Sunday, August 26th, 2012
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.