Sunday, June 5th, 2011
[ The New York Times ran an article recently discussing the trend of big city law firms hiring non-partner track attorneys in smaller cities to handle routine work at lower cost. It reminded me of this post where I floated a similar idea back in 2009. I hope you enjoy - Aaron. ]
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.
This post originally appeared on February 11, 2009.