The Uses of Diversity. David Ellerman
this addition came the rest of the divisions of labor in pin making that Smith describes” (Jacobs 1969, 82).
The story of the dynamics of development is not the static efficiency of greater specialization but the branching off of new kinds of work. Carrying the pin-making story further, about fifty years after Smith’s exposition, the hand-making of pins was rendered obsolete in a stroke by a pin-making machine. That machine, however, did not develop from the specialization of labor in the pin-making business; rather, it developed from a new branch on another tree, a new application made by a designer of machines for other industries.
Example of “Development in One Company”
Jane Jacobs uses the development of the Minnesota Mining and Manufacturing Company (3M company) as a modern example to illustrate how innovation turns mere growth (“expanding old work”) into diversified and ramified development (“adding new work”) in a process where “one sort of work leads to another” (1969, 53). The 3M company started with two proprietors and some workers gathering and processing sands used for abrasive purposes. Then they decided to make sandpaper but had trouble with the adhesives to stick the sand to the paper. After experimenting with adhesives, they developed a gummed paper to use as masking tape for painters and eventually a whole line of tapes: “shoe tape, electrical tape, acetate tape, pressure-sensitive adhesive tape (better known as Scotch tape), acetate fiber tape, cellophane tape, printed cellophane tape, plastic tape, filament tape, sound recording magnetic tape, nonwoven synthetic fibers” (1969, 53). Today, we could add a host of other spin-off products such as the post-it notes and magnetic disks for computers.7
Other uses of adhesives were not forgotten. The diversification continued with “sandblasting stencils, automotive adhesives, industrial adhesives, marine adhesives, marine calking compounds, tile and construction adhesives, construction compounds” (1969, 53). The original product of sand also sent out its branches on the ramifying tree of products: “coated sand for polishing, then wax and varnish coatings, finely ground paint pigments, roofing granules, nonslip cleats and strips, abrasive cloth, reflective sheeting, reflective compounds, paving materials, and welding fluxes. . . . This process in which one sort of work leads to another must have happened millions of times in the whole history of human economic development” (Jacobs 1969, 53).
This is an example of the dynamics of development that goes beyond increases in labor and capital and that goes on inside the expanding black box of “total factor productivity.”
Jacobs’S Ladder: Climbing toward Development
In graduate school, it often seems that future economists are trained using modernized Pavlovian methods to intellectually “growl” whenever they hear the phrase “import substitution.” Being without the benefit of such professional training, Jacobs rethought the idea of “import substitution” to arrive at an alternative viewpoint. For her own reasons, in fact, she agrees with most of the orthodox critique of state-planned import substitution programs. As she writes:
The import-substitution programs fixed upon items selected abstractly, from statistics on imports. Factories were located in semi-rural economic deserts because jobs were most needed there. Although labor costs were low, the factories and their imported equipment and imported managers and supervisors were expensive. Markets weren’t at hand; co-developments were missing; nothing meshed. When the intended substitutes for imports could actually be produced with reasonable speed and reliability—an expectation seldom realized—the products cost more than equivalent imports. (Jacobs 2000, 81)
But instead of stopping with this critique and urging economies to specialize in their current comparative advantage, Jacobs looked at how city economies that do develop use import replacement as a key part of the process.
Cities can grow through a process of dynamic interaction with each other through direct or indirect rivalry. To play in the “game,” a city must produce something which it can export—perhaps based on its natural endowment. The export earnings can then buy imports from other cities that were not produced in the given city. In the rivalry between cities, a manufactured import is like a “slap in the face,” an “insult,” or a challenge; the city has to buy the import because it cannot produce it itself. If the other exporting cities were not too advanced, then the import will present a plausible challenge to be replaced through learning and improvisation (the process of moving beyond old work to new work outlined previously) and perhaps improved upon by the importing city. Since the wealth to buy the imports might have been earned productively (not a gift), the city might already have some productive capacity that might begin to improvise and differentiate to produce and replace the import.
In the meantime, the other cities might be replacing the original exports of the city; its temporary advantage might be competed away. Now the domestic and perhaps improved version of the originally imported products can then be reexported perhaps to the original supplier city or more likely to other cities “down the line” that are less developed or have different specializations. The new export earnings will then purchase other more challenging imports, and the process can repeat itself ratcheted up at a higher level. In this matter, a diversified group of innovative and versatile cities can through trade learn from each other and not only grow but develop “on one other’s shoulders” (Jacobs 1984, 144)—which we might call climbing Jacobs’s Ladder.
It should be particularly noted that the Jacobs’s Ladder mechanism works best between competitors at a roughly comparable level of development.8 Her theory provides a rationale for regional trading blocs between countries at roughly the same level of development, not for free importing from the most advanced countries. “Science fiction” imports from advanced countries (largely to feed the conspicuous consumption habits of the elites9) would stop the rivalrous process in the same way that allowing a heavyweight to box in a lightweight class would stop the rivalry and stop the associated process of learning and improvement through competition—leaving aside any other damages. Enforcing “level playing field” competition between “heavyweights” and “lightweights”—that is, between advanced and underdeveloped countries—would be tantamount to “kicking away the ladder” (Chang 2002) that the developing countries could climb.
Jacobs’S Ladder as a Scheme of Parallel Experimentation for Social Learning
In the presence of genuine uncertainty, innovation and learning progresses best by conducting diverse concurrent experiments with a common goal—for instance, toward the most economical car or the most effective mean of treating AIDS.
The use of a parallel-path strategy for the solution of difficult development problems is standard practice in several of our outstanding industrial laboratories. It is extremely common in agricultural and medical research. And in the atomic-bomb project, one of the most spectacularly successful military projects the United States has ever undertaken, the parallel-path strategy was employed. (Nelson 1961, 353)
It is the opposite of specializing one’s resources in what is currently considered as the One Best Way. As the parallel experiments score successes, there must be some mechanism so that those successes are transmitted to the other experiments and thus the whole group is ratcheted up.
The international community of scientists in any field furnishes an excellent example of such scheme of discovery and learning through parallel experimentation. Rather than “avoiding duplication” and “increasing efficiency” by putting all resources on what seems the most promising way, a diversity of centers of research is ideally fostered. As Jacobs writes:
Development work is a messy, time-, and energy-consuming business of trial, error and failure. The only certainties in it are trial and error. . . . Indeed, development work is inherently so chancy that by the law of averages, chances of success are greatly improved if there is much duplication of effort. . . . Just so, when Pasteur, that wise old man, begged for enlarged support of the biological sciences, he begged for multiplication of laboratories. (Jacobs 1969, 90–91)
Evolutionary biology provides a natural example of parallel experimentation. There are two opposing moments in an evolutionary process: variation (exploration or diversification) to expand the range of possibilities and selection (exploitation or specialization) to whittle down