Jane Jacobs, Cities and the Wealth of Nations, and Shinohata

Economists have called the modern human homo economicus, largely due to our ability to rationalize and make complex decisions about the past and the future (although Trump makes a strong case against that). We move out when there are no jobs. Relationships last longer when you have enough money. You eat and clothe according to how much you have and what’s available in the market. In other words, “It’s the economy, stupid.”

As we all know when we grow up, whether we like it or not, our lives are dictated by the economy of the world, but Jane Jacobs in her book Cities and the Wealth of Nations, makes a strong case that it is the cities that exerts a greater influence on us rather than the nation’s economy. Cities are the loci of natural economic activity, and countries are a little more than political, geographical, and cultural barriers, often created artificially.

However, she says there are developed cities and dependent cities. She divides the cities by calling them import-replacing cities and backward cities.

Backward cities sounds like they’re cities in the Neolithic time, but really, what Jane Jacobs meant by that is that they simply aren’t import-replacing.

What is an import-replacing city?

Import-replacing, like the name says, replaces what they’ve imported from other places and replaces them with their own products, using their own regions for material or labor. In other words, the city creates jobs and markets in their own regions.

Jane Jacobs brings up an ample of a coffin in rural part of Georgia. Rather than using local wood and labor to create coffins or chairs, a town near Atlanta uses coffins produced in and bought from New England. The South stays ‘backward’ while New England keep flourishing.

She says that any import-replacing city has five crucial elements:

  • markets
  • jobs
  • transplants
  • technology
  • capital

As an example, she brought up Tokyo and a small hamlet in the great Kanto plain, of where Tokyo lies on the southern end. The small hamlet, Shinohata, only 3 generations or so ago, was a 49-household village that lived off a little more than harvesting silk cocoons and growing rice. But as Tokyo prospered after WWII, Shinohata’s (name fictitious to protect the people’s identity) economics and demographics changed completely, becoming a feeder into Tokyo’s needs and becoming dependent on the metropolis.

Tokyo’s market demanded diversification, and Shinohata responded. They began growing vegetables and raising livestock, while increasing rice yield. Silk production declined to make room for the other profitable goods. Tokyo’s demand gave rise to a new kind of industry in Shinohata: oak mushrooms, something that had never been seen before. Hamlets near Tokyo such as Shinohata’s products like oak mushroom replaced other imports from other countries.

Tokyo’s jobs pulled the young people away from Shinohata, and indeed there were less people living there and the demographics became older, yet they had to produce more with less people. It was solved by technology. Tokyo produced labor-saving technology such as rice-planting tractors, making farming higher yields possible even with less people. These technology was financed by the wages from the offsprings who took jobs in Tokyo.

Eventually, Tokyo’s factories transplanted from Tokyo into their suburbans to save money. Shinohata saw new factories moving into their own hamlet, and they used the funds from the land sale to improve their own community. By this, their livelihoods became increasingly intricated with Tokyo’s economy.

Tokyo’s capital also brought changes to Shinohata – they asked for funds for roads, bridges, schools, etc. There was a river near Shinohata that broke through the dikes, flooding the ricefields with gravel, which take years to repair. When the dike broke through disastrously by a typhoon in 1959, a recovery grant was given to repair the ricefields quickly and build a strong concrete dike to curtail the river for once and all. It would have never happened there was a city like Tokyo and Shinohata was not connected to it economically.

So Tokyo, through the five elements of a import-replacing city, has influenced hamlets in its own region like Shinohata. Tokyo went through the process of obtaining all five elements itself, and the same elements spread to its own region, feeding the demands of the metropolis, creating a city region.

However, Jane Jacobs continues, the cities cannot thrive forever. All of them, as evidenced by history, will become stagnant, decline and deteriorate. She brings up three transactions of decline that chips away at the city’s economic power:

  • prolonged and unremitting military production
  • prolonged and unremitting subsides to poor regions
  • heavy promotion of trade between advanced and backward economics

Indeed, history has shown empires like Rome and the Ottoman, investing so much in their military for the sake of “stability” and control, eventually become inert because the drain of military expenditure, which essentially produces nothing, becomes too great. I suspect the US has been trying to circumvent this by selling guns to their own people, as well as overseas. Economics become dependent on military expenditure. Abe is trying to expand Japan’s military power by changing its constitution, but I wonder about the economic impact if he successes. Jacobs says that military expansion creates a boom at first, but it becomes a transaction of decline in the long run.

The wealth of cities become politically and socially untenable if they keep it for themselves, so they must distribute the wealth by subsides. Jane Jacobs says they have to do it, there is no other way. However, she continues, “subsides, precisely because they are transactions of decline, are economic time bombs.” The subsides do not generate innovation or produce wealth. When they cannot be kept any longer or inflation renders them meaningless, the society will “become distraught socially and politically.” We see it everywhere with retirement investments in the US and Europe.

Then there is trade between advanced and backward economics: encouraging growth by making bad trades on credit (like making a payment on a credit card by another credit). The transactions eventually get decreasing returns, and they become a drain on the advanced economics. But they have to do it to keep their economy running, for the sake of growth. The US and Japan’s business often invests capital for ‘growth’ in different parts around the globe, often in the backwards parts. Jacobs would say they are participating in a transaction of decline. Another is stimulus packages/bailouts. Bailouts are essentially government subsides for a decaying economy.

Jane Jacobs wrote the book Cities and the Wealth of Nations in 1984, before the advent of widespread use of Internet, but I believe her essential point still resonate: local is best. City regions are efficient, but going beyond that becomes wasteful and will bring decay. Local activity benefits the local community the best. Wealth means the ability to generate innovation, not necessarily the assets themselves. I believe we should encourage growth of import-replacing cities, basically focus on local economics.

I do not know of any critique against Jane Jacobs, and it seems like people have not given her a serious look in regard to economics, but reading the book has given me new lens on how to look at cities’ and rural areas’ economic activity and how they interact with each other.