The Economy of Cities, chapter 4: The basics of a growing city’s economic system.
The fundamental process here is building up a “reciprocating economic system”. This is one in which work that acquires resources (imports) and work that turns them into strength of the local economy (jobs and diverse work) feed into one another, so that acquiring resources now creates even more resources acquired later and the strength of the local economy creates more strength. The two pieces are the export market (trade outputs for imports) and what I’ve named the intraport market (moving resources aroun in the local economy).
The need for exports is obvious; you must have some products that the outside world values and wants to import, or else no one will buy anything from you. This work also imports things of equal value in exchange, whether that is capital, raw materials, or consumer goods being bought with the profits.
The need for intraports is less obvious, and this is one of Jacobs’s new contributions.She observed that in order to make a local economy robust, it must have a diverse array of work that is used and re-used by different parts of the system; there must be local trade or the city cannot concentrate resources and attract people and new work.
Cities Starting Out
The processes in this chapter are those that dominate the early growth of a small city, and Jacobs sees these as coming in two types; those that start as manufacturing and those that start as trade depots. By the time they are large they contain a variety of both, and not necessarily the same specialty they began with, but these categories shape the early development. (As she mentions, Venice started as a village of salt sellers, and Chicago, a big manufacturing hub in 1968, had been primarily a trading city not long before, so the change of focus is well-supported.)
Young manufacturing cities export, but do not necessarily export much. They create, but initially not primarily for export, or in large quantities. But as they start to export, they look different from pure-export ‘company towns’ by quickly building intraport businesses to supply the inputs or partial products the exporters need. For example, at one stage in Detroit’s early development steamships were a primary export, and dedicated makers of engines sprang up.
Young depot cities are primarily focused on trading goods neither made nor used locally (we could call them ‘circumports’), being bases for traders, good ports for transferring from land to sea, or similar. Here, they look different from doomed trading fairs by the independent support industry that builds up alongside the traders; horse breeders, sailmakers, or railway repairmen, depending on the era. They are more likely to start with services than are manufacturing cities, and then later build up processing and manufacturing that piggybacks on the supplies concentrated locally, like weaving or canning.
Either way, cities that will stick around and grow should, by this analysis, show early on a diversity of export and intraport work; those lacking this should be expected to stagnate and fail to grow, not having achieved the city’s…
circle of life.
Some things can screw up this process, however. For example, if a city’s main export is cars and it starts building its own engines, but the car-making companies own all the engine manufacturers, they will probably not have an interest in finding alternate customers for the engines, and so the engine making won’t contribute properly to the strength an growth of the city. (This may seem to be a familiar example: this is not a coincidence. By this chapter, Jacobs has started to seriously hammer at her basic points and standard library of example cities.) If the engine-makers are independently controlling their marketing and distribution – even if their main customer start and remain as the local car-makers – they have much more ability to sell to diverse purposes, be an input for new types of local work, and possibly become part of the export sector.
The circle of growth works like this: Any amount of exports is exchanged for a fixed and equal quantity of imports, which are presumed useful to local industry. High intraport industry in an area means that a higher proportion of these imports will be re-used an cycled through the local economy in various forms; this is the standard economic concept of the multiplier effect. A large intraport sector drives growth by employing more people as the money and goods cycle through locally, and also increases the diversity of goods and services available to base a new business or new work on.
Jacobs calls out this specific type of multiplier effect the ‘export multiplier’, and promises to introduce other similar multipliers later in the book.
The chapter finishes with a short digression on cities not being dependent on geography for success. She notes that many strong cities are in suboptimal locations, and better-sited cities nearby are unsuccessful; particularly amusing given my audience is Alexander Hamilton’s strongly-held belief that Jersey City, not New York City, was the city of the future, as its port was better situated.
In addition to the repeated wrong predictions of chapter 3, I am starting to get annoyed by the repeated appeal to anecdotes used in this book. It is true that at the time of writing, no one had been attempting to measure the things this theory considers important, so lack of strong statistics can be forgiven somewhat. But the anecdotes themselves are using the same handful of ‘case studies’ over and over, and that makes me suspicious that they will generalize.