Seth Roberts on Jane Jacobs

Seth wrote something here about Jane Jacobs and her relevance to experimental psychology. He mentions her book, Cities and the Wealth of Nations, which I too enjoyed reading.

I have one question, though, which perhaps the economists in the audience can anwer. I recall two messages from that book.:

(1) Certain cities produce great wealth and that it is the natural and unfortunate result of national tax and economic policies to bleed the cities dry until they can no longer be productive, leading to national decline.

(2) Import substitution is a good thing because it leads to dense networks of local factories and suppliers.

But I seem to recall reading somewhere that import substitution is very much out of favor among economists. Was Jacobs wrong on that one?

5 thoughts on “Seth Roberts on Jane Jacobs

  1. Jacobs argued that there were three steps in the development of a region into a city:

    1. (region). Everything is imported.

    2. (beginning city). Import substitution: Some of the things that were imported are now made locally for local consumption.

    3. (advanced city). Exports: some of the things made for local consumption are so good that they can be sold elsewhere.

  2. Import substitution is generally frowned on because it flies in the face of comparative advantage (and often absolute advantage as well.) If New York produces A less efficiently than Chicago (absolute advantage) or even if it produces A more efficiently than Chicago but produces B even more efficiently than Chicago as compared to A (comparative advantage), then New York's wealth can be made no lower by specializing and will probably be made higher by doing so.

    To be frank, I don't see any relationship between specialization or lack thereof and density of industrial production. If anything, I'd expect specialization to lead to clustering effects (i.e. Silicon Valley, production of certain types of textiles and their end products around Milan, etc.), while the increase in local wealth should stimulate employment in non-tradeables (i.e. doctors, grocers, etc.)

    You might get greater volatility as diversification falls. NYC lives and dies by financial services in this day and age, for instance.

  3. This 'network effects' argument is actually fairly popular among sone economists (read Michael Porter, or the 'strategic trade' theorists). But there are practical difficulties in using it as an argument for import substitution:

    1) To get the required clusters, your import substitution must be very tightly focused on a few related products – you have to "pick winners", and hope other governments haven't tried to pick the same winner.
    2) Picking which industries are going to be winners is very, very hard.
    3) Once you've built a protected industry, if it doesn't work out it's very hard to get rid of the protection because you will now have a well funded lobby for it.

  4. DD,

    Maybe I'm misreading the argument, but I'm interpreting Jacobs' being in favor of import substitution aa an argument on her part for diversification and against specialization, which means that (apart from the sub-optimal result as far as wealth creation) you are unlikely to get clusters, as per your point #1.

  5. It appears that this discussion thread has run its course, but no matter.

    Jacobs deliberately used the term import" replacement" in order to disassociate her ideas from the import substitution theories and polices employed by governments, often Latim American, during the 1960/1970s.

    She was critical of the import substitution approach because they were overly planned, and often located outside of urban centres (mostly for political reasons).

    She identified import replacement as a mostly emergent/serendipitous process that can only occur where sufficient ideas, financing, suppliers and markets exist: cities. There is also a question of the scale of the import susbtitution projects compared with the humble origins of her imporrt replacemnts.

    Concerning specialization vs. diversity, here is a short piece that describes her influence on other economists. Shows the similarities and differences between her ideas and those, such as Porter.

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