Thursday, August 30th, 2012

Gaps in Chicago’s Global City Fabric

The is the last of three installments on Chicago as a global city, and is also part of my “State of Chicago” series.

Chicago is definitely in a global city in any definition, but if you parse apart its economy, the global city part is smaller than is generally believed, and in any case is too small to carry the city, region, and state alone. Chicago is in many respects a regional capital like Atlanta, with an economy still tied heavily to its regional hinterland.

I’d also like to point out that Chicago is completely missing various pieces of the global city puzzle. I don’t want to make these out to be bigger than they are, but if civic boosters can cite things like the legitimately top rank culinary scene as evidence for Chicago’s robustness, then I think it’s fair to look at the other side.

The biggest issue by far is Chicago’s weakness as a media center. Chicago has never really been a huge media center, even domestically much less internationally. With the changes in the media business over the last decade or so, whatever stature Chicago had as a media center has basically been wiped out.

I outlined this a while back in a piece over at New Geography called “The Collapse of Chicago Media.”

Some folks criticized the piece because I did not mention items like Chicago Magazine or the local NPR station. So perhaps I should clarify. I’m not suggesting that Chicago lacks the same sort of local media every other decent sized city has. Of course it does. But rather that Chicago is not a national center of media importance.

This is vitally important when it comes to getting a city’s message out. The global media is saturated with information about New York, LA, Washington, and even the Bay Area when it comes to tech. But there’s seldom much global coverage of Chicago. That explains why Chicago needs to bring in events like the NATO summit to generate exposure. You expect smaller cities like Indianapolis to need to do things like host Super Bowls to get major media coverage, but for a city that aspires to be prominent on the global stage, the lack of media is a major challenge.

I should note that I omitted mentioning “Superstation” WGN which still is carried around the country I believe, as well as some smaller outfits like Journatic. I probably should also have mentioned magazines like Ebony and Jet. But I believe the point still stands.

Beyond media, fashion is another area of weakness. Crain’s Chicago Business ran a story called “Runway Doesn’t Lead to Local Fashion Scene” that noted how, despite producing quality fashion design graduates, the city has yet to create a fashion industry or scene.

The piece quotes someone saying that the Midwest is a “kind of a sweats and flip-flops society. Until the mainstream keys in, Chicago’s fashion scene is not going to be created.” You seldom see Chicago datelines on photos in fashion blogs like the Sartorialist or Facehunter. Without a fashion culture locally, it’s hard to see a fashion industry taking root. If Chicago is a 10 out of 10 on food, it’s probably more like a 5 out of 10 on fashion.

I could perhaps cite some other areas, but these are two where the verdict is pretty clear. Again, for smaller regional or national cities, none of these is a big deal. Even for Chicago in terms of the quality of life for its residents, it probably doesn’t make a huge difference (though Chicago could perhaps use stronger media that isn’t just obsessed with local and hyperlocal). But when you stake your claim to be one of the top global cities in the world, these sorts of gaps in the story add up.

Wednesday, August 29th, 2012

Memphis: The Comeback

Jim Russell alerted me to a diaspora marketing campaign from Memphis, Tennessee. They are trying to lure residents who left back home. One part of this is a web ad in the style of Chrysler’s “Imported From Detroit” called “The Comeback,” which you can see below. If the video doesn’t display, click here.

Looking at the diaspora is good. I might also suggest places where Memphis already is seeing in-migrants arrive from. Some of them are Nashville (unsurprising), Atlanta, Chicago, and Dallas.

Memphis metro is 46.6% black – highest in the US among all large metros. Some writers are observing a reverse Great Migration back to the South. A lot of that black growth is occurring in places that have been more robust economically like Atlanta and Charlotte, unsurprisingly. But Memphis might try to figure out how to take advantage of the trend, particularly with the Great Recession affecting the economies of some of those other places, particularly Atlanta.

Tuesday, August 28th, 2012

Chicago: Hog Butcher No More, But Service Purveyor to Same? by Bill Testa

[ Bill Testa is a vice president and director of regional research in the economic research department at the Federal Reserve Bank of Chicago. He’s arguably the best voice writing about the Midwest economy, even though the Chicago Fed district covers only part of it. He has a low posting volume but high impact blog called Midwest Economy that’s a must read for anyone in the region.

The article below originally appeared there and he graciously gave me permission to repost it. I’m including it as part of my “State of Chicago” series, but should be clear that Testa did not write it originally as that and this article’s appearance here should not be viewed as an endorsement by him of my own opinions.

Chicago remains heavily tied to the Midwest and national manufacturing cycle. This doesn’t necessarily vitiate the global city angle as some of its global city functions relate to these industries. But clearly the narrative of transformed Chicago transcending its past and its failed region needs some revising – Aaron. ]

For Chicago (and the U.S.), no one would argue that economic conditions have approached a state of full recovery. Almost three years into the expansionary phase of recovery from the 2008–09 recession, Chicago’s unemployment rate remains lodged near 9 percent. Yet, these three years of expansion may be telling in other ways. That is, comparing Chicago’s current experience with its past recovery experiences can provide insights into the structure and outlook for Chicago’s economy.

As seen in the chart, the Chicago area’s unemployment rate is typically slower to recover from recessions than the U.S. overall. This is somewhat to be expected, since Chicago and Midwest recessions are typically sharp and deep owing to the region’s preponderance of manufacturing companies. Following steep recessionary declines, it takes a while for these and other companies to re-engage the work force.

A further glance at the chart reveals that the Chicago area’s economy was especially tardy in its labor market recovery following the short and shallow recession that ended in the fourth quarter of 2001. The Chicago area’s unemployment rate did not converge with the national rate until very late in 2006. Today, by contrast, ten or more quarters past the end of the national recession, the Chicago area’s unemployment rate seems to be making substantial progress toward convergence with the rest of the U.S.

One of the underlying reasons for this difference in experience is probably the different behavior of the manufacturing sector in these two periods. In the current period, manufacturing has been growing since the end of the recession both in the nation and the Midwest. In contrast, the period surrounding the 2001 recession saw manufacturing declining markedly. From 2000- 2003, the Great Lakes states surrounding Chicago lost almost 700,000 manufacturing jobs on net—representing about one-fourth of all U.S. manufacturing jobs lost in that period.

To be sure, the Chicago economy does not have the deep manufacturing orientation that it once had—at least not directly. Once “hog butcher to the world,” Chicago is now more of a provider of high end business and financial services. Today, Chicago is the capital of the risk product financial exchanges and a center of vibrant job opportunities in accounting, law, management consulting, business meeting/travel, and corporate headquarters operations. Nonetheless, looks can be deceiving, in that these service operations are often vitally linked to goods-producing service customers. That is, the Chicago economy continues to sell its business services to Midwest and national goods producers, both in agriculture and especially in manufacturing. Accordingly, regional and national trends in goods production continue to matter to Chicago’s economic performance and well-being.

The table lays out the Chicago area’s job performance during the ten quarters following each of the past two recessions. To begin with, as measured by total private sector job growth, we see that Chicago’s overall performance following the 2001 recession was abysmal. During the national recovery, the Chicago metropolitan area (CMA) experienced a jobs decline of –2.6 percent or over 100,000 jobs. In contrast, so far in the current recovery, private sector payroll jobs in the CMA have expanded by 1.2 percent.

Which particular industry sector differences explain this overall performance? In the recent period, the CMA shares some important trends with the national economy. In the aftermath of the housing market collapse, for example, job growth in the construction sector is much weaker. State and local governments also continue to downsize today, unlike the post-2001 expansionary period. So too, financial activities such as banking and real estate continue to shrink during this expansion. The latter presents a challenge for Chicago, as its economy is more concentrated in financial activities than the nation (column 6).

But perhaps the most concentrated industry for Chicago is “professional and business services.” In this sector, and unlike the earlier experience, the region has achieved net job growth of 7 percent this time around, versus a loss of 2 percent at this point in the post-2001 expansion.

(click to enlarge)

A look at the past behavior of this industry reveals that, during the last expansion, CMA employment in business and professional services did not bottom out until almost 2004 (Figure 3 below). Nationally, the sector also performed poorly. However, the national business services sector outperformed Chicago’s business service sector, hitting bottom nationally several quarters ahead of the CMA trough.

To understand Chicago’s business services performance, we must look to trends in manufacturing. Chicago remains a major wholesaler, transporter, and warehouser of goods that are produced in the broader Midwest region. It is here in Chicago that all six major North American railroads come together and the largest North American intermodal freight operations (i.e., between truck and rail car) take place. As shown in the table, employment in the CMA’s “transportation and warehousing (and utility)” sector has expanded by 5 percent over the past ten quarters, versus a decline of 5 percent during the post-2001 expansion.

It is likely that Chicago’s vaunted business and professional services sectors are also being led by demand from the surrounding goods-producing customers. The final chart shows a strong correlation (0.88 out of 1.0) between Chicago’s business/professional service job growth and manufacturing job growth in the Great Lakes states that look to Chicago as a regional business hub. The correlation in job growth between Chicago’s own professional services and manufacturing sectors is similarly high, at 0.86).

Midwestern policy leaders need to understand these correlations in order to influence the CMA’s job prospects and economic conditions. Certainly, the CMA economy has an important footprint as a global city that is tied to services and travel around the world. But its economic base remains strongly tied to goods production in the nation and the nation’s mid-section.

This post originally appeared in Bill Testa on the Midwest Economy on April 6, 2012.

Sunday, August 26th, 2012

Chicago As a Global City

This article is part of the State of Chicago series.

At this point in my series I’m looking at a couple of my frames on Chicago’s problems that are not commonly known or held. The first was Chicago’s lack of a calling card industry. I’m now looking at Chicago’s weakness as a global city and the excessive focus civic leadership has put on being a global city at the expense of everything else. (I will not be further reviewing well-known and uncontroversial problems such as the fiscal mess).

Ranking Chicago as a Global City

Last week I examined the question of what a global city is. Today I want to look at Chicago specifically. Looking at the various rankings out there, here’s how Chicago measures up on some of them:

  • On the GaWC Roster of World Cities, Chicago is an “Alpha” world city in the second grouping just behind New York, London, Tokyo, Paris, and Los Angeles.
  • In the AT Kearney/Foreign Policy reports, Chicago ranks as the 6th most important global city. As this is the highest ranking in any recent survey, this is the one locals are most likely to cite.
  • In the Economist Global Cities Competitiveness Index, Chicago ranks 9th
  • In the Knight Frank/Citi Wealth Report listing of most important cities, there were only 20 cities included and Chicago did not make the list at all.
  • In the Mori Memorial Foundation Global Power City Index Chicago was 26th
  • In a hot off the presses McKinsey/Foreign Policy ranking of most dynamic cities of the future, Chicago ranked 38th

As you can see, this is quite a spectrum of rankings, ranging from nearly the best to only so-so. Again, we have to look at the specifics of the rankings to see what is being measured.

My argument is two-fold. I would argue that Chicago is most certainly a global city however you define it, but:

1. Chicago has comparatively few “core” global cities functions, that is, it is not particularly strong in advanced producer and financial services vs. more generalized professional services.

2. If you define global city more broadly as the greater Loop economy and high end, elite functions as a whole, Chicago’s global city component is still too small to carry the city, region, and state.

Advanced Producer Services

This argument is basically a hypothesis based on my own experience as part of Chicago’s professional services community. It’s not something that I have the resources to research on my own, and I’ve yet to see a survey that really tries to dig into it.

Chicago has always been a key professional services hub. In fact, I’ve argued that Professional Services 2.0 should be core to the city’s future economic strategy. But what portion of those services are high end, specialized functions related to the global economy vs. traditional services updated for the global age?

Chicago clearly has some high end global functions. I generally like to cite the financial exchanges, the design of super-tall skyscrapers, and privatization contracting as examples. I’m sure there are many more.

But other than the exchanges and the financial center side of Chicago (which I see as stagnant to declining in some respects anyway), I believe most of these are pretty small niches. They don’t, in aggregate, employ that many people or generate that much wealth or value.

I believe that the vast bulk of Chicago’s professional services consists of traditional accounting, law, and the like. These bread and butter type firms employ lots of people, pay good wages, and deliver a lot of value. But they don’t create a “wide moat” business in most respects. Chicago’s a great place to staff people who need to fly, and has a compelling talent market, but isn’t the only game around. There are many other regional services hubs.

This I think is another part of the story on Chicago’s comparatively low GDP per capita and incomes per capita versus the top tier cities even in America. As with the lack of a calling card industry that generates super-sized returns, Chicago lacks a large quantity of the high end specialized global services functions as well. Both of these factor into its fairly average metro area value creation profile.

Again, this is just a hypothesis at this point.

Global City Chicago Is Too Small

Global, global, global. It’s pretty much all you hear in Chicago. Actually, this is a good thing in a lot of ways. Travel around America and you’ll find that it’s replete with places that have no concept of the reality of global competition. Chicago is not one of those cities. This is a city that understands it is competing in a vicious global marketplace.

But while everything you do should be underpinned by an understanding of the global competitive environment, Chicago has to too great an extent focused its response on being a global city. While I agree Chicago is to some extent a global city, the global city portion of Chicago is simply not big enough to carry the load.

Let’s look at this by comparing payrolls in the Chicago Central Area (basically the Loop plus surrounding fringe areas) with Manhattan South of 59th St.. And we’ll throw in Cook County for good measure:

Annual private sector payrolls, 2009, thousands of dollars. Source: County/Zip Code Business Patterns

As you can see, New York’s core generates more payrolls that even all of Cook County, and vastly more than Chicago’s Central Area. And this doesn’t even include investment income. Actually, the data is probably even worse than this as I’ve never gotten the zip code data to fully sum up to the countywide totals. If you look at Manhattan as a whole, you get about $180 billion in payrolls. This is 55% higher than all of Cook County.

There are some similar types of statistics around jobs. Here’s a chart I’ve posted before showing jobs in Cook County vs. Manhattan:

Total Employment, Source: Quarterly Census of Employment and Wages

Manhattan, with only 8.4% of the metro area population, has nearly as many jobs as all of Cook County, which accounts for 54.9% of the metro area population. Manhattan accounts for 28.9% of metro New York jobs. Interestingly, there are as many jobs in Manhattan North of 59th St. as there are in the Chicago Loop. (The Loop jobs pay much more, however).

The average Manhattan job also pays more than the average Cook County job as you can imply from the previous charts. In fact, the average job in Manhattan pays 79% more than the average job in Cook County.

Average Weekly Wage, Source: Quarterly Census of Employment and Wages, 2011

Chicago is a cheaper place to live, so the gap probably isn’t quite this dramatic. Nevertheless, I think the data are clear. New York, along with London considered to be the paradigmatic global city, has a vastly larger core than Chicago, has an economy more concentrated in its core than Chicago, and generates far greater wealth from that economy than Chicago.

Because of that, New York can plausibly rely on its global city component to pay the bills for the entire city, region, and state (and even part of Connecticut and New Jersey). Given that a large proportion of that comes from finance – too large – New York may yet rue its over-concentration there.

But just because New York may run into big problems in the future doesn’t change that Chicago and Illinois have big problems in the now. Part of the fiscal issue is mismanagement plain and simple. But part of it is that Chicago has decided it wants to be a global city, but global city Chicago isn’t big enough to pay the bills, not even for the city, much less a region of ten million or a state of 13 million.

How then do other places besides New York get away with it? I haven’t studied them all in detail. But I suspect that other tier one cities in America harvest outsized returns via calling card industries like tech in the Bay Area. They also utilize restrictive housing policies to keep access exclusive. And they are smaller than Chicago regionally, so don’t need as much money to keep it all going. And I’m not convinced all of them are getting away with it. Los Angeles, the other big city often compared to Chicago, has huge problems. The city of Los Angeles may even go bankrupt.

I believe the takeway for Chicago is clear: it cannot continue to focus on simply the elite greater Loop economy as the growth platform for future prosperity. It must diversify beyond that. The road to doing so is difficult, but that doesn’t mean it doesn’t need to be taken and that there aren’t things that clearly are within the city’s power it can do.

In a couple follow-on installments this week, I’ll highlight some additional aspects of the global city problem, notably Chicago’s continuing tie to the Midwest and national manufacturing cycle, and some key gaps in the global city fabric.

Discussing Global Cities

In the meantime, I was on a couple of Chicago radio programs this week talking about Chicago as a global city.

The first was an appearance on WBEZ’s Afternoon Shift, which was driven by the new Foreign Policy study that ranked Chicago only 38th for future dynamism. The audio is embedded below. If it doesn’t display for you, click here.

The first portion of this is Isaac Stone Fish of Foreign Policy magazine talking about his recent survey and the rise of Chinese cities. The second segment I am on with Andres Mendoza Pena of AT Kearney to talk about Chicago.

I also did a segment with Outside the Loop radio talking on the same topic. Here’s the embedded audio, and my segment starts at about 19:00. Again, the player lets you skip ahead. If the player doesn’t display for you, click here.


Thursday, August 23rd, 2012

Carmel, IN Named Best Small City in America to Live In

Money Magazine just named the Indianapolis suburb of Carmel as the top small city in America to live in. Fishers, another Indianapolis suburb, ranked #12.

Any ranking survey, and particularly one done by a magazine, needs to be taken with a grain of salt. However, Carmel and Fishers (along with occasionally Noblesville), frequently show up high in various national rankings. For those interested in suburban living, these places offer a pretty strong combination of good schools, low real estate prices (Indianapolis is basically the cheapest big city housing market in America), low taxes, and fairly high quality of life. With populations of over 75,000 each, these communities also have the scale to efficiently provide quality public services.

I personally think Fishers has long term sustainability issues. It has kept up with very rapid growth admirably, but it has really not done much to secure its long term future, and when it reaches buildout, I expect problems to set in.

Carmel by contrast has invested heavily in building towards a future where greenfield growth is no longer the driver. It has invested in high quality public facilities, some of the best suburban transportation infrastructure in the nation, building new urbanist neighborhoods from scratch, upgrading utilities, improving the environment, etc. Dan McFeely of the Indianapolis Star covers Carmel and wrote a bit about this.

I’ve covered Carmel extensively for years here on the blog, calling it the “next American suburb” and writing about its civic strategy, new urbanist approach, and various criticisms of its leadership.

I think the Carmel story is an interesting one because it shows how a city, albeit an affluent one, in a very conservative state can fundamentally transform itself in a way that that demonstrates results. This includes urbanism standards and infrastructure standards that exceed those of the urban core of Indianapolis, with many of its public services being better as well.

The results most notably show up in incomes. While incomes cratered relative to the US in both Indiana and metro Indianapolis, Carmel’s median household income actually inched up versus the US average despite starting from a higher base.

In short, the strategy has been working, though obviously the national economy has had an effect. And I don’t necessarily support everything they have done. Their $150 million performing arts center, for example, all paid for with public funds, seems expensive for a city of this size, and has saddled the city’s redevelopment commission with debt. But on the whole, things seem to be paying dividends.

This is part of the explanation for why Indianapolis as a region has done well while its urban core lags many other cities. The majority of people prefer suburbs, and Indy’s newer suburbs provide an exceptional value proposition.

Ultimately to be successful, the region will have to fire on all cylinders. This means both urban and suburban, with each neighborhood and town bringing a unique approach and its A game to the table. It’s not an either/or situation. I want to build urban cores up, not tear suburbs down. (Downtown Indianapolis has its own game going. Despite some recent criticisms that I stand behind, downtown Indy has positive momentum in a lot of areas. For example, another 300 tech jobs were just announced yesterday).

I previously highlighted Columbus, Indiana, which has accomplished something similar in a more blue collar environment. So positive stories based on different variations of the same playbook aren’t limited merely to upscale suburbs.

In a state that has long lagged the nation in job and output growth, and where the very large decline in relative incomes has been a huge issue at all levels, you would think that leaders would be streaming in to study these successful models.

Alas, that is not the case. Not only is there little interest in learning from models that are actually working (save perhaps for other Indy suburbs looking to Carmel), there’s actual hostility. It’s as I said in some recent posts: Indiana actively discourages the pursuit of excellence. They’d rather cut down the successful than bring up the failing. State level policy choices are trying to do just that.

Start with school funding. As part of a property tax reform process, the state of Indiana took over 100% of all local school operating funding. However, they also changed the funding formula in a way that stuck well performing metro Indy districts at the bottom of the pile. Out of about 360 school districts statewide, Carmel is fourth from the bottom in per pupil funding from the state. Other regional districts like Fishers and Zionsville are also at the bottom. In effect, the state decided to starve fast growing and well performing suburban districts. Somehow this didn’t make the list of education reforms in that recent Economist article. For a state that claims to want to base its economic future on things like life sciences, this sure seems puzzling.

The state has also sought to impose a one size fits all, least common denominator approach to services. While it didn’t affect Carmel directly since they already built their first class library, the state’s Department of Local Government Finance vetoed plans by the suburbs of Westfield and Greenwood to build new libraries (partially inspired by Carmel), even though the bonding plans survived a petition challenge. The state’s rationale was that the cost per resident was higher than the state average. It’s easy to see that a policy like this acts as a one way downward ratchet.

The state also passed a law that not only capped property taxes as a percentage of assessed value – a measure I support – but also put in place a de facto spending freeze for all cities at current levels through a levy cap.* (This levy cap ignores growth in commercial tax base, so if a town built a 50 million square foot industrial park, it wouldn’t even be able to raise the revenues to provide services to it).

This has left cities increasingly depending on gimmicks to finance anything. And every time a city figures something like that out, the state makes noises about shutting it down. The state has also refused to allow communities to even let their own citizens vote in favor of spending money on things like transit. Indiana has never particularly empowered municipalities, but recent years have seen a strong turn towards disempowerment, with the state’s General Assembly serving as a sort of uber-city council (and now uber-school board too).

I’d be willing to venture that neither Carmel nor Columbus would be able to accomplish what they have if they were starting out on the journey today under the current state legal and political climate.

This is not to say that spending money is a solution to problems. Actually, by national standards, places like Carmel and Columbus don’t spend very much money at all. With some exceptions like that performing arts center, they are actually quite frugal. They understood the concept of long term total cost of ownership, and as a result have kept taxes low by not being penny wise, pound foolish in the short term, while so many other places that thought only about the now have descended into a near death spiral of service cuts, tax increases, and abandonment. That’s the tragedy.

In a rational world, one would think that we’d look at models that are producing population growth, job growth, corporate (including foreign) investment, high quality of services and quality of life, keeping incomes at or above US levels – and mostly importantly all while keeping taxes well below normal (at the bottom of the state in Carmel’s case) even by the standards of Indiana – and say to ourselves: how can we get more of that? Unfortunately, that’s not the case here. (Again, some other Indy suburbs excepted).

Before proposing solutions to Indiana’s long term under-performing economy, I would suggest that the candidates for governor first take a look around the state to examine at the places that are already doing well and have been doing well over the last decade or more. Then ask the question: what are they doing different and right and what do we need to do to get other places doing those things? First among the places to visit would be suburbs like Carmel and industrial cities like Columbus. If you’re ranked #1 in America, you must be doing something right.

* This is complicated, but my understanding is that the total property tax levy cannot grow faster than inflation + population growth. This has had many perverse incentives, including keeping entities like townships from lowering their tax levy even when possible because they’re afraid they’ll never be able to raise it again if needed.

Wednesday, August 22nd, 2012

Infographics: The Decongestion of Manhattan, New York Walking Commutes

Jim Russell pointed me at an interesting article about densification vs. de-densification over at the Urbanization Project at NYU Stern. It contains this very interesting map of the change in census tract densities in Manhattan over the century between 1910 and 2010:

Walking Related Commutes

Streetsblog, in an article covering the annual NYC DOT scorecard, included this graphic of the percentage of commutes that include walking as a core component (e.g, transit) in various parts of New York:

Wednesday, August 22nd, 2012

Dubai: City on the Move

Here’s your timelapse of the week, this time a look a the Middle East with “Dubai: A City on the Move.” As always, full screen high def recommended. If the video doesn’t display for you, click here.

h/t Likecool

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Tuesday, August 21st, 2012

Anorexic Vampires and the Pittsburgh Potty: The Story of Rust Belt Chic by Richey Piiparinen

“Rust Belt Chic is the opposite of Creative Class Chic. The latter [is] the globalization of hip and cool. Wondering how Pittsburgh can be more like Austin is an absurd enterprise and, ultimately, counterproductive. I want to visit the Cleveland of Harvey Pekar, not the Miami of LeBron James. I can find King James World just about anywhere. Give me more Rust Belt Chic.” Jim Russell, blogger at Burgh Diaspora

National interest in a Rust Belt “revival” has blossomed. There are the spreads in Details, Atlantic Cities, and Salon, as well as an NPR Morning Edition feature. And so many Rust Belters are beginning to strut a little, albeit cautiously–kind of like a guy with newly-minted renown who’s constantly poking around for the “kick me” sign, if only because he has a history of being kicked.

There’s a term for this interest: “Rust Belt Chic”. But the term isn’t new, nor is the coastal attention on so-called “flyover” country. Which means “Rust Belt Chic” is a term with history–loaded even–as it arose out of irony, yet it has evolved in connotation if only because the heyday of Creative Class Chic is giving way to an authenticity movement that is flowing into the likes of the industrial heartland.

About that historical context. Here’s Joyce Brabner, wife of Cleveland writer Harvey Pekar, being interviewed in 1992, and introducing the world to the term:

I’ll tell you the relationship between New York and Cleveland. We are the people that all those anorexic vampires with their little black miniskirts and their black leather jackets come to with their video cameras to document Rust Belt chic. MTV people knocking on our door, asking to get pictures of Harvey emptying the garbage, asking if they can shoot footage of us going bowling. But we don’t go bowling, we go to the library, but they don’t want to shoot that. So, that’s it. We’re just basically these little pulsating jugular veins waiting for you guys to leech off some of our nice, homey, backwards Cleveland stuff.

Now to understand Brabner’s resentment we step back again to 1989. Pekar–who is perhaps Cleveland’s essence condensed into a breathing human–had been going on Letterman. Apparently the execs found Pekar interesting, and so they’d book him periodically, with Pekar–a file clerk at the VA–given the opportunity to promote his comic book American Splendor. Well, after long, the relationship soured. Pekar felt exploited by NYC’s life of the party, with his trust of being an invited guest giving way to the realization he was just the jester. So, in what would be his last appearance, he called Letterman a “shill for GE” on live TV. Letterman fumed. Cracked jokes about Harvey’s “Mickey Mouse magazine” to a roaring crowd before apologizing to Cleveland for…well…being us.

Think of this incident between two individuals–or more exactly, between two realities: the famed and fameless, the make-up’d and cosmetically starved, the prosperous and struggled–as a microcosm for regional relations, with the Rust Belt left to linger in a lack of illusions for decades.

But when you have a constant pound of reality bearing down on a people, the culture tends to mold around what’s real. Said Coco Chanel:

“Hard times arouse an instinctive desire for authenticity”.

And if you can say one thing about the Rust Belt–it’s that it’s authentic. Not just about resiliency in the face of hardship, but in style and drink, and the way words are said and handshakes made. In the way our cities look, and the feeling the looks of our cities give off. It’s akin to an absence of fear in knowing you aren’t getting ahead of yourself. Consider the Rust Belt the ground in the idea of the American Dream.

Photo credit: Sean Posey

Of course this is all pretty uncool. I mean, pierogi and spaetzle sustain you but don’t exactly get you off. Meanwhile, over the past two decades American cities began their creative class crusade to be the next cool spot, complete with standard cool spot amenities: clubs, galleries, bike paths, etc. Specifically, Richard Florida, an expert on urbanism, built an empire advising cities that if they want creative types they must in fact get ahead of themselves, as the young are mobile and modish and are always looking for the next crest of cool.

These “Young and the Restless”–so they’re dubbed–are thus seeking and hunting, but also: apparently anxious. And this bit of pop psychology was recently illustrated beautifully in the piece “The Fall of the Creative Class” by Frank Bures:

I know now that this was Florida’s true genius: He took our anxiety about place and turned it into a product. He found a way to capitalize on our nagging sense that there is always somewhere out there more creative, more fun, more diverse, more gay, and just plain better than the one where we happen to be.

After long–and with billions invested not in infrastructure, but in the ephemerality of our urbanity–chunks of America had the solidity of air. Places without roots. People without place. We became a country getting ahead of itself until we popped like a blowfish into pieces. Suddenly, we were all Rust Belters, and living on grounded reality.

Then somewhere along the way Rust Belt Chic turned from irony into actuality, and the Rust Belt from a pejorative into a badge of honor. Next thing you know banjo bingo and DJ Polka are happening, and suburban young are haunting the neighborhoods their parents grew up in then left. Next thing you know there are insights about cultural peculiarities, particularly those things once shunned as evidence of the Rust Belt’s uncouthness, but that were–after all–the things that rooted a history into a people into a place.

Take the Pittsburgh Potty. For recent generations it was about the shame of having a toilet with no walls becoming the pride of having a toilet with no walls. From Pittsburgh Magazine:

We purchased a house with a stray potty, and we’ve given that potty a warm home. But we simply pretended as if the stray potty didn’t exist, and we certainly didn’t make eye contact with the potty when we walked past it to do laundry.

The Pittsburgh Potty is basically a toilet in the middle of many Pittsburgh basements. No walls and no stalls. It existed so steel workers can get clean and use the bathroom without dragging soot through ma’s linoleum.

Photo credit: Brookline Connection

Authentic: yes. Cool? A toilet?

Only in the partly backward Rust Belt of Harvey Pekar and friends. From the twitter feed of @douglasderda who asked “What is a Pittsburgh Potty?” Some responses follow:

“I told my wife I wanted to put ours back in, but she refused. I threatened to use the stationary tubs.”

“In my house, that would be known as my husband’s bathroom.”

“It’s a huge selling feature for PGH natives. I’m not kidding. We weren’t so lucky in our SS home.”

“We’re high class people. Our Pittsburgh Potty has a bidet. Well, it’s a hose mounted on the bottom, but still ….”

Eventually, this satisfaction found in re-rooting back into our own Rust Belt history has become the fuel of wisdom for even Coastal elites. Here’s David Brooks recently talking about the lessons of Bruce Springsteen’s global intrigue being nested in the locality that defines Rust Belt Chic:

If your identity is formed by hard boundaries, if you come from a specific place…you are going to have more depth and definition than you are if you grew up in the far-flung networks of pluralism and eclecticism, surfing from one spot to the next, sampling one style then the next, your identity formed by soft boundaries, or none at all.

Brooks continues:

The whole experience makes me want to pull aside politicians and business leaders and maybe everyone else and offer some pious advice: Don’t try to be everyman…Go deeper into your own tradition. Call more upon the geography of your own past. Be distinct and credible. People will come.

And some are coming, albeit slowly, unevenly. But more importantly, as a region we are once again becoming–but nothing other than ourselves.

Authenticity, reality: this was and always will be the base from which we wrestle our dreams back down to solid ground.

American splendor, indeed.

Sunday, August 19th, 2012

What Is a Global City?

This is both a standalone general article and part of my “State of Chicago” series.

We hear a lot of talk these days about so-called “global cities.” But what is a global city?

Saskia Sassen literally wrote the book on global cities back in 2001 (though her global cities work dates back well over a decade prior to that book). She gave a definition that has long struck with me. In short form, in the age of globalization, the activities of production are scattered on a global basis. These complex, globalized production networks require new forms of financial and producer services to manage them. These services are often complex and require highly specialized skills. Thus they are subject to agglomeration economics, and tend to cluster in a limited number of cities. Because specialized talent and firms related to different specialties can cluster in different cities, this means that there are actually a quite a few of these specialized production nodes, because they don’t necessarily directly compete with each other, having different groupings of specialties.

In this world then, a global city is a significant production point of specialized financial and producer services that make the globalized economy run. Sassen covered specifically New York, London, and Tokyo in her book, but there are many more global cities than this.

The question then becomes how to identify these cities, and perhaps to determine to what extent they function as global cities specifically, beyond all of the other things that they do simply as cities. Naturally this lends itself to our modern desire to develop league tables.

A number of studies were undertaken to produce various rankings. However, when you look at them, you see that the definition of global city used is far broader than Sassen’s core version. Wikipedia lists some of the general characteristics people tend to refer to when talking about global cities. It cites a very lengthy list, but some of them are:

  • Home to major stock exchanges and indexes
  • Influential in international political affairs
  • Home to world-renowned cultural institutions
  • Service a major media hub
  • Large mass transit networks
  • Home to a large international airport
  • Having a prominent skyline

As you can see, this is quite a hodge-podge of items, many of which are only tangentially related to globalization per se. In effect, many of them seek to define cities only in term of global prominence rather than functionally as related to the global economy. That’s certainly a valid way to look at it, but it raises the point that we should probably clarify what we are talking about when we talk about global cities.

To clarify our thinking, let’s look at how various ranking studies have defined global city for their purposes.

One oft-cited such ranking was a 1999 research paper called A Roster of World Cities. The authors, Jon Beaverstock, Richard G. Smith and Peter J. Taylor, explicitly reference Sassen’s work, seeking to define global cities in terms of advanced producer services.

Taking our cue from Sassen (1991, 126), we treat world cities as particular ‘postindustrial production sites’ where innovations in corporate services and finance have been integral to the recent restructuring of the world-economy now widely known as globalization. Services, both directly for consumers and for firms producing other goods for consumers, are common to all cities of course, what we are dealing with here are generally referred to as advanced producer services or corporate services. The key point is that many of these services are by no means so ubiquitous; for Sassen they provide a limited number of leading cities with ‘a specific role in the current phase of the world economy’ (p. 126).

They took lists of firms in four specific service industries – accounting, advertising, banking, and law – and determined where those firms maintained branches and such around the world in order to determine the importance of various cities as production nodes of these services. This has some weaknesses in that it doesn’t necessarily distinguish whether say a particular accounting firm is doing routine type work of the sort accountants have always been doing, or performing advanced work of a type specific to globalization, but it at least tries to derive lists related to the production of services.

As the global city concept grew in popularity, various other organizations entered the fray. Most of these newer lists take a very different a much broader approach closer to the Wikipedia type lists of characteristics rather than a Sassen-like definition.

One example is AT Kearney’s list, developed in conjunction with the Chicago Council on Global Affairs. Their most recent version is the 2012 Global Cities Index. This study uses criteria across five dimensions:

  • Business Activity (headquarters, services firms, capital markets value, number of international conferences, value of goods through ports and airports)
  • Human Capital (size of foreign born population, quality of universities, number of international schools, international student population, number of residents with college degrees)
  • Information Exchange (accessibility of major TV news channels, Internet presence (basically number of search hits), number of international news bureaus, censorship, and broadband subscriber rate)
  • Cultural Experience (number of sporting event, museums, performing arts venues, culinary establishments, international visitors, and sister city relationships).
  • Political Engagement (number of embassies and consulates, think tanks, international organizations, political conferences)

The Institute for Urban Strategies at The Mori Memorial Foundation in Tokyo published another study called “The Global Power City Index 2011.” This report examined cities in terms of functions demanded by several “actor” types: Manager, Researcher, Artist, Visitor, and Resident. The functional areas were:

  • Economy (Market Attractiveness, Economic Vitality, Business Environment, Regulations and Risk)
  • Research and Development (Research Background, Readiness for Accepting and Supporting Researchers, Research Achievement)
  • Cultural Interaction (Trendsetting Potential, Accommodation Environment, Resources of Attracting Visitors, Dining and Shopping, Volume of Interaction)
  • Livability (Working Environment, Cost of Living, Security and Safety, Life Support Functions)
  • Environment (Ecology, Pollution, Natural Environment)
  • Accessibility (International Transportation Infrastructure, Inner City Transportation Infrastructure)

Another popular ranking is the Economist Intelligence Unit’s Global City Competitiveness Index. They rank cities on a number of domains:

  • Economic Strength (Nominal GDP, per capita GDP, % of households with economic consumption > $14,000/yr, real GDP growth rate, regional market integration)
  • Human Capital (population growth, working age population, entrepreneurship and risk taking mindset, quality of education, quality of healthcare, hiring of foreign nationals)
  • Institutional Effectiveness (electoral process and pluralism, local government fiscal autonomy, taxation, rule of law, government effectiveness)
  • Financial Maturity (breadth and depth of financial cluster)
  • Global Appeal (Fortune 500 companies, frequency of international flights, international conferences and conventions, leadership in higher education, renowned think tanks)
  • Physical Capital (physical nfrastructure quality, public transport quality, telecom quality)
  • Environment and Natural Hazards (risk of natural disaster, environmental governance)
  • Social and Cultural Character (freedom of expression and human rights, openness and diversity, crime, cultural vibrancy)

Note that these were not all equal weighted. Economic strength is paramount.

Yet another ranking comes from the Knight Frank/Citibank Wealth Report. This ranking is purely subjective and was based on surveying wealth advisors as to which cities they felt would be most important to their clients today and in the future based on four areas: economic activity, political power, knowledge and influence, and quality of life.

It’s worth noting that Sassen contributed to various of these surveys.

Looking at the newer surveys versus the Roster of World Cities, it’s clear that the game has changed. Rather than attempting to look at specific global economic functions, the global city game has become effectively a balanced scorecard attempt to determine, as I like to put it, the world’s “biggest and baddest” cities.

There are quite a few differences in methodologies, which is inevitable. But a few things jump out at me. First the focus on aggregate measures in these surveys. For example: total GDP, total foreign population, number of headquarters. There is a remarkable lack of attention to dynamism variables such as growth in various metrics, though the Economist survey includes a couple.

The focus on static totals versus dynamism tends to reward large, developed world cities versus rapidly growing or emerging market cities. (The AT Kearney survey has a separate emerging cities list). In a sense, these rankings are biased in favor of important legacy cities.

It’s also interesting to see what was included vs. not included in quality of life type ratings. For example, items like censorship, media access, the rule of law, and the environment are listed. But measures of upward social-economic mobility or income inequality or not.

Lastly, a number of the rankings suggest a self-consciously elite mindset, such as shopping and dining options. As with many quality of life surveys, these seem to orient them towards expatriate executive types rather than normal folks.

Looking at these, I can’t help but think that the criteria were the product of an iterative process where the results were refined over time. Thus in a sense the outcomes were likely somewhat pre-determined. That’s not to say that the game was rigged necessarily. But I suspect if anyone were doing a global city survey and London and New York did not rank at the top, the developers would question whether they got the criteria right. In a sense, a global city is like obscenity: we know one when we see it, but we don’t necessarily have a widely agreed upon objective set of criteria to measure it by.

I sense that these rankings attempt to look at global cities in four basic ways:

1. Advanced producer services production node. This is basically Sassen’s original definition. I think this one remains particularly important. Because the skills are specialized and subject to clustering economics, the cities that concentrate in these functions have a Buffett-like “wide moat” sustainable competitive advantage in particular very high value activities. For cities with large concentrations of these, those cities can generate significantly above average economic output and incomes per worker.

2. Economic giants. Namely, this is a fairly simple but important view of that simply measures how big cities are on some metrics like GDP.

3. International Gateway. Measures of the importance of a city in the international flows of people and goods. Examples would be the airport and cargo gateway figures.

4. Political and Cultural Hub. An important distinction should perhaps be made here between hubs that may be large but of primarily national or regional importance, and those of truly international significance. For example, there are many media hubs around the world, but few of them are home to outlets like the BBC that drive the global conversation.

There may potentially be other ways to slice it as well. The fact that these various ways of viewing cities can often overlap can confuse things I think. For example, New York and London score highly on all of these. And there are surely underlying reasons why they do. Yet trying to sum it all up into one overall ranking or score, while making it easy to get press, can end up obscuring important nuance.

So when thinking about global cities, I think we need to do a couple of things:

1. Clarify what it is we are talking about at the time.
2. Relative to the definition we are using, seek to identify the specific parts of the city in question that generate real above average value at the global level.

Friday, August 17th, 2012

Life In a Bubble – And On One

“Let anyone who thinks that he stands take heed lest he fall” – 1 Corinthians 10:12

“Only the paranoid survive” – Andy Grove

As I noted, my post on why I don’t live in Indianapolis kicked up a bit of a furor. The Indianapolis Star actually did a point-counterpoint on it between columnists Matthew Tully and Erika Smith. Tully’s piece is called “Indy is still in the process of becoming great” and Erika’s is “Indy needs to set goals that go beyond Good Enough.”

You can read these for yourselves, but a couple things really jumped out to me about them, especially Tully’s piece, though Erika’s sort of implies some similar things through silence.

The first is judging the success of Indianapolis solely relative to its own past. According to Tully, “The city isn’t a completed project. No city is — cities are works in progress, living organisms, as some say. That’s particularly true for Indianapolis, the modern version of which is at best 35 years old. Complaining about what the city doesn’t have or doesn’t offer or doesn’t think enough about fails to take into account a key point: Indy isn’t done creating itself yet. It’s evolving from its sleepy, conservative past to its more active and progressive present (and I’m not speaking politically).” This is basically the “incremental improvement” model of growth, which many endorsed in reaction to my piece. We’re better than we were yesterday, so life’s good.

The second is a nearly explicit rejection of comparing Indianapolis to any other cities. Tully makes such a comparison, but only in order to reject such comparisons as invalid. “Many critics hold Indianapolis up as something it’s not. It’s not Chicago, with its massive population and pockets of extreme wealth. It’s not Austin, Texas, or Portland, Ore., filled with high incomes and college graduation rates that are the envy of the nation. It’s not Washington, D.C., with its built-in jobs factory and guaranteed influx of tourists every year. It’s Indianapolis, a land-locked, blue-collar city in a metro area that, by population, ranks 35th in the nation.”

A few things in response to this. I have long been on record as saying Indianapolis should not try to copy other cities, that it shouldn’t try to be Chicago, New York or Portland, but rather should try to be the best Indianapolis it can be. I’ve got no problem with that. It’s my own longstanding position.

However, the problem with looking only to yourself is that it ignores the marketplace. Maybe you are content with how your city is and proud of what it has achieved, but how does that stack up against the market? What about the 7 billion people who don’t already live in your city? Are any of them likely to find your city compelling enough to move there? Can you retain the people you have? Are businesses out there likely to find it compelling? Those are the great unanswered questions.

I actually support the incrementalism model, but believe it has to be market relevant. That is, the rule should be, “incrementally improve at a rate faster than that of the cities you aspire to compete with.”

Sadly, people in most cities seem to have no clue about what’s going on in the marketplace. It’s as if they live in a bubble. For example, I hear people in various places bragging about how there’s an apartment building boom in their city. But the reality is that almost every decent sized city has a downtown apartment boom ongoing. So having apartments under construction may tell you that you’re better than you were yesterday, but it doesn’t mean that you aren’t possibly falling behind the competition at the same time.

Richard Longworth discovered this first hand when he drove around the Midwest researching his book and discovered that most people were totally clueless about what was going on even in the state right next door. He wrote, “In my travels, I was astounded to find so many ‘experts’ in these states who had no idea what was going on next door, across the state line.”

The same thing is true of cities. One of the reasons I started the Urbanophile, and started it as a regional blog, was because I was blown away that people in Indianapolis had absolutely no idea what has happening even just 100 miles down the road in Cincinnati – or anywhere else. I soon discovered that the same was true of most of those other places. I hoped to use my blog to provide a sort of competitor or market intelligence function. Even today, I doubt there are that many people in Indianapolis or most similar sized cities that regularly do any sort of benchmark or competitive scan of how the city stacks up. I rarely see it, perhaps excepting some dry annual community indicators report nobody really looks at.

Think about these questions: Do you know what the customer/marketplace is demanding? Do you know who your competition is and what their capabilities are? Do you know what you have to bring to the table to close the deal and then deliver on it? Think about these with Indy relative to sports. Does the city know the expectations of folks like the NFL and NCAA? Intimately. Does it know what other cities vying to host an event have to offer? Most certainly. Does it know what it has to do win and deliver? Judging from the track record, it clearly does. Now ask those same questions relative to talent attraction and the like and I think you’ll find the marketplace is not nearly so well understood. Certainly folks like Tully don’t give any indication they’ve ever even considered the matter in any realistic sense. He thinks it’s bunk.

Being your own unique city is a great thing – but not at the expense of ignoring the demands of the marketplace. You can make any choices you want, but be sure you are making them with a rich awareness of what’s going on out there in the wider world and what it means to you in it.

This is critically important because the world out there today is a competitive meat grinder. There’s a recent book by Enrico Moretti called “The New Geography of Jobs” that I plan to review in some detail at a future date. One of the points he makes, however, is that in today’s world we are increasingly seeing a bifurcation of people and places into winners and losers. He labels this the “Great Divergence.” I think most of us intuitively get this. He divides cities into three categories: winners, losers, or on the bubble.

Which is your city? I’d say Indianapolis (and similar regional cities like Cincinnati, Kansas City, etc) are on the bubble. They may be winning, but they are not yet winners. They’ve got what it takes to be winners, but haven’t finished closing the deal. It’s actually possible that they could flame out and lose.

This is no time for complacency and contentedness, but rather for urgency. If you look at places that are already competitively strong, you see that they are constantly asking the tough questions of themselves and looking at what they need to do better to thrive in the future. For example, Joint Venture Silicon Valley publishes an annual “State of Silicon Valley Index” that is very candid about the very real challenges even the world’s premier innovation region faces. New York City was so worried about overseas competition it hired McKinsey to do a report on sustaining the city’s financial center dominance. Last year at the MAS Summit for New York City half the speakers talked about what New York needed to do differently or better to succeed in an extremely challenging competitive environment. When’s the last time you saw this type of talk from smaller cities? Almost never.

If places like Silicon Valley and New York, and CEOs of world beating companies like Intel*, are paranoid about whether they can survive in the future, then surely those who live in more workaday cities, particularly those on the bubble, should be doing the same.

* It’s worth pointing out that Intel also killed off the product line that was core to its corporate identity (memory chips) in order to reinvent itself to survive. Most cities struggle to make even minor changes.

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. It's great for anyone who cares about our cities.

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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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