|Business of Chicago
Business and Chicago have been inextricably bound since the city's beginnings in the early nineteenth century. Although there is no truth to the story that Chicago is Potawatomi for “let's make a deal,” economic and business concerns have not merely shaped but determined Chicago's destiny for almost two hundred years. After an initial period of settlement and environmental/economic accommodation, the city entered into a remarkable phase of economic expansion between about 1850 and 1930. Chicago's economic performance since that time has been less impressive, but the city, having adjusted to a series of economic shocks and dislocations in the 1970s and 1980s, remains the most important economic and business center in the interior of the United States. Indeed, with its increasingly diversified economy, metropolitan Chicago appears well poised to continue as the economic powerhouse, if not the growth engine, for the greater Midwest.
Until recently few scholars viewed Chicago's early development in a fully commercial framework, arguing instead that slow, desultory, rather aimless economic encounters among traders, frontier farmers, Indians, and government contractors of one type or another characterized the area's economy until the 1830s. The same scholars then argue that during the 1830s Chicago experienced a wild period of boom and bust, based on furious but ultimately unsustainable land speculation, before establishing a firm foundation as a trading center in the 1840s.
One might begin with resources, not merely because they were bounteous in the Midwest—although they certainly were—but because the particular constellation of resources available in the Great Lakes region was remarkably appropriate for rapid economic development in the nineteenth century. There was the soil, for example, soil of great natural fertility, and water, water in almost unimaginable and seemingly inexhaustible quantities. And there were prairies, pancake flat and most fortuitous in the coming age of the railroad, as well as vast deposits of iron ore and coal, which proved propitious indeed as America turned to steam and steel.
A formidable stock of social and cultural resources complemented these natural resources. Settlement was dominated by farmers and artisans who, whether of Yankee or German origins, were accustomed to disciplined labor, rational calculation, and patient accumulation. Equally determined migrants from other lands followed and, despite vast differences in cultures and traditions, either bought into, or at least behaved in a manner consistent with, the economic and social expectations and ethos of their Euro-American neighbors. Such resources, conjoined with the relatively liberal and egalitarian developmental policies associated with the Midwestern states, help to explain both the rural and urban opportunities available in the southern Great Lakes region and, ipso facto, the region's inflows of labor and capital. Indeed, the area was nothing if not ready for what the novelist Richard Powers has aptly referred to as the “tireless nineteenth century.”
Yet resources, impersonal market forces, and capitalism's “systemics” cannot fully explain Chicago's development. Despite the city's many locational advantages, an equal number of disadvantages—poor drainage, endemic disease, a late start—had to be overcome if the city was to outcompete other commercial centers to become the jewel in the Midwestern urban crown. Here, many scholars point to yet another advantage Chicago enjoyed over its rivals: an advantage in human capital, specifically in entrepreneurship.
Whatever attribute or complement of attributes one chooses to emphasize in defining entrepreneurship—risk receptivity, vision, creative innovation, deal-making, enlightened management, and the like—Chicagoans have never seemed lacking. Although some economists assume that economic behavior is entirely positional, and that sociocultural qualities such as entrepreneurship are randomly distributed among human beings, Chicago's early history suggests otherwise. In this regard, it is most instructive to plot Chicago's historical trajectory against the trajectories of some of its early urban rivals, places with more or less similar structures of opportunity, places such as Kenosha, Racine, and even Milwaukee and St. Louis. The historical differences among these places cannot be attributed solely to structural factors, locational differences, first-mover advantages, timing, or luck. A residual remains, some part of which arguably is explicable by invoking entrepreneurship.
In any case, in the 1830s and 1840s, riskreceptive, visionary, creative, deal-making businessmen and women were busy making Chicago work. Not only was the city establishing a hinterland, it was beginning to develop entrepôt and manufacturing functions—trading, milling, butchering, tanning, brewing, distilling, sawing, planing, and, most portentously, fabricating products for local, regional, and, in some cases, extraregional markets. In so doing, Chicago and Chicagoans—aided by governmental policies supporting development and a legal system promoting the “release of entrepreneurial energy”—were setting the stage for the amazing period of economic expansion about to unfold.
Chicago's economic dynamism between the 1850s and the 1920s is the stuff of legend. Seldom before in world history had an urban center grown so rapidly, been transformed so dramatically, or captured and conveyed the regnant spirit of the age so thoroughly. Chicago had developed big shoulders indeed by the 1920s, and this development was due more than anything else to sweaty work and heavy lifting. In the age of industrial capital, Chicago had become America's industrial capital, there to remain for most of the twentieth century.
Between 1850 and the 1920s Chicago was transformed—or more accurately and actively, it transformed itself —from an earnest little regional trading node in the interior of the United States into the nation's second largest city. Served only by the Galena and Chicago Union in 1850, the city was the greatest railroad center in the world by 1856. In possession of but rudimentary manufacturing facilities at midcentury, Chicago formed the core of one of the most heavily industrialized regions on earth before 1900. A nice little trade, distribution, and supply center for Great Lakes' farmers in 1850, Chicago had extended its hinterland into the Rockies within a few decades and developed into a world emporium before the turn of the century. How and why?
By 1930 Chicago, had become even more of a manufacturing town. Moreover, many of the early processing activities—sawing and planing lumber, milling, and meatpacking—lost ground in relative terms to higher-order industries based on metal fabrication, particularly the fabrication of iron and steel. In 1930 the “Chicago Industrial Area”—comprising a five-county area in northeastern Illinois and adjacent Lake County in northwestern Indiana—was the second largest manufacturing area in the U.S., behind only the “New York City Industrial Area,” which had over twice as many people. In per capita terms, Chicago's value of manufacturing product and value-added by manufacturing exceeded New York's in 1930, as did the manufacturing proportion of the labor force. In qualitative terms, too, vast differences distinguished the two areas: Chicago was America's center of heavy industry, New York, the center of light industry. Chicago, in the eyes of Chicagoans and non-Chicagoans alike, typified large-scale, centralized, capital-intensive, heavy industry.
As Chicago's manufacturing sector evolved, as its output became at once more varied and more sophisticated, the markets for manufactured goods produced in the city changed as well. With the relative shift away from processing activities and toward fabricating industries, the city was able increasingly to pursue import substitution policies and to export fabricated goods (rather than just raw materials, agricultural commodities, and processed manufactures) out of the region. By the 1920s, electrical machinery, iron and steel products, machine tools, and fabricated metals from Chicago were being sold not merely throughout the United States, but all over the world.
This question is more difficult to answer than appears at first glance. On the one hand, the city has clearly experienced some periods of tough economic sledding over the past 70 years. Like most other cities in the industrial Midwest, Chicago suffered terribly during the Great Depression, as the demand for Chicago-made capital goods and consumer durables plummeted. Similarly, both the city and the entire metropolitan region have been hurt by the decline of jobs in heavy industry over the past 30 years—the region lost a staggering 188,000 jobs in this sector during the 1980s alone. On the other hand, Chicago's economy grew robustly during the Second World War, for most of the period between 1945 and the early to mid-1960s, and during the 1990s. Chicago's economic performance, once amazing, has been solid since its apogee. To appropriate and adapt a conceptualization initially developed by historian John Higham, the period can be seen as one in which the city moved in economic terms from “boundlessness” to “consolidation.”
Metropolitan Chicago's economy has experienced relatively robust growth for much of the period too, despite severe problems related to industrial readjustment and restructuring during the 1970s and 1980s. Indeed, the Chicago area's economy as a whole continues to perform well, and, in some ways, Chicago's more diversified and balanced economy at the turn of the twenty-first century is healthier and more stable than ever before. Even the situation in manufacturing is more complicated than often assumed. Manufacturing has declined in relative terms in the Chicago area, particularly the manufacturing proportion of the area's labor force, but total manufacturing output has continued to grow, and the Chicago Standard Metropolitan Statistical Area ranks third behind New York and Los Angeles in most measures of industrial might. Chicago remains, according to almost every index, one of the most important industrial areas in the U.S. and in the world. Given Chicago's continuing importance as a center of trade, finance, and transport—air as well as rail and highway—how does one evaluate and interpret the modern economic experience of (metropolitan) Chicago?
One important consideration in attempting to answer this question is the relationship of Chicago to the Midwest. Unlike the situation during the period of Chicago's great ascent, the Midwest since the 1930s has been in a period of relative decline. The income elasticity of food, generally speaking, is low, which, not surprisingly, hurt the agricultural Midwest; and with the expansion of capitalist markets in the U.S. and national economic integration, relatively underdeveloped or undeveloped American regions—in the South and West in particular—began to develop rapidly. To some extent, their development came at the expense of older regions, including the Midwest. In an efficient capitalist economy such as that in the modern U.S., standard economic theory predicts that costs of production will converge with growth rates over time. Areas with very high growth rates, such as the Midwest in the late nineteenth and early twentieth centuries, would not be expected to sustain those rates as other areas developed, but to slow down and decline in relative terms over time. This is more or less what has occurred in the southern Great Lakes region, including metropolitan Chicago, since the 1930s.
Indeed, when one compares Chicago's structure of economic opportunity in the post-1930 period with the opportunities afforded the city in the period between the 1850 and 1930, one is struck by how much more constrained and limited Chicago's possibilities and options have been over the past 70 years than during the period of the city's ascent. Chicago's rise was in large part an expression, if not the embodiment, of the Midwest and its manifold resources: flat, fertile prairies during the great age of agricultural and railroad expansion; coal and iron ore during the age of steel; food, fibers, and raw materials during a period of rapid population increase, urbanization, industrialization, and economic growth in the U.S. To be sure, since the 1930s the U.S. economy has continued to develop, but hardly in the same way. The Midwest's comparative advantages have proved less compelling, and Chicago and Chicagoans have had to live with this painful, unvarnished truth. One can argue that metropolitan Chicago has fared pretty well under the circumstances, and that both the city and its inhabitants deserve high marks for devising and implementing sound development strategies and displaying considerable entrepreneurship.
Chicago has survived depression and war, the postwar boom, the retrenchment and restructuring of the 1970s and '80s, and the go-go 1990s with a good deal of its pride and prosperity intact. Although it will likely never again experience a period resembling 1850–1930, and although the city faces countless economic challenges—poverty, inequality, declining infrastructure, and insufficient investment in human capital, for starters—Chicago in many ways and for many people remains even today the “I will” city “that works.” Whether it will remain so in the future as capitalist market integration intensifies in our increasingly “borderless” economic world is the challenge facing Chicagoans in the generations to come.
The Electronic Encyclopedia of Chicago © 2005 Chicago Historical Society.
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