I have been stalling on writing a review of this book, I realize, and that is usually a sign that it gave me a lot to think about. This is not Jane Jacobs' magnum opus; that was "The Death and Life of Great American Cities", which she wrote several years before this. Instead, this is Jacobs' attempt to lay out, not so much a theory of how cities worked (as in her earlier, more famous work), but a theory of how economies worked.
In brief, she thought they worked via cities. No surprise there; she was always more interested in urban than suburban, small-town, or rural living (and was honest and clear about this). But Jacobs found that economics had made a similar mistake to that of city planners (who attempted to find ways for city-dwellers to pretend that they lived in the countryside), in that they tried to imagine cities as a sort of overgrown village, when in fact it was a different thing entirely. Because they did not understand what cities were, they did not understand what they were for. Therefore (because economic growth is nearly always accomplished via the growth of cities) they did not understand how economies worked.
The first thing Jacobs sets out to propose and explain, is that farms did not enable cities, but rather the reverse. On the face of it, this seems preposterous. However, as Jacobs points out, you could easily say (if you were unfamiliar with their history) that cities (as they are) could not exist without power plants to generate electricity (nearly everything in the city requires it). That might be taken to mean that therefore the power plants must have come first, and then their existence enabled cities. In fact, it was the growth of cities that (because they created enough demand in a concentrated area) enabled power plants to be made.
But, the original appearance of cities is not so well documented as the appearance of electricity, so it has been assumed that agriculture arose first, and from that came urban settlements. Jacobs proposes that it happened the other way, and an accumulation of people in one place is what made it both possible and desirable for hunter/gatherers to settle in one place, just outside an urban market, and produce food to trade to them for whatever early settlements were making.
This seemed so contrary to what I have previously understood that I stopped reading the book for a bit of independent research. To my surprise, this is not only not an idea that originated with Jacobs, but it is not a particularly radical or unorthodox opinion among those who have studied the very early history of cities. Evidence for the origin of either cities or agriculture is, unsurprisingly, very sparse. What there is of it, though, suggests that agriculture does not in fact predate urban settlements. They may have grown up together, or perhaps a settlement supported by hunting and gathering naturally developed agriculture and pastoralism as it grew, but there is apparently little evidence for the old tale (that I was taught in school, years after Jacobs' book was published) that agriculture came first.
So, what of it? What does that have to do with a modern economy? Jacobs' assertion is that this is how cities have worked ever since. In brief:
1) there is a thing which the city needs, and must import. Food, clothing, metals, bicycles, etc.
2) because there are more people in a city, it is able to use division of labor to repair or process that thing. Jacobs likes to use the example of bike repairmen in Tokyo, who eventually become numerous enough to specialize in repairing different parts (or making replacement parts). You could as easily point to agriculture, wherein the farmers no longer need to produce all of their tools, or even seed or animals, because there is an urban market nearby where they can purchase them.
3) eventually, it begins to produce that thing itself (what Jacobs calls "import substitution"); instead of importing clay pots, or iron tools, or complex machinery, there is enough of a market for the city to make its own. The Tokyo bicycle repairmen begin producing bicycles.
4) the skills and processes that it used to produce the thing, enable and encourage closely allied industries. Jacobs likes to use the example of Mrs Ida Rosenthal, a New York seamstress who invented brassieres, and eventually got so much business for them that she went on to specialize in their manufacture, leaving the dressmaking business to others.
Side note: it is well established that, contrary to popular myth, the bra was not invented by a man. But I digress.
There are, as a result of this analysis, ways to distinguish between different kinds of cities. One thing that she points out is that while there may be short-term advantages to specializing in a particular industry or even product, in the long run it makes it less and less likely that the city will do more of the "import substitution" (producing locally something which it once had to trade for) which ultimately drives innovation. If Japan left bicycle-making and repairing to others, it would have not built up the skills and infrastructure necessary to do all of the more complex (and profitable) machinery which it eventually became preeminent in. On the other hand, it suggests that Hollywood's specialization in movies and TV, or Detroit's specialization in automobiles, might have prevented them from diversifying into other fields. Detroit suffered the consequences, and Hollywood seems to be suffering them currently.
Silicon Valley, take note.
Jacobs doesn't spend much time on it, but this naturally also suggests one of the (many) reasons why government driven economic development is so often unsuccessful. Government plans naturally prefer to have a single, concentrated and specialized part of the economy in each city or region (the Soviet Union was infamous for this). An explosion of diverse enterprises, many of them aimed at import substitution or branching out into new products (almost always made in new businesses, by people who had learned their skills in an older ones), does not fit into anyone's grand plan (either Politburo or Economics Department). It also doesn't fit into a corporate quarterly report.
Economics as a field has not been very welcoming of Jacobs' analysis, but then the real world's empirical results have not been very kind to mainstream economics. I have not yet digested all that she had to say, and I expect I will need to reread this book at some point. What I can say is that, whether or not it is always correct I don't know, but it explains much that mainstream economics fails to. Nations (or cities) that follow the advice of the IMF have not, by and large, profited from doing so. Jacobs has no trouble explaining why that is.