Last year two American friends, one conservative, the other liberal, independently sent me copies of Mrs. Jacobs’s book because they thought that while I would disagree with much of the argument, I would nevertheless find the book very interesting. They were right on both counts. Assessment of the merits and limitations of the book need have little to do with one’s political position.
Mrs. Jacobs’s principal theme is the part played by cities in economic achievement. She sees cities as the engines of economic advance, providing markets, jobs, capital, and technology for themselves, the regions around them, and other cities as well. Cities do this, she believes, only when businessmen in them engage in what she calls “import-substitution,” that is, “replacing goods that they once imported with goods that they make themselves.” In the case of a food product like jam, “first comes the local processing of fruit preserves that were formerly imported, then the production of jars or wrappings formerly imported for which there was no local market of producers until the first step had been taken.” Or, in another example given by Jacobs, “when Tokyo went into the bicycle business, first came repair work cannibalizing imported bicycles, then manufacture of some of the parts most in demand for repair work, then manufacture of still more parts, finally assembly of whole, Tokyo-made bicycles.”
Because, she argues, “an import-replacing city does not, upon replacing former imports, import less than it otherwise would, but shifts to other purchases in lieu of what it no longer needs from outside,” the import-replacing activity of the city is “at the root of all economic expansion.” According to Jacobs, when a city develops, it creates five forms of growth which transform its immediate region or hinterland:
Abruptly enlarged city markets for new and different imports consisting largely of rural goods and of innovations being produced in other cities; abruptly increased numbers and kinds of jobs in the import-replacing city; increased transplants of city work into non-urban locations as older enterprises are crowded out; new uses for technology, particularly to increase rural production and productivity; and growth of city capital.
To illustrate how these forces affect the region surrounding a great city, Mrs. Jacobs describes how a hamlet outside Tokyo was changed by that city’s growth. Originally, she writes, it was a settlement with few ties to the city; most of its inhabitants lived on subsistence agriculture. But as Tokyo grew, the hamlet could provide new kinds of crops for the city’s markets and ornamental trees and shrubs for its gardens. The young people of the hamlet left it to take jobs in the city. Although demand for farm produce had grown, because there were fewer people to grow crops, new agricultural tools and other labor-saving technologies were introduced. At the same time, transplanted industries from the city arrived, and, finally, city capital helped to finance the building of roads, schools, and irrigation channels.
When the economic forces created by a city’s growth spread beyond a city’s region, Mrs. Jacobs writes, they are usually not in reasonable balance with one another: “The various strands—markets, jobs, technology, transplants and capital—separate from the mesh and take off by themselves” and create “stunted and bizarre economies in distant regions.” For example, during the Forties and Fifties, Uruguay “supplied meat, wool and leather to distant markets, mostly those of cities and city regions in Europe, and it produced little else but wool, meat and leather.” But it was only a supply region for distant markets and lacked an import-replacing city of its own. When meat and wool production revived in the postwar economies of Europe, and manufactured substitutes for wool and leather were created in America, Uruguay’s markets contracted. It could no longer afford imports and had not developed the local industries that could replace the imports. Efforts to improve the economy, such as a crash industrialization program, failed, poverty spread, and during the late Sixties there was a civil war in the country.
According to Jacobs, cities help the economies of other cities grow. For example, “almost as soon as Tokyo began exporting bicycles to other Japanese cities, there arose in some of those customer cities much the same process of replacing bicycles imported from Tokyo, rather than from abroad.”
Moreover, because cities must find markets for their initial work in existing cities, “backward cities must trade most heavily with other backward cities.” For example, she argues that Venice, which arose in the sixth century by trading with the much more advanced city of Constantinople, was able to develop “by acting like Constantinople without Constantinople’s economy.” “Any crude city-made goods that Venice might have produced—imitations of Constantinople’s least sophisticated products—would have been of no interest in Constantinople.” So Venice traded with “other backward settlements in not too different circumstances from its own, settlements that needed whatever imitations of Constantinople goods Venice was capable of producing.” These settlements, such as Antwerp and London, in turn began to behave as Venice did, but with other, still more backward cities. In this way, Jacobs thinks that the prosperity of cities helps to explain how their regions prosper and can explain the fortunes of larger entities, including nation-states, even entire continents.
But she also argues that the incorporations of cities into large economic and political units heralds the decline both of the cities and the nations or empires that contain them. This is because cities that are a part of such larger economic units are unable to issue their own currencies and to impose tariffs, measures that would enable them to adjust to changed external conditions and to protect their own promising economic activities in their early stages. For example, according to Jacobs, an economy’s currency is a “feedback control”: when it declines in value relative to the currency of another economy with which it trades, the decline should correct its economy, for its exports become cheaper (thus encouraging sales) and its imports become more expensive (encouraging local manufacturing). A declining currency therefore should work like an export subsidy and a tariff. But, Jacobs writes, while this might be true of city currencies (such as those of Singapore or Hong Kong) “national or imperial currencies give faulty and destructive feedback to city economies.” This is because nations are “not discrete economic units” and “include, among other things in their economic grab bags, differing city economies that need different corrections at given times, and yet all share a currency that gives all of them the same information at a given time.”
For example, the economies of northern and southern Japan are poor relative to that of central Japan, which contains its great cities. Import-replacing cities have not arisen in these poorer regions and are not likely to do so, Jacobs writes, because “by now, potential import-replacing cities in the stunted regions would need tariffs or their equivalent on products from the larger and more highly developed cities.” If the poor regions had their own currencies, she writes, “they could automatically get equivalents of tariffs and export subsidies.” But this would require the creation of “a family of Japanese sovereignties in place of a single unified sovereignty. As it is, the fact of a single unified sovereignty ensures that these regions must remain persistently stunted relative to those of central Japan.”
Cities that are part of nation-states or empires must also contribute, according to Jacobs, to expensive, unproductive activities which she calls “transactions of decline.” For example, military production may create booms by giving export work to cities, but “thereafter any further economic expansion from that source requires the military work itself to be expanded. And once a city, or any other settlement, comes to depend upon prolonged military work as an appreciable, normal part of its economic base, the military production must be maintained indefinitely or the economy shrinks.” Jacobs makes the same point about welfare programs and subsidies to bring standards of living in poor regions more in line with those of prospering city regions. This is because “feeding voraciously upon city earnings as they do,” the poor regions “reduce intercity trade in favor of trade between cities and inert economies; divert earned city imports to economies that cannot replace imports; and reduce cities’ abilities to serve as good customers for one another’s innovations.”
For Jacobs the dilemma of both cities and nations is that
to hold themselves together as systems, nations must drain their cities in favor of transactions of decline and must undercut volatile intercity trade in favor of supplying settlements that can’t replace imports. In response, city economies stagnate. Stagnating, they undermine the wealth, well-being and capacity to develop further of one another, and of their nations as a whole. In the end, both cities and the nation itself come to ruin.
Such a decline, she believes, is now almost worldwide, and is particularly clear in Britain and the United States, which, she claims, began to decline when it subsidized the poor southern states in 1933; further decline took place when the US engaged in heavy military production, and promoted unproductive international trade with passive and backward economies. Devolution of sovereignty to smaller units which could issue their own currency, impose tariffs, and resist the forces behind the transactions of decline would be the most promising way out of this impasse, she writes. But such developments, as she notes, are highly improbable. She thinks the best we can hope for is drift and improvisation.
Mrs. Jacobs writes with confidence, conviction, and vigor. She supports her arguments with apt examples, some of which I have mentioned. A number of her examples are on a small scale, such as her account of the changing fortunes of a small North Carolina community. Although small in scale, they are not trivial or anecdotal, but serve well to refute some theory of development of support her own view. They recall a memorable phrase of Lewis Namier’s: “In a drop of dew can be seen the colors of the sun.”
Other of her examples refer to wider settings and policies, such as the history of the Tennessee Valley Authority, the events leading to the downfall of the Shah of Iran, and the attempts to transform Italy’s Mezzogiorno. The TVA, the public body set up by the US government in 1933 to develop the Tennessee Valley (which includes parts of seven states in the southest), had ample financial resources, and those who directed it were energetic and sensitive. Its first decade was a success:
The fertility of leached, eroded, and misused farmland was rebuilt, barren hillsides reforested, floods brought under control, roads built, hookworm and malaria eradicated, new schools built and transportation to them provided, public parks created for camping, fishing, boating and swimming, model housing tracts constructed, water-supply and sanitation systems built.
Yet it failed in its declared purpose to create a long-lasting improvement in the area’s economy. This was for a long time masked by dubious accounting methods (reminiscent of “creative accounting” in business), including the falsification of reports on the purposes and the environmental effects of the projects.