Restoring Chicago`s Momentum: A Regional Agenda for Economic

Transcription

Restoring Chicago’s Momentum
A Regional Agenda for Economic Growth
Metropolis Strategies
Source: Esri; U.S. Census Bureau
Local Employment-Housing Dynamics (LEHD)
Photo credit for images: Occupant Productions, cover left; Danish Wind Energy Association, cover center;
Herman Yung, cover right;; Michael Jay, 15; Andrew Magill, 16; Carsten Reisinger, 17.
Restoring Chicago’s Momentum: A Regional Agenda for Economic Growth
Metropolitan Chicago ranks among the top global cities. The region
has outstanding assets, but our economy is losing momentum.
State, local and federal governments spend billions on economic
development. Despite their combined efforts, Chicago’s economy has
performed worse than peer regions and the nation for more than a
decade.
Reversing this trend requires bold regional action on the part of both
public and private sectors. Our economy can be an engine for an
unparalleled quality of life for all Chicagoans. To restore its health
we must stop competing with ourselves by luring businesses from one
community to another. We must work as a region to focus on our
assets, invest in innovation, and support the concentrations of
businesses that make Metropolitan Chicago unique.
A Global Economy Requires a Regional Approach
Metropolitan areas drive growth in today's
global economy. The concentration of
assets – including transportation systems,
knowledge-based firms and highly skilled
workers – in large urban areas generates
synergies that heighten productivity and
innovation.
Concentration of assets and size alone do
not ensure success; not all metropolitan
areas will be able to meet the new demands
of global commerce. Those who slip and
fall behind are more likely than ever to
stay behind.
Successful regions in this new
environment will be those that tie together
their activities – from neighborhoods to
central cities to suburbs; from human
capital to business services to
infrastructure – in the context of their
regional markets and economy. They can
act locally when necessary, but they must
think regionally.
A thriving regional economy will deliver
excellent public services, transportation,
education, abundant opportunities, and a
high quality of life. Promoting successful
regional economic development requires a
deliberate and well-conceived agenda that
is driven by data, fashioned and supported
by the entire region, and led by the private
sector working in collaboration with
government.
1
A Global Metropolis in the Knowledge Economy
Metropolitan Chicago competes in the
global economy with London, Singapore,
Mumbai, and São Paulo, as well as New
York and Los Angeles. Once known as a
manufacturing “City of Big Shoulders,”
Chicago’s economy was transformed in the
late 1980s and 1990s to a more diverse
knowledge economy. Today the region
functions as one of the world’s important
economic centers.
With a $500 billion gross regional product
(GRP) and a workforce of approximately
4.9 million in a region covering 14
counties in three states, Chicago’s
economy is bigger than most national
economies.
Composition of the Chicago Regional Economy by Employment
2010
1980
25%
20%
15%
10%
5%
0%
Source: Moody’s Analytics
2
Chicago’s Slipping Economic Performance
Standard economic measures indicate
GRP Growth Rates in 15
that since 2000, the Chicago region has
Largest Metro Economies
been falling behind comparable regions,
its own historic performance, and
Washington DC
national averages. Chicago is
Houston
experiencing anemic GRP growth,
Phoenix
lagging productivity gains and sluggish
job creation. It is beginning to look like
Dallas
Midwestern metropolitan regions that
Miami
began their decline a decade earlier.
Philadelphia
Seattle
Growth in GRP per capita exceeded that
New York
of the nation from 1985 through 1999.
Los Angeles
Since then, the region has been falling
further behind national growth rates.
Minn.-St. Paul
San Francisco
From 2002 to 2008, Metropolitan
Chicago’s productivity growth rate
(8.7%) lagged behind the national
average (10.3%), and significantly
behind other large U.S. metros.
Boston
Atlanta
Chicago
296th out of 363 MSAs
Detroit
Source: U.S.
Conference of Mayors
0%
1%
2%
3%
4%
5%
Ratio of Chicago per Capita GRP Growth to U.S., 1980-2009
1.04
1.02
1.00
0.98
0.96
0.94
0.92
0.90
1980
Source: Moody’s Analytics
1984
1988
1992
1996
2000
2004
2008
3
6%
Between 1992 and 2008, the region’s total
employment grew by 6.3%, compared with
23.2% nationally. The Chicago region also
ranked poorly compared with peer regions,
like Houston (27.9%), Los Angeles
(13.1%) and Philadelphia (7.3%).
From 2000 to 2010, Illinois’ gross state
product (GSP) grew by a total of 8.2%, or
0.82% annually. By this measure, Illinois
ranked 47th in the nation for economic
growth. The State’s neighboring trading
partners also exhibit some of the nation’s
poorest economic performance.
Cumulative Job Growth, 1992-2008
30%
25%
20%
15%
10%
5%
0%
1992
1996
Source: National Establishment Time
Series (NETS) Database
Source: Esri; U.S. Bureau of
Economic Analysis
4
2000
2004
U.S.
2008
CHI
Demographic measures also illustrate
troubling trends. The 2010 Census
revealed that people are “voting with
their feet” and leaving the region to seek
economic opportunities elsewhere.
While Chicago’s solid
“balance sheet”
illustrates a legacy of
economic success, its
“income statement”
reveals many troubling
trends.
Since 2000, the region’s population grew
by only 4%, compared to a 9.7% national
growth rate. During the decade of the
1990s, the region’s growth was far more
robust and much closer to national
averages. Chicago and Cook County,
which together comprise more than 50%
of the region’s labor force and household
income, actually lost population over the
past decade.
Percent Change in Population
15%
13.2%
11.2%
9.7%
10%
5%
5.3%
4.0%
4.0%
0%
Chicago
Cook County
MSA
U.S.
-5%
-3.4%
-6.9%
-10%
Source: U.S. Census Bureau
1990-2000
2000-2010
5
Fragmented Economic Development
Governments encourage, shape or slow
economic activity through taxation,
regulation and provision of public goods.
The region’s $500 billion economy
operates in a metropolitan area with more
than 1,700 units of government ranging
from counties and municipalities to park
and school districts. Its economic
landscape, of course, does not correspond
with these political boundaries.
Identifying the right mix of economic
development activities in an economy of
this scale is a tremendous challenge,
exacerbated by the multiplicity of players.
Public, non-profit and civic organizations
spend billions of dollars each year on a
range of activities generally considered to
be “economic development.” Numerous
educational and social service programs
attempt to prepare people for jobs.
Community development initiatives
attempt to help underserved communities
participate in the economy. Many
emerging programs are designed to
promote growth by stimulating
entrepreneurship and innovation.
Numerous organizations market the region
and hundreds of government agencies
provide various tax or cash subsidies to
attract or retain businesses. Many of these
programs are supported with public funds.
Business Attraction and
Retention
Most public dollars spent on economic
development are used to encourage
businesses to locate or remain in
6
Hundreds of organizations
spend billions to grow the
Chicago regional economy.
Governments (≈400)
Chambers of Commerce and
Convention Bureaus (≈50)
Civic Organizations (≈50)
Economic Development Orgs (≈100)
Workforce Development
o Workforce Boards (≈9)
o Community Colleges (≈20)
o Contracted Agencies (≈75)
Tech-based Organizations (≈15)
Sector-based Organizations (≈50)
All numbers approximate
the region. In the 2009 fiscal year alone,
Chicago and suburban Cook County
together generated more than $839 million
in tax increment financing (TIF) revenues,
which, by statute are nominally designated
for economic development purposes.
Over the past two and a half years, Illinois
has committed more than $620 million in
various tax credits and other incentives to
attract and retain companies within the
state, a number that continues to grow.
Tax credits are increasingly tailored to
meet specific demands of individual
companies who threaten to leave. There is
no method for determining which kind of
incentives will be most strategic for
economic growth, and no publicly
available measure of return on investment.
The overwhelming fragmentation of efforts in the region often leads to wasteful competition.
Indiana tries to steal companies from Illinois. A suburban mayor entices a car dealership to
move three towns over by offering to rebate part of the local sales tax. TIF funds are used to
move a business to one part of the region from another. None of this activity creates net new
jobs or improves the economy of the region as a whole, but it is all done in the name of
economic development. Some governments win, others lose, and taxpayers foot the bill for
this zero-sum game.
Substantial sums are spent to market the region. Substantial job growth, however, is not the
result of firm relocations. In the 16 years leading up to the global economic downturn (1992
through 2008) only 2.7% of the region’s new jobs came to the region when business
establishments moved here from elsewhere. Big job gains come from existing firms that
expand their workforces and the creation of new firms.
Source: NETS Database
Convincing firms to move to the region makes sense – in the context of building from our
assets. The most effective way to create an attractive region for business growth and
relocation is to focus on strengthening the region’s business assets and specializations.
Working to grow existing businesses, foster startups and provide strong infrastructure,
networks, human capital, business services and other assets will in turn create relationships
and “buzz” that will better attract additional companies. Firms will move here because they
want to take advantage of the resulting synergies and enhanced productivity from locating in
such a strong business environment.
7
Workforce Development
Additional public funds for economic
development include federal dollars,
passed through the State as workforce
development grants. More than $350
million in state and local funds is spent
annually on workforce development in
Chicago alone. Much of this money is
targeted toward disadvantaged populations
who need basic job readiness skills. Too
few programs are aligned with strategies
for growing the economy, or designed to
produce mid- or higher-level skilled
workers who can fill jobs in areas where
there are actual labor shortages.
Venture Capital Investment in 10
Leading States ($M)
($11,606)
($9,820)
CA
MA
NY
TX
$748
IL
WA
PA
Support for Innovation and
Entrepreneurship
Metropolitan Chicago is currently
experiencing rapid growth in initiatives
designed to promote innovation and
entrepreneurship. These programs include
incubators, entrepreneurial mentoring
programs, business plan competitions,
networking events and websites, new
venture capital funds focused primarily on
digital and information technology
companies and a wide variety of
promotional activities designed to
demonstrate the region’s innovation
strengths.
These initiatives are paying off with
creation of new firms and a dramatic
increase in venture capital investment – in
fact, Illinois ranked 15th in aggregate
venture capital investment in 2009 and,
with a more than 200% increase in
investment, ranked 5th in 2010. As one
business leader proclaimed during a recent
Tech Week conference, “Silicon Valley
VCs are no longer flying over Chicago,
they are flying to Chicago.” Collectively,
these initiatives are engaging a new
generation of leaders who are creating the
next economy for the region.
Sum of the Parts
NC
CO
NJ
$0
$500
Source: PWC MoneyTree
8
$1,000 $1,500 $2,000 $2,500
2010
2009
Many excellent initiatives grow parts of
Chicago’s regional economy. There is no
shortage of plans, studies, programs, and
activities – or, apparently, money. Many
bright spots provide a legitimate source of
pride.
However, too often efforts to grow the
economy are piecemeal, lacking
coordination or alignment around a
common strategy, and do not create a
whole greater than the sum of the isolated
parts. Too many programs are small
demonstration projects that never reach a
scale that can make a difference. Most
programs lack the discipline of objective
evaluations that measure return on
investment over time. Some of the work is
unnecessarily competitive, particularly
among the many governments in the
region. Much of the work is reactive to a
perceived crisis or responsive to federal
grant requirements, rather than part of an
overall plan.
As a result, in spite of many creative and
innovative programs and billions of dollars
spent over the last decade, the economy –
when measured in terms of GRP growth,
or jobs created, or increases in productivity
– is losing momentum. This prompts the
question of whether or not the Chicago
region can reverse these negative trends by
creating a more robust approach that aligns
the numerous existing efforts – enabling
each to be more effective – toward
achieving shared goals.
Other regions in this country and around
the world appear to be more systematic
and intentional about their economies.
There is no reason that the Chicago region
can’t move its own efforts to the next
level.
9
Moving the Region Forward
Metropolitan Chicago has an unparalleled
tradition of civic action to address the
region’s greatest challenges. From The
Commercial Club’s publication of
Burnham’s Plan of Chicago to the reversal
of the Chicago River, construction of an
international airport, and development of
world class Millennium Park, the can-do
spirit has long been a part of the region’s
DNA.
Taking action to grow the region’s
economy will require energetic private and
public leadership on a similar scale. There
are no quick fixes for our economic
challenges. Reversing the downward
trajectory of our region’s economy
requires a comprehensive, integrated, longterm approach. Addressing the “parts” in
isolation does not work. It is about
business, labor, capital, innovation,
infrastructure, taxes, and regulations – and
how they work together.
10
Addressing the “parts” in
isolation does not work.
Metropolitan Chicago must foster the
growth of new firms, rather than jump
every time a company threatens to leave.
We must move away from subsidies for
individual firms to providing resources to
clusters of firms. We need to shift from
indiscriminate support for anyone who
applies, to focused investments to support
an agreed upon growth strategy. We must
ensure that there are jobs at the end of our
workforce training investments. We must
set standards for subsidies to ensure that
taxpayer dollars are used for more than
moving firms around the region. And we
must be able to articulate a strategy that is
unique to the Chicago region and sustained
over time, not simply a knee-jerk response
to the latest economic development fad.
.
Moving forward requires the institutional capacity for continuous analysis,
program development, execution and evaluation. There are four key
actions that can move Metropolitan Chicago’s economy in the right
direction.
1. Take action around a regional economic agenda defined in a
Metropolitan Business Plan
2. Build on the region’s assets, starting with strong business
clusters
3. Measure economic performance and base policy actions on
evidence
4. Make smarter investments of public and private dollars to
stimulate growth
1. Take action around a regional
economic agenda defined in a
Metropolitan Business Plan
The Chicago region needs a new roadmap
for stimulating economic growth. Public
and private leaders need shared goals and
performance metrics to understand how
economic development actions improve
productivity, income and employment.
tailored to local specializations. The
Brookings Institution and RW Ventures
have pioneered the concept of regional
business planning, and it is being pursued
in such disparate places as Northeast Ohio,
Minneapolis-St. Paul, and the Puget Sound
region.
The first, and perhaps biggest, challenge
for Chicago is to create a center of gravity
to grow the economy on a regional scale.
Metropolitan Chicago needs a
comprehensive approach to address its
overarching economic interests, not just the
interests of local governments seeking to
grow their individual tax bases.
Effective regional action to address
Chicago’s slipping economic performance
requires a Metropolitan Business Plan
Source: U.S. Census
Bureau LEHD
11
A Business Plan can expand, strengthen
and coordinate the excellent work already
underway; it can establish priorities for
investment, and be a catalyst for
developing new initiatives. It will require
regional ownership through the leadership
of an existing organization or federation of
organizations. It should not be a document
on a shelf, but rather a guide for
meaningful action that is well funded,
consistently evaluated and adjusted to
produce results.
A Business Plan should use the discipline
of creating a vision; analyzing economic
assets, opportunities and challenges;
setting goals and strategies; developing
operation and financing plans to
implement key initiatives that meet the
goals; and defining outcome measures.
2. Build on the region’s assets,
starting with strong business
clusters
The Metropolitan Business Plan will pave
the way for an asset-based strategy that
leverages existing strengths to expand
growth. Even before a plan is complete,
focused work targeting regional strengths
can begin. Among the region’s most
important assets are its strong existing and
emerging business clusters.
.
Clusters are groups of businesses,
suppliers, customers and supporting
institutions that achieve synergies and
enhanced productivity through their interrelationships and proximity.
Leverage Points for Regional Prosperity
The Business Plan should be built
around five converging leverage
points that form the foundation
for analyzing opportunities and
constructing actionable,
growth-promoting strategies.
Source: RW Ventures
12
iBio provides another encouraging
example of cluster development, offering
programs to grow the life sciences sector,
such as PROPEL, its entrepreneurship
mentoring program. (For examples from
elsewhere, see the side bar.)
Similar initiatives are needed for logistics,
manufacturing, design industries, health
care, food processing and other exportoriented clusters in which Chicago has the
potential to excel. These targeted
initiatives should engage business leaders
to define what is needed to maximize
growth. Ultimately, they should be
comprehensive, and examine how all of
the leverage points come together to
support economic growth of the cluster.
Enhancing Regional
Concentrations
Other regions are taking cluster
initiatives to a new scale. For example,
Northeast Ohio hospitals and research
institutions founded BioEnterprise to
commercialize bioscience technologies.
As a result, more than 100 Cleveland
health care start-ups have raised over
$1 billion in venture capital investments
since 2003.
In Milwaukee, a Water Council focuses
on growing and retooling industries
that were once a part of the region’s
brewing and tanning legacies. Early
results include business expansions and
a new School of Freshwater Sciences.
In Western Massachusetts, leaders of
the precision manufacturing industry
are working with university researchers
to commercialize new technologies and
with vocational schools and community
colleges to implement training for new
and incumbent workers.
Photo by Terry Evans
One of the most exciting examples of an
emerging cluster is Chicago’s growing
community of digital and IT companies.
Entrepreneurs are taking leadership to
create synergies in this cluster, from the
Built in Chicago online forum, to venture
capital and mentoring groups like Light
Bank and Excelerate Labs, which are led
by successful Chicago entrepreneurs. The
newly reinvigorated Chicagoland
Entrepreneurial Center is focusing on
creating downtown incubator space to
foster cluster growth.
13
Increasingly, there is interest in targeting
Chicago’s position as the Midwestern
freight and logistics hub as an opportunity
for comprehensive economic development.
Every economic study of the region
identifies the business clusters that have
developed around freight and logistics as a
significant part of the economy.
Current research is underway at the
Chicago Metropolitan Agency for Planning
(CMAP), RW Ventures and elsewhere to
identify the clusters represented in this
category of businesses, which includes
truckers, railroads, warehousing, logistics
management and engineering and more.
14
The involvement of industry leaders is
critical to identify how the clusters within
this broad category function, where the
strengths and weaknesses are, and what
can be done to protect, promote, or expand
this part of the economy. The figure below
illustrates how, with industry leadership
and an investment of resources, a clusterbased strategy could be built around
Chicago’s freight and logistics assets.
This is just one example of a
comprehensive strategy for one of
Chicago’s important clusters that would be
further developed through a Metropolitan
Business Planning process. It will need
long-term attention for implementation.
3. Measure economic performance
and base policy actions on evidence
Public and private leaders in the Chicago
region have invested in policies without
objective information about assets and
economic performance for too long.
We are too focused on league tables that
rank the intangibles instead of standard
economic measures.
Credible economic information is critical
in order to continually identify
opportunities, develop and adjust
strategies, measure the region’s growth and
regularly update the Business Plan.
The Chicago region has bits and pieces of
this kind of research. Universities, public
agencies, and private organizations all
engage in economic research. There is,
however, no respected center providing
economic information on a consistent basis
that is broadly accepted as a knowledge
base for developing public policy.
An economic institute should be created to
provide objective and trustworthy
information about how our economy
works, its current state, and its likely
future.
Understanding the Economy
The Bay Area Council’s Economic
Institute in San Francisco is a publicprivate partnership of business, labor,
government and higher education.
Through its economic research, the
Institute addresses major issues
related to the competitiveness and
economic growth in the Bay Area.
Its independence and high standards
ensure that information about the
region is fair, accurate, and up-to-date.
The work of the Institute becomes the
foundation for subsequent debate and
discussion.
Recent reports from the Institute
demonstrate the breadth of its
research, including the relationship
between the Bay Area and India, the
economics of high speed rail, the
economic impact of hosting the
America’s Cup, and the costs and
benefits of clean energy and public
private partnerships. In addition, every
other year the Institute publishes a
state of the economy report along
with a short-term forecast.
15
4. Make smarter investments of
public and private dollars to
stimulate growth
The region needs to conduct a serious, indepth analysis of its public expenditures
for economic growth. We must ask:
Experience from around the world
demonstrates that it takes money to support
programs that will grow the economy. In
the Chicago region, there is plenty of
money being spent in the name of
economic development. Most of it is
public money, and there is a serious
question about its effectiveness.
What are the public policy and fiscal
implications of tax incentive programs?
What is the return on investment for
these programs?
Are the incentive programs organized
effectively around leverage points that
will result in growth?
At a time when every unit of government
in the state is struggling to balance its
budget or fund schools and public safety, it
makes little sense to continue to commit
grants and tax expenditures to programs
with little demonstrated value. Economic
development expenditures – like all
government programs – should be
expected to receive a high level of
scrutiny.
In addition, the region needs more private
and philanthropic resources committed to
growing the economy. By relying so
heavily on government funding, the region
is constrained in the kinds of programs that
it can pursue. In Cleveland, foundations
and the private sector have committed $70
million for a variety of innovative
programs. The campaign has been
organized around a focused regional
agenda for economic growth.
While Chicago’s philanthropic and private
sectors contribute to economic
development, they do so on a project-byproject basis. Their investments would be
more productive with a coordinated,
strategic approach that aligns current good
work around a common vision and set of
goals.
16
Reversing the Trends
Today’s economy requires a deliberate,
long-term regional action agenda to ensure
that Chicago will remain resilient and
competitive for future generations. The
region’s lagging performance for the past
decade makes intentional action and
sustained private and public sector
leadership around economic growth
imperative.
Growing the region’s economy will require
ongoing public and private regional
leadership and sustained and coordinated
financial resources. These are investments
that the Chicago region cannot afford to
defer. With new political leadership in the
region, and continued global economic
challenges, Metropolitan Chicago needs a
disciplined program to promote growth,
and it needs to make better use of the
billions of dollars already being spent. Our
future depends upon it.
17
Acknowledgements
This report was developed by Metropolis Strategies with
assistance from RW Ventures, LLC
and support from
The John D. and Catherine T. MacArthur Foundation
and
The Chicago Community Trust
Frank Beal, Emily Harris and Tim Quayle
wrote and produced this report.
We also wish to extend special thanks to the members of our
Advisory Committee for early assistance:
Virginia Carlson, Metro Chicago Information Center
Brian Fabes, Civic Consulting Alliance
Liz Jellema, World Business Chicago
Paul O’Connor, Skidmore, Owings & Merrill
Rick Mattoon and William Testa, Federal Reserve Bank of Chicago
Chris Berry and Charlie Wheelan, The University of Chicago’s
Harris School of Public Policy
Metropolis Strategies
A Supporting Organization of The Chicago Community Trust
Metropolis Strategies, the successor organization to Chicago Metropolis 2020, works to
create an economically vital and sustainable region. This report focuses on regional
economic growth, one of the organization’s program areas. For further information
about initiatives in justice and violence, sustainability and transportation, please visit
www.metropolisstrategies.org.
30 West Monroe Street | Chicago, Illinois 60603
312.332.2020
September 2011
18

Restoring Chicago`s Momentum: A Regional Agenda for Economic

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