Cities as drivers of innovation and economic growth

The economy of cities, Jane Jacobs, 1969

Jane Jacobs sees cities as fundamentally different from other economic regions - not as larger and more complicated villages. In her book, she describes an anthropological view of the earliest cities as centers of trade between non-agricultural tribes that develop sophisticated agricultural techniques as they grow. This conflicts with the view traditionally held at the time that hunter/gatherer villages developed agriculture and subsequently grew to become cities.

Jacobs perspective allows a new analysis of cities and their interactions with the rural areas around them. Since she focuses on cities' imports and exports, her's could be seen as simply an input-output model that treats the city (ie. agglomeration economy) as black box. However, the anthropological background she provides and her analysis of divisions of labor within the city go a long way towards opening the black box and understanding it. Her description of entrepreneurship and incremental innovation makes intuitive sense: People doing their job, naturally find ways to improve on certain aspects - mainly through trial and error. If they get positive feedback, they may shift their focus from the original work to elaborating the improvements. One of Jacobs' examples is Mrs. Rosenthal, a New York seamstress. Mrs. Rosenthal was unhappy with the way her dresses fit her customers, so she used her sewing and fitting skills to create bras. She was so successful with this improvement that she went on to give up on sewing dresses and founded Maidenform instead. One of the most important factors in this example is that Mrs. Rosenthal was originally engaged in local work, which she adapted. Maidenform, by contrast became an export business (ie., exporting out of the city of New York). Once the new line of business was firmly established, factories could be set up in rural areas to save costs and improve efficiency. This example is representative of Jacobs's description of the city as a self-reciprocating, open system.

Jacobs emphasizes that this kind of innovation can only happen in cities where there is a high density of people and jobs as well and if a high degree of specialization can be supported by the economy. Since established businesses are constantly being moved to rural areas, the city must create new sources of income, ie. new exports. To achieve this, a vibrant local economy is necessary to serve as the basis for innovation. The inefficiency of cities is an advantage for the trial and error process of incremental innovation: a large variety of different kinds of work is happening in one place, which encourages new combinations; the sustainability of high degrees of specialization lets innovations succeed before they are fully developed, and replication of work means that many instances of trial and error can occur in tandem.

While individual specialization is important, according to Jacobs, cities should not specialize. They need to maintain many different avenues of innovation/trial and error because only a fraction will succeed. Efficiency works against innovation in this case. Some of the most important specializations/innovations that cities provide have been the generic ones that allow new businesses of all kinds to form: venture capitalists, lawyers, printers, leasing of factory equipment, agencies to provide temporary workers, etc.

Even though Jacobs doesn't touch on radical high-tech innovations or consumer-driven innovation (cf. von Hippel's work), she provides a very tangible, practical account of how agglomeration economies work. Her model gives many insights into what it takes to create an agglomeration economy or to revive a stagnating city.

An interview with Jane Jacobs.