Of Amphorae, Sea Containers, and Jane Jacobs

So I just finished The Nature of Economies. Good, done in truly ancient literary style, and pretty open ended. Jacobs doesn't much try to explain how or why things happen, she simply explains what happens - which is actually far more useful than a lot of economic theory that's been written in the past couple hundred years. I still prefer Cities and the Wealth of Nations, partly because I feel the narrative style slows down the transmission of information and Cities and the Wealth of Nations is written in a far more textbook style. I do like The Nature of Economies simply because it elucidates clearly the connexions between economic and ecologic systems.

One of the keen insights that I struggled to get my head around was the concept that imports are actually a better sign of economic growth than exports. If you think about it, though, it's true. A forest keeps taking on sunlight, using it to power chemical reactions that keep energy cycling through the system for as long as possible. None of the energy is lost unless it's taken out in the form of hunting, logging, trapping, or harvesting. The more energy enters the system, the more lush, diverse, resilient, and productive it becomes. If a new animal enters the system, it brings its biomass and chemical reactions into the mix, adding to the overall wealth of the system. Cutting down trees is export. Sunlight is an import. A new species or new animal is an import. Exports actually remove natural capital from the forest.

Now, exports done right can actually help a system. Exports of lumber, intelligently harvested, can allow niches for other trees or other plants to grow. Keeping a predatory species in check can allow a prey species to expand. If these modifications are minor and temporary, they will not affect the system. But removal of predators can make prey overharvest their food sources, explode into abundance, and lead to an explosion of predators in response. Left unchecked, they can denude the ecosystem of their own food, and be forced out, making the entire ecosystem poorer by three species: predator, prey, and the prey's food.

Our current economic model attempts to keep a steady flow of exports going by making the resulting products disposable. It could be said that that's a natural way for us to exist as humans - we disposed of stuff in nature when we wore animal skins. Nowadays, however, we don't. We bury stuff. We burn it. We don't allow it to return to the ecosystem in a useful form. It gets taken out of the ecology (hence the economy) and loses its innate value.

It's like the trade amphorae of the ancient Romans. Rome used amphora only to transport goods, not to keep them. Trade amphorae had purposely pointy bottoms and slender shapes - totally useless for putting on a table or in a flat-floored storeroom - so they could be put into racks on ships. They were cheap and couldn't sit upright on a flat floor, so once they were transported across the Mediterranean, they were shattered, and new amphorae were purchased with the next shipment. The potters kept employed, and all was well with the world.

I simplify too much sometimes, but you get the point. People kept getting paid for doing the same (export) work. Clay reserves were diminished, natural capital in one area turned into waste in another, and it was not returned to the economy in any kind of large-scale systematic way.

Nowadays, we have intermodal containers. Containers are made by a variety of companies on standard sizes. They stack, fit container cranes throughout the whole world, and are durable enough to be used for other purposes once they end their service life. They are a brilliant solution to the problem of standard cargo units, and what's more - the more containers that are produced, the more containers there are. They are eminently reusable. Trade volume doesn't decrease that often nowadays, and containers are always needed. The more containers there are, the more trade can occur through them. Sea trade being the cheapest form of moving goods by far, the number of containers in the world is actually very important. In other words, the ecology of trade holds on to the energy that went in to those containers. The growth in the number of containers grows the carrying capacity of the sea trade system. Trade itself is able to develop concurrently with the total number of containers in circulation. If containers kept leaving the system, there would be more container makers, but there would be less cheap trade by sea.

Our interest in exports is an interest in money. Money is not wealth, capital is wealth. Capital isn't money, it's the ability to make money. The longer you can hold on to and reuse your capital, the more you amortise that investment, the more money you stand to make. This is why stopping waste isn't about saving the environment - that's just a very pleasant side effect (and one I am particularly interested in achieving). The real benefit to stopping waste now is that throwing stuff away diminishes the entire economy by depriving that economy of capital. Yes, friends, even poo is capital.

So, really, the more natural capital that enters an ecosystem, the stronger it becomes. The more capital that enters an economic system, the stronger it becomes. Imports are real wealth, not exports; exports are just money.

Imports are capital.

More Jane Jacobs

I was just finishing off my latest Jane Jacobs book, and it led me to consider the utility of local currencies for major cities as being a good way to regulate price signals within a national economy.

The concept is that currency is supposed to regulate national economies through its very design: good in theory. Economies that expand will have higher demand for their currency, thus valuing the currency higher, thus tempering demand for their relatively expensive products. Economies that contract will have lower demand for their currency hence the value of the currency will fall, creating a greater demand for their relatively cheap products. It works, in theory.

But as a great man once said "in theory Communism works... in theory".

The rub is that nations are not perfectly measured economic regions. With regard to economy, nations are entirely arbitrary constructions of economic regions. Detroit is more economically integrated with Windsor than Butte. The fact that Windsor is across a national border and Butte is not is entirely inconsequential to money - especially in the era of free trade. Can the economy of Switzerland compare to the economy of Sri Lanka? I would rather have 100 Swiss Francs than 500 Swiss Francs worth of Sri Lankan Rupees. Nobody except the Sri Lankan government will buy Sri Lankan Rupees, they are utterly nonexistent outside of their country. The entire currency rests on the fact that Sri Lankan foreign workers send home Sri Lanka's foreign currency reserves in the form of Emirati Dinars and American Dollars. The same goes for the Philippine Peso. The demand for the currency is almost artificial because the produce of these nations is of vitually no utility to the international market. At least not of enough utility to justify buying a float of Philippine Pesos.

If the Philippines or Sri Lanka could produce the range of products that Switzerland does, and have banks as secure, and civil society as advanced, and an income disparity as low... then the use of currencies to even out economic differences might be somewhat justified. As it stands, if I want a good watch, I will buy one from Switzerland at any price, simply because Switzerland will make it better. No matter how cheap a Sri Lankan watch is, it is simply not comparable to a Swiss one. If the products of the markets are not comparable, then the currency value is almost totally irrelevant.

Perhaps, however, Makati (a high-income Manila suburb) can produce a good watch. Perhaps Sri Lanka can cut diamonds just as expertly as Belgium (as they do, in fact - I've toured the factory). When merchandise is of comparable value - or as rigidly fixed as that of cut diamonds - then currency fluctuations can work to the benefit of economies. Rough diamonds are a relatively inexpensive industrial nutrient when compared to their cut and polished end product. With inexpensive Sri Lankan labour, and a curency that floated within the greater economy of Sri Lanka, a diamond cutting factory could make a real go of it. If Sri Lanka maintained the Rupee throughout the country and set up a different bank, mint, and currency (let's call it the Dippee) for the diamond-cutting city region, they could make a real go of it.

Initially, the Dippee would be at par with the Rupee, buying relatively costly raw diamonds but producing far more costly polished diamonds. The price advantages of the inexpensive Sri Lankan labour (earning perhaps $300 USD per month) would make the diamonds internationally competitive. Given the fact that the value of diamonds is more or less set - as it were - in stone, this margin would produce demand not simply for Sri Lankan cut diamonds but the Dippee with which those diamonds are bought. The relative strength of the Dippee would increase the workers' relative salaries above those of the neighbouring regions, and increase their purchasing power commensurately. This would create a knock-on demand for Rupees to purchase everyday necessities such as rice-and-curry and coconuts. The demand for the products that only Rupees can buy would make the Dippee an engine for economic development, giving the diamond-cutters a margin of disposable income with which to purchase imports. With imports comes import replacement, and with it, the development of an economic engine in the form of a city and city region.

Such a thing could be done in Canada for her cities. Consider this: a currency for Toronto, Montreal, Vancouver, and Calgary. Each city would control its own currency, with the bank reserves based on floats of Canadian dollars. I would provisionally call these currencies Hogbucks, Habbucks, Starbucks, and Bullucks, respectively. Each city would be able to float its currency against the others on a Canadian bourse with the reserve currency being the Canadian Dollar. Canadian federal economic policy could therefore be directed at the smaller city centres and rural Canada. This policy would have the intent of protecting rural produce as well as producing other import-replacing cities that strike an economic critical mass and are able, in turn, to float their own currency and support their surrounding city region. Purchases of Canadian regional currencies would be forced to pass through the Canadian dollar if they came from international sources. The Bank of Canada would be able to regulate all transactions between regional and national currencies, charging a reasonable margin on all transactions and earning a hidden tax for additional government revenue. This margin could, in theory, replace provincial sales tax.

Allowing city regions to float their own currencies can have the effect of either a trade barrier or subsidy without either unsustainable government payment or violation of WTO rules. This workaround can save embattled city regions when the global economy has them on the ropes: cities would be able to manage their money supply to produce the economic effects required to combat the influences of global economic fluctuations. This natural regulation of the economies of large cities could therefore be done without any recourse to bailouts from the central government.

And the next time the city of Toronto calls out the army to shovel snow, they can be charged for the service in Hogbucks...

Jane Jacobs

I just started reading Cities and the Wealth of Nations right after finishing The Economy of Cities. I have to say, the one led very well into the other and I am enjoying it immensely. Her arguments are plainly laid out, and it almost sounds like she's your professorial aunt telling you the fundamentals of economic life over tea and biscuits. The tone is personal, direct, and easy to read.

I was talking to someone today about one of the concepts that Jane rails against as being a false kind of economic growth: transplants. Jane basically says that the only real kind of economic growth is import replacement. Import replacement happens in a city when it has enough money from exporting to be able to import stuff. It then develops a capacity to build the import locally. One of her more favourite examples is Tokyo - originally they imported foreign bicycles. Since they were expensive, a lively bunch of repair shops opened up to service the clientele who couldn't afford to buy more than one bicycle. These repairmen started fabricating spare parts. Some genius decided that with enough spare parts, he had a whole bicycle, and poof! Import replacement.

Transplantation is what happens when a branch plant moves into another city. Boom, all of a sudden people have jobs, there's more money, it looks like the economy is picking up... until the branch plant closes down. The branch plant brings all its "stuff" with it for support - it comes pre-made and self-contained. In Tokyo, the infrastructure to buid bicycles appeared naturally, and evolved into bicycle manufacturing that was appropriate to the time and place it appeared. A transplanted factory is just that: something that comes out of nowhere with no natural evolution involved.

It appeared to me that this could be illustrated really easily by a zoo analogy. What Jacobs is arguing is that a healthy economy is a healthy ecosystem. Healthy ecosystems naturally allow for the gradual support of higher and higher order creatures until the food chain is immensely deep. Tokyo was like a healthy economic ecology: the natural support systems for the higher-order organisation of "bike manufacturing" grew natually out of an existing market need (repair), which grew out of an existing market need (transportation), which grew out of an existing market need (city expansion)... and so on. In the case of a transplant, it's more like "hey, Clem, check out my corn- HAWT DANG, A FACTORY!"

So what we have is, in fact, a difference between nature and a zoo. The bicycles were built in an economic "nature", a place that naturally fosters a continuous lifecycle of business. It grows and evolves over time, as a system, to diversify and deepen its economic interrelationships and strengthen its overall ecology. Like a herd of elephants on the savannah, there is an entire network of interrelationships keeping the food in their bellies. Elephants die, elephants have sex and have babies, and so there are always elephants. In the case of the transplant, it's a zoo. You put the elephant in the zoo. You have to feed the elephant. You have to clean up the elephant's poo. The elephant dies or runs away. Either you get yourself a new elephant, or you close the zoo. That zoo-like mentality is easy to see in modern cities that have seemingly no economic future. Offer tax cuts to lure the branch plant. Get the people jobs.  Look the other way when they make a mess, or use tax dollars to clean it up. Give them anything they need in order to stay. What's a branch plant's best way of getting concessions?

Simply tell the municipal government "we're thinking of offshoring some of our more costly support services"...

Say no to transplants.