Big Ideas - Jane Jacobs: The Economy of Cities

American-Canadian Jane Jacobs (1916 - 2006) is best known for her 1961 publication The Death and Life of Great American Cities. The work is a seminal counterpoint to the modernist planning orthodoxy that emerged in the first half of the 20th century. Jacobs highlighted the value of traditional qualities of cities that modernist planning overlooked: mixed use, fine grain, social capital and, perhaps most famously, the principle of natural surveillance described as ‘eyes on the street’.

Jacobs is also known for her involvement in grass roots activism. Her public battle with Robert Moses over the Mid-Manhattan Expressway is a touchstone for bottom-up resistance to top-down planning, and added fuel to the development of advocacy planning and communicative planning approaches.


Jane Jacobs at a press conference, 1961

In later work Jacobs turned her attention to economics. Although these contributions are less well known or celebrated they are arguably as important and enlightened as Death and Life. In The Economy of Cities Jacobs challenges conventional economic theory, arguing cities were the cause rather than consequence of human economic development. Jacobs suggested that economic development relies on the discovery and diffusion of new knowledge: processes that are much more likely to take place in urban environments (i.e. places that are dense and diverse). Cities, whether small Neolithic market towns or modern metropoles, provide conditions that encourage knowledge spillovers within and between different industries. These exchanges are key to the development of new products and refinements to production processes, the type of change we now commonly refer to as innovation.

It took some time for ideas in The Economy of Cities to finds their way into mainstream economics. In 1988 economist Robert Lucas sought to refine the ‘neoclassical’ model of economic growth to account for differences in predicted and observed national growth. His solution was to suggest increases in individual human capital lifted not only the productivity of those individuals but had positive impacts on the productivity of all workers. He cited Jacobs’ work as providing a tangible and compelling explanation of the mechanisms by which these positive externalities became manifest: the knowledge spillovers that are a feature of economic and social life of cities. Such ‘human capital externalities’ are also sometimes referred to as ‘Jacobs externalities’.

A few years later (and 20 years prior to publishing Triumph of the City) Ed Glaeser (and others, 1992) used empirical evidence to test the validity of the theoretical perspectives on spillover effects of Porter, of Marshall, and of Jacobs. Using data on the growth of large industries between 1956 and 1987 across 170 US cities, the study found that ‘local competition and urban variety’ were the best explanatory variables. This is consistent with the Jacobs theory of the primary importance of spillovers between different industries rather than within one particular industry.

With the benefit of hindsight it is easy to suggest Jacobs’ vision of cities as both locale and driver of innovation is obvious. In the context of a century of significant developments in transport and communications technologies, the role of – or need for – dense, diverse and connected cities to support ongoing economic development was not always apparent. Furthermore, Jacobs’ contribution suggests that the form of cities is critical. Knowledge spillovers and innovation happen somewhere. They are more likely to occur where there is a mix of land uses, a diversity of businesses, higher densities and/or high intra-urban mobility. Her work suggests abstract or placeless innovation strategies are perhaps less likely to succeed than city-specific approaches focussed on making urban (and regulatory) environments conducive to ‘Jacobs externalities’.


References and further reading:

Glaeser et al (1992) “Growth in Cities” Journal of Political Economy 100:1126-1152.

Glaeser E. (2011) Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier

Jacobs J. (1961) The Death and Life of Great American Cities

Jacobs J. (1966) The Economy of Cities

Jacobs J. (1984) Cities and the Wealth of Nations

Jacobs J. (2000) The Nature of Economies

Lucas R (1988) “On the Mechanism of Economic Development” Journal of Monetary Economics 22:3-42


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