Outside Context Economics

The Economy of Cities, chapter 8: Observations about the natural progressions of the economy with (decently accurate) extrapolation to the future. Focused on manufacturing, because the non-manufacturing-based economies we’ve had since the late 80s are a historical anomaly she didn’t see coming.

The first trend she observes is that there has been a progression in manufacturing from craft production (small run, by hand) to mass production (factories turning out many of the same thing) to differentiated production. By differentiated production she means things made using the factory line style, but in smaller runs configured for more variety of products. Her main example of differentiated production in action is the diversity of clothing available, in contrast to all previous eras. (I hadn’t even noticed this was a 20th century development, though it seems obvious in retrospect.)

Other things she notices had started to be differentiated included newspapers (weekly local papers over mass-market dailies), farming equipment, and (in a dig at New York’s urban planners) trees planted in large cities. As far as these go, they seem accurate. She also notices that electronics production inherently cannot be mass-produced and was stuck in the craft paradigm until jumping straight to differentiated; this goes double for computers and became massively more true of software. In general, this prediction of a trend is insightful and correct.

However, when she tries to add specific predictions, she misses entirely. She projected that transportation would soon start to be replace by differentiated, specialized vehicles including water-based transport. None of this has materialized. She specifically suggests that the replacement for the car will not be mass-produced; since to the extent it appears likely to happen it will be the Tesla, this is also wrong. And I don’t think she’d really consider that a successful prediction. I suppose the Hyperloop might qualify, if that happens? (Good job Elon, you’ve single-handedly made her only 90% wrong instead of 100%.)

Then there are the predictions I’m not sure whether to judge as true or false. Her view of economic development stayed pretty firmly parochial; after early civilizations, it covered very little outside of the United States and Europe. With that in mind, how should we evaluate her prediction that mass production manufacturing would leave cities and differentiated manufacturing would remain? In practice, manufacturing of both kinds has moved to cities in less developed countries like China and Thailand; cities in the US today produce software and services and design products, and export teaching and techniques, but do not manufacture beyond the prototype scale. However, in developing countries this is still a city activity.

I would say overall that her picture of the progression is broadly correct. However, she failed to anticipate the rise of containerization or the development of the information economy,  and so her picture of where things could move and how much this would flow through to distant cities was wildly off. Standard prognostication expeects that in time, Chinese cities will move on from manufacturing and look more like American cities as the manufacturing moves to other parts of Asia and eventually Africa. The idea that when this process has shaken out the manufacturing will be in rural areas seems plausible, except that I doubt it will run to completion before the next big economic restructuring.

Another long-term trend she outlines is which companies dominate economic decisions. In medieval times, merchants called the shots. They decided what would be made and handled distribution. In the industrial era, manufacturers were in charge. (Jacobs points out that no Detroit car manufacturer would want to become a dealer, but the medieval equivalents absolutely would.) She predicts that in the future the providers of services would be running the show.

And that is exactly what we see. Software, even before the ‘SaaS’ web businesses, is a useful tool provided to accomplish a service. Microsoft did not sell hardware; it specified the types of hardware it’s tool could use and shipped it packaged with those tools. Apple does not sell hardware so much as a user experience; they commission the hardware to fit. Google provides a service and then sells access to it. Amazon initially took their cut out of the convenience their shopping service provides; more recently they sell the service of server space properly managed, and then commission the hardware to support it.

I give her serious prediction points for this in particular.

The last prediction she makes is more an observation about the natural process of economies when not modified. It is this: The basic struggle for power is between those who benefit from the current structure of the economy and those who benefit from new things happening. Inherently, the older faction is more powerful; for a country to thrive, it must set up its government so that it is always counterbalancing established interests and pushing for the young faction. The old faction’s excess of power can be used to influence the government, though, so this is hard to implement.

Regulatory capture is a recurring problem, and as The Economist observed recently, it’s a bigger one now than ever. So good prediction points for Jane Jacobs here as well. As far as how to solve it, localizing government further so that the economic and political units coincide seems helpful. Worldwide profits are good at bribing smaller governments, but many more small governments seem better at resisting capture than fewer larger ones. One company’s lobbied exception is less likely to help other companies keep their hold, and it’s less likely that a single industry will sit in the same regulatory environment for long enough to take it over completely. But honestly this seems like wishful thinking.

In any case: Jacobs gets bogged down in parochialism, politics, and wishful thinking when it comes to specifics, but her high-level predictions and insights continue to be pretty damn good.

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