Tuesday, December 9th, 2014

Divergent Demographic and Economic Trends in Chicago by Bill Sander and Bill Testa

[ This week a post from Bill Sander and Bill Testa from the Chicago Fed’s Midwest Economy site, looking at the various trends affecting the city of Chicago – Aaron. ]

The fortunes of the city of Chicago have become clouded in recent years as concerns over its weakening finances and heavy debt obligations have grown. The tally for the unfunded public employee debt obligations of Chicago’s overlapping units of local governments (including those for public schools, parks, and county services) is now approaching $30 billion. Moreover, the city government has been criticized for its practices of funding current public services with proceeds from the issuance of long-term debt and the long-term leases of public assets (such as its parking meter system). However, faith in Chicago’s ability to address its debts has not fallen so far as that in Detroit’s, chiefly because the Windy City’s economic trends display more vibrancy.

Population change is a prominent indicator of the health of an urban economy because it reflects a city’s ability to hold on to its residents (as opposed to losing them to the suburbs or other locales). Over the past few decades, similar to other central cities, Chicago has experienced an erosion in its population share of the broader metropolitan statistical area (MSA);[1] in contrast, the surrounding suburbs have seen their share climb. According to the U.S. Census, Chicago held 38% of the MSA’s population in 1980, with this share falling to 35% by 1990; in the subsequent 20 years, Chicago’s population share of the MSA decreased another 3 percentage points per decade, reaching 29% by 2010 (see table below). During the 1980–2010 period, Chicago lost a total of over 300,000 residents. At the same time, suburban Chicago gained close to 2 million in population. Since 2010, the city of Chicago’s population and population share of the MSA have strengthened somewhat, though the (off-Census year) estimates are probably not as reliable.

While population trends can be telling for a city’s prospects, they can also belie changes in its residents’ wealth and income. Despite the city of Chicago’s population loss over the past few decades, its economic trends have been generally more encouraging.[2] Household income is an important indicator of Chicago’s fortunes relative to those of its suburbs. In 1990, median household income in the city was just 67% of the median household income in suburban Chicago. By 2010, this income ratio had climbed to 73% (see table below). Decomposing household income statistics by (self-reported) racial/ethnic group reveals that this trend was pervasive for the three largest groups: non-Hispanic white, black, and Hispanic. The ratio of city median income to suburban median income among white households experienced the greatest change; it rose from 77% in 1990 to 98% (near parity) in 2010.

These robust trends are echoed by Chicago’s rising share of adults aged 25 and older who have attained at least a bachelor’s degree. In 1990, among adults aged 25 and older, 19% of those residing in the city had attained a four-year college degree versus 28% of those residing in the suburbs (see table below). By 2010, Chicagoans in this age demographic had almost reached the same share in this regard as their suburban counterparts (33% for city residents versus 35% for suburban residents). The non-Hispanic whites again experienced the greatest change among the three largest racial/ethnic groups. In 1990, 29% of the white city population aged 25 and older had a four-year college degree—the same percentage as the white suburban population in this age demographic; however, by 2010, 55% of such white city dwellers had a bachelor’s degree, while 39% of their white suburbanite counterparts did. Between 1990 and 2010, the city’s black population also made substantial gains in education, as evidenced by the share of black adults aged 25 and older with a bachelor’s degree having risen from 11% to 17%.

By “drilling down” through the data to examine specific neighborhoods, we can see how geographically concentrated the city’s gains in college-educated adults aged 25 and older have been. These gains have been highly concentrated in Chicago’s central business district (“the Loop”) and the surrounding areas, as well as the neighborhoods west of Chicago’s northern lakeshore. As shown in the table below, dramatic gains in the college-educated population were seen in the Loop and the neighborhoods just south, west, and north of it. For example, the Near South Side saw an increase in the share of adults with a four-year college degree climb from 9% in 1980 to 68% in 2010. No less dramatic were such gains in Chicago’s neighborhoods west of its northern lakeshore: The shares of the college-educated population there typically doubled or tripled between 1980 and 2010 (in the case of the North Center neighborhood, this share increased sixfold—from 11% in 1980 to 66% in 2010).

As one might expect, many college-educated Chicago residents work in proximity to their residence. Of those living in the Central Area and Mid-North Lakefront, an estimated 57% work in the Central Area of Chicago and 79% work somewhere in the city.[3] Of those who do work in the Central Area, an estimated 19% travel to work by driving alone (as opposed to walking, public transit, bike, and carpooling); this percentage is much smaller than the nearly 70% of metropolitan Chicago workers who travel to work by driving alone.[4] The trends highlighted thus far point to the fact that the city of Chicago draws and retains many jobs. By one count, the city of Chicago’s Central Area is the domicile of over half a million jobs. As seen below, job counts in the Central Area have remained fairly constant over the past 13 years, even while job levels in the remainder of the city and in the remainder of Cook County have been falling.

Meanwhile, compensation levels per job have continued to climb in Chicago’s Central Area, reflecting a work force with greater skills and education. Annual compensation per worker on the payroll in Chicago’s Central Area exceeds that of the overall MSA by 50%.

Many of the trends shown here bode well for the city of Chicago, despite the fiscal challenges it currently faces. To be sure, many large central cities in the Midwest, including Detroit, are experiencing strong growth of both jobs and households centered around their central areas and downtowns. In this, the central Chicago area enjoys a strong start. ________________________________________

[1] Current and historical delineations of MSAs are available at www.census.gov/population/metro/. (Return to text)

[2] This is not to say that all parts of the city have been on the economic upswing. Several Chicago neighborhoods have seen severe deterioration in wealth and income, as well as in living conditions, as evidenced by increasing incidences of homelessness and crime in certain areas in the past few decades; see, e.g., http://danielkayhertz.com/2013/08/05/weve-talked-about-homicide-in-chicago-at-least-one-million-times-but-i-dont-think-this-has-come-up/. (Return to text)

[3] This statement covers 113,000 workers living in these areas as of the year 2000. Estimates were pulled from www.rtams.org and are based on the Census Transportation Planning Package (CTPP), “which is a special tabulation of the decennial U.S. Census for transportation planners” and “contains detailed tabulations on the characteristics of workers at their place of residence (‘part 1’), at their place of work (‘part 2’), and on work trip flows between home and work (‘part 3’)” (see www.rtams.org/rtams/ctppHome.jsp). Workers who work at home are excluded. See also http://definingdowntown.org/wp-content/uploads/docs/Defining_DowntownReport.pdf; this report ranks Chicago second among major U.S. cities in terms of the percentage of residents living within one mile of downtown who work downtown (figure 3 in the report), and ranks Chicago first in terms of population growth in the downtown area over the period 2000–10 (figure 4 in the report). (Return to text)

[4] Estimates are from www.rtams.org and are based on the Census Transportation Planning Package (CTPP). (Return to text)

This post originally appeared in Chicago Fed Midwest Economy on December 3, 2014.

Monday, December 8th, 2014

London’s Global City Royal Flush

A recent article in the Economist about the Rosetta space probe reminded me again of the uniqueness of London on the global stage. The piece notes:

In a clean room at the Airbus Defence & Space (ADS) factory north of London, scientists are working on LISA Pathfinder (pictured), a hexagon-shaped satellite due to be launched next year. The aim of the ambitious space mission is to try, for the first time, to find and measure gravitational waves—ripples in space-time predicted by Einstein’s general theory of relativity.

About one-quarter of the world’s commercial communication satellites are built in Britain and 40% of the world’s small satellites…The whole space sector directly employs 35,000 people, and the supply-chain accounts for thousands more jobs. London-based Inmarsat is one of the world’s largest satellite operators, specialising in mobile telephony.

When you think of London, finance, media and creative industries tend to be top of mind. Aerospace and defense may not immediately register, but greater London is a key node in that global industry. Beyond the space related industries noted above, there’s also companies like defense contractor BAE Systems, and events such as the globally significant Farnborough Airshow.

In fact, in some of the research I contributed to a recent global cities survey found that London uniquely has some strength is every single globally important macroindustry I looked at. No other city – not even New York – was as simultaneously broad and deep.

London’s status as a global financial center is of course well known. It’s also hugely influential in global culture and entertainment. It is a global center of the music industry, with British acts predominantly from or drawn to London routinely becoming best sellers around the world. Warner Brothers has a major production studio there, creating such films as Harry Potter. The BBC, Economist, and Financial Times are news outlets of global reach and influence, even outside the English speaking world. The Daily Mail and the Guardian are the two largest newspaper web sites in the world. London is a major advertising and marketing hub, a major fashion hub, a major tourist destination, and is home to world-renowned cultural institutions.

London has also emerged as Europe’s stop tech hub. Not only are there tons of startups – it has the top ranked startup ecosystem that outranked any European city according to analysis of Startup Genome project data – companies like Google have opened huge offices there.

But there’s more to it than that. London is a center of the global pharmaceutical industry and is headquarters to GlaxoSmithKline and Astra Zeneca, plus is home to foreign HQ’d operations as well. BP is an energy major there and other big firms like Chevron maintain operations and regional HQs in the area. Oil services firm Petrofac is based there and its home to the European HQ Baker Hughes. Its weakest industry I found was automotive, but even here it’s home to Honda’s European HQ.

Not all of these companies are located in central London. But the Greater London area is home to a simply huge number of firms in all sorts of industries, making it a top to bottom global powerhouse. This isn’t just a global city built on finance and other services. It’s a global city built on everything.

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Topics: Economic Development, Globalization, Urban Culture
Cities: London

Tuesday, November 18th, 2014

Two Chicagos, Defined by Pete Saunders

[ Here’s another nice piece of analysis about Chicago from Pete Saunders. He originally did this earlier this year – Aaron. ]


Chicago skyline.  Source: wikipedia.org

Years ago, when I first started working as a planner for the City of Chicago, my primary responsibility was working with community organizations that received Community Development Block Grant (CDBG) funding for commercial revitalization activities.  This being CDBG funding, our work was constrained to areas of the city where 51% or more of households earned less than the median household income for the Chicago metro area.  In the early 1990’s, this hardly interfered with our work — outside of the Gold Coast, the Near North Side, Lincoln Park, Lakeview and a few parts of the Northwest and Southwest sides, we were able to grant CDBG funding to virtually the entire city.

Fast forward twenty years.  Chicago’s transition from Rust Belt Capital to Global City has been unparalleled.  Where there once had been large swaths of middle-class, working-class and impoverished neighborhoods, with high-income enclaves, there are now nearly as many high-income neighborhoods as there are of the other three.  Perhaps someone who moved to Chicago post-1995 and lives in one of the up-and-coming areas is vaguely aware of this, but anyone who was here before then is quite right to be astounded.

Despite Chicago’s transformation, it’s been pretty well-documented that not all parts of the city have benefited.  The battle over the closing of nearly 50 schools, mostly located in the city’s poorer South and West side neighborhoods, brought this to light, as did Chicago’s high-profile murder and violent crime rates through 2013 (which, to date in 2014, have gone down dramatically).  Inequalities and disparities became evident in both areas; University of Chicago graduate student and blogger Daniel Kay Hertz brought the disparities to light with his analysis of violent crime in Chicago.  As he said in his piece:

Over the last twenty years, at the same time as overall crime has declined, the inequality of violence in Chicago has skyrocketed. There have always been safer and more dangerous areas here, as there are everywhere; but the gap between them is way, way bigger now than it used to be.

Over the last two decades a new but undefined paradigm has emerged, the one of “Two Chicagos”.  This is probably best explained once again by Dan Hertz, who recounted an overheard conversation on the L:

I was on the train earlier this week, and two white men got on and asked their neighbors, who were two black women, how to get to a hotel. The women told them. And then began a sort of stock conversation that Chicagoans have with tourists: How do you like the weather, ha ha? The men, who were from Atlanta, did not like it. Have you been on a subway before? Yes, but not often. Would you come back? Oh, yes. We love Chicago, the men said.

The men reached their station, and left.

One woman said to the other: I hate it when people say that – I love Chicago. No, you don’t. You love downtown and the North Side. The other woman said, Uh huh. 

That is a frequent sentiment of those who live on the other side of the invisible divide in Chicago.  But what, exactly, is that divide?  Where are the boundaries?  Exactly how deep are the difference?

I took a stab at trying to figure this out.

I compared some socio-economic statistics for the 56 zip codes in Chicago against medians and averages for the entire Chicago metro area (Indiana and Wisconsin excluded).  The differences are stark.

Let’s start by looking at maps of the areas of examination.  Here is the seven-county Illinois portion of Chicago’s metro area, with Chicago etched in:

I gathered data for all suburban municipalities and all City of Chicago zip codes within this area, for five variables — population, non-white population percentage, median household income, and median home value, and bachelor’s degree or more for persons 25+.  The data comes from the 2011 U.S. Census American Community Survey.  After collecting that data, I established an “average of medians” or “average of averages” to get a baseline for the metro area, and an understanding of how jurisdictions or zip codes would compare to one another.  One fairly big caveat — an average of medians or average of averages weighs all jurisdictions equally, skewing the numbers higher due to the number of small but well-to-do suburban municipalities.  So while the 2011 actual median household income for the seven-county area overall was $61,491, the average of medians was $74,731.  But since all data is expressed this way, differences are negated.

Next, I looked for Chicago zip codes that were above the metro area average in at least one of three categories — median household income, median home value, and bachelor’s degree or more for persons 25+.  These are the higher income neighborhoods that can be called “Global Chicago”.  Within the city, they look like this, in yellow:

Most Chicagoans would recognize this as the wealthier parts of the city.  It stretches from the far Northwest Side eastward to the lake, south to downtown and continuing south before ending in the Hyde Park neighborhood on the South Side.  Again, I included all zip codes that were above the metro average for at least one of the three categories I examined, so not all communities are the same.  Hyde Park, for example, is here because it has high educational attainment, but is below the average for income and home value.  The same applies to Rogers Park and Edgewater on the city’s northern border with Evanston.  Jefferson Park, Norwood Park and Sauganash, on the other hand, located on the Northwest Side, rank highly in home value but lower for income and educational attainment.

Taken together, you can see how “Global Chicago” compares with the Illinois portion of the metro area, the metro area excluding Chicago to give you Suburban Chicago, and the balance of the city beyond “Global Chicago” that I’ve called “Rust Belt Chicago”:

The differences are indeed stark.  “Global Chicago” is on par with the Chicago suburbs and the metro area overall in terms of income, and has a lower percentage of minority residents compared to the metro area.  Interestingly, “Global Chicago” has a much higher home value and educational attainment when compared to the metro area overall or the ‘burbs.  Meanwhile, “Rust Belt Chicago” lags far behind.  “Rust Belt Chicago” has a large majority-minority population, has an income nearly one-half as much as the suburban households, and has only one-third as many college graduates as “Global Chicago”.

I decided to take this analysis a little further and determine if there is a core to “Global Chicago”, and how it would compare to the rest of the city.  I collected data for zip codes that exceeded the metro average in two or more of the three categories.  That produced this map:

And this table:

Here, a “Super Global Chicago” compares favorably with the ‘burbs in terms of income, but far exceeds it in terms of home value and educational attainment.  Including some of the peripheral areas of the previous “Global Chicago” with the previous “Rust Belt Chicago” to produce an “Average Chicago” leads to some gains, but it still lags far behind the other slices of the metro area.

Right now, the CNN series “Chicagoland” is doing its best to illustrate the “Two Chicagos” meme, highlighting blues festivals and Stanley Cup championship celebrations on one end of town and school closures and endless crime on another.  However, these maps and tables may do a far better job of demonstrating the impact of past and current practices and policies on the city’s landscape.  In fact, I think Chicago’s example is one that will serve as a model, for better or worse, for other cities across the nation.

In reality I see the “Two Chicagos” meme as overplayed.  Chicago may be better understood in thirds — one-third San Francisco, two-thirds Detroit.

This post originally appeared at Corner Side Yard on March 18, 2014.

Sunday, November 9th, 2014

Replay: Global Cities Don’t Just Take, They Give

This post originally ran on April 28, 2013.

Creativity for the world or for your city gives something back – Charles Landry

I had an interesting conversation about Washington, DC with Richard Layman a few months back. One of his observations, rooted in Charles Landry’s, was that great global cities don’t just take, they give. To the extent that Washington wants to be a truly great city, it needs to contribute things to the world, not just rake in prosperity from it.

Affecting the world, often for good but unfortunately sometimes for bad, is a unique capability that global cities have because they are the culture shaping hubs of nations and world. When an ordinary city does something, it can have an effect to be sure. But things that happen in the global city are much more likely to launch movements.

For example, Chicago did not invent the idea of doing a public art exhibit out of painted cow statues. I believe they copied it from a town in Switzerland. But when Chicago did it, it inspired other cities in a way that Swiss town did not. In effect, ordinary cities influence the world usually by influencing a global city, which then influences the world. Often it is the global city that gets the credit although the actual idea originated elsewhere. Thus the role of the global city is critical. But we shouldn’t assume that all ideas originate there or that other cities can’t profoundly influence the world.

We might also think of bicycle sharing, which was around in various forms for quite a while. But it was the launch of the massive Paris Vélib’ system in 2007 (which according to Wikipedia was inspired by a system in Lyon) that made bicycle sharing a must have urban item the world over.

Similarly it was the High Line in New York that has every city wanting to convert elevated rail lines into showcase trails. New York is really the city that made protected bike lanes the new standard in the United States as well.

Beyond simple urban amenity type items, global cities can also launch profound cultural and social transformations. A few examples.

The first is from Seattle, a sort of semi-global city. It was in such a depressed state in the 1970s that someone put up a billboard that’s still pretty famous: “Will the last one leaving Seattle please turn out the lights?” Yet in Seattle there was a coffeehouse culture that spawned a movement out of which came Starbucks which literally revolutionized coffee drinking in America and event pioneered the entirely new concept of the “third place.”

A lot of people like to attribute the emergence of Seattle as a player to Microsoft moving there from Albuquerque in the late 1970s. However, I think the coffee example shows that there were interesting things already happening in Seattle long before that. It was a proto-global city waiting for a catalyst.

Another example would be the emergence of rap music out of New York City. Or house music from Chicago.

Or consider the 1963 demolition of Penn Station in New York in 1963. The wanton destruction of this signature structure horrified the city and led to the adoption of its historic preservation ordinance. This was not the birthplace of historic preservation in the United States, but this demolition played a key role in bringing historic preservation to the fore, not just locally but nationally.

Lastly, the Stonewall Riots in 1969 clearly played a signature role in the gay rights movement in America. Many pride parades today are scheduled to fall on the anniversary of the event.

Who knows what might have happened with coffee in America without Seattle. But I think it’s clear that both the historic preservation and gay rights movements would have emerged at some point anyway regardless of what happened in New York. However, the events in New York clearly provided a sort of ignition and acceleration.

How many historic buildings in America were saved because Penn Station was lost? (Think about how many might have been destroyed had the historic preservation movement emerged later).

Think about a state like Iowa where gay marriage is legal. How many people in Iowa 40+ years ago had any idea that an obscure incident in New York City would ultimately transform the social conventions of the rural heartland?

I think this shows the power of the global city. I’m sure that there are things happening underground in New York and elsewhere that right now that we don’t know anything about yet that will ultimately transform our world 10, 20, or 30 years down the road. It’s crazy to think about.

Sunday, October 5th, 2014

The Decline of the Midwest, the Rise of the South

The New York Times ran an article last week that’s nominally about football, but really gives insight into the decline of the Midwest and the rise of the South. Called “As Big Ten Declines, Homegrown Talent Flees,” this piece ties in perfectly with my recent essay on the differing social states of the Midwest and South. The NYT’s money quote says it all:

The SEC sold excellence. The Big Ten sold tradition.

Ironically, it is the formerly stigmatized “backwoods” South that has embraced excellence while the former industrial champion of the Midwest has spurned it. I don’t think that Midwesterners understand how much things have changed in the South. I hear the same stereotypical view of the South that might have had a lot of truth decades ago but have changes substantially. For example, those who think it is both a good thing and bad have quipped that Indiana is like an extension of the South into the Midwest. I don’t think so.

For example, Charlotte built a light rail system. Dallas has poured a billion dollars into a downtown arts district. Atlanta has a multi-billion infill strategy around its former Belt Line railroad. Nashville eliminated downtown parking minimums and implemented a form based code. South Carolina has its German style apprenticeship program. North Carolina built Research Triangle Park – in 1959. Southern cities like Atlanta have proudly claimed and built success around their black heritage. And Charlotte’s Chamber of Commerce CEO said, “To understand Charlotte, you have to understand our ambition. We have a serious chip on our shoulder. We don’t want to be No. 2 to anybody.” Outside of Chicago, does anybody in the Midwest talk like that?

Sure, there are bits and pieces here and there in the Midwest that speak to excellence. But they are the anomalies in a region that has retrogressed. Whereas in the South they’ve massively elevated their game in the last 40 years and are working hard to keep getting better. Sure, low costs and taxes play a role in their success. Climate and the universality of air conditioning as well. But they aren’t content to rest on just that. They want to get better. Meanwhile the Midwest is regressing towards what the South used to be such as, for example, by turning paved roads back to gravel because they can’t afford the maintenance.

The NYT piece brings up an interesting factor driving the rise of the SEC vs. the Big Ten, namely the shift in underlying population ratios over time: “An instructive comparison is Michigan and Georgia. In 1960, Michigan had twice Georgia’s population; in 1990, it was nearly one and a half times as big; today, their populations are roughly equivalent.”

The decline in Midwest population and economic heft brings with it a price that has to be paid. It’s showing up in the football world today. But it’s sure to hit the academic prowess of the Midwest’s major state schools as well. How long can these places maintain their relative rankings of excellence without the financial firepower to play in the big leagues? There’s more inertia on the academic side, but don’t think it won’t eventually happen here as well. The same is true in many other aspects of civic life. Even mighty Chicago has nearly bankrupted itself in its efforts to keep up with other global cities.

The Big Ten obviously saw the writing on the wall and decided to expand outside the region. I dislike this for reasons of, naturally, tradition. But it’s a rational response to a declining marketplace. Similarly, the Cleveland Orchestra established a Miami residency in the pursuit of cash to keep its artistic excellence intact. Might some of these institutions at some point become Midwest in name only? Time will tell.

Wednesday, September 17th, 2014

The World City

Last week’s episode of the Monocle 24 show the Urbanist was an interesting look at the “world city” or “global city.” They take a bit of a skeptical look, showing how, for example, many residents of Istanbul are at odds with the construction boom designed to turn the city into what one critic dubbed a low-grade Dubai. And also how smaller cities like Lisbon and Wellington, New Zealand are following their own path without trying to aspire to compete as peers with the big boys. They also take on Vancouver, though fail to note its extremely high housing prices (it’s not livable if you can’t live there), and also its gang wars and other issues that belie the kumbaya vision the mayor is pitching. And there’s a conversation with an analyst from the Economist Intelligence Unit who talks about that organization’s ratings. It’s a bit eyebrow raising that Monocle, a publication that has done a lot to promote the whole global city idea and transnational norms, values and amenities to which all cities are called on to aspire to (in addition to publishing its own league table), would be critiquing the global city, but it’s a good listen regardless.

If the audio embed doesn’t display for you, click over to listen on Soundcloud.

Thursday, August 21st, 2014

The Changing Face of the Global City

I want to highlight a couple of recent studies by Joel Kotkin for which I provided some research support. The first is a report on global cities from the Singapore Civil Service College called “Size Is Not the Answer: The Changing Face of the Global City.” As the name implies, it suggests that size is not necessarily correlated with global heft.

There are a lot of different ways of looking at cities. For example, the Economist just released its 2014 Global Liveability Index. But this study tries to focus in on specifically global economic power and influence. Thus it is somewhat like Loughborough University’s well-known survey, but looks at more than just producer services.

In particular, it looks significantly at industrial influence, or being a “necessary city” in the global economy that you just can’t help but deal with. For example, the San Francisco Bay Area often gets short shrift in most global city surveys even though it is the overwhelmingly dominant location of the technology industry, a key enabler of globalization and arguably the most powerful economic force at work today. By contrast, some traditional measures like total GDP that may indicate more domestic rather than global influence were not included.

Maybe the biggest surprise to me was the stability of the top ranks of cities, despite using different criteria from other studies. London and New York easily crushed everyone else. I’d expected that cities I thought of as more “domestic champions” like Tokyo, Paris, and Chicago might not fare as well. As it turns out, while Chicago is a bit lower in this survey, Paris is actually #3 and Tokyo #5. Both cities’ rankings are actually slightly higher than in Loughborough’s survey.

The Problem With Megacities

You also know that I’ve written skeptically of megacities in the developing world in terms of their ability to fulfill the aspirations of their citizens.

The second study I contributed to is called The Problem of Megacities and takes a look at the growth of megacities – a very new phenomenon in human history – and the problems that face them. An excerpt:

The megacity is increasingly a phenomena of countries that are struggling to find their way in the modern world economy. Size used to be more correlated with economic and political success and dominance on a global scale. Today, some of the largest cities are disproportionately poor, and seem likely to remain that way for the foreseeable future. Such problems are often ignored or minimized by those who inhabit what commentator Rajiv Desai has described as “the VIP zone of cities”, where there is “reliable electric power, adequate water supply and any sanitation at all”. Outside the zone, Mr. Desai notes, even much of the middle class have to “endure inhuman conditions” of congested, cratered roads, unreliable energy and undrinkable water.

These conditions reflect the inabil- ity of such megacities to handle rapid growth. Places like Dhaka, which gains as many as 400,000 new migrants from the villages annually, grows mainly in its slum, whose residents move to the megacity not for the bright lights, but to escape hopeless poverty, and even the threat of starvation, in their village.

Tuesday, July 22nd, 2014

Incrementally Transforming Kokomo Without Debt by Eric McAfee

[ Kokomo, Indiana is a small industrial city about an hour north of Indianapolis. It is one of the rare ones whose industry remains largely intact, with two large auto-related plants. This makes them different from the type of community that really has deindustrialized. Yet they fret that those who earn decent incomes in their town too often decide to live in the Indianapolis suburbs. Hence a program to upgrade quality of life in the city. It should be noted that while they’ve managed to do this without incurring debt, Kokomo arguably benefited more than any city in America outside Detroit from the massive federal auto bailout. Their civic improvements have in a sense been financed by a unique external windfall unavailable to others. Nevertheless, lots of places have received windfalls and spent them poorly. Cities may not be able to control our circumstances, good and bad, but they at least have some control over how they respond to them. This piece from American Dirt takes a look at Kokomo’s response. Keep in mind it ran in 2012 and there are likely some anachronisms by now – Aaron. ]

Across the country—but particularly in the heavily industrialized Northeast and Midwest—smaller cities have confronted the grim realities of the unflattering “Rust Belt” moniker, and all of its associated characteristics, with varying degrees of success. With an aging work force, difficulty in retaining college graduates, and a frequently decaying building stock, the challenges they face are formidable. Cites from between 30,000 and 80,000 inhabitants typically boomed due to the exponential growth of a single industry, and, in many cases, the bulwark of that industry left the municipality nearly a half century ago, for a location (possibly international) where the cost of doing business is much cheaper. Essentially, everything the smaller Rust Belt cities had to offer is completely tradable in a globalized market; the resources that provided the town’s life blood are either depleted or are simply to expensive to cultivate further.

Reinvention is the only condition likely to save many of these cities from persistent economic contraction, but, with an overabundance of retirees and older workers, these towns lack the collective civic will that could be expected in larger communities with more diversified economies. An absence of young people intensifies (and, to a certain extent, justifies) the low level of civic investment in one’s own community; after all, if a resident is six months from retirement, how likely is it that he or she would support public investments intended to improve quality of life for twenty or thirty years into the future? For that matter, how likely will a population of retirees remain engaged to encourage or challenge major private sector investments as well?

By no means am I intending to denigrate needs and ambitions of the senior population; I’m merely observing that a stagnant Rust Belt city with this demographic profile will demonstrate vastly different priorities from a city rife with young families. While every Rust Belt city large and small must avoid obsolescence that results from the spoils of globalization, the smaller cities—which have tended to be dominated in the past by a single thriving industry—are less likely to claim alternative sectors and labor pools if their primary manufacturing lifeblood fails. A dying city of 80,000 may not exert the same impact within a region (particularly in the densely populated Midwest and Northeast) that a city of 500,000 would, but it is far more of black eye for the state than a town of 2,000 that has lost its raison d’être. This conclusion is obvious.  Many of these small cities must reordering of their economies comprehensively; while the state, the county, or private foundations may offer some outside help, the constituents of these cities themselves are typically the best equipped to understand how their city should evolve. Unfortunately, many of these communities aren’t yet even aware of the need for this reinvention, let alone which avenue to pursue in order to achieve it.

It is with no small amount of reassurance that I can assert that Kokomo, Indiana is not one of these latter cities.

No Rust Belt complacency on display here in the City of Firsts. Though as recently as 2008 it was on Forbes’ list of America’s Fastest Dying Towns, a recent visit shows much more evidence than I’ve seen of some comparably sized cities in the region that the civic culture is neither resting on its laurels nor wringing its hands about how much better things used to be. In fact, one of the Indianapolis Star’s leading editorialists, Erika Smith, recently visited the city, and, after receiving a tour from the Mayor, was pleasantly surprised by how proactive it has been in implementing precisely the type of quality-of-life initiatives largely perceived as necessary to help a historically blue-collar city stave off a brain drain or descend into irrelevancy.

I, too, recently received the Kokomo tour, followed by a meeting with Mayor Greg Goodnight, and I can also recognize some of the city’s most impressive achievements at shaking off the post-industrial malaise that saddled the city with double-digit unemployment rates as recently as a few years ago. Since then, the city has introduced a trolley system at no charge to users; prior to this initiative, the city had had no mass transit for decades. The Mayor pushed successfully to annex 11 square miles in the town’s periphery, therefore elevating the population by about 10,000 people. The Mayor’s team worked to convert all one-way streets in Kokomo’s downtown to two-ways, recognizing that accommodating high-speed automobile traffic in a pedestrian-oriented environment only detracts from the appeal. The team has restriped several miles of urban streets to incorporate bike lanes, and it has converted a segment of an abandoned rail line into a rail-with-trail path, branding it by linking it to the city’s industrial heritage. They have deflected graffiti from several bridges and buildings through an expansive and growing mural project. They have upgraded the riverfront park with an amphitheatre and recreational path. They have introduced several sculptural installations, the most prominent of which is the KokoMantis, a giant praying mantis made entirely of repurposed metal and funded privately. And my personal favorite: with the support of the City, the school superintendent has integrated a prestigious International Baccalaureate (IB) program to the public school system, including an international exchange program for young men from several foreign countries (a girls’ program should arrive in the next year or two) who live in a recently restored historic structure in Kokomo’s walkable downtown, attending demanding courses that bolster their chances of admittance in a coveted American university. Most impressively, the City of Kokomo has achieved all of this without incurring any public debt in the past year.

Obviously the individuals offering me this tour are going to make sure their Cinderella is fully dressed for the ball, and I recognize that not a small amount of the securing of certain infrastructural projects and transportation enhancement grants requires a political savvy that the current civic leadership has in abundance. And I don’t want to rehash Ms. Smith’s article, which more than effectively chronicles this approach at a macro level. In addition, Erika Smith recognizes, as do I, that very few of these initiatives (the IB foreign exchange program notwithstanding) are really particularly earth-shattering. But when most other similarly sized cities in the Midwest seem to be engaged in a race to the bottom, luring new industry through generous tax breaks (often initiated at the state level), Kokomo seems to recognize that a town lacking any amenities outside of low cost of living has to compete with dozens of other cities in Ohio and Michigan and Pennsylvania, and elsewhere in Indiana, that offer the exact same brand. Whether this investment yields a long-term return remains to be seen, but it certainly demonstrates the right gestures necessary to instill civic stewardship in a place whose decades of job loss have seriously scratched its mirror of self-examination.

What ultimately struck me about Kokomo—which Erika Smith only touched upon—was the level of design sophistication evident in some of these civic projects. I need only focus on a single location in the city, in which two particularly laudatory techniques are on display. At the intersection of Markland Avenue and Main Street, just south of downtown, the Industrial Heritage Trail begins its journey southward. Here’s a view as the trail terminates at its junction with those two streets, looking northwestward:

Here is a view in the other direction:

Continuing a bit further in this direction, one encounters this painted wall:

And, pivoting slightly to the left, another mural that is still in progress:

This photo series identifies two amenities that stand out for the astute decision-making that apparently took place during the implementation. The Industrial Heritage Trail clearly operates in a railway corridor, but it is not a rail-trail. Unlike the more common rail-trail conversion, this Kokomo trail did not incorporate the removal of the original rail infrastructure. The Rails to Trails Conservancy would label this approach a rail-with-trail, indicating that the trail shares the railway easement, typically separated by fencing. Rail-trails such as the Monon Trail in metro Indianapolis are still the more common practice. However, a growing number of communities are embracing rail-with-trails, not only because they obviate the need for costly removal of rails, ties, and ballast, but they reserve the rail infrastructure for the possibility that a railroad company may reactivate the line in the future. If the sponsors of Kokomo’s Industrial Heritage Trail had removed the infrastructure, the possibility of ever reintroducing rail along the corridor would be virtually nil. As it stands, the only conceivable disadvantage to rail-with-trails is that, in the event a rail company reintroduces train service, its close proximity to the path may prove hazardous to bicyclists or pedestrians. Otherwise, the decision to retain the railway not only helped to diversify options, it most likely saved a considerable amount of money.

The other smart decision was the site selection for those murals. The ones featured in the photos above are part of a growing mural campaign that the City of Kokomo introduced, and every one that I recall shows real foresight in the locational decisions. What makes them so good? The murals in the photos above front a public right-of-way, minimizing if not completely precluding the chance that later development will conceal them. I blogged a few years ago about an excellent mural in Indianapolis that showed wonderful care and craft in the entire implementation process…except where the conceivers chose to locate it. Not only did they paint on a cheap, cinder-block building that will likely tumble down if market pressures encourage new development in the neighborhood, but the mural also faces a vacant lot which is large enough to host a new structure that would block it completely, no doubt frustrating the community and pitting them against a developer.

Compare this to Kokomo’s murals. Here’s one a little further south on the Industrial Heritage Trail:

Again, it fronts the trail itself—not a chance that a developer will try to block it. And here’s another along a bridge underpass for the recently completed trail along the Wildcat Creek:

The original intention of the mural was to repel vandals at spot that previously suffered from it frequently; this approach has proven successful in locations across the country.  But it also sits in a park along a new greenway, so it should remain in perpetuity. Granted, Indianapolis has plenty of murals along retaining walls and buildings that front the aforementioned Monon Trail. Those, too, should survive far into the future. But in recent years, the City of Indianapolis has encouraged countless murals on the side walls of commercial buildings—sites where a blank wall faces a parking lot, where a building once stood. While these bare walls often scream for some ornamentation to help distract from what used to be there (another adjoining building), in many instances the parking lots will likely fall under increasing development pressure in upcoming years. Will the locals thwart development in order to save the mural? This remains to be seen, and I don’t want to base too much of an analysis on speculation. But it’s hard to deny that these public art investments seem less astute than the once I witnessed in Kokomo.

One could argue that Kokomo is merely taking advantage of the fact that it is jumping into the game relatively late; it benefits by learning from the mistakes of others. But decisions that stand the test of time also contribute their fair share to foster civic goodwill. Taxpayers are rarely too forgiving of poorly conceived projects, and several successive blunders, no matter how small they may be, demonstrate poor accountability. Only time will determine the return on investment, but Kokomo certainly has a leg up on many of its competing small cities. My suspicion is, if these projects stimulate the discussion and enthusiasm for proactive leadership that they suggest (Mayor Goodnight was re-elected last year by a landslide), the citizens of Kokomo are only beginning to stoke the fire.

This post originally ran in American Dirt on November 16, 2012.

Wednesday, July 16th, 2014

Paul Romer: Urbanization as Opportunity

NYU Economist Paul Romer gave a great talk at last month’s New Cities conference in Dallas. Called “Urbanization as Opportunity,” it’s now online and I’ll embed below. The first 2-3 minutes are warm up then it really gets going. Great stuff around crime, public space, etc. If the embed doesn’t display for you, watch on You Tube.

There are large number of additional New Cities videos online should you wish to browse them.

Sunday, June 15th, 2014

Is Brazil Still the Country of the Future?

Not long ago, Brazil was riding high. It was feted as one of the “BRIC” nations destined to be the next world economic powers. The commodities boom had its natural resources and agricultural sectors humming. The press – for example, Monocle magazine’s swooning over Brazil’s push to boost its diplomatic presence – was adoring. And Rio was awarded the 2014 World Cup and the 2016 Olympics, two events that were intended to both serve as a catalyst for further development, and also as a coming out party of sorts for the country.

The World Cup is underway, but otherwise things haven’t quite worked out as Brazil thought they would. The average citizen of the country is upset at the vast sums being spent on international events that don’t benefit them. The last two years have featured riots, strikes, and various other expressions of unrest. Economic growth in the country has collapsed. In a special section last September, the Economist asked, “Has Brazil Blown It?

Late last month the McKinsey Global Institute issued a major report on the country called “Connecting Brazil to the World: A Path to Inclusive Growth.” At 104 pages, it’s massive, but a must read for anybody interested in South America’s giant.

And it’s a somewhat depressing read as well. Though there are immense strengths and opportunities for the future, Brazil has big problems too, most of them longstanding, and which hobble its aspirations.

Brazil is the 7th largest economy in the world and the 7th leading destination for foreign direct investment. But it’s 95th in per capita GDP, 114th in the quality of its infrastructure, and 124th in its level of ease in trading across borders. Its export sector is also heavily commodity dependent, particularly oil. Ranked only 43rd in global connectedness on McKinsey’s index, they estimate a potential boost of 1.25% (presumably percentage points) to annual GDP growth from improvements on that measure alone.

Three particular items jumped out at me from the study. One is the “custo Brasil” – the Brazil cost, so notorious it gets its own Wikipedia entry. A variety of factors from bureaucracy to the tax regime to an uncertain legal climate, poor infrastructure, crime, and corruption make the cost of doing business in Brazil very pricey indeed.

The second is the very low rate of investment in the economy. Brazil’s gross investment rate as a percentage of GDP is 18%, compared with 26% in Chile, 29% in Mexico, 40% in India, and 49% in China. Conversely, government consumption is at 22% in Brazil vs. 12% in Chile and Mexico, 13% in India, and 14% in China. Private consumption is similar in the countries except for China, which is notably lower. This probably helps explain the poor state of the infrastructure in the country.

The third is something I have personal experience with, namely protectionist trade barriers designed to create and sustain domestic industries in sectors like autos and computers. I suspect these rules were modeled on Japan, and more lately China, which used rules and business practices to build successful local champions. But in Brazil this has rendered its industry sclerotic. In effect, cars sold in Brazil have to be made in Brazil, ditto for computers, etc. This is where my personal experience comes in. When we were doing global PC procurement, Brazil was always a special case and our vendors had to have special Brazil made PCs for domestic use. This may not be an actual rule, but tariffs produce a de facto barrier. While this technique may have worked in Japan, it’s clear that it failed in Brazil. As the exception that proves the rule, McKinsey uses the example of regional jet manufacturer Embraer as a counterfactual. That company was privatized and opened to global competition. The result is that its got tough itself and is now an industrial champion for Brazil.

There are tons of statistics in the study that are worth scanning just to see. Brazil is consistently benchmarked against Chile and Mexico in Latin America, as well as fellow BRICs India and China. The comparisons aren’t pretty.

Reading a lot about the country in the last year, I put its problems into three categories: poor governance, geographic disadvantage, and scale disadvantage.

1. Poor Governance
Most of the issues pointed out by McKinsey fall squarely under the heading of poor governance. The contrast with nearby Chile could not be more plain across every dimension: corruption, the rule of law, investment, public sector debt, tax burden, infrastructure, regulation, etc.

Latin America seems to prefer two sorts of governments these days. One is a right wing nationalist heir to the military juntas of the past, best exemplified by the Kirchner regime in Argentina. The other are left wing populist-nationalist movements like Venezuela that tend to feature a streak of anti-Americanism. Both of these have produced pitiful results.

Brazil is a sort of lite version of the latter. Lula da Silva was a charismatic labor activist who led strikes and was jailed by the previous military dictatorship in his youth. Post-democratization, he went into politics. After moderating some of his more radical views, he was elected president on a reform agenda. While he had some success and was arguably and improvement on his predecessors, he ultimately failed to deliver on material changes in governance. His hand picked successor Dilma Rousseff has not been as effective and is in an electoral struggle for another term.

In line with the nationalist streak of this governing type, one of Da Silva’s primary concerns was Brazil’s amour-propre. As one of the world’s largest countries, he found it self-evident that Brazil should be treated as a great power. He lobbied for Brazil to have a permanent seat on the UN Security Council. He and others responded in kind to any affront to the nation’s pride, such as requiring American and only American visitors to be finger printed after the US imposed a fingerprinting requirement on foreign visitors. He sought out diplomatic coups where ever he could find them, which included cozying up to unsavory characters like Mahmoud Ahmadinejad who thinks Israel should be destroyed and that Iran has no gays (presumably because he has them executed when he can find them).

Da Silva forgot that there’s more to being a great power than being a big country – you’ve got to earn it. And as a very popular politician he did not seize his moment of opportunity to truly grasp the nettle of reform.

Meanwhile nearby Chile is one of the Latin American governments that’s followed a different model. It’s been run by center-left governments more or less the entire time since the restoration of democracy, and they’ve delivered on a good governance model that has taken them to effectively developed country status. Chile is now even a member of the OECD. Chile is basically the Minnesota of Latin America, and the results demonstrate it. This should show Brazil the size of the prize if the get their act together.

2. Geographic Disadvantage
Brazil is simply a long way from major developed markets. This puts it at a geographic disadvantage versus many other countries. Current airplanes cannot make a non-stop flight from Brazil to East Asia, arguably the most important emerging part of the world. It’s even a long haul from the United States, with relatively few gateway cities vs. say major European capitals. Brazil is time-zone advantaged with the US, however. It also speaks Portuguese instead of Spanish, which imposes a linguistic handicap.

3. Scale Disadvantage
Brazil is a big country, geographically and in population. Size can be an advantage, but it also makes reform difficult as it’s hard to turn a battleship. Brazil’s population of 200 million is more than ten times that of Chile.

Brazil’s two principal cities, São Paulo and Rio de Janeiro, are also megacities. São Paulo in particular is huge, and at north of 20 million people (more than the entire country of Chile) is the 10th largest city in the world. I recently wrote that it’s unlikely the world’s emerging megacities will turn the corner in eliminating dysfunction. Their problems are just too huge and their national growth rate too low. Though I’d consider this more hypothesis than conclusion at this point, my rule of thumb is that a megacity can only achieve escape velocity from pervasive dysfunction if they are a major city in a country that is the world’s current rising economic (or historically imperial) power.

Brazil is not that country, and two mega cities will be a drag on growth. Although São Paulo is an important emerging global city – 23rd in the world in a forthcoming report I helped create – I’m told that both São Paulo and Rio are growing more slowly than secondary cities in the country. A previous McKinsey study threw cold water on the idea that megacities are an advantage, noting their under performance by saying:

It is a common misperception that megacities have been driving global growth for the past 15 years. In fact, most have not grown faster than their host economies, and MGI expects this trend to continue. Today’s 23 megacities—with populations of 10 million or more—will contribute about 10 percent of global growth to 2025, below their 14 percent share of global GDP.

In contrast, 577 middleweights—cities with populations of between 150,000 and 10 million, are seen contributing more than half of global growth to 2025, gaining share from today’s megacities.

So I’m not surprised that it’s Curitiba, not one of the megacities, that’s where the innovative BRT revolution was begun. If I were looking to invest in Brazil, I’d be looking at this next tier of cities. Nor is it surprising that Santiago, Chile (population 5.4 million) has had great success in modernizing given its more moderate size.

Plain and simple the degree of difficulty is higher in Brazil because of the size.

Brazil is also a very racially diverse country with a number of challenges resulting from its history of oppression. Brazil had more slaves than any other country in the world and was the last New World colony/nation to abolish it. If slave reparations are on the agenda in the United States, how much more so similar issues in Brazil? Again, contrast with Chile, which never had very many slaves and abolished slavery in 1818. With the exception of a relatively few indigenous peoples on reservations, Chileans largely perceive themselves as ethnically homogenous, though with some skin tone based status (moderately sized…historically racially homogenous…Minnesota?)

Which is to say that it’s tough to entirely fault Brazil for not living up to the example of Chile. Its degree of difficulty is much higher. And its geography hamstrings its global interaction.

Nevertheless, solving the governance challenges to address the real issues Brazil faces remains the top agenda item. McKinsey has laid out a number of good suggestions, the real question is whether or not Brazil’s socio-political system can produce the ability to implement them.

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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