Saturday, November 14, 2009

Cities and the Wealth of Nations

Cities and the Wealth of Nations: Principles of Economic Life
By Jane Jacobs

Many Americans, if not most, believe there is something profoundly wrong with the American economy. A few months into the downturn, there was some sense of optimism that we were in the midst of a temporary crisis, but the longer it lasts, the more the feeling is vanishing that someday things will get back to what they were. The Wall Street bailout, initiated by the Republican administration and bolstered by the Democrats who followed, was viewed with skepticism by many and with hope by others. But as retirement accounts dwindled, homes were lost to foreclosure, and incomes disappeared with layoffs, that hope has faded. Even the economic stimulus is rather invisible to most of us. Where then do we go from here?

Increasingly the answer, from one end of the political spectrum to the other, is back to Main Street. Conservatives, centrists, and progressives alike want to support their local economies. Without knowing it, much of what these people are talking about is an economic model that has its roots in the work of urban champion, Jane Jacobs. In her 1984 book Cities and the Wealth of Nations, she argues that it is city economies that form the basis for wealth and prosperity. Her guiding principle is that as many of our local needs as possible should be met with local resources. We meet these needs through a process she calls import replacement.

Imagine, if you will, the first English settlers on the American continent. They quickly had to meet their need for food with local resources, but most of their other needs were met by imports from England. The process of import replacement was, in this case, the process by which each of these imports from England was replaced by a product produced from local resources. Many products required supplies and materials that themselves were part of the import replacement process. In this way the interconnected economy grew and, over time, a city was born.

Jacobs argues that this is not merely a question of replacing foreign imports, that domestic import replacement is just as critical. Clearly it was responsible for the growth of cities in the country’s westward expansion. The need continues today. Cities that have experienced decline need to get back on track with import replacement, in order to develop a diverse and vibrant economy that meets the needs of its people from local resources.

Can’t prosperity and well-being emerge from a more specialized economy? Jacobs doesn’t think so. She calls areas that are specialized and primarily serve the export market “supply regions.” She considers these areas to be backward, and does not differentiate much between a rich supply region and a poor one, because the former are as vulnerable as the latter. Its shortcomings, she says, “compel poverty.”

As an example of a rich backward country, Jacobs talks about Uruguay in the 1950s. It had become a major supply region for meat, wool, and leather. Uruguay earned so much from its strong export market that it could afford to import whatever else it needed. Over time, however, meat production was revived in the economies damaged by World War II, and substitutes were developed for wool and for leather. By 1980, purchasing power in Uruguay was half of what it was in 1968. Uruguay had forgotten to produce for itself in the course of its economic development.

Jacobs also discusses how historically imperial powers have shaped conquered territories into supply regions, which often kept the conquered territories from engaging in production for their own people. They became captive markets for manufactured goods from the imperial power. One example is how France transformed the subsistence economy of the Vietnamese people into one that produced coal, zinc, and tin for foreign markets. It is a process that has been repeated in country after country, resulting in hardship and even starvation for indigenous populations.

One doesn’t even have to own another country as a colony. Simply economically dominating another country is enough. A decade after Jacobs published her book, the Mexican economy was dealt a blow from NAFTA, which enabled American agribusiness to sell large quantities of U.S. government subsidized corn in Mexican cities. This put a million and a half Mexican farmers out of business.

Even a multi-national corporation which opens a factory in Mexico is not valuable in the long run, in comparison with developing a local economy engaging in the import replacement process. The business of that factory will not be rooted in that community, in its interconnections of supplies, materials, and related businesses. And when capital finds cheaper labor, let’s say in Asia, that factory closes down, leaving an economic hole in its wake.

Trade between regions and countries is a good thing, and certainly the people of New England would never eat a banana or enjoy a cup of coffee without it. But every region, whether in the United States or Europe or Africa would do well to develop a diverse economy in order to meet the needs of its people from local resources, as much as possible. It is the essential path for sustainable communities that promote the greatest good for the greatest number. Also, on a human level, a diverse economy offers more niches for people’s differing skills, interests, and imagination, and consequently a much more interesting place to live.