Thursday, May 26th, 2011

Chicago: Out of the Loop

My latest post is up over at New Geography. It is called Out of the Loop and deals with what I consider a fundamental challenge for Chicago and Illinois, namely that while the greater Loop economy is booming and is everything most of its boosters claim it to be, it still isn’t big enough to carry the city, region, and state on its back.

Since I do a Chicago vs. New York comparison, some of you might be thinking I just want to kick Chicago to validate my decision to move, but actually this one has been sitting in my queue for a long time and I just never wrote it. I was prompted to finally finish it off by some recent conversations I had with various folks around where the city is at the changing of the guard at City Hall.

Anyhow, my view is that we have to focus on creating a more broad based positive business climate in Illinois so that non-Loop businesses, and particularly home grown small and medium sized businesses, can really thrive and add the payroll (and pay the taxes) we need to be fiscally sustainable. Your views are of course always welcome.

In other Chicago news, GE Capital announced that it is bringing 1,000 new jobs downtown. Apparently they are all new and without subsidies. That’s a great coup for Rahm as he comes into office. And more evidence that the Loop economy really is working.

Also, some of you may have seen this Tribune article on the managed competition plank in Rahm’s reinventing government initiative. In it I raise the question of clout influencing the contracting. Let’s be real, in this town that’s always a risk. But to be very clear, I’m a big supporter of this idea and think Rahm should go full steam ahead on it. There’s no reason government has to do everything in house – especially not when there are multiple qualified bidders in the marketplace ready to step up and compete for the work. Which is not to say that the existing workers, freed from many of the rules they operate under, might not be able to put forth a compelling bid of their own. The article did note that I support the idea, but I want to stress it again because I know some think I’m an opponent of these sorts of deals when I am most certainly not.

Lastly, Lee Bey posted these interesting Technicolor videos of the 1933 World’s Fair. Here’s part one:

And part two:

27 Comments
Topics: Economic Development, Globalization, Public Policy
Cities: Chicago

27 Responses to “Chicago: Out of the Loop”

  1. Derek says:

    Re: your linked post

    Why don’t you use real, rather than nominal, wages to compare New York and Chicago? Taking nominal wages at their face ignores the much-higher cost of living in New York.

  2. Unless there are different inflation rates in the cities, real and nominal should tell us basically the same thing. I think what you are saying is that I should compare wages based on something like purchasing power parity. I think that’s very relevant when looking at it from a consumer perspective. From a public sector perspective, tax dollars all spend, and if you have more income, you collect proportionately more money. (Of course you could compare the cost of services in the two cities, etc. There’s plenty of analysis that can be done to make this more rigorous should someone with the time and money to do the study feel it is worthwhile).

    However you slice it, I think it is pretty clear that Manhattan generates significantly greater income and wealth than the Loop though.

  3. marko says:

    I’d be curious to know what percentage of total employment the Loop represents for the region concidering I-88, O’Hare Rosemont, Schaumburg Woodfield, 294 and Northbrook Deerfield all have huge edge city employment centers. Does the New York region also have the same super sized suburban business districts? Maybe it’s a holdover from the bad old days when every business could head for the freshly turned farm fields of suburban Illinois whereas in NYC they where rather stuck on the Island?

  4. marko says:

    The figure “half the region’s office space” might be debatable. I thought Crains had published an article in the mid 2000s saying it was more like a third.

  5. Attrill says:

    In terms of wages I think it makes a lot more sense to look at Median wages – not average. Manhattan is home to some of the richest people in the world, making the average MUCH further from the median than it would be in most other cities in the world. Also, by only using Manhattan you omit parts of the NYC region like Newark, while including all of the dysfunctional suburbs south of Chicago. You are comparing apples to oranges.

    I agree with many of your main points (i.e. improving the climate for small/medium sized businesses) but I think the statistics and methods you used to illustrate the points are very flawed.

  6. @Attril, median would certainly be best if we were looking at how well the average person can live, but here I’m trying to get at the aggregate wealth generation. I think average is better. In fact, I think I have total wages sitting around somewhere I could pull up.

    I agree that ideally I’d compare Manhattan to Chicago’s central area only. But that’s difficult to do. Manhattan is a county and thus much of the data is sliced that way. Getting sub-county granularity is beyond the resources I have to devote to it right now.

    But the comparison isn’t totally off because the two have about equal employment. And part of my point is that just the central core of NYC contains as many jobs as the entirety of Cook County (which is over half of regional population).

  7. Ed Sanderson says:

    Lower Manhattan, i.e. Wall Street, is the financial center of the United States and other one-time money centers are now colonies of the financial institutes based there. No city has any hope of comparing to Manhattan’s statistics as long as this remains true.

  8. Alon Levy says:

    The BLS’s reports about price levels break them down based on region. They don’t tell you which region’s cost of living is higher, but they do say how much inflation there is in each region and major metro area, and New York has had not much more than the rest of the country.

  9. Attrill says:

    Aaron – I certainly understand the difficulty of comparing stats across different areas. I do think comparing the employment stats is misleading for the reason I mentioned above, it is comparing an area that includes some very depressed and (to be frank) undesirable areas to the central area of what is effectively the capitol of the world.

    Just take a look at the basic breakdowns of education levels and race and you can see many reasons why Cook County does not compare well to the central core of NYC (by the criteria you chose). Based on the samples you selected there are many demographic reasons that explain the discrepancies you are seeing.

    I would also disagree that average income has anything to do with wealth generation. Looking at GDP the Chicago and NYC metro areas compare fairly well (adjusted for population). We are living in a time where corporate profits are through the roof, executive salaries are at record highs – but unemployment is still incredibly high, and research and manufacturing are languishing. It can be easily viewed as wealth hoarding, not generation.

  10. Attrill, apart from data, I’m curious on your own hypothesis. Do you feel that Chicago’s greater Loop has, on a basis adjusted for regional population, about as many jobs and as much wealth and tax generating capacity as Manhattan? I do not, but I’m curious to know if you feel that way.

  11. Attrill says:

    As many jobs? Yes. Around the same median wage? Yes (and perhaps higher if adjusted for cost of living). New York has more wealth, and therefore more tax generating capacity, but I don’t think Chicago’s (or any city’s) goal should be to match that. Manhattan has Wall St., which will give it an edge over every city in the world. That said, much of the wages generated by Wall St. do not it make back into the economy at large, and instead goes towards things like inflating housing costs in Manhattan. This is why I think it is important to look at median wages as opposed to averages, money that is generated at the top end of the pay scale does not benefit the local economy in the same way that salaries created at the median level do (i.e. a city adding 10 jobs of $100K/year gains more than if it added a single $1 million/yr job). Looking at median levels of income I believe central Chicago is certainly on par with Manhattan, but Manhattan will always have higher averages and total numbers. This gives Manhattan a larger tax base, but I don’t believe Chicago’s current financial problems are due to a lack of businesses, it is due more to the tax structure.

    Looking at the differences between New York’s and Chicago’s financial situations it’s important to remember that NYC has it’s own income tax. Chicago is completely dependent upon fees, sales taxes, and property taxes. If Chicago instituted a similar income tax it could easily cover its shortfalls. Other things like TIF districts and under funded pensions exacerbate the problem, and need to be addressed.

    Regarding some of the larger points in your piece I think the negative perceptions of the Illinois business climate is driven by political stances against the recent income tax increase as much as it is by actual barriers to doing business in Illinois (or Chicago). The CEO of Catepillar pretty much conceded this when he back-pedaled from his letter to Gov. Quinn . Catepillar never even began to study a move, it was a political stance paired with an attempt to get more tax breaks from the state. The attempts to attract Illinois jobs by Wisconsin and Indiana also raise the profile of such cases, but there is very little evidence to show that jobs are leaving (and there is evidence that the opposite is happening – i.e. Talgo, GE, Evraz).

    All that said, Chicago (and Illinois) should do more work to attract and support small and medium sized businesses. It is important that this be done in a responsible manner. For example – I hope Rahm does reduce the amount of red tape required to get things done in the city, but I think it is important to realize that many of the requirements are there for a reason. The permits required to build a porch were dramatically increased in 2003 after 13 people died in a Lincoln Park porch collapse. Licenses, permits, and inspections for nightclubs were also increased after 21 people died in the E2 nightclub stampede. Some of the requirements may have gone too far, and they should be revisited, but it is important to study the actual impact they have on businesses and the reasons they are in place.

  12. Alon Levy says:

    I don’t know about job numbers, but the paper Edgeless Cities by Lang and LeFurgy, now put behind a paywall, says that the Chicago metro area has a slightly smaller share of office space floor area located in the CBD than the New York area, and both are far ahead on that measure than all other US cities.

  13. Louis says:

    Metro NY does not really have edge cities as defined by the rest of the courty. Greater NYC has business centers outside of Manhattan that are connected to NYC by rail. Stamford built a ton of office space in its downtown over the past 40 years but has a large train station right there. Other centers include White Plains, Jersey City, and Newark. Metropark in NJ is like an edge city built on farms with office parks and garden apartments but has a train station right there. Most corporations in the region want to be able to get to Manhattan and rail is the best way so they locate near the rail stations.

  14. Alon Levy says:

    The transit mode share for people working in those edge cities is in the single digits or not much higher. For example, Stamford has 100,000 jobs, and a total of 4,000 people getting off at its train station every am peak (the total transit share according to the ACS is 11%, including buses and fewer jobs). Even Newark, which is an old secondary downtown rather than an edge city, only has an 18% transit share (link).

  15. the urban politician says:

    My number one problem is the premise of comparing Chicago to New York to begin with.

    Pointing out Chicago’s shortcomings in a comparison to NYC, in my mind, is meaningless & undercuts the former city’s attributes. I have lived in both cities– as great, bustling, and international Chicago is, it is simply not in the same league as NYC. No American city comes close.

    I just think the NY-Chicago comparison is unfair and, frankly, getting old. NYC can perhaps only be compared to perhaps London, Tokyo, and maybe Hong Kong. That’s it.

  16. Jon Hendricks says:

    As a follow up to Attrill’s comment on median wages adjusted for cost of living, according to the Council for Community and Economic Research, at http://www.coli.org, median household income adjusted for 2006 cost of living for Cook County, IL was $44,198 while New York County, NY was $29,391.

  17. the urban politician says:

    I give Aaron credit in one point, though:

    The “global city” is not enough to hold up Chicago’s economy. I couldn’t agree more.

    But the “global city” probably isn’t enough to hold up LA, or the Bay Area’s economy either. Is the success of San Francisco doing much, for example, to help parts of Stockton or Oakland?

    Of course, one can debate what it means for an economy to be “held up”. Chicago isn’t faring too badly when you compare, for example, its unemployment rate with that of many other large American metros. Is tech employment really enough to hold up the entire Bay Area’s economy? What about the manufacturing, port or aerospace industries in Southern California–is that enough? None of them have the financial engine that is Wall St at their disposal.

    One thing for sure: this conclusion could easily have been drawn (and already has been) without the unnecessary New York comparisons. I think this is just a part of Mr. Renn’s fascination with New York these days.

  18. Alon Levy says:

    ACCRA cost of living = cost of living under the assumption that everyone lives the lifestyle of corporate executives, i.e. owns a car and a large home. As a result, it gives New York higher-than-average costs of transportation, even though the region’s transportation cost as a percentage of household income is in reality among the lowest in the nation. It simply can’t be applied to people who are not rich, and if it could, Manhattan would have vaster food deserts than Detroit, understaffed police leading to a crime epidemic, and public health crises.

  19. Wad says:

    @Urban politician, don’t mistake the visible industries of the Bay Area (computer programming) and Southern California (logistics and aerospace) for income-dependency.

    Luckily, these areas of California are still very dynamic city regions. They don’t need a specific industry to hold up their economy like housing did in most of the Sunbelt, or the most extreme examples of income dependency, Detroit of the Automobile Age and Las Vegas of the modern times.

    The Bay Area, besides computers, is also the center of finance for the Pacific, and other leading industries include tourism, logistics (you can also count the inland seaports of Sacramento and Stockton), Fortune 500 businesses, agriculture (it’s amazing to see how much high-value land is preserved as vineyards or other crops), research and development, science, law and education.

    Southern California can also count tourism, logistics (busiest seaports in the U.S. and third-busiest U.S. airport), entertainment, international trade, law, engineering and education.

    Southern California has also had the fortune to survive a devastating “lost decade”. It began roughly on October 1, 1987, the day both a major earthquake struck and the day of the stock market crash. The latter signaled the start of the recession and the savings-and-loan crisis that obliterated most of SoCal’s financial capacity. This was followed by major post-Cold War downsizing in the aerospace sector, which depressed housing prices much like what’s happening now. Things only began to get worse in 1992 during the riots, which also marked the exodus of whites from Southern California. The 1994 Northridge earthquake, the largest in 23 years, caused billions more in damage and showed the weaknesses of the freeway system.

    What really pulled Southern California back from the brink was the Asian financial crisis of 1997. Money that had been going to the affected nations, particularly South Korea, had found its way into Southern California. It saw large waves of immigration, but also asset investment and small-business start-up.

  20. Louis says:

    Transit share in newark overall might be low but you can get there easily by transit on the northeast corridor, coast line, raritan valley line, morristown line, gladstone branch, montclair boonton line, PATH and the city light rail. 13% transit share is very high compared to almost every other american city. Same for stamford with over 100 trains a day going through that station. and 30 min commute to midtown manhattan. no one in there right mind would commute btwn manhattan and stamford.

  21. Louis says:

    by driving

  22. TUP, that’s basically my point. NYC is in a class by itself, so places like Chicago can’t basically say, “Me too” and try to pursue a solely global city strategy. But while I’d agree on LA, I think SF is a different story. It’s a city built on being the epicenter of tech, which certain does generate humongous amounts of cash a la Wall Street. Also perhaps Boston and DC can get away with this. But all of those areas are not saddled with a vast outer metro that is in effect the Rust Belt.

    Attrill, there’s something in what you say, but the takeaway I get from it is the same sort of denial about the situation in Chicago and Illinois who like pretend everything is fine. Obviously big change is needed. All those CEOs surveyed aren’t dupes. They know something real. They aren’t tea partiers fooled by a bunch of rhetoric around tax increases.

  23. the urban politician says:

    Urbanophile, clearly you haven’t spent enough time in the Bay Area. Go take a trip through Stockton and Oakland.

    I am investing in real estate in the Bay Area and have looked at property there. There are plenty of areas that have been left behind by the “global city” of San Francisco and the tech wonders of Silicon Valley.

    I have also lived for 3 years in Washington, DC. I recommend you take a trip through the 60% of DC known as the ‘southeast side’ before assuming that the “global city” of DC is pulling the whole region through.

    Aaron, before you keep using this recession to pick apart Chicago’s weaknesses, I recommend you take a hard look around.

  24. Alon Levy says:

    Very few people who live in Stamford drive to Manhattan, sure. But most people who live in Stamford do not work in Manhattan, and the rail network is incapable of serving any other destination, with a handful of exceptions such as Newark and Downtown Brooklyn and those only from select directions. People who work in the edge cities almost invariably drive; that’s what Stamford’s 11% share measures. Stamford also happens to have an 11% transit mode share for residents, but generally for suburban edge cities, it’s higher for residents than for workers (e.g. 21% vs. 10% for Westchester County).

  25. the urban politician says:

    While we’re busy at New Geography criticizing the “global city” of Chicago for being inadequate while praising the Big Apple, might I direct our readers to another new article posted at, you guessed it: New Geography.

    http://www.newgeography.com/content/002252-goodbye-new-york-state-residents-are-rushing-exits

    Looks like a whole lot of New Yorkers are getting left behind by their “global city” as well. Are you sure you wanna move there, Aaron? ;)

  26. TUP, there are definitely weaknesses in the global city model. I think I acknowledged that. I’m just saying that for NYC it pays the bills. Taxes and costs are indeed high there – far higher than Chicago.

  27. Bill Stremmel says:

    This underscores the one key element of the Burnham Plan that remains to be completed: A circumferential multi-modal transportation corridor from Edens-Kennedy junction down the Belt Railway alignment paralleling Cicero Avenue past Midway Airport then turning east continuing to follow the rail right-of-way to Dan Ryan.
    It’s latest incarnation, the Crosstown Expressway, was abandoned in the late 1970’s due to controversy over the disruption. Today a scaled-down toll thruway/busway/truckway combined with new technology demand-responsive ultra-light rail transit and a non-motorized trail/greeenway would be a better fit for the neighborhoods of the “Middle City” to be served by this infrastructure.

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