India needs more imaginative governance for its urban densities
The future of India lies in its cities,not in its villages,and that fact creates both enormous opportunities and significant challenges. At their best,great metropolises enable the genius of Indian entrepreneurship and provide gateways to the outside world. Yet urban density needs a good government far more than rural life,and Indias cities also illustrate,all too painfully,the occasional shortcomings of Indias public sector.
A new McKinsey Global Institute report,Urban World: Cities and the rise of the consuming class,estimates that 12.8 per cent of the worlds urban population growth between 2010 and 2025 will occur in India. While the report is surely correct to note the opportunities created by developing world cities for McKinseys corporate clients surging urban consumer demand,and the investment necessary to meet it,is on course to inject more than $30 trillion dollars of additional annual spending into the world economy by 2025 even more important opportunities are being created by Indias cities for their own residents. Despite their problems,Indias cities are the best chance for a wealthier,healthier and more politically open country.
Thomas Friedmans The World is Flat educated many Americans about the entrepreneurial energy of Bangalores information technology sector. The book also seemed to suggest that proximity had become irrelevant,but that is not the lesson taught by Bangalore or Gurgaon. Some Americans may imagine that these great cities are far-flung spots on the edge of the world,but in reality these are great hubs of human activity that succeed by connecting smart people. Just like Silicon Valley in the US,these areas thrive because of their density,which connects young entrepreneurs and enables them to work together and learn from one another.
In a sense,Bangalore exemplifies a great paradox of our age: the technologies that make it possible to connect over vast distances also appear to be facilitating face-to-face contact,and the cities that enable that contact become more important. Globalisation and new technologies have helped unleash the greatest wave of urbanisation in human history,as the McKinsey report points out. As long as face-to-face contact and random interactions deliver insights unavailable on Wikipedia,cities will continue to thrive.
The connection between new technologies and old cities reflects a fundamental aspect of return technological change has vastly increased the returns to knowledge. The ability to innovate and sell on a global market has made it possible for smart entrepreneurs to earn more than ever before. Hundreds of studies have documented the rising returns to being smart,but we get smart by being around smart people. You cant just look up on Google how to become a successful entrepreneur; you learn to be an entrepreneur by entering the maelstrom of entrepreneurial clusters,like Silicon Valley and Bangalore. That entrepreneurial energy can then power the larger economy.
An abundance of land can have many failings,but when humans cluster,the public sector must address the demons of density,including contagious disease,crime and traffic congestion. According to the World Economic Forums Global Competitiveness Report 2011-12,India ranks in the bottom third of nations in the impact tuberculosis has on business,which reminds us that the public sector must invest in water and sewage to reduce the threat of contagious disease. Those investments are never cheap. In the early 20th century,American cites were spending as much on clean water as the US federal government was spending on everything except for the post office and the army. The McKinsey report estimates that Indian cities will account for 15.8 per cent of the increase in global demand for municipal water between 2010 and 2025.
Transportation also remains an enormous challenge for Indias metropolises. The Global Competitiveness Report ranks India 85th worldwide in the quality of road infrastructure. Indeed,one reason why software consulting has been able to thrive in India is that this sector doesnt depend on roads to deliver its final product. The sector does depend on electricity,but luckily private generators make it possible for those companies to compete despite the fact that the Global Competitiveness Report ranks India 112th worldwide in the quality of its electricity supply.
Cities need better road access,but they also need congestion pricing that will charge drivers for the social costs of their driving. India cant just build its way out of traffic congestion,because new roads just attract more drivers. The Fundamental Law of Highway Congestion,documented by economists Gilles Duranton and Matthew Turner,shows that vehicle miles travelled increase roughly one-for-one with highway miles built. Singapore pioneered congestion pricing 37 years ago,when it was far from wealthy,and there is no other way to make sure that drivers dont turn city streets into parking lots.
While the public sector has failed to make the investments in water and transport that India needs,it does too much in other areas. There are far too many licensing requirements that stifle legal private entrepreneurship.
The over-regulation of Indias cities is particularly obvious in the area of building heights. Building up is the natural alternative to building out. More building also makes real-estate space more affordable,which Mumbai badly needs. The work of my colleague Tony Gomez-Ibanez documents that despite its income,Mumbai manages to have some of the worlds most expensive Class A commercial real estate.
Indias cities are the future,but for that future to be bright,they need a far more capable public sector that delivers more infrastructure and fewer regulations. Like many,I have lost hope that the national or state governments can provide the investments that these great cities need. Indian cities need more local autonomy (as Delhi already has). Local control will help ensure that cities pay the high costs of their own infrastructure,but dont end up subsidising foolish investments in lower density areas. In the US at least,local governments have been able to avoid fractious federal politics,and focus on the basics of good urban government,like safe streets and better schools. The first path towards a brighter urban future for India is more devolution of taxing,spending and regulatory power,so that cities can fix themselves,providing the rules and infrastructure that can create vibrant urban spaces.
Glaeser,professor of economics at Harvard University,is the author of Triumph of the City