Jacobs & Porter on Development

Back in the days when I had the occasion to interview job candidates often one of my questions was “name the two or three most important people in shaping your life so far, either personally or professionally (and it’s OK to say it’s your mother).” That was, I could get a sense of the person’s interests, passions and more importantly, how he looks at the world.

If asked the same question, I would say a couple of people who have influenced my thinking were Michael Porter and Jane Jacobs. My interest came from my stint as an emerging markets manager during the mid 1990s.

When I used to get assigned a country or region, I used to try to talk to the local investment managers, local brokers and then the companies, in that order of preference. Usually local investors drove the market and it was important to understand their analytical viewpoint. The local brokers also instinctively understand this and will tailor how they cover the local companies and industries accordingly. Until an investor understands how the local companies trade it will be impossible or risky to develop a quantitative framework for those companies.

After going through these exercises a few times, I came back to the same question over and over again.

Why are China and India booming and Kenya not? Typical academic development economic study programs focus on the China and India success stories but don’t focus on the failures. (Incidentally, one of the questions back in my youth was “why can’t India be like Japan?”)

I found the answer first in Michael Porter’s The Competitive Advantage of Nations. In the book Porter talks about how countries go through different stages of development as they migrate up the value chain and also of the importance of industry clusters. Later I also discovered Jane Jacobs’ work, see examples here and here. Her writing is more academic and less punchy but essentially say the same thing as Porter on the issue of moving through stages of development. The important difference is that Jacobs identified city and city-states as the units of growth, rather than nations. While Porter alluded to this point with his industry cluster comment, Jacobs was more explicit.

Could these lessons be generalized to other development economic problems, such as the issue of how to revive inner cities? This is a controversial topic and comments are not only welcome but invited.