The Second City of Tech

Crain’s Chicago wrote an editorial about Chicago becoming the Second City for Tech.  In it, they recognized that Chicago’s tech scene has become something.  John Pletz at Crain’s has been all over it for a long time.  I am glad the editorial board started reading his columns!  (This is an attempt at sarcastic humor).

However, here is where Crain’s is wrong.  The state budget crisis isn’t the over arching thing affecting an entrepreneurs decision to come to Chicago or not.  Crain’s would like this to be the case because a lot of them have an anti-Bruce Rauner agenda.

I have blogged about what Chicago needs again and again to become a tech powerhouse. We are on the road.  It’s important to remember this isn’t a competition over fixed pies. Silicon Valley is number one, and it will remain number one until hell freezes over.  New York is a solid number two along with Boston.  That’s probably not going to change either.

Chicago needs a lot more capital.  It needs capital from outside of Chicago to come here.  It also needs capital that is/was made here to stay here and not go to the coasts. That’s sort of happening in drips, but the faucet isn’t turned on yet.

Chicago needs a deeper network.  This takes time to develop.  Capital attracts entrepreneurs.  Entrepreneurs build the network.  Silicon Valley VCs get nervous when they have to drive 30 minutes to a board meeting.  Their seed stage/early stage capital isn’t coming here.

As far as government is concerned, entrepreneurs are relatively unaffected by the inner workings of it.  It is hard for Chicago alderman and cronies to extract Boodle from tech startups.  They have a much easier time doing that to small business and corporations.  What was it, 90% of all local businessmen said Chicago’s government was a crony capitalist nightmare?  Here is what they are truly worried about.

1.  Safety.  If they and their employees can’t live in the city safely, and get to and from work safely, and have to worry about their family’s safety 24/7 they aren’t coming here.  Certainly, the violence is concentrated in neighborhoods where they don’t go, but it’s starting to spill over to areas where they do go.  Search on the Internet “Chicago violence”, “New York violence”, and “Silicon Valley violence” and see what comes up.  Right now given the government made pension crisis, most people I talk to think it’s going to get worse before it gets better.

2.  Schools.  Chicago Public Schools basically stink and are broke.  There are a few public schools we can point to that are good-but you don’t educate a city population with a “few”.  If I can’t educate my kids here how do I stay here?  There is the Catholic School system.  But, a lot of entrepreneurs might have a problem with a religious based educational system.  There are the Big 3 of Parker, Latin, and Lab-but those are small populations and the tuition is unaffordable for 99% of the nation’s population. The answer to this is school choice, vouchers, charter schools and privatization.    This is an issue where the government monolith and inability to think creatively is a huge problem.

Moving to the suburbs is an option given the train system. But, Metra rarely runs on time and property taxes in the suburbs are skyrocketing.

3.  Infrastructure.  Chicago has really good infrastructure as far as cities go.  It’s also got Lake Michigan and amazing parks all throughout the city.  But, roads are in bad shape.  A lot of it is failing.  Why?  It’s not for lack of infrastructure spending.  It’s because government pensions consume most of the money that could go to infrastructure spending.  Here again is where the government monolith gets in the way.  Outsiders looking in don’t understand the pension crisis.  They do see crumbling streets and extremely high property taxes.  See Wirepoints.com and IllinoisPolicy.org for really clear eyed numbers and math around this crisis.

4.  Taxes.  Think about it, entrepreneurs don’t make a massive amount of money like consultants, accountants and bankers.  Their value comes from building equity value, not cash flow value.  Low income taxes are a draw compared to states like California and New York.  But, property, sales and other taxes are really high compared to those places.

The other thing that all Chicago has to remember, entrepreneurial ecosystems don’t get built overnight.  It takes time.  Lots of time.  Most likely, another 15-20 years.  Given the pension crisis, Chicago government doesn’t have that kind of time.  Better to take care of it now by declaring bankruptcy.  Then, clean out the dead wood.  Modernize.  The problems of safety, schools, infrastructure and taxes all can be dealt with efficiently today in order to make sure the tech ecosystem has a bright future for tomorrow.

(apologize for no links, but I still haven’t figured out how to do that on my iPad)

 

 

  • Donald Wolfe

    Well written and correct in the assessment needs and issues and I applaud Jeff for being in the forefront of moving Chicago forward in the tech area. The problems however, are daunting. They are decades in the making and, I’m afraid, will require decades to solve (think Detroit). People, voters and businesses are still whistling past the graveyard, meanwhile those at the trough are working mightily to keep it from being kicked over. I’m afraid we haven’t hit bottom yet.
    Jeff, keep up the hard work. I know you are doing more than blogging about it.

  • I’m sure you’re absolutely correct in both problems and the best case solutions. But solving the unsustainable pension crisis?
    Aint’ gonna happen.
    I’m sorry, really sorry, that there’s not enough talk about the prior 50 years of dishonest promises.
    When the city of Chicago puts an “excess pension” tax on those pensions paying more than the US median income (about $50k), to pay for the difference, there might be a chance.

    Have they even stopped digging the hole? Defined contribution rather than defined benefit is a requirement for sustainability.

    • Bankruptcy. Only way out given all the competing forces. Mark Glennon of Wirepoints.com has been all over it

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