The Still-Industrial City

It's "urban renaissance" time in the City of Big Shoulders. Suburban families are coming back to the city, yuppies are moving into renovated factories, and "empty-nesters" are buying weekend luxury homes in the Loop. Rising high-tech employment in Illinois has caused some to dub the region "Silicon Prairie," and gritty industrial neighborhoods -- Nelson Algren's playground -- are giving way to restaurants and galleries. Chicago's biggest daily, the Tribune, urges development of "luxury high-rises and townhouses" on the grave of South Works, U.S. Steel's old Chicago plant.

This must have been what Mayor Richard M. Daley had in mind during his first mayoral campaign in 1989, when he urged the city to turn its back on industry and embrace services. "This city is changing. You're not going to bring factories back," he said in an interview with Crain's Chicago Business, the local business weekly. "I think you have to look at the financial markets -- banking, service industry, the development of O'Hare field, tourism, trade. This is going to be an international city." Though old-time Chicago stalwarts might have blanched, Daley's vision is not without appeal. In many ways, it's hard to see the decline of Chicago's industry and the rise of a service-dominated city economy as anything but a salutary process. After all, dozens of new shops, restaurants, theaters, and nice apartments seem like manifest goods for the city. If middle-class people want to live in Chicago, shouldn't the city government do everything it can to persuade them to buy homes here? City chic won't hurt industry in the metropolitan area anyway: manufacturers are drawn to the large, cheap land tracts of suburbia, which are ideal locations for sprawling manufacturing plants.

But while no one would deny it's a good thing for middle-class people to return to the city -- who'd really want to live in Algren's Chicago? -- it's important to recognize that in the absence of adequate planning policies, some residential development may come at the expense of Chicago's industrial base. Residential development could be limited to parts of the city with few industrial jobs; industry could be encouraged to move to parts of the city inappropriate for housing. But though there's no inherent reason residential development can't take place in a way that permits the maintenance of Chicago's remaining industry, in recent years middle-class residential development appears to have been a key factor in the continued decline of industrial jobs: in the 1990s, neighborhoods with dramatic new housing construction have seen a sustained decline in manufacturing employment. Chicago's city government faces a crucial set of decisions: Does it matter if some portion of a city's employment base is industrial? Given that substantial industry remains within the metropolitan area, why should we care whether it's within the city limits? And given that basic industry no longer plays the central role in the urban economy it once did, should the city pursue economic development for the sake of economic development, even if this means encouraging services and residential development at the expense of the industry that remains?

Chicago's story will be of greatest interest to other cities and metropolitan areas -- like Portland, Los Angeles, Hartford, Milwaukee, and Cleveland -- that still have 15 percent or more of their total private-sector jobs in manufacturing. Before consigning extant industrial economies to the dustheap of history, it's worth looking at the precise scope of Chicago's deindustrialization, revisiting some arguments about why manufacturing matters in an urban economy, and examining how Chicago's metro-area real estate market exacerbates pressures for deindustrialization.


THE CHANGING URBAN LANDSCAPE

Driving through one of the odd, empty stretches on Chicago's South Side -- where empty factory buildings vie with sumac trees for space, and ramshackle houses look wistfully out toward Gary's industrial skyline -- demonstrates better than any sociology lecture that deindustrialization has caused vast changes in Chicago's economic landscape. In 1970, the city had 497,250 industrial jobs; between 1970 and 1996, the city lost more than 300,000 of these as International Harvester, U.S. Steel, American Can, Zenith Electronics, and Playskool all shuttered their Chicago plants. Today, Chicago has one-quarter the manufacturing jobs it had 50 years ago.

Academic discussions of deindustrialization emphasize economic restructuring during the late 1970s and early 1980s, which reduced manufacturing employment in midwestern and New England urban areas. The corporations that ran Chicago's gigantic factories chose to disinvest in the city in response to the sharp slowdown in profit rates in the mid-1970s. Intensified international competition, the oil crisis, and 20 years of steadily rising wages spurred firms to restructure after the recession of 1974. At the same time, Federal Reserve Chairman Paul Volcker's high dollar crushed exports, and the era's sky-high interest rates halted investment. Mean while, the lure of low-wage regions in the southern United States caused many companies to shift production away from union cities in the North; creeping automation reduced employment sharply in the steel industry. During the 1980s, factories were sold in leveraged buyouts or were bought by out-of-state corporations who then moved production elsewhere in the country or overseas. The major government spending program of the period -- Reagan's military buildup -- largely missed the Midwest.

While macroeconomic change accounts for much urban deindustrialization, it can't explain shifts from city to suburbs. Some manufacturing has left the metropolitan area, but about as much has simply shifted within the region. Chicago's metro area had 947,847 manufacturing jobs in 1970; in 1996 it had 638,450, a decline of a little less than one-third. This drop, though steep, is far less than the two-thirds decline in the city over the same period. In 1970, the city of Chicago had 48 percent of the industrial jobs in the greater metropolitan area; in 1996, it had one-quarter. So though some of the decline in urban manufacturing employment can be attributed to the overall drop in metropolitan industrial employment, the shift of manufacturing jobs within the metropolitan area is just as important. (Other cities, including New York and Cleveland, have seen the same regional shift in industrial employment.) Despite the drop in industrial employment, manufacturing still employed 15 percent of Chicago's private-sector workforce (or 166,000 workers) in 1996. Chicago's industry is no longer dominated by companies with thousands of employees at a single plant, but by locally owned small and midsize firms, employing between 10 and 250 workers. The most important sectors are food and beverage processing, fabricated metals production, and printing and publishing; these industries em ploy 90,000 workers within the city. The remaining 70,000 work in factories producing goods ranging from harps and furniture, through chemicals and electronic equipment, to ceramics, masonry, and glass.



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But the city has continued to lose industrial employment, falling from 216,190 to 166,000 between 1990 and 1996. The decline has not been distributed evenly across neighborhoods. On the South and West Sides, many neighborhoods that lost industry during the 1970s and 1980s have seen very gradual job loss during the early 1990s, though some severely blighted far West Side neighborhoods have seen sustained declines in industrial employment; many far North and Northwest neighborhoods that lost industry earlier have seen sharply slowed job loss; and some of these neighborhoods have even seen rising industrial employment. But gentrifying North Side and near South Side neighborhoods have seen the industrial job loss of the 1970s and 1980s continue through the 1990s, with neighborhoods continuing to lose industrial jobs at a rate of 3.5 percent to more than 10 percent per year.


WHY NOT A SERVICE ECONOMY?

If we compare the diverse service sector (which includes industries ranging from legal services to auto repair) to the manufacturing sector, at first glance the wage difference between services and industry doesn't look so great. Median weekly wages for full-time employees working 35 hours a week in the service sector are about 10 percent lower than for manufacturing workers: $456 as compared with $507 in 1996. (Median weekly wages for retail workers were $343.) But since service-sector workers work an average of 32 hours a week, compared to 42 hours a week for manufacturing workers, when we compare average weekly wages in 1996 for all workers as opposed to just full-timers (and exclude "supervisory workers"), manufacturing workers come out far ahead: $562, compared to $400 for services and $248 for retail. In addition, manufacturing workers are more likely to have health insurance: only 12.8 percent were uninsured in 1996, compared to 25 percent of business service workers, 33 percent of personal service workers, 23 percent of entertainment service workers, and 26 percent of retail workers. They are also more likely to participate in pension plans.

Moreover, when we turn our eyes from the whole service sector to the low-end, mostly unskilled retail and service jobs that manufacturing workers would be most likely to move into if factories were to close, the difference is stark. Nationally, in 1996 more than one-half of service occupations paid less than $8.50 an hour, and only one-third paid more than $10 an hour; by comparison, only 8 percent of all "production" occupations -- a Bureau of Labor Statistics category that includes blue-collar occupations in manufacturing, repair, and construction -- paid less than $8.50 an hour, and three-quarters paid more than $10 an hour. Badly paid blue-collar jobs don't pay as badly as low-end service occupations: in 1996, 12.3 percent of all workers in service occupations earned incomes below the poverty line, compared to 7.6 percent of industrial workers.

One reason wages are higher in manufacturing jobs is that union membership tends to be higher there than in services or retail. In the Chicago metropolitan area, 23 percent of manufacturing workers are union members, compared to 13.9 percent of private nonmanufacturing workers. Much of the disparity is historical in origin, but there are also economic differences between industrial and service workplaces that make manufacturers more amenable to unions and that make manufacturing shops easier to organize. Manufacturing jobs are likely to be in high-productivity industries with large capital investments and high fixed costs, in which labor is a small proportion of total expenses. Services and retail, on the other hand, tend to be less capital-intensive, and labor tends to be a bigger item on the balance sheet. (It's good to remember what we're talking about when we talk about "service jobs": nationally, the service occupations with the highest employment are waiters, food preparation workers, and janitors.) Though most employers resist unionization, these differences between industrial and service workplaces suggest that manufacturers are less hostile to unions than restaurant owners or hoteliers, and they often pay higher wages once workers are organized. (Even if capital-intensive manufacturers will tolerate unions under pressure, though, this shouldn't obscure the fact that many manufacturers are more than willing to break their unions at the nearest opportunity: witness the ongoing attacks on the United Auto Workers in the Midwest today.)

What's more, investment in manufacturing generates higher employment throughout the economy. Because manufacturers buy raw materials and then sell to retailers, investment in manufacturing stimulates employment across sectors. In a 1989 report published in the Journal of Applied Manufacturing Systems, economist Bennett Harrison estimated the additional economic activity created by manufacturing investment and found that for every $100 spent in manufacturing in 1980, an additional $190 of gross national product was created, compared to $80 for services. New investment generated by manufacturing had increased since the early 1970s, while that generated by services had remained constant, suggesting that "while manufacturing was becoming even more tightly linked to the rest of the economy . . . services were not." Harrison says Chicago's economy is highly "linked"; companies tend to buy heavily from local suppliers. But even if industrialists import from other regions, industrial investment still has a higher multiplier effect than investment in services: since many services, unlike goods, must be consumed locally, investment in manufacturing must create service jobs, but the reverse is not true. (Though some services -- like advertising and financial services -- can be exported, others, such as education, hotels, restaurants, and health care necessarily serve the local market.)

Some industrial jobs might be accessible to urban car owners, even if plants locate in suburbs. But certain types of companies are uniquely urban: cities' dense populations, diverse suppliers, and large markets make them hospitable locations for small manufacturers. In fact, without cities, small manufacturers might find survival difficult. "Characteristically, the larger a city, the greater the variety of its manufacturing, and also the greater both the number and the proportion of its small manufacturers," wrote Jane Jacobs in The Death and Life of Great American Cities. Small manufacturers



draw on many and varied supplies and skills outside themselves, they must serve a narrow market at the point at which a market exists, and they must be sensitive to quick changes in this market. Without cities, they would simply not exist.

While urban diversity makes cities attractive locations for small business, the economic diversity that small businesses produce is, in turn, beneficial for the city as a whole. Preserving a mixed economic base and pursuing economic development strategies that promote both industry and services, instead of services alone, may help the city's resilience in economic downturns. Following the stock market crash of 1987, Crain's Chicago Business noted in an editorial that while New York seemed to be headed for recession, Chicago would be able to ride out the crash, since its economy was not dominated by employment in financial services. Only 9.2 percent of New York's private-sector employment was industrial in 1997; 17 percent was in finance, insurance, and real estate (FIRE), and 44 percent was in services. New York has a much higher overall unemployment rate than most other cities in the nation. Even in the depths of the Bush recession, unemployment in Chicago never topped 9.6 percent. In New York, it climbed to 11 percent, and despite today's positive economic climate, 1997 unemployment in New York City had yet to fall below 9.3 percent. (In Chicago, unemployment for 1997 averaged about 6 percent.) Bankruptcies among service and FIRE companies rose more rapidly during the 1990-1991 recession than among manufacturing firms (though it should be noted that throughout the 1990s, manufacturing firms have a higher failure rate).

One might think suburban industry would provide some economic stability for the city. But even if it does (and New York's metro area still has hundreds of thousands of industrial jobs, with seemingly little impact on urban employment), suburban corridors are starting to lose jobs as firms relocate to outer suburbs. Chicago's inner-ring suburbs lost 20,000 manufacturing jobs between 1980 and 1990; while the inner suburbs gained industrial jobs in the 1990s, the outer suburbs have gained more than twice as many. The further firms go from Chicago, the less the chance that the city will reap the benefits of industrial jobs or of a diverse economy, while firms in outer suburbs will get less benefit from Chicago's suppliers, labor pool, and transportation.

The choice today's cities face is not industry versus services; the real choice is between a mix of industrial and service jobs and an urban economy entirely dependent on restaurants, hotels, financial services, and entertainment districts. The evidence suggests that urban economies focused entirely on services will produce polarized incomes, a lower level of overall economic activity, reduced opportunities for small business and entrepreneurship, and vulnerability to cyclical declines.


THE POLITICS OF REAL ESTATE

But aren't there countervailing benefits to industry's leaving the city? Land is cheaper further from downtown. New production techniques requiring large, horizontal structures make suburban tracts of land even more attractive. Meanwhile, obsolete urban manufacturing plants become attractive for residential uses. People are willing to pay high prices to live in rehabbed manufacturing buildings -- far higher than manufacturers are willing to pay.

Low land prices and the ready availability of large tracts certainly account for much of the suburbanization of industry. But there is another important factor: the irrationalities and inadequacies of the metropolitan real estate market. Market pressures to convert viable industrial spaces into residences in neighborhoods targeted for gentrification, and the failure of the urban real estate market to provide adequate industrial space within the city, force many manufacturers who would like to stay in the city out to the suburbs. Also, the failure of land use policies to discourage sprawl in most metro areas has exacerbated the problem.

Many manufacturers get pushed out of their spaces ostensibly because the "highest and best use" of the land is residential. Chicago's housing market is in fact experiencing one of the few upturns it has had in recent years, so demand for residential space has been rising. In 1997, 2,712 new condos and townhomes were sold in the city -- double the number for 1995; Crain's Chicago Business calls it the "hottest urban housing market in the country." The boom has, justly, inspired celebration in the city. But while in principle there's no reason industry and residential uses should be a zero-sum game, some of Chicago's densest industrial corridors are located on its trendy North Side, in neighborhoods that are rapidly converting to upscale residential uses. With people moving back into the city for the first time in decades, it seems irrational to put limits on converting manufacturing buildings in these areas to lofts or townhouses.

Jack Guthman, one of Chicago's best-known real estate lawyers (Chicago magazine has called him a "developer's best friend"), lays out the case for allowing the real estate market to determine land use, arguing that the hot market for converting industrial structures only reflects the fact that the old, outdated buildings are underutilized by manufacturers. He says, "Maintaining old manufacturing buildings as vacant is not economic development." Guthman argues that multistory buildings, the kind often converted into Soho-style lofts, are not suitable for modern industry:

The types of structures we're involved in retrofitting today can't make it as industrial buildings, because of structural issues, floor loads, elevatoring, but primarily because modern manufacturing techniques don't call for modest floor sizes and several stories but for large floor plans.

Guthman admits that if one building on a block is retrofitted for lofts, the entire block will quickly follow suit. But while it might appear that real estate speculation is at work, he says the real cause is the manufacturers' desire to sell, since "the building stock in the area no longer supports manufacturing." Guthman suggests that the market for loft conversion and townhome construction only reflects the fundamental problems with urban manufacturing structures: "It seems to me that highest and best use is something the market will tell you."

Sounds good -- in theory. But in practice, particular industrial areas see rapid conversion to residential use for reasons having little to do with higher demand for urban housing. New construction in Chicago is hardly spread evenly over the city; on the contrary, in 1997, 93 percent of the city's new houses were built in seven of the city's 70-odd community areas. Neighborhoods are chosen for development less because of their fundamentals -- for instance, a predominance of empty industrial buildings, as Guthman suggests -- than because of urban housing markets' tendency to favor sudden, rapid development in strictly bounded areas. Real estate brokers in gentrifying neighborhoods must convince banks and appraisers that certain properties are valued more highly than their location (in what is, by definition, a poor neighborhood) might suggest, so that buyers may obtain mortgages. For example, land values in the West Town community area, a rapidly gentrifying neighborhood, more than doubled between 1985 and 1990; land values in the abutting Humboldt Park community area hardly increased at all. West Town (better known locally as Wicker Park) had been vigorously promoted through neighborhood festivals, media coverage of development, and the establishment of "landmark" districts.

Often gentrification takes place in neighborhoods that lost industry during the 1970s and 1980s; the real estate market accelerates industrial decline until hardly any industry remains. On Chicago's Northwest Side, industrial employment in neighborhoods like Irving Park and North Center has remained fairly stable over the 1990s -- after dropping during the 1970s and 1980s -- while it continued falling by 20 percent or more in gentrifying Lincoln Park and West Town between 1991 and 1996. These neighborhoods are historically quite similar -- working-class, immigrant, industrial neighborhoods that saw some manufacturers close during the 1970s and 1980s; it's unlikely that there are fundamental differences in the quality of their buildings, and while the gentrifying neighborhoods are closer to downtown, all are well served by public transit. Yet 475 new houses were built and sold in Lincoln Park and West Town in 1997, compared with 20 in Irving Park and 7 in North Center. The real estate market's intense focus on particular neighborhoods leads to conversion from industrial to residential. "There are lots of parts of the city where there is no conversion pressure on industrial buildings, and where that is the case, there's not a lot of va cant industrial buildings," says Jim Bower, industrial retention director for the department of planning.

In a boom, developers often buy buildings in hot areas solely in order to convert them to lofts -- even if the building is chock-full of businesses. Take 2300 West Wabansia, a large building on Chicago's Northwest Side. Eleven manufacturers, employing more than 100 people, occupied the block-size building when it was sold to a developer interested in converting it to lofts in the early 1990s. Industrial tenants believed the building would not be rezoned, since it was located in a city-designated industrial area that contained 53 industrial firms employing more than a thousand workers as of 1991. But developers obtained a residential rezoning permit, even though another landlord who would have maintained 2300 West Wabansia for industrial use offered to buy the building. The 11 manufacturers scattered; two of the larger ones left the city, and others plan to do so in the future. For example, Tony Valentino, who runs a factory making leather goods for police officers that employs 18 people, moved to the West Loop -- another rapidly gentrifying area. His current location (531 South Jefferson) is now being converted to the "Gotham Lofts." This time, he says, he'll leave the city for sure. Since 2300 West Wabansia has converted, several more nearby factories have closed.

Guthman exaggerates the inefficiency of multistory buildings. Nonprofit agencies have occasionally bought buildings like 2300 West Wabansia and maintained them for light industrial use, leasing them at 100 percent occupancy. Also, not all manufacturing buildings in Chicago are multistory; a planning department survey of one West Side industrial corridor showed that 86 percent of the buildings had just one or two stories. But regardless of the building type, the real problem for small manufacturers is that many of them rent -- in some parts of the city, one-half to three-quarters of manufacturers are tenants. And for a landlord, the issue isn't whether the value of the property exceeds the value of the business: it's whether he or she can make more money by selling to a developer. Even if manufacturers aren't kicked out of their buildings, conversion of the local area may drive their taxes and rents through the roof, forcing them out of the city or even into bankruptcy. "This conversion can happen so quickly," says James Lemonides, chief executive officer of the Greater North Pulaski Development Corporation (GNPDC). "2300 West Wabansia was located very centrally to this little industrial area, and it was like you dropped a bomb. There's no planning for what happens to those jobs." When land prices are climbing rapidly due to developer-driven demand, the benefits to the city of maintaining an industrial base -- like high-paying jobs and economic diversity -- are, in the language of the economists, "positive externalities"; they don't show up in inflating rent prices. "Highest and best use for the investor is one thing," says Tony Hernandez, industrial retention director at GNPDC. "Highest and best use for the city is something else."

One might expect city government to intervene on behalf of the existing urban community. Yet in fact, the government actually helps companies migrate to the suburbs. While low land prices are a draw for expanding companies, there are costs to moving out of the city; it's difficult and expensive to transport machinery, and re-establishing supplier networks isn't easy. Thus many suburban townships, especially those further away from the city, offer subsidies for manufacturers who relocate. While there's nothing wrong with offering subsidies as part of an economic development program, it's not clear how many firms would relocate to far-flung suburbs on the basis of market incentives alone. "Shouldn't jobs be located along existing transport corridors instead of out in a cornfield somewhere?" says Peter Skosey, urban development director at the Metropolitan Planning Council (MPC), a regional land use think tank. "Some body is paying for that expansion, and it's not the company."

One of the largest incentives to move to the suburbs, in fact, isn't the low land price, but the low tax bill. According to Crain's Chicago Business's annual property tax survey, 1996 taxes on a 100,000-square-foot commercial structure in the city were about $490,000; in the suburbs, the bill went as low as $164,000. By relocating to less densely settled suburban areas, manufacturers continue to reap the benefits of being near an urban center without having to shoulder the cost.

Still, gentrification and suburban subsidies can't be the whole story. Isn't there a shortage of land in the city, especially for prosperous companies that want to expand? Not exactly. Another major problem with leaving land use decisions to the real estate market is that the market often fails to develop available vacant land for industrial use. Harold Caplan, vice president at William Kritt, a large Chicago broker for industrial real estate, says that the industrial market in the city is tight -- as of fall 1997, industrial vacancy rates were just 6 percent -- and "prices are rising." A recent report prepared for the planning department by the auditing firm Arthur Andersen backs Caplan up, suggesting that demand for industrial space in the city, mostly generated by the expansion of city companies, will increase by 1.8 million square feet per year between 1998 and 2005. But despite the potential profits, the private market is not preparing large land sites for industrial development.

"Our biggest problem is that we do not have readily available land for companies that are here and want to stay here, not because we don't have vacant land but because the land is not assembled for development," says Bower. Chicago has plenty of vacant land -- old rail yards, vacant lots, swaths of abandoned buildings -- that could be developed for industrial use, he says. But these deals are hard to handle, because "when you dig into the real estate, you find that that five-acre piece of land is owned by several people," and that the land has environmental problems as well. In gentrifying areas, site assembly deals are particularly difficult. If a site is divided into parcels owned by different landlords, opposition from a single owner holding out for a higher price will strangle the deal. "There's massive market failure that we're intervening on because the market cannot and will not solve these problems. The transaction costs will kill them. The uncertainty will kill them," says Bower. "It's there -- it's vacant -- but it's got all these real estate problems that the market cannot and will not solve."


KEEPING JOBS

These failures of the metro-area real estate market have resulted in the continued out-migration of manufacturing firms from the city. But in recent years, Chicago's government has started to formulate policies addressing local causes for industrial decline, distinguishing between companies lost due to macroeconomic changes that -- inevitable or not -- the city could hardly hope to affect, and local companies whose suburban migration could have been prevented.

Chicago's industrial retention policy is focused on supporting regions of the city with high concentrations of industry, rather than chasing individual firms with promises of subsidy or trying to "save" industrial buildings one by one. Approximately one-half the city's industrial firms are located in its 22 model industrial corridors, researched and defined in a series of 1990 planning department studies. Each industrial corridor has a deputy planning agency that works with businesses in the area, providing a liaison with city services, helping finance expansions, and in some cases providing worker training. Although some local development agencies have bought buildings that were about to "flip" and kept them in industrial use, the city government is more interested in using acquisition as part of an overall industrial development strategy.

Crucial to maintaining the industrial corridors has been the development of planning tools that stabilize industrial areas and protect them from residential conversion. The most controversial policy tools are planned manufacturing districts (PMDs), industrial zones where residential construction is legally prohibited. It's not a moment too soon for the PMD: the number of rezoning requests for manufacturing to residential and commercial use increased by more than 100 percent between 1989 and 1997. Chicago's first PMDs were established in the early 1990s after residential developers expressed interest in Goose Island, a plot of land just northwest of the city's downtown, bounded on one side by the Chicago River, on the other by a canal. Goose Island is adjacent to one of the city's last steel factories -- the locally owned A. Finkl & Sons -- and is home to a Waste Management plant, a scrap metal recycling firm, and other manufacturers. Altogether, the area was home to 1,650 jobs. Developers wanted to build a residential and retail complex on Goose Island. But Finkl had a multimillion-dollar investment in the property and could not afford to move. Even after the PMD was created -- after a lengthy battle in city council -- CMC Heartland Partners, the holding company for the Chicago and Milwaukee Railroad properties, continued to hold out for residential development, delaying new industrial construction. Finally, in 1994, CMC Heartland agreed to develop for industrial use.

Although no systematic study has been done evaluating the cumulative economic impact of the PMDs (according to planning department officials, one is underway), there is ample anecdotal evidence to suggest that the PMDs are retaining jobs and attracting investment. City figures suggest that the PMDs have seen $64 million in private investment since the early 1990s, mostly resulting from six major investment projects. This has resulted in the retention of 700 jobs and the creation of 400 new ones. A large window-making company, Republic Glass, has located on Goose Island, as has a Federal Express distribution center and a Chicago Transit Authority repair shop, each of which will employ several hundred workers. The planning department's Jim Bower says

Every single property is in play, either being assembled or the deal is being cut. That would never have happened without the PMD. We had property owners who were sitting on their property speculating for a residential conversion. It took us years to talk them in to the fact that they weren't going to get that residential rezoning, that the highest and best use for that property was going to be industrial. Finally the market figured out that we were serious, and what's happened is what we expected to happen. It's an extraordinary location for industry.

Two other PMDs near Goose Island were created in the early 1990s, all located in near North Side neighborhoods that would otherwise be extremely attractive for residential construction, and a fourth -- in a West Side corridor that is home to more than 13,000 jobs with average salaries of $35,000 -- is currently being debated in the city council.

Planning department officials say that while they would be unlikely to consider directly acquiring properties in areas outside PMDs, if landlords hold onto properties in PMDs in the hope of getting residential rezonings, the city government might be willing to consider acquisition in order to spur redevelopment. "Some of these people refuse to recognize the PMD, and at some point, we've got to act on the hot industrial market," says Dennis Vicchiarelli, director of land acquisition and management for the planning department's industrial unit. By making it harder to rezone buildings occupied by industrial tenants -- like those at 2300 West Wabansia -- and by placing the emphasis of planning policy on protecting jobs instead of raising real estate values, the PMDs indirectly support renters who want to keep their businesses going instead of owners who want to cash in on the conversion profits. "Real estate doesn't drive the economy, the economy drives real estate. If you're going to argue for conversion simply on the basis of real estate values, it's not necessarily an argument we're willing to have," says Vicchiarelli.

The city is also starting to use an investment tool known as tax-increment financing (TIF) to assemble industrial land sites. TIF districts capture a share of property tax revenues for specific improvements within the district. Here's how it works: a TIF's boundaries are established by the city council. Bonds are floated to fund specific improvements within the TIF district. The increase in property values resulting from rising property valuation in the TIF is used to pay back the bonds and fund further improvements in the district for the 23-year life of the TIF.

The Stockyards Industrial TIF on Chicago's South Side is the city's model of TIF-driven industrial development. After the giant meatpackers shut down in the mid-1960s, Union Stockyards was left vacant, and the surrounding neighborhood sank into depression. The city's first industrial TIF was established in the Stockyards in the late 1980s. Today, the old Stockyards is bustling with activity: it's home to about 12,000 jobs in steel, meat packing, glass, food processing, and distribution. The neighborhood buzzes with retail commerce. After steady declines through the 1980s, the Stockyards neighborhood has enjoyed fairly stable industrial employment since 1990. Currently, Goose Island (where a TIF was established along with the PMD) and the Stockyards Industrial Park are the only two industrial TIFs in Chicago; five more are being debated in the city council. TIFs are not without their problems: without zoning restrictions, TIF funds ostensibly for industrial use can be diverted to subsidies for commercial businesses, and some critics note that the city could make a larger, more stable financial commitment to industrial infrastructure via allocations in the city budget. But "industrial TIFs are seeking to level the playing field between the land prices manufacturers are facing in the city and out in exurban areas," says the MPC's Peter Skosey. It's also hoped that creating large industrial parks on the South and West Sides through TIFs will persuade manufacturers from the North Side to move south when expanding, instead of to the suburbs. The TIF also enables the city to use its power of eminent domain for private development projects. Chicago's TIF program has been concentrated downtown and has rightly been criticized for channeling tax dollars to big local real estate projects with little democratic oversight. In the case of industrial TIFs, the mechanism matters less than that the city is finally earmarking money for investment in industrial infrastructure.

The success of TIF districts and PMDs in Chicago suggests that these policies can stem the loss of industry. "There is a base of manufacturers that can be retained," says Joan Fitzgerald, professor in the College of Urban Planning and Public Affairs at the University of Illinois at Chicago. "The industrial corridors program is exactly on target, encouraging the reuse of space, land development, and industrial parks. The PMDs target those that might want to move to the suburbs." In general, PMDs and TIFs may be most successful when used in conjunction with a broad planning agenda that encourages residential development in areas where it won't interfere with industrial jobs. Perhaps the best example for such planning is Portland, Oregon, which has used PMDs as one part of its overall strategy to maintain dense, diverse cities and prevent suburban sprawl. The city's industrial sanctuary -- where residential or commercial development is prohibited -- saw a 30 percent increase in industrial jobs during the 1980s, in a period when the city as a whole saw a 10 percent decline. "Our programs have been very successful in keeping industrial business in the city and not forcing prices up," says Robert Alexander, head of economic development at the Portland Development Commission.

Other cities are also attempting industrial retention, though few use the same range of investment and zoning policies as Chicago or Portland. Boston, for example, created a 150-acre industrial park in the city in the early 1980s, which is now 95 percent occupied. But office and residential development in Boston creates some of the same problems as in Chicago: "We had a lot of textile and food processing right on the edge of downtown, but we've pushed out a lot of our traditional industry to the surrounding towns," says Bob Baldwin, deputy director of the Boston Redevelopment Authority. Cleveland has adopted Chicago's industrial corridors strategy, which local officials say retains hundreds of jobs each year. "We're trying to learn from Chicago," says John Cohm, head of Cleveland's Westside In dustrial Retention and Expansion Network, a nonprofit development agency.

But despite the promise of industrial retention and the fairly good track record of planning tools like PMDs and TIFs, industrial retention programs are up against powerful market forces and have to contend with city governments that are highly responsive to developers. Given the political power of urban real estate, the fragmentation of metro-area government, and generous subsidies for suburban development -- not to mention large bodies of non-union labor in the South -- there are real limits to how effective industrial retention can be. Nonetheless, industrial retention programs offer models for city planning and can help maintain a base of decent jobs in urban centers. Like the artisanal and craft forms of production that preceded it, urban industry may appear to be a hopeless anachronism, sure to be swept away by the forces of progress. But this is premature. We need not treat urban industry with what a historian of those earlier forms called the "enormous condescension of posterity" just yet.



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