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Jane Jacobs: Unraveling the True Nature of Economics

"Well, controlling always contains an element of prediction, because if you can successfully control something, you can predict what is going to happen to it."

This interview with Jane Jacobs was first published by Government Technology in November 2003 and is reprinted here in honor of Jacobs' effects on American cities and her recent recognition in a new book: "Wrestling with Moses: How Jane Jacobs Took On New York's Master Builder and Transformed the American City" by Anthony Flint.

Jane Jacobs has been called one of the most influential thinkers of the 20th century. With the publication of her book, The Death and Life of Great American Cities, she changed the way people think about cities, redefining urban studies and economic policy. Her subsequent books change how people thought of life in general. She has just published a new book, The Nature of Economies, in which she proposes a radical notion that is breathtaking in its common sense: Economies are governed by the same rules as nature itself. She summed it up saying, "economic life is ruled by processes and principles we didn't invent and can't transcend ... and the more we learn of these processes and the better we respect them, the better our economies will get along."

Q: A prevalent view today is that the old Industrial Age economy is now being replaced by an Information Age economy and that this new economy will somehow work differently. Your book starts from a very different view: That economic life is always ruled by basic processes and principles that we have not understood properly.

Jane Jacobs: Well, as for there being a new and an old economy, defined in the way you just did, I think that this is the change that people are groping for: A lot of the production work, design work, economic work that is being done now has a much higher proportion of what we call human capital in it and a much lower proportion of natural resources and other materials in it than in the past. And that is an important change that is very promising for sustainable economies because, after all, human capital - the experience, the skills, the inspiration, the imagination that goes into these things - is not a resource that is subject to the laws of diminishing returns. The more human capital is used, the more it grows.

The smaller the amount of material in things that are used, the metals and so on, and/or the cheapness and ubiquity of the materials that are used -- I'm thinking of silicon for instance -- the better. Better for the planet and better for us. So there is a change that has been occurring. It hasn't occurred as abruptly as people think. It has been happening for quite some time. It is comparable and is of the same sort of order of change as the change from craftwork to mass production. There was a time when people made one pot at a time or one pottery lamp at a time. And of course that changed even in very ancient times to mass production of pots. This kind of thing keeps happening in economic life. But that doesn't mean that the rules that govern the economy are actually changing. What we've just been talking about are all instances of development. The actual things that development produces change, and even the methods by which people make the things change. But the process of development, the process that yields these methods -- that doesn't change. That is what we can't transcend. And that is what we have to pay attention to.

I don't think I've been complete in any way in describing everything to do with development. That is a huge subject. But what I have tried to do is mention the underlying or overriding nature of the process. And the word nature is deliberately used both

ways here because it is a natural thing. It is universal. I see economic development as a form of natural development. It follows the same rules. What is develop ment in nature? It is differentiations that are arising out of prior generalities. This is what evolution is, or is a definition for it. Even before evolution was worked out by Darwin and others, embryologists picked up glimpses of this process, for instance. And they arrived at that notion. It applies to the development of life, the development of species, both animal and plant, the development of an embryo of any kind, including our own. Also to inanimate sorts of development. The features on the face of the earth are differentiations arising out of previous generalities. And this is how economies develop too. Long ago, when somebody picked up a stone and pounded a shell with it to get it open, the stone was a found generality. But when people began shaping the stone somewhat for various purposes, like prying open the shell or making a spear point, those were differentiations. And to move forward to today, the Internet is a differentiation from quite a number of generalities. So the second point about natural development is that as a new differentiation arises, it becomes a generality in its turn.

Q: In other words, it's a cyclic thing.

Jane Jacobs: Yes.

Q: Both Buckminster Fuller and Marshall McLuhan talked about the computer doing away with specialization and about a new era of the generalist. But that perhaps was really an observation of part of this cycle. We had differentiated so much, we were moving back toward generalities, from which we now have new differentiation as found on the Internet -- Web designers, programmers, and all the different new roles emerging.

Jane Jacobs: Yes, all these things. I don't see actually so much as a circle. That's a little too neat. It is much more a web - confusion and a complexity. And that automatically leads to ever-increasing diversity. And it increases faster because there are so many more generalities to produce the diversity. And there are so many more diverse things to interact with each other. So somehow the universe, or the part of it that we know, is forever pushing toward more complexity, more complications, and more diversity. And it is moving away from simplicity. Now this is a rather different view from the idea that the universe is all headed for entropy, which won't have any differentiation.

Q: On a very theoretical level, the key question might be, is it running down or running up?

Jane Jacobs: Well, I don't know what the ultimate result is going to be for this. But in the meantime, it is running up. It is getting more complicated. There may be some turning point to this eventually. I have no idea. Or there may be something at work there that is organizing entropy. That's what some people believe, and it could be. But in the meantime, we are going away from simplicity and into more complications on this Earth. And that is not at all to deny that energy is being discharged and going off in the classical understanding of entropy. Both things are happening at once, just as you were mentioning with that example.

Q:You talk about energy in terms of exports and imports in your book, but as an overall concept, from what you have observed, the health of an economy in a particular region really rests on its diversity.

Jane Jacobs: Absolutely.

Q: That is a theme that has come up in a lot of your work over time.

Jane Jacobs: Absolutely. We can clearly see how, if you take a one-crop agricultural operation, how unresilient such a system is. It is so vulnerable to everything being wiped out. And the vulnerability is even to economic conditions and prices, or to obsolescence, not just disease or weather. The more variety, the more diversity, the more growing and living things in an ecosystem, the more resilient it is to misfortune. It becomes much harder to kill everything off at once. It also produces much more biomass per acre and per the amount of sunlight falling on it than one crop can produce. The same works for an economy, and I don't think it is coincidence. It has the same processes and principles behind it. It is easy to see in a natural ecosystem. But even a settlement or quite a large city like Detroit that specialized very much in one thing can serve as an example. Specialization for an economy is comparable to a one-crop ecosystem for the same reasons. It's vulnerable. And furthermore, it doesn't have the variety of generalities for further development of work. Detroit is an example of this too. Detroit used to be, during the 19th century, a city that was very, very good at developing new products for its own use and for its own people. And even more important than that, for its own industries to use and to export, because the same problems that Detroit or its industries had, other places had too. And if Detroit could solve them, there were automatically export markets for their solutions. If you solve problems and really do it successfully and economically, your exports take care of themselves.

Q: So, trying to use exports as the indicator of the economic health of a community is the wrong measure?

Jane Jacobs: It's a by-product of the health of a community. Of course, governments try to get around that by subsidizing the exports. And companies themselves try to do it by making monopolies and cartels. But these are all not signs of health. They are signs of trouble. So development is an ingredient in expansion. You have to have diversity to expand. And you have to have diversity to have development continue, because development doesn't happen in isolation. Developments come together and make possible a new thing that couldn't be developed by differentiations of each of them alone.

Q: People look at the success of Silicon Valley. Other places try to emulate it, and ask what made it so dynamic. At the same time, we have become much more aware of the value of networks, even informal ones. So it is becoming apparent that it just wasn't the technological expertise there, but a great diversity of expertise and that informal networks allow them to rub shoulders.

Jane Jacobs: That's right. And it was the venture capitalists who were there, who may have known from nothing how you design a chip. And the chip designers may know from nothing about how to make a business plan. There was that kind of diversity -- business people, suppliers of capital, companies that provide temporary workers to other companies. There are all those brochures and explanations they got out. There were printing companies and designers. So when people say Silicon Valley shows how economically powerful and useful specialization is, they are looking at it very abstractly. They aren't thinking in concrete terms of how many different ingredients go into those clusters; how many different kinds of talents; how many actual different companies, as well as different kinds of companies existed there.

Q: We seem to be increasingly aware that many old economic theories were deficient. The United States seems to have gone back to a heavier emphasis on a market economy -- almost back

to Adam Smith.

Jane Jacobs: Yes.

Q: And part of the idea now is that we just can't manage a complex economy too well and so we just have to leave it up to the markets to manage themselves. However, you seem to suggest that there is a role for regulating and understanding, rather than just let markets run free and wild.

Jane Jacobs: Absolutely. For one thing, Smith made some very bad mistakes too. The one thing he was good at was understanding negative feedback controls -- supply and demand. That was pretty wonderful because nobody else had thought about this much. In his time, he was very original and he was absolutely right about how that worked. But he was so wrong about a lot of other things. For instance, he believed pretty much in all-out specialization.

Q: Economies of scale and specialization were the two key economic points behind the Industrial Revolution.

Jane Jacobs: They were very important to Smith. He understood that there was division of labor and that this was efficient. But he really didn't trace how division of labor comes about. And he had really quite wrong ideas about why it happens and where it happens. For instance, his great illustration of division of labor was pin making. And he showed how somebody draws out the wire, somebody else cuts it, somebody else points it, somebody else puts the head on, and how by this means each person can make several hundred pins a day. Then he looked ahead. He understands that development does happen. And he suggests there will one day be a machine that will come along to do these various tasks. But he didn't understand at all about differentiation arising out of generalities, or that you need co-development. So he presented a scenario for the pin machine without explaining how it would happen. He thought it would arise out of his present day pin making. It didn't of course. The pin-making machine turned up, but it happened in New York and was made by a machinist who made other kinds of machines.

Q: It came, in other words, from a totally different industry.

Jane Jacobs: Yes, and that happens all the time. The companies that made gas lamps didn't invent gas stoves or start producing them. What they had learned about using gas jets and so on, that information went into gas stoves too. But the stoves didn't originate from gas lamp manufacturers. And the gas stove, people didn't go on making more and more kinds of stoves. They then made refrigerators. The generalities from which differentiations spring are very concrete.

Q: We think of the New Economy as knowledge or information economy. Both division of labor and economies of scale don't necessarily seem to work when you're dealing with knowledge creation. Great breakthroughs in knowledge involved certain specialization, but also often spring from developments in other fields. Your work is a good example of that. You are not just focusing on economic theory. You are pulling from ecology and other diverse fields. Knowledge is one area where Adam Smith's division of labor, while applicable up to a certain point, then breaks down in terms of efficiency.

Jane Jacobs: Right. He looked at it in a sort of hermetically sealed way, as if all by itself, division of labor and specialization offers a logical series of developments. But it is not a logical series at all to the people actually doing the work.

Q: In reassessing old and developing new economic theory, perhaps the first question is what the real purpose of economic theory should be. What are we trying to

achieve by understanding economic theory? And what's the measure of whether it's right?

Jane Jacobs: The purpose, to my mind, of economic theory, just as the purpose of any theory, is to explain how things work. Is that the purpose of economic theory as it exists today? I doubt it. Not if you really read what economists are saying and what government is trying to get out of economics. The purpose of it, in its current use, is largely to predict.

Q: And in the past, it was perhaps more geared to trying to control economies.

Jane Jacobs: Well, controlling always contains an element of prediction, because if you can successfully control something, you can predict what is going to happen to it. The five-year plans of the Soviet Union -- because they were controlled, they were also supposed to be predictions. And when the Federal Reserve makes a change in the interest rate, it is supposed to control the economy to the extent that it is influencing changes and it is supposed to predict what the result will be. So that's what I mean in saying the purpose of economic theory today as a "practical" thing -- I don't really think it is practical -- is to predict what will happen to an economy. It does it very badly. And I think that is the wrong emphasis, because to predict brings in the control. This doesn't mean that I'm against control. But if you don't know what you are doing and you still try to control something, you are in trouble.

Q: Which brings in the law of unintended consequences.

Jane Jacobs: Yes. You can't think of everything. And to change anything changes a lot of other things, whether you want them to or not.

Q: With the speed of technological development, we less and less have a gauge of the actual social impact and often environmental impact of many of the things we are using. But you're saying that the real problem is that we just don't understand the processes behind change and development.

Jane Jacobs: Yes. But don't misunderstand me. I don't think if we understand these processes, we are going to solve all our human and environmental problems. Life is a lot more complicated than that. And I don't think by any means that economic determinism is the be all and end all. In fact, it may not even be the most important parts of life. A lot of uneconomic activities, like various forms of art, are tremendously important. I don't think we understand what part art plays in our lives either. And I think art is at least as important as economies. The processes of economic life are important and we need to understand them, but they aren't going to solve all our problems. But I think the emphasis on economics and on economic theory should be on how it actually does work.

One place where past economic theory has gone wrong in a subtle way is that it has always been called upon for explanations of breakdowns and trouble. Look how foreign aid, even today, is all about poverty and where things are not working. There is no focus on trying to learn how things are working when they work. And if you are going to get a good theory about how things work, you have to focus on how they work, not on how they break down. You can look forever at a broken down wagon or airplane and not learn what it did when it was working.

Q: What do you see as government's role in economic life? How should government at all levels approach economic development?

Jane Jacobs: For one thing, and this is absolutely basic, governments have to prevent and pursue and punish business crime as far as they can. Force -- this is what crime always is, whether it is obviously violent or whether it is blackmail or economic pressure, fraudulent or other illegitimate activity. Force is always inimical to a healthy economy, except force to keep force from being used. So that is the basic thing that government has to do. You can put it in terms of combating piracy and combating fraud, false advertising, extortion, restraint of trade, phony auctions -- anything of that sort.

Q: A prime role for government in creating a healthy economy is making sure that nothing is undermining it.

Jane Jacobs: That's right. And people understand that quite a lot. Now, one thing that will kill an economy very fast, just as it will an ecosystem or anything else, is a condition where no new things are being fed into it or are arising in it. There is no birthrate. You have to keep taking new things in or keep creating new things. Even if something is at a dynamic equilibrium, it can only stay that way by taking new things in all the time. Now this is very important for governments to understand. They must protect the acceptability in economic life for new things. They can't make a high birthrate themselves. People with economic enterprises, people with ideas, and with resources and ambition have to do that. But they have to protect the feasibility of this.

Q: You talk about this in terms of quality versus quantity, I think.

Jane Jacobs: Well not exactly versus. But development is qualitative change and expansion is quantitative change. But they are very tightly interlocked because healthy expansion only occurs by the increase of diversity. That is the form of expansion that is healthy either in an ecosystem or in an economy.

Q: In terms of fostering a healthy environment, the quantity will take care of itself if you concentrate on the qualitative part of development.

Jane Jacobs: That's right. That's another way economic theory has gone wrong. I'm glad you brought that up, because it is very important. You notice that all these predictions they love so much are always quantitative.

Q: Even trying to measure trends, it is always quantitative rather than qualitative statistics.

Jane Jacobs: Yes. And of course statistics have to be quantitative, but you can get them to tell about qualitative changes too, depending upon what you are measuring. You can measure anything. You can show what is going up and what is going down and what is staying the same. But you need to know why you are doing that.

Q: Peter Drucker has talked about the New Economy as an entrepreneurial economy. You describe it in different terms. In Visions, we have extended this and have talked about the need for government itself to become more entrepreneurial. Along this line, you wrote, "Opportunity, not necessity, is the mother of invention."

Jane Jacobs: You don't know where entrepreneurship is coming from. You can't predict that. And there is not a great deal probably that government can do to create it. But what it can do is prevent it from being squelched or wasted or oppressed. Traditionally, governments are very poor at that. One reason is they have a bias toward their own kind of people, whatever that own kind of people may be -- ethnically, gender, religion or whatever. And entrepreneurship can pop up anywhere and not in their own kind of people at all. Also, not understanding the importance of

the entrepreneurial birthrate, and the enterprise birthrate, they don't know where these things get thwarted. Discrimination is an obvious one, but they have to understand at what point the development needs capital and thereafter the expansion will take care of itself. They have to understand a lot about economic history. People in government should understand economic history and what it tells us of where things have failed, and where decay has set in, where tax policy has been destructive and where it has been constructive. Tax policy for cities is particularly important because cities are such key places economically. City government has to protect the opportunity for new things to get a foothold and live. Just keeping things open for opportunity is important. Next to preventing crime and trying to stamp out crime, that's probably the most important thing governments can do -- keep the thing open-ended.

Q: So we have to recognize more clearly what has killed blossoming economies in the past.

Jane Jacobs: Yes, but you can't understand what killed them unless you know how things work. There is no point defending against the bad night air. You know there have been some wonderful opportunities in recent times to see economies taking off and doing wonders, especially the ones that have managed to do so in Asia. There has been very little study of this. I read a whole fat book about Taiwan and its economy and it was not one bit enlightening. It was all about what bureaucratic steps were taken to create the big companies. They were the same bureaucratic steps that were taken in all kinds of places and did no good at all. And in some newspaper stories, I got the only clues as to what was really happening there. And those are not very complete. That's another thing that the theory should do. It should find out what happen in recent economic events.

Q: Are there other new roles for government?

Jane Jacobs: Well, one thing obviously is that governments needed to wake up again to the importance of anti-trust laws and actions in restraint of trade. They needed to take them very seriously again after they hadn't been taken very serious for a while. It's always stirring, at least in America, which is maybe the only country that has ever taken this really seriously. It is only in times of rapid development that the government gets active about trying to outlaw acts in restraint of trade. Why is that? I think it is partly because development is happening and these things threaten it. And there are suddenly a lot of people in an active economy whose interests and purposes are on the side of development, not on the status quo. And so they begin to yell and howl about restraints of trade. So it becomes evident that that's important in times of rapid development, but it is also important in times when development isn't rapid too.

Q: What are the key lessons one can take from your work that would help formulate better polices for economic development, whether in a state or city?

Jane Jacobs: Well, wherever the economy looks to be lively, that is the place where it is most diverse. It may be the largest city in a region, but it might not be. You look and see where, if you are starting something new without government backing, where would you go to start it? Where would the best chances be? And that is where the best efforts for government will be also -- protecting the chances and enhancing them if possible.

Q: One past approach has been to try to cater to big businesses, to try to get a factory built

in an area, for instance.

Jane Jacobs: That doesn't work. Nor does bringing in branch plants. Branch plants will come if you've got the better mousetrap. They are the first ones to notice. And you don't have to lure them in. But a place that is made up of transplants -- take Buffalo, New York. It got very lively and it was a good place to locate factories and such things because of its transportation. But times change. Some of those things locate somewhere else. Transportation patterns change and so on. And Buffalo was left without any ability, it seems, to start anything for itself. It depended for so long on businesses dropping out of that commerce and industry in the sky. But I'll tell you what worries me most about the United States right now. And this doesn't worry people who think that the New Economy is entirely new and different. But America is losing its ability to manufacture things. The computer industry illustrates this. The computers are designed in the U.S., but none of them are manufactured there. And this is very worrisome. Knowing how to manufacture things involves a whole lot of skills that aren't just in books.

Q: Lost technology. That is one of the points of a civilization's decay, when technologies are lost.

Jane Jacobs: That's right. Now this might be rectified specifically by encouraging the immigration of people who understand manufacturing.

Q: The high-tech worker shortage might not be the real problem.

Jane Jacobs: No, it's the low-tech shortage.

Q: One issue that will become increasingly important in the years ahead is the environment. People will start waking up to the fact that we are killing the planet more and more.

Jane Jacobs: Well, we are killing the planet.

Q: Which is why it will become perhaps the No. 1 issue in the next 20 years.

Jane Jacobs: Well, I think government also must set standards of certain kinds. The sewage standards, the pollution standards - they are the most obvious ones. But it is a great mistake when government tries to prescribe how to reach those standards because it can freeze development that way.

Q: One point about this you make in your book is the fact that found resources are always the easiest to use first. And as economies become more sophisticated, they become much wiser and much more effective and sustainable.

Jane Jacobs: They can make substitutions. And even if their intentions aren't to save the planet, even if their intentions are nothing but greed, the fact that they are ingenious and are using different resources and it actually works out better than monotonously using the same resources too long. So governments need to set standards, but not set methods.

And they must be serious about the standards, that there are possibilities of reaching them and then really pursue them. Standards can't just be a public-relations thing. Then there are certain kinds of vandalism to the environment that would be recognizable as vandalism anywhere. You set fires -- arson. You go out and kill the inhabitants for no reason. Governments can begin to look at errant destructiveness to nature as seriously as they look at errant destructiveness to people and to human property. It is important to say that government can do that because private people who own bits of nature usually take this very seriously. They take it seriously if their water has been polluted, or if somebody just marches in and starts shoot the deer on their land, or whatever. But government is not nearly as careful of its holdings as private property owners are. Some people have said therefore there shouldn't be public ownership of great tracts of land and that it should all be in private ownership. But whether wild places are owned by private people or by government, they have to be protected from vandalism. That is also a role that government must take far more seriously.

Photo of Jane Jacobs in Toronto by Blake Harris.