The Decline and Fall of Chicago and Illinois

Chicago, and Illinois, are in big economic trouble

• 7th straight year of population decline. Losing 235,000 people in 10 years, 3x the amount of any other state. Last year saw a decline of 79,500 people – second only to much larger New York – and the rate of people leaving is accelerating.
• Illinois has, on average, property taxes 2x the national average. If you owned the “Home Alone” house in suburban Chicago, since the movie was made in 1990 you would have paid $890,000 in property taxes.
• Chicago is the worst residential real estate market of any large city in America. While values have been rising elsewhere since the Great Recession, in the last decade, property values in Chicago have declined 20%.
• Sales tax is 9%, and on some products 10%+, one of the highest rates in the USA. On-line purchases are taxed at 10.25%, for example. Illinois is one of only 7 states to charge sales tax on gasoline. And Illinois has the highest cell phone tax in the country.
• Illinois roadway toll fees are widespread, and among the highest in the USA, with the majority of those funds going NOT to road improvement but rather into the general budget to cover state expenses.
• Illinois is 46th in private sector job growth – and would be 50th except the #1 source of job growth is government jobs. And 40% of the government workforce makes $100k+/year. The total number of jobs in Illinois December, 2019 was 6.2M – unchanged since 2015 – and up only slightly from 5.9M in 2010 – yielding a pathetically low growth rate for jobs of 1/2 of 1% (.5%) per year
• 1/3 of the state budget is pension payments, and pension debt is 26% of state GDP – highest in the country. Lots of retirees, very few new jobs to pay their pensions.

Gibbon wrote The Decline and Fall of the Roman Empire as a treatise to uncover how such a powerful empire could lose its greatness. There is no doubt, Chicago and Illinois were once great. The area was known for great jobs, great infrastructure, great transportation system, great homeownership – and for many decades considered one of the best places to live in America. Back when agriculture and manufacturing dominated the economy. But quite obviously, as the world changed, and the sources of economic value (including jobs) changed, the late, great state of Illinois kept pushing on with “business as usual” instead of changing policies and investments to re-orient for the Information Era.

Things were not destined to become this bleak. Chicago could be Austin today – but obviously it isn’t. Where Austin, and Texas, looked at trends and made investments beyond the old “core” of oil and gas, Chicago and Illinois completely failed to look at trends that indicated a clear need to change. Problems, and the path to solve them, have been obvious for years. It was easy to predict this would happen. But a chronic focus on the short-term, rather than the long-term, combined with a complete unwillingness to change how investments were made caused state and city leaders to consistently ignore warning signs and make one bad decision after another.

Indicators of Decline

I’m an expert on trend-based planning, so let’s take a look at the telltales this was coming and how those telltale indicators were ignored:

• In February, 2006 (yes 15 years ago) I wrote that Illinois was the #1 net job loss market in the country. This factoid highlighted an emerging problem in the underlying economy. The state was still considerably dependent on old-line agriculture/food giants, those businesses were crumbling and unlikely to recover as the economy shifted. Notably Kraft was in its 5th year of what was to be a turnaround (that never happened) and Sara Lee was under incompetent leadership that kept selling businesses to shore up declining revenues and earnings. The state, and city, had failed to develop an infrastructure for investment in start-up companies. There was a total lack of investment money for entrepreneurs from paternalistic large companies such as Motorola and Ameritech. And a lack of money for innovation from banks, venture capital and private equity firms. Existing businesses were aging, cutting jobs and none were focused on investing in new companies to keep the local economy tied to the emerging Information Economy [ link to article here ]
• In February, 2009 Forbes selected Chicago as the 3rd most miserable city in the USA, citing high taxes, no job growth, infrastructure decay, congestion and bad weather. An uproar ensued – but no change. I then noted my 2006 column, and recommended a very serious Disruption in how Chicago was managing its resources. Clearly the “more of the same” strategy trying to defend its past was not working. Unless there was a disruption, Chicago would get worse – not remain the same, and certainly not get better. The signs were clear that from ’06 to ’09 nobody was thinking about the big changes needed [ link to article here ]
• In June, 2010 it was reported that Illinois lost 260,000 jobs between 2000 and 2010 – and that was an indicator of why Chicago and the state were having so many economic problems. I recommended the city and state make significant changes in resource allocation to keep more start-ups local. The University of Illinois was the #4 engineering school in the US, but the vast majority of graduates left to one or the other coasts. Local businesses were not developing new businesses, thus not hiring these top students. Start-ups at the universities, and by recent grads, could not obtain funding, so they fled to where the money was. Economic reliance on stalled companies like Kraft, Sara Lee, Motorola, Lucent, Sears and United had created a Growth Stall that was sure to lead to additional job losses – when the best talent was right there in the state! [link to article here ]
• I followed up a week later that same June with a column on how Mayor Daley was very popular with voters and local businesses, but he was setting up the city (and state) for failure. There was a focus on keeping the “old guard” happy, and doing so by completely ignoring opportunities for future growth. Offering tax breaks and subsidies to recruit corporate headquarters (like Boeing) created very few jobs, and was a poor use of resources that should be diverted to funding start-up tech and bio-tech companies. And financial machinations, like selling the city’s parking rights, gave a short-term lift to the budget, hiding significant weaknesses, while creating massive long-term problems. Chicago and Illinois politicians were focused on short-term actions to get votes, and ignoring the very real jobs problem that was tanking the economy. [ link to article here ]
• By April, 2014 I was able to clearly demonstrate that my predicted economic stagnation spiral had taken hold in Illinois. Defend & Extend investments to shore up declining companies – like Sears – robbed local governments of funds for job creating programs. And a decade + of no job creation was forcing taxes up – at a remarkable rate – which kept businesses from moving to Illinois; kept them from opening software labs, coding facilities, research centers, pharma and bio-pharma production plants, etc. With no growth, but rising costs, the death spiral had begun and needed immediate attention [ link to article here ]
• In September, 2016 the outward migration from Chicago and Illinois had become a powerful trend. Looking at demographics, the market was aging. Rising costs and no growth had pinched budgets to the limit, while pension costs had become an unsustainable burden on the state’s citizens. Just like Japan was in an aging crisis, Illinois was in an aging crisis. And this was destined to create even more problems for the economic death spiral that began before 2006. [ link to article here ]
• So by January, 2017 the demographic tailspin was clearly creating a vacuum pulling people out of Chicago and Illinois. Fully 4 years ago it was obvious that the predicted trends had taken hold, and nothing short of an incredible disruption would save Chicago from becoming the next Detroit. Using the simplest trend planning tools made it clear that unless there was radical change in investments the Chicago empire was at its end. [ link to article here ]

Lessons for business from Illinois failure?

Far too many businesses act like Chicago. “Business as usual” dominates. Resources are automatically routed to defending old business lines, rather than investing in new products and solutions. Plans are focused on historical customers, products and markets, creating blindness to market shifts and a reluctance to move forward with new technologies and toward new markets. Very little energy is put into trend analysis, and plans are not based on trends and likely future outcomes but instead on history (planning from the past dominates over planning for the future.) People who point out the future is likely to have bad outcomes unless serious change is undertaken are ignored, or shouted down, or removed entirely. Short-term financial machinations (selling assets, or a business, or offering deep discounts to keep customers) creates an illusion of security while long-term trends continue undermining the business’ foundation.

We are experts at trend analysis, trend planning and effective resource allocation. It was clear 15 years ago that major resource reallocation was necessary for Chicago to continue growing its economy. Don’t let a fixation on doing more of the same get in the way of your future growth, like Chicago. Let us help you identify critical trends and allocate scarce resources smarter to build on trends and grow.

Key lessons?

First, the world is growing and leading businesses will grow. If you’re not growing, you’re dying. Compare Austin to Chicago. Or Tesla and Apple to GE and Exxon. Second, never plan from past success, but instead plan for the future. You don’t grow value by being operationally excellent, because the world is forever changing and it will make your past business less valuable even if you do run it well. Third, make sure your plans are all built on trends. Let trends be the wind in your sales, or the current under your boat, or whatever analogy you like – just be sure you’re using TRENDS to drive you business planning, product development and solutions generation. Customers buy trends and help for them to achieve the future.

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Did you see the trends, and were you expecting the changes that would happen to your demand in 2020? It IS possible to use trends to make good forecasts, and prepare for big market shifts. If you don’t have time to do it, perhaps you should contact us, Spark Partners. We track hundreds of trends, and are experts at developing scenarios applied to your business to help you make better decisions.

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