Wednesday, June 23, 2010

'Cities and the Wealth of Nations'

This review-essay about Jane Jacobs' Cities and the Wealth of Nations was published in The New York City Tribune on April 7, 1987 -- my birthday, as it happens -- and was datelined London, where I was attending graduate school at the London School of Economics and Political Science.  On that day, specifically, I was enjoying spring break in Paris.

The Hidden Causes of Third World Poverty
Richard Sincere

LONDON – The Vatican has issued, through the Pontifical Commission on Justice and Peace, an 8,000-word statement on the international debt crisis. “Political officials and economists, social and religious leaders, as well as public opinion throughout the world,” it begins, “recognize the fact that the debt levels of the developing countries constitute a serious, urgent, and complex problem due to their social, economic, and political repercussions.” That is VaticanSpeak for: Third World debt levels are precipitating a crisis of unprecedented proportions.

Average citizens in the industrialized countries of Western Europe and North America might be inclined to shrug off Third World debt as a problem, but no concern of theirs. Leaders in developing countries, they might say, made bad political and economic decisions and are now paying the consequences; it doesn’t affect us.

In fact, though, it does. As the Third World debt whirlpool swallows up capital from all over the developed world, the effects are felt in shrinking national budgets, declining industries, rising interest rates, and increasing trade deficits. For the ordinary person, it means more difficulty in purchasing a home or a car – particularly if he or she is a first-time buyer.

A unique perspective on Third World debt – indeed, on a whole range of issues regarding the world political economy – may be found in a 1984 book, Cities and the Wealth of Nations, by Jane Jacobs. The book was widely reviewed and critically acclaimed when it was first published by Random House in the United States and Canada and by Penguin in the United Kingdom.

Jacobs is respected worldwide for her research and writing on cities. Her 1961 book, The Death and Life of Great American Cities, is required reading for most students of urban planning. The secondhand department at the Economists’ Bookshop in London informs me that they get more requests for Jacobs’ The Economy of Cities (1969) than for any other out-of-print book. These observations reinforce her credibility and scholarship almost as much as the fact that she is a careful and thoughtful writer – averaging one book every seven to 10 years – as well as vibrant, witty, and commonsensical.

Cities and the Wealth of Nations begins by questioning the very structure of the world economy – its division into “nations” as distinct economic entities. They are political and military entities, but this does not mean they are also “the basic, salient entities of economic life or … the reasons for the rise and decline of wealth.” Jacobs argues that the failure of national governments and “blocs of nations” to control economic life effectively “suggests some sort of essential irrelevance.”

Political sovereignty is the only thing various nation-states really have in common, and Jacobs thinks it “affronts common sense, if nothing else, to think of units as disparate as, say, Singapore and the United States, or Ecuador and the Soviet Union, or the Netherlands and Canada, as economic common denominators.”

The basic unit of economic development, Jacobs asserts, is the city, and regions surrounding individual cities, and enlarging that unit inevitably leads to bad economic feedback and bad decision making. This problem cannot be overcome without a radical restructuring of the world economy – but the new structure must reflect free markets, attention to private enterprise, promotion of new industries, and (most important) trade among equals. That means underdeveloped Third World states should concentrate their commerce on other underdeveloped Third World states, learning “import replacement” and avoiding direct competition with the industrialized world unless and until their levels of development are more nearly equal.

Jacobs identifies what she calls “transactions of decline,” which include heavy lending to impoverished or underdeveloped areas. Such lending takes useful capital away from productive cities and sinks it into unproductive rural areas and uncreative towns and cities where it can do no good – and, indeed, often does harm. Transactions of decline like this may initially stimulate commerce and industry, but within a short while both economies – the lender’s and the borrower’s – begin to stagnate and then to decline. The downward spiral continues because policymakers, oblivious to the root causes of the decline, take more money from the pockets of productive workers and entrepreneurs and attempt to induce “development” in depressed areas at home or abroad. In the end the whole process is futile and frustrating. “Subsidies milked from cities,” notes Jacobs, are “profoundly antidevelopment transactions.”

To achieve genuine and lasting development, cities, regions, and whole countries must generate their own capital. Development must come about the old-fashioned way – you earn it.

There is no specific solution available from Jacobs’ analysis. But her arguments are worth pondering. The radical change suggested by Cities and the Wealth of Nations is precisely the opposite of the one demanded by Third World states called the New International Economic Order. Instead of authoritarianism, this change invokes free enterprise; instead of central planning, it calls for pluralism; instead of stagnation, it offers creativity and growth. If we are to solve the international debt crisis – an apparently insoluble problem – this is a good place to start

Richard Sincere is a Washington-based policy analyst who writes frequently on African affairs.

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