Growth As Specialization

Jacobs’s main insight, namely, that urban growth is at its root a process of diversification, implicitly challenges two centuries of economic orthodoxy, which sees economies (and cities) as growing mainly through specializing in particular industries, through division of labor, and through standardization (Ellerman 2005, 50). At first sight, these models appear to be entirely antithetical since diversification sees expansion as emerging from the multiplication of epigenetically related activities, while specialization sees growth as arising from scale economies caused by concentration in an ever narrower range of activities.

Upon deeper reflection, however, the two models can be seen to describe sequential, overlapping, and iterative stages of economic (and demographic) growth. Trade-fueled diversification kick-starts the growth process, and remains a powerful—if unpredictable—force throughout every stage of economic development. Specialization then prunes down the bush, so to say, of possible alternative avenues of growth and selects those branches (industries) more likely to grow luxuriantly at any one time. Although historical contingency is largely what determines which branches those turn out to be in any particular case, what is common to all cases is that as the division of labor deepens in the selected industries the cycle starts anew because specialized techniques and processes that maximize efficiency in one industry often get adopted by related industries (e.g., the boring of cannon barrels leads eventually to the boring of piston engine cylinders [Landes 1998, 191–92]) or, more significantly, lead to totally new developments in unrelated fields (e.g., the spoke wheel [a means of transport] gets transformed into the waterwheel [a new source of energy]), thus creating new forms of diversification, and so on.2 No doubt, the relative contributions of diversification and specialization to development have varied enormously through history, both between different societies and within a single society at different points in time. Nonetheless, by providing a substantial and predictable boost to productivity and employment that diversification alone can seldom match, specialization is considered by most researchers to be the key mechanism determining both overall social scale and which settlements will attain urban size at particular times.

The importance of specialization to urban development lies at the very core of the work of new economic geographers, and particularly that

of Paul Krugman and his colleagues, who model the impact of trade in structuring uneven regional development in the modern world (Krugman 1991, 1995, 1998a; Krugman and Venables 1995; Fujita, Krugman, and Venables 1999; Fujita and Krugman 2004). In trying to explain how cities organize themselves within regions and how modern urban systems evolve, these scholars start from a number of premises that likely are as pertinent to researchers interested in understanding early civilizations as they are to those interested in modern urban phenomena, and that, given the right kind of data (see the epilogue), can be used to generate testable hypotheses about urban processes in antiquity.3

The first premise is derived from Anglo-Saxon classical economics and its long tradition of engagement with the principle of the division of labor: specialization in production spurs trade between increasingly differentiated settlements and regions and, in turn, is itself spurred further by that trade. The second premise builds directly on the preceding: while sustained economic growth is largely a consequence of specialization, specialization can arise from a wider variety of advantages than those typically specified by Ricardo, most importantly, from varying efficiencies in transport and from increasing returns to scale.

A third premise is one that follows logically from the traditional emphasis in Germanic location theory on the significance of transport costs in structuring economic diversity across a landscape: because all economic activity takes place in space, economics simply cannot be understood in isolation from geography.4 Like central place modelers before them, new economic geographers see the number, size, and location of cities in any one area at any one time as created by the interplay between centripetal forces that tend to concentrate economic activity and population at a single location at low transport costs and centrifugal forces that tend to disperse economic activity and population to multiple locations when transport costs increase. However, whereas traditional location theory presumes (at least for purposes of analytical simplicity) a perfect competitive equilibrium at any given level of the settlement hierarchy and constant returns to scale, new economic geographers instead presume instead that the rate of return on investments increases with scale, as continual iterative processes between trade and specialization disproportionately amplify economic activity in centers where population, production, and market size are already growing. Under this paradigm, systems of cities are always dynamic and evolving, and are always capable of catastrophic change in their qualitative character as new technolo-

gies alter the equation between transport costs and settlement, and/or as culturally specific institutions either facilitate or hinder the operation of the cumulative economic processes that propel different cities and combinations of cities to the fore at different times.

Given these premises, Krugman and his colleagues see cities as the cross-culturally most efficient way to mediate sustained contacts and exchange between regions and polities with varying degrees of “competitive” advantage in the production of both necessary and desirable resources (Ballinger 2001). Such competitive advantage is by definition a dynamic and often transitory condition. Where and when it exists, it arises from three principal sources, which commonly compound and reinforce each other.

The first source is comparative advantage in its classical Ricardian sense. This is an idea so amply discussed in the literature that it requires little elaboration here. Its basic premises are that resources are unevenly distributed in the natural world and that labor does not move across political (or cultural) boundaries. Given this, polities will naturally specialize in the extraction and processing of resources close at hand and productivity differentials arising from such specialization will eventually lead to trade between polities and regions that have become differentially specialized.

A second source of competitive advantage of one region over another is caused by factors other than varying resource endowments that also create specialization—promoting differentials in the cost at which individual polities can produce specific commodities. This is also a type of comparative advantage, at least in the expanded sense that the term acquired in the work of neoclassical economists starting in the 1920s and 1930s. However, whereas they mostly focused on production factors such as differences in technology and/or labor costs as additional sources of comparative advantage, new economic geographers treat differences in the ease of or access to transportation across the landscape (chap. 4) as a further—and equally central—production factor capable of triggering imbalances in comparative advantage (Krugman and Venables 1995, 859). This matters because differences in transport cost can prompt trade even between regions nominally possessing comparable material or human resources, and even comparable technologies, something that neither Ricardian nor neoclassical comparative advantage can explain.

The third source of competitive advantage goes well beyond both classical and neoclassical economic principles and arises from what new

economic geographers term “market effects.” Simply stated, these result from the fact that production costs fall as the scale of output increases. Thus, as populations and markets grow in size, economies of scale in production create commodity cost differentials that can be as effective at triggering specialization and a transregional division of labor—and trade—as cost differentials arising from geographically determined differences in resources or in ease of transport. The underlying process at work here is that of agglomeration economies “in which spatial concentration itself creates the favorable economic environment that supports further or continued concentration” (Fujita, Krugman, and Venables 1999, 4).

Growth Situated

However different the schools of thought exemplified by Jacobs and Krugman may be concerning what each considers the key variable ultimately underpinning processes of urban growth and regional development (i.e., diversification versus specialization), both approaches share some fundamental premises. The most basic are that trade naturally develops whenever and wherever differentials exist in the cost of commodities over the landscape, that when trade occurs it ramifies into self-amplifying economic growth, that such growth has demographic and social consequences that are central to urbanism, and that trade between different regions and cultures that are urbanizing always involves partners that are initially unequal in some way. It follows from these assumptions that crosscultural trade does not lessen regional developmental asymmetries over time, as classical economists had long posited (Kaldor 1972; Myrdal 1970, 280), but rather leads instead to increasing regional disparities. Accordingly, for both schools, the study of how substantial developmental inequalities are created across the landscape, and how radically different historical trajectories come to be, ultimately boil down to the study of the differential rates at which urban systems form and grow (or not) in varying regions.

Equally important, because of the central points of agreement just noted, scholars in both camps also similarly conceptualize cities as nodes in wider regional and transregional transportation networks. In so doing, they hold a number of further premises in common, some explicit and some not, about the locations where cities will tend to emerge when they grow organically. The most salient are that they will form or preferentially grow in areas where resources involved in exchange naturally exist or, more likely, in areas along the trade routes through which such