Jane Jacobs’ Contribution to Economics

Excerpted from Desrochers, Pierre and Gert-Jan Hospers. Cities and the Economic Development of Nations: An Essay on Jane Jacobs’ Contribution to Economic Theory. Canadian Journal of Regional Science. Spring, 2007. pp. 115-130.

Importance & Function of Cities

• Despite nearly universal beliefs that the production of an agricultural surplus was a prerequisite to urbanization, cities actually paved the way to sedentary agriculture. The first cities were trading posts that subsisted on “wild food” imports. It is out of the activities of people who managed live animals and stored grains that animal husbandry and the practices of sowing and reaping cereals eventually emerged (Jacobs 1969).

• Cities, whose real boundaries are economical rather than political, are settlements that consistently generate their economic growth from their own local economies. Their pools of skills, manufactures and materials, at once diverse and concentrated, provide the best conditions for the birth and growth of entrepreneurial small firms and an ever-increasing division of labor from which “new work can be added to old”. Economic development is “a process of continually improvising in a context that makes injecting improvisations into everyday life feasible” (Jacobs 1984: 155). Despite their apparent messiness and impracticalities, cities provide not only new problems to be solved, but also the best environment to solve them (Jacobs 1969, 1984).

The Dynamics of Export Growth and Import Substitution

• There are five major processes at work in a growing city economy: (1) A nascent city finds a market in older cities for its initial export work and builds up a collection of numerous local businesses to supply producers’ goods and services to the initial export work; (2) Some local suppliers of producers’ goods and services start exporting their own work. New local businesses begin to supply various goods and services for this new export work, and some of them eventually begin to export their own work. In the process, the city imports a growing volume and diversity of goods and services; (3) Many of these imports are replaced by locally produced goods and services through “import replacement”, which is not the same process as the “import substitution” policies adopted by the leaders of various developing economies in the 1960s and 1970s. For one thing, import replacement must take place in logical stages, beginning with the parts or inputs most in demand, and must be selfsustaining. For example, Japanese imports of bicycles from the West gave an incentive to local entrepreneurs and mechanics to open repair workshops, to begin manufacturing the most sought after bicycle parts, and eventually to assemble and later export bicycles entirely made of local components. For economic and practical reasons, successful import replacing can only be a city process. Import replacement creates a powerful multiplier effect and, as result, cities built their diverse economic foundations in “boom” phases. After an import-replacement boom, a local economy contains rooms for goods and services that were formerly neither imported nor locally produced, including unprecedented goods and services; (4) The city’s greatly enlarged and diversified local economy becomes a potential source of numerous and diversified exports. The city’s exporting organizations arise by a) adding the export work to other people’s local work; b) adding the export work to different local work of their own; c) exporting their own local work. The city earns more imports by generating new exports, but many of the new exports merely compensate for declining lost work through obsolescence of older exports, transplants of some organizations into the rural world and replacement of exports by goods now produced in former customer cities; and, (5) The city continues to generate new exports and earn imports, replaces imports with local production, and so on.

Role of Capital Investment

• Capital must be used productively in financing economic trial, error and development. This is a costly process, as most innovative ventures will fail. Expensive, however, does not mean wasteful, for in the long run development work is crucial as cities must compensate for production transplanted in smaller towns and rural areas, and for exports lost because they are now being produced in former customer cities. Systematically spending money on projects that have no economic rationale only insures urban decline (Jacobs 1969).

Cities and Regions, not Nation States, are the Salient Economic Units

• Economists of most persuasions have wrongly assumed that national economies are salient economic units. Actually, nations are grab bags of different regional economies, some rich and others poor. The real growth engines, however, are cities. When a city develops, it creates five forms of growth which transform its immediate region or hinterland: 1) abruptly enlarged city markets for new and different imports consisting largely of rural goods and of innovations being produced in other cities; 2) abruptly increased numbers and kinds of jobs in the import-replacing city; 3) increased transplants of city work into non-urban locations as older enterprises are crowded out; 4) new uses for technology, particularly to increase rural production and productivity; 5) growth of city capital for investment in the city and elsewhere (Jacobs 1984). City regions thus shape and reshape the economies of other regions and settlements which are made up of “supply regions” (which provide cities with food and raw materials); “abandoned regions” (that lose population to growing cities); “clearance regions” (that apply city-developed technologies to reduce labor requirements, but generate few new jobs for displaced laborers); “transplant regions” (that import city-developed factories and other activities that no longer require the support of a dense urban infrastructure); and “subsistence regions” (which are bypassed by economic development) (Jacobs 1984).

Nation States & National Currencies Potentially Detrimental to Regions

• The existence of large national economies is ultimately detrimental to their cities. This  is due in part (Jacobs only states this as an hypothesis) to the existence of a national currency that overall reflects the economic state of the most prosperous city region and therefore might be providing faulty feedback to other smaller cities. Another problem is that national politics tend to foster “transactions of decline”, i.e., forcible income transfers from productive cities to economically inert regions, in the process reducing development-conducive intercity trade. The main transactions of decline are military spending, social welfare and regional redistribution scheme (Jacobs 1984).

Lasting Development is done Incrementally and by Locals

• Economic development is a “do-it-yourself” process that cannot be bought, sold, packaged, anticipated or centrally planned. Effective solutions, such as the successful venture capital firm American Research and Development in post WWII Boston, must not have any preconceived idea of what will work or not. Nothing can be done to help a region that does not have a creative economy of its own (Jacobs 1984).

Commonalities of Biological and Economical Systems

• Both healthy biological and economic systems have four common characteristics: 1) development; 2) expansion; 3) self-maintenance through “selfrefueling”; 4) evading collapse. Development is best viewed as an open-ended process by which differentiations emerge from generality, which then become other generalities from which further differentiations emerge. It depends, however, on numerous, various, and intricate co-development relationships. For example, tool making began with four existing generalities: sticks, stones, bones and fire. Our ancestors then differentiated those found generalities into many things from hammers to scrapers and bags, innovations that required the fusion of other, originally unrelated, innovations. Expansion depends on capturing and using transient energy. The more different means a system possesses for recapturing, using, and passing around energy before its discharge from the system, however, the larger are the cumulative consequences of the energy it receives, and the more resilient the system is. Thus diverse ensembles expand in a rich environment, which is created by the diverse use and reuse of received energy. For example, a diversified city will generate much more local expansion from a new business venture than a small town, much like a well developed forest’s ecosystem will convert more sunlight into biomass than a desert. The refuelment of growing cities, unlike their initial start, depends more on replacing imports than generating new exports (Jacobs 2000).

• Growing economies, like complex ecosystems, are “dynamically stable” inasmuch as they can evade collapse by self-correction through the grace of four processes: bifurcations, positive-feedback loops, negative-feedback controls, and emergency adaptations. Another check on the collapse of advanced human economies are human traits such as aesthetic appreciation, fear of retribution, awe expressed as veneration, persuasiveness, and corrective tinkering and contriving. Systems that make themselves up as they go along are not predictable (Jacobs 2000)

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