Thriving Communities

October 30, 2009

Dear BerkShares Businesses,

Author and freelance journalist Judith Schwartz has done it again.
Frequently writing on the importance of regional and local economies, Ms.
Schwartz has covered local currencies like BerkShares extensively as well as
the related work of the E. F. Schumacher Society. Below please enjoy her
recent article on writer and activist, Jane Jacobs, who advocated the
building of sustainable regional economies through measures such as
import-replacement, one future plan for BerkShares and many similar local
currency models.

When we think about thriving communities, we must also think about the
health of its members. Please join us for the upcoming Girl's Night Out
event at Crissey Farm in Great Barrington on Thursday, December 3, 2009 from
5:30pm to 8:30pm, which will host 25 Health and Wellness professionals and
feature Jane Iredale of Iredale Mineral Cosmetics as the keynote speaker.
Reserve your ticket today at www.berkshares.org.

Best Wishes,

The BerkShares Team

BerkShares Team
P. O. Box 125
Great Barrington, MA 01230
www.berkshares.org

What Jane Jacobs Can Teach Us About the Economy
By: Judith D. Schwartz

http://www.miller-mccune.com/business_economics/what-jane-jacobs-can-teach-u
s-about-the-economy-1537.print

How is that economic stimulus package working for you? Think TARP was worth
those billions? Perhaps our financial system is back from the brink, but
just how far — or how long until we're staring down that same precipice — is
not clear. Aside from healthy investment-house bonuses and the fact that
General Motors still exists, most have seen little change. While our
financial pundits are still scratching their heads over why our financial
structure plummeted so spectacularly let alone what to do about it, many
economic thinkers are turning to urban pioneer Jane Jacobs.

Who?

Most know Jane Jacobs as the ultimate champion of cities, who stood up
against neighborhood demolition and saw a vibrant ballet where others saw
urban squalor. But three years since her death — and a year into a downturn
marked by bailouts, foreclosures and sky-high unemployment — her economic
vision has come into the spotlight.

"People in economic policy and development are looking carefully at Jacobs'
work," says David Boyle, an author and researcher at the New Economics
Foundation, a London-based independent economic think tank. "She's been very
influential, but subtly so. People aren't always aware of where the ideas
come from. This is true from the right and left."
In the landmark The Death and Life of Great American Cities, Jacobs called
out the folly of urban "improvement" projects that left city districts
barren. (Who guessed that people liked to see their neighbors, and that
vacant courtyards and hallways invited crime?) In the same way, her 1984
book, Cities and the Wealth of Nations, zeroes in on how well-intended
subsidies can deplete growth and block innovation. Wealth, she argues, is
not merely a matter of assets but rather the capacity to 1) engage those
assets in production and 2) adapt to changing circumstances and needs.

According to Jacobs, the engine of economic life is "import-replacement."
What this somewhat clunky term means is making the products you have been
buying. For example, much of New England, where I live, is rich in hardwood
forest. But there is no large-scale furniture manufacturing here. Aside from
what a few artisans produce for a mostly upscale market, it's imported: Our
tables, chairs and bed frames are made from fast-growing trees in Southeast
Asia, shipped over and stained to look like oak, maple or cherry. If made
here, we'd no longer be dependent on furniture from elsewhere; workers here
would apply their own innovations to create their own products and
techniques and we'd have more products to trade with other places.

This process, replicated over and over and on a large or small scale,
invigorates the economy. Workers gain skills, capital gets invested in new
equipment, trading partners emerge, consumer taste gets more sophisticated,
etc. This does not happen when a large corporation plunks a factory down in
a derelict neighborhood or rural outpost. But that has been the favored
approach to perk up an area's economy. The upshot is that the population
becomes reliant on one industry that may not be appropriate for the setting.
Supplies get shipped in from elsewhere and other wealth-producing activity
languishes.

"Jacobs pointed out that to boost an area's economy, the normal plan is to
bring in a branch of some big business. But then you have an industry
without roots. They're not using local accountants and local printers," says
Susan Witt, executive director of the E.F. Schumacher Society in Great
Barrington, Mass., which, since its inception in 1980, maintained a close
working relationship with Jane Jacobs. "It's through those roots that you
get the economic multiplier effect of small businesses. And a branch or
factory based elsewhere can leave as easily as it arrived."
Michael Shuman, research and public policy director of the Business Alliance
for Local Living Economies, says research suggests that subsidies to attract
and retain development are not effective at jumpstarting economies. One
unpublished study he led recently looked at the three largest economic
development programs in 15 states and found that fewer than 10 percent of
companies involved devoted even a small majority of expenditures to local
businesses; in most cases 90 percent of the money spent went out of state.

"The economic developers I speak to no longer even try to defend these
subsidy strategies," Shuman says. "They've run out of excuses except for the
fact that the politicians like them. Politicians get more mileage from one
big deal that brings 1,000 jobs than an entrepreneurship program that
generates 10 jobs in 100 local businesses. Even when the rhetoric has
shifted to the importance of local, in terms of where the money goes, it's
still following an old and entirely discredited mode of economic
development."

As for the stimulus bill, Shuman says it has "the worst features of economic
development on steroids. If in a typical year, millions [are] spent on pork,
this year more than a trillion is spent on pork." Even if the stimulus
package is a success, he says, the program "could have been more successful
with less money if we had followed Jane Jacobs' ideas" of local resilience
through import-replacement.
She wasn't omniscient, and her modern acolytes aren't claiming that. "Where
was Jane Jacobs wrong?" Shuman asked. "What she didn't anticipate was the
Internet. The argument that cities were the only important economic engines
is weakened considerably by Web-based businesses, which have diversified and
strengthened rural economies. Another thing she didn't entirely anticipate
was climate change, which makes trade as a tool of growth a little more
suspect."

Cities and the Wealth of Nations came out 25 years ago. But the
dynamics described are eerily familiar. Take, for instance, what Jacobs
called "transactions of decline" — trade encouraged to prop up the economy.
An example she uses is ongoing, entrenched military production. This appears
productive, but it sucks the oxygen out of the economy. Innovation and
entrepreneurship (import-replacing processes) slow down, there's less
inter-city trade to spark new products and ideas, and the economy loses
complexity and the ability to adapt. Entire regions become dependent on
military spending; they need a war for growth to occur.

The real estate market crash followed a similar trajectory, says Sanford
Ikeda, associate professor of economics at SUNY Purchase. "Look at all the
incentives in the run-up to the bubble," he says. "People were encouraged to
take more risk than optimal, and [many were] making money on unproductive
transfers. Not only is this not productive, but it's an obstacle to growth."
One could look at the derivatives market in the same way, as all the
entrepreneurial energy goes into the transactions themselves rather than
productivity.

The economic downturn has prompted many to question assumptions about
growth. "There is a new focus on what happens on the local level, on
import-replacement businesses and what it takes to encourage them," says
Schumacher's Witt. "Chambers of commerce are putting more into networking
and training for small businesses. There's less talk of tax incentives.
These are all Jane Jacobs concepts."

Judy Wicks, founder of the White Dog Café in Philadelphia, and the founder
and chairman of the Business Alliance for Local Living Economies, says her
business decisions have been informed by Jacobs' economic vision. "I took
seriously the notion of 'local supplies with local labor for local
consumption,'" she says. "I asked, 'What are we importing that we can make
locally?' That's what builds community wealth. Instead of starting another
White Dog in another location, I started a Black Cat because there was no
store nearby that focused on locally made and fair-trade products."

Jane Jacobs was an advocate of decentralization; her belief that economies
function on a regional, as opposed to national, level has helped spur recent
interest in launching local currencies.
But her suspicion of bigness was pragmatic rather than ideological: In her
view, the larger and more complex the institution or economy, the less
accurate the feedback it provides. And accurate feedback is crucial for a
system to self-correct. One way to look at our financial near-crash is as
the result of crisscrossing feedback loops: mixed messages coming from GDP,
foreign exchanges, the stock exchange, housing sales, the data from
different parts of the country contradicting each other so that when policy
adjusts for one area it destabilizes another like a seesaw that veers up and
down but never finds equilibrium.

With so many layers in our financial system, feedback gets lost. "A large
economy is floated by so many factors," says Mary W. Rowe, who runs the New
Orleans Institute for Resilience and Innovation, and for several years
directed Ideas That Matter, a Toronto institute based on Jane Jacobs' work.
"The more opportunity you have to see feedback, the better you can
course-correct. This is what the sustainability movement is doing-tightening
up feedback loops so that people are aware of [a product's] real costs, such
as the environmental impacts, and true costs, of their production,
consumptions and disposal."

One advantage of local, as opposed to centralized, production, is that
there's more transparency, she says. Efficiency, in the sense of economies
of scale, does not always promote wealth and productivity, she says. "You
don't want so much control in one place. Most innovation happens on the
grassroots level."

It's easy to lapse into theory with economics. But money matters get very
real when people are losing their jobs. Could these ideas —
import-replacement, adaptation, small feedback loops — help put people back
to work? Wicks says yes: "If we start making products at home then we can
start dealing with the problem of unemployment."