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Monday 21 January 2019

A new habitat

Most economic thinkers get it wrong. The key to success for a nation, a city, a business – and perhaps even for our newsroom – is collaboration

By Matthew Barzun

While I was US ambassador in Sweden I learned that you are never supposed to call a Nobel Laureate a winner, which makes sense when you think about all the others under consideration – not a loser among them. Also, strictly speaking, the prize for Economics is not a Nobel Prize at all but a separate award, given in honour of Alfred Nobel, which was added to the roll later. It was a detail I thought had been forgotten but which all came back to me recently when I was seated next to a well-known Laureate, who was speaking at a dinner in Louisville, Kentucky, my home now and before diplomacy took me away.

He is a progressive and was speaking to a progressive crowd so, along with the chicken dinner, the group had eaten up his words about the real damage that a number of right-of-centre ideas had done to our economy and the lives of Americans. There wasn’t much I could add to his point so I asked him if there were any progressive ideas that he thought had been an equal disaster to any of those he’d mentioned. He considered it for a while, got halfway into an answer about repealing the Glass-Steagall Act that deregulated banking but then realised it was a conservative idea that Clinton had implemented in his triangulation phase so that didn’t count.

“No, can’t think of one,” he concluded.

I had one in mind. “How about urban renewal?”

“Oh, right. Yup. Well, of course.”

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Busy Street in Downtown Louisville

It is one of the very few policy areas that those across the United States political spectrum can agree was a disaster. He and I only needed to have stepped over to the window to survey the Louisville city blocks. They were ripped out in the 1960s with the best of intentions and have never come back. Yet we’ve under-celebrated the great thinker who saw “master planning” for what it was, from the very beginning.

Three books written by women changed the American conversation: Silent Spring by Rachel Carson (1962), The Feminine Mystique by Betty Friedan (1963) and The Death and Life of Great American Cities by Jane Jacobs (1961). Two of those authors are very widely remembered. Jacobs, while a patron saint among North American urbanists, is too little known outside them.

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A view of the Boston skyline.

Right before she died after a long life in 2006, Jacobs was asked if she would be remembered 100 years from now and if it would be for what she said about the destructive legacy of American cities. “No,” was her response. She believed her enduring idea would be what she said about the economy, particularly her ideas about development and expansion, how they are distinct, and how most economic thinkers and doers get it wrong. I went out and bought her book, The Nature of Economies, and it is one of most instructive things I’ve encountered in the past 20 years.

It didn’t sell nearly as well as her first book on publication, and still doesn’t. It adopts the format of a Platonic dialogue but instead of four Greek guys draped in sheets talking over olives, she imagines four people in Hoboken, New Jersey having a picnic. She reminds us that the word, economics, is derived from the Ancient Greek word for household management and points out that somehow our economists have factored out this household element and so many other critical and obvious aspects of our economic lives.

The gist of the book is this: We make three fundamental mistakes when thinking about the economy:

a) We factor out household work;

b) We think the most relevant economic entity is a nation;

c) We think that the key to growth is making things other people far away want to buy from us (exports).

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Deforestation in the Amazon

She slaughters some sacred cows right away. The Marshall Plan didn’t work – at least not how we think it did when we say we need a new Marshall Plan for [insert important cause of the day]. Instead of nations, she thinks the right frame of reference for economic dynamism is the city and its region of influence. And instead of exports, what matters most are the clever ways that we create substitutes for what we previously imported. A maker of electric motors for scooters realises it can tweak its product for lawn mowers and starts a new division or new company altogether. These bifurcations behave like random mutations in biology. That’s economic development. Economic expansion, a different thing, is when the new pathway is explored and grows.

To help clarify, she turns us away from cities and economies and toward nature. She points out that we really only have one big import as a planet: the energy from sunlight. Now let’s look at the different ways certain ecosystems handle that sunshine. One extreme is a rainforest and the other a desert. Both get some sunlight, but each behaves very differently in terms of recirculation and bifurcation and development with that sunlight. Rainforests do not need to be saved because of a tree frog species per se but because converting an acre to soybean farming is such a crazily energy-destroying exercise. A soybean acre is to nature what the concrete monstrosity of Government Center in Boston was compared to the dynamic neighbourhood they ripped up to build it.

Jane Jacobs once said: “A book is equipped to speak for itself, more so than any other artefact. But, to be heard, a book needs a collaborator: a reader with a sufficiently open mind to take in what the book is saying and dispute or agree.” Her books, like a great city, like a healthy economy and, I like to think, like a new kind of newsroom, is an act of collaboration.

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Rockefeller Center, New York City.

Matthew Barzun is Chairman of Tortoise and former US Ambassador to Sweden and the UK.