The Midwest, like most of the country, has never really got serious about attracting investment from other countries.
There's plenty of this investment, of course: from oil companies to banks to automakers, a lot of non-American logos adorn Midwestern businesses. But compared to other countries, the United States has always focused on its vast internal market for both sales and investment, and the Midwest is no exception. If foreigners want to put their money here, that's fine, but we've never worked very hard to get it.
In the global economy, this is a luxury we can no longer afford. That's the message of a new and valuable report just issued by The Chicago Council on Global Affairs, and downloadable from our website. The report, "Foreign Direct Investment: Globalizing Chicago's Economic Development Plans," focuses on Chicago and its seven-county region. But there's food for thought for other Midwestern cities, their states -- and the entire Midwestern region.
Basically, the report says that Chicago has always drawn its inward investment from neighboring states. Despite this parochial focus, the Chicago region now boasts $40 billion in total foreign direct investment, or FDI. This investment, it says, employs about 200,000 people. In total FDI, the Chicago region ranks third in the nation, behind New York and Houston (which is mostly oil companies).
This isn't bad, but it could be better. The report cites other cities -- Toronto, Bogota, Frankfurt -- which have focused on FDI in recent years and seen it pay off. These regions are all about Chicago's size but draw twice as much FDI. All of them, it said, do some things that Chicago should do:
- Establish a lead investment promotion agency that can be a one-stop shop for investors.
- Focus on key high-growth sectors. For Chicago, it said, these should be finance and business services, advanced manufacturing, health care, transportation and logistics, and information technology. All play to the city's existing strengths.
- Work with foreign-owned companies already in Chicago and reach out to foreign-owned companies elsewhere in the U.S., especially those on the coasts that might want to expand to the heartland.
All eyes these days are on China and its vast currency reserves, on the assumption that sooner or later the Chinese will be the global economy's sugar daddy. The report says attention to China must be paid, but we shouldn't forget that no less than 98 percent of all FDI in the United States comes from eight countries, all developed -- Switzerland, Britain, Luxembourg, Japan, Germany, France, the Netherlands and Canada. The four BRIC nations -- Brazil, Russia, India and China -- between them invest barely half as much as Canada does all by itself. In Chicago, the big investors are Britain, Canada, Japan, Ireland, France and Germany -- first-worlders all.
The lesson is we need to prepare the groundwork for Chinese and Indian FDI when it begins to flow, but for the moment we should be working hardest in Europe, Canada and Japan, because that's where the money is.
All this is good advice for other Midwestern cities, and for the region as a whole. Each city should tailor its approach to its own strengths. But the general recommendations -- setting up a lead agency, recruiting foreign companies already on the ground, targeting sectors -- can be adapted everywhere. As the report says, they're already working in places like Toronto and Bogota, and it's time the Midwest honed its own global act.
Some states already have learned this lesson and are going after FDI in a focused way. In her book, "A Governor's Story," former Michigan Gov. Jennifer Granholm writes how she entered office in 2003 to find the state's auto industry in collapse. Desperate to attract jobs to Michigan, Granholm concluded that if American companies were outsourcing investment to serve foreign markets, there must be a lot of foreign companies who were looking to insource investments to serve their American markets. Granholm made 12 foreign trips that landed 48 companies, $2 billion in investment and more than 20,000 jobs.
"My experience as governor," she wrote, "led me to conclude that international recruitment is the lowest-hanging fruit of job creation. Every governor and our president should set specific targets for FDI in America."
There are some lessons here for the Midwest.
First, small cities can play this game, too. According to the report, most of America's FDI ends up outside big cities. From 2003 to 2011, the 20 biggest cities got 22 percent of all FDI; the other 78 percent was spread over the next biggest 1,720 cities. Big foreign law firms will invest in Chicago: big foreign auto firms will go to places like Spartanburg, N.C.
But how do cities, big and small, promote themselves? State governments and their foreign trade offices can help but these offices are usually small, thinly staffed and, as the report points out, more focused on selling their state's exports abroad than steering FDI to the folks back home.
Some cities, like some states, sponsor trade missions abroad by governors and mayors. Occasionally, as in Granholm's case, this pays off but, as she said, it takes a lot of work and time.
The Chicago Council report urges a regional approach, but confines the region to Chicago and its collar counties. Even this is radical: Chicago and its suburbs squabble for jobs and investment as fiercely as neighboring Midwestern states, and neither really trusts the other to play fair.
But if the Chicago region can do it, why not the Midwest? At the moment, most Midwestern states spend more time and money trying to steal businesses from each other, instead of reaching into the growing global marketplace for investment. Rather rely on tiny and ill-funded state offices, why not big regional offices and trade missions that could trumpet the Midwest's very real lures to foreign investors?
Will this be hard to do? Sure. Do the various Midwestern states trust each other enough to make this joint pitch? No, not yet. Are governors secure enough to grin and bear it when a Midwestern project results in investment in the state next door? Probably not.
But what they're doing now isn't working. The Midwest is pocked with cities, big and small, where the old locally-owned companies have gone away and the foreign sugar daddies, European or Chinese, have yet to arrive.
Like Chicago, the whole Midwest is in competition with the Torontos and Bogotas of the world. It's a tough competition, and the region needs all the muscle it can find.