Tuesday, November 2nd, 2010

Can Global Cities Work? by Richard C. Longworth

Photo Credit: Flickr/wallyg

Crain's Chicago Business, the city's business weekly, has a first-rate lead article this week on Chicago after 21 years of the reign — there's no other word for it — of Mayor Richard M. Daley. The article is of greatest interest to Chicagoans, of course. But it also raises crucial questions for anyone interested in global cities, and whether they can work.

Chicago is a global city — perhaps the only one in the Midwest. These cities are the places where, increasingly, the world's business is done. They have the most corporate headquarters, the key global business services, the universities, the foreign students, the busiest airports, the immigrants and the most vibrant culture. As the Crain's authors Greg Hinz and Steven R. Strahler make clear, they also have problems that, as this global era dawns, are nowhere near being solved.

The big problem is that global cities make some of its neighborhoods and their citizens very rich and very well-served, while leaving most of their people farther behind than before.

Daley took office in 1989 — coincidentally, the year the Berlin Wall fell, Communism began to crumble and no less than 3 billion new workers — mostly from ex-Communist countries like China but also India and Indonesia — joined the world economy.

These events, together with the communications revolution since then, created globalization. One result was the exodus of heavy manufacturing from old industrial areas, like the Midwest, to formerly Third World countries, like China. A second result was the creation of global cities — metropolises that became command-and-control centers for this new economy. If the manufacturing spread around the globe, it was controlled by the global citizens — the bankers, managers, lawyers, consultants — who gathered in the global cities.

New York, London, Paris, Tokyo and Hong Kong stand atop this new global Hanseatic League. Just below them are a second tier — Los Angeles, Singapore, San Francisco, Sydney and the like. Chicago ranks at the top of this second tier: it was eighth in the top 10 in a ranking published by Foreign Policy magazine two years ago. Even with the recession since then, it undoubtedly ranks that high today. No other Midwestern city comes close.

This sounds good and, in many ways, it is. It's certainly better than the plight of many cities, like Detroit or Cleveland, where the heavy industry went away and nothing replaced it. Anyone who remembers the grey, rusty Chicago of the late 1980s, when Daley took over, has to be dazzled by the throbbing prosperity that greets any visitor today.

But that's the point, Crain's says. This visitor sees the Loop and the Lakefront. He visits friends and clients in Lincoln Park and Lakeview. He goes to games and restaurants on the near west side, or marvels at the development on the near south side. For sheer urban glitz, these neighborhoods hold their own with neighborhoods anywhere in the world.

Nor are their residents a tiny elite. These residents account for about 465,000 people. This mass of people — bigger than Minneapolis or St. Louis — is a force in the economy, and their sheer presence has transformed the city. About 20 percent of them earn $100,000 per year or more — the same percentage as in the suburbs, which is a big change. According to the Brookings Institution, 32 percent of Chicagoans hold bachelor's degrees or better, more proportionately than in New York. 

But as Crain's points out, these half-million people are only one-sixth of Chicago. How's the rest of the city doing?

The answer is, not so hot. The increase in income in the city's eight wealthiest neighborhoods is greater than the total income in 38 other neighborhoods. High-school graduation rates have risen from 46 to 56 percent, but most of the dropouts still live in the great swatch of the city outside the glittering downtown. The city's murder rate is down sharply, but the victims still come disproportionately from the inner city, not the Gold Coast.

And as Crain's points out, success itself has a cost that must be paid.

In his 21 years in office, Daley has pumped billions into the city to give it the amenities and beauty that any global city must have. The result is new stadiums, Millennium Park, flowers everywhere, a theater district, a rerouted Lake Shore Drive, the revamped Navy Pier, the ongoing modernization of the city's two big airports, and much else. All these are crucial to the city's sheer verve and vitality.

But another result is huge debt. The city's operating budget is running a 16.3 percent deficit, twice that of New York. According to Crain's, total bonded debt and long-term capital leases for city government are up to 263 percent on an inflation-adjusted basis: the city's property-tax base is up too, but barely half as much. Tack on huge unfunded pension liabilities, and the city's in a financial jam.

And then we get to the most glaring statistic of all — jobs. Chicago, even in its old Rust Belt days, had 1,334,000 jobs in 1989, when Daley took over. This was down to 1,235,000 in 2008 and (no doubt because of the recession) was down to only 1,175,000 at the last count, in 2009.

In other words, Chicago – the only old industrial city in the Midwest to transform itself into a global city, a big success story in the global rankings — still can't provide as many jobs for its residents as the old sooty City of the Big Shoulders.

What does this say about the ability of the global economy to create a decent standard of living?

Saskia Sassen, formerly at the University of Chicago and now at Columbia in New York, literally wrote the book — "The Global City" — on global cities, and was a lead writer on the Chicago Council's 2004 book, Global Chicago. She is perhaps the world's leading theorist on global cities, and what Crain's reported didn't surprise her a bit.

Global cities, she told Crain's, are cities within cities. The true global citizens in these cities have more to do with the global economy, and hence with other global cities like Paris or Tokyo, then they do with the rest of Chicago. A global city needs them, because they are a terrific source of income and prestige, and hence lashes out on the parks, schools, theaters and other amenities that bring them in. But these amenities exist to serve these global citizens, not the rest of the city. This is why Chicago today has many excellent public schools, including some good high schools: these global citizens have kids and they demand good schooling. Meanwhile, schools in the rest of the city are nearly as bad as ever.

This is no less than a new class structure. The old industrial city created an industrial middle class, based on good jobs for anyone willing to work hard. That city is gone. The new global city creates a global class, with splendid jobs for people also willing to work hard — and with an MBA to boot. In a global city, some people — quite a lot of them, in fact– move up, and other people — the majority, it seems – move down, leaving not much in the middle. 

It's a puzzlement. In today's global economy, cities may have to become global cities or decline. Chicago, for all its problems, still is much better off than Detroit or Cleveland. But can these global cities create a vibrant economy for all its citizens, not just for a lakeside elite that, in some sense, doesn't really live in the city at all? 

For more information on economic development in the Midwest, visit the In the News section of the Global Midwest Web site.

Richard C. Longworth is a Senior Fellow at The Chicago Council on Global Affairs. He is the author of Caught in the Middle: America’s Heartland in the Age of Globalism.

This post originally appeared in the Global Midwest blog on June 18, 2010. Reprinted with permission of the author.

Topics: Globalization, Strategic Planning
Cities: Chicago

19 Responses to “Can Global Cities Work? by Richard C. Longworth”

  1. the urban politician says:

    Good read, but it’s kind of a discussion we’ve already had around here.

    Reality is, Chicago had no choice. It either chose to go with the flow (“You’re choosing me to be a global city? Okay, sure I’ll take it!”) or it did…what? (“No thanks, I’ll just keep hanging on to my old industries in the hope that the factories come back”).

    Everybody keeps talking about the “rest of Chicago” being left behind. Well, duh–not too long ago if people couldn’t find employment and didn’t like how things were, they would leave. But in Chicago, those “losers” if you will a) want the city to fix their problems for them and b) want the city to provide housing for them.

    This entitlement of the poor is a huge problem for the city in its own right.

  2. True. I also think that Chicago is the example here, but that the same is true in most similar cities.

  3. Chris Barnett says:

    TUP, I assume you are not seriously suggesting that incomes under $100,000/year make one “poor” and “entitled”. The author tends to be a little over-dramatic in emphasizing the “disappearing middle class” meme and edging close to class-warfare rhetoric.

    The fact is that over the long haul* the middle class is shrinking because more people are getting rich, not because more people are getting poor. In my book that’s a good thing. The stat that counts is not income fairness, or the percentage of income taxes paid or percentage of all income earned by quintile. The stat that counts is median family income, the one that measures how well “a rising tide lifts all boats”.

    *(Yes, the “poverty rate” in the US has gone up a couple of percentage points since the start of the recession. It will go down again. Keep in mind that “poor” in the US is relative; no one starves to death even if they lose their house.)

  4. marko says:

    Well lets not call the old sooty city dead just yet. Despite an overly litigious business climate, rabid unionization, high taxes and an anti-manufacturing Federal government, Chicago is still home to many large manufacturers and transmodal shippers and this is still the primary driver of the city’s engine. Add up all the international contract law industry and it probably falls far short of the processed food industry in terms of wealth creation for the region. Kraft foods alone is probably bigger than the sum total of the lawyers’ business. The old economy is still here, and still strong and may yet prove to be the Savior for this region, but it doesnt need as many people as it once did, and why should it? So they can strike, sue and shut it down? Bring in the robots!

  5. the urban politician says:

    Good point.

    Lately there have been a few announcements to shift/start production and intermodal distribution in the Chicago region–all blue collar work, obviously.

    A new railcar facility announced a few days ago, a new intermodal yard for the steel industry on Chicago’s south side (announced today), increase production in Ford and Chevrolet plants in the past few weeks.

    Point being, if manufacturing is dying, it’s dying here very slowly (for laborers–production itself has always been going up).

  6. Alon Levy says:

    The US poverty rate bottomed in 1971, and has been flat ever since. And that’s an absolute rather than relative measure: the US poverty line is revised based on living costs, not median income. Median household income kept rising, slowly, and peaked in 2000. US inequality isn’t rising very quickly, but it’s rising fast enough to outpace the meager economic growth of the last decade.

    It doesn’t have much to do with industry, though. Back in 1920, the US was as unequal as it is today, but it had plenty of manufacturing. High inequality is usually a result of low or flat taxes, weak labor protections, strong corporate protections, and business cultures that promote very high executive pay. In the presence of those, for example in Singapore, inequality will be high regardless of how much manufacturing there is; in their absence, for example in France, deindustrialization does not lead to high inequality.

  7. Chris Barnett says:

    Alon, my point is that with the poverty rate generally stable, “increasing inequality” doesn’t mean that people are moving from middle-class to impoverished as Longworth implies. It means that there are more high-income people than ever before.

    Culturally, the US is unlikely to veer too far toward “guaranteed results” from “guaranteed opportunity”, which is an aspect of its economic system that will produce significant income inequality.

  8. George Mattei says:

    Much of the growth in median household income has come from adding workers, not real wage gains. So when you look at the per capital wages, they have (I believe) gone down consistently over the last 30 years when you adjust for inflation. Having mom get a part-time job just to pay the bills doesn’t reflect real income gains on a per person basis-you can only add more jobs for so long until you can’t keep up with the bills anymore.

    More people getting rich is fine-you have to look at the balance between rich and poor. If the rich are getting richer and the middle- and lower-classes is getting wealthier also, that’s not bad.

    However, if the gap in getting bigger, i.e. more rich added to the population, but there’s a decrease in the wealth of the middle- and lower-income population, that’s not a good thing if it continues for a long period of time. That’s what’s been happening over the past 30 years. Concentrating wealth amongst a few is VERY different from increasing everyone’s wealth.

    Having a vibrant, growing economy requires a stable middle-class, and if that is shrinking, that’s bad news. Then everyone tries to maintain their quality of life by borrowing more money, and all of a sudden we have a debt crisis. Hmmmm…

    In my opinion the whole thing is primiarly driven by globalization, and I don’t know how to reverse it, so I see more hard times ahead for the U.S.

  9. marko says:

    “I don’t know how to reverse it”

    I do. Recently Obama went to bat for America’s chicken farmers to stop the mass importation of chinese chicken which isnt needed in the national market since we have overcapacity already. However the WTO decided to be fair to China we have to import a fixed amount even though we dont need it. This chicken will be tarrif free whereas our outbound chicken is levied as much as 30%.

    Our chicken farmers didnt vote for the WTO. They have no say with the WTO. So who is the WTO and why are they deciding the fate of our chicken farmers? Who are these “fairness” do-gooders that are redistributing America’s production around the globe in the name of “fairness”?

    Globalization works ONLY if you allow the players to compete fairly. If they are allowed to tax us then by all means we should be able to tax them. If we have to comply with fair wages and OSHA regulations then we must force our competitors to as well or bar their products. I think its time to investigate the investor links of the politicians who signed us into these global trade pacts.

  10. Andy says:

    Mr Longworth asks:
    “(C)an these global cities create a vibrant economy for all its citizens, not just for a lakeside elite that, in some sense, doesn’t really live in the city at all?”

    Of course not (and I suspect that answer is implied in his question). Is there any large (let alone global) city on earth that DOES provide a vibrant economy for all of its citizens? Any large city is almost by definition diverse, and that includes economic inequality among its citizens. The only large/global cities I could think of with some degree of egalitarianism would perhaps be in European welfare states where the government provides generously for all of its citizens, to an extent that simply will never happen in the US.

  11. Ed Sanderson says:

    “And then we get to the most glaring statistic of all — jobs. Chicago, even in its old Rust Belt days, had 1,334,000 jobs in 1989, when Daley took over. This was down to 1,235,000 in 2008 and (no doubt because of the recession) was down to only 1,175,000 at the last count, in 2009.”

    I find this statement and its statistics absolutely meaningless. The city’s population is roughly 3 million and so the numbers quoted can not be the number of city residents holding jobs but the number of jobs in the city itself.

    The burden of the loss of 200,000 jobs may, in fact, have fallen on low-income city residents but what is the impact of the (mostly) highly paid professional salaries still earned within the city but which contribute very little to the city’s coffers? I’m thinking of my dentist and my financial guy — big salaries, long commutes to the suburbs — their contributions to the city, a few dollars a day in food taxes. Maybe…

    I also have a problem with the conflation of what I see as regional companies, i.e. Kraft, McDonald’s and others, with companies within the city itself. The mayor of Chicago has no effect on the employment practices of these suburban entities — or in the case of Boeing headquarters no impact on the people employed in the city itself.

  12. Ed, the entire Chicago metro area bled a significant amount of jobs during the 2000’s. The 1990’s were a different story. The number of Chicago residents that were employed declined by 34,000 between 1990 and 2009.

  13. Nick Bilz says:

    “In other words, Chicago – the only old industrial city in the Midwest to transform itself into a global city, a big success story in the global rankings — still can’t provide as many jobs for its residents as the old sooty City of the Big Shoulders.”

    well of course it can’t, that’s not the City’s job, it’s the economy’s. in the global free-market, deregulated capitalist system we’ve built–which many American’s seem to have resoundingly supported in the recent elections–the market will determine what jobs go where and for what pay. supposedly the city, and state and nation for that matter, can set the stage with appropriate levels of taxation, infrastructure and amenity to induce business to locate and grow in their respective domains, but that’s about it. so long as we continue to put our faith in capitalism, we will have “winners and losers” as this blog has pointed out many times. when Detroit, Youngstown or Muncie fail, that is capitalism at work. the market has determined, rightly or wrongly, fairly or not, that those places are not worth investing in.

    “What does this say about the ability of the global economy to create a decent standard of living?”

    i think it says very clearly that global capitalism does not provide a decent standard of living. a “decent standard of living” has never be the goal of any form of capitalism. the one and only goal of capitalism is to increase the wealth of the owners of capital. period. a living wage, an 8 hour work day, pensions, health care, holiday leave, safe and humane working conditions–none of these things are inherent in capitalism, in fact they are antithetical to it because they all reduce the absolute level of profit an owner of capital could otherwise expected to reap. each of those benefits we take for granted today were won through hard fought, and often literal, battles between labor unions, socialists, communists and humanists against the owners of capital. only thru intensive regulation and taxation can capitalism be induced to provide for the needs of the worker, not just the capitalist.

    of course, i expect most of these comments to be dismissed as “commie talk” as any criticism of capitalism invariably is. the label i accept and wear proudly; yes, i am a socialist. i believe the only way we can expect a “decent standard of living” for all is to take our faith out of money and capital and put it into people. i also believe the reason Socialism has been so derided and demonized is 1) because it has been confused, often times purposefully, with Stalinism, and 2) because it is the answer to our problems.

  14. Alon Levy says:

    @Chris: there’s no guaranteed opportunity in the US, either. In fact, the level of income mobility in the US is among the lowest in the developed world, worse than France only slightly better than bottom placers Britain and Italy. The top placers are Canada, Australia, and the Scandinavian countries. Anglophone capitalism doesn’t inherently produce social stratification, but the way it’s worked in the US has.

    What’s happened in the last 30 years isn’t really that middle-class people became rich. Until 2000, the poor stagnated, the middle class had positive but very small income growth (about 5% per decade), and the rich had very high income growth. Then in the last decade, the rich and upper middle class had small income gains, and the middle class and below had small income reductions.

  15. marko says:

    @ Nick

    “What does this say about the ability of the global economy to create a decent standard of living?”

    Thats the conundrum of global capitalism. In China and Indonesia the standard of living from capitalism has risen. I still dont think we are on a fair playing field with them though. But capitalism from their perspective has triumphed and done as promised. The question is how will Youngstown and Muncie or Chicago’s manufacturing clusters respond? Or how should have they responded? The workers dug in, they fought their employers, struck the companies and drove the companies out of business or overseas. Rather than compete the American workers in unionized shops chose to milk it until the inevitable death. The unions consistently won gains for less and less workers until you had a situation at GM where the labor force had become something like 10% of what it once was but at a rather high $70,000 a year. Christ I know architects working 50-60 hours a week for less than that. And now thats gone too for Detroit. I firmly believe that modest wage and benefit reductions and more restrictions on the right to strike will even out the international labor arbitrage. But that doesn’t look like its going to happen with the current administration. If the Obama paid attention to the southside he was community organizing, he may have asked how did it get this bad in the first place? Did he ever look at the hundreds of acres where US Steel once stood? Or Wisconsin Steel? Did they ever ask how did this happen and how can we get it back? Nobody’s talking about going back to child labor sweatshops here, just logical, rational responses to competition from abroad. When industrial management’s hands are tied by the union, international wage arbitrage wins every time. A salary reduction here to say 60,000 or 50,000 instead becomes a 5,000 year job in asia. Ironically, Arcelor Mittal, a steel firm who benefited from our industrial demise, is now building plant here where our own once stood. We are going full circle but losing ownership.

  16. George Mattei says:

    @ Marko:

    I agree that China is not playing fair, amongst other countries. But even if they are, the long term view is this: the U.S. had a relatively closed economy until the 1960’s or 70’s due to the lack of technology. Now it’s open, and many other nations have much lower cost structures than we do. Even if everything you described above, OSHA-like standards, TRUE fair trade, etc, were put in place, we would STILL be at a competitive disadvantage for a long time.

  17. the urban politician says:

    Here’s another question:

    Even if your global city doesn’t “work”, does your global city have a choice?

    What else is it supposed to do?

  18. Alon Levy says:

    Marko, George, think of it this way: until about 1970, richer countries had higher economic growth than poor countries. Counterexamples were very few, like Finland and Japan. The same goods might have been produced for cheaper in poorer countries, but the infrastructure sucked so much there was no point in trying.

    It took 150 years of first-world industrialization for the wage gap to grow to the point that it was profitable to offshore factories. And even that started from the East Asian Tigers, which had unusually high education levels and promoted low-wage exports with industrial policy. Capitalism didn’t do that on its own until the 1980s, when the per capita income gap between the US and top offshoring destinations was something like 20.

    The same problem is occurring today, with the world’s poorest countries. In principle, you can make toys in Haiti and pay one fifth as much as in China. But that gap is not large enough to induce manufacturers to move factories from China, which has built a lot of infrastructure supporting export industries, to Haiti, which doesn’t have the money for it.

  19. Wad says:

    I don’t disagree with the conclusions Nick Bilz (in Post No. 13) came to about how cities win or lose. I disagree with his logic, though.

    Nick wrote: [T]he market will determine what jobs go where and for what pay. … [T]he market has determined, rightly or wrongly, fairly or not, that those places are not worth investing in.”

    This is a theological interpretation of economies.

    I bolded the phrase “the market” because these two words connote a single being (the) that has passed divine judgment upon those cities (market).

    For one thing, markets are a system mortal humans created in their own image. Markets, and even capitalism itself, are fundamentally social interactions in which the rules are made up as we go along.

    It wasn’t anything cities did or didn’t do that resulted in bearing the wrath of the market. In fact, cities like Detroit and Youngstown are suffering now because they were very successful in the past.

    Detroit built its empire on automobiles, Youngstown on steel, and many Midwest cities on important factories. And they were successful.

    They didn’t choose failure, let alone incur the wrath of the market. These cities succeeded to a point where their industries reinvested in enhancing productivity or replicating their success as transplants. Productivity is good for executives and investors; for workers, it means making more humans unnecessary. Transplanting means a comparatively poorer region gets new jobs, but only because it can be done accurately and precisely enough that location is a commodity (where only lowest cost matters).

    A fault of these cities is that they went to the well once too often. They made highly profitable products, and they continued to overspecialize. Not only were the industries able to transcend their locations, but also other cities wanted a piece of that success and courted transplants and/or started substitute industries.

    There are so many factors that contributed to a decline, but these cities didn’t suffer cosmic wrath. It was beyond the control of individuals.

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