Chicago, the mightiest symbol of the Industrial Age, is retooling itself for the Global Era.
As economies across the world become more interconnected than ever, the stakes are higher for workers, companies and cities. Making Chicago a winner is the key economic task for the city’s next mayor.
Chicago’s boosters say it enters this competition with formidable assets, and they’re not wrong. The city is one of the world’s financial powerhouses, a transportation hub, a convention center, a tourist mecca.The Loop throbs with life, and a 20-year hemorrhaging of jobs seems to have ended. A wave of well-heeled workers, many young and with families, are choosing to live in the city.
The naysayers retort that Chicago has big problems, and they’re right too. LaSalle Street’s dominant role on world markets is threatened. Manufacturing keeps fleeing to the suburbs. Ownership of the city’s biggest companies has decamped to other cities or other countries.
Most new jobs in service industries pay well below the manufacturing jobs they have replaced. The city’s schools, while improving, remain sub-par, and its one-party system and legacy of aldermanic corruption continue to taint local politics.
Still, with the national and Midwestern economies humming, it’s easy to be optimistic.
“I think it’s going to be a cakewalk for the next four years,” said David J. Paulus, a managing partner for World Business Chicago, the office set up by the Commercial Club, a group of regional executives, to draw new business to Chicago. “It’s the easiest time in my lifetime to be in public office–and that goes for cities too.
“Our main challenge is competing against other global cities. There are going to be winners and losers in the global economy, and we need to be in the major leagues.”
For Paulus, this means finding and promoting the city’s “comparative advantages”–the handful of things that it does better than anywhere else. Just as Atlanta turned itself into a headquarters city and Austin, Texas, became a capital of information technology, so Chicago and its government should focus on industries that it is uniquely qualified to lead, he said. Those may include biotechnology, because of Chicago’s role as a food center for the Midwest, and risk management, by virtue of the city’s strength in insurance and financial markets.
For others, becoming a winner means encouraging new small manufacturing, or bringing down property taxes, or building on plans to enlarge O’Hare International Airport, or prodding the financial markets to reform themselves by switching smoothly to electronic trading and setting up more links with growing overseas markets.
For almost everybody, the key is summed up in the phrase “quality of life.” This means fixing the city’s schools, keeping a lid on crime, providing good housing and transportation–all the things that make people want to work and live in a city.
`The futurists missed’
It’s been nearly 50 years since most people with a choice would choose the city over the suburbs. But that’s changing, to the surprise of forecasters who more than a decade ago predicted the death of cities. Chicago now finds itself in the middle of a housing boom in once-derelict neighborhoods west and south of the Loop.
“Big cities have benefits that the futurists missed,” said Brian Wesbury, chief economist at the Chicago investment firm of Griffin, Kubik, Stephens & Thompson.
Theoretically, players in the global economy can set up anywhere, including a mountaintop in Montana, wherever a satellite dish and a modem can bring them the data they need. In fact, these players increasingly are clustering in central cities, like the Loop, because only these dense urban neighborhoods have the sophisticated resources–legal, consulting, technological and above all personal–they need.
“Technology doesn’t replace everybody,” said Saskia Sassen, a University of Chicago sociologist who explored this trend in “The Global City” and other books.
There’s more to doing business than raw data, she said. To interpret and judge that data, businesses need the kind of expertise that only cities like Chicago have in abundance.
“The global financial system is global, but it consists of a nest of communities,” Sassen said. “It needs a social network, of trust and information. You still need people–the social networking function that lets people deal with each other.”
Chicago has all this, according to Sassen and other experts. The main task over the next four years will be to keep it and build on it.
After nearly a decade in office, Mayor Richard M. Daley gets mostly high marks from the city’s business community. A recent Tribune survey of the area’s biggest public companies showed that 72 percent of the chief executives gave him a good or excellent grade on business issues.
Still, there is work to be done. The biggest task facing the next mayor–whether it is Daley or his challenger, Bobby Rush–may be fixing the city’s schools, both to provide a pool of good workers and to persuade middle-class and upper-class families to settle in the city.
Subsidiary City
At face value, the worst recent news for Chicago business is the flight of headquarters from the city and the purchase of major companies by non-Chicagoans.
Within a few months, eight of the area’s 10 biggest publicly held companies will be based outside the city limits. Of the 18 billion-dollar-plus deals involving the region’s major companies last year, 15 saw outsiders take over local operations.
British Petroleum PLC of London bought Amoco Corp. last year and now plans to cut 1,500 jobs in the area. SBC Communications Inc. of San Antonio is in the midst of gobbling Ameritech Corp. Last week, after 150 years in Chicago, Morton International Co. said it would sell out to Rohm & Haas Co. of Philadelphia for $4.9 billion.
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The headquarters of the city’s biggest retailers, including Marshall Field’s and Carson Pirie Scott, are long gone. So are many of its biggest banks.
Last year, First Chicago underwent its second takeover since 1995 and is now called Bank One Corp. Its headquarters are still here, but the shots are called by a chief executive from Ohio.
In the booming field of information technology, Chicago lost its leading player when U.S. Robotics sold out to 3Com of Santa Clara, Calif., even as it considered a plan to move its headquarters downtown from Skokie.
The fear is that as headquarters operations vanish, Chicago’s status as a global corporate center could go with them.
“When the headquarters go away, a lot of the supporting services are lost,” said George A. Parry, a consultant who tracks area mergers. “Accounting, legal and office services, bank balances and charitable contributions are all affected.”
In many ways, Chicago remains an expensive place to do business. Midas Inc., the muffler-shop franchiser, announced in January that it will take its 200 headquarters staffers from Michigan Avenue to outlying Itasca, saving it about 30 percent in rent and other annual office costs, according to Chief Executive Wendel H. Province. “We should have been on the outskirts a long time ago,” he said.
Meantime, a growing number of experts are beginning to wonder how important headquarters really are. A global economy seems to lead inevitably to mergers and to tightened links between local economies and other local economies around the country and the world. What really counts, they say, is the economic vitality that remains.
While the head offices of Chicago’s dominant retailers may have moved away, retailing in the city is doing just fine, the experts said. Banks may be going, but corporate services remain strong.
“You may lose some intangibles like civic pride and the ability to move as one, but the bottom line is the mayor has a lot more money in his coffers,” said Diane Swonk, deputy chief economist at Bank One.
Chicago still has an impressive lineup of locally owned law firms, consultants and accounting giants. The logic of globalism says some of these may be merged or swallowed, but their lawyers, consultants and accountants will remain, providing the kind of expertise and judgment that Sassen says a global city needs.
All the movement isn’t out. World Business Chicago, in operation only 13 months, was set up specifically by the Commercial Club as a quasi-private venture to bring in outside investment, especially from abroad.
And some businesses are eager to keep their corporate headquarters in the city. U.S. Cellular Corp. is located on Chicago’s Northwest Side even though it does not provide phone service in Chicago. Proximity to O’Hare is just one reason why the firm and its 400 headquarters employees remain, according to Chief Executive H. Donald Nelson.
“This is the hub of the Midwest,” he said.
Future of futures
In some ways, Chicago can claim to have invented the global economy.
As the stockyards and steel mills faded, Chicago commerce got a new image–the shouting and arm waving of the trading floors. For 30 years the Chicago Board of Trade, Chicago Mercantile Exchange and Chicago Board Options Exchange have been major players in global finance and have invented two of the key instruments that make the global economy go: financial futures and equity options.
But now the colorful circus of capitalism in Chicago’s trading pits is bracing for a siege. Computerized electronic trading is making inroads on Chicago-style “open outcry” trading at a pace considered unthinkable a year or two ago.
Are the cacophonous trading pits doomed? Will all futures and options be traded at silent terminals? If so, what does this mean Chicago?
The labor-intensive exchanges claim to provide at least 50,000 jobs directly and 100,000 more indirectly. If modernization is inevitable, the city stands to lose thousands of these jobs as computers replace runners, keypunchers and other clerical workers.
“Where it has taken hold, (the computer) has driven the open-outcry market out of business,” said Gary Knapp of GM Investment Management Corp., one of the nation’s largest pension funds. “That would be a huge loss in Chicago.”
Just as worrisome, the most recent innovations in trading have occurred elsewhere. The Frankfurt-based Eurex, a totally electronic system, is on track to surpass the Board of Trade as the world’s largest exchange trading futures or options this year. Financial engineers in London and New York have been pushing over-the-counter products similar to listed futures and options, racking up 30 percent-plus annual growth rates.
The U.S. share of the futures and options industry has declined from 80 percent a decade ago, when Chicago dominated, to less than 50 percent.
All this happened while Chicago’s member-run exchanges resisted change, some say.
“The exchanges are owned by the members who glean their incomes from the floor, so they have no incentive to look at anything more progressive than open-outcry,” said John Damgard, who heads the Futures Industry Association trade group.
Jack Wing, head of the Illinois Institute of Technology’s Center for Law and Financial Markets, noted that New York would remain a financial center even if the New York Stock Exchange vanished tomorrow. Chicago is not so diversified.
“If Chicago’s exchanges disappeared, we wouldn’t be anywhere near as important,” Wing said. “Chicago would decline 30 to 40 percent.”
Chicago corporate lawyer Elmer Johnson, who wrote the Commercial Club’s Metropolis 2020 report on the Chicago region’s future, thinks the exchanges’ power is safe for five years but believes the next mayor could pressure the exchanges to make needed reforms, such as moving to newer technology and adopting more dynamic methods of self-government.
“It’s hard to get people to change,” he said. “These organizations, being political clubs, are less inclined to take the long-term view.”
Not everyone thinks the exchanges face a crisis.
“The people who decided what commodities are traded are in New York and Chicago,” Paulus said. “There’s no reason to think they’ll move to Montana. They’re all here and like to be around people like them.”
Sassen pointed out that while Chicago has a dwindling share of the futures market, the decline is relative, not real. If it commands only half as big a slice of the pie, the growing pie means that the value of exchanges here has grown by no less than 45 percent in the past decade.
With it has come a burgeoning not only of the “highly specialized services” that provide the expert judgment and information that a financial center needs, but a boom in housing, restaurants and other lifestyle services required by the highly paid and demanding denizens of LaSalle Street.
The growth of exchanges elsewhere doesn’t threaten this, she said, but enhances it. Many observers say the new exchanges will compete directly with Chicago by trading the same financial products. But Sassen sees synergy instead, noting that Chicago exchanges have already struck up alliances with markets in Frankfurt and Paris, enabling local traders to plug even more fruitfully into global networks.
Plugging the job drain
Like a wound that finally seems to be healing, Chicago’s long history of job erosion is ending. Since 1994, the city has gained jobs each year, a welcome turnaround from a quarter century marred by losses.
Like most big industrial cities, Chicago lost hundreds of thousands of good jobs when its factories closed and moved to the suburbs, the South or overseas. In Chicago’s case, the net loss amounted to more than 200,000 jobs, from 1972 to 1997. At the same time, employment in the collar counties soared, with DuPage County’s job base rising fourfold.
Even in an otherwise healthy 1998, Chicago lost 175 plants and 6,875 manufacturing jobs, according to a directory publisher, Manufacturers’ News.
But the growth in service jobs, which don’t always have the same wages or stability as those in manufacturing, is finally taking up the slack. Chicago added almost 15,000 jobs net in 1997, including 4,000 in its central business district, according to the latest figures from the Illinois Department of Employment Security.
“We are seeing some stabilization in a city that was bleeding,” said Bank One economist Swonk. “No question the suburbs have gotten more than their fair share of the pie. Chicago at least is getting a piece of it now.”
The changes have diversified Chicago’s economy. The so-called FIRE businesses–finance, insurance and real estate–now account for nearly as many Chicago jobs as manufacturing, a share that is sure to increase.
Chicago also has had some success in building information technology industries. The Chicago area has vaulted past Boston to become the nation’s fourth-biggest high-tech center, although it remains just a shadow of California’s Silicon Valley.
But in the job report, too, the picture is mixed.
According to the Midwest Center for Labor Research, the city has replaced manufacturing jobs paying the equivalent of $37,000 per year with service jobs paying $26,000, a severe hit to the purchasing power of Chicago workers and their ability to support its economy.
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The arrival of the global economy is exacerbating this trend, according to the U. of C.’s Sassen.
This economy is creating thousands of very well-paid jobs in trading, law, accounting and other global services, and many of these jobs are held by people who choose to live in the city, some of them in the lofts and townhouses of the booming neighborhoods near the Loop.
But this economy also is creating thousands of poorly paid and insecure jobs–clerical workers, bistro waiters, shop clerks, dog walkers, valet parkers–that have sprung up to serve this well-heeled population. Many of these jobs are held by immigrants.
“This army of low-wage workers makes the more sophisticated sectors function,” she said. “In the ’50s and ’60s, economic growth led to a growth of the middle class. Now we also are seeing an enormous growth in new jobs, but they are not middle-class.”
A global city needs to thrive on many levels, and each level needs civic support, Sassen said. This holds true, she said, for a new kind of small manufacturing that can grow up to support the new construction and housing that is going on in the city.
“It is very important for the city’s leadership–corporate and political and civic–to recognize the full range of jobs and firms that a well-functioning urban economy needs,” she said. “That’s not there now.”
According to the Chicago Metropolis 2020 report, the city’s future is embedded in the regional economy. It urged a regional coordinating body that would take over some of the duties of the current, often overlapping government organizations.
But cooperation between the city government and the suburbs, let alone any consolidation, is barely a gleam in the eye of the region’s mayors. Of more immediate importance, according to the report’s author, Johnson, is improvement in the region’s schools–especially the city’s public schools–and a more rational transportation network.
Johnson has urged a high-speed express train from O’Hare to the Loop to enable Chicago to “get the spillover effects” of the airport’s business. Too many people now come into O’Hare for meetings, spend a day at a hotel near the airport and then leave without ever spending a dollar in the city itself, he said.
O’Hare itself should be enlarged, Johnson added, a process that began last week with the city’s announced plans to build two new terminals.
“Chicago’s importance in the day and age of the jet and of global markets is very dependent on us having a world-class airport,” he said. “It’s hard to imagine investing too much to keep it at a world-class level.”
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THE SERIES
SUNDAY: Chicago’s global role will be defined by its ability to adapt to economic change.
MONDAY: Dealing with the city’s aging infrastructure.
TUESDAY: Downtown booms, but is there a master plan?
WEDNESDAY: Changing neighborhoods and new immigrants reshape city.
THURSDAY: Crime drops, but police corruption lingers.
FRIDAY: City schools have improved-can they be a decent place to learn?
FEB. 14: Chicago no longer dominates state politics, presenting new challenges.