Chicago's business worries.

Chicago's business worries.

Chicago's business worries.

Moneybox
Commentary about business and finance.
Jan. 15 2004 5:00 PM

Second City Blues

Why Chicago shouldn't worry so much about corporate flight.

Zealous boosterism is a Chicago trademark. Those Saturday Night Live skits featuring fans of "Da Bears" knew just how to satirize the city. And what else explains the presence of huge crowds at Wrigley Field, the home of the hapless Chicago Cubs, or the locals' inexplicable devotion to stuffed pizza?

Hometown pride spills over into the business sector. Chicago is immensely protective of its status as a regional and national economic power: "Hog Butcher for the World, Tool Maker, Stacker of Wheat, Player with Railroads and the Nation's Freight Handler," as Carl Sandburg put it in "Chicago." The city's business establishment—Sears, Wrigley, the Tribune Co.—has been remarkably close-knit and stable for generations.

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And yet Chicago has long been self-conscious about its second-class status vis-à-vis larger cities on the East and West Coasts (New York and Los Angeles) and, more recently, vis-à-vis more rapidly growing cities in the Sun Belt (Atlanta, Houston, and Phoenix). So when members of Chicago's business elite are acquired by out-of-town companies, the news is generally met with a mixture of chagrin and defensiveness. The Chicago Tribune today called the announcement that New York-based J.P. Morgan-Chase would acquire Chicago-based Bank One in a stock deal worth $58 billion "the latest blow to a city that has watched Ameritech Corp. and Amoco Corp., Waste Management Inc. and Household International Inc. pick up stakes in recent years." (Here's howCrain's Chicago Business, which offers far better coverage of the city's business scene, played it.)

The locals had long suspected that Jamie Dimon, the erstwhile Sandy Weill protégé who took the helm of Bank One in 2000 but retained his Manhattan apartment, would head back East for a big Wall Street job. They just didn't think he'd take Bank One's headquarters with him.

To be sure, corporate Chicago has suffered a series of indignities over the past decade. In the constant wave of consolidation that has affected industries ranging from department stores to banks, Chicago has always seemed to be the loser. In 1990, the iconic department store Marshall Field's was sold to Target. In 1994, the pretentious Canadian Conrad Black bought the blue-collar tabloid the Chicago Sun-Times. Four years later, British Petroleum purchased Chicago-based Amoco. The Windy City lost its hometown baby bell, Ameritech, when it was acquired by SBC in 1999. A year later, PepsiCo purchased local hero Quaker Oats. And last fall, auto-parts maker Borg-Warner announced it was moving to suburban Detroit.

According to Glen Marker, director of research at World Business Chicago, a public-private economic development group, the number of Fortune 500 companies headquartered in Chicago has fallen from 35 in 1996 to 30 today, including Bank One. Those that remain seem like the Washington Redskins—a roster of grizzled veterans that were stars in past seasons but now seem a step too slow. Chicago-area stalwarts such as Sears, McDonald's, and Motorola are all in the midst of significant slumps. And Chicago's one big win of recent years—in 2001 it convinced Boeing to relocate its headquarters from Seattle to Chicago—has been something of a loser.

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In this climate, even the departure of smaller businesses from the scene—a key component of the process of creative destruction—is an occasion for introspection and self-pity. "The closing of Fannie May speaks to Chicago's reputation as a world-class city with world-class chocolate," the Chicago Tribune noted after the Chicago-based candy company announced it would close a local factory and shut dozens of stores in the area.

But it's possible to invest too much significance in the number of headquarters of which a city can boast. Though the presence of gigantic companies may be crucial for a town's self-image, they're not necessarily crucial for a town's employment prospects. These days, many corporate headquarters are lean operations that oversee vast national and global companies. And in Chicago, as is the case in many other cities large and small, the most significant employers are government entities. Of the top five Chicago employers, only one is a private company, grocery chain Jewel-Osco. Besides, even though Bank One's top bosses are leaving, the company's vast retail consumer-lending operations, as well as its consumer and small business banking operations, will continue to be run out of Chicago.

What's more, giant companies frequently don't create jobs at anything like the rate that smaller companies do. Even as it lost corporate headquarters in the 1990s, Chicago added jobs at a robust pace. "We added more private sector jobs than any other metro area in the country in the preceding business cycle—a little over 476,000 jobs," said Glen Marker of World Business Chicago. And this study by the Chicago Federal Reserve Board showed that between 1990 and 2000 the number of companies with more than 2,500 employees that were based in Chicago rose from 96 to 109. (The Chicago Fed has since revised the study to show the figure rose from 81 in 1990 to 98 in 2000.)

True, the Chicago area's unemployment rate, at about 6.5 percent in November 2003, is higher than the national average. And, yes, the most recent reading of the Chicago Business Activity Index does show that the Second City has been lagging behind the national economy in areas such as sales and non-manufacturing employment. Still, Chicago's highly diversified economy, with its mix of manufacturing and services, more closely resembles the economic makeup of the country than do cities like New York or San Francisco. Over the last several years, it has performed better and more steadily than cities that rely disproportionately on particular sectors, like New York or San Francisco.

Chicago may no longer boast a money-center bank. It may never boast a World Series champion. But economically speaking, there's no need for Chicagoans to walk around as if they live in a City of Stooped Shoulders.