Growing up in Minneapolis, I thought of Chicago as the center of the world–the Great American City. But by 1984, when I came “home to the midwest” to work as an economist, things had begun to go wrong, badly wrong. Mainstays of the city’s economy were falling to the wrecking ball, and not enough people were worrying about what would take their place. On the coasts, where things were thriving, Chicago became synonymous with rusty, shuttered plants and a conflict-ridden industrial society that spanking-clean, high-tech enterprises wished to escape. Silicon Valley, the economic success story of the 80s, became Chicago’s antithesis.
But this time it didn’t happen. When the national economy began to recover in 1983, Chicago’s economy continued to inch downward. It became clear that the city was indeed partially “deindustrializing.” Since then things have gotten a bit better, but even in 1988, despite a much discussed manufacturing revival, Chicago’s output growth lagged the nation’s, and jobs were even further behind. Many people, disproportionately young, left the area altogether. (Among other bad side effects of this out-migration, Chicagoans have good reason to fear the 1990 congressional reapportionment.)
Yet despite its many problems, a number of hardy misconceptions about the city’s economy have taken deep root. They might be put as follows: One, Chicago is the industrial capital of the nation, a position of preeminence it will never lose because it serves deep domestic and international markets. Two, with the country’s second-largest concentration of national corporate headquarters, Chicago has a business leadership that will carry it forward into the international economy of the future. Three, Chicago is the Manhattan of the midwest, a postindustrial city successfully making the transition from manufacturing to services. Four, Chicago is in a unique position to benefit from the homegrown prescriptions of the “Chicago School” of economics–the laissez-faire, free market, deregulating federal government policies of the 1980s. Five, improving Chicago’s educational system, both as a skills trainer and as a source of new ideas for industry, will ensure Chicago’s economic revitalization. Each of these notions contains some truth, but all are dangerous to cling to in this era of dramatic economic change. Let’s examine each in turn.
From Korea on, the flow of dollars from the Pentagon to Chicago dried up. Just below the national average in 1952, Illinois’ military receipts fell to 20 percent of it by the mid-1980s. President Reagan’s military buildup, with its emphasis on glitzy new weapons systems and reductions of manpower, did nothing to help. Most of the big defense contracts that Chicago does get go for things like Quaker Oats, Swift meats, Amoco oil, and tickets for soldiers on United Airlines, not for the high-tech weapons topping the Reagan-Bush wish list.
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Chicago, in contrast, lost out precisely because its economy had been so robust for so long. In the crucial 1950s, Chicago was hustling to equip consumers with the accoutrements of postwar posterity, and to make the steel, machines, and parts for companies elsewhere to do so. Exasperated with government red tape and preferring their mass markets to the more specialized world of defense contracting, the big Chicago companies dismantled their wartime plants and built factories, suburbs, and shopping malls in their stead. Bell & Howell, for instance, got out of military optics to concentrate on home movie cameras and video tape. Ford City, once a thriving wartime manufacturing complex, was transformed into a suburban residential haven. No one had time or reason to contemplate the very iffy future of missiles or satellites, and few dreamed that there would ever be limits to their markets, or worse, better products from abroad. So Motorola, Western Electric, Swift, and plants of many other corporate giants churned out the consumer goods and raked in the profits.
Even when the big Chicago companies got into making military products, they didn’t do it here. Chicago-based Motorola, for instance, made the transition from consumer electronics into semiconductors, but it did so by setting up a separate facility in faraway Phoenix in the late 1950s. The manager in charge at the time, Dan Noble, was an asthma sufferer who preferred the arid climate there. But he also found the entrepreneurial climate stifling in Chicago and was anxious to leave. When individuals spun off of Chicago’s defense contractors to start their own businesses, they didn’t stay here either. Morton Klein, vice president for business development at Illinois Institute of Technology’s Research Institute (IITRI)–Chicago’s version of MIT and a big military contractor to this day–reports some 50 spinoffs since IITRI’s start in the 1930s. Only a handful of them ended up in Chicago; most went to the southwest.
At the turn of the century, Chicago was propelled toward national leadership by the dynamism of industrialists such as Cyrus McCormick, George Pullman, Philip Armour, Gustavus Swift, and William Wrigley–men who had “better ideas” and made them stick. They were business heroes–respected, romantic, and headily optimistic. Entrepreneurship was rife in Chicagoland, well through the first few decades of this century. It was an art form all its own.
