Arnold Kling  

Jane Jacobs, Austrian?

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I just finished reading The Economy of Cities, a book written in 1969 by Jane Jacobs. An excerpt from her conclusion:


The primary economic conflict, I think, is between people whose interests are with already well-established economic activities, and those whose interests are with the emergence of new economic activities. This is a conflict that can never be put to rest except by economic stagnation...other things being equal, the well-established activities and those whose interests are attached to them, must win...The only possible way to keep open the economic opportunities for new activities is for a "third force" to protect their weak and still incipient interests. Only governments can play this economic role. And sometimes, for pitifully brief interludes, they do. But because development subverts the status quo, the status quo soon subverts governments. When development has proceeded for a bit, and has cast up strong new activities, governments come to derive their power from those already well-established interest, and not from still incipient organizations, activities and interests.

Jacobs was in her day a heroine of the 1960's protest movement. Today, she is appreciated by libertarians as an instinctive Austrian economist--see this story and here.

As the foregoing passage suggests, Jacobs offers a distinctive view of government's role in economic dynamics. She is very Austrian in describing the "basic conflict" between established processes and innovation. However, she sees a need for government to protect the innovators. At the same time, she recognizes the tendency for government to be captured by established interests.

I find it interesting to note that Jacobs was writing about the significance of unplanned, decentralized innovation at almost the same time that intellectuals were absorbed in John Kenneth Galbraith's theory that placed planning at the centerpiece of the modern industrial economy.

For Discussion. Is there a way to resolve Jacobs' paradox that government is needed to protect small innovators but is subject to capture by established interests?


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COMMENTS (12 to date)
Randy writes:

Internationalism. It is difficult for national governments to protect established national interests against international competition (e.g., GMC vs Honda). Likewise, it is becoming less necessary for national governments to support small innovators as international innovators can bypass established national interests (e.g., video piracy).

What does Jane Jacobs mean that the government has to protect innovators? Does that mean that the government regulates prices, subsidizes, protect or make room for these innovators? If that is what she means than that is called central planning. If the government is restricted to protecting property rights then it is protecting innovators while not being subjected to established interests.

Alex J. writes:

There's only a paradox if government is actually needed to protect small innovators. I don't think that has been shown.

David Thomson writes:

“I find it interesting to note that Jacobs was writing about the significance of unplanned...”

You might also find it interesting to know that Jane Jacobs only earned a high school degree. She never attended college. On the other hand, the fatuous John Kenneth Galbraith was the darling of Harvard University. The latter individual unwittingly cause enormous suffering. I sometimes half jokingly ask why JFK so hated the people of India that he sent Galbraith to be America’s ambassador to that country? And some people wonder why we are hated so much in the world.

Jane Jacobs tried to find a so-called Third Way. She may have meant well, but the notion is entirely senseless. The only obligation the state has is to protect new businesses from the negative actions of price fixing and other actions already deemed illegal. Positive help should be forbidden.

Carodozo Bozo writes:

Institutional Investors + VC

Established, institutional investors (1) are politically and economically powerful as all get out, and (2) compete for high returns only innovation can give.

Politicians need financing for their elections; which they receive from vested interests.
One way to make sure that Govt. protects innovators (through property rights) is to give deferred compensation to elected representatives based on the future GDP. Since, innovation is likely to cause GDP to rise in the future, politicians will be equally motivated to protect innovators as they are to protect vested interests.

Marcus Welch writes:

Is there a way to resolve Jacobs' paradox that government is needed to protect small innovators but is subject to capture by established interests?

Yes.

Have more than one government. Or more than one faction within the government.

Ronnie Horesh writes:
Is there a way to resolve Jacobs' paradox that government is needed to protect small innovators but is subject to capture by established interests?

Yes, express policy goals in terms of outcomes, rather than activities, outputs or funding of existing institutions.

Boonton writes:

I recall one of the battles Rudy fought when he was mayor of NYC was against street vendors (even those with permits). He had then hussled away from popular streets at the behest of restruants that did not want the competition. Another battle he fought was against gypsy cabs which angered the minority community somewhat because gypsy cabs often serviced the ghetto areas that the yellow cabs would avoid.

In both those cases you have an example of an established interest using the gov't to hold back innovators. Granted selling hot dogs out of a cart doesn't sound like a great innovation but where do you think Nathan's came from?

You can't avoid gov't in these cases. Take street vendors, they don't own the street so there is a legit gov't interest in keeping the streets passable. Yet those rules can be used to restrict competition that hurts the typical person more than a slightly more clogged street would.

thebastidge writes:

If government is largely removed from the business of regulating business, and limited in scope, especially in limitaions upon the types and amounts of taxes it may collect, as well as being seen as a necessary evil without welfare state obligations, then it has less vested interest in protecting the interests of established institutions and less concern about loss of tax base.

Basically, marginalize government's ifluence and need to influence, and this problem goes away.

Lawrance George Lux writes:

The only safeguard remains Precedent Law, where Courts base decisions on prior Cases judged Fair Practice, able to forestall Legislative incursion. lgl

Tom Kaminski writes:

The main problem with Jacobs's formulation is the idea that government must take an active role to protect innovation. She appears to see government as a necessary player in the market system. As she says in the passage, government generally aligns itself with the established interests; it tends to act when it should remain outside the competitive arena. That's the problem. The answer is less intervention on behalf of established interests, not more activity in support of innovation.

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