Chicago and California

I’m sure some of you are asking “what do Chicago and California have in common?” The answer is conventional wisdom writing them off.

As we explored in a series of posts in 2009 California then was widely viewed as in permanent decline. Largely because of a dysfunctional state government and not being business friendly. High taxes and regulations. Using a Time Magazine cover story we wrote in a post entitled California Ascendant?:

The central important defining characteristic of California that emerges in the article is their future orientation. No matter how screwed up their politics, its a state which, at its core, is at about creating the future, not protecting the past. What matters most is the talent and entrepreneurialism of the people of California. To the degree that policy matters what matters most is their embracing more than resisting globalization and technology. More free trade oriented, more open to immigrants, at the leading edge of green policies, stem cells and now transportation alternatives to the car.

In another post, based on a John Judis article for the New Republic, we explored a more nuanced view of California. Describing a state that does well economically over the long term but leaving lots of folks behind. We wrote:

Judis agrees that California – no matter how dysfunctional its state government – is going to be a technology-based growth engine. But he argues that economy is likely to leave out lots of folks. This, I believe is Americaʼs challenge, not just Californiaʼs.

Judis observes that Californiaʼs economy has no middle. Either you are part of the high wage technology (we would argue more broadly knowledge-based) economy or you are in a low wage economy. Those in the low wage economy are predominantly those with low education attainment and disproportionately African American and Hispanics.

As we know now the doomsayers were wrong and Time Magazine and Judis largely right. California since the end of the Great Recession has been one of the nation’s best performing state as we explored in this post.

That brings us to today’s Chicago. Conventional wisdom has it in permanent decline due to dysfunctional state government, intractable city finances, too high taxes, uncontrollable crime, and more. Don’t believe it!

Chicago has, like California, the asset that matters most to future economic success: talent. And because of it a thriving and entrepreneurial private sector. And corporate America knows it. Bloomberg writing about McDonald’s recent announcement to move their headquarters to Chicago from its suburbs writes:

The number of Chicagoans murdered this year is up more than 50 percent. Pension debt tops $20 billion, and taxes are soaring. Illinois’s governor calls the city’s government corrupt and its financially teetering schools “crumbling prisons.”

Yet McDonald’s Corp. is moving its headquarters from a sprawling, leafy campus in suburban Oak Brook to a spot just a couple of miles from one of the city’s most violent neighborhoods. The world’s largest fast-food chain is joining a parade of companies creating an island of prosperity amid urban dysfunction.

Corporations including Motorola Solutions Inc., Kraft Heinz Co. and ConAgra Foods Inc. are moving their headquarters or major offices into Chicago. McDonald’s said Monday it will relocate to the former site of Oprah Winfrey’s Harpo Studios, a bid to attract and hire millennials who, nationwide, are moving into cities.

Bloomberg continues quoting McDonald’s CEO: “Moving our headquarters to Chicago is another significant step in our journey to build a better McDonald’s,” Easterbrook said. “This world-class environment will continue to drive business momentum by getting us even closer to customers, encouraging innovation and ensuring great talent is excited about where they work.”

A.T. Kearney in their Global Cities rankings rates Chicago seventh in 2015 and 17th in its future outlook. Chicago is one of only sixteen cities to be in the top 25 on both lists earning it a spot on Kearney’s global elites list. The other U.S. cities on the list: New York, Los Angeles, Boston and San Fransisco. So much for in permanent decline.

A more realistic view of Chicago’s future would look a lot like Judis predicted for California. Long term economic powerhouse, but with lots of folks left behind.

The most important lessons from California and Chicago for Michigan to learn are (1) that talent––not business friendly or responsible state and local government budgeting––is what matters most to more and better jobs. (2) Talent and more and better jobs are concentrating in big metros anchored by vibrant central cities. And (3) that having more and better jobs does not lift all boats. Michigan’s economic policy agenda should be anchored by efforts to both prepare, retain and attract talent; and lift living standards for those not part of the knowledge economy.



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