It is with unbridled pleasure that I have finished reading a most wonderful and thought-provoking book of economic theory, Jane Jacobs paramount work “Cities and the Wealth of Nations“.
Her economic theory is founded upon the absolute requirement of cities. No city, no foundation for economy, other than a very basic subsistence form of economy. At the heart of her theory is the replacing of imports; a place that starts replacing imported goods with locally created ones automatically becomes a city. As it keeps doing this, the city grows, eventually giving birth to a region dominated by this city.
Expanding on this, she analyzes economies and draws several conclusions from this; that all schemes to support regions without import-replacing cities are doomed to failure; that efficiency improvements in rural economies can be disastrous for the economy in terms of unemployment. Her vision of an economy is not a functional system ruled by regulations and laws, but a living organism, growing and expanding on its own. Trying to transplant factories and foreign economic factors into this organism may, in fact, kill it.
The thing that stands out in her analysis is that there is no alternative to local small business. This is the very lifeblood upon which any economy lives or dies.
Another interesting point she makes is about currency: How the value of the currency is proportional to the strength of the city economy. (Forgive me if I misquote.) A nation’s currency is dominated by the largest city regions; and it will suit them the best. However, for smaller cities growing, the currency will provide what she calls “faulty feedback”, as they are out of sync with the dominating economy. As a result, nations will gradually begin concentrating their economic life to one, large city region. She takes France as an example, which is almost entirely dominated by Paris. Italy is dominated by the industrial north, Japan is increasingly dominated by Tokyo, and so on.
This gives birth to financial transactions, aimed at restoring the weaker regions and provide jobs and development; these transactions are, however, foreign aid to these smaller cities, and, like transplants, fail to stimulate the economy in a permanent way: they do not stimulate import-replacing businesses. Moreover, they sap the economic strength of the city region that provides the national economic growth; the further this process develops, the more stressing this situation will become. The nation will continue to be dominated by a large city region, who increasingly carries the burden of the rest of the nation out of sync with the currency valuation, and further and further “transactions of decline” are initiated.
Building on this, it is easy to show how all empires must fail, due to systemic economical difficulties built into the very structures of an empire. In this light, the implementation of the Euro is a bad idea: It will gradually become dominated by a fewer and fewer economical regions inside the EU, requiring all the more financial transactions to be made to “equalize” the lesser developed regions inside the EU, sapping the strength of the main city regions and ultimately dooming them to failure.
What is the answer to this? She sees one possible solution – a highly theoretical one, she admits, and rarely, if ever, tried in history.
As a nation grows and becomes stronger, building on a city region, and before too heavy support transactions come into play for its underdeveloped regions, the nation should split: Divide itself into two, with separate currencies, and, if necessary, tariffs to protect its internal markets in their infancy. As the new region grows stronger, the need for tariffs disappear. When this economy, in turn, becomes too large, it should split again, repeating the process as necessary. Their local currencies will always be in direct relation to the economic strength of their regions. Of course, pitfalls abound, but this way it will counteract the negative forces in play when the synchronization fails.
As controversial as it sounds (and I have little hope for its practical feasability), I find it attractive, because it provokes a vision of the world as a living organism, growing organically, and multiplying as cells do – by splitting. And in doing so, it is directly at odds with romantic dreams of uniting the whole world under one government and a single, worldwide economic system.
And that is why I want to believe in it. :)
Except humans are not software, not computers and not little screws that can be sorted into jars according to size, space and convenvience. And God save me from enonomy as “a living organism, growing and expanding on its own” because that results in a lot of actual living organisms getting crushed in the process.
I totally do not follow your reasoning. Economy is not a bad thing, it’s good.
I realize, after rereading my post, that my writing may have been ambiguous. What I meant was, that there are different ways of looking at an existing economy. We can look at it as a system, working through its own peculiar laws, and seeking to describe it as a form of a mathematical abstraction, in the same way as we look at physics or chemistry. The goal in this is to formulate a set of laws that will tame the beast, so to speak, to our demands and ensure a happy future. This was the idea of the communists, to wrestle the economic laws to their knees and build a perfect society.
Jane Jacobs refutes this idea. She believes that such a methodology is inherently flawed: The economy does not behave in such ways as to be defined by precise mathematical laws – it is too much of a complex system to be tamed. Instead, we must look at it in a new way; as an organic system, much like a forest, growing in seemingly chaotic ways but yet with a subtle, if yet difficult to analyze, harmony of its own.
This is not about letting business range free at the cost of human value. This is about better understanding the economy as it works through people and seeking to understand how to help it grow; and to avoid damaging it. Understanding it correctly and building good economic structures may mean the difference between wealth or poverty for a nation.
I knew I’d be labelled a communist after this :). No, I am not a communist. I was under the impression that Jacobs is all for an economy without any adaptation or regulation. Economy is as necessary as breathing but there is more than economy involved in creating a society and a nation, much more. Of course Jacobs is aware of that but she can’t include all in a book. The subject is cities and the wealth of nations, no more and no less.
We’ve seen a lot of foreign economic experts wanting to test their theories in District Brcko, many of them have appeared blind and deaf to the specific culture and needs in this area. Their suggested laws and methods are often very coloured by their own culture where those ideas put into practice probably would work. I react when I see someone wanting to draw borders. I’m no friend of separatism. Where I live the borders create economic problems. Borders cost money. Again I understand the borders Jacobs suggest are of a different kind, based on economy and not on culture, language, history etc. I’m only trying to explain why many of her ideas make me feel uncomfortable. Would it be fair to say that she suggests borders should be drawn for economic reasons alone?
Jacobs’ point is that economic development is not something done by national economies, but by city economies. These city economies, in turn, need appropriate feedback in order to react to the actual social, cultural, and economic realities in which they swim. One of these feedback mechanisms would be local, city currencies. Without the benefit of such a semi-permeable membrane, the city is helpless to express itself and correct itself economically – and ultimately, in any other way, once it has been impoverished and thinned out by economic failure.
Her ideal vision is of a “family of sovereignties” coming to replace the unitary sovereignty of a contemporary nation state. The boundaries among these sovereingties would be semi-permeable: totally free movement of persons and (usually) products, a common military and foreign policy, but still these internal borders would be sites of information transfer, courtesy of fluctuating exchange rates.
It’s all very dicey. What she proposes may be the best way to organize economic life, but she is very upfront that it may not be possible for any social group to actually pull it off. But I hope some nation tries, and soon, because the alternative is to have one part of the nation dominant economically, while the rest stagnates.