In her 1969 book “The Economy of Cities,” Jane Jacobs considers the nature, conditions, and methods of economic development. She starts off with a controversial claim that she believes has held back an understanding of where economic development comes from: Agricultural development was not a reason or a cause for people to found a city. Agriculture comes later in a city’s development if it at all. The earliest stable communities were communities of hunters and gatherers that gave up their nomadic ways and settled down. “[P]re-agricultural men were much besides hunters: they were manufacturers, builders, traders and artists.” Later agriculture was discovered as a new opportunity to feed a growing population in the city. For Jacobs the city is the source and cause of agricultural development not the other way around. As evidence she reverses the typical explanation: the land around cities is usually the best farm land therefore it was (incorrectly) assumed that that is why people settled and founded a city there. Jacobs claims that the land around cities is the best farm land because more work was done on it to make it productive because it was easiest to work with land close to a city. Cities are also where the development of tools to improve land would make most market sense. Therefore, focusing on city economic development will lead to rural economic development in an inversely proportional ratio to the distance to the city. “[C]ity economies create new kinds of work for the rural world, and by doing so also invent and reinvent new rural economies.”
The key to economic development is the development of really new kinds of work – usually in response to a real world problem. For Jacobs economic development does not mean more work (that is economic expansion) nor does it mean gains in efficiency (that is cost cutting). It means, for example, if, in an early pre-agricultural city, population started to rise faster than people could gather and trade, and someone started to plant crops which they had only gathered wild before, this would be economic development. It is new work that was not done before. If this economic development is feasible then it will be copied and the economy will expand as more fields get planted; and more work will be done to clear and prepare fields to increase their yield thus increasing efficiency. The spark and the key to economic development is new kinds of work. “Our remote ancestors did not expand their economies much by simply doing more of what they had already been doing….They expanded their economies by adding new kinds of work. So do we. Innovating economies expand and develop. Economies that do not add new kinds of goods and services, but continue only to repeat old work, do not expand much nor do they, by definition, develop.”
The economic development benefits of the notion of the division of labour have been hidden by a mis-focus. The division of labour is not development and creates nothing new when it organizes work that is already being done. The gains made in Adam Smith’s famous pin factory from the division of labour are merely the expansion of old work. “A stagnant economy may lack almost everything, but not division of labor.” The division of labour is the possible ground for economic development but not by further finer division. “It is ironic that the division of labor gets no credit for its genuinely bountiful effect. It prepares the way, it provides the special footholds, for adding new goods and services into economic life….Seen as a source of new work, division of labor becomes something infinitely more useful than Adam Smith suggested when he limited its function to the efficient rationalization of work.”
Efficiency is often the enemy of development. When things become too efficient they increase the yield of old work and often make new work less economically feasible and therefore less likely to catch on. Excessive efficiency is a stagnating force. All kinds of work can be replaced and done differently and better – this is Jacobs article of faith – if this is true then all current work will be superseded resulting in the decline of current work. For example building horse drawn carriages was a new kind of work once a long time ago; there was a time when it was leading edge technology and made a living for a great number of people. However, as a means of transportation, it was replaced by trains, cars, and planes. Today, carriage building may make a living for very few people (and they are probably very efficient at it). But it will never again be a growth industry. Jacobs claims everything we do today will suffer the fate of the carriage makers’ industry. If we stop finding new kinds of work our economy will also shrink as it becomes more efficient.
“Efficiency of operation, in any given case, is a sequel to earlier development work. Development work is a messy, time- and energy-consuming business of trial, error and failure. The only certainties in it are trial and error. Success is not a certainty….A low rate of efficiency in production work means that the person or organization doing the work is going about it ineptly. But the exorbitant amounts of energy and time and the high rates of failure in the process of developing new work do not mean the development work is being done ineptly. The inefficiency is built into the aim itself; it is inescapable. There is no systematic way to evade it.” Trial and error at creating new work is the process of development work. If new things are not being tried then the city is stagnating even if it is still expanding. Therefore anything that encourages the trial and error of new work will have a high probability of failure but its successes are the fruit that will generate economic development. The measurement of economic development is not output as is measured today in GDP; it cannot be merely growth, “rather [it is] the additions of new work to its older output over a period of time.” Economic development is “the ratio of the new work to the old work.” And, like a heat source in winter must be maintained to stave off the cold, economic development must be maintained over time in order to prosper and to fight stagnation and decline.
Jacobs goes so far as to say that a city cannot be highly efficient and excel in the economic development of new goods and services because many of the conditions that promote economic development work against efficient production and distribution. 1) Breakaway workers who form their own companies are the kind who develop new work but it hurts their former employers’ business efficiency to lose highly skilled workers. 2) Small time suppliers of bits and pieces of work to other producers are the entrepreneurs who dream up new techniques and products in collaboration and competition with each other but efficiency gains can be achieved with larger economies of scale and standardization; that is with fewer and larger suppliers. 3) The availability of working capital tends to look for lower risk and high return. Efficiency gains are a low risk high return proposition but untried, new ideas come with incalculable risk and return. Closely tied to this is that existing lenders also seeking to maximize revenue tend to standardize loan requirements to known risks but new ideas and new work need lenders who are not immersed in current work and ideas. 4) The diverse physical arraignments in a city that produce duplicate and diverse enterprises as well as unique problems to be solved through new work are antithetical to an efficiently run city. 5) Standardized well defined jobs with clear performance goals and measures are efficient compared to changeable undefined jobs but it is the ability to add new work (as opposed to more old work) to a job that creates economic development. 6) Slavery, class, caste, honour, rank, guilds, oligarchies, cartels and/or monopolies that limit social and economic mobility may have an efficiency of expectations and profit by knowing one’s place and the way to do things, but they all limit new work creation.
Next time the reciprocating systems and process of development.