner. I previously reviewed the SDEIS in depth. My biggest concern is that INDOT again has reduced cost by down scoping the most important interchange. They reduced the US 31 to I-465 movements to single lane flyovers. Heck, even the I-74/I-465 west leg interchange uses dual lane ramps. I’m all in favor of looking for ways to save money, but would suggest that major freeway-freeway interchanges is not the place. It’s a similar story on the Accelerate 465 project. The most critical interchange at I-70 was significantly downscoped.

Here’s a bit of thoroughly depressing news. The city of Indianapolis is pressing ahead with plans to reconstruct Broad Ripple Ave. despite that fact that everyone knows the project is sub-par. The neighborhood strongly opposes the current plan and it seems to me more or less like a $2 million waste of money. I’ve noted before that Indianapolis has a horrific street system for pedestrians. It is facing a gigantic backlog of needed repairs. Given that, why spend precious funds on projects that don’t advance the ball? The street network of Indianapolis is conceptually obsolete and no longer meets the needs of the city in the 21st century. Figuring out what the streets should be, then designing projects that get us there, is exactly what is needed. (I should note that in this case, I would not agree with the BRVA’s call for bike lanes through the core commercial district. Wider sidewalks are most desperately needed instead).

The city council of Columbus, Ohio approved a budget with major service reductions, which includes reducing police office headcount by 80. Now Columbus just did a major bond issue for things like sidewalks and trails. I’m all in favor of that stuff, but if you’re taking cops off the street at the same time, it doesn’t make any sense to me. I realize capital and operating and two different things, but this is still an interesting juxtaposition.

An excellent commentary on historic preservation from Urban Milwaukee. Oh, and speaking of Milwaukee, a local university did a very nice study on city condo dwellers. And lastly out of Milwaukee, an attempt at an open source think tank called Cream Citizen.

Here’s an article about a study touting Michigan’s success in bioscience. Sound familiar?

After getting shot down multiple times, transit advocates in Kansas City are taking light rail off the table. Here’s a quote from the article:

“The city is set up for cars. As a result, most of the metropolitan area is not densely populated. That, plus a wealth of affordable parking, decreases the number of potential transit riders. And that has made it difficult to win federal dollars for rail systems. Kansas City has about 30,000 parking slots in its central business district, according to a 2008 city parking study. On average, it costs about $7.90 a day to park downtown. Compare that to other cities with rail — in Minneapolis it’s $15 and in Dallas, $12.50. ‘Abundant cheap parking is one of transit’s biggest enemies,’ said Ken Kinney, the HNTB consultant working on Kansas City’s light-rail plan. Generally, an average of 6,600 to 10,000 people per square mile is needed to score federal funds. But Kansas City isn’t close to that number along the 14-mile route that voters rejected in November. In fact, consultants predicted it would average only 3,600 by 2030. Traffic isn’t bad enough. Regional planners say bad traffic sends people in other metro areas screaming for alternatives to driving. All the big cities with rail — Dallas, Atlanta, Houston, Chicago, Minneapolis — have terrible congestion problems. Our traffic problems just aren’t at that level — yet. ‘We don’t have the market demand fueled by congestion,’ said David Warm, executive director for the Mid-America Regional Council, which coordinates transportation planning here.”

Again, sound familiar? The same is true in every similar sized Midwest city.

UrbanCincy has an interesting article on the Cincinnati Agenda 360 plan. I may do an in depth look at this in the future.

Richard Layman covers the story of bike share vandalism in Paris.

The Youngstown shrinkage experiment continues to garner coverage. Here’s an article from the Next American City. Speaking of that site, they had another interesting column questioning the return to vogue of large scale demolition and land clearance in our cities.

Bruce Katz of Brookings talks about a national Office of Urban Policy. (via CEO’s for Cities)

An article on the all too common theme of the middle class squeeze in a global city. This time from Tornoto. Another study hits the same theme in New York. This is a very serious problem for the country and world. We’ve got to figure out how to create a broad based economic success in the globalized economy. It’s an absolute social imperative.

Here’s some intelligent commentary on the emigration of the talented – out of India. Having seen how a robust diaspora community can power the domestic economy, India definitely gets it on this stuff. They are actually trying to take an objective look at the pros and cons of people leaving. (Hat tip Burgh Diaspora)

It’s OT, but here’s a wacky story from the NY Times about some still outstanding municipal bonds dating to 1868.

More Midwest

Chicago
Going for the Gold (Medill Reports) – PS, It’s `L’, not ‘el’ – go back to New York
No transit overhaul in city’s Olympic bid (Tribune)
Wal-Mart figures time is right for Chicago push (the Journal)
Pedestrian deaths are up in Chicago despite safety measures (Tribune)

Cincinnati
Zimpher takes SUNY job (Enquirer)
CSO Recording gets a Grammy (Enquirer)
CSO Musicians agree to pay cut (Enquirer)
Green tech lab coming downtown (Enquirer)

Columbus
A world up qualifier. In Ohio. In February. Cool. (NY Times)

Detroit
Bad roads getting worse (Detroit News)
One leader sees a green future for Detroit (Free Press)

Indianapolis
Speed limits trail the pace of growth on I-69 (Indy Star)
Muncie-Indy commuter rail feasible (Indy Star)
$3.5 billion, 200 feet deep, 20 miles long, 15 years (IBJ) – I thought this was supposed to be $1.6? Will America’s cities survive the Clean Water Act?

Kansas City
Lyric Opera making changes in economic downturn (KC Star)

Twin Cities
Minnesota’s red link? $7 billion (Star-Tribune)
Mileage tax, not gas tax, may pay for Minnesota’s road work (Star Tribune)
Twin cities home values fell 10% (Star Tribune)

Sunday, February 15th, 2009

Chicago: Reconnecting the Hinterland, Part 1B – High Speed Rail

The first installment in my series on ideas for reconnecting Chicago with its natural expanded region in the Midwest focused on what could be enabled by linking Milwaukee and Indianapolis to Chicago via high speed rail. This makes it a good time to talk about Midwest high speed rail generally.

There’s been a lot of talk in recent years about the idea of creating a Midwest high speed rail network. The federal government has already designated a system of Midwest rail corridors. There’s a lobbying organization pushing it called the Midwest High Speed Rail Association. A host of environmental groups support it. I even had a (successful) mini-effort to get Louisville included in the Midwest network.

High speed rail is an area, like transit generally, where it is almost impossible to get information that does not come from some type of policy advocacy point of view. Consider the MWHSRA. I like these guys and am on their list, but they are a lobbying group for high speed rail. I think it is fair to say you’re never going to get a discouraging word about rail out of them. Their job is to gin up reasons to do rail. Unlike with local rail transit systems, where there is often significant opposition rooted in tax policy, I don’t see a lot of organized opposition to high speed rail. But there seems to be a lot of indifference and dismissiveness on the part of many. “We’re not Europe” seems to be the easiest way to sum it up.

I think there could be a case for high speed rail, but I think the arguments in favor of it have been way too simplistic to date. The benefits seem to be assumed rather than demonstrated. It is treated as a self evident good backed up by only rather generic arguments and appeals. I think we’ve got to get beyond this, and start asking the hard questions. Because it’s not just about running trains, it’s about what it can do for us.

Why High Speed Rail?

Richard Florida’s Atlantic Monthly piece has been causing quite a stir. I’ll start there by repeating his statements on high speed rail from the companion interview:

There are the fast trains along the Boston/New York/Washington corridor that have allowed Washington, in effect, to become a commuter suburb of greater New York. But how about a place like Detroit? If Detroit were better connected to Chicago, one could imagine Detroit having a better reason for existing.

Could we? I’m having trouble imaging it. Better connections to Chicago by rail will give Detroit a reason to exist? I wish Florida had helped imagine it for us. Who is going to ride those trains back and forth? Is it new trips or displaced air/auto travel? Why are they going back and forth? How many of them will there be? What is this going to enable us to do that we couldn’t do before?

Those are the questions we need to answer. The rationale in Europe is often about replacing air on short distance, high density travel corridors with rail for environmental reasons. It isn’t about giving Paris and London, or Madrid and Barcelona, reasons to exist. But the problem with the Midwest is that far too much of it is slowly dying economically and hasn’t adapted to the global economy. How does rail help with that? What is going to be different after we build the network?

At the risk of sounding Rumsfeldian, I’ll say that there are two broad categories of benefits:

• Benefits we know about that we can reasonably expect to achieve if we execute right. There’s no guarantee, but at least we’ve got a plausible business case.
• Benefits we don’t know about yet. This is based on the idea of emergent properties of a new transport infrastructure. We’ve seen this before with, for example, the internet. We can’t predict what new things it will be leveraged for, but we know it is a disruptive technology.

I think we’ve got to hang our hat on the first point. There may in fact be benefits we can’t anticipate. But that sword cuts both ways. Again, we’ve seen this movie before. The interstate highway system had benefits beyond what we ever dreamed for it. But it came with a lot of downside too. Similarly, the internet has generated huge benefits for some, but has also been an enabler of offshoring that put a lot of people out of work. I think it’s fair to say that whatever good things come out of rail, there will probably be some nasty surprises we didn’t anticipate.

Again, to follow-up on a previous post, we have to be careful not to decontextualize the solution. Rail has worked in places like Europe and Asia, but the conditions in the United States are very different. What’s more, Europe and Asia have had very different policy objectives and implementation approaches than what we’ve seen in the United States. Are those transplantable here? Certainly they would not appeal to large segments of the American community. No doubt many people would like to see us adopt more Euro-like policies. That’s totally legitimate. But let’s be clear on the basis of the debate. It’s a debate about policy and values, not about technology. And indeed often the debate over things like high speed rail is really just a proxy battle for deeper conflicts of values that we don’t want to talk about openly. It’s always easier to try to justify our position based on purportedly technical criteria rather than to make our case for why our goals and objectives are good in and of themselves. That, however, is the discussion that we need to have. Even looking purely technically, is it reasonable to assumed the same results for our system as for Europe’s when the operating characteristics and technology are proposed to be radically different? It seems dubious.

I think I’ve put my own cards on the table. To me, the goal is economic growth for our cities, and helping them to achieve success and broad based prosperity in a 21st century economy that will be very different from the 20th. I do support goals like improving the environment and having a more sustainable society. But I also fundamentally believe that people tend to act in their own self-interest, that only a limited number of people are going to ride trains or do anything else simply because it is “the right thing to do” and that people are going to choose their mode of transportation based on the optimum blend of price, end to end journey time, and quality of experience that fits their needs. So we should look to justify rail based on tangible economic benefits we hope to achieve, sustainable competitive advantage we can create with it, and solid mobility based reasons people will ride it.

I think it’s going to take a lot of hard thinking and serious research to get there. I did try to offer two examples of where rail would accomplish this with regards to linking Chicago to Milwaukee and Indianapolis – the labor force benefits and the sub-division of labor benefits. Both of these potentially offer sustainable competitive advantage. That’s possibly the lever that is most important. It’s not just whether or not you can convince someone to take a train instead of a plane or auto. It’s about what you can do with rail that you could never do before – things that other cities and regions can’t match.

The Current Midwest HSR Proposal

Let’s take a look at the Midwest high speed rail map:

You see here a vast network envisioned. High speed trains, slow speed trains, bus, local transit, street cars, regional rail, national rail, overnight rail – the MWHSRA is in favor of all of them. Immediately you see the political nature of such a construct and the key challenge to ever implementing something that achieves real benefits. Amtrak survives today because it maximizes the number of states and Congressional districts in which it offers service. You see the same logic at work here. Every state and every region within every state would receive some type of service. Parochial interests of little real significance – such as a high speed rail line from Chicago to the small southern Illinois city of Carbondale – are included as part of a throw stuff at the wall and see what sticks strategy.

Truthfully, it’s difficult to see how you make progress other than by taking such an approach. But it is hard to envision capturing the real benefits here. The types of benefits that can be achieved will vary greatly by city pairs. And of course larger cities will benefit much more than small cities. But there isn’t much political logic in that. Let’s look at a few specifics of this plan.

1. The Chicago hub. This network shows Chicago as the hub. That of course, is logical. But a hub has multiple meanings. I think what comes to mind for most people is an analogy to an airline hub. Airline hubs are principally about interconnects. That is, rather than a mesh of point to point lines, you fly everyone to a central location, have them switch planes, then fly to the destination. This is very efficient which is why companies like FedEx and UPS make such heavy use of it for freight.

But is most high speed rail traffic likely to be beyond service via Chicago? It seems unlikely to me. I’ll be the first to admit that I haven’t thoroughly investigated the numbers – hey, it’s a blog, not a journal article – but if I look around the world, I see rail primarily being used as a point to point technology in major, high density transit corridors. It also links peripheral cities to a national capital or primate city type of arrangement. While there is some interconnect traffic, I don’t believe that is the basis of justification for the route.

My belief is that, in practice, the vast majority of trips on any Midwest high speed rail system are likely to be point to point O&D to Chicago. If you are traveling from Detroit to Minneapolis, are you likely to endure a multi-hour rail journey to Chicago, transfer, and take another multi-hour train to Minneapolis? There’s probably some of this, especially novelty, leisure, and perhaps student type travel. But most serious travelers are going to hop the one hour non-stop flight.

We need to view the high speed rail network not primarily as about anywhere to anywhere hub and spoke through Chicago, but rather as a series of city pair links to Chicago. One implication of this model is that it eliminates the need to terminate all traffic at Chicago Union Station, which is a benefit I’ll explain later. You can instead choose the most appropriate station to use for each route. What’s more, this implies that we should study each route separately, to identify the pros and cons and specifics of each in terms of the benefits, technologies, etc. There is no one size fits all solution here. This approach also means that we should not be relying on amorphous “network benefits” via analogy from the internet. If we can come up with some specific cases, great. Otherwise, to me that is gravy. I believe it is theoretically possible to justify point to point links without regards to this. Of course, it might also mean that some city pairs don’t make sense. That hurts the case politically, but since I’m not a marketing program for high speed rail, I’m free to ignore that for now.

2. Confusion of the solution and the problem. The MWHSRA supports using corridor appropriate technology, which is right in line with the above. But what this means in practice is that for the routes shown in purple and in green, existing railroad tracks would be upgraded to support 110MPH, non-electrified service on lines shared with freight. Why did they pick this? There are a few good reasons. One, 110MPH service is the fastest the Federal Railroad Administration (FRA) allows you to go and still maintain grade crossings. Two, this, along with using traditional technology, dramatically reduces the cost of the network. Previously, it was said that this network could be constructed for a little as $1 million per mile. That’s clearly a joke, and I haven’t seen that number in a while, but it is undeniable that this is a much more affordable system than say a Spanish AVE-style system operating at 200MPH. Three, it lends itself to incremental implementation over time, something that I have long supported in many other areas. A lot of times “big bang” just isn’t reasonable. Incremental deployment reduces risk and gives you speed to value, which can give it a huge surface appeal in this case.

So it is very hard to fault the MWHSRA for taking this approach and clearly it is completely valid type solution and probably the more realistic way to get something implemented. I do not think it is the right one however. Why? Fundamentally because it confuses the system with the benefits. The idea seems to be that we want high speed rail, so however we have to define high speed rail or however we have to structure deployment of the system to get there is the way we should go. But the scope shouldn’t be the network. The scope should be the benefits. It’s about the benefits and what we need to do to get them. And I don’t believe that this 110MPH network satisfies the objectives of the system as I defined them because the journey times will simply be too long.

Let’s look at some of the high density lines in Europe where we have seen the greatest displacement of air travel with rail. Paris to London via Eurostar is 2:15. Madrid to Barcelona via AVE is 2:35. Virtually no city in the proposed Midwest system will have times like this other than Milwaukee and Indy. St. Louis and Detroit are both about 300 miles from Chicago. With slower speed terminal approaches, there is no way you are going to get less than 3.5 hours on these lines, probably worse. With collection and distribution times on the end, is this going to be competitive with air travel?

What’s more, even if you could displace air travel, what does that give you? Again, what does a 3.5 hour rail service let you do that you couldn’t do before? How does it change the game? Even if environmental benefits are your driver, it isn’t clear to me that you’d reduce flights materially. There are still going to be plenty of Chicago-Detroit and Chicago-St. Louis flights because of the hub-spoke design of the air system.

It’s not even clear that it is auto-competitive, when you factor in journey times to and from the station, plus the early arrival buffer you’ll need to leave on your journey. Again, the drive time is much closer to the true door to door time than the flight or train time only is to the journey times for those modes.

The present plans being pushed envisions a five hour train trip from St. Louis to Chicago. But if that’s what you want, there’s already a service that will give it to you. It’s called Megabus, it leaves from the exact same place as trains, it’s dirt cheap, very popular, offers wi-fi service, and even better is provided 100% by the private sector – no tax subsidies required. If Megabus isn’t a game changer in the relationship between St. Louis and Chicago, why would an equivalent rail service be?

Also, I don’t think full consideration has been given to what this means practically. Most existing freight/Amtrak lines run through lots of towns that grew up along the rails. How many of those towns are going to be excited about super-fast trains barreling through at 110MPH, particularly if they don’t stop there? Inevitably, routings are going to be chosen to maximize the number of cities served and/or there will be compromises to speed that hamstring the routes. Small town and rural legislators are very influential in Midwest state houses. At a minimum, there’s going to be a lot of compensating going on.

So as someone who’s been noted as a rail skeptic, I’m coming to a rather surprising conclusion, namely that the proposed Midwest high speed rail system is not nearly ambitious enough. I think it occupies that unfortunate gap between a cheap solution that gives amazing price/value and an expensive solution that is a total game changer. I think it’s still a pretty expensive solution, but one that, even if it attracts riders, isn’t going to move the needle in terms of making the Midwest more competitive and successful.

The Way Forward

Again, my belief: the scope is the benefits and you have to design a solution to obtain them. Then you can decide if you think the ROI is there.

So what do I propose we do? Here is the sketch of a plan:

1. Conduct city-pair analysis of every major (one million plus population MSA) city with Chicago, with secondary screening studies of surrounding cities. Selected other cities could be selected where we have reason to believe there might be some benefits.
2. Based on this, define a plausible set of mutually beneficial results that we think we can obtain as well as a rough cut on the technology and cost.
3. If it makes sense, proceed to a detailed planning study.

My hunch? In most cases, if we want to accomplish something meaningful, it involves significantly higher level of service than envisioned in the current proposals. I also think there are disproportionate benefits to cities that are closer to Chicago. This means #1 Milwaukee, which is already starting to function as a sort of part of the Chicago economy. And #2 Indianapolis, which is by a good margin the next closest major city. Then you get into ring three – Detroit, Cleveland, Columbus, Cincinnati, St. Louis.

I’ve already made the case for both Milwaukee and Indianapolis. Again, read it here if you didn’t already. It’s based on an extended labor force model and enhanced hierarchical subdivision of labor.

Here are some characteristics of such a system as well as some praticalities that would need to be addressed in order to have any chance of success. Keep in mind what attracts riders to the system: competitiveness in terms of cost, end to end journey time, and quality of experience.

1. We need game changing reductions in rail journey time. Especially given the collection and distribution time requirements on each end, I don’t see how we materially enable anything different if we aren’t making major journey time reductions. That’s why I proposed the 90 minute trip target for Chicago-Indy.

2. The system must operate with absolute reliability. You should be able to set your watch to this thing. In Spain, the high speed rail network promises arrival within 5 minutes of the scheduled time or your fare is refunded. The system only pays out on 0.16% of trips. That’s what’s needed here. Clearly, that’s a far cry from Amtrak.

3. Quality of experience must be top notch. This doesn’t necessarily mean spending a lot of money, but it does mean more than bare bones. It’s about being very rider focused and adopting a hospitality industry type mindset. The trains themselves should be of top notch design and quality. There should be AC power and wi-fi throughout – free. There should be quality on board services. The staff need to be extensively trained in customer service. The check-in process should be totally painless – and preferably electronic. The web site and other electronic communications channels should be state of the art. Stations need to be welcoming, comfortable, well lit, with excellent signage, etc. Again, architecture and design matter.

4. You need to solve the collection and distribution problem. This is already largely solved through public transport and taxi service in Chicago. Other cities have much worse systems and will probably need to upgrade them. Most cities with successful high speed rail service also have excellent ground transport once you arrive. However, it’s not realistic to expect everyone to take transit, so rental car facilities should be included at the station with very easy access.

5. Price to entice. The price equation has to be there to deliver the value. At one point at least it was claimed the Midwest system would break even operationally. I don’t believe this, nor do I believe we should set it as deal breaker system goal. I believe some level of operating subsidy would be required, just like with most transit systems.

6. Frequency of service. If you can’t offer good frequencies, again, how much of a game changer can it be? I’d say something like hourly service would be preferred, including at least one late night train for people departing after attending an evening event. The lack of train frequency is a big limitation, for example, on the existing Hiawatha service to Milwaukee.

7. Amtrak is not the answer. Most rail proposal assume Amtrak is the operator. I think this would be a big mistake. Amtrak’s brand in most places is terrible and the politics around it have been poisoned. Why would we want to saddle our brand new state of the art high speed rail system with Amtrak’s old school operating practices, antiquated work rules, and legacy costs like retiree pensions? Let’s start de novo on this one. We don’t need to just change technology. We need to change the whole culture around rail operations.

8. Top notch, non-intrusive security. High speed rail is a terrorism target. We certainly don’t want an Atocha situation here. On the other hand, the “TSA experience” would horribly compromise the attractiveness of the system. We’ve got to get creative here.

9. To repeat again, a high speed rail system can’t be positioned simply as an environmentally friendly substitute for what we already do today. It has to be something that let’s us do things we couldn’t do before, or that give us game changing elements of sustainable regional competitive advantage.

Changes in Federal Policy

I would also propose a series of federal policy changes and actions to make this a reality.

1. Funding. There is no way that states and local governments are going to be able to pay for this, so it has to be a majority federally funded program. Beyond initial capital, we’d need a dedicated funding stream for operations and for capital refresh so that we don’t end up with an infrastructure crisis as the system ages and there is no money for maintenance. Take a look at our major urban transit systems and see where that approach leads.

2. Proper positioning as a major urban service. We need to treat high speed rail like major airports. Not every town has an airport with commercial service. Only large cities have that. Similarly, high speed rail is for large urban centers and perhaps a very limited number of places in between. While politically difficult, we’ve got to be realistic about this. I don’t advocate ignoring smaller towns and rural communities. Far from it. I think communities adversely affected by rail should be compensated. And I also think we need to be creating policies that are tailored to the unique needs of those places. Our country isn’t all the same and we can’t have a one size fits all policy.

3. Mandate more flexibility at the FRA. Our rail rules are among the strictest in the world and are hostile to passenger service. We’ve got to have leadership in place there that will adopt a “can do” approach. For example, we should have maximum flexibility to run light European style trainsets without having 100% dedicated trackage. Perhaps President Obama could establish a high speed rail program within the Office of Urban Affairs to ride herd on the FRA and make sure regulatory red tape doesn’t kill the program.

4. Expedited environmental review. Speaking of which, the NEPA process is a good thing. But we’ve got to strike a better balance where we don’t drown major infrastructure investments in a decade plus of studies to tell us more or less what we already know. Yes, by all means let’s do environmental studies. But let’s make sure high speed rail is put on a fast track.

5. Charter a new operating authority. As I said, Amtrak is not the answer. We need a new federal authority to own the capital stock and oversee the operations of the system. The actual operations might be contracted out to private companies (or maybe not – we’d have to figure that out). But we should avoid structuring this with traditional railroad operating practices that date to the 19th century and equally avoid the civil service type structure of 30 years to retirement with a defined benefit system for life. Neither of these is conducive to running a rider oriented, financially sustainable system.<

Example: Indianapolis to Chicago

Next, I’ll turn to some thoughts on the first two connections I proposed: Chicago-Milwaukee and Chicago-Indianapolis.

A commenter, the Urban Politician, noted that Indiana had no political demand for high speed rail and accused me of showing favoritism to Indy. Well, I do admit to having a soft spot for Indy. However, this is a legitimate objecdtion that I think needs to be directly addressed. First, I believe we need to figure out how to create political demand behind the routes that make sense, not rely on progressing randomly on projects of unknown quality just because there’s some people who like them. Indianapolis is the second closest city to Chicago other than Milwaukee by a good margin. This makes the case for rail service between those cities extremely strong. Indeed, if you can get the trip time to 90 minutes, you start to see some very interesting opportunities for game changing interaction. But TUP is right, there is no political demand in Indiana for high speed rail.

I think this can and should be changed. Indiana has a reputation for conservatism, but it is actually on the leading edge of practice in many respects. Major Moves was a very creative way to fund the highway program and only a few places have done anything like it. Indianapolis is the national leader in modern roundabouts. Carmel alone has 50, which is 5% of the entire US total. And the roundabout interchange project on Keystone Ave. is the first time that approach has been done at that scale anywhere in the country. The new Indianapolis airport is the all around best in the country, and the most environmentally friendly in the world. The Indy Cultural Trail is re-imagining the pedestrian and bicycle experience in a downtown. So I think there’s reason to believe Hoosiers could get behind it – if there’s a compelling reason to.

I think I laid out the case for the potential economic development benefits. But there is one other argument for it that is an absolute no brainer. There is $9 billion for high speed rail in the stimulus and Indiana isn’t getting any of it because it has nothing to spend any of it on. I think it’s fair to say the taxes Hoosiers pay aren’t going to go down just because the feds are spending the high speed rail money places besides Indiana. This isn’t about pumping huge amounts of money into a grandiose scheme. Rather, it’s about spending a relatively small amount of money to do planning studies and environmental work, and building consensus around a solution that can be implemented. In effect, it’s about buying a very cheap out of the money call option. If high speed rail takes off or there are major federal dollars behind it, the state is positioned to succeed. If not, not much is lost. But if high speed rail does take off and the state isn’t in the game because it didn’t pay the ante, that’s not a good place to be.

So I think this makes sense for Indiana even based on a hard nosed dollars and cents view.

Plus, I think there is reason to believe that this route has more going for it than you might think. Chicago and Indianapolis have the two strongest civic sectors in the Midwest by a mile. Chicago is united by the strong leadership from Mayor Daley. If he says this is important, people will rally behind it. In Indianapolis, it can take the community leadership a while to come to consensus about something, but once they do, watch out. Once the armada is in formation, Indianapolis is a city that almost invariably accomplishes what it sets out to do. And while you can get grand visions almost anyplace, if you want to get something done, call Mitch Daniels. The long overdue departure of Blago means the state of Illinois can finally start engaging seriously at the state level. And of course President Obama means there is a friend of Chicago in the White House.

Lastly, one reason this route has gotten less attention is that there is no longer an existing high quality rail connection between Chicago and Indianapolis. The existing Amtrak routing is circuitous and horrible in its operations characteristics. This is in contrast to say Milwaukee where there is a already a 79MPH rated double-track line between the two cities. Given the MWHSRA approach of incremental improvements, focusing on cities where there is already a decent quality line in place makes sense. However, what others might see as a defect, I see as a positive. Look at my technical note for more.

What would I propose doing? It is pretty simple. The respective governors and mayors would charter a feasibility study and tier one EIS for the corridor. This would also have top level sponsorship from President Obama’s Office of Urban Affairs as well as involvement from the FRA. This would include significant involvement from the business leadership of both cities to make sure the business case is there. This would be more than a typical technical study which looks at how you build something. Rather, it would be an open dialog about the future and what we want it to be. About the types of game changing things it could enable and the willingness of the respective business communities to invest in making them real. About building relationships and trust. I believe it would also look at a system that offered true high speed service with the attributes I laid out above. I think President Obama should fund this via discretionary transportation grants from the stimulus. Some technical thoughts on this route are below.

Running in parallel with this would be a less detailed study looking at the connections from Indianapolis to Columbus, Cincinnati, and Louisville. This starts the process of determining if those corridors are worth it, and provides some information on potential through routing of traffic to Chicago. Actually, if there’s a logical hub in this system, meaning a traffic interchange point, then it is Indianapolis not Chicago. All traffic from the southeast should be aggregated in Indianapolis in order to proceed to Chicago. I’m not sure what the value basis of rail is to those cities, but that’s what we have to discover.

One this initial work is completed, then the parties can decide if the ROI is worth it.

Example: Milwaukee to Chicago

For Milwaukee, the situation is a bit different. The Hiawatha service already offers a 90 minute journey time and is in regular use. Wisconsin has been very active in supporting high speed rail. Wisconsin has already invested in station upgrades on the Hiawatha line, so I’m sure the governor and mayor would be all in favor here. I’d suggest a similar effort to Indianapolis here to focus on how to use rail to drive economic growth and benefits, and to flesh out the technology a bit. But I think this one is more straightforward.

This same approach would need to be taken with every city pair out there. Articulate the basis of value, find out what you have to do to get it, decide if there is a willingness to do so, and look at the ROI. Then make a decision and seek funding if it is a yes. I do believe as more cities are added there will be some “network effect” benefits, but I think in the short term we need to hang our hat on city pair logic.

Implementation Considerations: Milwaukee

Finally, I’ll wrap up with some technical thoughts on the two lines.

First, Chicago-Milwaukee. The 90 minute journey time is already pretty good. This is a route that I think, given the distance, is perfect for the incremental improvement to existing rail technology approach preferred by the MWHSRA. There are two things that need to be done. One is to reduce the journey time. I think it should be possible to get closer to 60 minutes than 90. The other imperative is to increase frequencies, preferably to hourly. And of course we need to absorb this into the new rail operator, so as not to rely on Amtrak and the subsidies that the state of Wisconsin is currently giving for operations.

The easiest way to reduce journey time is to speed up the terminal approaches, which often feature several miles at low speeds. You get much more bang for your buck upgrading the segments close to the terminals than you do the already fast segments in the middle. Though I do think the middle segment north of Rondout probably could be upgraded to 110MPH operations fairly easily.

The bigger challenge in frequencies. The Milwaukee Road line used by this service has well-patronized Metra service and is also used by freight trains. One problem is the A-2 interlocking where the Milwaukee Road trains cross the Union Pacific lines on the near west side at grade. It’s a serious bottleneck. Metra is well aware of the problems here and anything that improves this situation could also dramatically better commuter service. Other capacity constraints might be addressable via extended sidings or express tracks. But there’s no doubt this will be difficult.

One other item. I believe the Glenview stop should be relocated to Lake-Cook Rd., where the Shuttle Bug service will connect it to the many area employers.

Implementation Considerations: Indianapolis

On the Indianapolis line, I noted the lack of a quality existing connection between the cities. But as I’ve long said, invert the world. Turn your weakness into strength. In this case, the poor routing and condition of the current line more or less takes the inferior upgrade existing approach off the table. That means the answer is a new terrain route.

I believe the best technology for this corridor would be a European style, 200MPH service along a new terrain routing for most of its length. This would use off the shelf, proven technology from the likes of Siemens. The Siemens trains are already working in Spain at the high service levels I mentioned previously. By all means have a bake-off on the vendor, but I would suggest that EMU versus a TGV-style separate power is better.

The benefit of the new terrain route is that it enables dramatic increases in speed and service quality without any freight interference. Also, a new terrain route can bypass all the towns the existing lines pass through, so those Main Streets don’t have high speed trains blowing through them and all the attendant noise and danger and such. Northern Indiana is flat, which is deal for rail building. And the rural nature of the route means that the grade separations – which would be required – would be limited. Possibly “offsets” secured during the procurement process could mean a manufacturing plant and/or a US HQ operation locating in the corridor.

There would be intermediate stops at Lafayette (possibly on the outskirts to avoid the urban construction issue) and Lake County (just south of Crown Point). The route could be single tracked with passing sidings or double tracked as the need warrants.

Connections into Indianapolis and Chicago would use existing routes. In Indianapolis, there are two potential routings. There are two lines extending from downtown to the west, the double-tracked CSX Indianapolis Line to St. Louis (the one that parallels Rockville Rd), and the CSX Crawfordsville Sub, which is a bit south of there. The Crawfordsville Sub has a through track plus an industrial siding on the west side.

Option A involves utilizing the Crawfordsville Sub to a point just beyond Brownsburg, where the new terrain segment would begin. This is an indirect routing, but it is a fairly short distance. It should support 70MPH operation. A single tracked approach is all that is needed. Some limited amount of track construction might need to be done. If the industrial siding could be upgraded, freight could be diverted to it, then the remaining segment to Brownsburg could be double tracked.

Option B involves upgrading the Crawfordsville Sub, creating a better connection to the Indianapolis Line, then routing all freight traffic that way from the crossing point, possibly also utilizing an upgraded IU Belt around Indy which some local leaders have wanted anyway. Then the passenger service uses the Indianapolis Line tracks west to the Crawfordsville Sub crossing (near Country Club Rd), and uses a newly constructed second track along that route for a few miles to north of Brownsburg again. This completely eliminates freight interference. Again, true high speed operation isn’t needed close in to town.

Why would CSX agree to this? Good question. Among other things, there is a project called CREATE that proposes spending $2.5 billion to relieve Chicago rail bottlenecks. This has a huge benefit to CSX. I think it is reasonable to ask for some cooperation on passenger rail in return for this large investment of public funds that benefits their network. Similar upgrades to the IU Belt in Indianapolis could be in play too.

In Chicago, we take advantage of the fact that we are no longer treating the city as an interchange hub to avoid the messy route to Union Station and do something much simpler instead. We cut over on our new terrain route into Illinois and use the Illinois Central tracks into a downtown terminal at Millenium Station. Other possible terminals are a new showplace high speed terminal at Van Buren St. Station, or, if you get some impossibly large windfall, a connection into the mothballed Block 37 Superstation.

The Illinois Central line is largely separate from the rest of the Chicago rail network, which means it does not have all of the crazy grade crossings and such that the CREATE program is designed to reduce. It’s just a straight shot into downtown, mostly already grade separated. Plus this might be the widest railroad ROW in town, with many mains. There are four already electrified mains for a good portion of the length, utilized by the Metra Electric service and the South Shore. It is easy to see how one of these could be given over exclusively to high speed operation, at least outside of rush hour, enabling a very rapid terminal approach.

We have to connect, and the map looks like the logical way to do it is to turn west just south of Crown Point (hence our station), then connect with the Illinois Central around University Park. Probably there would need to be some near term movement to protect the corridor. Is this something the Illiana Expressway study could look at? If the Illiana included a rail corridor adjacent, that could be a winner. This is a bit of a detour, but at true high speed operation, not much of one.

I do believe there are some rush hour slot problems north of Kensington where the South Shore connects. But the good news is that with hourly service, you only need to squeeze one or at most two trains through during each peak period. Otherwise, the four mains make this a breeze of a connection.

I’m not going to say this is the right answer, only one answer that I think should be studied. It would require concessions on multi-mode intergration by the FRA and a host of other things. But if we looked at it with a “can do” attitude instead of a “can’t do”, I’m convinced there’s a way that could make it happen.

The downside of this? A price tag that I’d estimate at $3-4 billion. That ain’t cheap. But that’s the going rate for real high speed service. There’s a legitimate question as to whether the benefit is worth it. Ultimately, that’s one of the questions of priorities and values we’d have to come to consensus on. Even with the feds picking up 80%, that’s still around $800 million in local matching funds for construction. On the other hand, the $9 billion just approved in the stimulus would have easily paid for this line. So it doesn’t seem unreasonable to think that a future Congress might fund it.

Another problem with it might be the opposition of places that don’t get service to something that doesn’t benefit them. That’s totally understanable. That’s another reason we need mostly federal funding. Plus, we’ve got to make the case that it does benefit them indirectly. I’ll make that case myself in my next installment of this series.

Again, this is an exploration around high speed rail. Not the answer. I hope it starts a dialog. Your feedback and contributions are welcomed and encouraged as always.

More Chicago

Chicago: A Declaration of Independence
Corporate Headquarters and the Global City

Saturday, February 14th, 2009

Chicago/Indy: A Tale of Two Blizzards

Going forward I’ll be posting selected articles over at New Geography. The first installment appears there today, so please be sure to check out “A Tale of Two Blizzards“. It contrasts the approach to government services and taxation taken by Indianapolis and Chicago, and how both of them are under pressure in the current economy.

Wednesday, February 11th, 2009

Chicago: Reconnecting the Hinterland, Part 1A – Metropolitan Linkages

In my kickoff of the year of celebrating the 100th anniversary of the Burnham Plan in Chicago, I argued that while Chicago was performing well in a globalized world, it was only riding the wave of globalization and wasn’t defining its own uniquely successful future, one where it first and most fully grasped the implications of our new world. I also promised ideas on where to look to do that, starting with re-embracing its own unique culture and identity, resisting homogenization.

Today I start a four part mini-series looking at another opportunity area. It’s been widely noted that globalization has worked to separate global cities from their traditional city-regions. Indeed, Chicago and others have almost deliberately turned their back on their past in this manner to focus exclusively on the global conversation. With most global cities doing that, the question immediately comes to mind: is there overlooked opportunity in the hinterland? I argue that there might be, and I’ll look at two specific items: metropolitan linkages and on shore outsourcing. Each of these will have a main article with a follow-on more fully discussing a particular aspect. Today, we talk about metropolitan linkages.

There have been many calls for greater cross-regional (or “mega-regional” or “pan-Midwest”) cooperation. The idea is that similar challenges beset the Midwest as a whole and they are best solved collectively. There’s a certain surface appeal to this, but I’ve been reluctant to accept it before. The basis of my argument is in my previous posting “Mega-Skepticism“. My problem is fundamentally that people don’t explain what it is we are actually supposed to do to implement cross-regional collaboration, and there are few tangible benefits offered for it. Consider: we’re told to build a Midwest high speed rail network. Ok, but so what? I built it. What does it do for me? What does this allow Minneapolis and Chicago to do today, for example, that hourly shuttle flights on multiple airlines don’t? What’s going to be different once it’s built? This is the great unanswered question. We must be able to articulate the value levers we want to pull (for example, scale economics, specialization, or purchasing power) and why and how places will take advantage of them.

Having the Midwest try to work as a whole is a “boil the ocean” type solution. I’m not convinced rural areas, small towns, small manufacturing cities, and larger cities intuitively have enough common ground to try to create fully common solutions. Even among just the Midwest’s large cities, there is incredible diversity. Again, how much in common do Chicago, Detroit, and Columbus have? And to do so so would require enormous trust and consensus building.

So what I’m going to suggest today is that we narrow our focus to specific city pairs, and see if we can articulate a basis for cross-regional cooperation. For my example, I’m going to use Chicago-Milwaukee and Chicago-Indianapolis. Why? Several reasons:

• They are all cities that have the minimum scale to have economies that can operate effectively in the globalized world. Indeed, Chicago is a successful global city, Indianapolis is by many measures the most successful city in the Midwest, and Milwaukee is hanging in there. This isn’t a “dinosaurs mating” type situation where a bunch of failing cities try to band together. Rather, it is looking at reasonably successful places. Can they enhance their success even further through cooperation?

• Chicago is the logical place to start because it was historically the dominant city of the Midwest. To envision a highly successful cross-regional collaboration that does not somehow involve Chicago is hard to do. Also, because Chicago is such a unique place in the Midwest, smaller cities like Indy and Milwaukee don’t have to feel bad about playing second fiddle in some respects. Those places know they aren’t Chicago. Whereas trying to get the “3C’s” in Ohio to agree on things would be much tougher. I use the term “hinterland” in the title deliberately, despite its pejorative connotations. That’s because I think there may be opportunities to re-create a true urban hierarchy in some ways.

• These cities are highly complementary, especially Chicago and Indy. That is, each is strong where the other is weak. This means they are not natural competitors and there is reason to believe that specialization and the division of labor – one of the key advantages of scale – can work. By contrast, Indianapolis and Columbus are nearly identical cities. Specialization is harder for them to do, so there would have to be another basis for cooperation to have benefits.

• Their common culture eases the path of cooperation. America 2050 has an interesting framework for relationships that create mega-regional linkages. Their relationships include environmental systems and topography, infrastructure systems, economic linkages, settlement patterns and land use, and shared culture and history. It is easy to see how these apply here.

• They are geographically close, which would seem to simply matters. I include both Indy and Milwaukee because in fact Milwaukee is so close that it is possibly experiencing the “sixth borough effect” we’ve see in NYC and Philly, where Chicago’s massive growth is just taking Milwaukee into its orbit. Indy provides a control study for that to make sure we are dealing truly cross-regionally

Considering these cities, we now have to ask ourselves the question: how do they cooperate? The globalized economy seems to have two sorts of operations: one tends towards “flattening”, where routinized operations like manufacturing or answering phone calls can be done anywhere in the world. The other is towards “spikeyness” and valuing the face-to-face interactions of highly creative people in the cores of places like Chicago. Is there an model somewhere between them that we can imagine?

Richard Florida just issued a call in this month’s Atlantic Monthly to build “rail connectivity within the mega-regions. There are the fast trains along the Boston/New York/Washington corridor that have allowed Washington, in effect, to become a commuter suburb of greater New York. But how about a place like Detroit? If Detroit were better connected to Chicago, one could imagine Detroit having a better reason for existing. Or Pittsburgh. If Pittsburgh were better connected to Chicago or even to Washington, D.C.—it’s only a four-hour drive—that could spur growth.” I won’t use his example cities, but will assume in our example that we’ve got high speed rail between Chicago and Milwaukee and Chicago and Indy that provides a terminal to terminal journey time of 90 minutes. In the case of Milwaukee, this is actually already true – future rail upgrades will only shave that time down even further.

What could we imagine the benefits of this being? I see two: a labor force play and a division of labor play.

The labor force argument goes something like this. You’ve got these highly creative jobs in Chicago. But not everybody is a trader at the Merc making megabucks. There’s a lot of joe average type white collar jobs too. Many of these pay solidly, but the quality of life you can purchase for the money in Chicago might not be the greatest. Chicago may not have high taxes and housing prices compared to the coasts, but its does compared to the Midwest. Some people crave urban excitement, shopping at Neimans, the opera, etc., but a huge number just go home to the suburbs. I’ve long argued that if you don’t take advantage of the things that only Chicago gives you, and are just trying to live an average suburban lifestyle, that’s crazy. Why pay the premium to live in a Chicago suburb in terms of housing, taxes, and above all congestion when you aren’t getting much more than you’d get elsewhere? Obviously lots of people are asking themselves that question, because Chicago’s metro area had net domestic outmigration to the tune of 57,000 people last year – a pace of almost 600,000 per decade. Of those, a net 7,000 moved to Indianapolis in just the last few years. Now I don’t know the makeup of this. Some of it may be second order Latino immigration or something. But I’ve got to believe some of it is Chicago’s precious talent bleeding away because they cost/benefit isn’t worth it to them.

Now consider what a 90 minute train ride does to the equation. If you are a suburb dweller who loves that lifestyle, you can now move to someplace like Carmel, Indiana outside Indianapolis. You cut your living costs dramatically and increase your quality of life. Plus, you can realistically commute to Chicago, at least 2-3 days a week. That’s a PITA in a car @ three unproductive hours, but when you can work on the train for 90 minutes with wi-fi, it’s a different story, even with collection/distribution tacked on at each end. Combine this with modern flexible work arrangements and you’ve got the makings of an extended labor pool. It could be a win-win-win. Chicago gets the access to talent it would otherwise lose. The worker is happy with access to both great job opportunities and higher quality of life. And Indy get the imported income and improved connectivity to the global economy via Chicago. I already know several people who routinely make the trip up and down I-65 in car or fly every single week. It is easy to imagine this exploding with 90 minute train service with wi-fi and electric power outlets. This both makes the time productive and makes it feasible to do daily commuting, skipping the hotels, nights away from home and other assorted costs.

A similar effect could happen with Milwaukee. Indeed, I already see people commuting down from Milwaukee. But I imagine a separate demographic. To me, Milwaukee is a bit of a “mini-me” Chicago. So what you get are people who want the more urban lakefront experience, but can’t afford or don’t want to pay for Chicago. You are already seeing this happen a bit I think. Same dynamics apply.

The other direction, think about what it does for Indy and Milwaukee in terms of ability to attract their labor force. Both cities have dramatically upgraded their offerings from the day when you couldn’t get a good meal or a decent cup of coffee. Both of them now have a nearly full spectrum of urban amenities. But what they are missing is that creme-de-la-creme. They don’t have elite international opera or true high end shopping. But by putting Chicago within easier daytrip reach via train (imaging sipping champagne on the trip back from your Oak St. spree), Chicago’s amenities become more accessible to people in those other cities. This helps them in recruiting people as well. Oh, and those Chicago workers can now work “domestically” if there is an option. Increasing the labor supply even further. And, people who come to work locally might be more willing to do so knowing that commuting to Chicago (again, only part time using flexible working arrangements as is becoming more common) means they aren’t captive to the “only game in town” for employment prospects in a smaller market like Indy or Milwaukee.

I don’t know if this will really work out or not, but it seems surface plausible – if you had the rail connections at true high speed service levels and the right amenities and price point. This might not involve huge numbers, but it might not take a huge number to move the needle if it is the right kind of people with the right skill sets.

The second point involves re-establishing the regional division of labor. As Chicago becomes more specialized, and its urban core more successful, that will push costs up in that city, making creative but lesser value-added functions less competitive. Is there an opportunity to offload some of that to an Indy or Milwaukee where the highest functions are done in Chicago but lower value added – but still high knowledge worker content, creative type work – is done in those other cities?

Again, as I said in my original posting, I can’t promise The Answer, only an exploration of the problem space. I want to use one sample industry to consider this: law. One, it is harder to offshore legal work I think. Even my own employer won’t let routine work be passed on by someone who isn’t domestic. Two, I was intrigued by something I noticed something the other week when I saw Tristan und Isolde at the Lyric Opera. I opened up the program guide and what did I see but a full page ad for Barnes and Thornburg. This is one of the largest law firms in Indianapolis, yet they have a full page ad in Chicago. I’m told they have a rather large office in Chicago too. What is the reason for this? It could just be expanding where the action is. On the other hand, is there a basis for cooperation between law firms where a large international Chicago firm is the lead firm handling the orchestration and most complex portions of the work there while sending some work to lower cost firms in Indy and Milwaukee, using those firms’ Chicago points of presence and the capability for easy face-to-face meetings to make it happen?

I don’t know a lot about the law business, but I do know that they are under enormous price pressure and even many very successful firms are doing layoffs. I expect a major transition where old school type relationships don’t necessarily translate into premium pricing opportunities anymore when there is lower cost competition for what is effectively commodity work in many cases. I’ve seen this in other industries and it seems reasonable that is could happen in law. Could this ability to tap a “near shore” pool of lower cost lawyers give Chicago firms an advantage? It might be the only elite city in the country where you can get access to a far lower cost point just by going beyond the immediate metro area.

I’ll admit, I’m speculating here, but it is the general concept that is important. It goes something like this. The most specialized components are in Chicago where it justifies the cost of being in the Loop. Specialized but less value added work that nevertheless requires close coordination, time-zone commonality, and potentially significant face to face meetings are in Milwaukee or Indy. I don’t know for sure what, if anything might be out there that fits this. Maybe law, maybe something else, or maybe nothing. But those to me seems the characteristics of the types of work that would lead to cross-regional collaboration.

If you are able to make these two cross-regional items work with Chicago, Indy, and Milwaukee, then you can look to see if they scale up or extend across distances.

So the question is, how do you go about making these sorts of relationships happen? Good question again. I don’t have the answers. But perhaps this is where the “holding conferences” aspect of mega-regionalism comes in. That is, you get business, academic, community, and political leaders talking to each other, establishing trust, and seeing what collaborations might form. This also brings up another good point as to how to implement it. Chicago has long been the magnet for young, ambitious people from the greater Midwest. Look at all the Big Ten sports bars in Chicago for an example of that. So can you mobilze those expatriate or diaspora communities to form the “glue of the relationship”? I noted before the concept of the “urban alumni association“. Something like this could be leveraged to help forge those business and cultural relationships. In fact, there is already an organization called the Indiana Society of Chicago. I believe this is mostly a networking club. Could organizations like this, plus Big Ten alumni associations, be used as a catalyst to make things happen?

I think this is an area that warrants further research and discussion. The general idea is to figure out how to give Chicago’s companies competitive advantage through an expanded labor pool and potentially lower cost operations that don’t involve the messy coordination of a far flung network. At the same time, it provides mutually beneficial returns to smaller cities in the region.

Oh, and I guess you’ve got to build those high speed rail lines. That’s what “Part B” of this posting will address.

By the way, thanks to John and Steve for their insights and examples that helped shape this article. There are a lot more anecdotes out there than I had time to type tonight.

More in This Series:

Reconnecting the Hinterland, Part 1B – High Speed Rail

Saturday, February 7th, 2009

The Logic of Failure

With the impending demolition of Columbus, Ohio’s failed downtown mall, it is worth taking a moment to reflect on all of the urban planning failures of the past, and all of the things that, while they were successful in a sense, had serious unintended consequences: urban renewal, pedestrian malls, highway mania, single use zoning, federal housing subsidies, etc. It seems to me that almost every urban planning approach du jour ends up, over time, either not accomplishing the things it was touted as delivering, or brought serious negative side effects. Why is this?

The answer is easily supplied by German cognitive psychologist Dietrich Dörner’s seminal work, The Logic of Failure, which is an absolute must-read for anyone in any field. The answer, simply, is that humans are extremely poor at decision making in “complex” environments, and fall prey to a series of well-understood decision making traps.

The human brain is a marvel. It excels at all manner of tasks. For example, the human brain seems to be extremely good at solving problems involving simple linear cause and effect type relationships. That is, problem of the “if A, then B” variety, or what Jane Jacobs would have called a “two factor” problem. This is easily extensible to multiple variables if they behave in well defined ways. Thus humans are extremely good at things like shooting a basketball through a hoop, designing bridges, determining the orbits of planetary objects, shooting pool, programming computers, balancing a checkbook, following an algorithm, process, or instruction set, or even putting a man on the moon.

We also seem to be great at problems that involve pattern matching or processing and analyzing large amounts of sensory input into a sort of gestalt state. Thus we clearly recognize and understand shapes that are incomplete or which are rotated in space, scaled up or down, or deformed. We can also do extremely demanding things like drive a car or fly and airplane with relative ease once we learn a task. Pretty amazing if you think about it.

But what we seem to have an incredible difficult time doing is solving complex problems, and unfortunately cities are a complex problem. What is a complex problem? Complex problems have attributes like the following:

• A large number of interdependent variables that affect each other, potentially leading to long chains of inter-related events.
• Evolution over time, not just a simple one-step and done situation
• Effects act with lags, so the results of an action are not always immediately apparent.
• Variables that act dynamically, in response to external or internal stimuli, even if we take no action at all.
• Unclear, conflicting, or tacit goals and objectives about what is really to be achieved
• Intransparence – we do not always know all the variables, their values, and how they relate to each other.
• “Chaotic” behavior, where very small changes in the initial state or seemingly tiny actions can have dramatic consequences downstream.

Clearly, problems of this nature are extremely difficult to solve. It should come as no surprise that we don’t do a very good job at them. Still, it seems many proposed urban policies fall prey to the types of problems Dörner outlines. Some of these are:

Failure to properly deal with lags. I’ll put this one first since it is arguably no one’s fault. Just look at Washington, DC today. People are debating a stimulus package. Everyone knows that a stimulus acts with a lag. The question is, how much stimulus do you apply and when will you know if it worked or if you need to do something else again? Hard to say. Nevertheless, in a system with lags, we are extremely prone to “oversteer”. We make decisions based on the present situation, without regard to the fact that our previous actions will have the intended effect in a future period.

The employment of “methodism” in response to uncertainly. This means that people have a tendency to try strategies that were successful at dealing with something in the past. This can have its uses, but it has a tendency to decay into formula and ritual. Like most of us, planners have an attachment to the tried and true. But that might not be the right strategy.

De-contextualization of solutions. I consider this an extension of methodism and one of the most serious problems I see in practice. That is, solutions are proposed or implemented without concern to the context in which they are to be applied. You see this all the time in “school solutions” that people with a particular policy preference are pushing. Deregulation was a good thing in the past, therefore continuous deregulation of the financial services industry was a good thing. Uh, sorry. The classic example is light rail. Light rail was successful in Portland, so light rail advocates propose it in almost every city they come to. But the vast bulk of cities are not Portland. It’s not so much that rail is per se the wrong idea (though sometimes it is). But the simplistic arguments in favor of it rarely have anything to do with the actual city in question. It’s dogma – the recitation of cant. Let’s ask the right questions: what are the facts on the ground in my city? What would a city that had a successful transit system look and function like? What type of solution would be needed to make that happen? What other things would need to be in place? What would we have to do to make it a reality? Is the change we would have to make as a city worth it?

This is where government policy can actually have an unintended negative effect. President Obama clearly understands the importance of cities and plans to establish an office on urban policy. It is the nature of government to promote uniform laws and policies – which is a good thing in many contexts. But it would be a disastrous thing from an urban policy perspective because our cities are so diverse. They don’t all need the same thing. They need different things. Even in the Midwest, consider just Chicago, Detroit, and Columbus. What do these cities have in common? Well, some things, but they are radically different places with very different challenges, opportunities, and needs. There can certainly be a role for federal policy and money, but the key is to get it right. This means looking at where common policies and programs are necessary, but also understanding where it is important to devolve decision making and policy setting to the local level. It also means staying engaged with “the field” to understand what things are working or not, and why.

Over-emphasis on the present conditions and extrapolating them into the future. Again, we see this all the time. A current trend or fashion arises, and people suddenly assume that is the future. We saw it with the dot com bubble. We saw it with structured finance. One area we see it in spades is globalization. I happen to think globalization is real, is here, and isn’t going away. But, it is going to evolve over time. Almost all responses to globalization assume that the way it is shaping the economy and cities today is the way it is going to do so tomorrow. That may be true, but it may not be. That’s why I advocate that even cities like Chicago which are doing well should be thinking seriously about what the future might hold and what they need to do to get ready for an uncertain future, not just rest on their present success. It’s about where the hockey puck is going.

Reductivism. This model of thought attempts to deal with complexity by simplifying the causal mechanisms to one variable. Again, we see this all the time. For example, things like transportation, energy, or climate are often posited as a primal force shaping a city or driving behavior. These are influential and important to be sure, but are they the only things?

Repair service behavior. People have a tendency to fix what is broken. That’s also what politics generally demands. But often the serious, catastrophic problems were long present in the system, but no one noticed them until it was too late. “Management by exception” is a valid philosophy, but you’ve also got to pro-actively be probing, questioning, and thinking about where tomorrow’s problems might be before it is too late to do anything about them. We spend all of our focus on the problems of now without considering the future. It’s a about what’s important, not just what is urgent.

Solving problems in isolation. When we do see a problems, we tend to view them in isolation and develop problem-specific policies. But most problems are linked in a complex system. It’s like squeezing a balloon. Fixing one problem may exacerbate another. Things like brain gain, immigration, economic development, land use, and transportation aren’t separate problems to be solved separately. Approaches to them have to be part of a holistic approach to the city.

Forgetting about what’s right in the world. Again, by nature we focus on what is wrong and what we want to change. We often forget about what we want to keep. I think in general most of us tend to under-value the environment we live in and the way that it actually functions well. To a great extent, well functioning urban systems are invisible. This is where unintended consequences can come and bite you big time. We once saw a problem with crowding and such in the city and wanted people to be able to own a single family home with plenty of space. So we subsidized the heck out of that. But we forgot about the values of the city, and that there was a lot in the city we actually liked. Unfortunately, in the mad rush of suburbanization, we destroyed a lot of that in most places.

This should give you a flavor. What are the lessons we can draw from this? I think there are a few.

The first is simply to approach urban policy and urban planning with humility and rich understanding of the limits of what we can accomplish. This I think is desperately needed. There are so many policies out there that are promoted with almost messianic zeal by their advocates. It never ceases to amaze me that after all the failures of the past, all the unintended consequences, people are still ready to attempt to radically remake our cities on the basis of fairly simplistic policy approaches. By all means let’s try things, but let’s be cautious too.

Along with this I think we need to be very skeptical of dogma and silver bullet solutions. I’m all in favor of looking for the best ideas out there, and think we ought to be looking at places to find out what worked elsewhere. But we also need to have a rich understanding of our own city and our own circumstances to evaluate what is appropriate here, and what we need to do to achieve true and lasting success without all the unintended side effects. A great city, like a great wine, has to express its terroir. How should we cultivate our own unique soil to bring forth that full flowering and unique character?

Diversification. Cities can’t put all their eggs in one basket. It is just too risky. We need to cast a wide net and be willing to try lots of things, knowing some will fail. Dörner talks about efficiency diversity, or having many different possibilities for actions that have a high probability of success. This is exactly what we need.

We need to constantly be looking for feedback about how we are doing. Again, let’s try things. But then let’s see if they are working. This is very hard because practically speaking most policies are promoted by people in the context of a political process. This means the leader who promoted it is personally invested in the program and his or her enemies will pounce in the event there is a change of direction or, horror of horrors, an admitting of a mistake. This is where great leadership in a city comes into play. The reality is, a lot of what we do runs the risk of failure, or at least will need tweaking. That’s ok. Most business ideas fail. But without an entrepreneurial culture, our economy eventually will stagnate and die. Failure isn’t necessarily bad, particularly if we are able to fail quickly and cheaply. The best cities are willing to try things, knowing that some won’t work out. But occassionally there will be a home run.

And we need to think about the goals we have. The real goals. When our policy is successful, what will the city look like? What is that shared vision of the holistic end state? It’s not about the solution, it’s about the results.

This one bears repeating: states and the federal government need to recognize the diverse needs of our cities, and not promote or require one size fits all solutions. This can be hard to do. When you give cities home rule power and money to spend at their discretion, it is inevitable that there are going to be blow-ups. But if we over-compensate by putting our cities in a straitjacket, we do more harm than good in the long run.

Lastly, we need to be clearly aware of the fact that with urban policy, we are dealing with a complex, dynamic system. Since people fall into predictable thinking traps, forewarned is forearmed. I believe we can rise above our own human limitations to make dramatic improvements in the quality of our decision making and achieve, if not perfection, at least a reasonable chance at true long term success.

Thursday, February 5th, 2009

Columbus: Downtown Mall to Be Demolished

The city of Columbus, Ohio is planning to demolish City Center, its struggling downtown shopping mall, and replace it with a park.

Downtown retail has always been one item that smaller cities struggled to get right. Even Chicago had many years of vacancy problems along its traditional State St. corridor and only turned it around after a massive urban core boom and significant investments of public dollars. Even today, the Chicago Place Mall on Michigan Ave is dead, with nothing much left of the tenant base beyond Saks Fifth Avenue.

Columbus, like other cities, had a proud downtown department store tradition. Lazarus, which grew into a significant Midwest regional chain, had originated there. Its downtown flagship store laid claim to a series of retail firsts, including the first air conditioned store. But as with other cities, Columbus saw its downtown department stores and specialty shops lose their allure as people and jobs decamped for the suburbs and retail followed.

Their approach to try to reverse this decline was to conceive of a downtown version of the enclosed regional shopping mall. The idea dated back to 1977, but the 1.3 million square foot City Center Mall did wasn’t complete until 1989, when it opened at a cost of $116 million. Chicago’s famed Marshall Field’s was the main anchor and the mall enjoyed initial success and high occupancy. Things took a turn for the worse when the mall was the site of the 1994 murder of a teenager, a killing described as gang related. Declined continued over the next decade plus until this year, when the city took over the mall, only a few stores remained.

What went wrong with City Center? And what lessons does it teach us? Plenty went wrong. In retrospect the surprise should not be that City Center failed, but that it lasted as long as it did. Among its problems:

• City Center was an enclosed, inward facing mall design. In effect, it was a suburban mall plopped down on city streets. This shows the type of thinking that was common in the past – and is alas still too common now – that what downtowns needed to compete with the suburbs was a similar environment because the move of people to the suburbs showed a consumer preference for that form. This is almost always a horrible mistake. Given the choice between a real suburb and a downtown trying to act like one, only with higher taxes, more crime, and worse schools, it doesn’t take a genius to figure out which one is going to win.

• The city tried to lead with retail, when significant retail is probably the last element you need to put in place since it is so difficult to make work in a downtown setting. Think about it. Offices generate shopping traffic principally at lunch hour or maybe right after work. Downtown Columbus has an extremely thin population. And there aren’t hordes of tourists like in Chicago. So who is going to shop there? This mall was heavily dependent on the suburbanite coming downtown as a shopping destination, much moreso than other malls.

• Speaking of which, Columbus built its malls relative late. Upscale malls like Tuttle Crossing, Polaris Fashion Place, and Easton Town Center were opened after City Center. This meant that downtown had an older and less attractive mall versus the suburbs. Again, which one will win in that situation? Not hard to figure it out.

• Marshall Fields never established the true flagship store concept, and downtown generally lacked a unique retailer that would end up drawing people despite the inconvenience. Contrast to say Saks Fifth Avenue in downtown Cincinnati.

• City Center’s problems were also partially caused by the regional mall as a format falling out of favor. Is anyone building new enclosed malls anymore? I don’t think so. We’ve seen a rapid innovation in new retail formats, the most recent of which is the “lifestyle center”. This renders enclosed malls yesterday’s news. In fact, we observe even genuine suburban malls across the country struggling and being redeveloped or demolished to deal with this.

• Columbus also had the unique problem of siting its mall in the wrong place. The logical place for a shopping center today would be the Arena District, where you have the convention center, the arena, the restaurants, and the proximity to the Short North. When I walked around City Center, the south side of downtown was a ghost town. If you want to have downtown retail survive, it has to be the center of the action, it can’t be the thing you are expecting to draw the action.

Add this all up and the headwinds were insurmountable for City Center. The current plan is to spend $15-20 million to demolish the mall (excluding the parking garages) to build a park, and then try to encourage another $150 million of development on the park’s edges, anchored by 400,000 square feet of office space and 70,000 square feet of retail and restaurant space along High St. Here are some renderings:

These look very nice. The problem is that the vision is unlikely to be realized. Why? Look at these pictures and what do you see? People – lots of them. But where are those people going to come from? 400,000 sq. ft. of office space will only put a few people there for lunch on a nice day. 70,000 sq. ft. of storefront retail won’t draw significant numbers either. This is a park that is likely to be deserted most of the time.

There seems to be a reverence for green space in cities bordering on the religious. But green space is only useful to the extent that it functions well in the urban fabric. If you take two blocks and grass them over like this, what you are really doing is just institutionalizing a vacant lot. Now a plaza or square of the European style is quite nice, but it is quite nice because those places are able to draw people. If 1.3 million sq. ft. of shops wouldn’t draw people, why will this park? That’s the great unanswered question. Plazas work in Europe because of the density of offices, retail, residential, and tourists. The activity on the plazas draws more people to be part of it, which forms a virtuous circle, but unless there is critical mass of activity to begin with, the spark will never strike. The intensity of development here is just not going to make it. In effect, this is another build it and they will come plan. What’s more, the city is permanently taking the land off the tax rolls and since, unlike a mall, it’s a non-revenue producing asset, there is a significant operating tail to fund as well.

City officials are correct that cities have to get their public spaces right. But the key part of a public space is the public. If you don’t have people, you haven’t built a true public space. I suspect that they will be forced to program events there near continuously to fill up this space.

A downtown park on this spot might not be a bad idea for temporary land banking. But from what I’ve seen elsewhere, the minute there is grass on something, activists will jump out of the woodwork to protest anything being built on it.

I’d challenge Columbus to put their thinking caps back on and try to come up with something more creative. Frankly, that site is probably only developable successfully once there has already been other development occur in the area. I am not familiar enough with downtown Columbus to give specific recommendations, but I do think this plan has significant risk and may ultimately end up, like the mall before it, a project that in retrospect had little chance of achieving significant success.

Redeveloping suburban style structures, even when unfortunately located downtown, isn’t easy. For further thoughts on the subject, see my review of Retrofitting Suburbia.

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The Urban State of Mind: Meditations on the City is the first Urbanophile e-book, featuring provocative essays on the key issues facing our cities, including innovation, talent attraction and brain drain, global soft power, sustainability, economic development, and localism. Included are 28 carefully curated essays out of nearly 1,200 posts in the first seven years of the Urbanophile, plus 9 original pieces. Great for anyone who cares about our cities, The Urban State of Mind also makes a great gift this holiday season.

About the Urbanophile

Aaron M. Renn is an opinion-leading urban analyst, consultant, speaker, and writer on a mission to help America’s cities thrive and find sustainable success in the 21st century.

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• arenn@urbanophile.com
• twitter.com/urbanophile
• linkedin.com/in/aaronmrenn

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