The Uses of Diversity. David Ellerman

The Uses of Diversity

imports Unearned imports paid for with subsidies given perhaps for charitable or political reasons. Getting unearned chits to take a course—perhaps for charitable or political reasons. Transactions of decline Even though it may be an advanced creative city ultimately providing subsidies (through the government) to backward regions that turn around and give demand for the city’s exports, there is no creative partner, so the city gets locked into becoming a supply region to inert subsidized partners. Sustained use of taxes for military expenditures on a city’s products is the same type of pattern locking the city into becoming an industrialized supply region. Good student-teachers provide some scholarship chits for backward students who can thus pay for the better teachers’ courses. But the backward students might not learn or progress (since the chits were unearned by their own learning and teaching). One is outside the positive dynamics of teaching students who learn so teacher uses fees to take another course, which can then be used for teaching, and so forth. Teachers may fall into an inert pattern of teaching to subsidized unlearning students. Remittances Remittances, being unearned where they are spent on imports back home, do not lead to learning, import stretching, or replacement. Getting chits unearned by teaching (earned in some other way elsewhere) so the student would have little capacity to learn anything to kick off the learning-teaching dynamic. Specialization to comparative advantage Each city specializes so it does not learn from imports, and other cities similarly don’t learn from its exports. They are in a static “equilibrium” until the products are obsolete and competition from outside the specialized trading group exposes their inertness. Some students decide to specialize and then take in each other’s laundry (each teaching their own specialty to unlearning students). The situation repeats itself. When new knowledge finally comes from outside, neither will be able to learn it. How transplants can attenuate the dynamics on the importer-student side Exporters who transplant a factory to the importing city so product will be “produced locally” are in fact attenuating the dynamic as it forestalls genuine import replacement. Importing cities might compete to get the transplant factories so they could quickly get into the “producing-and-exporting” business without going through the time-consuming process of learning to produce themselves. If teacher offers to teach (with lower return) “for” the students, then the students get some return (as student-assistants) but don’t learn in order to teach the topic themselves. Students might even compete to offer deals to teacher to teach for them so they can quickly get in the “teaching” business without going through the time-consuming process of learning to teach the topic themselves. How transplants can attenuate the dynamics on the exporter-teacher side Since previously exporting city is now benefiting (owners, not workers) from having the product produced locally in the previously importing city, there will be no real import replacement, so the partner has become inert. The exporting city can thus sterilize potentially creative import-replacing partners so that it can continue doing the same thing. If the teacher can teach “for” the student, the student will not replace the demand for teaching that topic by learning, so the student-partner has become a relatively inert student-assistant. By doing this for the potentially learning students, the teacher can render their learning to teach unnecessary so the teacher can continue doing the same thing.

Source: Author.

The Jacobs University analogue clarifies some difficult points. Conventionally, the emphasis is on export-driven growth, but Jacobs puts the emphasis more on imports and the process of stretching and replacing them. Seeing an import as a crystalized packet of codified knowledge and tacit production know-how, learning to replace an import is analogous to taking a course and assimilating the knowledge perhaps improving on it and then being able to teach others (reexport the improved product). Thus, the exports are basically the means to pay for the imports, and the important thing is what happens in between—learning to replace the imports and developing new exports.

Another difficult point for those accustomed to “static” models of growth is the inherent dynamism of the Jacobs model. The school analogy captures this nicely since a school that just keeps on repeating the same courses to the same unlearning students is a clear failure even though it might have an increasing volume of repeating students in its circular flow. In the Jacobs University model, imagine two initial sets of “specialized” student-teachers. One set teaches mathematics to the other set and that other set teaches postmodernism to the math set. Each set finds the other topic totally incomprehensible, so they keep repeating the taking and teaching of the courses in a static equilibrium. Each repeats its comparative advantage. But there might be some unemployed members of each set. The university administrators could have a one-time pump-priming injection of chits into both groups so that the unemployed members could now be employed to teach their topic and to thus pay for being students of the other topic. The system would then have “growth” to a higher-level equilibrium—like giving a one-time push to a frictionless wheel to leave it spinning with increased angular momentum. But such “growth” is only the failure to learn on a broader scale. Now we turn from the macro-model of the Jacobs’ Ladder mechanism to Jacobs’s micro-level analysis of innovation in the firm.

How New Work Might Be Spawned from Old Work

Jane Jacobs’s micro-level analysis of how old work can lead to new work in firms has interesting and powerful implications for economic policy about job and enterprise creation. New work arises out of old work in a variety of ways. One way is simply that old products might be stretched to find new applications; old services might be stretched to find new categories of clients. But a deeper source of innovation lies in the multiple uses and recombinations of a technology. Once a company learns the technology W to produce product X, the economically rewarding path and “path of least resistance” is probably to continue in the same groove (or rut) to produce more and better X instead of using the technology W to produce noncompeting products Y and Z.¹² In a diverse environment, the additional knowledge to use the technology to produce the other products Y and Z might be readily available. But the filling out of the possibilities of each technology might fail for other reasons than an overly specialized environment. Management would become a nightmare in this “strange hive.” Each new kind of work might be in a different sector and would have its own customers, input and space needs, financing and staffing requirements, and growth rate all not in any coordination with the original work of the company. It probably is not worth the distraction to the original company. Given the limitations on the scope and attention span of unified management, the company might decide to just “stick to its knitting” with the original products. The new job creation possibilities would be squandered.

Every Company’s Two Products

Here Jacobs’s thought meets up with some older observations by Cambridge economist Arthur C. Pigou (1877–1959). Every company produces two products. One product is its products. The other product is the organization of people (always with some turnover) trained in the technologies used by the company and trained in the general business capabilities needed to carry on the business. Pigou noted that the businesses in a country provided this potential positive externality (meaning their potential social product exceeded their private product) of training people in technologies and business capabilities:

One very important indirect service is rendered by the general economic organisation of a country in so far as, in addition to fulfilling its function as an instrument of production, it also acts, in greater or lesser degree, as a training ground of business capacities. (Pigou 1960, 204)

What are the policy implications of this fundamental point that existing businesses are major training grounds for entrepreneurial, managerial, and technological capability and potential incubators for new businesses? The extent to which this widespread potential positive externality is exploited

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