Continuing with her 1969 book “The Economy of Cities,” Jane Jacobs claims there are two economic development reciprocating systems based on developing new work usually in response to a real world problem: export expansion and import replacement. Export expansion needs always to come first because it is the base that earns the imports of the second reciprocating system. It is import replacement that leads to the greatest economic development in individual cities, in nations, and the world. Failure to do this leads to stagnation and decline as current work becomes obsolete.
Older cities provide new embryonic cities their first outlet for expanding markets for their initial exports and then the imports that the new embryonic cities replaced. “…every city has a direct economic ancestry, a literal economic parentage, in a still older city or cities. New cities do not arise by spontaneous generation. The spark of city economic life is passed on from older cities to younger. It lives on today in cities whose ancestors have long since gone to dust. New York,…is more likely the great-great-great-great-grandcity of Urartu, say, by a descent that traces back through London, Venice, Constantinople, Rome, and Vetulonia or Tarquinii, oldest of the Etruscan cities. These links of life may extend … backward through the cities of Crete, Phoenicia, Egypt, the Indus, Babylonia, Sumeria, Mesopotamia, back to Çatal Hüyük itself and beyond, to the unknown ancestors of Çatal Hüyük.”
New or embryonic cities usually first grow their export from the free gifts of nature around them. Larger older cities that have already experienced several episodes of import replacement usually do not have the option of new exports from the free gifts of nature. There are three and only three ways for a large city to generate new exports.
First, an exporter can add the export work to other people’s local work. Consider that to start an export enterprise from scratch is a superhuman exercise that depends heavily on other local goods and services such as accounting, marketing, research and development etc. The larger the city the more of these ancillary goods and services are available. Most successful first time exporters specialize in their field and purchase the goods and services they need (that is, they are not specialized in) from the local economy. In this way the local economy provides more possibilities with limited capital (in that the exporter does not have to reinvent every wheel). For example, when a new company first starts out or starts a new product line it usually contract out many of the component pieces to smaller local companies. The bigger the local economy the easier it is to find what one is looking for.
Second, an exporter can add new exports to one’s own local work. Because of the high capital requirements it is often the case that a new exporter must first enter the old established work market to finance and tinker to get a new and better product. The old work provides the cash flow and often the expertise needed for the new export good or service. “[T]he process of adding different export work to one’s own local work affords a variety of advantages to the people using it….I provides an organizational foothold as well as income, while the export work itself is being developed and the organization is building up….the local work sought is always something that uses skills necessary to the export work. In either of the two ways the process occurs – whether creatively or expediently – it is a means by which an organization can be productive locally at the time that it is developing different work for wider distribution.”
Third, an exporter can simply expand its own local work into the export sector or something new and different. “The larger a city’s local economy grows, the more it contains that is immediately or potentially exportable.”
All three processes depend directly on the local economy therefore “…these processes have to be revitalized in cities which have become economically stagnant, for unless they are, nothing else can halt the city’s economic decay…. nothing serves but the generation of new exporting organizations, and plenty of them…. artificial symptoms of prosperity or a ‘good image’ do not revitalize a city, but only explicit economic growth processes for which there are no substitutes.” Attracting business to a city is not economic development but it is growth – growth of old work and it is therefore nothing more than at best a stop gap – at worst an economic development hindrance if the attracted business takes away resources from economic deployment or lowers the unit price of its good or service to much. Urban revitalization and beatification may, in the best possible case, be harmless but more than likely it is harmful for economic development. If the tax funds spent helped reduce the need for future tax increases it was most likely well spent. However, razing a neighbourhood for new development never is and increasing taxes to pay for new beautification efforts lowers the economic feasibility of new work catching on. The key spark to economic development is a creative solution to a problem that is given scope through trial and error and proves it is better by its success in the market place.
Economic development, trial and error, is very expensive. It needs large sums of capital for its investment and the more advanced an economy the more expensive it is. However, the larger the economy the more numerous the opportunities and therefore the easier it is to find places to invest capital – if the city is not stagnant. A large stagnant city is a wealthy city that exports capital. Its stagnant status is invisible; it looks prosperous but new work is less and less or not being financed at all. “[W]hen the development of a formerly strong economy is neglected, so much capital becomes available for unproductive purposes that it is almost an embarrassment. People are hard put to devise ways to use it….a city…when they stop developing their own local economies – stop generating new exports and replacing imports –they become extraordinary exporters of capital….The embarrassment of riches in an economy that is economizing on development of new work is temporary. It is a prelude to stagnation.”
Economic development always engenders conflict because the creation of new work is always, almost by definition, subversive of the status quo. “Should the creativity of such people be allowed to flourish, it must change things as they are, upset the status quo, make some well-established activities obsolete and reduce the relative importance of others.” Jacobs also warns against utopian thinkers and planners who believe in the possibility of a perfect society: economic development makes it impossible. Jacobs critiques Karl Marx’s claim that class warfare between workers and owners is the central human conflict by saying that the conflict is always and everywhere between the creators of new work and the established interests. “The primary economic conflict, I think, is between people whose interests are with already well-established economic activities, and those whose interests are with the emergence of new economic activities. This is a conflict that can never be put to rest except by economic stagnation.”
“The only possible way to keep open the economic opportunities for new activities is for a ‘third force’ to protect their [the new work creators’] weak and incipient interests. Only government can play this economic role.” Government must learn to abandon them if they become the established interests.