Chicago needs reality check

A column titled “Four things Chicago must do to rise from the bottom of the pack,” by Marin Gjaja and Justin Manly, introduces a study by the Boston Consulting Group (BCG) comparing the economic performance of the 15 largest U.S. urban agglomerations. I started reading with great interest, but the more I read – both the column and the study itself – the more I felt that something was missing.

The key finding of this study is that among the 15 largest U.S. urban agglomerations, Chicago ranks third in factors defining economic potential, but it is 12th in GDP growth and GDP per capita, which define how this economic potential is used. Messrs. Gjadja and Manly see it as “a cause for concern.” I have an issue with that.

In school terms, if a student having all the talent and opportunity to have straight A’s is falling into the B-minus range, it is a cause for concern. If that student is permanently floating just above a solid F, it is alarming; this student needs a reality check, as definitely something is fundamentally wrong. Something is fundamentally wrong with Chicago as well, because for decades it slowly but constantly has trended downward in its economic performance. The study confirms that. Also, the authors did not list any signs of improvements coming. The once-strong and vivid economic system is gradually disintegrating in front of our very eyes. Although all political and business leaders claim that they are doing whatever is in their powers to reverse this trend, the data presented by the BCG are almost screaming out that whatever they do, it is not working.

This is not the conclusion of the study in question. The four things that the authors list that Chicago must do are pleasantly sounding sentences appealing to everyone to make more of an effort in doing what has been not working so far. A thought comes to mind that these conclusions were written not to pinpoint the tough decisions that Chicago faces, but with the purpose of not upsetting those responsible for Chicago’s failures.

In their study, BCG analyzed data for the broadly drawn Chicagoland, with a population around 9.5 million, but in their analysis of the core problems, and in phrasing their conclusions, they focused on the city of Chicago itself, which has a population of only 2.7 million. This simplification, though not clearly stated by the authors of the study, is justified as with Chicago being the heart and the engine of the region, its prosperity, or lack of it, projects on all communities in the area. My further comments follow this approach and pertain only to the city of Chicago as well.

In the first of the four things that Chicago must do, the authors of the BCG study lecture business leaders to be more entrepreneurial. Next, they suggest that Chicago could help its existing businesses and industries become 21st century leaders. I disagree in principle. In the 19th century, businesses located in Chicago became industry leaders not due to help from City Hall, but mostly because the city interfered much less with their businesses than it does now. They enjoyed much more freedom in exploring business opportunities than is available now. Since then, the city became a bureaucratic monster stifling businesses. In order to maintain that overblown bureaucracy, they tax with no mercy. Meaningfully, as the BCG study points out, Chicago is home to the headquarters of many Fortune 1000 corporations as they can have some leverage on City Hall in receiving preferential treatment. For the small and middle-sized businesses providing employment for most people, moving out of Chicago, if possible, is usually the best option. Moving out of Illinois could be often even better, because the Chicago style of politics has expanded to the state government, which echoes the same problems as Chicago does.

On my list of things that Chicago needs to do, the first one is to slash its bureaucratic overreach. To my knowledge, no one has ever analyzed, case by case, how eliminating particular city ordinances could bring more benefit than harm to its residents, its businesses, and the city itself. The best example could be an ordinance requiring a permit for a Yelp sticker on the window. From my incidental experience of doing business in Chicago, it could be that everyone (except bureaucrats themselves) can benefit from eliminating as many as half of the business licenses and permits required by the city now. People enforcing these rules could be dismissed.

Chicago City Hall must revisit its role in the city. It should result in easing its bureaucratic grip, which would make the city more business-friendly and would lower the cost of living for Chicago residents. This should coincide with a drastic cut in the city payroll.

Parallel to the reduction in bureaucracy, the city needs to face reality on its pension problems. The system is insolvent because it was originally designed in abstraction from basic economic rules. Some strategic agreement needs to be reached to honor obligations made to retired people, but from a certain point on, all new enrollees need to be placed in commercially viable 401(k)-style retirement plans.

All these measures should bring the city to solvency. Then, businesses will step in and fill out all the new opportunities. Only then will the city have both public and private resources and the ability to make improvements in its troubled neighborhoods.

The authors of the BCG study, in their points two and three, postulate the need for more effort in helping struggling neighborhoods and advancing diversity. In the report, they show a statistical correlation between crime, low level of education, and unemployment of youngsters. From the way they write about Chicago’s troubled neighborhoods, one can sense that they have never been there, they do not know people living there, they did not visit their houses, they did not do business with them, and they did not employ them or work with them.

With the Chicago skyline on the horizon, people in the impoverished neighborhoods feel completely isolated from the wealth so visible down the street. They gave up hope. They feel victimized; they distrust the societal order as benefiting everyone but them. Only exceptionally strong individuals can get out of that intellectual marasmus through education and work. For this reason, in the long run, if any public money could be allocated to mend this problem, it should start with a more aggressive approach in education. Beginning at kindergarten, schools should identify children living in a household environment not conducive to academic progress. By combining public money with private funding and individual mentoring, these kids need to get channeled into after-school activities providing experiences similar to what children from caring families get at home. The objective is to hook these kids into math and science before they become old enough to join a gang.

Reeducating dysfunctional adults will be much harder. Access to vocational training and job openings need to be combined with limiting access to government support programs. For many, the current welfare system provides a bare minimum of food and shelter, thus discouraging work. By the same token, this bare minimum is below a decent level of living, thus amplifying the sense of misery. A tough-love approach can help people get out of that enchanted circle of hopelessness through work. Satisfaction and self-esteem come from a dollar earned, not from the handouts. Sadly, we have to accept that many are so irreversibly lost due to a lack of education and addictions that they might never be able to develop the self-discipline needed in the modern world’s workplace.

As the fourth thing that Chicago must do, the authors of the BCG study again lecture businesspeople – this time that they should advertise their success. When success comes, it sort of advertises itself as everyone participating in it has the motivation and resources to trumpet it. As of now, Chicago can try to lure more tourists with a slogan: Come and see the last days of our glory, before we collapse as Detroit did.