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Sunday, May 6th, 2012

The OECD Reviews Chicago

Update 5/20/12: This post has been edited to reflect a correction. Please see here for details.

The Organization for Economic Cooperation and Development (OECD) is an international organization that has its roots in the administration of Marshall Plan aid to rebuild Europe after World War II. The OECD was invited by the Chicagoland Chamber of Commerce* to perform a “territorial review” of Chicago’s regional economy. I believe this is the first such review the OECD has ever undertaken in the United States. The results were released a couple months ago. The Chicagoland Chamber graciously sent me a copy. (The report is available online here – thx Jim Russell for the link). I did a read through of this inch-thick, 332-page report and wanted to share a few observations about it. As the quote at the top might indicate, this report, like Rahm Emanuel’s economic strategy, was fairly gloomy. My points will be topical and not an integrated narrative as I did not get to undertake as thorough a review as I might like.

Interesting Statistics

The OECD review amassed quite a bit of interesting statistical data on Chicago and puts them in the context of other major cities in the 34 countries that comprise in the OECD. I think that by itself made the review worth doing. I might suggest other cities take a look at this to determine if such a study would be relevant to them, particularly as international comparisons can be difficult to pull off.

This report is a goldmine of stats and there’s way too much to list here, but a few things that jumped out at me:

• The OECD report benchmarked labor productivity, which is less commonly looked at in economic studies. Chicago’s is above average but growing more slowly than average.
• Chicago has trailed the nation in job growth. Had Chicago simply matched the national average in job growth since 1990, the region would have 600,000 more jobs than it does today.
• There was quite a bit of sectoral analysis of Chicago’s economy. In fact, they actually normalize the sectoral composition of Chicago’s economy when looking at job growth to see if its under performance in job growth was due to concentration in slow growing sectors – but it was not.
• Chicago is known for having America’s second largest business district, but it ranks only fifth out of the top ten regions in America for the percentage of its jobs in the core city. Between 1960 and 1990, over 96% of new regional jobs were created outside downtown.
• There were many other interesting statistics around labor force participation, mobility of educated labor, elderly dependency ratios, educational attainment, poverty, patents, the structure of governments, taxation, etc.

Excess High End Talent

According to the OECD, Chicago suffers from a skills mismatch in its workforce. This is not just true at the bottom end of the economy as might be expected, but also at the top end, where there is a surplus of highly skilled labor:

At the high end, there is a large pool of high-skilled, highly educated workers, in principle more than sufficient to fill the jobs available at that level … at the high-skill end, data for the tri-state region points to an apparent oversupply.

To some extent this shouldn’t be a surprise. Chicago is a desirable city for people to live in, particularly for educated workers inside its heartland catchment area. As with other big city talent magnets, the economy doesn’t always supply the right employment for all the people who want to live there. The many articles about unemployment in Portland, for example, illustrates this, and Chicago is similar. In that regard, you might see the skills surplus as a sign of local strength.

However, the skill concentration in Chicago isn’t producing the type of high end innovation economy seen elsewhere. As the OECD notes, “Indicators suggest that the Chicago Tri-State metro-region does not rank as highly among the US knowledge hubs as one might expect, given the size of its economy and population and its concentration of world-class research universities.”

Also, Chicago may not be as attractive a talent hub as its aggregate numbers indicate. Again per the OECD:

To be sure, the Chicago Tri-State metro-region remains an attractive place for many migrants, but it is less attractive than many of its US metro-region peers. Moreover, if the analysis is confined to highly educated people of prime working age (25+, with at least a bachelor’s degree), then the picture is even more problematic. During 2005-09, more such people moved into the area than left it, but the net gain was relatively small compared with other large US metro-regions. Los Angeles, for example, benefited from a net gain of nearly 80,000 highly educated people in 2009, compared with 3,500 for the Chicago Tri-State metro-region.

When you under-perform as a talent magnet and still can’t put high skilled labor to good use, that’s a definite sign of trouble. This was one thing that was eye opening for me in the study as I’d previously assumed the high end of the market was in pretty good shape and that skill mismatch problems were the result of a large under-educated population vs. open jobs requiring mid-tier skills.

Policy Prescriptions

The OECD’s recommendations were not nearly as strong as its assessment of the region’s conditions. This shouldn’t be surprising as it is easy to look at data and see what may be wrong, but it is not always obvious what to do about it. The recommendations fall into five broad categories:

• Better Skills Matching
• Improving Innovation and Entrepreneurship
• Investments in Transportation and Logistics
• More Green Industry Growth
• More Effective Institutional Arrangements

First off, including “green growth” as one of only five major chapter headings is a joke. The aggregate number of jobs identified as specifically green is small. And as I’ve noted many times, there’s no such thing as green industry. Pretty soon there will just be industry again – it will all be green. So if Chicago and the US aren’t doing well at today’s industries, why would we think they would do any better at tomorrow’s? “Green” isn’t some sort of fairy dust you can sprinkle on and work wonders with. If anything, the acceleration of transition to more green practices will only drive more manufacturing offshore, exactly as it did with light bulbs. The track record of trying to create “green jobs” almost everywhere has been poor and has failed to live up to the hype, so I can’t believe the OECD is doubling down on this snake oil.

For the other areas, the OECD doesn’t break much new ground, though does highlight some interesting international case studies of regions getting it right. The sections more or less regurgitate the laundry list of organizations and initiatives already in place, then tag on “do more and coordinate better.” Examples include, “create region-wide capacity to match skills supply with demand” and “broaden the innovation focus [to include] non-science-and-technology-based innovation.”

By contrast, there was little focus on what counterproductive initiatives might be trimmed. While, for example, the report notes that many of the excessive numbers of local governmental units probably should be eliminated or merged, it doesn’t really look at how many of the alphabet soup of various non-governmental civic development groups might likewise be better off euthanized. Given the unified civic leadership nexus of Chicago, this should in theory be much easier than killing off governments, which are famously resistant to elimination. It’s hard for civic sector leadership to scold state legislatures about the need to consolidate when they can’t even do it themselves. This shows that the OECD had to deal with local political reality, so it probably pulled a lot punches in the recommendations. Statements of raw flattery such as “All key public and private stakeholders are keenly aware of what needs to be done to address these issues effectively” show the extent to which the OECD wanted to avoid ruffling feathers and challenging the Chicagoland status quo, which is disappointing.

I might also take issue with the way the problems were attributed to these structural factors without addressing at any great length many of the clear drivers of Chicago’s under-performance. For example, Chicago is the regional capital of a greater Midwest that has been struggling as a whole. It’s tough to swim upstream against that. (I’ll have more to say on other underlying factors in a subsequent analysis of my own).

In short, this report got it half right in giving us a very good look at the current conditions, strengths, challenges, and international comparisons. Where it lagged was in fully articulating the structural landscape driving the under-performance and developing compelling strategies for turning the ship around. Still, if I were a region out there looking for a good snapshot of where I stood in the marketplace, the OECD would be on my list of people to call.

* Disclosure: I won a competition sponsored by the Chicagoland Chamber in 2009.

Wednesday, April 18th, 2012

Real Scene: Berlin

I linked a couple weeks ago to a series of video shorts on Detroit. One of them was a documentary about the city’s techno heritage. The same producer created videos of other techno scenes as well, including the one below of Berlin.

It’s an interesting overview of a slice of Berlin’s famous creative scene, but I wanted to highlight a couple points about it. First, per the video, the thing that originally drew creatives to then West Berlin was a West German law that residents of West Berlin were exempt from compulsory military service. Second, a key catalyst for the explosion of the techno scene was the collapse of the Berlin Wall. This led to a mass exodus from East Berlin that left many abandoned structures with no clear legalities around their ownership or use. The curious and creative Western draft avoiders then went to explore these and ended up creating the techno scene.

I think this is interesting in assessing policies to lure the creative class and what you need to do to support a creative scene. There was no policy to attract creative people to the city. They came on their own to exploit a loophole in a law wholly unrelated to creativity. Once there, they took advantage of cheap, available spaces with few restrictions on what to do, catalyzed by a massive social upheaval.

This suggests the genesis Berlin’s creative environment was an accident that can’t be replicated by others. The one item that seems amenable to copying is cheap spaces with few restrictions. Indeed, this is sort of what we see playing out in Detroit at present. It’s hard for cities perhaps to produce the spaces in the first place, but they can make a choice to keep their hands off when people start experimenting. Detroit did this unintentionally through government incompetence and severe resource constraints. Whether other more capable city governments can resist the urge to intervene is a question yet to be answered. For more thoughts on this, see Detroit as Urban Laboratory and the New American Frontier.

Here’s the video: If it doesn’t display for you, click here.

Sunday, April 15th, 2012

Nashville Rolls On

I have a friend in Nashville and try to get there about once a year for a visit. He knows my insatiable desire for urban exploration, so tries to take me around to new places each time, which is awesome. A couple of my previous trips were documented in the posts “Impressions of Nashville” (from 2007) and “Nashville: Next Boomtown of the New South” (from 2008). As with previous visits, I want to highlight a few observations I had.

The first is, “What Great Recession?” Yes, Nashville surely suffered from this, and there’s a notable absence of private sector construction visible that testifies to that, especially in marked contrast to my first visit in 2007. Yet what you feel in Nashville is a sense of vitality and a sense of optimism. This is a place that hasn’t lost faith in its destiny.

I think that can’t be overstated in a city. It feels good to have the wind at your back. It feels good to be in a place where the people believe they are headed towards better days and towards a better future. Just like bandwagon sports fans, people want to sign up to be with the winning team and while the future can’t be predicted, Nashville looks like a winner and its people believe they are winners. I can feel the difference in the air versus say even the best performing Midwest metros like Columbus or Indianapolis.

Nashville was the 12th fastest growth large metro in America in the 2000s, growing at 21.2% and adding 278,000 people during the course of the decade. Last year, like most regions, growth slowed, but remained healthy at 1.4%. During America’s “lost decade” of job creation, Nashville added 36,000 jobs. Nashville’s job growth last year ranked 5th among large cities at 2.4% or 17,400 new jobs. The sense of optimism is fully backed up by the numbers. Lots of places would kill to be performing like this.

Beyond simple internal growth, Nashville is an attractor city. People from outside want to move there and I’ve met many people originally from someplace else. While this is changing or diluting the culture – southern accents are in decline in various precincts, for example – in ways some might not like, as I’ve noted before, having a critical mass of outsiders is very important to urban success.

The driver of this seems to be the music industry. I’ve gotten in the habit of asking people why they moved to Nashville. Music is by far the most common answer. (In fairness, perhaps this is something that’s de rigueur to say, and people don’t want to admit to having moved for more prosaic reasons). That industry is clearly key to the city. Not only is it economically important in its own right, but it draws media attention and even draws celebrities (not all of them country stars) to live there. Music is like a lot of other industries. It’s easier than ever to get into the game and I suspect most cities have a vastly better music scene than they did a decade or two ago, yet the peaks of the industry are also higher than ever, and Nashville is one of the peakiest of all.

The other thing music drives is tourism. Nashville is a big (but thankfully not too big) tourist draw. Again, this creates brand awareness and drives economic growth, but also exposes people to the city. I’d say that increases the likelihood of attracting people. My point of view on Nashville before visiting it would have been to assume it was a sort of hillbilly heaven, but I learned it was more cosmopolitan by visiting it. It’s a city I could actually live in. Drawing visitors gives Nashville the opportunity to tell its story and make a pitch for the place.

Nashville also is implementing some very forward looking urbanist policies. I noted before their form based code, high quality basic urbanism of the new development in the central city, and legitimate infill densification. They continue to up their game here, with a major rezoning that effectively eliminates traditional zoning in the downtown apart from banning heavy industrial use, and eliminates minimum parking requirements. That’s huge and we’ll see what dividends it pays over time.

Everything isn’t perfect in Nashville. My friend worries that if he ever lost his job, there would be few corporate opportunities available to someone with this skill profile. Nashville doesn’t yet have the large and diverse employer set of major cities, making planting your flag there somewhat risky outside of industries like music and health care. Assuming the city continues its growth, this will be addressed over time. But it’s something that should inform the city’s recruitment efforts. The city is very focused on trying to lure corporate HQ relocations. But trying to lure an HQ where there’s little overlap with the existing industry base might not be the best idea.

Also, Nashville suffers from a notable lack of quality in some areas. I previously mentioned their second class infrastructure standards. This place too often suffers from a southern “bare bones” feel, even in new development. Also, the architecture is extremely conservative. This seems not to have harmed their growth and perhaps really isn’t that important in the short term, no matter how much I might want it to be. Where I believe it makes a difference is over time as things age. If things are super-cheaply done and notablw mostly for being new and to contemporary style, they may lose their appeal over time and end up as struggling redevelopment zones 20-30 years down the road as so many other places have.

But that’s a problem for another day. For now Nashville continues to rock and roll, as it were.

Monday, April 9th, 2012

Replay: “James Drain” Hits Cleveland

The ten story of mural of LeBron James is coming down in Cleveland. This one hurts. James wasn’t just the latest embodiment of Cleveland’s hopes, he was a local kid who, unlike so many, had stayed home in Northeast Ohio. His joining of the Cleveland exodus at a time of severe economic distress prompted Cavaliers owner Dan Gilbert to pen a now infamous open letter to fans:

As you now know, our former hero, who grew up in the very region that he deserted this evening, is no longer a Cleveland Cavalier…..The good news is that the ownership team and the rest of the hard-working, loyal, and driven staff over here at your hometown Cavaliers have not betrayed you nor NEVER will betray you….This shocking act of disloyalty from our home grown “chosen one” sends the exact opposite lesson of what we would want our children to learn. And “who” we would want them to grow-up to become….

Forty years of frustration boiled over in that letter. Gilbert is from Detroit, but perhaps that’s why he too shares these feelings so viscerally.

Cleveland’s “Big Thing Theory”

In a sense though, Cleveland’s disappointment was inevitable. LeBron James was never going to turn around the city. No one person or one thing can. Unfortunately, Cleveland has continually pinned its hopes on a never-ending cycle of “next big things” to reverse decline. This will never work. As local economic development guru Ed Morrison put it, “Overwhelmingly, the strategy is now driven by individual projects….This leads to the ‘Big Thing Theory’ of economic development: Prosperity results from building one more big thing.”

These have all failed, now even “King James”. The trend lines haven’t changed, even where the individual projects have done well. But often even that hasn’t happened. For example, the Flats, a once-thriving entertainment district in an old warehouse district, now resembles, as one local comedian put it, a “Scooby Doo ghost town.”

Combating “James Drain”

James’ departure also fits the narrative of generalized anxiety around “brain drain” and cities losing their best and brightest of each generation. As lots of people really have left Cleveland, this is understandable. But the real story is much more complex. A look at IRS tax return data shows that in reality Cleveland doesn’t have especially high out-migration. Its metro out-migration rate* in 2008 was 28.02. Miami’s was 40.34 and for even the boomtown of Atlanta it was 38.95. Not only is Cleveland not losing an especially high number of people, you can actually argue it is losing too few. A big part of the problem in Cleveland’s economy is that too many people are stuck there.

Conversely, a real migration problem is that too few people are moving in. As local attorney Richard Herman noted, “New York City and Chicago, like most major cities, see significant out-migration of their existing residents each year. What is atypical is that Cleveland does not enjoy the energy of new people moving in.” The Cleveland metro in-migration rate was only 22.19. Miami’s was 30.36 and Atlanta’s a robust 51.91.

Cities need new blood. Cleveland isn’t getting it. Its circulatory system is shut down. Cleveland needs more natives to leave and more newcomers to arrive. Both sides win. Those Cleveland departees will move on to be part of the new energy other cities so desperately need. James is going to get to live the high life he wants in South Beach, but somebody else will be fired up to get the opportunity to play in Cleveland.

Selling Cleveland

But that begs the question, what’s going to get more people to move to Cleveland? The fact is, James wasn’t getting the job done, and never would. Nor will amenities like the Cleveland Orchestra or the Rock and Roll Hall of Fame Museum.

The mistake Cleveland and other Rust Belt cities make is that they are too worried about the likes of LeBron James moving to Miami. For people with the means and the desire to choose a place like South Beach, Cleveland simply can’t compete. And let’s not forget, James snubbed Chicago, New York, and Los Angeles too.

Rather than trying to take on the Chicagos, Miamis, and New Yorks of this world at their strongest points, Cleveland would be far better served ceding that market and fighting where it can best compete. Believe it or not, not everyone wants to live in a huge global city. There are plenty of people who might choose to live in Cleveland, if the city focused on the basic blocking and tackling of city services, quality of life, and business climate instead of splashy grands projets. As Anthony Bourdain said this week:

I think that troubled cities often tragically misinterpret what’s coolest about themselves. They scramble for cure-alls, something that will “attract business”, always one convention center, one pedestrian mall or restaurant district away from revival. They miss their biggest, best and probably most marketable asset: their unique and slightly off-center character….Cleveland is one of my favorite cities. I don’t arrive there with a smile on my face every time because of the Cleveland Philharmonic.

In short, Cleveland needs less South Beach, less Chicago Loop, and more American Splendor. Ultimately, my bet is Cleveland will end up missing Harvey Pekar a lot more than it will any multi-millionaire sports star.

Shooting the Messenger

Who is going to get that message out about Cleveland? After that sendoff, it sure won’t be LeBron James. That’s a shame. As Jim Russell has richly illustrated, people make migration – and investment – decisions based on knowledge, not just information. Nobody picks a city to live in by entering reams to statistics into a sixteen tab spreadsheet. They’re more likely to move to be near family, friends, or places they know. That knowledge comes from first hand experience – and trusted recommendations.

Until the switch flips on Cleveland’s brand, it needs to be out earning that trust of prospective residents. The people who’ve left aren’t Judases, they’re your field sales force – or at least they should be. James could have been a missionary “Witness” for Cleveland in a foreign land. Instead, Cleveland blew an enormous opportunity, and left itself with little more than soured memories and a partially demolished mural as an ephemeral reminder of yet another failed Next Big Thing.

* Tax return exemptions migrating per 1000 overall tax return exemptions in the base year.

This post originally appeared at New Geography on July 14, 2010.

Thursday, January 26th, 2012

The Case for Quality of Space

Last November I was privileged to be able to speak at a community conversation event in Franklin, Indiana – a town of about 25,000 people south of Indianapolis that is an old county seat on the edge of suburban expansion – sponsored by Indiana Humanities and Ball State University’s Bowen Center for Public Affairs.

The topic of the evening was quality of space and what, if anything, Franklin should do in this area. There had recently been some big disputes over downtown redevelopment projects I believe.

I gave a talk that set the stage for this conversation. In it I make the case for why high quality of place is of importance to a community. I root it in a business case analysis based on globalization and structural changes in the economy, the impact of that on Indiana’s competitive positioning, and a real life example of the potential payoff. I then talk a little bit ways to actually make quality of space happen.

Before the video though, I should mention that I am for hire to speak at your event. For details, arenn@urbanophile.com. As you’ll see from this, I work to create something custom and compelling for your audience, not a canned talk. And I basically treat it as a mini-consulting engagement to drive more value for you.

The video is below, followed by an outline of the talk. I hope you enjoy. (If the video doesn’t display for you, click here).

I. The Case for Quality of Space

A. History of Globalization and Structural Economic Changes: Indiana has gone from competitively advantaged to competitively disadvantaged.

B. The Impact of Economic Change: Indiana has trailed the country in jobs and incomes

C. Implications of the Situation:

1. If nothing changes, expect more of the same poor results. This means real change, not just tweaks.
2. Indiana cannot be competitive purely on a cost basis ever again. Even domestically, there are cheaper locations like Texas, and overseas competitors are much cheaper. Cost control and quality regulations are still very important, but cost cannot be the sole basis of competition.
3. Indiana must compete today at least in part by creating a civic product people want to buy on its own merits, not just because it’s the cheapest thing on the market – because it isn’t.

D. But Doesn’t Franklin Already Have High Quality of Space/Place?: Yes. Yet consider:

1. Much of what makes the high quality of a community like Franklin is the people who live there and their shared history. Newcomers can’t judge a community by this yet.
2. Much of what makes our communities physically great was built a long time ago. The question is how we build on that legacy to meet the challenge of the 21st century.

II. The Benefits of Quality of Space: Columbus, Indiana Case Study

A. Why a Case Study of Columbus? It’s nearby for locals to check out themselves, it has a strong and comprehensive commitment to quality of space, and is closer to a typical blue collar community than say a Big Ten college town.

B. Columbus Economic Performance: Outperforms all non-Big Ten college town Indiana peers and also has outperformed the nation as a whole on jobs and income.

C. How Much Did Columbus Pay for Its Quality of Space Plan?

1. Columbus tax expenditures per person are higher than most peers. They did spend money on this. Not free.
2. But Columbus tax rates are among the lowest of its peers.
3. How is this? Columbus has the largest tax base.

D. Two Fallacies of Government

1. Democrat Fallacy: The only thing that determines government revenue is the tax rate.
2. Republican Fallacy: The only thing that determines tax bills is government spending.
3. Both claims are based on short term thinking. Need to evaluate the life cycle implications of policy choices. Columbus spent more but pays less now because they understand total cost of ownership.

III. Bringing Quality of Space to Life

A. Four Planks in a Quality of Space Program

1. First Class Public Buildings: We used to build them this way, so doing it today is following an old tradition, not doing something different.
2. Focus on Value per Dollar: It’s not always about more money. A bit part of it is making sure the money you do spend gets the full value per dollar.
3. Find Low Cost, Fast, High Impact Items
4. Build on Unique Qualities: In Franklin’s case, Franklin College

B. Closing Caveats

1. Quality of space is a long term game. You don’t see immediate results from a trail. Columbus took 60 years to get where it is today. Indy’s downtown sports strategy started 40 years ago, but it is just now getting to host the Superbowl.
2. Make sure that whatever you do is specific to your community. Don’t let somebody else sell you an off the shelf solution that merely copies what others are doing.

Tuesday, December 20th, 2011

Chicago: What’s Changed? What Hasn’t? by Richard C. Longworth

[ After reading this blog post on Richard Longworth's own blog I went out and bought Global Chicago, which I think is still relevant today, even if some of the chapters that are mere compilations of Chicago's global assets won't excite out of towners. I wanted to share his post with you, which takes a look at where Global Chicago stands today - Aaron. ]

A few years ago, The Chicago Council published a book called Global Chicago, with two goals in mind. The first was a wake-up call to Chicagoans that their old industrial City of the Big Shoulders was gone, replaced by a global city with new strengths and challenges. The second was an attempt — probably the first anywhere — to study globalization's impact on cities by looking hard at one of those cities.

I was talking recently with the editor of the book, Charles Madigan, then a writer and editor at the Chicago Tribune (as was I), now Presidential Writer in Residence at Roosevelt University in Chicago. We were exploring what's changed in Chicago since the book came out, and what is unchanged — or still undone.

Perhaps the biggest change is that the wake-up call no longer is needed. The educational job is done. Chicagoans get it. Maybe we can take some credit, but mostly, it's the daily evidence of globalization's effect on the city that has convinced Chicagoans that it's not their granddaddy's economy any more. "Global city" and "Global Chicago" are buzzwords now.

The book listed many problems that absolutely needed to be solved — crumbling infrastructure, an antiquated public transportation system, a school system that fails the majority of its students. The sad fact is that so many remain unresolved to this day. As The Chicago Council and other civic organizations have written since, all these issues are still at the top of the city's agenda.

But one item barely appeared at all: how to pay for all this. The book appeared after the recession of the early Bush years, just as the false boom of the past decade began. Money seemed plentiful. It was more of a matter of fixing civic priorities than of financing them. The keywords of today's headlines — "budget," "debt," "deficit," "employees," "pensions," "taxes," "fees" — appear nowhere in the book's index.

How times do change (and remember, this was less than a decade ago). Urban financing, almost a non-topic then, is the Big Issue now. Chicago still needs to fix its schools, roads, sewers, public transport. But mostly it has to figure out how to pay its bills in an era of big debts and big deficits.

The city is awash now in financing ideas, including the privatization of public services like Midway Airport and a plethora of user fees to raise money. Some of this has already happened, like the privatization of the Chicago Skyway, which seems to be working, and of the city's parking meters, which isn't. But none of these new ideas, including privatization, was even on the civic agenda when the book came out. 

Chicago also is toying now with proposals for a casino or other forms of gambling to raise money. Back then, some leaders wanted a casino, but it never came close to being built. 

When the book came out, Chicago was on an upswing, drawing in people and business from around the world, growing in jobs and output. But decline lay around the corner. Since then, as a new report by Metropolitan Strategies says, Chicago has lagged the national average in economic growth, job creation, population growth, patent output and other measures of economic vitality.

Global Chicago celebrated a global city on the make. I suspect a new edition, published now, would be a more somber book.

Since then, Chicago has tackled two huge projects and succeeded at one, failed at the other. The success was Millennium Park, the huge and glittering downtown park that has given Chicago what it always lacked, which was a Tuileries, a central meeting place where the divided and balkanized city could come together. It also has changed the face of the city by revitalizing the Loop, the tattered old business district south of the Chicago River.

The failure was the bid to get the 2016 Olympic Games to Chicago. The bid itself was anemic and inadequate, not a patch of the Olympics project that Barcelona, for instance, used to remake itself. Perhaps more than anything else, the Olympics bid was the work of a tired old guard that, after Millennium Park, had run out of ideas. It was Mayor Daley's swan song, the last big initiative before he retired.

His retirement and the election of Rahm Emanuel as mayor is the most obvious change since the book came out. The book talked about how Mayor Richard M. Daley had taken the Democratic Machine created by his father, Mayor Richard J. Daley, and adapted it to the new chores of a global city. That Machine still exists, but with new people in charge. No one knows whether they will simply pour new wine into the old bottle, as did Daley II, or will reform Chicago politics from the ground up.

The financial sector of the city suffered back then from the lack of a major locally-owned bank. That hasn't changed. But in 2004, the big LaSalle Street markets, like the Board of Trade and Chicago Mercantile Exchange, were permanent parts of the financial landscape. Now the Merc is threatening to leave town to a more tax-friendly haven.

One question not asked in the book: is it possible to have a first-class city without first-class newspapers? No need to ask the question then: Chicago had two fine papers. The papers still exist but are so crippled by job cuts, coverage restrictions and bankruptcies that no one would call them first-rate.

The book talked about the impact of immigrants on Chicago. Even then, demographic shifts were reshaping the city. Both blacks and whites have moved out of the city. Immigration into the city has slowed (possibly a blip, due to the recession), meaning that Chicago lost 200,000 people between 2000 and 2010: it's now down no less than 1 million persons, or 25 percent of its population, since its industrial peak in 1950.

But there's more to this shift than raw statistics. First, the Chicago region is sprawling, with exurban town and counties growing, mostly with whites. Latino growth is weakest in the city, strongest in the suburbs. White population is shrinking in the inner ring suburbs, but is growing strongly in the center of the city.

What's happening is something that wasn't seen when the book came out — the Europeanization of Chicago. As in many European cities, the center of Chicago is increasingly going upscale, becoming a province of wealthier white global citizens, while both blacks and Latinos are pushed out of the city into the suburbs.

One cause and result of this is improving public schools — for some Chicagoans. There is considerable anecdotal evidence of good public schools in more upscale city neighborhoods, plus private schools for those who can afford them. But all other evidence indicates that schools in less favored parts of the cities haven't improved at all, and still fail to graduate 40 or 50 percent of their students.

The book focused on continued economic vitality but seldom asked: vitality for whom? As urban financing moves front and center, Chicago has to ask itself what kind of a city it wants to be. It clearly wants to be a global city, drawing in the sort of people who can afford to live anywhere. But can it do this without pricing everyone else out of the city? Those census figures mentioned above don't give confidence.

Finally, the question of Chicago's relationship to its region is more vital now than then. This doesn't mean its relationship to the broader Midwest, although this is still important. But rather, in these straitened times, how can the city take its immediate economic region — from Milwaukee through northern Indiana and into western Michigan — and get it work together across state lines, to reinvent itself as a global megacity, as so many other cities and regions around the world are doing? 

Richard C. Longworth is a Senior Fellow at the Chicago Council on Global Affairs, author of the book Caught in the Middle: America’s Heartland in the Age of Globalism, and host of www.globalmidwest.org.

This post originally appeared in The Midwesterner blog of the Global Midwest Initiative of the Chicago Council of Global Affairs on October 25, 2011.

Sunday, December 11th, 2011

Replay: Migration – Geographies in Conflict

It’s an interesting puzzle. The “cool cities”, the ones that are supposedly doing the best, the ones with the hottest downtowns, the biggest buzz, leading-edge new companies, smart shops, swank restaurants and hip hotels – the ones that are supposed to be magnets for talent – are often among those with the highest levels of net domestic outmigration. New York City, Los Angeles, San Francisco, Boston, Miami and Chicago – all were big losers in the 2000s. Seattle, Denver, and Minneapolis more or less broke even. Portland is the only proverbially cool city with a regional population over two million that gained any significant number of migrants.

Those who find this an occasion for a schadenfreude moment attribute it to tax and regulatory climates. Clearly, things like cost of doing business are clearly very important. And indeed this is often under-rated by cool city proponents. And other things equal, people do prefer low tax jurisdictions. Still, is this the only answer, or is there another explanation? Could it be that rather than high costs driving migration, both costs and migration are being driven by other underlying factors?

Perhaps the root problem is structural change in the economy in the age of globalization. As business became more globalized and more virtualized, this created demand for new types of financial products and producer services – notably in the law, accounting, consultancy, and marketing areas – to help businesses service and control their far flung networks. Unlike many activities, financial and producer services are subject to clustering economics, and have ended up concentrated in a relatively small number of cities around the world.

These so-called “global cities” serve as control nodes for various global networks and key production sites for these services, along with other specialized niches they long had. In effect, more distributed economic activities requires increasing centralization of select functions, particularly the most highly value-added functions. Yet these activities are not set in stone; for example, areas that were once centers for global business, like Cleveland or Detroit, are fading; others like Houston and Dallas are rising.

Yet unlike the Texas cities, which retain a strong middle-class and middle-echelon economy, many of the more elite, established urban centers – for example New York and London – increasingly create parallel economies and labor markets in those cities. These cities now generally contain two kinds of people and firms: those who are part of the global city functions and those who are not. Those who are engaged in global city functions operate in a world of very high value-added activities; specialized, niche skill markets; and rising demand conditions. Those skills are not readily acquired outside of global cities. Often, they are sub-specialized to particular places as different global cities specialize in different niches.

In many cases, these functions have not yet migrated to India or China or often even another global city. This tends to inflate salaries significantly for these specialized, niche skill jobs.

On the other hand, many people who once thrived in these cities have not benefited from these economic forces. They often are in occupations where labor arbitrage is feasible, and their jobs can either be off-shored, or readily transferred to lower cost locales in the US. This includes manufacturing work, but also important but less specialized white collar occupations like basic accounting, loan officers, corporate IT, and HR. In short, the routine side of the traditional monolithic corporate headquarters and services firm.

In effect, in these global cities, two economic geographies share the same physical geography – and those economic geographies are in conflict. One set requires catering to high skill, highly paid workers and firms where cost is a secondary concern. The other involves occupations and industries where cost is very much a concern. The occupants of these two geographies have very different public policy priorities. Which of them will win out?

In a global city, particularly a mature and expensive one, the elite geography wins. It is generating the most money, and with money comes power and influence. Additionally, the high wage workers in these industries are simply able to pay more for real estate and other items. Their mere paychecks are driving up costs in the city they live in. They are re-ordering the city in their own high income image, aided and abetted by a speculative financial fueled housing bubble.

The prestige of these industries burnishes the civic brand, making them attractive to civic boosters. What’s more, leaders in global cities feel that these are their businesses of their future. For them the attractiveness of concentrating in areas where you think you can create a “wide moat” advantage makes sense.

This is why cities like Portland, Minneapolis, Denver, and Seattle haven’t fared nearly so badly – they aren’t really full metal global cities and thus, while not always cheap, have remained relatively affordable versus places like San Francisco and New York.

At the same time it is not easy for these more expensive cities to adopt a low tax, low cost approach. For many reasons, places like San Francisco, New York, and London will never, no matter what they do, be able to match Atlanta, Houston, or Dallas, or even Chicago in a war on costs. That would be a suicide mission. Their logical strategy is to follow the law of comparative advantage, and specialize where you have the best competitive position in the market, and that’s global city functions.

Many other cities have followed this strategy, but with differing success. Fearing to end up like the next Michigan and Detroit pair, many states and cities have invested heavily to build up urban amenities to cater to the global city firms and their workers: transit systems, showplace public buildings, art and culture events, bike lanes, and beautification. Cost fell by the wayside as a concern, as did investments in priorities of the traditional middle class.

This explains why, for example, not only have taxes gone up, but things like schools and other basic services have declined so badly in places like California. Traditional primary and secondary education is not important to industries where California is betting its future. Silicon Valley, Hollywood, and biotech draw their workers from the best and brightest of the world. They source globally, not locally. Their labor force is largely educated elsewhere. Basic education and investments in poorer neighborhoods has no ROI for those industries. With the decline of high tech manufacturing in Silicon Valley, even previously critical institutions such as community colleges are no longer as needed.

The same goes for growth and sprawl. They are playing a game of quality over quantity. They specialize in elite urban areas and elite suburbs or exurbs. For example, San Francisco also has Marin, Palo Alto and Los Altos Hills. New York has, in addition to Manhattan, Greenwich and northern Westchester. The only thing they need size for is sheer scale in certain urban functions, and they already have it. Growth is unnecessary for them and only brings problems.

It also explains the highly pro-immigration stance of these cities, as a large service class is needed for globalization’s new aristocrats. Immigrants are needed as low cost labor in the burgeoning restaurant and hotel business. In America’s global cities immigrant housekeepers, landscapers, and nannies are common. They may not dress like His Lordship’s butler, but that doesn’t make them any less servants.

Lastly, it explains why we have seen the same polarizing class pattern so consistently despite broad geographic and socio-political differences between places like Los Angeles, Boston, and Chicago, to say nothing of overseas locales like London. A common global phenomenon probably has a common underlying cause.

The traditional middle class, feeling the squeeze, is simply moving to where its own kind is king and its own priorities are catered to. In a battle of conflicting economic geographies, the one with higher value added wins, displacing others in what Jane Jacobs termed the “self-destruction of diversity”. First, an attractive environment draws diverse uses, then one becomes economically dominant and, through superior purchasing power, displaces other uses over time. The story ends when that dominant economic activity exhausts itself – the true danger facing global cities, though fortunately they are generally not dependent on just one small niche. It’s basic comparative advantage.

If you are just an average middle class guy, why live in one of those global cities anyway? Unless you have roots there that you value, take advantage of something you can’t get anywhere else such as by having a passion for world class opera, or are one of globalization’s courtiers – a hanger on like a high end chef, artist, or indie rocker, perhaps – why put up with the high cost and hassles? It makes no sense. You’re better off living in suburban Cincinnati than suburban Chicago.

And frankly, the folks on the global city side prefer it if you leave anyway. Immigrants are unlikely to start trouble, but a middle class facing an economic squeeze and threat to its way of life might raise a ruckus. That won’t happen if enough of them move to Dallas and rob the rest of critical mass and resulting political clout.

Many of those leaving are college educated, especially, when they get older, get married, and start having families. A relatively large number of these people could be replaced by a smaller number of elite bankers, biotech PhDs, and celebrity chefs. In that case, both “narratives” could hold simultaneously. One type of talent moves in, while a greater number of a different kind moves out. As with trade generally, this could even be viewed as a win-win in some regard.

Again, it is easy to blame the costs and public policy. Clearly there is room for improvement in governance such as reigning in out of control civil service pay and pensions in places like California and New York. But what is more pernicious is the rising income gap in America, and the likely outcomes it drives when a city acquires a small elite economic class with incomes that far outstrip the average, and lacks strong economic linkages to the rest of the city other than for personal services. It sets in motion economic logic that undermines the traditional middle class, which then starts leaving, exacerbating the gap.

For years we worried that a large, stable middle class with a permanent, largely minority underclass constituted an unjust order. As it turns out, the alternatives are sometimes worse. Ultimately some American cities have come to take on the cast of their third world brethren, a perhaps somewhat less extreme version of Mexico City or São Paulo, where vast wealth and glitter exist side by side with the favelas.

This explains why America’s global cities often feel more kinship with their international peers than with many of the places in their own country. The global cities, which now enjoy something of a political ascendency, are also sundering the American commonwealth. Taking steps to prevent a further widening of the income gap may be the only way to save these cities’ middle class – and maintain the solidarity of the country.

This post originally appeared in New Geography on November 23, 2009.

Sunday, September 25th, 2011

A Decade in College Degree Attainment

Metro area college degree attainment, 2010

This week the Census Bureau released its 2010 data from the American Community Survey. The ACS is what contains many of the core demographic characteristics that are frequently opined upon, such as college degree attainment, commute times, etc.

It used to be that the Census Bureau collected this information during the decennial census using the so-called “long form” that went to one out of every ten households. But that was discontinued as of this census and has been replaced with with the ACS. The ACS reports data more frequently (annually for geographies larger than a certain size), but has a smaller sample size and so there’s lot of statistical noise that I don’t think we are used to dealing with yet. For example, in 2008 the Indianapolis metro area ranked #3 in the US for growth in college degree attainment over the course of the decade to date among metros greater than one million people. But in the 2010 data Indy ranked #28 on the same measure. There are fluctuations year to year and the margin of error needs to be accounted for in serious statistical analysis. Nevertheless, this is what we have to work with.

I’m going to roll out a series of posts covering the highlights of some of this data. I’ll start with educational attainment, since that is something that is so key to upward social mobility and urban economic success.

But first I’ll put in a brief plug for my Telestrian tool. The Census Bureau site for distributing this data is a disaster. As one Brookings senior fellow put it, “Lots of Census data yesterday, today. Lots of angles, stories, conclusions. One shared sentiment: new American Factfinder is AWFUL” and “New Factfinder making mainframe punchcards look appealing.” Telestrian is designed for very rapid basic analysis and comparative benchmarking moreso than simple fact lookups (though it can do that do). In fact, I generated every table, graph and map in this post in ten total minutes with it. Even if you aren’t in the market for a commercial product, there’s a no credit card required free trial period, so if you are interested in perusing the ACS data and don’t want to beat your head against the wall with the Census Factfinder, I encourage you to check it out. Telestrian doesn’t have every data element, but it has a lot of interesting stuff.

College Degree Attainment

College degree attainment (the percentage of adults with a bachelors degree or higher), is one of the most critical factors in urban success. If you’d like to know more, just check out all the great research on it under the heading of “talent dividend” over at CEOs for Cities.

The map at the top of the post is 2010 college degree attainment for metro areas. Here are the top ten, among those with a population greater than one million, showing total number of people with degrees and the attainment percentage:

And here’s the bottom ten:

While we are on the topic, here is a map of college degree attainment by state:

State college degree attainment, 2010

And here is county level college degree attainment for those counties covered by the 1-year ACS:

County college degree attainment, 2010

Changes in College Degree Attainment

Beyond just the raw 2010 numbers, it’s interesting to look at which places are growing their college degree attainment the most. That is, which places are growing their talent base. So here’s a look at metros by their change in college degree attainment over the last decade:

Change in percentage of adults with college degrees, 2000-2010.

Some places already have very high college degree attainment, which can make it tougher to grow even higher. Speaking of which, the US as a whole raised its college degree attainment as well. To some extent, this is purely a function of demographics. Older generations have lower educational levels than younger ones. (None of my grandparents had a college degree, and my father’s parents never even finished high school. I don’t think that was atypical for their day).

What might be more interesting to look at is whether places are increasing their college degree attainment faster or slower than the US overall. There’s a measure that does capture that. It’s called location quotient, and is used in economic analysis to measure the concentration of industries in certain locations.

An economist told me once that he likes to look at this for all sorts of things, not just industry clusters. The formula works for other stuff. I really haven’t seen this used before, so caveat emptor, but here’s a look at shifts in location quotient for metro areas over the course of the decade:

Metro area change in location quotient for college degree attainment, 2000-2010. Increase in LQ in blue, decrease in red.

The blue metro areas had a higher concentration of college degrees relative to the nation as a whole in 2010 than they did in 2000. The red ones a lower concentration. This is certainly an interesting area for further exploration.

While I’m on the topic, here’s the same chart, only limited to graduate and professional degrees. There’s some interesting variability here.

Metro area change in location quotient for graduate and professional degree attainment, 2000-2010. Increase in LQ in blue, decrease in red.

A Closer Look at Indianapolis

Just as one more granular example, I wanted to take a look at the Indianapolis vertical. Here’s 2010 college degree attainment for the city, metro, state, and America as a whole:

College degree attainment, 2010

As we know, urban regions tend to be more highly educated. Here we see that while Indiana is one of the lowest states in terms of college degree attainment, the Indy metro area actually beats the US average. However, the city of Indianapolis falls short of the US average. Because Indy is a consolidated city-county government that includes a lot of inner ring suburban areas, it’s hard to draw conclusions about the true urban core, but it does seem clear that the center is less educated than the periphery of the metro.

Now lets look at the change in attainment for the decade:

Change in the percentage of adults with a college degree, 2000-2010.

Here we see that the rich get richer, as Indy metro not only started out on a higher base, but had the best showing in attainment growth as well. OTOH, going back to our LQ measure, Indiana actually boosted its LQ while the Indy region was stagnant. That’s because this is a percentage point change, not a percentage change, and growing from a low base makes it easier to boost LQ. It’s one of the quirks of that formula.

The poor showing of the city of Indianapolis is something that should definitely be worrying. It would be interesting to do a similar analysis for other metros, but alas that’s all for today.

Thursday, July 28th, 2011

Geoffrey West TED Talk on the Surprising Math of Cities

I’ve previously featured writings about Geoffrey West and his band of researchers who have been trying to show that cities follow a series of fairly simple mathematical laws related to their size, similar to biological organisms. Their findings are controversial to many, but it’s certainly worth considering what they have to say if nothing else. Geoffrey West recently gave a TED talk on their findings that I think presents them in a very accessible way, so here it is for those who are interested. There are certainly some potentially interesting implications in here. (If the video doesn’t display for you, click here).

h/t Dave Hix

Update: Courtesy of Jim Russell, here’s a thougthful analysis of Dr. West’s work.

Thursday, June 30th, 2011

Replay: Picture-Perfect Portland?

[ For my American readers, this is Independence Day weekend. I hope you all have a great time. I'll be back after the holiday - Aaron. ]

Portland is one of the most-praised cities in contemporary America. But is the hype real? To some extent, it actually understates the case.

Portland didn’t invent bicycles, density or light rail — but it understood the future implications of them for America’s smaller cities first, and put that knowledge to use before anyone else. The longest journey begins with a step, but you have to take it. Nobody else did. In an era where most American cities went one direction, Portland went another, either capturing or even creating the zeitgeist of a new age.

In the agro-industrial era, Chicago first understood the true significance of railroads, the skyscraper and even urban planning. It saw what others couldn’t — and acted on that understanding. That made Chicago the greatest city, indeed the orderer, of its age.

In the late 20th century and continuing to the present day, for cities below the first rank, Portland plays that role. Like Chicago, it is remaking much of America after its own fashion. Light rail, bike lanes, reclaimed waterfronts, urban condos and microbreweries are now nearly ubiquitous, if not deployed at scale, across the nation.

Has there ever been a case in American history of a city as relatively small as Portland having the same sort of pervasive impact on the policy and the built environment of America? It is truly remarkable, shocking even, and something I dare to suggest will likely never happen again.

Louisvillian JC Stites lived for a time in Portland and said of it, “Portland is real. It’s not about ad campaigns pushing false benefits, rather it’s about addressing very real issues regarding how cities grow and sustain themselves.” Partially inspired by Portland, Stites co-founded 8664, a grass-roots organization dedicated to tearing down the Interstate 64 riverfront freeway in Louisville that has excited a large part of that city. That’s the influence of Portland half a continent away.

For a moment in time it wasn’t New York, Los Angeles or San Francisco that captured the national imagination, but a small city on the West Coast far from the cultural and economic capitals of the nation. Portland in the 1990s was, in its own way, the equal of Chicago in the 1890s. The city punched far above its weight.

What’s more, Portland’s legacy is a largely positive one. While too many places transplanted Portland’s solutions into foreign and unsuitable soil, it’s undeniable that Portland played a major role in making the nation respect cities again, seeing their potential with fresh eyes.

Portland is, however, unique and impossible to replicate. As with Chicago, even had another city seen the future, it likely could not have acted on it in the same way. Portland is an outlier. It’s geographically at the edge, has a remarkable natural setting, is one of America’s least diverse cities, and has a very different development and social history than most U.S. cities. Like Chicago, Portland was the right city, in the right place, at the right time.

But though Portland can’t be copied, it can be an inspiration. Many of its ideas can and have been adopted elsewhere. Whether most cities succeed in reclaiming their urban cores is not yet known, but it’s a fight worth fighting. Without Portland, we might not be even trying.

A drawback: our economy

However, in one way Portland today is very unlike that younger Chicago: economically. As low-cost haven next to troubled California, with fantastic natural amenities and resources, a burgeoning talent pool, a small underclass, a comparative lack of the legacy problems of other cities and a high degree of civic consensus, Portland should be an economic juggernaut — but isn’t.

Portland’s GDP per capita ($47,811) is comparable to Indianapolis ($46,450) and Milwaukee ($45,591). It trails talent hubs like San Francisco ($60,873) and Boston ($57,916), and even Seattle ($55,982) and Minneapolis ($50,797). Seattle’s metro region is only 50 percent larger than Portland but has produced fabric-of-the-economy companies such as Boeing, Microsoft and Amazon. Portland has not. Nor has Portland established itself as a go-to location for a major sector the way Silicon Valley has for high tech or Miami for Latin American trade. A recent Metro Monitor report from the Brookings Institution placed Portland’s economy in the bottom quintile of performers.

Part of the challenge is effectively deploying its talent. Portland’s unemployment rate exceeds the national average. The problem of underemployment among the many high-talent people who moved to Portland for its amenities also has been extensively written about. This is notable given that Portland’s population growth rate, while healthy, is half that of talent hubs such as Austin, Texas, and Raleigh, N.C. But those cities added many more jobs than Portland. From the first quarter of 2001 to the first quarter of 2009, Austin created 79,000 jobs (11.8 percent growth) and Raleigh 55,000 (12.8 percent), while Portland created just 10,000 (1.1 percent).

Lack of dynamic conflict

Portland’s performance isn’t bad, but given all of its advantages and low degree of difficulty, it should be a lot better.

Why is this? Perhaps Portland is actually a bit too livable. As urban scholar Joel Kotkin put it, “Portland is to today’s generation what San Francisco was to mine: a hip, not too expensive place for young slackers to go.”

People move to New York City to test their mettle in America’s ultimate arena. They move to Silicon Valley to strike it rich in high tech. But they move to Portland for values and lifestyle; for personal more than professional reasons; to consume as much as to produce. People move to Portland to move to Portland.

Portland may also lack the diversity needed to be a truly dynamic city. It is one of America’s least racially diverse cities and lacks a single non-white city or county elected official. Portland may also have excessive civic consensus. People I interviewed who left Portland were uniform in their praise. They also noted with approval the lack of negativity about the city in contrast with other places they had lived, and the high degree of shared values among its residents.

But civic dynamism fundamentally derives from conflict and dissatisfaction. London architect Sam Jacob once said, “Cities are not about the perfect vision; they are not about a singular idea. They are about a collision of all kinds of incompatible demands.” Portland perhaps has too few conflicts of vision, with too few incompatible demands.

Why change?

For the future then, where does Portland want to go? Continue to innovate and remain the driver of what it means to be a successful small city in America? Maintain and enjoy the sustainable, high quality of life the region has built (for those fortunate enough to find a job there, at least)? Seek to become a center of greater commercial ambition?

To create a truly dynamic city and realize its potential as one of America’s top small city talent hubs, Portland needs to embrace a more aggressive mind-set toward job creation and look to attract a more diverse resident base.

One might ask: Because Portlanders are happy with their city, why change? There are values in life beyond commercial ones and the pursuit of growth. True, but that’s a choice with consequences. As the people who’ve had to leave Portland because they couldn’t find real employment there can attest, in order to take advantage of its justly famous high quality, sustainable lifestyle, you first need a job. It’s not livable if you can’t live there.

This column originally appeared in the Portland Oregonian on January 17, 2010.

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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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