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October 22, 2009

Chicago: Tall and Striving

The autumn season brings full tilt to Chicago’s convention and tourism activity. Out on the sidewalks of downtown Chicago, office workers such as me find themselves dodging out-of-towners who are gazing upward at the tall buildings. This year, sidewalk hazards of this sort are especially abundant. The professional building gazers of the world, otherwise known as the Council on Tall Buildings and Urban Habitat, are meeting here in Chicago to contemplate the purposes, construction, and financing of tall building projects throughout the world. They have asked me to address their conference in October on the role of tall buildings in Chicago’s economy.

Economists have long analyzed the purposes and benefits of high density living and working. And since high density cannot be achieved without tall buildings, many of the reasons to why we build so high can be found by considering density’s relationship to urban productivity.

Looking back over human history, transportation of goods and people has presented a costly impediment to beneficial manufacture, trade and travel. For this reason, the land area surrounding natural “nodes” of easy transportation such as water ports and harbors, and later railroad hubs, became very prized. That is to say, the transportation costs of accessing transportation nodes could be economized by intensively using surrounding land. And so, land rents rose there; and buildings for warehousing, factories, trade, and finance mounted as far skyward as the building technologies would allow.

Chicago’s economic history reflects these forces in some very special ways. As documented in two books about Chicago’s economy in the nineteenth century, Nature's Metropolis and City of the Century, wealth creation in the small area surrounding the mouth of the Chicago River literally exploded. Here, a unique node of transportation was developed at the nexus of two vast waterway systems, the Great Lakes-Erie Canal to the east and the Mississippi River Basin to the west. Later in the century, some timely investments in railroad added another important transportation hub to Chicago.

On Chicago’s land, markets were made in grain, livestock, and lumber. Materials were further processed, warehoused, manufactured, and shipped to markets, both domestic and abroad. Marketing and financing were arranged. Specialized retailers evolved to serve western farmers and ranchers, as did machinery makers.

A special Chicago role in building technology was spurred by its rapid economic growth and the intensity of activity on the land surrounding its ports and railroads. In response to the urgency and high cost of downtown land, many innovations in constructing tall buildings emerged here. The innovation of first iron, and later steel, frames and skeletons supporting skyscrapers allowed developers to build higher and stronger, as did the technologies of “floating foundations” that allowed construction of skyscrapers on Chicago’s soft and shifting soils.

Today, the importance of materials movement and manufacturing to Chicago have eroded somewhat [1]. Still, the tall buildings and the attendant high density of work, play, and residence remain and, in fact, they have multiplied to serve other economic sectors. For the most part, the high density and proximity that tall buildings facilitate serve to allow people to communicate in highly efficient and often creative ways. While advances in electronic and digital communication such as the internet and cell phone are very helpful to business communication, they are incomplete. The modern economy has become more “information intensive,” not only in the communication of bulk, digitized information, but also in the face-to-face transmission of ambiguous information. In business meetings large and small, in organized forums and in random networking and social activities, information is created, debated, and transmitted. Workers hatch ideas, learn new concepts, cut business deals, and organize initiatives through such interactions. The “office meeting” has not died. And arguably, the chance encounters from which new ideas often arise have become more important than ever.

The “globalization” of trade and commerce which has taken place in recent decades has also raised the value of inter-personal communication. Globalization has increased the complexity of business transactions as well as increasing the variety of human cultures in which trust and understanding must be established in order for business to flourish.

Certain large and diverse cities, often called global cities, help to meet the requirements of global service exchange and deal making. Chicago definitely fits the bill. Its dense urban core and other features have vaulted Chicago to prominence as a global business center[2] . The metropolitan area now hosts 29 Fortune 500 headquarters offices, and ten Fortune global headquarters. Chicago’s presence in professional and business service is both sizable and closely aligned with business headquarters. Prominent companies in advertising, financial exchanges, research and development, human resources, management consulting, accounting, law and logistics serve businesses in Chicago and around the world. Chicago ranks among the top three U.S. metropolitan areas in the hosting and staging of business meetings and conventions. Top-flight universities add to the mix, including two of the world’s top five graduate business programs at Northwestern University and the University of Chicago. There are over 1,500 foreign-owned firms in Chicago and 30 international chambers of commerce.

Economists usually refer to the added productivity that comes along with high density, large scale population, and a broad scope of (inter-connected) activities as “economies of agglomeration.” What this really means is that the whole of related activities amount to more than the sum of the parts; in Chicago, the co-location of the activities above add up to heightened economic productivity and wealth creation.

What are the interactions and transactions of co-location that give rise to heightened productivity? Some examples would be Chicago's headquarters gathering superior and cost-effective services from local professional service firms; professional firms finding customers at the city’s many international trade shows; recruitment by local firms of graduates from Chicago's outstanding universities; and ample continuing education opportunities for workers at all levels.

In addition, in contributing to agglomeration economies and a successful global city, businesses in the Chicago area also benefit from the city’s important and unique infrastructure, including an international airport. As more companies establish a global presence, they need more frequent face-to-face interactions with their counterparts and customers around the world. Chicago’s O’Hare and Midway airports offer nonstop or direct flights to 148 North American destinations and serve an additional 68 foreign destinations. This scale and reach of travel options are sustainable because of the extensive use of the facilities by (otherwise unrelated) local industries and, thanks to Chicago’s mid-country location, because of additional business from connecting traffic.

The judicious and well-planned configuration of tall buildings in Chicago's downtown is a necessary condition for co-location of the aforementioned activities. And it is well worth noting that ground transportation and easy circulation are equally necessary to achieve a density that works well[3]. In most instances, the intent of vertical infrastructure is to economize on horizontal transportation costs. Overly congested roadways or poor public conveyance could easily undo these vertical advantages. While average travel times to work in the Chicago area are among the highest in the nation, six-hundred thousand workers do converge on Chicago’s central area each working day, of whom 55 percent of whom use mass transit [4] .

The conference attendees of the CTBUH will be considering such issues of tall buildings and urban habitat as they meet in Chicago. These issues may even provide welcome relief from a business environment which has, in many instances, left the financing of extant and prospective tall building developments in precarious condition.


____________________________________________________________________________________________________

[1] Although Chicago’s manufacturing concentration registered one-third greater than the nation during much of the twentieth century, that sector is now about on par with the nation. However, owing chiefly to national railroad convergence in Chicago, the metro area remains the nation’s premier location for inter-modal surface freight transportation. (Return to text)

[2] It is Chicago’s core area that is most notable for its density of tall buildings. Over 50 percent of the metropolitan area’s office space can be found in the central area. Nonetheless, employment sub-centers with dense commercial configurations are an increasing phenomenon in large cities. In the Chicago metro area, Dan McMillen’s study finds that such sub-centers grew from 15 in 1990 to 32 by year 2000. (Return to text)

[3] While we tend to associate tall buildings with large and densely populated cities, it is interesting that we sometimes see tall buildings in rural areas where horizontal travel costs are low (and land rents are cheap). As analyzed by urban economist Arthur M. Sullivan, the logic of such buildings owes to their specialized functions in which people circulate frequently within such buildings to designated sites so that a single multi-story building becomes optimal. For this reason, we may see tall hotels, dormitories, and hospitals even in rural areas. (Return to text)

[4] The central area also houses extensive retail and educational activity. Per World Business Chicago, 65,000 students attend class there. (Return to text)

Posted by Testa at October 22, 2009 11:49 AM

Comments

I live in Chicago so obviously I like it a lot. And what you say is true, but is only part of the story. Chicagoland has below average population growth. And despite possibly the biggest condo boom in America, the central city has lost population since 2000. This is in contrast to cities like Atlanta, which saw strong central city growth. Its metro GDP per capita trails Indianapolis and Milwaukee. From 2001-2008 its real GDP per capita grew by only 5.5%, as Ryan Avent pointed out. NYC grew by 18% and LA by 17% in the same period. Chicago's unemployment rate of 9.7% exceeds that of 7 other Midwest metros over one million in population that I track. It has marginalized minority populations that have largely not shared in the global city boom.

Chicago definitely has a lot going for it, but there is another side to the story as well.

References:

http://theurbanophile.blogspot.com/2009/01/chicago-declaration-of-independence.html
http://theurbanophile.blogspot.com/2009/10/midwest-metro-gdp-unemployment.html
http://www.ryanavent.com/blog/?p=2227

Posted by: Aaron M. Renn at October 22, 2009 3:55 PM

I agree with Mr. Renn that a more nuanced post would have been nice. The interplay between globalization and equity considerations in today's global mega-city regions is far too often glossed over. Instead, we tend to hear a steady drumbeat from economists on the global city's ability to support network effects, economies of scale and tall buildings.

On another note, I live in Copenhagen and as I look out of my window I see almost no tall buildings, yet Copenhagen is more densely populated than Chicago. Therefore, I disagree with your statement that "high density cannot be achieved without tall buildings." In Copenhagen, virtually no buildings are over five stories.

Posted by: Ryan Horton at October 23, 2009 5:28 AM

While I agree in part with Mr. Renn, I believe he is being too harsh. Atlanta city proper is by all means not the model for economic growth despite its recent growth in population. As this article (see link below) laments, the city proper has lost a large proportion of jobs since 2000, and its downtown isn't even on the radar as a headquarters destination; with no solution on the horizon.

Chicago's situation isn't necessarily rosy, but it faces a different set of challenges and judging its success simply by pure population growth comparisons misses the overall picture by a mile. I think a more nuanced perspective, as mentioned by Mr. Horton above, is in order here.

Link to the above mentioned article below:

http://www.ajc.com/news/atlanta/engine-for-growth-has-173667.html

Posted by: Tupp at October 26, 2009 6:12 PM

Thank you all for your comments.

Chicago's performance remains a somewhat murky area, so much so that I believe that investigations and discussion by several analysts would be helpful. While a recessionary period is not an ideal time for such an evaluation, the time is past due. Many civic leaders are interested in such an evaluation now that the Olympic decision has passed by.

I have prior beliefs about Chicago's performance, ones that I would like to hold up to further analysis and scrutiny.

My impressions are that:

1. The metropolitan area's population growth and its relative income growth are remarkable, not in absolute performance, but in light of the area's transition from manufacturing to services from the 1960s to date.

2. Similar to Pittsburgh, the area's per capita income growth is the more notable, especially in the context of the Midwest; growth of population and employment less so.

3. The 1990s performance of Chicago and the Midwest were particularly robust--and perhaps transitory. The current decade has been something of a letdown, which is one reason why a broader and deeper discussion would now be helpful.

4. The (central) City of Chicago's turnaround from the 1970s and early 1980s has been especially strong. Educated, professional, and somewhat young people continue to swell Chicago's Lakefront neighborhoods, both north and south.

Outside impressions of metropolitan areas seem to be highly influenced by what goes on in urban cores. This may explain some confusion over the metro area's performance. In the policy arena, it may also offer one small reason for the outlying areas to concern themselves with their urban core.

Bill Testa

Posted by: Bill Testa at October 29, 2009 11:56 AM

There is not a good comparison between 'condo boom' in Atlanta and Chicago because the city of Atlanta is actually very small compared to the Metro and the historically lower density means that more new condos had to be built -- whereas in Chicago, the 'central city' is much larger and many of the condo developments were conversions of former rental housing. However, within the central part of the city of Chicago, approximately 1-2 miles from the Loop, there was a very large increase in population that was directly caused by new construction. Substantially more people moved into the same area of downtown Chicago compared to the same area within Atlanta.

Posted by: hobart at January 12, 2010 3:19 PM

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