A TALE OF CITIES.
A serf’s overview of an important book by Jane Jacobs, ‘Cities and the Wealth of Nations.’
Say, Who Commands the Enterprise?
Remember when Mao Tse-tung decreed the economy of China was to take a Great Leap Forward?
Remember when Khrushchev at the United Nations foretold a Soviet economy that would overtake America’s and thereafter ‘bury’ the West?
Remember, after the Second World War, when the British thought they were constructing a prosperous welfare state?
The recipes and ideologies for accomplishing their economic goals may have differed in each of these nations, but in each, a similar disillusionment. Macro economy entrusted with the theory and practice of fostering national and inter-national economies has become a shambles.
Consider the funds poured into Marshall Plan post-war development of Europe. The Marshall Plan was touted as a successful venture yet the realities were there to see. While aid did become self generating to the economies of the Netherlands and West Germany, funding conspicuously failed to metamorphose stagnant economies like the economy of Southern Italy or that of Great Britain.
Jane Jabobs observes that since that time many already advanced countries, among them the United States, have also become victims of an insidious problem, the problem of stagflation, a combination of rising unemployment and inflated prices. In theory this should not exist, but it does.
This does not compute!
Keynes’ quantifiable fiscal interventions yielding quantifiable predictable results were tried and found wanting. As the Keynes’ camp succumbed to stagflation and bafflement, the Monetarists had a go, attaching inflation with high interest rates and cuts in government spending. But turned out, Monetarists’ measures to fight inflation were ruinous to many producers and their workforce and measures to help producers enlarged government deficits. Via state run policies of price subsidies and over-manning enterprises, the Marxist economies, too, were hit by stagflation.
Attempts to save their theories by tortuous claims that the intervention see-saw works indicated that structural flaws have not been taken into account by economic planners. They do not understand, says Jacobs, how to catalyse development in backward countries and they do not understand how to prevent developed economies from slipping backwards themselves. (Chapter 1 ‘Fool’s Paradise.’)
Questioning mercantilist assumptions of gold and silver reserves as the source of a nation’s wealth, Adam Smith in his great work, ‘Enquiry into Nature and Causes of Wealth of Nations’ argued that wealth came from capital and labor and from domestic and foreign trade. What he did not question was the mercantile view that nations are the salient entity for understanding the structure of economic life. Jacobs argues that once we remove the mercantilist blinkers, we can’t help seeing that most nations are grab bags of very different economies, of rich and poor regions within the same nation. (Ch 2, ‘Back to Reality.’) She quotes Henry Grady editor of a newspaper in Atlanta, in 1889 describing a funeral he had attended in Pickens County some eighty miles away:
‘The grave was dug through solid marble but the marble headstone came from Vermont. It was in a pine wilderness but the pine coffin came from Cincinnati. An iron mountain over-shadowed it but the coffin nails and the screws and the shovel came from Pittsburgh…The cotton shirt on the dead man came from Cincinnati, the coat and breeches from Chicago, the shoes from Boston, the folded hands were encased in white gloves from New York, and around the poor neck, which had worn all its living days the bondage of lost opportunity, was twisted a cheap cravat from Philadelphia.’ (Op cit.)
The items Grady mentions were products of American cities replacing imports instead of interminably importing them from London or other English cities. And behind the items lay other products, often innovative adaptations, lathes, knives, dye vats, freight axles. These products were not generated in rural areas but in cities. Economic life, Jacobs demonstrates, develops by grace of innovation in cities; it explodes by grace of import replacing, which are functions of city economies.
We Have Lift Off!
Charles Sabel of Massachusetts Institute of Technology, in 1982, described the proliferation of small firms that occurred a decade earlier in clusters of small cities between Bologne and Venice, firms employing as few as five workers, specialising and innovating in every phase of production of textiles, automatic machine tools, automobile and agricultural equipment, the process feeding on itself as parts in a chain reaction.
Cities own regions, the artifacts of cities, may benefit from the opportunities the city generates. Not all cities generate city regions. Atlanta did not but New York and Boston did so. The expansion that derives from city import replacements consists of five forms of growth, abruptly enlarged city markets for new and different imports, new uses for technology, increased numbers and kinds of employment, increased growth of city capital, increased transplant of city work into non-urban locations as older enterprises are crowded out.
The largest city region in the world today is Tokyo’s, says Jacobs. She describes the benefits of an expanding city region on the rural village Shinohata, as the five forces of expansion came to bear. Beginning in the late 1950’s, people in Shinohata found they could make good money from things not previously in demand, like peaches and grapes, ornamental plants for city gardens, and increasing demands for their rice crops. Productivity soared through purchases of labor saving devices. Oak mushrooms were a new product in demand. In the 1960’s three farmers began expanding oak mushroom production with a new method of growing them by stacked log production. By the 1970’s these farmers had forth to fifty thousand logs each and by using heated glass houses in winter, were making daily shipments to Tokyo all the year round. The villagers themselves were the first to admit that the wealth of the community was not because they were more innovative than their forebears, but due to the benefits of Tokyo’s regional expansion.
Lost in Space.
When those five forces reach out into distant regions as they always do, it’s as if a city’s bonds unravel at the borders of the city region and their separate strands, in supply regions, distort into bizarre economies and eventually shrink into poverty.
Jacobs shows this effect in Uruguay, which for several generations was un unusually rich supply region. Most of the population of Uruguay had migrated from Europe in the latter part of the nineteenth century and to spur immigration, the government had encouraged homesteading. Efficient homesteaders supplied meat, wool and leather, but little else, to distant markets and could afford to import what they needed, refrigerating unites, cranes, and other things necessary to keep their advanced transport and communication systems going, along with hospitals, schools and theatres.
Uruguayans called their country ‘the Switzerland of South America.’ Turned out it wasn’t. In the 1950’s, countries in Europe that had been begun to recover from the effects of the Second World War became preoccupied with protecting their own meat and wool producers from competition, while ranchers in Australia and New Zealand were seeking to enlarge their own markets. In the meantime, substitute products for wool and leather were being manufactured. Uruguay’s exports and imports plummeted. To pay welfare and transfer payments the government began printing money and Uruguay is now a third world economy. What they did, they did well, notes Jacobs. What they did not do was create a productive city diverse economy for themselves.
Other supply regions, New Zealand, New Brunswick in Canada, Appalachia, Central and Southern Scotland, have the same problem of narrow specialization. France today has only one import replacing city, Paris, and rural France is a stunted supply region.
An Act of Faith.
‘Say, I’m from the guvuhmint and I’m here to help you …’ If you happen to live in a supply region, forget it because the only forces which transfer economies, argues Jane Jacobs, are the five great forces of markets, new technologies, jobs, and city transplants that occur organically.
Money from immigrant workers sent home to supply regions doesn’t help. The new funded taxi breaks down, its owner hasn’t earned enough to pay for its repair.
Subsidies and grants providing labour saving technology puts traditional subsistence farmers, often women, off the land. Large capital projects like the Volta Dam in Ghana resettled 80,000 people on to poor farmland most of whom are now probably landless indigents.
Transplants by order to outer regions brings in self sufficient industries like Lockheed, that do not contribute to the region’s economy and government industries that are inflexible and a drain on the national economy.
Taking a look at history, when the Roman Legions pulled out of their western empire in Britain and Europe, these regions sank into subsistence living, the period known as the Dark Ages. Rotation of crops dropped under pressure of survival and were then forgotten, metal agricultural tools wore out and were not replaced, whole ranges of manufactured and craft good disappeared from economic life. Well woven cloth became a lost skill, except for one small enclave in the low countries. A bright future for Europe was probably touch and go. For a new city to form, requires one or more initial cities with which to begin its initial trading.
To Boldly Go Where …
Luckily for Europe there was a little settlement on the mud flats and marshes at the head of the Adriatic which discovered a market for salt and later timber, with nearby Constantinople. But Venice, this pioneer city of the European economy, did not remain a mere supply depot. It began diversifying its own products and producing a market for other supply depot settlements to the north and west, which then, each in its turn, began to build up its own city production.
Lots of examples around of leaders trying to generate, by top down planning, the economic miracle that was Venice and its surrounds. Peter the Great attempted it in Russia, the Shah of Iran attempting to buy a developed economy by selling oil, but it seems that development is a do it yourself process, As Jane Jacobs reminds us, all of today’s developed economies were once backward economies yet managed to transcend their backwardness by building up city import production.
Danger Will Robinson.
Jane Jacob presents a hypothesis of flawed feedback from national currencies. Jacobs argues that today we take for granted the benefits of multiple currencies being replaced by a few to create stability in economic life. She argues that this assumption warrants questioning if you understand how feedback controls from currencies work in their own terms, that national currencies have an inbuilt flaw because nations are not discrete economic units. What ever export or city happens to contribute most heavily to the national exports is apt to be the region or city best served by the national currency. If one city and its region get the edge, argues Jacobs, we must expect that the edge, once gained will become self reinforcing because the more heavily its production will weigh in the total and foreign trade of the nation’s cities and the more closely the feedbacks will suit that specific city. But it won’t coincide with the differing needs and timing of other cities and over the passage of time nations will become dominated by one dominant city and others becoming passive and provincial. (Ch 11, ‘Faulty Feedback to Cities.’ )
To illustrate the flaws in national currency, Jacobs offers an analogy of a group of people with their own diaphragms and lungs but who share one single breathing centre. In this bizarre arrangement, the breathing centre would receive a consolidated feedback on carbon dioxide but without discriminating among the individuals producing it, some sleeping, others walking or running, etc. Of course no such flawed system could survive in nature but nations, from this point of view, receive currency feedback where the predominant message makes no distinctions between the differing units.
Cities like Hong Kong and Singapore have a built in design advantage that many cities of the past enjoyed with their own currencies triggering specifically appropriate feedback corrections to specific responding mechanisms Montevideo in Uruguay would have benefited from such admonitory currency feedback as would have many cities in the US today. During the last eight decades, city after city in America, Cleveland, Indianapolis, Seattle, Detroit have declined, due to the structural flaw that goes with the territory of national currency. Jane Jacobs’ pessimistic conclusion:
‘We must be grateful that world government and a world currency is only a dream …As far as I can see, there are no remedies at a city’s or a nation’s command whatever, short of separation in the pattern of Singapore, for correcting the flaw.’ (Ch 11.)
Jane Jacobs identifies what she calls ‘Transactions of Decline,’ ( Ch 12.) policies and transactions that make it impossible for cities, handicapped by currency flaws in any case, to renew themselves. The policies and the transactions she identifies as killers of city economies are “
(1) Prolonged and unremitting military production.
(2) Prolonged and unremitting subsidies to poor regions.
(3) Heavy production of trade between advanced and backward economies.
Regarding war production, Jacobs observes that cities, not prolonged military production, incubates economic life, History shows that military developments do spur civilian economic developments and conversely, civilian technology spur military technology, but only when production oscillates between them. Prolonged military production, however, retards development and drains the earnings of cities.
The trouble with transfer payments and unremitting subsidies, not just one-off disaster relief donations, is that they feed voraciously on the earnings of cities and divert earned city imports to regions that do not develop through replacing imports. Heavy trading with backward economies reduces inter-city trade and opportunities to serve as good customers for one another’s innovation, with no ongoing benefit to developing backward economies as import replacing cities themselves.
Is It Dead, Jim?
I’m not going to say much about the pessimistic conclusions of the two final chapters of Jane Jacobs’ book regarding the predicaments of modern cities and whether we might be able to bell the cat. A few suggestions to stave off decline. Avoiding VAT imposts on improvisation, avoiding nation-wide or international product standards hindering economic development other than the relatively few standards strictly required for health and safety… Cities solve pressing problems themselves and may then export their solutions to one another and the rural world. Attacking monopolies … when Bell Telephone Systems’ monopoly was broken endless varieties of new products appeared.
‘These are instances in which a nation, without damage to itself as a political unit, has made a little more room in itself for open-ended economic drift.’
(Ch 14, ‘Drift.’)
A Serf ponders.
Jacob’s ‘Cities and the wealth of Nation’s reminds a serf of Nassim Taleb’s book, ‘Anti-Fragile,’ in which Taleb sees ‘experts ‘ transferring fragility to others and would welcome addressing top down asymmetries of risk by the ancient code of Hammurabi.’ ( Re ‘Hammurabi’ see me 12th Edition of Serf Under-ground Journal.)
If you’ve read Taleb’s “Antifragile’ and his other book, ‘The Black Swan,’ you’ll be aware that ‘experts’ and governments are no more successful than individuals at predicting the fuchure, even ‘experts’ like Paul Ehrlich, say, or Alan Greenspan or Joseph Stiglitz.
‘It is obvious to anyone before drinking time’ says Taleb ‘ that we can put a man, a family, a village with a mini town hall on the moon, and predict the trajectory of planets or the most minute effect in quantum physics, yet governments with equally sophisticated models cannot forecast revolutions, crises, budget deficits, climate change. Or even the closing prices of the stock market a few hours from now.’ ( ‘Antifragile.’ Ch 8, ‘Prediction as a Child of Modernity.’)
Taleb describes Switzerland, with its small central government, as economically the most robust place on the planet. He tells the tale of another economy, the province of northern Levant, prosperous for over twelve thousand years, from the time of pre-pottery neolithics to traders on the silk road right up to the trading souks, or traditional markets, of the twentieth century.
Two events ended all this. After World War1 one region of the northern Levant was integrated into the newly created nation of Syria and separated from the rest, which is now part of Lebanon. Up to then, the entire area had been part of the Ottoman Empire, largely autonomous as long as taxes were paid. Cities minted their own coins and operated as city states where commerce flourished.
Hey, how ter transform gold into mud … When the socialist Baathist Party came to power it centralized government, removed the souks and enforced statist laws. The effects were immediately visible. Aleppo and Emesa went into instant decline and trading families departed to New York, New Jersey, Beirut and Lebanon.( NT Ch 5 ‘The Souk and the Office Building.’)
So can we predict the fate of the West and its nations? Jane Jacobs has a go and offers some hard case studies on decline of the cities. She may well be right but there’s NassimTaleb reminding us that humans aren’t all that good at predicting. Say, we serfs recall those Dark Ages but then Venice rose from the marshes like a phoenix from its ashes. Today we have Switzerland in the west, Singapore in the east, with small government and good currency feedback … black swans abound, the next innovation …?