Chicago: The Second City at a Crossroads

Why the nation's third-largest metro is due for a manufacturing comeback

800px-20090524_Buildings_along_Chicago_River_line_the_south_border_of_the_Near_North_Side_and_Streeterville_and_the_north_border_of_Chicago_Loop,_Lakeshore_East_and_Illinois_Center.jpg

Buildings along the Chicago River (Wikimedia Commons)

The foundations of Chicago's strengths as a national and global powerhouse are easy to spot. It's the third-largest metro area in the United States by population, home to two of the world's top private universities, one of most popular destinations for college grads, the birthplace of modern futures and commodity trading, a bedrock of capital goods manufacturing, and one of America's most important transportation hubs, with two huge airports and 25% of all domestic freight passing through the city.

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But all is not well in Chicagoland, according to an incredible and comprehensive million-dollar report prepared for Mayor Rahm Emanuel early this year. Chicago's growth, productivity, and wealth are all slowing down compared to other major cities in the country.

Here's the summing-up graphic below. Chicago's household income and productivity-per-worker is still greater than the national average, but the trend-line looks nasty over the last decade. Chicago ranked 22nd out of 29 US metros in real GDP growth. In the last decade, it fell behind Los Angeles in GDP per capita and continued to lose ground to D.C., San Francisco, and New York. It is not even in the top-ten among major U.S. cities in patents per capita.

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The report calls for an overhaul, starting with manufacturing. The world's three biggest emerging trading markets are Brazil, India, and China. For each country, general and special-purpose machinery (which is Chicago's expertise) ranks as the single most demanded import. That bodes well for Chicago's manufacturing rebound.

The city is blessed and cursed with a two-track education system. The report explains:

The region's human capital status is bifurcated. Its educational levels are greater than the U.S. average (34% of the population holds a bachelor's degree or above, compared with 28% of the U.S. population), and it is home to top undergraduate and graduate institutions, including two of the top five business schools in the nation (the Kellogg Graduate School of Management at Northwestern University, and the University of Chicago Booth School of Business). The city also hosts many No. 1 ranked programs, such as economics at the University of Chicago and industrial design at the Illinois Institute of Technology. However, while the metro area's high school attainment levels are equivalent to the U.S. average (86% of population holds a high school the City itself underperforms, with only 78% of the population holding a high school degree or above.

Human capital and manufacturing are in fact a part of the same problem. The new age of making things will surely involve more highly skilled workers not just fabricating new technologies, but also "providing research, incubation, consulting and networking services to accelerate innovation." The goal for Chicago to become an innovation center would also be supported by new initiatives -- like infrastructure spending -- that would bolster the city's reputations as a transportation hub for the midwest.

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