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Wednesday, July 2nd, 2014

The Changing Face Of Chicago (1963)

You’ve no doubt seen many posts already about the 80,000 vintage newsreel type videos uploaded to You Tube by British Pathé. The biggest challenge with these is that no human being can possible process that quantity of material. But it’s fascinating and you could probably spend many a day watching these things.

I’ll share a few highlights today focused on Chicago. First, one I found via Ben Schulman. It’s a 1963 video called “The Changing Face of Chicago” and can be viewed on You Tube if the embed doesn’t display.

Listening to the narrator brag about the “27 urban renewal projects under construction” can inspire perhaps horror or laughter. But what it should spark is humility. I’ve little doubt that 50 years from now, the many earnest urbanist videos and policies put forth with equally as much dogmatic fervor and certainty will be the subject of future generations’ puzzlement. My own blog may perhaps be an exhibit.

We need to have a sense of meta-narrative about progress. By that, I mean that we not only need to understand the ways in which we’ve changed or grown vs. the past, but also keep an awareness that we’re not done yet and that in the future we will have gone beyond where we are now. We should never commit the fallacy of believing we’ve reached the apex of our understanding in the present.

Whet Moser also put together a collection of Chicago entries over at Chicago Magazine.

Here’s a fun one of his from 1939 called “Chicago Cycles.”

Here’s one from 1922 (silent) of riots in Chicago with police arresting “anarchists.”

And from the some things never change file, video of a 1938 snowstorm.

There’s plenty more so search and enjoy.

Wednesday, May 28th, 2014

Rahm Emanuel’s Nightmare

My latest post is online over at City Journal. It’s called “Rahm Emanuel’s Nightmare,” the headline in homage to a Greg Hinz post. Things have not been going smoothly for Rahm Emanuel of late, and it has wounded him politically for perhaps the first time since taking office. Since he still has a massive pile of campaign cash and will likely convince any credible challengers to stay out of the race, he’s still looking reasonably good at this point. But he’s clearly more vulnerable to losing his re-election bid than anyone would have thought possible not long ago. Here’s an excerpt:

But the most ominous sign for Emanuel came in a Chicago Sun-Times op-ed by elementary school principal Troy LaRaviere, in which he accused the mayor of suppressing principals’ independence and forcibly enlisting them as proponents of his education policies. According to LaRaviere, principals were instructed to have an “elevator speech” ready for the media, in which they would praise Emanuel’s proposal for longer school days. LaRaviere described how his fellow principals are concerned “about being harassed, fired or receiving a poor evaluation” and “paralyzed by fear of what might happen if they simply voiced the truth.” One even asked him, “Aren’t you afraid of losing your job?’” That LaRaviere apparently isn’t afraid may indicate a new willingness to speak out against an intimidating mayor.

Yet, Emanuel may be making a political misjudgment. He seems to believe that, like President Obama, he can tough it out through any storm or scandal. Local politics, however, is different from the national scene. In a country evenly divided between Democrats and Republicans, the president has a core constituency that will back him no matter what. By contrast, Emanuel has no political base. His support was always wide but shallow, as the collapse in minority-voter approval shows. His ability to get reelected depends on his ability to perform and the aura of invincibility that surrounds him. If he can’t command fear and compliance, he can’t get things done.

The LaRaviere piece actually got reprinted online by the Washington Post.

The problem comes down to what I said long ago: Emanuel has no natural constituency apart from the big money elite, who are a small percentage of the voter base. This leaves him vulnerable if things start getting choppy. This should be interesting to watch going forward.

Tuesday, May 20th, 2014

Is Something Ailing the Illinois Economy? by Bill Testa

[ Bill Testa is a VP and Director of Regional Research at the Chicago Fed. His Midwest Economy blog is a must-read for anyone interested in that region. It's high quality and low volume, so perfect for your favorite RSS reader. Here's a recent analysis he posted there on Illinois' stubbornly high unemployment rate - Aaron.]

As the US economic recovery approaches the five-year mark, a look back shows that it has been far from a smooth and upward ride. Since the end of the Great Recession, the economy has grown at a generally disappointing pace with fits and starts due to repeated setbacks. Many parts of the U.S. economy are still working their way through the effects of the financial crisis that accompanied the recession. For instance, the labor market has been healing quite slowly. And many households and businesses are still repairing their balance sheets after having suffered steep losses in asset values. Also, the overhang in housing inventory has been slow to clear. Meanwhile, global economic recovery has faltered several times—first, in Europe and, most recently, in East Asia.

As the U.S. economy began to recover in mid-2009, Illinois and other states in the Great Lakes region bounced back at a quick pace, albeit from a very low point. The Great Lakes region’s strong industrial orientation—that is, its heavy involvement in durable goods production—translated into a steep economic recovery as the nation’s businesses sought to rebuild their depleted inventories of capital goods and equipment while households similarly began to replace automobiles and other consumer durable goods. Moreover, since the global recovery was quite strong back then, exports of machinery and foodstuffs from the Great Lakes region also contributed to the economic climb. However, the Great Lakes region’s pace of growth began to decelerate two years into the recovery. The aforementioned growth impetus of inventory rebuilding and exports abroad eased. Among the major sectors, only the automotive industry continued to grow quickly.

Following the Great Recession, Illinois began to recover and even gain ground on the nation, but its economic performance began to alarm many observers in 2011. As seen below, Illinois’s unemployment rate fell quickly in 2010 and into early 2011. However, the state’s unemployment rate then failed to show much improvement, even as the nation’s unemployment rate continued to fall more.

It could be that Illinois’s deviation from the national trend in unemployment is related to the economic performance of the broader Great Lakes region. The Illinois economy is highly integrated with the other industrial states of the Great Lakes region—Wisconsin, Indiana, Michigan, and Ohio. Accordingly, the Illinois economy regularly rises and falls along with the economies of these states. If Illinois’s performance differs from its neighbors, it would be a cause for concern—and the degree of concern would be higher as Illinois fell further behind its neighbors. As the chart below suggests, the aggregate unemployment rate of the Great Lakes states (less Illinois), has continued to decline since 2011; Illinois progress has been much less. In what follows, I discuss possible sources of the deviation, including Illinois tax structure and Illinois industrial structure. In addition, I examine an alternative measure of labor market performance, namely the growth in payroll jobs.

Illinois’s seemingly poor economic performance compared with that of its neighboring states has sparked a policy debate as to whether the state’s recent hikes in statewide income taxes may be deterring investment and hiring in the state. Beginning in January 2011, the state’s personal income tax rates were hiked from 3.0 percent to 5.0 percent for the period 2011–14; they are scheduled to go down to 3.75% for the period 2015–23 and then to 3.25% from 2024 onward. (Similar hikes were enacted to the state’s corporate income tax—also with a schedule of phasing out the higher rates). These tax hikes were enacted to help the state pay down a rising stack of short-term debt for operating expenditures and to make progress on a much larger amount of unfunded public employee obligations (such as pensions). To date, the state’s finances have improved only modestly with respect to both short-term debt obligations and its longer-term pension-related debt. For this reason, some observers believe that Illinois tax rates will not be allowed to (fully) phase out as planned.

Are tax rate hikes discouraging hiring and investment in Illinois? It may come as no surprise that the effects of state and local tax differences on state economic growth are far from a settled science. Among the difficulties for settling the debate are that states seldom allow their business climates to get very far out of line with those of their neighbors, thereby making it difficult to find the growth effects of tax differences. However, in the case of Illinois, there is ample cause for concern. The state and its local governments face the possibility of having to pay down very large debt obligations—on the order of $100 billion or more—for employees covered by statewide pension systems. Moreover, the City of Chicago and other overlapping units of local government within the city’s limits face similar amounts of liabilities when measured on a per capita basis, while other Illinois local governments also carry very large unfunded liabilities. As discussed previously, depending on how fast these liabilities are amortized, they could give rise to tax rate differences between Illinois and neighboring states that are very sizable.

In a recent analysis of Illinois’s economic performance since the beginning of the hike in its income tax rates, Andrew Crosby and David Merriman examine several labor market measures of performance of the state versus the rest of the Midwest region.[1] Similar to the charts above, the authors note that the unemployment rates diverge in a striking fashion right around the time that Illinois hiked its income tax rates. However, given the high variability of unemployment rate measurement at the state level, the authors think it best to consider other measurements. In examining payroll job growth, they show that growth in payroll employment displays a far less prominent deviation between Illinois and the rest of the Midwest region. In addition, the timing of the growth difference between Illinois and its neighbors does not develop until 2013—two years beyond the income tax hike.

While there is some evidence, then, that Illinois’s fiscal problems are weighing down its recovery, such problems are more of a long term concern. Illinois’s slow recovery may have more to do with its industrial structure. To further the analysis, I draw on data from the U.S. Bureau of Labor Statistics that are called the Quarterly Census of Employment and Wages (QCEW). These data are reported for states and the nation from the comprehensive reporting of those firms and establishments that are covered by the Federal-State Unemployment Insurance Program. One clear advantage of using such data is that specific industry employment data are reported by firms and establishments, which allows us to investigate the possible effects of differences in industry mix. On the downside, the data are compiled and released with a time lag of one half year or more.

The chart of the QCEW data for Illinois versus the four remaining Great Lakes states (Indiana, Michigan, Ohio, and Wisconsin) are shown below. Illinois’s employment outperformed the remaining states of the Great Lakes region in the years prior to the recession and during the recession. As a matter of interpretation, I would argue that Illinois’s relative superior performance prior to the recession likely reflected Michigan’s collapsing auto industry employment from 2003 onward, along with the unsustainable residential property construction boom that took place in the Chicago area prior to the onset of the recession in December, 2007. Illinois also outperformed the region during the recession, and this is somewhat typical. Illinois is the domicile of highly compensated professional and business service workers who are not as readily laid off during economic downturns.

However, the period following the recession—from mid-2009 onward—contrasts mildly but unfavorably from the previous periods. After the recession, the Great Lakes region’s employment recovers faster than Illinois’s in each year. This trend is again somewhat consistent with the possible pernicious effects of the 2011 tax hike. While Illinois’s employment performance lagged in the year prior to the tax hike, which seems counterintuitive, it is possible that firms began curtailing investment and hiring prior to the tax hike itself in anticipation of an inferior climate in which to do business.

That said, it is notable that, as opposed to the unemployment rate gap that was observed, the payroll job growth difference seen here is small.[2] More importantly, there are alternative possible causes for Illinois’s lagging payroll job growth. In particular, Illinois’s mix of industries, while similar in some respects to those of other Great Lakes states, differs as well. It is possible that the small differences in job growth between Illinois and its neighbors are due to its somewhat different industry mix rather from disinvestment and a reluctance to hire in the state.

To investigate further, I compiled the QCEW data covering the five Great Lakes states from third quarter of 2007 to the third quarter of 2013, with detailed counts of jobs for each of 88 private sector industries. In the table below, the first row displays the actual job growth in Illinois for three two-year periods, as well as the entire period 2007:Q3–2013:Q3. During 2007:Q3–2009:Q3, Illinois experienced a net loss of 377,000 private sector payroll jobs, and gained back all but 158,000 by the third quarter of 2013.

As an analytic exercise, I further ask how the Illinois economy would have fared 1) if it had the same industry composition as the four other Great Lakes states combined and 2) if its industries had the same job growth rates as those in the other states. The second row of the table reports the results of this exercise (based on the two hypothetical scenarios, as well as an interaction of the two); the final row is the difference in hypothetical growth from actual growth. As shown above, Illinois hypothetically outpaced the region by 89,300 jobs in the 2007:Q3–2009:Q3 period by having a different industry mix and employment growth performance, but it gave back those jobs (and more) in the four years afterward.

To examine the results of this exercise in a different way, I decompose the differences in actual and hypothetical job growth in the table below. The first component shows the effects of maintaining Illinois’s actual industry-by-industry rates of employment growth but then hypothetically imposing the Great Lakes mix of industries. In the first row of the table below, one can see that during 2007:Q3–2009:Q3, Illinois’s industry mix was favorable to that of the remaining Great Lakes region, because it accounted for a 40,300 hypothetical gain in jobs. Seemingly, there are noteworthy differences in Illinois’s mix of industries from its neighbors’ that account for some of the year-to-year performance differences that we observe.[3] For the subsequent two periods of the recovery, the mix of industries in Illinois (below) shows a hypothetical employment loss of 11,000 (from 2009 – 2011), and a further loss of 16,000 (2011 – 2013).

What are some of the industry mix differences that are notable between Illinois and other Great Lakes states? The large professional and financial services employment base in the Chicago area has already been noted. Further, in relation to other states, Illinois is now much more services oriented overall rather than goods producing. Manufacturing’s share of employment for 2013 clocks in at 11.4 percent of private sector payroll jobs in Illinois, versus 16.4 percent for the other four states. (See the appendix below for a more detailed illustration of Illinois employment base versus the GL region).

The schism in manufacturing employment share between Illinois and the Great Lakes region is wholly attributable to the Chicago area. As of 2013, the Chicago MSA employment base recorded only a 9.5 percent share in manufacturing, while the remainder of Illinois recorded 15.9 in manufacturing. From a geographic perspective, these differences may also explain part of the overall performance difference between Illinois and the remaining Great Lakes states. As the graphic below suggests, annual payroll employment growth in the Chicago MSA has kept pace with the remainder of the Great Lakes region while Illinois (non-Chicago) has fallen behind since 2011.

And within manufacturing, Illinois tends to lean more toward food processing and farm, construction, mining machinery relative to the other Great Lakes states. In contrast, while there are important auto assembly operations in the Bloomington–Normal and Rockford areas of Illinois, as well as important links to the automotive supply chain throughout the state, Illinois’s ties to the automotive industry are much less prominent than those of Michigan, Indiana, and Ohio.

Despite such industry differences between Illinois and the other Great Lakes states, an extension of the analysis suggests that the state’s competitive job performance did not kept pace during the recovery. For the same time periods, a second hypothetical component shows the effect of holding Illinois’s actual industry mix constant, but imposing the average job growth rates of the same industries from the neighboring Great Lakes states (second row below). Here, because the industries that make up Illinois’s mix tended to grow more rapidly (decline more slowly) than they did in the Great Lakes region, the state hypothetically gained another 44,100 during the 2007–09 period, but subtracted 63,000 and 50,000 jobs in the subsequent periods. (The final component is the interaction of two hypothetical effects).

As measured by labor market indicators, then, the Illinois economy has not fared as well as neighboring states during the economic recovery that began in mid-2009. Measurements of the state’s unemployment rate show Illinois in the least favorable light. In contrast, other labor market indicators, such as payroll employment growth, suggest that the state’s underperformance is much more mild. Nonetheless, even payroll employment trends suggest that Illinois is underperforming when examined on an industry-by-industry basis. Accordingly, recent changes in public policies that influence the investment climate, such as tax rate hikes, cannot be ruled out entirely,though such policy effects are unlikely to be exerting such a large and immediate effect.

In looking for alternative or contributing explanations, the state’s particular mix of industries is likely contributing to underperformance. For example, the state’s high concentration in construction and mining machinery stands out, as does its lower concentration in automotive as compared to Great Lakes states located to the east. The downstate Illinois economy is highly concentrated in manufacturing, and downstate areas have seen slower payroll employment growth than the Chicago area. And so, Illinois’s performance may yet converge with its neighbors as the automotive boom settles down, and as global economic recovery revives exports of machinery and equipment.

In considering other structural causes, the Chicago area experienced super-normal growth prior to the recession due to excessive home-building and related activities. Accordingly, part of Chicago’s recent performance may derive from a slow healing of residential real estate and related activity following the boom period.[4]

Appendix 1: More on Illinois employment base as compared to the remaining Great Lakes region
The table below constructs an “industry dissimilarity index” between Illinois and other Great Lakes states (using the QCEW database as above) for the year 2013. Illinois is dissimilar to Indiana, Michigan, and Wisconsin, more or less, to the same degree when all industries are accounted for. However, Illinois is more dissimilar to Indiana and Michigan—the two most auto-intensive states in the region—and less dissimilar to Wisconsin in the case when the index is constructed to account for manufacturing industries alone.

Appendix 2: Selected Illinois industries comparison (index based on wages)
Here, the indexes of concentration shown in columns two and three relate Illinois and the four remaining Great Lakes states to the nation. An index value of one indicates parity with the nation, for example, while an index value of two indicates that industry wages in Illinois (or the Great Lakes region) are twice the national average. For example, the first row indicates that Illinois payroll wages in the Agriculture, Construction, and Mining Machinery sector lies at 2.88 times the national average while, in the four remaining Great Lakes states, the sector’s payroll lies at less than the national average—80 percent.

Thank you to Wenfei Du and Thom Walstrum for assistance.
________________________________________

[1] The authors use the U.S. Census definition of Midwest, which comprises Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin.

[2] Some observers have questioned the veracity of Illinois’ high unemployment rates for the post-2011 period to date, citing concerns about measurement error and possible changes in survey methodology. However, some corroboration of the reported unemployment rates is offered by reported first-time claims for unemployment insurance. Over the period from 2011 to date, the annual average of Illinois claims as a share of the national total increased from 3.6 percent to 4.1 percent. At the same time, the Wisconsin share fell from 3.4 to under 3.2, while Ohio, Indiana, and Michigan also fell. Similarly, these same data on UI claims within Illinois corroborate local area unemployment patterns within the state. That is, over the two initial years the recovery, the Chicago area unemployment rate gave ground to the remainder of the state; while gaining ground during the latter half of the recovery.

[3] See the appendix table at end for examples of some of the large industry employment sectors that differ between Illinois and the remainder of the Great Lakes region.

[4] As measured by permits filed to construct residential units, the Chicago MSA recovery has been weaker than other large MSAs in the region including Detroit, Des Moines, and Indianapolis.

This post originally appeared in Bill Testa on the Midwest Economy on May 8, 2014.

Friday, May 9th, 2014

Is Something Wrong With Chicago’s Suburbs?

I previously talked about Connecticut becoming a suburban corporate wasteland as well as the rise of the executive headquarters in major global city downtowns. What we see is that high end functions have shown anecdotal signs of re-centralizing, while the more bread and butter – though still often well-paying – jobs are heading to less expensive suburban locales in places like Austin, Charlotte, and Salt Lake City. These leaves expensive and business hostile suburbs around global cities, like most of those in Connecticut, in a tough spot.

Suburban Chicago isn’t as expensive or business hostile as say Connecticut or New Jersey, but there are so many stories about businesses leaving it that I can’t help but wonder if something is seriously wrong there.

First, downtown Chicago has attracted a number of marquee executive headquarters locations like Boeing, MillerCoors, and now ADM. The suburbs have only picked up a handful of smaller operations, like Mead Johnson Nutritionals.

Second, a number of suburban companies have relocated (or announced relocations of) headquarters to downtown. This includes a Sara Lee spinoff, the old Motorola cell phone division, United Airlines, and Gogo Internet. What distinguishes this from the executive headquarters relocations is that some of these involved big numbers of jobs. I believe there were about 3,000 United Airlines employees and about 2,500 Motorola ones.

Third, even companies that haven’t moved their headquarters have opened downtown offices or relocated operations there. Walgreens moved its e-Commerce operations to the Loop and BP relocated some employees, for example.

Fourth, some suburban based companies have simply abandoned the Chicagoland area outright. Office Max comes to mind, which is moving 1,600 jobs to Boca Raton. Sears is having a slow-motion going out of business sale.

Two recent news articles this week reinforce to me the lack of competitiveness of Chicago’s suburbs. First, when Toyota announced it was relocating its headquarters from Los Angeles and Cincinnati to suburban Dallas, Greg Hinz at Crain’s Chicago Business asked why Chicago wasn’t even on the list of candidate cities for this operation.

I believe Toyota wanted to be in the South. But if you look at where they located, namely the suburb of Plano, you’ll see that this is why Chicago is off the list. Chicago’s suburbs have been losing these types of corporations, not gaining them. If you’re going to choose a suburban location, why would you pick Schaumburg over Plano? You probably wouldn’t unless you had a major reason to be in Chicagoland, such as having a primarily Midwest presence or if your company was founded in the area.

What this shows is that while Chicago’s stellar Loop environment is great for executive headquarters type operations, the suburbs lack appeal to people looking to build a greenfield operation from out of town. This hurts the region’s ability to attract large scale employers like Toyota.

Then yesterday Crain’s reported that Walgreens is looking at relocating its entire headquarters downtown in the old Main Post Office building. This isn’t a done deal by any means, but the fact that a company I’d always considered dyed-in-the-wool suburban would consider this is incredible. (Investors have been pressuring Walgreens to move its HQ overseas, but like Aon’s re-domicle to London, even if it happened it might not involve many jobs, especially since the pharmacy business in the United States is so radically different from that in the rest of the world).

So unlike in even other global cities, Chicago’s suburbs can’t even seem to hang on to large scale employers within the region. I don’t want to overstate a trend here, but this would be at least the third company moving thousands of jobs downtown. That’s huge and I don’t see it happening anywhere else at this scale.

Which raises the question of what might be wrong with Chicago’s suburbs. They can’t seem to be competitive for greenfield operations like Toyota, and they are losing some marquee established employers. I took a quick peek at suburban vacancy rates, and it looks like at first glance every major sub-market is over 20% and there was net negative absorption last year (do some further research before quoting me on that). Is there a big problem going on out there?

I’ve long observed that while Chicago has some great residential suburbs, its business suburbs are weak. Places like Schaumburg and Oak Brook are just generic, unattractive edge cities of a typology that, like the enclosed mall, appears falling out of favor. Chicago seems to lack the kind of suburb that combines residential appeal with a strong business presence and a significant regional amenity draw. Only Naperville would seem to fit the bill here.

So while Chicago’s suburbs are not super-high cost by global city standards, and Illinois isn’t the worst when it comes to taxes and a poor business climate by any means, those suburbs appear to have a serious competitiveness issue. It’s a major concern that regional suburban business centers should look to address. As other edge city environments around the country like Stamford (one part of Connecticut I would say has significant strengths) and Tyson’s Corner upgrade themselves, Chicago’s suburbs are only going to fall further behind.

Wednesday, May 7th, 2014

House Music In Chicago

If you’ve been following the videos and such I’ve posted here over the years, you probably picked up that I’m a fan of house music, among other genres. The Sun-Times recently pointed me at a recently discovered documentary about the Chicago house scene from 1986. Only 12 minutes long, it was shot at the grand opening of a new club owned by Frankie Knuckles. Knuckles passed away on March 31st of this year. If the video doesn’t display, click here.

Monday, May 5th, 2014

Replay: Are States an Anachronism?

This post originally appeared on July 11, 2011.

Obviously states aren’t going anywhere anytime soon, but a number of folks have suggested that state’s aren’t just obsolete, they are downright pernicious in their effects on local economies.

One principal exponent of this point of view is Richard Longworth, who has written about it extensively in his book “Caught in the Middle” and elsewhere. Here’s what he has to say on the topic:

In the global era, states are simply too weak and too divided to provide for the welfare of their citizens…The reason is a deep, intractable problem. Midwestern states make no sense as units of government. Most Midwestern states don’t really hang together – politically, economically, or socially. In truth, these states and their governments are incompetent to deal with twenty-first century problems because of their history, rooted in the eighteenth and nineteenth centuries.

Longworth expounds upon this to identify a series of specific issues, which I’ll put into my own terms.

1. States do not represent communities of interest. With some exceptions, states consist of cities, rural areas, and regions that have very distinct histories, geographies, economies, and and event cultures. As a result, it is incredibly difficult for legislators and leaders from various parts of the state to find common cause.

Here’s how Longworth describes Illinois:

Illinois, like Indiana, is three states, and for the same reasons. The southern third, again south of I-70, is a satellite of the South – more give to conservative religions, gun racks in pickup trucks, and a deeply conservative Republicanism….Most of the rest of the state is called Downstate to differentiate it from Chicago, even though some of it, such as Rockford, is actually north of the city. It is an unfocused place…what unites this heterogeneous region is a dislike of the third region, Chicago. Chicago dominates Illinois – politically and economically…If the rest of Illinois obsesses about Chicago, Chicago gives the impression – an accurate one, in fact – of never thinking about the rest of Illinois.

Additionally, I might add my observation that this creates a situation where the policies which are right for one area may be wrong for another. Since it is the nature of governments to promote uniform rules, this often leaves one or even all regions of a state with suboptimal rules. In fairness, there are are often some types of flexibility, such as that provided by different classes of cities. But important macro policies remain one size fits all.

Consider Illinois. It’s a combination of a global city core in Chicago, a Rust Belt hinterland, and a southern fringe region. State policy is set by the Chicago elite as a general rule, and predictably it follows a big city, global city favorable model: strong home rule powers for large municipalities, a high tax/high service type model, strong public sector unions, etc. This pretty much works for Chicago, but for downstate it puts their communities in a major economic vice since they don’t benefit from global city friendly policies and are competing against other places that have optimized in other ways.

Indiana being one example. It is pretty much the opposite. Its largest city region is only about 25% of the state’s population, meaning Indiana is dominated by rural and small city constituencies. As a result, Indiana has optimized for a “Wal-Mart” strategy such as through its low-service/low-tax approach, weak environmental rules, and very weak (I’d argue nearly non-existent) home rule powers for even its largest municipalities. This is great if you are a small manufacturing city trying to beat out Ohio, Michigan, and Illinois for low wage manufacturing and distribution jobs (which sounds bad but is realistically the best short term play these places have). But it’s pretty terrible if you are Indianapolis and trying to fight to have a place in the global economy, attract choice talent, build biotech and high tech business clusters, etc.

2. Arbitrary state lines encourage senseless border wars. With limited exceptions, the major cities of the Midwest (and often elsewhere around the country) were founded on major bodies of water like rivers, lakes, or an ocean. These were often boundaries of states, thus major cities are frequently at the edge, not the center of states. This means not infrequently you find multi-state metro areas, which creates structural conflicts of interest. The logical economic unit is the metro area, but it matters from a local fiscal point of view (i.e., the ability to collect income, sales, and property taxes) where particular businesses locate. Thus we frequently see the case where localities spend tons of money on incentives simply to get businesses to relocate within the same metro area. You can have bidding wars without multiple states (such as neighboring suburbs competing over a Wal-Mart), but these seldom involve major state level incentives.

Longworth again summed this up masterfully in a recent blog post called “The Wars Between the States” where he documents the incentives being doled out to convince companies to move back and forth across the state border in the Kansas City metro area:

It would seem impossible for Midwestern states to get any sillier and more irrelevant, but they’re trying. In a time of continuing recession and joblessness, with crunching budget problems, failing schools, crumbling infrastructure and no real future in sight, these states have decided to solve their problems by stealing jobs from each other.

The most recent example is the so-called “border war” between Kansas and Missouri, as the two states compete to see how much money they can throw at businesses to move from one state to the other. The focus of this war is Kansas City — both the Kansas one and the Missouri one, basically a single urban area divided not only by an invisible line down the middle of a street but by a mindless hostility that keeps its two parts from working together.

Competition with “Europe, India, China and the rest of the world” has nothing to do with this juvenile job-raiding. In fact, this “border war” keeps Missouri and Kansas from competing globally — indeed, robs them of the tools they need to compete globally. Some rational thought shows why. It’s precisely these states’ inability to compete globally that causes them to declare war on the folks next door. In a global economy, Kansas and Missouri aren’t competing with each other, any more than Illinois, Indiana and Wisconsin are competing with each other. The real competition is 10,000 miles away and all Midwesterners know that we’re losing it.

[ Update 5/5/2014: It looks like Missouri and Kansas may be about to declare a truce in their border war ]

3. Many state capitals are small, isolated, and cut off from knowledge about the global 21st century economy. In some states the state capital is a large city that is well-connected to the global economy – Atlanta, Indianapolis, St. Paul, and Nashville come to mind. But often state capitals were selected because they were in the geographic center of the state, not because they were major centers in their own right. Some, like Indianapolis, managed to grow into major cities. But many others did not. Think Springfield, Jefferson City, Frankfort, etc. This means that the state capital of many states is not very large, and often not very plugged into the global conversation. Longworth again captures the implications of this:

There is another reason why state governments are botching the economic needs of their states. Some 150 to 200 years ago, state capitals were picked not for economic reasons, but for geographic ones. Many of them remain in this isolated irrelevance today, far from the real action of any of the territories they are meant to govern…In this era of globalization, with overnight shipping and instant communications, this shouldn’t make any difference. In fact, it does. Global cities such as Chicago depend on face-to-face contact, and isolated state capitals live out of earshot of this conversation. The winds of globalization are transforming state economies and generating new thinking about state futures, but the news takes a long time to get to the state houses and legislatures.

4. Metro areas are the engines of the modern economy, but the rules for municipal and regional governance are set by states, and often in a manner that is directly contrary to urban interests. In this Longworth channels the Brookings Institution, which has tirelessly documented the importance of metro area economies to the nation as well as all the ways states, frequently controlled by non-urban legislators who are actively fearful of cities, have often imposed enormous burdens on those metro areas by tying them down with a morass of Lilliputian rules. Again Longworth:

States set the boundaries of urban jurisdictions and decide whether or how they can merge. They tell cities who they can tax and how, whether this helps cities or not. State governments help finance local infrastructure and dictate, from miles away, how that money is spent. State priorities on education and workforce programs leave city residents incompetent to deal with the global job market. Highway funds go to rural areas, not to cities that need them more; job creation money goes to wealthy areas, not to the core of battered cities.

Some urban regions have more or less given up any hope that their state will ever change or be a positive partner, such as Kansas City, as Longworth notes:

When the Greater Kansas City Community Foundation issued a report on the city’s future, it pretty much told the state to get out of the way. “Nations and states still matter,” it said. “They particularly can do their cities harm. But cities have to take the lead. San Diego did not become San Diego by looking to Sacramento, not Seattle to Olympia.” When the authors talked about Sacramento and Olympia, one felt their really meant Jefferson City.

I’d probably go even further than Longworth. I think that historically states imposed rules on cities deliberately designed to hobble their growth. For example, the laws that restricted branch banking in most states until recently had the effect of keeping big city banks from buying up rural and small town banks around the state. The end game of course is that when deregulation occurred, the banks in most big cities were so small because of these rules, they were easy prey to out of state acquirers. Thus most states saw basically their entire indigenous banking industry swallowed up.

Also, states seem to more or less treat their urban regions like ATM machines. Every study I’ve seen documents how, contrary to popular belief, cities actually are net exporters of tax dollars to their state government. Marion County, Indiana for example (Indianapolis), sends a net of about $400 million a year to the state – enough to cover the entire public safety budget of the city.

I actually don’t have a problem with some redistribution as cities are generally economic engines and more efficient to boot, so they should be expected to be donors at some level. On the other hand, when states proceed to starve those cities of the critical funds they need stay healthy and strip them of the powers they need to manage their own affairs, this is like sticking a knife in the golden goose.

Again I can use Indianapolis as an example. As part of a tax reform package the state took over all operating educational funding for K-12. So far so good. But they also imposed a funding formula that severely disadvantaged growing suburban districts by denying them equal per pupil funding. The net result was a major funding problem for the best suburban Indianapolis districts like Carmel, Fishers, etc. Many of these districts had to go to referendums to raise local taxes to make up the difference (which was no doubt the state’s plan all along – it simply outsourced the unpleasantries of a tax increase to localities). Here is a state that claims it wants to be in the biotech business, the high tech business, etc, yet it singles out the school districts where the labor force you are trying to attract for those industries is likely to live for outsized cuts. That hardly seems like a winning strategy.

Indiana also keeps its cities on a tight leash, with some of the weakest home rule powers around. Indianapolis basically can’t do much without legislative approval (a transit referendum, for example, will require specific legislative authorization). And the legislature seems to like it that way. Indiana’s property tax caps, which I support generally from a percentage of assessment perspective, include a lot of poorly advertised gotchas. For example, regardless of assessed value, the total tax levy can only grow at a rate equal to the average personal income growth over the last six years. I’ll caveat this by saying I haven’t studied this in detail and thus may be a bit off base, but the levy cap appears to be a de facto spending cap at current levels regardless in growth of tax base. This may be ok for some, but not others that are growing say their commercial office space base at a rapid clip and need to expand infrastructure and services to support it.

Clearly many of these policies have no real benefit to the Indianapolis region, which is more or less being asked to be the economic engine of the state and finance state government without being given the tools to do that job property.

The list goes on but that should give you a flavor. Similar things occur around the country.

To this list I’ll add one of my own, which has also been richly illustrated by Jim Russell. Namely,

5. States can’t to much to help, but they can do a lot to hurt. A lot of the national debate seems to center on whether the “red state” or “blue state” model makes the most sense. But to a great extent, policy almost doesn’t matter. In Ohio, with one set of state policies, Columbus thrives while Cleveland struggles. Tennessee is a right to work state with no income tax, but Nashville booms while Memphis stagnates. Texas is doing great with its red state model, but Mississippi and Alabama not so much. And even within Texas, there are plenty of places that are hurting badly.

While good policy can set the stage for growth, it can’t guarantee local economies will prosper. But bad policies can hurt regions that otherwise would thrive. Extremes of either the blue or red model seem to lead to problems. Witness California, for example, which seems to be holding up a sign to business saying, “Get lost.”

This puts states in the difficult position of being almost being able to aspire at best to being a neutral influence on their own economy. But it’s easy for them to screw things up.

Friday, April 25th, 2014

The Revenge of the Local Media in Chicago

In a major piece this morning the Chicago Tribune reported that the producers of CNN’s Chicagoland series coordinated the filming of the show with the Emanuel administration. This story is already hitting the national radar, on conservative sites of course, but also left-leaning ones like Politico. An embarrassed CNN was forced to rapidly issue a statement that all but admits the Tribune report was accurate. They said, “The mayor’s office was never granted editorial control over the content or the press communications for Chicagoland, and no agency was ever granted authority to offer the mayor’s office editorial approval for the content or the promotional materials for the series.” But the Tribune never claimed that CNN gave editorial control to the mayor, only that there was coordination.

This follows closely on the heels of part one of a major Chicago Magazine investigative piece showing showing that the Chicago Police Department massaged the numbers on crime that has also continued to garner national attention.

The CNN piece isn’t surprising at all. I said in my review of the series that “CNN’s actual journalists will be seething at seeing their network and its relatively strong reputation being used for what is clearly not the type of work they themselves would undertake.” I’m not sure what Zucker is up to over there, but this is clearly not Bernie in Baghdad anymore.

Regardless, is anyone surprised that CNN would tout their show as an opportunity for the mayor to showcase himself positively? They were trying to make the sale after all. You can be sure that when I asked, for example, Mayor Cranley of Cincinnati for an interview, I made clear the potential this offered for him to reach an audience for this city he might not ordinarily have. There’s nothing wrong with selling yourself or some degree of coordination. Nor can you blame Rahm in the slightest for taking advantage of the opportunity. What else is he supposed to do, try to make himself look bad? He’d be a fool not to take advantage of every opportunity he gets to sell the city and himself. So while I’m not defending what happened, I do think we need to look at this in context. Not all coordination is necessarily bad, so we should take a fine grained look at the specifics.

But this does get to something else I mentioned in my review, namely that Rahm has kept the local media at arm’s length while focusing his attention squarely at national and global media to sell Chicago in the marketplace. I found this sentence from the Tribune article revealing: “Local media rarely are granted behind-the-scenes access to the mayor.” Do I detect a bit of pique?

It seems pretty clear that local media in Chicago aren’t happy about the current state of affairs. They must find many of the various fawning sit downs Rahm has done with global reporters particularly galling. While they would certainly try to do investigative work anyway, this direct look at the Chicagoland series by the Tribune seems to be to be a bit of a shot across the bow to Rahm to remind him not to forget about local journos.

With the national attention garnered by both this Tribune piece and the Chicago Mag story in quick succession, I think the local media have proven that they have the ability to make their presence felt outside the local market. Perhaps this will cause Rahm to recalibrate his strategy a bit and spend more time cultivating relationships with the local press.

Wednesday, April 2nd, 2014

Watch Chicago’s Middle Class Vanish Before Your Very Eyes

Daniel Hertz is back with another one of his great Chicago map posts and piece of data analysis. This time he looks at the decline of Chicago’s middle class in favor of the rich and poor in a post called “Watch Chicago’s Middle Class Vanish Before Your Very Eyes.” I will let you read it on his site but will include the animated graphic. Pay particular attention to the gray, which is middle class neighborhoods.

Wednesday, March 19th, 2014

Chicago in the 1940s – In Color

A 30 minute short film about Chicago that was shot c1947 has been making the rounds bigtime in the last week or so. Someone found a print of it at an estate sale and it wasn’t previously known before. It was produced by the Chicago Board of Education (who today doesn’t seem to know anything about it) for some purpose unknown, but appears to be a promotional type film designed to sell the city. It’s very interesting to see Chicago during that era. If the video doesn’t display for you, click here.


Thursday, March 6th, 2014

Welcome to Chicagoland


Trailer for CNN series “Chicagoland” – click here if the video does not display.

As part of his plan to boost sagging ratings at the network, CNN chief Jeff Zucker commissioned an eight part reality series about Chicago and its mayor called Chicagoland that premiers tonight at 10pm ET. The show is produced by the same people who did the Brick City series about Newark Mayor Cory Booker, with support from mega-star executive producer Robert Redford.

Rahm and the Media

Given that Brick City seems to have only helped Booker’s reputation, cynics in Chicago have already noted the fact that show’s producers are represented by the William Morris Endeavor Agency, which just so happens to be the home of Chicago Mayor Rahm Emanuel’s brother Ari. This is as much because of as in spite of a well-publicized move by directors Marc Levin and Mark Benjamin to ask the agency to recuse themselves from representing them when it comes to the show.

One need not believe in such a conspiracy to see this show as yet another example of Rahm’s media power – and his fearlessness in pursuing high profile opportunities to get his message out even in venues where he’s not in complete control. Rahm has had significant success in getting high profile national and global attention – for example, a glowing profile from NYT columnist Thomas Friedman – since taking office. He didn’t shy away from getting out there even when a spike in murders made global headlines Chicago of the type Chicago didn’t want – a time when many mayors would have crawled into their bunkers. And although he’s been in office a while now, Rahm fatigue seems not to have set in. Sun-Times columnist Neil Steinberg has a lengthy piece on him in the March issue of Esquire with the colorful title of “And Now For the Further Adventures of Rahm the Imapler.” The Financial Times recently ran a mostly positive piece called “Rahm Emanuel: Mayor America.” It even includes a high production quality six and a half minute video that will give you a flavor of it (if the video doesn’t display, click here):

With his ambition for Chicago as a global city, Rahm clearly sees global media as the ones that really count. Chicago’s status as a media center afterthought means few out of town reporters actually know that much about the city, hence Rahm has a huge opportunity to shape the message. This must infuriate the local media, which to a great extent Rahm is free to ignore because of his ability to go direct at the national and global level. Chicagoland should thus be seen as part of Rahm’s global media push, both for Chicago and for himself.

Reality TV vs. Journalism

The series is probably as good for Rahm and the city as it could possible get. Certainly the problems – high crime, poor schools, and labor troubles – are not glossed over. But given that they’ve been well publicized globally, it’s hard to imagine how they could be without sacrificing all credibility. Within the context of realism, this is a big win for the city.

Whether it’s a big win for journalism is another story. Like most modern documentaries or reality TV shows, Chicagoland is non-fiction in a sense, but also heavily scripted and edited to provide a compelling narrative. This makes for great TV drama and characterizations, but whether it represents truth as a reporter would tell it is much more doubtful.

Just as one example, the producers clearly had extensive access to Rahm and he’s frequently shown as concerned about crime, battling with unions, boosting the local economy, talking to school kids and even mentoring an inner city kid he brought on as an intern. But is that a fair representation of how Rahm Emanuel spends his time? The Chicago Reader did a two part series analyzing Rahm Emanuel’s schedule and published a two part series about it called “The Mayor’s Millionaire Club” (see part one and part two). They show that access to Rahm is heavily dependent on your wealth, influence, and donations. Yet that doesn’t come through in Chicagoland at all. Instead when the occasional powerful people are shown, they are always doing a good turn for the city, such as a group of tech executives donating products to schools.

I’m not suggesting this series should have been a bulldog investigative piece. However, I strongly suspect that CNN’s actual journalists will be seething at seeing their network and its relatively strong reputation being used for what is clearly not the type of work they themselves would undertake. Right or wrong, the CNN brand carries an expectation of a certain type of journalistic standard that the Sundance Channel (where Brick City originally ran) doesn’t. Right now on CNN’s Chicagoland page there’s an ad for Anderson Cooper 360. Something tells me that were Anderson Cooper in charge of Chicagoland, it would look quite different.

Compelling Drama and Characters

However, taken on the terms of a Sundance series, Chicagoland succeeds, and my guess is that Rahm will be overall pleased. The show sets up the drama by structuring the series as battles between opposing forces. In the first couple episodes, this is the battle between Rahm and Chicago Public Schools leadership on the one hand, and the teachers union and some affected parent groups on the other over plans by CPS to shutter 50 schools. Frankly, I thought it overly portrayed Chicago as if it were Newark. The segments were introduced by short positive vignettes of some aspect of Chicago (like the Stanley Cup playoffs), followed by more extensive coverage of the school closing dispute, and educational and crime problems in Chicago’s impoverished South Side. It would be like doing a flyby of Times Square before doing a deep dive on some of the worst blocks in Newark. While I myself have written on the two Chicagos theme, I was feeling that Chicago was being unfairly stigmatized.

I need not have worried. After the initial focus on the school closing dispute, the focus shifts. The drama is now between the good guys (basically every single person featured in the show) and the bad guys (gangsters and such who exist almost entirely offscreen, or so we’re led to believe). Almost without exception, the good guy characters are shown as 100% white knight types. Instead of positive vignettes followed by something Newarkesque, there’s a more balanced take in time allocation and the threads start merging across the two Chicagos. The show also starts laying the Chicago sales job on with a trowel. In Chicagoland’s coverage of things like the food scene, the music scene, the comedy clubs, or even footage of Rahm protesting a neo-Nazi march back in the 70s as a teenager, it’s hard to see how this could have been any more positive in its portrayal of the city if it had been produced directly by the Chicago Convention and Tourism Bureau. This is a huge win for the city.

The show also manages to create several compelling characters. One of them is the surgeon who leads the trauma unit at Cook County Hospital, a job I certainly would not want. How that guy manages to balance family life in Roscoe Village (my old neighborhood) with the reality of what he deals with every night at his job is beyond me.

But the star of the show is clearly Elizabeth Dozier, principal at Fenger High School in the South Side neighborhood at Roseland. She’s shown fighting not only to only educate her students, but keep them safe over the summer, and even invest in their lives after graduation when they get in trouble. (Dozier trying to help a former student who’s in jail for robbery realistically shows the need for “retail” 1:1 or N:1 investment in the lives of specific troubled people, not just programs, to make a real difference in a troubled person’s life – and even so the difficulty in seeing life change happen). Her obvious passion and dedication in the face of tough odds clearly come through. Yet even here there’s a sense of manufacture. Dozier is a young, attractive, stylish black professional who not only runs a South Side High School, but also gets personal face time with Rahm, knows Grant Achutz of Alinea, and hangs out with Billy Dec on his boat. How much of this A-list hob-nobbing was happening prior to Chicagoland coming to town I wonder? Regardless, it makes for compelling TV.

While I have my quibbles, I think on the whole Chicagoland is an enjoyable watch that will end up being good for the city and the mayor. Just don’t go in expecting journalism. This is first and foremost reality TV style drama. With that caveat in mind, I recommend watching it.

Takeaways From the Chicagoland

Watching Chicagoland made me think again two bigger picture issues.

First, in watching gangs take revenge on each other in an endless cycle of retaliation that literally stretches on for years and in which no one can actually recall the original offense, I was reminded of Hannah Arendt writing on the role of forgiveness:

Forgiveness is the exact opposite of vengeance, which acts in the form of re-acting against an original trespassing, whereby far from putting an end to the consequences of the first misdeed, everybody remains bound to the process, permitting the chain reaction contained in every action to take its unhindered course. In contrast to revenge, which is a natural, automatic reaction to transgression and which because of the irreversibility of the action process can be expected and even calculated, the act of forgiving can never be predicted; it is the only reaction that acts in an unexpected way and thus retains, though being a reaction, something of the original character of action. Forgiving, in other words, is the only reaction which does not merely re-act but acts anew and unexpectedly, unconditioned by the act which provoked it and therefore freeing from its consequences both the one who forgives and the one who is forgiven. The freedom contained in Jesus’ teachings of forgiveness is the freedom from vengeance, which incloses both doer and sufferer in the relentless automatism of the action process, which by itself need never come to an end.

Forgiveness is not the only way to put a stop to a cycle of revenge. Arendt posits official punishment as another. But forgiveness is clearly the fastest and surest route. Until either the police are able to impose order and mete out genuine justice, or the grieving family and aggrieved gang compatriots of these murder victims are able to forgive and forswear vengeance, the cycle is unlikely to ever end.

I don’t want to judge too harshly teenagers in a ghetto living out the only life script they’ve ever known. But what’s our excuse? We too often live out in miniature the same process ourselves. How often do most of us forgive genuine wrong done against us, even of a much less consequential nature? Tune into the internet any day of the week and see untold amounts of shrieking over some offense or another, real or imagined. I suspect the vast majority of us would be behave no differently from those gangbangers in similar circumstances. We are blessed not to be there, however. But will we use that privileged position to end or perpetuate cycles of wrong in our own lives?

Secondly, Chicagoland made me think about the bigger picture of leadership in our cities and the major problems they face. I voted for Rahm as mayor, for three reasons. 1) I saw him as like his mentor Bill Clinton, namely someone to whom getting elected and staying in power is more important than pushing any ideological agenda. In short, I saw him as a pragmatist, not an ideologue with a policy ax to grind like Bill de Blasio. 2) Rahm spent a lot of time outside of Chicago. He’s got a global perspective and a global network that’s critical in this era. He’s also got the gravitas to interact at the highest levels of power in America, which is something few mayors can say. 3) Rahm has no natural constituency in Chicago. So if he wants to be re-elected, he needs to perform. He clearly has future political ambitions, and flaming out as mayor wouldn’t be helpful in pursuing them.

Looking back, while I’ve criticized Rahm for an excessive focus on the elite, I believe my judgment then was correct and on the whole I think he’s done a decent job in a very difficult situation. Apropos of point #3, if Chicago thinks differently, the popular and competent Cook County Board President Toni Preckwinkle is waiting in the wings. Whatever you think of his neoliberal policies, it’s clear Rahm is an actual leader, one with a ton of intelligence, drive, power, and the will to get things done.

Yet watching Chicagoland, it’s evident that even leadership ability of Rahm’s caliber struggles mightily with the city’s huge challenges. Chicago has a massive fiscal hole, and a very serious problem with a two tier society that has left vast tracts of the city behind. It’s by no means certain that Rahm will be able to make Chicago soar in the way that Daley did in the 90s, or even get re-elected if a there’s any stumble and a credible candidate like Preckwinkle gets into the race.

When I think about the difficulties in solving the problems in Chicago, which has not only Rahm’s leadership but a massively successful global city economy in the Loop and hundreds of thousands of well-heeled residents, it makes me pause. If Chicago struggles with its problems, how much more so other cities facing similar or worse problems but with much weaker leadership and no global city money and firepower? It really makes me wonder if a lot of places are simply going to die a slow death barring some lucky break from a change in the marketplace.

This ultimately is what I’d challenge the residents of other cities to think about when watching this show. Look at Chicago and what it is dealing with. Think about your own problems and your resources for combating them vis-a-vis Chicago. If that doesn’t make you sober up, I’m not sure what will.

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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