now in its one-hundred-and-eightieth year
Earlier in the year, the Chicago Mercantile Exchange Group (CME) put its landmarked Board of Trade Building up for sale. In recent months, the exchange has been shopping itself around to other states in an effort to extract a more favorable tax deal from the State of Illinois. Although CME chair Terrence Duffy recently told members of the Illinois legislature that “we’re not threatening anybody,” these actions are implicitly threatening, since the CME plays a crucial role in the economy of Chicago and Illinois.
Perhaps more important, the CME and its subsidiary and former rival the Chicago Board of Trade, are the pillars around which Chicago’s vibrant subculture of commodities and futures trading has flourished. Despite technological changes that have rendered pit trading less important, the livelihoods of an estimated 100,000 Chicagoans remain closely intertwined with the CME. My husband, for instance, trades commodities and still uses local brokerages to place and clear trades. We are immensely proud of the CME, enthusiatically voted for its acquisition of CBOT, and admire the steady and adroit way the CME has advanced, over the decades, to become the world’s largest futures exchange. The CME’s departure from the state would represent a tragic loss for this city.
In 2010, the CME’s gross revenue exceeded $3 billion. (Its assets in Dec 2010 were reported to be some $35b.) Not surprisingly, its tax payments account for some six percent of all corporate tax that Illinois receives. In the wake of the Illinois legislature’s decision in January to raise its corporate tax rate from 4.8 to 7 percent, the CME announced that it would consider leaving the state. Not because it can’t pay the tax, but because it believes this amount of tax is too great to ask. In other words, being located in Chicago isn’t worth it. A Chicago location has grown too expensive, and states like Indiana, Florida, and Texas, seem to offer a better deal.
It’s incredible to me that the CME has actually entertained the idea of moving to . . . . Indianapolis. It’s true. Illinois lawmakers are now bending over backwards trying to keep something like this from happening. Chicago and Illinois don’t have the nerve to say to the CME, “Do you really want to move? Think what you’re doing.”
For some of the implications, we have only to look at the experience of UBS, which a decade ago grew fed up with its expensive Manhattan location. So, it allowed itself to be inveigled to move to Stamford, Connecticut, where it proceeded to build the biggest trading floor in the world. But the grass wasn’t greener. Guess what? The types of sophisticated people who work in the financial services industry hated the long commute–they hated the idea of living in Stamford, some thirty-five miles away from NYC–and UBS tried to compensate by hiring more people locally. But did that work? No, it’s just not the same. UBS has gradually moved more of its workforce back to New York City, and in June explored the idea of becoming a major tenant in the rebuilt World Trade Center Building. Renewed financial incentives from Connecticut have persuaded the firm to stay put for the time being, but the fact remains that its new location has proved to be a recruiting liability that also places UBS at an inconvenient distance from its major clients.
The fact is, the human and cultural capital that a city like Chicago affords is tough to find in another place. Location continues to matter, no matter how global your business.
What bothers me about the CME’s maneuvering is the limited responsibility it feels toward the people and place that have given it its very identity. Instead of rejecting the state’s mandated corporate tax increase, why not propose alternate ways to solve the state’s terrible deficit, or work toward getting the tax burden that all Illinoisans must bear distributed more equitably? Why not say, as corporate leaders used to: “We are committed to our state; we’re committed to Chicago”? And why not supply some leadership that will help all of Illinois move in the direction the CME thinks it should go? It sounds naive, perhaps; but corporate leadership, now on the decline, was exactly what, historically, helped Chicago rise.