The Uses of Diversity. David Ellerman
then it is clearer why it is imports—like new useful books arriving in the mail—that are key to developmental learning, not exports. Lacking the free energy of the sun, there must still be some exports of commodities or services to fund the imports. The exports could originally be natural resource based as with oil, gas, or minerals or they could be derived from agriculture. The exports could be manufactured goods that might range all the way from just the assembly of imported parts or kits to goods that result from an extensive chain of domestic value-added operations. Or the exports could be some form of services, as in a community supported by remittances from migrant workers,3 a community supported by tourism, an Indian reservation funded by a casino, a retirement community living off pension income (past services), or a Bangalore-type operation (selling software services) which might be part of a more complex operation of products and by-products. One way or another, an economic settlement needs to fund its imports.
It is the way imports are used—primary, intermediate, final, or producer goods—that separate the economic “deserts” from the “rain forests.” A settlement is more like a desert when the imports are dissipated in consumption or are incorporated directly into the (enclave) production of what is exported. The settlement is a rather straightforward economic conduit.
A settlement is more like a rain forest when the imports feed into a diversified web of local value chains—some goods being inputs into many other products or spawning import replacements. The imports spread out like a river delta to directly and indirectly feed a diverse weblike “ecology” of economic activities.
Jacobs’s vision of a developed economy recalls the famous “tangled bank” (i.e., “bank” of a stream) passage in the closing paragraph of Darwin’s Origin of Species (sixth edition):
It is interesting to contemplate a tangled bank, clothed with many plants of many kinds, with birds singing on the bushes, with various insects flitting about, and with worms crawling through the damp earth, and to reflect that these elaborately constructed forms, so different from each other, and dependent upon each other in so complex a manner, have all been produced by laws acting around us. (Darwin 2009)
With the tangled bank image, Darwin surpasses older imagery to arrive at a modern ecological vision of life that Jacobs has reimported into the study of economies (in considerable contrast to the crude competition-as-survival-of-the-fittest analogies that have appealed to so many economists):
The image of the great Chain of Life if ordered, hierarchic, and static, essentially medieval; the great Tree of Life is ordered, hierarchic, but dynamic and competitive, a Renaissance vision; but the great Tangled Bank of Life is disordered, democratic, and subtly interdependent as well as competitive, essentially a modern vision. (Hyman 1966, 33)
The most sterile or inert desert-like settlements are the settlements based essentially on direct consumption of imports such as communities living off migrant worker remittances, retirement communities living off pensions (and income from capital invested elsewhere), and military bases. Not far behind are the settlements based on one stage of production with little local value-added such as agricultural- or natural-resource-based towns, tourist centers, casinos on Indian reservations, company towns, and labor-intensive assembly or processing enclaves. These are more like economic deserts—perhaps with one variety of cactus—than economic rain forests.
Thus, we get a clear contrast in definitions of development. By a living standards or consumption-oriented definition of development (e.g., gross domestic product [GDP]), an economic settlement made rich by pumping out oil would be “developed.” For instance, in the World Bank, the oil-rich Gulf States qualify as Part 1 “developed” countries, not as Part 2 developing countries. But by Jacobs’s productivist definition, such an economy is just a big pipe—an economic conduit—not a tangled bank. The oil exports fund imports which are then consumed, that is, dissipated, rather than feeding into a web of value-added activities and manufactured products some of which might be exported for the oil-independent funding of future imports. A city built in the desert just by oil is still a “desert” from Jacobs’s productivist or capabilities-based viewpoint.4
To become more ramified and complex, an economic settlement should have multiple uses for imports to produce diversified and multistaged products with a significant part for local use. Each specialization to achieve some static efficiency should be accompanied by the diversification of outputs into various product niches, by backward integration to produce previously imported inputs, and perhaps by unexpected recombinant matings with nearby processes and products to produce novel offspring.5 These are the innovations from “human capital externalities” that tend to happen when diverse people with various skills and complementary knowledge jostle together in companies and when a symbiotic web of sectorally diverse companies jostle together in cities.
How Adam Smith Got It Wrong
The jostling together of diverse people and skills spawns the diversifying sideways jumps from specialized old work to new work in a nearby field. “For instance, making forgings for one purpose develops skills and enterprises that can be drawn upon for other purposes. An economy that can produce improved fish-canning machinery can feasibly produce improved furniture-making machinery” (Jacobs 1980, 60). Paul Bairoch supports Jacobs on this point that “the diversity of urban activities quite naturally encourages attempts to apply or adopt in one sector (or in one specific problem area) technological solutions adopted in another sector” (Bairoch 1988, 336).
This combinatorial view of innovation6 was key to the contagious innovation that made the Industrial Revolution. As one of the leading historians of the Industrial Revolution wrote:
All these gains, plus the invention of machines to build machines, came together in the last third of the eighteenth century—a period of contagious novelty. Some of this merging stream of innovation may have been a lucky harvest. But no. Innovation was catching because the principles that underlay a given technique could take many forms, find many uses. If one could bore cannon, one could bore the cylinders of steam engines. If one could print fabrics by means of cylinders (as against the much slower block printing), one could also print wallpaper that way; or print word text far faster than by the up-and-down strokes of a press and turn out penny tabloids and cheap novels by the tens and hundreds of thousands. Similarly, a modified cotton-spinning machine could spin wool and flax. (Landes 1998, 191–92)
Those who bore cannon may themselves not be interested in steam engines, and those who print fabrics may hardly be interested in printing wallpaper, not to mention penny tabloids and cheap books. But in a diverse environment and with flexible or “fissionable” economic organizations, these spin-offs and recombinations to go from old work to new work might take place.
Adam Smith didn’t get it quite right in The Wealth of Nations; it is not a process driven by increasing specialization. Deepening the division of labor increases operating efficiency and thus may expand old work, but it is not the dynamics of development of new work. Jacobs criticizes Smith on seeing the division of labor and increasing specialization as being key to development.
Dividing existing work into tasks is by no means confined to advancing economies. It is also practiced in the most stagnant economies, where men and women spend their entire working lives at very specialized tasks: tapping rubber trees, or herding goats, or loading bananas, or twisting fibers, or dancing in temples, or mining salt, or crushing ore, or carrying baskets of dirt for public works, or cultivating corn and beans. A stagnant economy may lack almost everything, but not division of labor. (Jacobs 1969, 83)
One key to dynamics is when the process of deepening the division of labor in the old work leads to a new type of work, a new branch on the tree. Jacobs illustrates with Smith’s own example of pin making (Smith 1994, Chapter 1). The story of the improvements in pin making started on an earlier branch of the tree, the making of wire bristles to card wool. Specialization in making carding combs lead to people “who bought iron ingots from smiths, drew them into wire, made the wire into bristles and sold the bristles to cardmakers” (Jacobs 1969, 82). But the operations of making the shaft of the wire bristle were the same as those needed to make the shaft of a pin; the Carders and Pinners were associated guilds. Hence, some bristle makers could branch off with the further steps to add heads